The taxpayer has appealed to the Full Federal Court against the decision in Financial Synergy Holdings Pty Ltd v FCT [2015] FCA 53.
In that case, the Federal Court held that for the purposes of determining the “allocable cost amount” (or cost base) of an asset that came to be owned by a consolidated group on consolidation – in circumstances where the asset was originally a pre-CGT asset that had been subject to a roll-over that preserved its pre-CGT status – the time for determining its market value cost base for these purposes was its time of “deemed” acquisition under the roll-over (ie pre-CGT), and not its date of “actual” acquisition at “joining time”.
[LTN 41, 3/3/15] [IT 3/3/15]
FJM Comment
The problem with the decision of the Court at first instance is, with respect to Her Honour, that it was the Head Company’s ‘cost base’ for the membership interests (units) it owned in the Group Member (a unit trust) that had to be determined for consolidation purposes (s705-60) of the ITAA97. The relevant cost base section was s110-25(1)(b) of the ITAA97 and it set the cost base as the value of property the Head Company gave for the units at the time of acquisition (which was deemed by s122-70(3) to be ‘before 20 September 1985). Thus the task was to value the shares issued (for the units). The value of the shares will have included the value of the units it acquired, but it is still the value of the shares that must be determined. Those shares did not exist prior to their issue in 2007, much less 22 years prior on 19 September 1985. The Court confused the task of valuing the units (which the Head Company was deemed to acquire before 20 September 1985, under s122-70(3) of the ITAA97) and valuing the shares. The shares cannot be valued before they exist. This combined with the fact that Div 122-A rollovers will always involve freshly issued shares, points strongly to the only purpose of s122-70(3) is to preserve the pre-CGT status of the transferred asset in the transferee’s (Head Company’s) hands.