The Federal Court has held that the taxpayers, which were part of the Visy group of companies (and were ultimately owned by the Pratt Group), were entitled to a deduction, under s 8-1 of the ITAA 1997, for losses of some $75m, realised on the sale of a range of businesses.
The Court arrived at its decision on the basis of a finding that the businesses had been acquired for the purpose of resale at a profit. This was the case notwithstanding the Court finding that at the time of the purchase of the businesses, and before their resale, “there was little or no prospect of a profit being made on the proposed sales” of the businesses that had been acquired for “divestment” (in view of revised valuations of the businesses).
By way of background, the Visy group sought to acquire a “primary” packaging business to supplement its “secondary packaging” businesses. It eventually found a potential business (Southcorp Ltd). However, Southcorp was only prepared to sell its primary packaging businesses together with all its other business holdings – which it was prepared to do at a significant discount. The Visy group then made arrangements to purchase all of Southcorp’s businesses (through Visy companies set up to purchase the shares in those businesses). Furthermore, the group made plans to also divest itself, more or less immediately, of the non-packaging businesses.
The Commissioner argued that the shares had been acquired on capital account and had not been acquired for the purpose of resale at a profit but rather for the purpose of merely obtaining the sale proceeds. However, after taking into account the “whole factual matrix” in which the transactions had occurred, the Court found that the shares had been acquired for resale at a profit at the relevant time and that this purpose had remained consistent throughout the relevant period during which the transactions occurred.
In arriving at its conclusion, the Court relied on, among other things, the testimony of the relevant office holders of the Visy group involved in negotiating the purchase (together with supporting documentation), as well as the fact that finance for the purchase was dependent on the Visy companies quickly reselling the non-packaging businesses and that agents had been employed for this purpose. The Court also noted that the structure of the purchases through separately established Visy companies was undertaken to facilitate their resale. In short, the Court concluded that the taxpayers’ purpose was to make a profit on resale, and that the relevant nexus existed between the losses incurred and the earning of assessable income.
(Visy Packaging Holdings Pty Ltd v FCT [2012] FCA 1195, Federal Court, Middleton J, 2 November 2012.)
[LTN 214, 5/11]