FEDERAL COURT OF AUSTRALIA

Australian Pipeline Limited as Responsible Entity for the Australian Pipeline Trust v Commissioner of Taxation [2013] FCA 1372

THE COURT ORDERS THAT:

1.    The application be dismissed.

2.    The applicant pay the respondent’s costs, as agreed or assessed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

Introduction

1    The issue in the present appeal, which is from a private ruling, is whether the conditions for the exception provided in s 705-47(5) of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) were satisfied for the period 1 July 2011 to 30 June 2012. More specifically the issue is whether GasNet Australia Trust (GNAT) was not an associate of the Australian Pipeline Trust (APT) “just before the joining time” within the meaning of s 705-47(5)(b)(i) of the ITAA 1997.

The notice of appeal

2    The objection decision appealed against was dated 9 November 2012, in response to the applicant’s objection, dated 10 May 2012, to the respondent’s private ruling dated 2 April 2012 for the year ended 30 June 2012. The grounds relied on were as follows:

1.    In calculating its taxable income for the year ended 30 June 2012, the amounts the Applicant, as head company of a tax consolidated group, can deduct for certain depreciating assets (the “Assets”), being:

(a)    a high-pressure gas transmission network located in Victoria; and

(b)    a liquid natural gas storage facility located in Victoria,

are not limited by the operation of section 705-45 of the Income Tax Assessment Act 1997 (Cth) (“the 1997 Act”).

2.    In particular, and without limiting the generality of the foregoing, the conditions provided in subsection 705-47(3) of the 1997 Act are satisfied such that section 705-47(2) of the 1997 Act does not apply so as to reduce the tax cost setting amounts for the Assets to the joining entity’s terminating values for the Assets.

The legislation

3    The immediately relevant statutory provision was in the following form:

705-47  Reduction in tax cost setting amount for some privatised assets

Object

(1)    The object of this section is to limit appropriately the amount the *head company of the joined group can deduct for a *depreciating asset it starts to *hold because the joining entity becomes a *subsidiary member of the group, by reference to the direct or indirect effect of the following provisions on the amount the joining entity could deduct for the asset:

(a)    former section 61A of the Income Tax Assessment Act 1936 (about depreciation deductions for tax-exempt entities that become taxable);

(b)     former Subdivision 57-I, and Subdivision 57-J, in Schedule 2D to the Income Tax Assessment Act 1936 (about depreciation and capital allowance deductions);

(c)     Division 58 of this Act (as that Division applies to a transition time or acquisition time mentioned in that Division before, on or after 1 July 2001).

Reduction of tax cost setting amount

(2)    The *tax cost setting amount for a *depreciating asset is reduced to the joining entity’s *terminating value for the asset if:

(a)    at a time before the joining entity became a *subsidiary member of the joined group, the asset was *held by an entity (whether the joining entity or another entity) that, at that time, was:

(i)    an *exempt Australian government agency; or

(ii)    …; and

(b)     any of the following provisions directly or indirectly affected the amount the joining entity could deduct for the asset:

(i)     …;

(ii)    …;

(iii)     Division 58 of this Act (as that Division applies to a transition time or acquisition time mentioned in that Division before, on or after 1 July 2001); and

(c)     apart from this section, the tax cost setting amount for the asset would exceed the joining entity’s terminating value for the asset.

Note 1:    Unlike the position with a reduction in tax cost setting amount under section 705-40, the amount of the reduction is not re-allocated among other assets.

Note 2:    Former section 61A of, or former Subdivision 57-I or Subdivision 57-J in Schedule 2D to, the Income Tax Assessment Act 1936 or Division 58 of this Act may, for example, have indirectly affected the amount the joining entity could deduct for the asset because:

(a)    that section, Subdivision or Division affected the amount that could be deducted by an entity that held the asset before the joining entity and that effect extended to the joining entity because of a previous application of this subsection, roll-over relief or section 701-40 (the exit history rule); or

(b)    this subsection affected the amount the joining entity could deduct for the asset (either directly or because of section 701-40).

Note 3:    Subsection (2) has effect even if, just before the joining time, the joining entity was:

(a)    an exempt Australian government agency; or

(b)    another entity whose ordinary income and statutory income were exempt from income tax.

This is because section 715-900 causes Division 58 to apply as if, just before the joining time, the joining entity’s ordinary income or statutory income had become assessable income to some extent.

Exception to reduction of tax cost setting amount

(3)     Subsection (2) does not apply if:

(a)    just before the joining time, the joining entity was neither an *exempt Australian government agency nor another entity whose *ordinary income and *statutory income were exempt from income tax; and

(b)     a condition in subsection (4) or (5) is met in relation to the period (the pre-joining taxable period) between the last time for which the condition in paragraph (2)(a) is met and the joining time.

(4)    …

(5)     Another condition for subsection (2) not to apply is that:

(a)    for at least some of the pre-joining taxable period, the asset was *held by the *head company of a *consolidated group (the earlier group) for the period (the earlier group period):

(i)    starting when (and because) an entity that had previously held the asset became a *subsidiary member of the earlier group or when the asset started to be held by that company because of an asset sale situation described in subsection 58-5(4) involving a *member of the earlier group as the purchaser mentioned in that subsection; and

(ii)    ending when (and because) an entity ceased to be a subsidiary member of the earlier group or when the earlier group ceased to exist; and

(b)    the company that was the head company of the earlier group just before the end of the earlier group period was not:

(i)    an *associate of the head company of the joined group just before the joining time; or

(ii)    the same company as the head company of the joined group; and

(c)    the earlier group period was at least 24 months.

(Underlining added, original italics and bold type)

The issue

4    GNAT was the head company of the GasNet “earlier group” just before the end of the earlier group period, that is, the period ending when the earlier group ceased to exist.

5    APT was the head company of the joined group, the APT tax consolidated group.

6    GNAT became an associate of APT, the head company of the joined group, no later than 3 October 2006 when APT had acquired more than 50% of the units in GNAT: see s 318(5) of the Income Tax Assessment Act 1936 (Cth).

7    The joining time was 20 December 2006 being the time at which APT had acquired 100% of the units in GNAT and GNAT became a subsidiary member of the consolidated group (the joined group): see s 705-10(1) of the ITAA 1997.

8    There was no dispute about ss 705-47(3)(a), 705-47(5)(a), 705-47(5)(b)(ii) and 705-47(5)(c).

9    As I have said, the issue between the parties is whether GNAT was not an associate of APT “just before the joining time” within the meaning of s 705-47(5)(b)(i), in which case the tax cost setting amount for certain depreciating (privatised) assets held by GNAT would be capped to an amount less than it otherwise would be.

The facts

10    Because the appeal is in relation to the issue of a private ruling, the facts are those set out in the ruling dated 2 April 2012, for the period 1 July 2011 to 30 June 2012, as follows.

11    APT is a unit trust which is listed on the Australian Securities Exchange.

12    APT is an Australian resident public trading trust, treated as a company for certain income tax purposes.

13    APT is the head entity of the APT tax consolidated group.

14    GNAT is an Australian resident public trading trust and, as such, treated as a company for certain income tax purposes.

15    Prior to 14 November 2006, units in GNAT were traded on the Australian Securities Exchange. Each unit was stapled to:

•    One unit in GasNet Australia Investments Trust (GAIT)

•    One share in GasNet Australia Investments Limited (GAIL).

