Dentons advises City Beach founders in resounding Federal Court of Australia tax win over AU$52m restructure

Dentons has successfully advised the founders of fashion retail business City Beach, Melville Hicks and Carmelo Ierna, in their resounding tax win in the Federal Court of Australia with the Commissioner of Taxation: Commissioner of Taxation v Hicks [2025] FCAFC 171.

In a decision handed down by the Full Federal Court, the Court has unanimously dismissed the Commissioner of Taxation's appeal, upholding the earlier decision in Ierna v Commissioner of Taxation [2024] FCA 592. The case concerned the application of section 45B and Part IVA of the Income Tax Assessment Act 1936 (Cth) to a 2016 restructure of the privately-owned City Beach group.

The restructure involved interposing a new holding company over the City Beach Trust and implementing a selective share capital reduction of AU$52 million. This 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 anti-avoidance provisions under section 45B and Part IVA.

Both the primary judge and the Full Court rejected these arguments, finding that the capital return was not made in substitution for dividends and that the dominant purpose of the restructure was to facilitate repayment of Division 7A loans while preserving pre-CGT status of certain assets. The Court concluded that neither section 45B nor Part IVA applied, and the Commissioner's determinations were invalid. The appeals were dismissed with costs.

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

City Beach Co-founder Melville Hicks said, "We're very pleased that this is behind us. We've fought for nine years believing in the correctness of our position; in the advice of our legal team (at Dentons) and our counsel! Now we have been vindicated with four judges of the Federal Court of Australia also agreeing in that position."

Lead Corporate Tax Partner Damien Bourke said, "We welcome the Court's decision, which confirms City Beach's restructure was driven by sound commercial objectives. This ruling provides clarity for businesses managing complex trust and corporate structures. We wish the founders of City Beach and the business continued success as they move forward."

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