In a decision handed down on Wed 28.8.2013, the Full Federal court allowed the Commissioner’s appeal and held that the AAT, at first instance in AAT Case [2013] AATA 25, Re Dickinson and FCT; AAT Case [2013] AATA 26, Re Fabig and FCT, had erred in finding that the CGT scrip-for-scrip roll-over relief was available to 2 shareholders in relation to the exchange of their shares in a company under an arrangement entered into in the 2007 income year.
The AAT found that the roll-over was applicable as the relevant condition that the offer be “available on substantially the same terms” for all the shareholders was satisfied, notwithstanding that the consideration for the shares was split “unevenly” between the taxpayers under a separate contractual arrangement between them. [The shareholders agreed that, one of the shareholders (for example) who held 50% of the shares would get 80% of the consideration, and other’s took commensurately less so that the purchaser didn’t have to pay any more or less.]
In allowing the Commissioner’s appeal, the Full Federal Court unanimously found that the AAT erred in law insofar as it identified the “arrangement” as extending beyond the contractual relationship entered into and therefore had erred in law in its conclusion that the condition in s 124-780(2)(c) was satisfied. In particular, it found that while Photon may have been indifferent about the allocation of consideration when it made the offers, the private arrangement between the shareholders to split the consideration “unevenly” meant that it was not open to the shareholders to accept Photon’s offer on the same terms. Instead, the Full Court found that they were contractually obliged to sell their shares for different consideration and, as a result participation in the share sales was not available to them on substantially the same terms.
(FCT v Fabig [2013] FCAFC 99, Full Federal Court, Edmonds, Griffiths and Davies JJ, 28 August 2013).
Thomson Reuters comment
Note that with effect for CGT events that happen on or after 6 January 2010, amendments enacted in 2011 provide that the arrangement does not have to be one in which the target company’s shareholders are required to participate on substantially the same terms, if the arrangement includes a takeover bid that does not contravene key provisions in Ch 6 of the Corporations Act 2001 and/or compromise an arrangement approved by a court under Pt 5.1 of that Act.
[LTN 166, 28/8/13]