16    GNAT, GAIT and GAIL, along with their subsidiaries together comprised the GasNet Australia Group.

17    GNAT was the head entity of the GasNet tax consolidated group (GasNet) which was formed on 1 January 2004.

18    Prior to consolidation on 1 January 2004, the subsidiaries of GNAT held a number of (privatised) assets that were subject to the operation of Div 58 of the ITAA 1997.

19    (Privatised) assets which were subject to Div 58 were purchased from the Victorian Government.

20    The (privatised) assets held by GNAT during the year ended 31 December 2005 which were subject to Div 58 included:

•    ownership of a high-pressure gas transmission network throughout Victoria

•    ownership of a liquid natural gas storage facility.

21    Upon formation of GasNet, s 705-47 of the ITAA 1997 applied to cap the tax cost setting amount for these (privatised) assets.

22    By 22 August 2006 APT held approximately 6.2% of the stapled securities in GasNet, which were acquired on-market.

23    On 22 August 2006, APT announced its intention to acquire 100% of the stapled securities in GasNet. “This statement of intention was a competitive bid environment and was considered to be a ‘hostile takeover’.” Competitive offers were made in June and August 2006 by two other interested parties; however, they did not proceed on the basis of the APT offer.

24    On 22 August and 23 August 2006, APT increased its holdings in GasNet to 12% through further on-market acquisitions.

25    On 31 August 2006, the GasNet Directors recommended APT’s offer in the absence of a superior proposal.

26    On 13 September 2006, APT released its Bidder’s Statement pursuant to ss 663 and 636 of the Corporations Act 2001 (Cth) containing an offer to acquire up to 100% of GasNet’s issued securities from the security holders.

27    As at 13 September 2006, APT had increased its holding in GasNet to 12% through further on-market acquisitions.

28    The date of the offer was 18 September 2006 and was open, unless extended or withdrawn, until 17 October 2006. APT disclosed in the Bidder’s Statement that by 18 September 2006 it would have a 19.95% interest in the GasNet securities.

29    From September 2006, APT successfully acquired further stapled securities in GasNet as security holders accepted the offer in the Bidder’s Statement.

30    Between 2 and 3 October 2006, APT’s holding in GasNet (and its voting power) increased from 49.50% to 50.66%.

31    On 17 October 2006, APT announced that its offer under the Bidder’s Statement was extended to 1 November 2006 and, as at 17 October 2006, it held an interest of 82.51% of the GasNet securities.

32    On 2 November 2006, APT announced that its off-market take-over bid had closed. APT gave notice that as at 7 p.m. on 1 November 2006 it had a relevant interest in approximately 96.93% of the stapled securities in GasNet and compulsory acquisition of all outstanding stapled securities in GasNet would proceed.

33    By 20 December 2006, APT had acquired 100% of the GasNet securities, following the compulsory acquisition of the final 3.7%. GNAT and GAIL joined the APT tax consolidated group on this date.

34    Prior to the application of s 705-47 of the ITAA 1997, the tax cost setting amount exceeded GNAT’s terminating value of the assets acquired.

35    There was no balancing adjustment event for the assets during the pre-joining taxable period.

36    GAIT is held by APT Investment Trust, which is outside of the APT tax consolidated group.

37    The tax cost setting amount for the privatised assets of approximately $852m exceeded GNAT’s terminating value of the privatised assets of approximately $338m.

The parties’ submissions

38    The applicant submitted that the purpose of s 705-47 was to limit the amount of depreciation claimable on an asset previously held by a tax-exempt entity, such as a State government. As tax exempt entities were not subject to income tax when selling assets, it was recognised that the potential existed to overstate the value of such assets when privatised, thus delivering to the acquirer over time a larger depreciation deduction. Section 705-47 addressed that potential concern.

39    Generally, Div 58 required the acquirer of depreciable assets of an exempt entity to determine the opening value of those assets by treating them as if they had been notionally depreciated from the time they were first acquired by the exempt entity. When members of the GNAT tax consolidated group acquired assets from the Victorian government, Div 58 operated to limit the opening values of those assets in that way.

40    When a new member joined a consolidated group, a “tax cost” was allocated to each of its assets equal to the asset’s “tax cost setting amount”: s 701-10(4). Tax cost setting amount was used to determine the quantum of depreciation of an asset: s 701-55.

41    The applicant submitted that s 705-47 was introduced to ensure that the tax cost setting amount allocated to an asset formerly held by an exempt entity was not increased above the value “capped” by Div 58: broadly s 705-47 operated to reduce the tax cost setting amount for such assets to the capped amount. However Parliament did not intend for such capping to occur indefinitely. It chose what was essentially an arbitrary test: if the asset was owned for two years or more within a taxable consolidated group, the “capping” rule would thereafter cease to apply. That arbitrary rule was made subject to certain qualifications designed to secure its integrity. One of these was that the head company of the earlier consolidated group was not to be associated, for a period, with the head company of any new group it subsequently joined. The applicant submitted that this was to prevent contrived arrangements entered into by associates involving the on-sale of privatised assets to associated entities in order to secure an uplift in their tax cost. Reference was made to paragraph 2.238 of the Explanatory Memorandum to the Tax Laws Amendment (2004 Measures No. 2) Bill 2004 (Cth).

42    The applicant referred to Certain Lloyd’s Underwriters Subscribing to Contract No IHOOAAQS v Cross (2012) 87 ALJR 131 at 138 [24] per French CJ and Hayne J quoted in Commissioner of Taxation v Unit Trend Services Pty Ltd (2013) 297 ALR 190 by French CJ, Crennan, Kiefel, Gageler and Keane JJ at [47]:

[s]tatutory construction requires deciding what is the legal meaning of the relevant provision ‘by reference to the language of the instrument viewed as a whole’, and context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed.

As to fairness, the applicant referred to: Commissioner for Railways (NSW) v Agalianos (1955) 92 CLR 390 at 396 and 397 per Dixon CJ, adopted in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 381 [69] and Certain Lloyd’s Underwriters Subscribing to Contract No IHOOAAQS v Cross (2012) 87 ALJR 131 at 138 [24].

43    The applicant submitted that the words “just before” in s 705-47(5) imported an element of temporal flexibility. The words were indefinite in nature and depended for meaning on their relevant context. Where the legislation was testing a relationship between parties “just before” an event, the words did not necessarily confine the gaze of the Court to whatever was the state of affairs existing at the instant before the event. The applicant referred to Loizos v Carlton & United Breweries Ltd (1994) 117 FLR 135 at 137 and to Re Beaumont dec’d  [1980] 1 Ch 444 at 452, a decision referred to in Loizos v Carlton & United Breweries Ltd.

44    The applicant submitted that it could not have been intended that the phrase “just before” should be limited to a fixed a priori time period, perhaps hours or days, to be applied without regard to the particular circumstances of the act of joining. Where the act of joining took place by means such as an off-market take-over, the phrase “just before” referred, it was submitted, to a period of time that commenced with the start of the take-over process. That approach preserved the purpose of the exception. It also explained, the applicant submitted, why Parliament limited the prohibition on association to the period that ended “just before” joining, rather than for the entire period prior to joining. The period “just before” took account of the very different available means by which a company or unit trust may be acquired by another company or unit trust and allowed for the fact that during the process of acquisition, association may in fact commence. This momentary association, in anticipation of joining, obviously did not offend Parliament’s concern to ensure integrity. The applicant submitted that if the provision were read literally it could never apply to an off-market take-over or to any other acquisition which must proceed in stages. This would discriminate in an irrational way between different forms of acquisition.

