FEDERAL COURT OF AUSTRALIA

Paule v Commissioner of Taxation [2019] FCA 394

ORDERS

THE COURT ORDERS THAT:

1.    The application be dismissed.

2.    Unless either party applies within 14 days for a different order with respect to costs, the applicant pay the respondent’s costs.

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

ORDERS

THE COURT ORDERS THAT:

1.    The application be dismissed.

2.    Unless either party applies within 14 days for a different order with respect to costs, the applicant pay the respondent’s costs.

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

ORDERS

THE COURT ORDERS THAT:

1.    The application be dismissed.

2.    Unless either party applies within 14 days for a different order with respect to costs, the applicant pay the respondent’s costs.

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

ORDERS

THE COURT ORDERS THAT:

1.    The application is dismissed.

2.    Unless either party applies within 14 days for a different order with respect to costs, the applicant pay the respondent’s costs.

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

ORDERS

THE COURT ORDERS THAT:

1.    The application be dismissed.

2.    Unless either party applies within 14 days for a different order with respect to costs, the applicant pay the respondent’s costs.

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

REASONS FOR JUDGMENT

THAWLEY J:

OVERVIEW

1    The Commissioner of Taxation issued amended assessments in respect of the income year ended 30 June 2008 to each applicant: Mrs Anna Paule, Mrs Cornelia Paule, Mr Terry Paule and Mr Spiro Paule (together, the Paules) and Mr Philip Hart. Each applicant objected in accordance with Part IVC of the Taxation Administration Act 1953 (Cth) (TAA). The objections were disallowed. The applicants appealed to this Court seeking orders setting aside or varying the Commissioner’s decision to disallow each applicant’s objection.

2    The issue dividing the parties was whether the applicants were entitled to a “discount capital gain” under Subdiv 115-A of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997). One requirement which must generally be satisfied in order to be eligible for a “discount capital gain” is that the asset disposed of be held for at least 12 months: s 115-5 and s 115-25(1). The principal question in the proceedings was whether the relevant provisions operated such that the trustees were taken or deemed to have held the relevant asset for a period of at least 12 months, thus satisfying s 115-25(1).

3    The case was argued by reference to Mrs Anna Paule’s case. It was not contended that any different result would flow by reason of the different facts applicable to the other applicants. Consistently with how the case was argued, and for simplicity, these reasons address the issues by reference to Mrs Anna Paule’s case. In these reasons, when I refer to actions of the S&TP Paule Family Trust (S&TP Trust) or another trust, that is shorthand for actions of the trustee of that trust.

4    As explained in further detail below, Mrs Paule was a beneficiary of the S&TP Trust, which had held units in a unit trust for over 12 months. The unit trust disposed of its assets (a business) to a company and the S&TP Trust exchanged its units in the unit trust for shares in the company. This involved a Subdiv 124-N roll-over (involving both a “same-asset roll-over” and a “replacement-asset roll-over”). There were then two Subdiv 124-M ‘scrip-for scrip’ roll-overs (replacement-asset roll-overs), involving exchanges in shares in companies. The S&TP Trust then disposed of the shares finally acquired, being shares in Findex Australia Pty Ltd, making capital gains.

5    For the reasons which follow, the gain on disposal of the Findex shares was not a “discount capital gain”. Neither s 115-30 or s 115-34 operated, independently or together, to deem the Findex shares to have been held by the S&TP Trust for at least 12 months.

6    In some ways this is an unpalatable result. At least in broad terms, the underlying policy which the statute reveals is to allow discount capital gains where, as a matter of economic substance rather than legal form, the assets disposed of have been held by a taxpayer for at least 12 months. That is what occurred here. Viewed from this policy perspective, the Commissioner’s position with respect to the application of the provisions to these applicants might be thought to be harsh, albeit, on the conclusions I have reached, correct.

7    It was only the fact that one of the roll-overs in each series of roll-overs was of a particular type (one covered by s 115-34(1)(c)) that the provisions did not operate to allow a discount capital gain. If the series of roll-overs had not included a roll-over covered by s 115-34(1)(c) the gain would have been a discount capital gain. For example, if the S&TP Trust did not have units in a unit trust operating the business, but had shares in a company which operated the business, it could have carried out three Subdiv 124-M scrip-for-scrip roll-overs and the gain on disposal of the Findex shares would have been a discount capital gain consistent with the broad policy revealed by the statutory scheme. It is difficult to see the policy reason for excluding the present taxpayers, or taxpayers in an equivalent position, from the benefit of a discount capital gain simply because one of the roll-overs in the series was one to which s 115-34(1)(c) applied; none was clearly articulated. However, it is not for this Court to second guess the legislature or the Commissioner’s administration of the tax laws.

FACTUAL BACKGROUND

8    The facts in respect of each applicant are set out in Annexure A to these reasons.

9    The facts so far as they concern Mrs Paule were as follows. Mrs Paule was a beneficiary of the S&TP Trust, presently entitled to 25% of its income in the year ended 30 June 2008.

10    As at 14 January 2008, the S&TP Trust held all of the issued units in The Lifeplan Insurance Agencies Unit Trust (Lifeplan Unit Trust) and had held those units for more than 12 months.

11    The following then occurred:

(1)    Subdivision 124-N roll-over: On 14 January 2008:

(a)    the Lifeplan Unit Trust disposed of all of its assets to STP Holdings Pty Ltd (this involved a “same-asset roll-over”); and

(b)    the S&TP Trust’s ownership of the units in the Lifeplan Unit Trust ended and were replaced by shares in STP Holdings (this involved a “replacement-asset roll-over”).

The S&TP Trust chose to obtain a roll-over under Subdiv 124-N of the 1997 Act in respect of the disposal of each of its units in the Lifeplan Unit Trust.

