The Federal Court has held that some 20 News Corp group companies were entitled to over $2bn in foreign exchange losses in the 2001 and 2002 income 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. The loans were essentially inter-corporate loans that had been taken out to assist with News Corp’s serious financial problems at the time. The Commissioner generally resisted the claim for the loss on the basis that there was no physical change of foreign currency.
However, the Federal Court held that while this was the case, the claiming of foreign exchange losses under Div 3B could also occur where there was a relevant exchange of “liabilities” arising from exchange rate fluctuations. In particular, it found that Div 3B could apply to gains and losses arising from exchanges of liabilities denominated in foreign currency for liabilities denominated in Australian dollars where neither set of liabilities otherwise qualifies as “money”. The Court was also satisfied that the losses were of a “capital nature” incurred in relation to an “eligible contract” as required by Div 3B.
Accordingly, the Court held that the News Corp group of companies that were party to the action were entitled to deductions for the losses (which could be transferred among them pursuant to s 32-17 of the ITAA 1997). At the same time the Court made an order for costs in favour of the taxpayers.
(Messenger Press Proprietary Limited & Ors v FCT [2012] FCA 756, Federal Court, Perram J, 17 July 2012.)
[LTN 137, 18/7]