The Full Federal Court has unanimously overturned the decision at first instance in Consolidated Media Holdings Limited v FCT [2011] FCA 367 and held that an off-market share buy-back transaction did not generate a capital gain of some $400m to the taxpayer. It instead found that the consideration for the buy-back was not capital proceeds paid out of share capital account, but was a rebateable dividend within the meaning of s 159GZZZP of the ITAA 1936.
The taxpayer owned all of the issued shares in the capital of Crown Melbourne Limited. Crown decided to buy back 840m of the issued shares in an off-market share buy-back. The purchase price of $1bn was to be satisfied by the assignment to the taxpayer of debts owed to Crown. As a result, the taxpayer and Crown entered into the share buy-back agreement and a debit of $1bn was made to a “Share Buy-Back Reserve Account” which had been established by Crown at the same time and a credit of $1bn was made to an existing “Inter-company Receivables Account”.
After examining the meaning and application of “share capital account” as defined in s 6D of the ITAA 1936 (and accepting new submissions made by the taxpayer about the statutory construction of the relevant provisions), the Full Court unanimously found that no part of purchase price had been debited against amounts standing to the credit of a share capital account. As a result, it held that the proceeds were a dividend within the meaning of s 159GZZZP, which was rebateable under s 46 of the ITAA 1936.
(Consolidated Media Holdings Limited v FCT [2012] FCAFC 36, Full Federal Court, Stone, Greenwood and Logan JJ, 20 March 2012.)
[LTN 57, 23/3]