Income Tax Act 2007 section 688

Receipt of consideration representing company's assets, future receipts or trading stock (circumstance C)

Section 688 sets out the third circumstance (circumstance C) under which the anti-avoidance rules on transactions in securities can apply, focusing on situations where a person receives consideration connected to a company's assets, future receipts or trading stock.

• Section 688 applies to a person (A) only if three conditions are met, relating to the nature of the consideration received, the type of transaction involved, and its consequences for another person (B).
• The consideration received by A must be of a type specifically prescribed by the section — broadly, it must represent or be derived from a company's assets, future receipts or trading stock.
• The receipt must arise as a consequence of a transaction whereby another person (B) either receives an abnormally large dividend or becomes entitled to a deduction in calculating profits or gains in respect of B's securities.
• The definition of "consideration" is deliberately broad: it extends beyond contractual payments to include any receipt of money or money's worth, even where there is no binding contractual obligation to make the payment.