FEDERAL COURT OF AUSTRALIA

  Handbury Holdings Pty Ltd v Commissioner of Taxation [2009] FCAFC 141 

 CORRIGENDUM

 TAXATION ‑ taxpayer the head company under Pt 3‑90 of the Income Tax Assessment Act 1997 (Cth), of which Murdoch Magazines Pty Ltd (“Magazines”) was its wholly‑owned subsidiary ‑ Magazines indebted to Mr Handbury and Handbury Nominees Pty Ltd (“Nominees”), which debts were discharged by the issue of shares to them ‑ taxpayer then sold shares in Magazines to a third party ‑ whether liabilities of Magazines to Mr Handbury and Nominees were liabilities of Magazines “at the leaving time” and thus included in the calculation of step 4 amount under s 711-45(1) and the allocable cost amount for Magazines under s 711‑20 of the 1997 Tax Act – reconciling apparently conflicting parts of statute – according primacy to leading provision ‑ liability of the leaving entity “at the leaving time” under s 711‑45(1) means a liability just before it ceases to be a subsidiary member of consolidated group

Income Tax Assessment Act 1997 (Cth) ss 104‑520, 701‑1, 701‑15, 701‑55, 701‑60, 711‑1, 711‑5, 711‑10, 711‑15, 711‑20, 711‑25, 711‑30, 711‑45, 720‑20

Institute of Patent Agents v Lockwood [1894] AC 347 applied

Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 applied

Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297 cited

HANDBURY HOLDINGS PTY LTD v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

VID 1021 of 2008

FINN, SUNDBERG & PERRAM JJ

9 October 2009 (corrigendum 10 november 2009)

MELBOURNE

CORRIGENDUM

1.      On page 10 paragraph 26 should read: “There are some difficulties in the way in which the table operates.  Although this case is concerned with step 4 it is convenient, for reasons which will become apparent, to begin with step 1.  That step expressly concerns itself with values that the leaving entity takes with it “when it ceases to be a subsidiary member”.  That time is defined in s 711-5(1) to be “the leaving time”.  The words “which is about” ordinarily suggest that what follows is a description of that which precedes.  It is necessary then to attend to the provision apparently described, s 711-25(1).”

2.      On page 10 paragraph 28 should read: “This internal inconsistency in s 711-25 occurs in a context in which the provision is described in step 1 of s 711-20 as gauging assets at the time the entity ceases to be a member (scil. the leaving time).”

3.      On page 10 paragraph 29 should read: “There thus arises a dilemma.  If the words “at the leaving time” in s 711-25(1) are given their usual meaning the words which immediately follow “because the leaving entity is taken by subsection 701-1(1) (the Single entity rule) to be part of the head company” are incoherent.  At the same time, however, the expression “at the leaving time” in s 711-25 will be consistent with the description of s 711-25 in step 1 of s 711-20 for, so viewed, it will be concerned with assets “when it ceases to be a subsidiary member”.”

4.      At page 12 paragraph 37 should read: “This provision appears to require analysis of both “just before the leaving time” and “at the leaving time”.  The source of the conundrum lies in Part 3-90’s approach of assessing membership interests just before the leaving time, but assets of departing subsidiaries at the leaving time.  That conundrum can be solved by reading the words “at the leaving time” as meaning “just before the leaving time”.”

5.      At page 13 paragraph 42 should read: “The taxpayer’s second argument, however, directly challenges that analysis of the relationship between step 4 and s 711-45. It contends that it is step 4 which controls s 711-45 and not, as in the case of the other Steps, the other way around.  This is said to be so because step 4 should be characterised as part of the taxing provisions and, in contradistinction, s 711-45 as a calculating or machinery provision.”

6.      At page 13 paragraph 43 should read: “The primacy of step 4 arises, so it is said, because of s 104-520.  That section is contained elsewhere in the Act in Part 3.1 which deals with general topics relating to capital gains and losses.”

7.      At page 14 paragraph 47 should read: “Secondly, even if Division 711 were to be construed on the basis that s 104-520 gives primacy to step 4, no different result would obtain.  Division 711 provides for the calculation of the tax cost setting amount in every case and contemplates, in step 4 of s 711-20, a particular scheme of calculation.  All that s 104-520 does is to test what the outcome of that particular calculation is.  Section 104-520 expressly contemplates the calculation in step 4 taking its ordinary course.   We would not therefore read s 104-520 as impacting on the meaning or operation of step 4 of s 711-20(1).  To the contrary, a more likely construction is that s 104-520 simply “picks up” the operation of s 711-20 as it finds it.  That approach is buttressed by the observation that s 711-20(1) has a substantive (and we think predominant) independent purpose outside CGT Event L5 which is the process of setting the tax cost setting amount.”

Associate:

Dated:         10 November 2009