45    In oral submissions, the applicant emphasised three facts. First, there was a take-over of one listed trust by another which commenced in a hostile environment so there was no suggestion that the parties in any way colluded or did not act at all times on an arm’s length basis. Second, the assets in question had previously been held by GNAT for more than two years. Third, the process followed by APT in the take-over was one prescribed by law and therefore it inevitably followed that at some point prior to successful completion of the take-over, APT would become the owner of more than 50% of the securities.

46    The applicant submitted that the period “just before” commenced with the commencement of the take-over, the bidder’s statement, given on 13 September 2006. Just before the commencement of the take-over process GNAT and APT were not and never had been associates. The momentary association that occurred thereafter was intended by Parliament to be ignored in order to test whether the exemption was available.

47    As to the legislative regime, the applicant submitted Div 58 and s 705-47 achieved three objectives.

48    First, Div 58 initially capped the amount of depreciation available in relation to an asset acquired from a tax-exempt entity, such as a government instrumentality. Prior to that sale it would not have been depreciated for income tax purposes and would not have had a written down value at the date of sale for income tax purposes because the State instrumentality was exempt from income tax. Further, upon sale of the asset by the State instrumentality to the privatised buyer there could not be any balancing adjustment event taking account of any gain on disposal because the entity selling was exempt. Under Div 58, the depreciation base of the asset when acquired by a taxpaying entity got reduced to either its value in the audited accounts of the tax-exempt vendor at the time of sale or its notional written down value on an assumption that it had always been subject to depreciation when held by the tax-exempt entity.

49    Second, the general policy of the consolidation regime was that if a group acquired another group or company, the amount paid for the membership interests, whether shares or units, must be pushed down to all of the underlying assets held by the acquired group or company. This was called a policy of alignment. The idea was that the underlying assets must in aggregate share the same value as that which was paid when the company was bought and then that pushed down value was used as the opening basis for cost for capital gains tax purposes, depreciation basis for depreciation and opening value for trading stock purposes. Where a consolidated group acquired either a company or group that had previously bought an asset from an exempt entity and that asset had been the subject of the capping rule, the policy of Div 58, the cap, collided with and conflicted with the policy of alignment. In such a case, the effect of the policy of alignment would be, unless corrected, to give the purchaser a step up in basis for depreciation purposes. To correct this, s 705-47 was introduced in 2004 resolving the clash mostly in favour of Div 58. The primary rule where a consolidated group bought another consolidated group was that the purchaser will be subject to the old capping rule. But the conflict was not resolved wholly in favour of Div 58.

50    Third, s 705-47 established an exemption from the capping rule where, relevantly, the asset had previously been held by the consolidated group for at least two years and the purchaser and the target company were not associates of each other just before the joining time. Thus the capping rule should not persist forever. What was contemplated by the prohibition against association for the period up to just before joining was a form of abuse whereby a transfer of an asset might take place between two groups which shared one common ultimate controller and the legislature was concerned with a situation where the common controller waited for the two years to expire and then flicked one asset from one group that it controlled to another group just to get the step up in basis.

51    The applicant relied on the Explanatory Memorandum to the Tax Laws Amendment (2004 Measures No. 2) Bill 2004 at paragraphs 2.206-2.210, 2.233 and 2.238-2.241 to identify the mischief. The critical paragraphs were as follows:

[2.240]    Testing the relationship between the two consolidated groups requires determining whether the head company of the earlier group is an associate of the joined group just before the time it joins the joined group.

[2.241]    The subsidiaries of a MEC group that has a provisional head company are regarded as associates under subsection 318(2) of the ITAA 1936. This means that the privatised asset provisions would continue to apply if a privatised asset was transferred between MEC groups with a common top company.

“MEC” was an acronym for “multiple entry consolidated”.

52    The reason for the association test therefore was to deal with the possibility of two groups being ultimately controlled for association purposes so that there had not been effectively a true economic transfer of the asset from one independent entity to another because they were both subgroups within one ultimate controller’s command. One of the features of concern was that there was a common top company that then enjoyed the step up and a controller would simply get one group to sell to another to get a step up. In the present appeal, it was submitted, there was no common controller and no common top company. The two groups in question were widely held listed trusts. Nor was there any common top company or common controller which would get the benefit of the step up that the applicant sought. The people who would get the benefit of the step up in the present case were the investors in the Australian Pipeline Trust.

53    The applicant submitted that the differing methods of acquiring shares or securities may involve, as part of the act of joining, momentary association. Unless the acquirer was able to buy 100% of the shares in the target in one hit, there would always be the issue of momentary association prior to final joining. The question was whether that momentary association denied the exemption or whether the momentary association should be disregarded precisely because it existed only by reason of the act of joining. The appellant submitted that the words “just before the joining time” were to be construed as qualified by an expression such as “otherwise than by reason of the process or act of joining”.

54    The applicant submitted that the act or process of joining followed the period just before joining so that momentary association by reason only of the act of joining did not deny the exemption. The way in which the exemption worked would depend upon the facts and circumstances of individual cases. A process or means of acquisition which led only indirectly to joining may not qualify for the exemption but where the process of joining committed the acquirer to buying 100% and led directly to joining then the momentary association which was a by-product of that direct process was to be ignored.

55    The applicant submitted that the words “just before” were sufficiently flexible and malleable for that commonsense outcome to be achieved.

56    The applicant referred to Robe River Mining Co Pty Ltd v Commissioner of Taxation (1989) 21 FCR 1 at 13 for the Full Court’s reliance on the principle in Ben-Odeco Ltd v Powlson (Inspector of Taxes) [1978] 1 WLR 1093 per Lord Wilberforce at 1098:

An important principle of the laws of taxation is that, in the absence of clear contrary direction, taxpayers in, objectively, similar situations should receive similar tax treatment.

The Full Court said at 13-14:

Although differences may be seen between the language of s 122A and that of the provisions of the United Kingdom statute, the principle to which both Lord Wilberforce and Lord Hailsham adverted is equally applicable to the question whether s 122A should be construed in such a sense as to permit a taxpayer, who has obtained the benefit of a low interest foreign currency loan, to receive also the benefit (not available to other taxpayers) of an allowance in respect of exchange losses, should they be incurred in a particular year …

57    The applicant submitted that a construction was to be preferred which did not give rise to anomalous consequences on the basis that the various means by which an entity joined a consolidated group were objectively similar in that they all involved by one means or another the lawful acquisition of 100% of the shares or securities in a target. If the shares had been acquired under a scheme of arrangement whereby beneficial ownership had been transferred in one lot or under a private contract for the acquisition of the shares in one lot the exemption would have applied, but if one used another form of acquisition such as a take-over which required a set procedure giving rise to momentary association, on the respondent Commissioner’s case the exemption did not apply.

58    As to the language of the provision, the applicant put three separate propositions.

59    First, the legislative test did not look to see whether there was any association before joining nor did it require non-association for the entire period before joining. The test time was just before joining. Second, the words “just before” did not require the identification in all cases of the same time for testing, whether it be one hour before, one day before, or a week before. There was no immutable or rigid time for determining association. The applicant accepted that the test time must exhibit close proximity to the moment of joining but when exactly depended on facts and circumstances and upon the particular means chosen and those means would differ in each case. Third, at least one purpose of the words “just before” was to ensure that the test for association took place some time before joining so that there was some logical sequence of events.