(2)    Subdivision 124-M roll-over: On or around 15 January 2008, the S&TP Trust exchanged all of its shares in STP Holdings for newly issued shares in E-Quest Holdings Pty Ltd. The trust chose to obtain a roll-over for the disposal of those shares under Subdiv 124-M.

(3)    Subdivision 124-M roll-over: On or shortly after 15 January 2008, the trust exchanged all of its shares in E-Quest for shares in Findex. It chose to obtain a roll-over for the disposal of the E-Quest shares under Subdiv 124-M.

(4)    CGT event: On 18 January 2008, the trust sold its Findex shares to Macquarie Financial Services Holdings Pty Ltd for $5,256,432 realising a capital gain.

12    As can be seen, the sequence of the roll-overs in respect of the S&TP Trust was: Subdivision 124-N, Subdivision 124-M and Subdivision 124-M.

13    As more fully set out in Annexure A, the sequence relevant to the other applicants was:

 (a)    the SP Family Trust, of which Spiro Paule was a beneficiary – Subdivision 124-N and Subdivision 124-M;

(b)    the STP Family Trust, of which Terry Paule was a beneficiary – Subdivision 124-N and Subdivision 124-M; and

(c)    the Grosvenor Trust, of which Philip Hart was a beneficiary – Subdivision 122-A, Subdivision 124-M and Subdivision 124-M.

14    It is relevant to note that each sequence commenced with a roll-over which involved both a same-assert roll-over and a replacement-asset roll-over.

CONSIDERATION

15    Whether the disposal of shares by the S&TP Trust resulted in a discount capital gain revolves around the proper construction of ss 115-25, 115-30 and 115-34 found in Subdiv 115-A of the ITAA 1997. I set out below:

(1)    first, what I have concluded is the correct construction of those provisions;

(2)    secondly, why the applicants’ construction cannot be accepted;

(3)    thirdly, why the applicants’ alternative argument – that the Court should read into s 115-34(2) a reference to s 115-30 – must be rejected.

First matter: The correct construction

16    In 2010, s 115-30 was amended and s 115-32 and s 115-34 were added to the ITAA 1997: Tax Laws Amendment (2010 Measures No 1) Act 2010 (Cth) (2010 Amendments) Sch 6 items 141, 142. The amendments to s 115-30 and the addition of s 115-32 and s 115-34 applied to assessments for income years including 21 September 1999 and later: 2010 Amendments Sch 6 item 146. That is, the amendments operated retrospectively and applied to the assessments in this case.

17    Division 115 of the 1997 Act is entitled “Discount capital gains and trusts’ net capital gains”. Subdivision 115-A is entitled “Discount capital gains”.

The uncontentious matters: ss 115-5 to 115-20

18    It was agreed between the parties that the requirements of ss 115-10 to 115-20 were satisfied and that s 115-5 was satisfied to that extent. These sections provided:

115‑5 What is a discount capital gain?

A discount capital gain is a *capital gain that meets the requirements of sections 115‑10, 115‑15, 115‑20 and 115‑25.

Note:    Sections 115‑40, 115‑45 and 775‑70 identify capital gains that are not discount capital gains, despite this section.

115-10  Who can make a discount capital gain?

To be a *discount capital gain, the *capital gain must be made by:

   (a)    an individual; or

   (b)    a *complying superannuation entity; or

   (c)    a trust; or

(d)    a *life insurance company in relation to a *a discount capital gain from a *CGT event in respect of a *CGT asset that is a *complying superannuation asset.

115‑15 Discount capital gain must be made after 21 September 1999

To be a *discount capital gain, the *capital gain must result from a *CGT event happening after 11.45 am (by legal time in the Australian Capital Territory) on 21 September 1999.

115‑20 Discount capital gain must not have indexed cost base

(1)    To be a *discount capital gain, the *capital gain must have been worked out:

(a)    using a *cost base that has been calculated without reference to indexation at any time; or

(b)    for a capital gain that arose under *CGT event K7—using the *cost of the *depreciating asset concerned.

Note:    A listed investment company must also calculate capital gains without reference to indexation in order to allow its shareholders to access the concessions in Subdivision 115‑D.

(2)    For the purposes of working out whether the *capital gain is a *discount capital gain and the amount of that gain, the *cost base taken into account in working out the capital gain may be recalculated without reference to indexation if the cost base had an element including indexation because of another provision of this Act. This subsection has effect despite that other provision.

Note:    This lets a capital gain of an entity (the gain entity) on a CGT asset be a discount capital gain even if:

(a)    another provision of this Act (such as a provision for a same‑asset roll‑over or Division 128) set the gain entity’s cost base for the asset by reference to the cost base for the asset when it was owned by another entity (the earlier owner), and the earlier owner’s cost base for the asset included indexation; or

(b)    another provision of this Act (such as a provision for a replacement‑asset roll‑over) set the cost base of the asset by reference to the cost base of the original asset involved in the roll‑over, and the original asset’s cost base included indexation.

Example:

In 1995 Elizabeth acquired land from her ex‑husband under an order made by a court under the Family Law Act 1975. Former section 160ZZM of the Income Tax Assessment Act 1936 treated her as having paid $56,000 for the land, equal to her ex‑husband’s indexed cost base for it. His cost base for the land then was $40,000.

In 2000, she sold the land for capital proceeds of $150,000.

Her discount capital gain on the land is $110,000 (equal to the capital proceeds less the cost base for the land without indexation).

(3)    This section does not apply to a *capital gain worked out under subsection 104‑255(3) (about carried interests).

