Overview: Capital Pty Ltd, a wholly owned subsidiary, has challenged the Commissioner of Tax who canceled his claim for a tax deduction for a written-off bad debt owed to his company parent, Eastfield Ltd The central question therefore turns on the tax deductibility of the failed business project undertaken by Eastfield Ltd. The prospects of actually receiving the tax benefit will be examined on the validity of the doubts raised by the Commissioner, who justified them on that basis. that Capital Pty Ltd was formed as a mere conduit to Eastfield Ltd. To reach a conclusion, the following issues should be analyzed from a legal perspective: • Were the parent and subsidiary companies considered separate legal entities? • Does the concept of veil company breakthrough apply?Separate legal entity:The Commissioner's underlying concern is the blurred distinction between Eastfield Ltd and Capital Pty Ltd arising from their intertwined management roles. Therefore, it is crucial to analyze the nature of the legal relationship between companies to determine the existence of distinct corporate identities. The verification of this aspect is crucial for the subsidiary's chances of success in appealing for the tax deduction. Within established groups, a company becomes a legal person that has an identity separate from that of its founders, members and directors and has its own rights and responsibilities like those of an individual. This significant doctrine has been attested by the landmark case of Salomon v Salomon and Co Ltd. In accordance with the principle of separate legal entity, the incorporation of Capital Pty Ltd in March 2010 establishes its status as an independent corporate personality.Perforating the Body... ... half of the document ......if the independent legal status that the law has given to each company. In light of the Commissioner's weak and "perverse" arguments, which did not justify piercing the veil, the separate legal entity The principle is likely to be applied to Capital Pty Ltd and Eastfield Ltd. One case which draws parallels to this case is Commissioner of Taxation v BHP Billiton Finance Ltd, which ruled against the dispute that Finance Ltd was a corporate conduit or sham. Major similarities between the two cases include the reason for the establishment of the financial subsidiary, common directors and staff, intra-group loans and the central issue of the subsidiary's tax deductibility for failed projects undertaken by the parent company. Therefore, referring to established precedent, the directors of Capital Pty Ltd are advised to prevail in their appeal.