60    The applicant, while accepting that the authorities concerned different sections and different contexts, referred, in particular, first to Handbury Holdings Pty Ltd v Federal Commissioner of Taxation (2008) 74 ATR 560; [2008] FCA 1787 which concerned the expression “at the leaving time” in s 711-20. The case was ultimately disposed of on the basis that the phrase “at the leaving time” should be read as just before the leaving time. The applicant relied on the reasoning in the following paragraphs of the first instance judgment of Kenny J:

[61]    When used in connection with time, for example in such phrases as “at the time of”, the word “at” conveys no very precise meaning. As Casey J said, in Re Port Supermarket Ltd (In liquidation) [1978] NZLR 330 at 337, “[t]he ordinary meaning of ‘at the time of’ suggests some indefiniteness, ‘at’ having the meaning of ‘near’ for example, ‘at Christmas time’ doesn’t mean on Christmas day – a period a few days either side is also included”, citing Re Columbian Fireproofing Co Ltd [1910] 1 Ch 758 at 765. See also Doe d Ellis v Owens (1843) 12 LJ Ex 53 at 56 per Lord Abinger and Sakhuja v Allen [1973] AC 152 at 175-76 per Viscount Dilhorne. What is intended by the word “at” in s 711-45(1) depends on the context in which it is used, including the subject matter and the legislative objects and principles.

[62]    The broad subject matter is the tax treatment of consolidated groups and leaving members. Section 711-5(3) expressly states that the object in s 711-5(2) – preserving the relevant alignment of head company’s costs for membership interests – is to be “achieved by recognising the head company’s cost for those interests, just before the leaving time” as equalling “the cost of the leaving entity’s assets at the leaving time” reduced by its liabilities. In this context, the phrases “just before the leaving time” and “at the leaving time” are intended to refer to essentially the same time. Whilst it might be thought that the use of different words was intended to refer to different points in time (“just before” as opposed to “at”), this interpretation would not, so it seems to me, make much sense in this context. It is to be borne in mind that the calculation under s 711-45(1) is for the purpose of determining the tax liability of the consolidated group [by] reference to the assets in the subsidiary company that is about to leave the group. Absent any contrary indication, it seems most reasonable to make this calculation done just before the company leaves the group. It therefore makes much better sense if the expression “at the leaving time” (a somewhat elastic phrase) is understood as synonymous with the phrase “just before the leaving time”. The phrase “at the leaving time” has a different connotation from the phrase “at midnight”, which was discussed by Stone J in Tio v Minister for Immigration and Multicultural and Indigenous Affairs (2003) 126 FCR 185 at [41].

[63]    If the phrase “at the leaving time” is properly to be understood as meaning “just before the leaving time” in s 711-5(3), then, in the absence of any contrary indication, the same phrase is to be understood in the same way elsewhere in Div 711 and Pt 3-90 and, in particular, in s 711-45(1). I reject the taxpayer’s submission that the phrase “just before the leaving time” and “at the leaving time” refer to different and distinct concepts.

In dismissing the appeal, Handbury Holdings Pty Ltd v Federal Commissioner of Taxation (2009) 179 FCR 569; [2009] FCAFC 141, at [49] the Full Court referred to the taxpayer’s argument giving rise to some anomalies and then referred to a much more plausible operation being one which saw the tax cost setting amount fixing the value of the membership interests while the single entity rule was in play and permitting the real world to provide costing information thereafter.

61    The applicant referred to Loizos v Carlton & United Breweries Ltd (1994) 117 FLR 135 which concerned the statutory expression “normal weekly earnings immediately before the date on which [the worker] first became entitled to compensation…”. The applicant relied on the following statements by Kearney J at 137-139, with whose reasoning Angel J agreed, Martin J being the primary judge:

I bear in mind that the Act is a remedial statute, and accordingly its provisions should be interpreted in a benign and liberal manner, and a construction most favourable to the worker is to be preferred where any ambiguity exists…. I have no real or substantial doubt that the words “immediately before” in their context in s 65(3) plainly and unambiguously bear only a temporal meaning; I consider this view was also held by Martin J.

The next question is as to the time-scope encompassed by “immediately before”; in particular, does it encompass the period which elapsed since the appellant last had “normal weekly earnings” prior to 23 March 1989? It is clear that the appellant last worked in 1986 though there was no specific finding to that effect by the Work Health Court: see its earlier judgment of 24 May 1989. …

Different views have been expressed in the case law as to the time-scope of the words “immediately before”, in different contexts. I turn to some of the cases, by way of illustration.

Cockburn CJ said in R v Justices of Berkshire [1878] 4 QBD 469 at 471: “It is impossible to lay down any hard and fast rule as to what is the meaning of the word ‘immediately’ in all cases.” I respectfully agree. The meaning, however, clearly depends on the context in which the words appear. The words do not necessarily connote the instant prior to the date in question. …

Clearly, the words “immediately before” refer to a more confined period of time than that connoted simply by “before”: see for this approach Commissioner for Superannuation v Bayley (1979) 41 FLR 385, a case involving the construction of a statutory provision whereby an employee formerly eligible for superannuation benefits was deemed not to have ceased to be eligible, when “immediately after so ceasing” he had again become eligible. Lockhart J considered (at 401) that the deeming provision was:

“ … intended to ensure that a person does not lose his status as an eligible employee merely because he ceases to be one and later becomes one again, provided the gap in time is not unreasonably large. (Emphasis mine.)”

In a number of cases in England arising from the dismissal of employees shortly prior to the transfer of a business attention focussed on the meaning of “immediately before” in regulations which transferred to the transferee the transferor’s liability etc under its contract of employment with those of its employees “employed immediately before the transfer”: see the discussion in Alphafield Ltd v Barratt  [1984] 1 WLR 1062; ; [1984] 3 All ER 795 at 1064-1067; 798-800, where a “flexible construction” was adopted. This was over-ruled in Secretary of State for Employment v Spence [1987] 1 QB 179: see at 191-198 per Balcombe LJ; see also Litster v Forth Dry Dock and Engineering Co Ltd (In Receivership) [1990] 1 AC 546 at 569 per Lord Oliver of Aylmerton, affirming that a “flexible construction” could not be adopted in this context and stating (at 575) that “either the contract of employment is subsisting at the moment of the transfer or it is not … ”. I respectfully agree with some general observations by his Lordship (at 567), viz:

“The expression ‘immediately before’ is one which takes its meaning from its context, but in its ordinary signification it involves the notion that there is, between two relevant events, no intervening space, lapse of time or event of significance. If, for instance, the question is whether a deceased person was seized of property immediately before his death, attention is focussed upon the very instant at which the death occurred. (Emphasis mine.)”

…

The foregoing cases illustrate the different meanings in different contexts. The question is, what is the meaning of the words “immediately before” in their context in s 65(3)? I consider that in s 65(3) they encompass at most some reasonably short period of time immediately preceding “the date on which he first became entitled to compensation”. …

The applicant submitted that this approach yielded the meaning of “reasonably short period of time” and enabled account to be taken of momentary association which was a by-product of the act of joining.

62    The third authority was Perfect v Northern Territory of Australia (1993) 107 FLR 428, another Northern Territory workers’ compensation case concerning the word “immediately” in s 85(7) of the Work Health Act 1986 (NT). It provided that where the employer required further medical information to be provided “he shall immediately advise the claimant of that fact…”. At 437, Mildren J said:

The word “immediately” means, according to the Shorter Oxford English Dictionary, “without any delay”. The Macquarie Dictionary definition is “without lapse of time, or without delay; instantly; at once”. But a literal construction of this word in a statute would, in strictness, exclude the lapse of any interval of time, and for that reason, has rarely, if ever, been preferred by the courts. I do not agree with the learned magistrate who held that any notification outside the seven day working period would not be “immediate”. Whether the notice was served “immediately” is a question of fact to be determined in the circumstances of the case.