The contentious matter: s 115-25

19    It was s 115-25 which the Commissioner contended was not, but the applicants contended was, satisfied. It provided:

(1)    To be a *discount capital gain, the *capital gain must result from a *CGT event happening to a *CGT asset that was *acquired by the entity making the capital gain at least 12 months before the CGT event.

Note 1:     Even if the capital gain results from a CGT event happening at least a year after the CGT asset was acquired, the gain may not be a discount capital gain, depending on the cause of the CGT event (see section 115‑40) and the nature of the asset (see sections 115‑45 and 115‑50).

Note 2:    Section 115‑30 or 115‑34 may affect the time when the entity is treated as having acquired the CGT asset.

20    This section, as note 2 to the section records, can be affected by s 115-30 or s 115-34. Notes and examples form part of the Act: ITAA 1997 s 950-100(1).

21    Returning to Mrs Anna Paule’s case and the application of s 115-25(1) to it, the “CGT event” which happened to the “CGT asset” was the disposal on 18 January 2008 by the S&TP Trust of its shares in Findex. Those shares were in fact acquired three days earlier and so had not been acquired “at least 12 months before the CGT event”.

22    The applicants contended that the effect of s 115-30 and s 115-34 was that those shares were taken or deemed to have been acquired earlier than they were such that s 115-25(1) was satisfied.

23    As mentioned, it was s 115-30(1) (as amended) and the other provisions added by the 2010 Amendments which were relevant to the assessments in the present case. Amongst other things, the 2010 Amendments replaced item 2 of the table in s 115-30(1). The changes to item 2, which were additions, are shown as underlined in the extract set out below. Section 115-30(1) (as amended) relevantly included:

115-30 Special rules about time of acquisition

Entity is treated as acquiring some CGT assets early

(1)    Section 115-25,115-40 and 115-45 (the affected sections) apply as if an entity (the acquirer) had acquired a *CGT asset described in an item of the table at the time mentioned in the item:

24    I refer in these reasons to the table to s 115-30(1) as having an “item column” and then two columns of substance:

(1)    the “first column” identifies the relevant CGT asset;

(2)    the “second column” identifies the time at which “the acquirer is treated as having acquired” the CGT asset.

25    The 2010 Amendments also introduced s 115-34, which provided:

Further special rule about time of acquisition for certain replacement‑asset roll‑overs

(1)    This section applies if:

  (a)    a *CGT event happens to your *share in a company; and

(b)    at the time of the CGT event, you had owned the share for less than 12 months; and

(c)    you *acquired the share as a replacement asset for:

(i)    a *replacement‑asset roll‑over under Subdivision 122‑A (disposal of assets by individuals or trustees to a wholly‑owned company) for which you *disposed of a *CGT asset, or all the assets of a *business, to the company; or

(ii)    a replacement‑asset roll‑over under Subdivision 122‑B (disposal of assets by partners to a wholly‑owned company) for which you disposed of your interests in a CGT asset, or your interests in all the assets of a business, to the company; or

(iii)    a replacement‑asset roll‑over under Subdivision 124‑N (disposal of assets by trusts to a company) for which a trust of which you were a beneficiary disposed of all of its CGT assets to the company.

Application of tests about when you acquired the share

(2)    Sections 115‑25 and 115‑40 apply as if you had *acquired the *share at least 12 months before the *CGT event.

Application of tests about the company’s assets

(3)    For each asset mentioned in subparagraph (1)(c)(i), subsections 115‑45(4) and (6) apply as if the company had *acquired that asset when you acquired it.

(4)    For each asset mentioned in subparagraph (1)(c)(ii), subsections 115‑45(4) and (6) apply as if the company had *acquired that asset when you acquired your interests in it.

(5)    For each asset mentioned in subparagraph (1)(c)(iii), subsections 115‑45(4) and (6) apply as if the company had *acquired that asset when the trust acquired it.

Relationship with Subdivision 109‑A

(6)    This section has effect despite Subdivision 109‑A (which contains rules about the time of acquisition of CGT assets).

26    The roll-overs referred to in s 115-34(1)(c) involve, or can involve, both replacement-asset roll-overs and same-asset roll-overs – see: s 112-115 (items 1, 2 and 14B) and s 112-150 (items 3, 4 and 4A in the table).

27    A “replacement-asset roll-over” was defined in s 995-1(1) in the following way:

replacement‑asset roll‑over: a replacement‑asset roll‑over allows you to defer the making of a *capital gain or a *capital loss from one *CGT event until a later CGT event happens where your ownership of one CGT asset ends and you *acquire another one. The replacement‑asset roll‑overs are listed in section 112‑115.

28    A “same-asset roll-over” was defined in s 995-1(1) in this way:

same‑asset roll‑over: a same asset roll‑over allows you to disregard a *capital gain or *capital loss you make from:

  (a)    *disposing of a *CGT asset to another entity; or

(b)    entering into an agreement with another entity that constitutes CGT event B1; or

(c)    creating a CGT asset in another entity.

The same‑asset roll‑overs are listed in section 112‑150.

29    Taking the application of Subdiv 122-A (referred to in s 115-34(1)(c)(i)) to a simple example:

    A trustee disposes of all of its assets of a business to a company in exchange for shares in the company. This is a “replacement-asset roll-over” – see: item 1 in the table to s 112-115. The trustee can disregard any gain or loss on the disposal of all of its assets: s 122-45(1). The cost bases of the shares it acquires as a replacement for the assets of its business broadly equates to the market value of the assets disposed of: s 122-50.

    As for the company, it is deemed to have the same cost base of the assets as the transferor: s 122-70(2). That is, the company receives a “same-asset roll-over” – see: item 3 in the table to s 112-150.

30    A scrip for scrip roll-over under Subdiv 124-M only involves a “replacement-asset roll-over” as defined – see: item 14A in the table to s 112-115.

