Global Trade Ltd (Global Trade), a key player in the international shipping industry, maintains a worldwide presence. The company is registered in Australia, with its headquarters situated in Sydney. Given the extensive scope of its shipping operations, Global Trade consistently relies on substantial debt financing to fund ongoing maritime ventures. To facilitate in-house financing, Global Trade established a wholly-owned subsidiary named Trade Finance Ltd (Trade Finance). Trade Finance appointed five directors, all of whom hold positions on Global Trade's board. Trade Finance itself doesn't employ any staff; instead, Global Trade provides the workforce, which is compensated from Trade Finance's funds. It was mutually agreed that all of Trade Finance's profits would be distributed as dividends to Global Trade.

Trade Finance has played a critical role in financing various shipping projects of Global Trade. One notable project is the Global Cargo Initiative. This endeavour aimed to develop and maintain a fleet of cargo vessels, aligned with Global Trade's mission for efficient international shipping. However, the initiative faced logistical challenges, required more frequent maintenance than initially anticipated, incurring higher costs, and suffering from declining maritime transport demand. After unsuccessful attempts to sell off the project, Global Trade's board decided to terminate the venture. Trade Finance categorised the outstanding loan to Global Trade for the Global Cargo Initiative as a bad debt and subsequently sought a tax deduction under applicable tax legislation.

In response, the Commissioner of Taxation issued a notice disallowing the tax deduction, asserting that Trade Finance was effectively an extension of Global Trade's operations. The directors of Trade Finance are discontent with this decision and seek advice on how to appeal against the decision of the Commissioner of Taxation.

Advise the directors of Trade Finance as to their chances of success in claiming the tax deduction for the bad debt arising from the failed business project undertaken by Global Trade using relevant case laws.

Answer rating: 100% (QA)

Answer The directors of Trade Finance should consider the following points in their appeal against the decision of the Commissioner of Taxation regard... View the full answer