63    The proposition the applicant derived from these cases was that the words “at”, “immediately” and “just before” were flexible and did not connote one and only one period of time. The period of time connoted depended upon legislative context and history and the facts of a particular case.

64    The applicant also referred to the decision of the Full Court in Federal Commissioner of Taxation v Byrne Hotels Qld Pty Ltd (2011) 196 FCR 524 which concerned the words “just before”. With reference to the judgment of Bennett J at [56], the applicant submitted that if the words “just before” required the act of joining to be excluded then as a matter of logic not only the act of joining should be excluded but the means of joining, so as to exclude association arising as a by-product of joining momentarily before the entity became a 100% wholly-owned subsidiary.

65    The respondent Commissioner submitted that on the plain wording of the legislation the condition of relief from s 705-47 stipulated in s 705-47(5)(b) was not met so that s 705-47(3)(b) was not satisfied. The text of s 705-47 and its wider context suggested that the words “just before” in s 705-47(5)(b) should be given their ordinary meaning: “a very little before; with little preceding period; within a brief preceding period; very recently”: Oxford English Dictionary (online) “just”, adv., 4.a. I note that the Macquarie Dictionary meaning for the adverb “just” is: “within a brief preceding time, or but a moment before”.

66    The respondent submitted that, in context, the function of the concept “just before” or “just after” was to set a logical sequence to otherwise contemporaneous events or circumstances, so that (principally) “tax cost setting amounts” can be set according to whether the event is, or is not, taken to have occurred.

67    The respondent submitted that the function of directing characterisation or calculation “just before” or “just after” an event was to direct the characterisation or calculation to be made on the premise that the event had not, or had, occurred. In the present case, the character of GNAT as an associate was to be worked out as at the acquisition of full ownership (20 December 2006) but on the premise that GNAT and its subsidiaries were not yet subsidiary members of the consolidated group of which APT was head company, and therefore taken to be “part of the head company rather than separate entities” for the purposes of the Act. That function was not served by ascribing to “just before” the capacity to mean a time over two months earlier or a time occurring at the outset of a course of events and circumstances which may or may not result in occurrence of the event relevant for consolidation purposes. The respondent submitted that there was no reason to depart from the ordinary meaning of the words “just before”.

68    The respondent submitted that the fact that s 705-47(5)(b) was an integrity provision did not assist the applicant. The particular means chosen by Parliament to preserve the integrity of the exception created by s 705-47(3) was the essentially “arbitrary” test in s 705-47(5)(b), namely that the privatised assets must have been held for at least two years by a group, the head company of which was not an associate of the head company of the joined group “just before” the joining time.

69    The respondent submitted that the applicant’s invitation to approach the construction of s 705-47(5)(b) on the footing that “the normal overriding object of Part 3-90” was engaged, such that its construction, which would see the normal consolidation cost setting rules apply to the privatised assets, might be seen to further those objects, should be rejected. The specific object of s 705-47, set out in s 705-47(1), was to promote the objects of (relevantly) the capping regime in Div 58. The purpose of s 705-47(5)(b), the respondent submitted, was to delineate the circumstances in which a consolidated group may take advantage of an exception to that capping regime. It should not be approached on the footing that the delineation is drawn in such a way as to favour the objects of Pt 3-90.

70     The respondent submitted that the applicant did not contend for a consistent, principled way in which the expression “just before” should be read, save perhaps to submit that it should not mean any time during the “process of acquisition”, an expression which tended to imbue the steps involved in acquiring a company with a coherence and inevitability that they simply did not have.

71    The respondent submitted that s 705-47(5)(b) was not intended to be applied on the assumption that being an associate prior to the joining time was irrelevant so long as that circumstance was brought about by some “process of acquisition”. To the extent that the provision could be said to be concerned with the “process of acquisition” at all, it was to the opposite effect, namely that the process must not result in the joining group being an associate of the joined group just before the joining time.

72    The respondent submitted that, having regard to the text and context of s 705-47(5)(b), the phrase “just before” could not be read to mean at a time prior to the commencement of some “process of acquisition”, nor could it mean “at an appropriate time before” or “at some relevant time before”. Given the apparently arbitrary conditions in s 705-47(5)(b), and having regard to its purpose as an integrity provision, consistency and fairness suggested that the provision should be applied in accordance with the plain meaning of the words chosen by Parliament, namely “preceding by an otherwise immaterial interval”.

73    In oral submissions, the respondent turned first to the facts and accepted that all of the steps the applicant took in pursuance of its bid were steps that were taken in accordance with Ch 6 of the Corporations Act but submitted it was not correct to suggest that the applicant was bound to take the steps that it did by reason of Ch 6. On 22 August 2006 the applicant APT announced its intention to acquire 100% of the securities in GNAT and it then took steps outside Ch 6 to increase its holdings. It was not an offer conditional upon 100% of the securities as it might have been under Ch 6 but, instead, an offer to accept bids up to 100%. By 17 October 2006 APT owned over 50% of the securities and then decided to extend its offer, which it was not bound to do. It reached something over the 90% threshold where it could proceed to compulsory acquisition but it was not bound to do that, instead choosing to do so. The steps APT took were taken in accordance with Ch 6 but APT was not bound to take the steps that it did by reason of Ch 6.

74    Turning to the question of statutory construction, the respondent addressed first the two conflicting schemes for setting the tax cost of assets and considered those two regimes at a level of generality and then turned to the terms of s 705-47.

75    The respondent submitted that the parties seemed to be in agreement that Div 58 existed in order to avoid inappropriate value shifting from non-depreciable assets to depreciable assets owned by entities that did not pay tax and the parties were largely in agreement as to the kind of mischief sought to be avoided by s 705-47.

76    Division 58 stated in s 58-1 that it set out special rules that apply in calculating deductions for the decline in value of depreciating assets and balancing adjustments for assets previously owned by an exempt entity if the assets were acquired from that entity in connection with the acquisition of the business by a purchaser that was a taxable entity. It stated there was a choice of two methods for each depreciating asset. The two methods were the notional written down value method and the undeducted pre-existing audited book value method. Thus, the respondent submitted, although an object of Div 58 was to prevent parties colluding as to how value was allocated between privatised assets and other assets, it achieved that object simply by applying a blanket rule that privatised assets will have their tax cost capped. The Division did not achieve its objective by enquiring into the circumstances in which or under which the entity acquired the assets or whether there was any prospect of collusion but achieved its object simply by imposing that blanket rule.

77    The respondent submitted that Pt 3-90 was also concerned with setting the tax cost of assets but in a very different way such that the Part was at odds with the regime in Div 58. Part 3-90 set the tax cost of assets by seeking to align the tax cost with the cost of acquiring the entity. The purpose of s 705-47 was to mark the boundary between the two regimes and it did so by providing that in the ordinary case, prima facie, Div 58 would continue to apply.

78    The effect of s 705-47(2) was that if an entity would otherwise achieve an uplift in its cost base by reason of joining a consolidated group in circumstances where the entity was already subject to Div 58 then that uplift was unavailable.

79    It was against that backdrop that one came to the balance of s 705-47 as containing an exception to that general policy of capping contained in Div 58 and continued by s 705-47(2).

