Overview: Capital Pty Ltd, a wholly owned subsidiary, challenged the Tax Commissioner overturning its tax deduction claim for a written off bad debt owed to its parent company , Eastfield Ltd. As such, the key question revolves around the tax deductibility of the failed business project undertaken by Eastfield Ltd. The prospects of actually benefiting from the tax advantage will be examined through the validity of the doubts raised by the commissioner, who justified them on this basis. that Capital Pty Ltd was incorporated as a mere conduit to Eastfield Ltd. To reach a conclusion, the following questions need to be analyzed from a legal perspective: • Have parent and subsidiary companies been considered separate legal entities? • Does the concept of veil breakthrough apply? it?Separate legal entity:The Commissioner's underlying concern is the blurred distinction between Eastfield Ltd and Capital Pty Ltd which arises from their closely related management roles. It is therefore essential to analyze the nature of the legal relationship between companies in order to determine the existence of distinct corporate identities. Knowledge of this aspect is decisive for the subsidiary's chances of success in its use of the tax deduction. In the context of incorporated groups, a company becomes a legal entity which has an identity distinct from that of its founders, shareholders and directors and is endowed with its own rights and responsibilities like those of an individual. This important doctrine was evidenced by the landmark case of Salomon v Salomon and Co Ltd. In accordance with the principle of a separate legal entity, the incorporation of Capital Pty Ltd in March 2010 established its status as an independent legal entity. ... middle of document ...... see the independent legal status that the law has conferred on each company. In light of the Commissioner's weak and "perverse" arguments, which did not justify piercing the veil, the separate legal entity principle is likely to be applied to Capital Pty Ltd and Eastfield Ltd. A case which draws parallels to this case is that of Commissioner of Taxation v BHP Billiton Finance Ltd, which ruled against the dispute that Finance Ltd was a conduit or corporate sham. The broad similarities between the two cases include the reason for the formation of the financial subsidiary, common directors and staff, intra-group loans and the central issue of tax deductibility of the subsidiary for failed projects undertaken by the parent company. . Thus, by reference to established precedent, the directors of Capital Pty Ltd would be informed that they should succeed in their appeal..