31    Section 115-34 operates in relation to the disposal of a share in a company by deeming the share to have been acquired at least 12 months before the CGT event for the purposes of the application of s 115-25 and s 115-40 if the share had been acquired as a replacement asset for a replacement-asset roll-over included in subs 115-34(1)(c), namely a replacement-asset roll-over under Subdivs 122-A, 122-B or 124-N.

32    Section 115-34 did not operate with respect to the replacement-asset roll-over pursuant to which the S&TP Trust acquired the Findex shares, because they were acquired in a Subdiv 124-M replacement-asset roll-over which was not a roll-over of a kind covered by s 115-34(1)(c).

33    As mentioned, the sequence of roll-overs relevant to Mrs Anna Paule were: Subdivs 124-N, 124-M and 124-M. The first roll-over was one to which s 115-34(1)(c) applied. It was common ground that this roll-over was a “replacement-asset roll-over under Subdivision 124-N” within the meaning of s 115-34(1)(c)(iii).

34    The shares in Findex were “acquired as a replacement-asset for a replacement-asset roll-over (other than a roll-over covered by paragraph 115-34(1)(c))”. That is, the shares in Findex met the description in item 2, column 1 of the table in s 115-30(1). Accordingly, s 115-25 applied “as if the acquirer had acquired” the shares in Findex at the time identified in item 2, column 2 in the table to s 115-30(1). Item 2, column 2 contains two possibilities, (a) or (b), as to the time at which the asset was treated as having been acquired:

(1)    As to (a): the “original asset” in the roll-over was the shares in E-Quest which had been acquired on 15 January 2008.

(2)    As to (b): the Findex shares were acquired in “an unbroken series of replacement-asset roll-overs”, but this “unbroken series” cannot include roll-overs covered by paragraph 115-34(1)(c). The first roll-over was one “covered by” s 115-34(1)(c). Accordingly, at best, the “unbroken series” comprised the two Subdiv 124-M roll-overs which both occurred on 15 January 2008.

Conclusion

35    It follows that s 115-25(1) was not satisfied:

(1)    s 115-30(1) did not operate to deem the Findex shares to be acquired any earlier than 15 January 2018;

(2)    s 115-34(2) did not operate to deem the Findex shares to have been acquired at least 12 months earlier than the date of disposal.

Second matter: The applicants’ construction

36    Mrs Paule advanced two arguments in support of a different construction:

(1)    First, that the provisions had a “sequential” or “combined” operation.

(2)    Secondly, that – to the extent there were two or more possible constructions of the provisions – her construction was to be preferred having regard to the legislative history and intended effect of the 2010 Amendments.

37    For the reasons which follow, these two arguments must be rejected.

Sequential or Combined Operation

38    The applicants contended that the provisions had a sequential or combined operation.

39    As to the sequential operation, Mrs Paule contended that s 115-34(2) operated first to deem the shares in STP Holdings to have been acquired “at least 12 months before” those shares were exchanged for newly issued shares in E-Quest, because:

(1)    a CGT event happened to the S&TP Trust’s shares in STP Holdings when those shares were exchanged for shares in E-Quest: s 115-34(1)(a);

(2)    at the time of the CGT event, the S&TP Trust had owned the shares in STP Holdings for less than 12 months: s 115-34(1)(b); and

(3)    S&TP Trust acquired the shares as a replacement asset for a replacement-asset roll-over within Subdivision 124-N: s 115-34(1)(c)(iii).

40    Each of those matters is to be accepted. However, that is relevant for the purposes of working out whether the capital gain on the disposal of the STP Holdings shares was a discount capital gain. Whether or not it was a discount capital gain did not in fact need to be determined because the S&TP Trust claimed roll-over relief such that any capital gain was disregarded. That particular disposal, however, is not of direct concern. The relevant disposal for present purposes is the final disposal, namely the disposal of the Findex shares.

41    Section 115-34(2) expressly alters the way in which s 115-25 and s 115-40 apply, but not the way in which s 115-30 applies. Section 115-34(2) cannot be read as impliedly referring also to s 115-30 because such an implication is directly at odds with the express terms of s 115-30(1), which carves out of its field of application roll-overs covered by s 115-34(1)(c).

42    As to combined operation, it was submitted that an express reference in s 115-34(2) to s 115-30 was unnecessary because s 115-30, like s 115-34, expressly applied to s 115-25. It was submitted that a better interpretation was that s 115-30(1) was to be “read into” s 115-25 such that it formed part of the text of that section. As I understood the submission, this was intended to have the consequence that s115-34(2) did apply to s 115-30, because s 115-30 was subsumed in, or to be treated as part of, s 115-25.

43    There is authority for the proposition that one should read a definition into a substantive provision in order to construe the substantive provision. In R v Kelly [2004] HCA 12; (2004) 218 CLR 216 at [103], McHugh J said:

... the function of a definition is not to enact substantive law. It is to provide aid in construing the statute. Nothing is more likely to defeat the intention of the legislature than to give a definition a narrow, literal meaning and then use that meaning to negate the evident policy or purpose of a substantive enactment. There is, of course, always a question whether the definition is expressly or impliedly excluded. But once it is clear that the definition applies, the better – I think the only proper – course is to read the words of the definition into the substantive enactment and then construe the substantive enactment - in its extended or confined sense - in its context and bearing in mind its purpose and the mischief that it was designed to overcome. To construe the definition before its text has been inserted into the fabric of the substantive enactment invites error as to the meaning of the substantive enactment ... [T]he true purpose of an interpretation or definition clause [is that it] shortens, but is part of, the text of the substantive enactment to which it applies.