80    The object of s 705-47 was stated in s 705-47(1) to be to limit the amount the head company can deduct for a depreciating asset it started to hold because the joining entity becomes a subsidiary member of the group, by reference to the direct or indirect effect of Div 58 on the amount the joining entity could deduct for the asset. That is, the respondent submitted, the object of the section as a whole was to preserve the effect of Div 58 despite there being otherwise an uplift by reason of consolidation.

81    Turning to s 705-47(2) the respondent submitted that where the requirements of (a) and (b) were met, as they were here, and where (c) applied, then the tax cost of that privatised asset was left at its terminating value, that is, one did not get the uplift where those conditions were satisfied. Essentially this maintained the operation of Div 58.

82    Just like Div 58, s 705-47 achieved its object not by asking whether there was an opportunity to collude or whether there was collusion but by laying down a rule specifying when one can escape the capping regime. It achieved its object of avoiding the inappropriate transfer of value by stating when a taxpayer would be able to escape from Div 58.

83    Turning to s 705-47(5), the only relevant circumstances were those there specified.

84    The consolidation regime worked by creating a tax fiction, the single entity rule, but in order for that to work it was necessary to know the basis upon which that fiction would operate. It was necessary to know the value of assets coming into a group or the value of assets leaving the group. They were things that happened simultaneously with the creation of the fiction, the single entity rule, or with that fiction ending and it was necessary for the legislation to assign a logical sequence to events that otherwise happened simultaneously and to find a means of determining value for an asset by reference to a situation that existed just before the fiction commenced or just before the fiction ended and that was the sense in which “just before” was used in the Part as a whole and in s 705-47.

85    Section 705-47(2), the operative provision, worked by asking whether you would otherwise have an uplift in the tax cost of a privatised asset and, if you would, then you were not entitled to it: that came about because of s 705-47(2)(c). That paragraph required a comparison between the tax cost of the asset under Pt 3-90 generally on the one hand and the terminating value for the asset, as defined, on the other hand. What was the joining entity’s terminating value for an asset was worked out under s 705-30(3), which provided that if an asset of the joining entity was a depreciating asset to which Div 40 applied, the joining entity’s terminating value for the asset was equal to the asset’s adjustable value as defined just before the joining time. In order for s 705-47 to operate there needed to be a comparison between the tax cost of the asset under the normal rules in Div 705 on the one hand and on the other hand the terminating value for the asset which was something worked out just before the joining time. It was submitted that the reference in s 705-32 “just before the joining time” must be to a value only momentarily before the joining time as depreciating assets depreciate in value over time. Thus the reference to “just before the joining time” in s 705-30(3) which fed into the calculation required by s 705-47 was to the value virtually at the joining time. In order for the section to operate at all it required attention to the value of the terminating assets at that time and not some time much earlier prior to some process of acquisition being commenced.

86    So far as s 705-47 depended upon other sections which themselves used the expression “just before” those other sections had the meaning of virtually at the joining time and that was seen most acutely in the core operative provision in s 705-47.

87    Note 3 to s 705-47(2) provided that the subsection had effect even if, just before the joining time, the joining entity was an exempt Australian government agency or another entity whose ordinary income and statutory income were exempt from income tax. This was stated to be because s 715-900 caused Div 58 to apply as if, just before the joining time, the joining entity’s ordinary income or statutory income had become assessable income to some extent. Thus s 705-47(2) applied where the specified circumstance existed just before the joining time and where the entity’s income had become to some extent assessable income just before the joining time. In each case the provision looked to see what the state of affairs was virtually at the joining time or virtually at the creation of the fiction. The expression was used there consistently with the way it was used in calculating terminating value.

88    In addition, the expression “just before the joining time” was to be contrasted with other references in s 705-47 to times and time periods preceding the joining time. An example was in s 705-47(2)(a) which referred to “at a time before the joining entity became a subsidiary member of the joined group”. Similarly in s 705-47(5) there was a reference to “for at least some of the pre-joining taxable period” and to an earlier group period stated to be starting when an entity became a subsidiary member or when the asset started to be held by that company and ending when an entity ceased to be a subsidiary member of the earlier group or when the earlier group ceased to exist. The pre-joining taxable period was defined in s 705-47(3)(b) to be between the last time for which the condition in s 705-47(2)(a) was met and the joining time.

89    Turning directly to the expression “just before the joining time” in s 705-47(5)(b)(i), the preceding paragraph stated a requirement in respect of “at least some of the pre-joining taxable period” and then for the “earlier group period” with the specified starting point and ending point and the immediately following provision dealt with the earlier group period as a whole and specified it had to last at least 24 months. All these requirements, including “just before the joining time” in s 705-47(5)(b)(i), were stated in some way by reference to times or time periods relative to the joining time. They were all different and that was relevant to determining the sense in which the expression “just before the joining time” was used in s 705-47(5)(b)(i), bearing in mind the words “just before” were used in many places elsewhere in Pt 3-90 directed to test a state of affairs for the purpose of a statutory fiction either beginning or ending so that one knew the basis upon which the fiction ought to be maintained.

90    Turning to the authorities, the respondent emphasised in Handbury Holdings Pty Ltd v Federal Commissioner of Taxation (2008) 74 ATR 560; [2008] FCA 1787 the reasoning beginning at [57] which referred to the distinctive drafting style used in Pt 3-90 and the provisions, here relevantly s 700-10, s 701-1(2) and s 705-10, stating the application and object of the Subdivision. At [63], Kenny J concluded that the phrase “just before the leaving time” and “at the leaving time” did not refer to different and distinct concepts. The respondent submitted that no one had any difficulty in that case in seeing that the expression “just before the joining time” meant that period immediately before Murdoch Magazines left the group: it was not suggested that just before the leaving time might have been 24 hours before, in which case the liability of Murdoch Magazines, the subsidiary member, to Handbury Holdings, would not have existed. The decision of the Full Court in Handbury Holdings Pty Ltd v Federal Commissioner of Taxation (2008) 179 FCR 569; [2009] FCAFC 141 at [30] was to the same effect.

91    As to Loizos v Carlton & United Breweries Ltd (1994) (1994) 117 FLR 135, the respondent referred to the report at 137 to 139 and submitted that Perfect v Northern Territory of Australia (1993) 107 FLR 428 was to the same effect, being cited by Kearney J in Loizos v Carlton & United Breweries Ltd at 139.

92    The respondent submitted it was not necessary to give great precision in the present case to the meaning of “just before” because August or September 2006 was so clearly not just before 20 December 2006.

93    As to the construction contended for by the applicant, that is that the process of joining should be put to one side in construing “just before the joining time”, the respondent submitted the following. First, it was not what the section said. The test in the section was not one that had anything to do with the presence or absence of collusive dealing. Second, the applicant’s submission wrongly assumed that the object of s 705-47(5) was to prevent collusive dealing. However the object of the provision was to preserve the capping regime in Div 58 and it was Div 58 that maintained the integrity in this respect of the regime for deducting the cost of depreciation: ss 705-47(3) and (5) only provided a limited opportunity to escape from that regime and it was available only where the conditions specified in the section were satisfied. Section 705-47 was simply intended to ensure that the policy of Div 58 continued to bite even in the face of consolidation. The effect of the operative provision in s 705-47(2) was that by default if Div 58 applied to you and the tax cost of your privatised assets was capped then you did not get any benefit out of consolidation. That gave effect to the stated object in s 705-47(1) which was to limit the amount of deductions available for depreciating assets in the manner provided relevantly under Div 58.

