In a decision handed down on Thur 25.7.2013, the Full Federal Court unanimously dismissed the Commissioner’s appeal from the decision in Messenger Press Proprietary Limited & Ors v FCT [2012] FCA 756 in which the Federal Court held that some 20 News Corp group companies were entitled to deductions for over $2bn in foreign exchange losses in the 2001 and 2002 years under Div 3B of the ITAA 1936 (as it then applied) that arose from the global restructure of the group in the early 1990s.
Broadly, the losses arose from the repayment of foreign currency loans following a decline in the value of the Australian dollar at the time under inter-corporate loans that had been taken out to assist with News Corp’s financial problems at the time. The Commissioner resisted the claim for the losses on the basis that there was no physical change of foreign currency.
However, the Federal Court held that foreign exchange losses could be claimed under Div 3B where there was a relevant exchange of “liabilities” arising from exchange rate fluctuations. In dismissing the Commissioner’s appeal, the Full Federal Court held that Div 3B does not require there to have been an exchange of currency as such. In particular, it agreed with the decision at first instance that, in order for a deductible foreign exchange loss to arise, it did not matter if a taxpayer funds the discharge of their existing foreign currency debt by supplying a note obtained in return for an increase in his or her Australian currency borrowings rather than borrowing Australian money as such and using that money to discharge the debt.
Likewise, the Full Court agreed that if because of an adverse movement in the exchange rate, the relevant sum was more than the Australian dollar benefit, which had been originally derived from obtaining the funds on loan, the excess was a relevant deductible loss.
It then found that in the light of this finding the Commissioner could not claim that the losses were not incurred under an “eligible contract” as required under Div 3B.
(FCT v Messenger Press Proprietary Limited [2013] FCAFC 77, Full Federal Court, Jessup, Robertson and Griffiths JJ, 25 July 2013.)
[LTN 142, 25/7/13]