The Full Federal Court has unanimously confirmed that Pt IVA did not apply to a tax benefit of $83m identified by the Commissioner in relation to a capital gain realised by a holding company on the sale of shares in one of its wholly-owned subsidiaries. The Commissioner argued that the tax benefit arose under a scheme whereby one of the holding company’s business divisions was transferred to the subsidiary thereby triggering the value-shifting provisions in former Div 19A of the ITAA 1936 to increase the value of the shares in the subsidiary by $83m (and thereby reducing the capital gain otherwise made on the sale of the subsidiary by that amount).
However, the Full Court in affirming the decision at first instance in Futuris Corporation Limited v FCT [2010] FCA 935 agreed that the taxpayer had not obtained a “tax benefit” in connection with the scheme. It did so on the basis of finding that the Court at first instance had not erred in accepting expert evidence that the taxpayer might reasonably have been expected to have undertaken a different transaction in lieu of the scheme which would also not have resulted in the amount of $83m being included in its assessable income – namely, a public float of the other subsidiary after relevant assets had been transferred to it. Moreover, it found that this was not mere speculation, and that it was reasonable to rely on this evidence in the circumstances.
As a result, the Full Court dismissed the Commissioner’s appeal and confirmed that the taxpayer had established that the Pt IVA assessment was excessive.
(FCT v Futuris Corporation Limited [2012] FCAFC 32, Full Federal Court, Kenny, Stone and Logan JJ, 19 March 2012.)
[LTN 55, 21/3]