Dentons advises City Beach founders in further win as High Court refuses Tax Commissioner's appeal

Australia-The High Court of Australia has refused the Commissioner of Taxation's application for special leave to appeal in the City Beach tax dispute, securing a further decisive victory for founders Melville Hicks and Carmelo Ierna, who are advised by Dentons

The application followed a unanimous decision of the Full Federal Court of Australia in favour of the taxpayers. In refusing special leave the High Court decision found that the proposed appeal raised no question of principle and that the Commissioner had insufficient prospects of success.

The High Court decision brings to an end the Commissioner's challenge to the privately owned City Beach group's 2016 restructure and confirms the outcomes previously secured for the founders at both trial and on appeal in the Federal Court. The decision provides further clarity on the application of Australia's anti-avoidance provisions to private group restructures and the treatment of capital returns used to address Division 7A loans.

The dispute concerned the tax treatment of a 2016 restructure, which involved the interposition of a new holding company over the City Beach Trust and a selective share capital reduction of AU$52 million. The capital reduction was used to discharge Division 7A loans owed by entities associated with the group's principals.

The Commissioner argued that the transactions were designed to substitute taxable dividends with tax free capital returns and sought to apply the anti avoidance provisions in section 45B and Part IVA of the Income Tax Assessment Act 1936 (Cth). Those arguments were rejected at first instance and unanimously dismissed on appeal, with the Courts finding that the restructure was undertaken to facilitate repayment of Division 7A loans while preserving the pre CGT status of certain assets. The Commissioner's determinations were held to be invalid and the appeals were dismissed with costs (Commissioner of Taxation v Hicks [2025] FCAFC 171).

The Dentons legal team was led by Corporate Tax Partner Damien Bourke, along with Senior Associates Paul Thompson and Natalie Wissa and Associate Ryan Steele.

Lead Corporate Tax Partner Damien Bourke said, "The High Court's decision confirms that the positions taken by the taxpayers in the 2016 restructure were sound and consistent with Australia's taxation laws. We are pleased to have been able to achieve this outcome for our client, particularly given the length of the dispute, and that the Courts at every level have reached the same conclusion. The Commissioner has also been ordered to pay the taxpayers' costs."

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