94    The respondent accepted that it seemed impossible that the requirements would be met where there was a creeping acquisition of a target but if there was some element of arbitrariness that was what Parliament had done and the period of at least 24 months in s 705-47(5)(c) was also arbitrary. In each case what was created was a clear line between the two regimes. Any anomaly was a function of the nature of the tool Parliament had chosen to do the job. The statutory conditions could be satisfied in a take-over case if the acquirer specified a condition that it would not acquire the shares without 100% acceptance so that all the transfers would be accepted on the same day.

95    The other defect in the applicant’s construction was that it required a highly subjective assessment of what the process of acquisition or the process of joining was. It would not always be obvious even in retrospect what the process of joining consisted of. In the present case it could not have been said at the time that it was inevitable that APT would become the 100% owner of GNAT. The respondent submitted that giving the expression “just before” the construction for which he contended provided a measure of certainty that was absent from the formulation for which the applicant taxpayer contended. Further, the construction contended for by the applicant, just before the process of joining commenced, left open the possibility of collusion before that time so that the applicant’s construction did not give effect or necessarily give effect to what the applicant put as the policy objectives of the provision.

96    In reply the applicant submitted that it was not a strong presumption, and one which was easily displaced particularly in taxing legislation, that the same words should be given the same meaning wherever those words appeared. The applicant referred to a number of cases, the most recent of which was Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 at 15-16. The Handbury Holdings litigation was a good example. There were two significant reasons why the presumption should not be upheld. The first was that this particular provision was an exemption, unlike where the words “just before the joining time” appeared in other parts of Pt 3-90. In other instances those words were used as part of an arithmetical calculation where the taxpayer was required to ascribe a value to a particular asset or liability at a particular point in time. Second, if the words did have the same meaning there would be a capricious outcome.

97    As to the respondent’s proposition that there were various contingencies that could have occurred during the acquisition process, the applicant submitted that it announced its intention to acquire 100% of the securities and the Corporations Act provided that there could not be a maximum acceptance condition in the offer.

98    In every case the test in s 705-47(5)(b)(i) would turn upon the facts and circumstances of the case. What s 705-47(5) was attempting to do was to provide an escape hatch where that was appropriate. The applicant did not accept that the test was arbitrary. The test presently relevant had two limbs. Only the asset being required to be held for at least 24 months was arbitrary in the sense that it could have been one year or three years. But it was not arbitrary in the sense that the period was set as being at least 24 months and applicants then had a fixed test for which they could plan. It did not depend upon any flexibility of construction. The test of association was not arbitrary and should not be construed arbitrarily. In the present case the mischief to which the provision was directed did not exist.

Consideration

99    The matter to be decided is the legal meaning and application of s 705-47(5)(b)(i) by reference to the language of the instrument viewed as a whole, and having regard to context, the general purpose and policy of the provision and its consistency and fairness.

100    In my opinion it is not permissible to reason from an identified mischief to the result that, if that mischief is not present, then the statutory provision is engaged such that GNAT was not an associate of APT “just before the joining time”. Putting the same point differently, the legislature has made detailed provision using particular language and it is that language which has to be construed.

101    The legislation does not proceed by reference to contrived arrangements but instead sets out conditions which have a comparatively objective character and application. The mischief may nevertheless be relevant to construing the provision and the words in it. I accept the respondent’s submission that s 705-47 achieves its object not by asking whether there was an opportunity to collude or whether there was collusion but by setting out a rule stating when a taxpayer may escape the capping regime. It achieves its object of avoiding the inappropriate transfer of value by stating when a taxpayer may be able to escape from Div 58. I accept that the focus must be on the particular means chosen by Parliament to preserve the integrity of the exception created by s 705-47(3) and that means was the essentially “arbitrary” test in s 705-47(5)(b) that the privatised assets must have been held for at least two years by a group, the head company of which was not an associate of the head company of the joined group “just before the joining time”. I use the word “arbitrary” to mean subject to the will or judgment of the legislature.

102    It follows, in my opinion, that the language does not leave room to apply in favour of the applicant the principle that taxpayers in, objectively, similar situations should receive similar tax treatment: Robe River Mining Co Pty Ltd v Commissioner of Taxation (1989) 21 FCR 1 at 13, for the reason that the statute does not treat them as being objectively in similar situations.

103    I also accept the object of the provision is to preserve the capping regime in Div 58 and it is Div 58 that maintains the integrity in this respect of the regime for deducting the cost of depreciation. Sections 705-47(3) and (5) only provide a limited escape from that regime but where the conditions specified in the section are satisfied. As s 705-47(1) states, relevantly, the object of the section is to limit appropriately, which in my view means according to the subsequent provisions, the amount the head company of the joined group can deduct for a depreciating asset it starts to hold because the joining entity becomes a subsidiary member of the group by reference to the direct or indirect effect of Div 58 as that Division applies to a transition time or acquisition time mentioned in that Division. This I take to be a reference to s 58-5 where at a particular time an entity is an exempt entity and just after that time the entity’s ordinary income or statutory income becomes to any extent assessable income. In an entity sale situation the depreciating assets the transition entity held just before the transition time are privatised assets.

104    It is also relevant to note the structure of s 705-47. As I have said, the object is in relation to the amount the head company of the joined group can deduct for a depreciating asset it starts to hold because of the joining entity becoming a subsidiary member of the group. Then s 705-47 (2) sets out the cumulative conditions which must be satisfied to effect the result that the tax cost setting amount for a depreciating asset is reduced to the joining entity’s terminating value for the asset. Paragraph (a) states as the first condition a comparatively general period which is “at a time before” the joining entity became a subsidiary member the asset was held by an entity that “at that time” was an exempt Australian government agency. Subsection (3) states when subsection (2) does not apply and does so by reference in part to the status of the joining entity just before the joining time. It is at that time that a condition in subsection (4) or (5) may or may not be met in relation to the pre-joining taxable period between the last time before the joining entity became a subsidiary member of the joined group that the asset was held by an entity that was then an exempt Australian government agency, and the joining time.

105    Subsection (4) then states one condition for subsection (2) not to apply. Subsection (5) states another. Paragraph (a) deals with a period of time but states a comparatively non-specific point of time which is “for at least some of the pre-joining taxable period” the asset was held for the period starting when and because an entity that had previously held the asset became a subsidiary member of the earlier group or when the asset started to be held by that company because of an asset sale situation involving a member of the earlier group as the purchaser and ending when and because an entity ceased to be a subsidiary member of the earlier group or when the earlier group ceased to exist. That provision may be contrasted with paragraph (b) which states another requirement before subsection (5) fulfils the condition on which subsection (2) does not apply. Paragraph (b) deals first with identifying the company that was the head company of the earlier group “just before” the end of the earlier group period. It then specifies what that company, so identified, is required not to be and when it is required so not to be. The head company of the earlier group at a time just before the end of the earlier group is required not to be an associate of the head company of the joined group “just before” the joining time.

106    What follows from this textual analysis, in my opinion, is that the legislature has paid close attention, by the language it has used, to the stated time of the holding of the asset in question and the precise time at which the status of the company that was the head company of the earlier group is to be considered. It is, in my opinion, against those precisely stated and discrete events, the dates of which were not in dispute, that the words “just before the joining time” must be construed. This position stands in high contrast to an example used in argument “just before the Jurassic Age”. Whether the phrase “just before the joining time” could accommodate a period of minutes or hours should be left to a case where it is necessary to decide that question.