44    However, there is no principle to the effect that multiple deeming provisions should be read into a single substantive provision such that two deeming provisions (s 115-30 and s 115-34) which independently affect the operation of the substantive provision (s 115-25) can be seen to affect the deeming for which the other provides. Nevertheless, it is ultimately a question of what the statutory words mean.

45    The effect of s 115-30 and s 115-34 is to deem certain CGT assets to have been acquired at certain times for the purposes of applying sections including s 115-25. Sections 115-30 and 115-34 do not have a deeming effect for the purposes of the application of the other (as opposed to the application of s 115-25), either according to their express terms or because of the fact that they both operate to affect the application of s 115-25.

46    There is nothing in the language of s 115-25 which supports the interpretation that s 115-34(1)(c) can apply to, or with, s 115-30. Note 2 to s 115-25 contemplates that s 115-30 or s 115-34 may affect the time when the entity is treated as having acquired the asset, not both.

47    Section 115-34 deemed the shares in STP Holdings (acquired by the S&TP Trust under the Subdiv 124-N roll-over) to have been acquired at least 12 months before the acquisition of the E-Quest shares for the purposes of s 115-25 and s 115-40. This deeming did not operate for the purposes of s 115-30(1) because s 115-34(2) did not provide for that. The deeming only operated for the purposes of s 115-25 and was relevant to determining the particular consequences of the particular disposal.

Legislative history and intended effect of the 2010 Amendments

48    The applicants contended that the respondent’s construction of s 115-30 and s 115-34, in its application to the present facts, would have the opposite effect to the legislative intention revealed by the legislative history and in the Explanatory Memorandum to the Tax Laws Amendment (2010 Measures No. 1) Bill 2010. The Explanatory Memorandum included:

Section 115-30 provides for a different acquisition date for a CGT asset that its owner acquired because of a same asset, or replacement asset, roll-over.

Sections 115-30 and 115-45 may operate in certain circumstances to deny taxpayers access to the CGT discount if they sell their replacement interests within 12 months of receiving a roll-over because the acquirer entity will not have owned the interests in the original entity for at least 12 months.

The amendment allows a taxpayer who sells their interest in the acquirer entity to ‘look through’ to the assets of the original entity to establish whether the interests in the original entity, which are now owned by the acquirer entity, can be considered to have been owned for at least 12 months. [Schedule 6, item 136, section 115-32]

This means that the requirements in subsections 115-45(4) and (5) need to be applied to the shares or trust interests now owned by the acquirer entity to determine whether they have been owned for at least 12 months. These requirements will be satisfied if the cost bases and the net capital gain of assets of the original entity that have been owned for less than 12 months are not more than 50 per cent of the cost bases and net capital of all the original entity’s assets.

This result is then used to test whether the taxpayer is entitled to the discount under section 115-45 by applying subsections 115-45(4) and (5) to the acquirer entity’s assets.

The amendment does not apply to replacement assets acquired under the replacement asset roll-overs provided by Subdivisions 122-A, 122-B and 124-N. [Schedule 6, items 135, 136, 139 to 145, section 115-32, subsections 115-45(4) and (6)]

Sections 115-30 and 115-45 may also deny taxpayers access to the CGT discount if they sell a company share received as a replacement asset under a Subdivision 122-A or 122-B replacement-asset roll-over (disposal of assets to a wholly-owned company) or a Subdivision 124-N replacement-asset rollover (disposal of assets by a trust to a company) before they have owned the share for 12 months. Also, as the company acquires its assets at the time of the roll-over, selling a share in the company before owning it for at least 12 months will mean the conditions in subsections 115-45(4) and (5) may be met as the company has held its assets for less than 12 months. This results in denying the taxpayer the CGT discount.

The amendment for these specific replacement-asset roll-overs treats the taxpayer’s replacement asset (share) for the purpose of the CGT discount as being owned for a period of at least 12 months where the share is sold within 12 months of its actual acquisition. The taxpayer therefore does not need to establish an acquisition date for the replacement asset under item 2 in the table in subsection 115-30(1), which is turned off for the purpose of new section 115-34. [Schedule 6, item 142, section 115-34]

Also, the amendment allows for the assets owned by the acquiring company to be taken to be owned from the time when the taxpayer originally acquired them for the purposes of subsections 115-45(4) and (6).

The amendments result in the taxpayer being able to sell their share within 12 months of acquisition and still receive the discount where not more than 50 per cent (by cost base and net capital gain) of the company's assets have been owned for less than 12 months including the period they were owned by the taxpayer. [Schedule 6 items 142 to 145, section 115-34, subsections 115-45(4) and (6)]

The amendments apply to assessments for the income year including 21 September 1999 and for later income years, in relation to CGT events happening after 11.45 am (by legal time in the Australian Capital Territory) on that day. This makes the application of the amendments consistent with the general approach taken to the application of the CGT discount. However, standard amendment periods still apply. The retrospective application of these amendments does not have a negative affect [sic] on taxpayers.

49    It is to be accepted, as the applicants submitted, that the Court should start with the text of the statute and have regard to the context and purpose of the statute at the “first stage and not at some later stage”, citing SZTAL v Minister for Immigration & Border Protection [2017] HCA 34; 347 ALR 405 at [14].

50    However, legislative history and extrinsic materials cannot displace the meaning of the statute or be used to contradict the statutory language – see: Federal Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503 at [39]; Barry R Liggins Pty Ltd v Comptroller-General of Customs (1991) 32 FCR 112 at 120.

51    The High Court stated in Consolidated Media Holdings at [39]:

“This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the [statutory] text” [citing Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27 at 46 [47]]. So must the task of statutory construction end. The statutory text must be considered in its context. That context includes legislative history and extrinsic materials. Understanding context has utility if, and in so far as, it assists in fixing the meaning of the statutory text. Legislative history and extrinsic materials cannot displace the meaning of the statutory text. Nor is their examination an end in itself.

