Merchant in a post-Budget world

Merchant is the first High Court case to test Pt IVA of the Income Tax Assessment Act 1936 (Cth) (ITAA36) against an asset transfer between a discretionary trust and a related self-managed superannuation fund. That combination

(a discretionary trust holding active assets and an SMSF holding passive ones, with a network of related companies behind both) has become common for substantial private wealth in Australia. What is at stake is not only the resolution of two cross-appeals, but also the working space available for that architecture.

The High Court heard argument over two sitting days in March 2026.1 The court was visibly engaged with both the technical questions and the systemic one. On the technical side were the dominant purpose test in s 177D ITAA36 and the second limb dividend stripping concept in s 177E(1)(a)(ii) ITAA36.

On the systemic side was what Steward J described as the “anachronism” of legislative architecture built for a pre-CGT, pre-imputation world.2 That observation is more than rhetorical. Merchant is shaping up as a transitional case. The Commissioner is litigating Pt IVA against structures whose tax efficiency the Treasurer is about to reduce substantially, and the court will decide how to read 1981 provisions in 2026, knowing that, from 1 July 2028, the same structures may operate under a markedly different fiscal regime.

For practitioners advising private groups, four questions matter.

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