107    In contrast, the applicant’s construction lacks precision and clarity of application. Although the applicant was not seeking to add missing words to the provision but was instead seeking to explain a construction, to construe the words “just before the joining time” as qualified by an expression such as “otherwise than by reason of the process or act of joining” does not in my view fulfil the conditions referred to by McHugh JA in Bermingham v Corrective Services Commission of New South Wales (1988) 15 NSWLR 292 at 302, adopting what his Honour had said in Kingston v Keprose Pty Ltd (1987) 11 NSWLR 404 at 423. I would decline to imply the presence of the words suggested by the applicant as it cannot be stated with certainty what words Parliament would have used to overcome the alleged omission and I am not persuaded that the implication of those words would give effect to the underlying purpose of the section. As the applicant accepted, on its contention a different result might follow where the off-market take-over process takes, for example, over 12 months.

108    The essential question is whether GNAT did not have a particular status or relationship, that is, was not an associate of APT, “just before the joining time” which, it was common ground, was 20 December 2006, being the time at which APT had acquired 100% of the units in GNAT and GNAT became a subsidiary member of the consolidated group (the joined group): see s 705-10(1). In my opinion when GNAT did not have that status or relationship is not ambiguous and does not leave room to proceed by reference to the means by which that status or relationship was so acquired or reached.

109    I do not accept the applicant’s submission that the period “just before” commenced with the commencement of the take-over, the bidder’s statement, given on 13 September 2006, and that the momentary association that occurred thereafter was intended by Parliament to be ignored in order to test whether the exemption was available. In my opinion, if that had been intended, different statutory language would have been used.

110    It was not disputed, and there was no suggestion there was any ambiguity about the issue, that GNAT became an associate of APT, the head company of the joined group, no later than 3 October 2006 when APT had acquired more than 50% of the units in GNAT: see s 318(5) of the Income Tax Assessment Act 1936 (Cth). Nor was it disputed, and there was no suggestion there was any ambiguity about the issue, that the joining time was 20 December 2006. In my opinion, the better view is that GNAT did not answer the description that it was not an associate of APT just before the joining time.

111    Turning to the authorities relied on by the applicant, because the words used by the legislature and the context are all important I do not get any assistance from considering different words or different legislative contexts.

112    As I have indicated, Perfect v Northern Territory of Australia (1993) 107 FLR 428 involved the word “immediately” in the context where an employer was required to take a particular step within seven working days after receiving a claim and, if the employer required further medical information to be provided, immediately to advise the claimant of that fact.

113    Loizos v Carlton & United Breweries Ltd (1994) 117 FLR 135 concerned the expression “immediately before” for the purpose of calculating the normal weekly earnings of a worker in order to calculate his loss of earning capacity at a particular date. The Court of Appeal of the Northern Territory considered that the words encompassed at most some reasonably short period of time immediately preceding the date on which the appellant first became entitled to compensation but that wherever the precise line was to be drawn the appellant was well outside that line on the facts of the case.

114    Neither, in my opinion and for the same reason, does Re Beaumont dec’d [1980] 1 Ch 444 assist. It concerned the words “any person (not being a person included in the foregoing paragraphs of this subsection) who immediately before the death of the deceased was being maintained, either wholly or partly, by the deceased” in s 1(1)(e) of the Inheritance (Provision for Family and Dependants) Act 1975. It was in that context, including the definition of “maintenance” in s 1(3), that Sir Robert Megarry V-C said:

The contemplation of possible examples such as these suggests certain consequences. First, it seems to me improbable that the word "immediately" in section 1 (1) (e) was intended to confine the gaze of the court to whatever was the state of maintenance existing at that precise moment. I very much doubt whether Parliament can have intended people to shuffle in and out of section 1 (1) (e) and (3) with every variation in the state of maintenance between them, so that last week C was partly maintaining D with substantial contributions, this week neither is maintaining the other, and next week D will be maintaining C with substantial contributions. Given that the moment at which the examination must be made is the moment before the death of the deceased, what has to be examined ought not, I think, to be the de facto state or balance of maintenance at that moment, but something more substantial and enduring.

115    Turning to Handbury Holdings Pty Ltd v Federal Commissioner of Taxation (2008) 74 ATR 560; [2008] FCA 1787, the statutory expression under consideration was “at the leaving time” in s 711-45(1). In context, Kenny J said that that phrase and the phrase “just before the leaving time” were intended to refer to essentially the same time and rejected the taxpayer’s submission that the phrase “just before the leaving time” and “at the leaving time” referred to different and distinct concepts. Part of her Honour’s reasoning was that the word “at” conveyed no very precise meaning. The conclusion reached, on a proper construction of s 711-45(1), was that the liability of the leaving entity at the leaving time meant liability of the leaving entity just before it ceased to be a subsidiary member of the consolidated group. I accept, as her Honour said at [57]:

… the drafting style used in Pt 3–90 is a distinctive one: it specifically directs attention to the objects of the scheme as a whole and in respect of aspects of the scheme, and to the particular principles that are instrumental in achieving these objects: see eg, ss 700–10, 701–15(2) & (3), 705–10(2) & (3) and 711–5(2) & (3). The more detailed provisions, or ‘rules’, that are to be applied to give effect to these principles are to be construed in light of these principles and objects.

The Full Court reached the same conclusion and dismissed the appeal, Handbury Holdings Pty Ltd v Federal Commissioner of Taxation (2009) 179 FCR 569; [2009] FCAFC 141. Their Honours considered the problem of reconciling apparently conflicting parts of the statute. In my view, that problem does not presently arise. An application for special leave to appeal to the High Court was refused: Handbury Holdings Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2010] HCATrans 113 (23 April 2010).

116    As to the Corporations Act, in the view I have reached, whether the steps taken involved a choice on the part of the acquirer does not matter because the statutes are not cognate and because the fact of a company not answering the description of being not an associate of the head company of the joined group just before the joining time is not displaced or qualified by the circumstance that being an associate prior to the joining time was brought about by a process of acquisition. Nevertheless s 626 of the Corporations Act stands against acceptance of the respondent’s submission that the off-market bid could have been subject to a maximum acceptance condition. Further, by s 652C a bidder may withdraw unaccepted offers made under a market bid where one of the events there specified happens during the bid period but only if the bidder’s voting power in the target is at or below 50%. Thus once the process has commenced, the acquirer is constrained in the choices it may make.

117    The applicant submitted that because the purpose of the rule against association was to bolster the integrity of the overall provision it was anomalous to discriminate between different forms of acquisition: on the construction contended for by the respondent s 705-47(5)(b)(i) would mean that the condition for s 705-47(2) not to apply could never apply to an off-market take-over or to any other acquisition which must proceed in stages. I agree that so viewed and on the facts of this case that distinction would exist but in my opinion it follows from the words of the statute.

118    The “ameliorating” words contended for by the applicant, “otherwise than by reason of the process or act of joining”, are not to be implied by a process of statutory construction and, further, would give rise to their own uncertainties or anomalies involving the subjective assessment of what the process of acquisition or the process of joining was in a particular case. Further, if the purpose of s 705-47 is viewed as being to limit the amount of depreciation claimable on an asset previously held by a tax-exempt entity, such as a State government, the anomaly contended for would not eventuate.

119    For completeness I should add that I did not find the Explanatory Memorandum, on which the applicant relied, to be of any assistance on the issue of construction.

Conclusion

120    For these reasons, the application should be dismissed, with costs.

Associate:

Dated:    18 December 2013