52    The applicants also referred to s 15AA of the Acts Interpretation Act 1901 (Cth). I accept that, where competing constructions are open, the interpretation that would best achieve the purpose or object of the statute (whether that purpose is expressly stated in the statute or implied) is to be preferred to each other interpretation. Before this principle operates, there must be more than one construction open. Assuming there is, it is necessary to identify the purpose or object.

53    In Certain Lloyd’s Underwriters v Cross (2012) 248 CLR 378 at [25] and [26], French CJ and Hayne J stated (footnotes omitted):

25.    Determination of the purpose of a statute or of particular provisions in a statute may be based upon an express statement of purpose in the statute itself, inference from its text and structure and, where appropriate, reference to extrinsic materials. The purpose of a statute resides in its text and structure. Determination of a statutory purpose neither permits nor requires some search for what those who promoted or passed the legislation may have had in mind when it was enacted. It is important in this respect, as in others, to recognise that to speak of legislative “intention” is to use a metaphor. Use of that metaphor must not mislead. “[T]he duty of a court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have” (emphasis added). And as the plurality went on to say in Project Blue Sky:

“Ordinarily, that meaning (the legal meaning) will correspond with the grammatical meaning of the provision. But not always. The context of the words, the consequences of a literal or grammatical construction, the purpose of the statute or the canons of construction may require the words of a legislative provision to be read in a way that does not correspond with the literal or grammatical meaning.”

To similar effect, the majority in Lacey v Attorney-General (Qld) said:

“Ascertainment of legislative intention is asserted as a statement of compliance with the rules of construction, common law and statutory, which have been applied to reach the preferred results and which are known to parliamentary drafters and the courts.”

… The search for legal meaning involves application of the processes of statutory construction. The identification of statutory purpose and legislative intention is the product of those processes, not the discovery of some subjective purpose or intention.

26.    A second and not unrelated danger that must be avoided in identifying a statute’s purpose is the making of some a priori assumption about its purpose. The purpose of legislation must be derived from what the legislation says, and not from any assumption about the desired or desirable reach or operation of the relevant provisions. As Spigelman CJ, writing extra-curially, correctly said:

    “Real issues of judicial legitimacy can be raised by judges determining the purpose or purposes of Parliamentary legislation. It is all too easy for the identification of purpose to be driven by what the particular judge regards as the desirable result in a specific case.”

(Emphasis added.) And as the plurality said in Australian Education Union v Department of Education and Children’s Services:

    “In construing a statute it is not for a court to construct its own idea of a desirable policy, impute it to the legislature, and then characterise it as a statutory purpose.”

54    The statutory purpose said to come from a consideration of the legislative history and the Explanatory Memorandum is not plainly made out, at least at the level of precision or detail for which the applicants contend.

55    The relevant part of the Explanatory Memorandum, extracted above, commences by noting that the amendments were to “give effect to a suggestion made through TIES 0042-2009”. The Tax Issues Entry System, launched on 20 November 2008, was run jointly by the Australian Taxation Office and Department of Treasury and allowed tax professional associations, individual tax professionals and the general public to register issues relating to the care and maintenance of the tax and superannuation systems via an online form. The focus was on correcting technical or drafting defects, removing anomalies, and addressing unintended outcomes.

56    There was no evidence before the Court as to the content of the suggestion made through TIES 0042-2009. It was submitted that it (a) concerned the interaction between s 115-30 and s 115-45; and (b) proposed amendments to ensure that the 50% CGT discount would be available to a taxpayer in the S&TP Trust’s position. The former submission may be accepted because it is obvious from the legislative changes made and is confirmed by the content of the Explanatory Memorandum. The latter submission cannot: the suggestion probably proposed amendments to ensure the 50% CGT discount in certain circumstances, but it cannot be accepted it was intended to ensure the 50% CGT discount in the present circumstances. The Explanatory Memorandum does not mention what was proposed or considered in respect of a series of replacement-asset roll-overs, less still such a series which included one of the roll-overs covered by s 115-34(1)(c).

57    A feature of the statutory scheme entitling certain taxpayers to the CGT discount is that the CGT asset affected by the CGT event must have been acquired at least 12 months before the relevant CGT event: s 115-25. Section 115-45 plays an important role in that respect by providing, as an integrity measure, a “look-through” test to address the situation in which the relevant event is the disposal of a long term share in a company (or interest in a trust) with substantial newly acquired (less than 12 months) assets within it. Section 115-45 provides:

Purpose of this section

(1)    The purpose of this section is to deny you a *discount capital gain on your *share in a company or interest in a trust if you would not have had *discount capital gains on the majority of *CGT assets (by cost and by value) underlying the share or interest if:

   (a)    you had owned them for the time the company or trust did; and

(b)    *CGT events had happened to them when the CGT event happened to your share or interest.

When a capital gain is not a discount capital gain

(2)    Your *capital gain from a *CGT event happening to:

(a)    your *share in a company; or

(b)    your *trust voting interest, unit or other fixed interest in a trust;

is not a discount capital gain if the 3 conditions in subsections (3), (4) and (5) are met. This section has effect despite section 115‑5 and subsection 115‑30(2).

Note:     This section does not prevent a capital gain from being a discount capital gain if there are at least 300 members or beneficiaries of the company or trust and control of the company or trust is not and cannot be concentrated (see section 115‑50).

You had at least 10% of the equity in the entity before the event

(3)    The first condition is that, just before the *CGT event, you and your *associates beneficially owned:

(a)    at least 10% by value of the *shares in the company (except shares that carried a right only to participate in a distribution of profits or capital to a limited extent); or

(b)    at least 10% of the *trust voting interests, issued units or other fixed interests (as appropriate) in the trust.

Cost bases of new assets are more than 50% of all cost bases of entity’s assets

(4)    The second condition is that the total of the *cost bases of *CGT assets that the company or trust owned at the time of the *CGT event and had *acquired less than 12 months before then is more than half of the total of the *cost bases of the *CGT assets the company or trust owned at the time of the event.

Note:     Sections 115‑30 and 115‑32, or section 115‑34, may affect the time when the company or trust is treated as having acquired a CGT asset.

Net capital gain on entity’s new assets would be more than 50% of net capital gain on all the entity’s assets

(5)    Net capital gain on entity’s new assets would be more than 50% of net capital gain on all the entity’s assets

(6)    Work out the amount that would be the *net capital gain of the company or trust for the income year if:

(a)    just before the *CGT event, the company or trust had *disposed of all of the *CGT assets that it owned then and had * acquired less than 12 months before the *CGT event; and

(b)    it had received the *market value of those assets for the disposal; and

(c)    the company or trust did not have any *capital gains or *capital losses from *CGT events other than the disposal; and

(d)    the company or trust did not have a *net capital loss for an earlier income year.

Note:     Sections 115-30 and 115-32, or section 115-34, may affect the time when the company or trust is treated as having acquired a CGT asset.

(7)    Work out the amount that would be the *net capital gain of the company or trust for the income year if:

(a)    just before the *CGT event, the company or trust had *disposed of all of the *CGT assets that it owned then; and

(b)    it had received the *market value of those assets for the disposal; and

(c)    all of the *capital gains and *capital losses from those assets were taken into account in working out the net capital gain, despite any rules providing that one or more of those capital gains or losses are not to be taken into account in working out the net capital gain; and

(d)    the company or trust did not have any *capital gains or *capital losses from *CGT events other than the disposal; and

(e)    the company or trust did not have a *net capital loss for an earlier income year.

58    Section 115-34 dealt with the potential application of s 115-45 to particular roll-overs, namely the ones identified in s 115-34(1)(c). As mentioned above, they are roll-overs which involve not only replacement-asset roll-overs, but also same-asset roll-overs. It operated to deem a taxpayer to have acquired the asset at a different time, namely “at least 12 months before the CGT event”.

59    Section 115-32 was enacted to deal with replacement-asset roll-overs (other than those covered by s 115-34(1)(c)). Section 115-32 provided:

Special rule about time of acquisition for certain replacement-asset roll-overs

(1)    This section applies if:

  (a)    a *CGT event happens to:

    (i)    your *share in a company; or

(ii)    your *trust voting interest, unit or other fixed interest in a trust; and

(b)    you *acquired the share or interest as a replacement asset for a *replacement‑asset roll‑over (other than a roll‑over covered by paragraph 115‑34(1)(c)); and

(c)    at the time of the CGT event, the company or trust:

(i)    owns a *membership interest in an entity (the original entity); and

(ii)    has owned that membership interest for less than 12 months; and

  (d)    that membership interest is the original asset for the roll‑over.

Note:     This section does not affect the time when you are treated as having acquired the replacement asset. That time is worked out under item 2 of the table in subsection 115‑30(1).

Application of tests about the assets of the company or trust

(2)    Subsection 115‑45(4) applies as if the company or trust had *acquired the original asset at least 12 months before the *CGT event, if the condition in that subsection would not be met were it to be applied to the original entity and the CGT event.

(3)    Subsection 115‑45(6) applies as if the company or trust had *acquired the original asset at least 12 months before the *CGT event, if the condition in subsection 115‑45(5) would not be met were it to be applied to the original entity and the CGT event.

60    Whilst s 115-32 and s 115-34 both operated (and continue to operate) to affect the operation of the integrity measure in s 115-45, they did so in different ways:

(1)    Section 115-32 did not deem a taxpayer to have acquired the replacement asset at a different time – see: the note to s 115-32(1). Rather, its operation was to affect the tests in s 115-45 such that the discount was denied in certain circumstances. If, applying s 115-25 as affected by s 115-30(1), the original asset was not acquired at least 12 months before, then there was no need to consider s 115-45.

(2)    Section 115-34 did deem a taxpayer to have acquired the replacement asset at a different time, namely “at least 12 months before the CGT event”: s 115-34(2). When this provision was introduced, item 2 in the table to s 115-30(1) was amended so that it did not apply to s 115-34(1)(c) roll-overs. Even where the original asset was not acquired at least 12 months before, the effect of s 115-34(2) was that s 115-25(1) would be satisfied. That is, a taxpayer could theoretically access a discount capital gain, through the deeming effected by s 115-34(2), in respect of an asset that had not been held for 12 months. This would be contrary to the broad policy evident from the statutory scheme.

61    The notes to ss 115-45(4) and (6) confirm that the time at which the relevant assets are taken to have been acquired might be affected by s 115-30 and s 115-32 together (replacement-asset roll-overs other than those covered by s 115-34(1)(c)) or s 115-34.

62    In the case of the former, it is s 115-30 which actually does the work of deeming a different acquisition date – see: note to s 115-32(1). The Findex shares were acquired in a Subdiv 124-M scrip for scrip roll-over, being a replacement-asset roll-over. Section 115-32 did not affect the time at which the S&TP Trust was taken to have acquired the Findex shares – see: the note to s 115-32(1). Section 115-30(1) did affect the time at which the S&TP Trust was taken to have acquired the Findex shares.

63    There is nothing in the Explanatory Memorandum which suggests that attention was being given to the situation of multiple roll-overs, less still a series of roll-overs which involved ones covered by s 115-34(1)(c) and ones which were not.

64    The applicants sought to support their construction of the legislation by submitting that, on the provisions as they stood at the time of disposal (before the retrospective amendments made by the 2010 Amendments), the shares in Findex would have been treated as having been acquired at the same time as the units in the Lifeplan Unit Trust.

65    It was said to be unlikely that the legislature intended to take away an advantage in circumstances where the Explanatory Memorandum stated that the “retrospective application of these amendments does not have a negative affect [sic] on taxpayers”.

66    At the time of the disposal of the Findex shares, s 115-30 provided:

(1)    Section 115-25,115-40 and 115-45 (the affected sections) apply as if an entity (the acquirer) had acquired a *CGT asset described in an item of the table at the time mentioned in the item:

67    According to the applicants’ argument, on the provisions as they stood before the 2010 Amendments, the S&TP Trust would be taken to have acquired the shares in Findex on the date the S&TP Trust had acquired the units in the Lifeplan Unit Trust. Item 2 in the table to s 115-30(1) would have covered Mrs Paule’s circumstances: “the acquirer [S&TP Trust] acquired the replacement asset [Findex] for a roll-over [Findex / E-Quest] that was the last in an unbroken series of replacement-asset roll-overs [124-N, 124-M and 124-M roll-overs] — when the acquirer [the S&TP Trust] acquired the original asset [the units in the Lifeplan Unit Trust] involved in the first roll-over [the 124-N roll-over] in the series”.

68    The applicants submitted that s 115-45 may have denied a discount capital gain because the three conditions referred to in s 115-45(2) may not have been met. They submitted that the reason for the amendment was to ensure that s 115-45 would not so operate. The reason it may have so operated was that the main CGT assets which Findex owned were the E-Quest shares which had not been acquired at least 12 months before the CGT event (the disposal of the Findex shares).

69    It is not clear that, as those provisions stood at the time of disposal before the retrospective 2010 Amendments, s 115-45 as affected by s 115-30 would have operated to deny the discount to Mrs Paule. The note to s 115-45(4), before the 2010 Amendments, stated:

Note:     section 115-30 may affect the time when the company or trust is treated as having acquired a CGT asset.

And s 115-30(1) was expressly stated to affect the operation of s 115-45.

70    The Commissioner submitted that there was no doubt that, before the 2010 Amendments, s 115-45 would have denied the capital gains discount to a taxpayer carrying out a scrip for scrip roll-over and that the Court should assume that the CGT discount was not available for scrip for scrip roll-overs. I am not convinced this is the case. However, it is unnecessary to decide.

71    The express terms of the provisions following the 2010 Amendments are clear. The 2010 Amendments have been carefully drafted to treat the specific roll-overs mentioned in s 115-34(1)(c) differently to those dealt with in s 115-30 and to carve out from the field of operation of item 2 of s 115-30(1) roll-overs which are covered by s 115-34(1)(c). It may be that the 2010 Amendments caused unintended negative consequences in relation to particular taxpayers arising out of the facts of their particular cases. That is, it may be that the drafter of the Explanatory Memorandum was wrong and that, in fact, there were negative consequences to particular taxpayers. That does not allow the Court to give the terms of the statute a meaning which they cannot bear, particularly when it is plain that the legislature intended the operation of s 115-45 to differ as between replacement-asset roll-overs to which s 115-34(1)(c) applied and those to which it did not. If the provisions were to be read in a way which their language does not support, that is likely to have other unintended consequences.

Third matter: The Cooper Brookes submission

72    The applicants’ alternative case, if its construction arguments failed, was that the Court should “read into” s 115-34(2) a reference to s 115-30, submitting that words may be read into a statute where:

  (a)    the precise purpose of the provision can be identified;

(b)    there has been an inadvertent failure to deal with an eventuality that must be dealt with if the provision is to achieve its purpose;

(c)    the words that Parliament would have included can be clearly identified;

(d)    the additional words that might be read into the text are consistent with the wording otherwise adopted.

In this regard, the applicants referred to Taylor v Owners, Strata Plan 11564 (2014) 253 CLR 531 at [22] to [25] and [39]. The first three matters identified above are intended to reflect the three conditions identified by Lord Diplock in Wentworth Securities Ltd v Jones [1980] AC 74 as those required to be satisfied before reading additional words into a statute. The fourth is intended to reflect a fourth condition, identified by McColl JA in the Court of Appeal decision the subject of the appeal in Taylor.

73    The applicants submitted in relation to each of those matters:

(a)    The mischief of the amendment was to correct a potentially anomalous application of s 115-45 that might have unintentionally denied a discount capital gain in the context of replacement-asset roll-overs.

(b)    According to the Explanatory Memorandum to Tax Laws Amendment (2010 Measures No 1) Bill 2010 at p 210 the drafter “turned off” the application of item 2 of the table in s 115-30(1) to ss 122-A, 122-B and 124-N replacement asset rollovers because s 115-34 catered for those rollovers. The drafter inadvertently overlooked that it was therefore necessary to insert a reference in s 115-34 to s 115-30 to cover the eventuality of an unbroken series of replacement-asset roll-overs that included one the covered by s 115-34(1)(c).

(c)    Parliament would have included a references to “s 115-30” in s 115-34(2) to overcome the omission.

(d)    The modified construction is reasonably open. The additional words would not result in an unnatural, incongruous or unreasonable construction of s 115-34(2), and the provision as modified would produce a construction that is in conformity with the statutory scheme.

74    In Taylor, French CJ, Crennan and Bell JJ noted that the three conditions identified by Lord Diplock accorded with statements of principle in Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297, but stated that it was not necessary to decide whether those conditions are always, or even usually, necessary and sufficient before reading additional words into a statute. Their Honours said (footnotes omitted):

22.    The first of Lord Diplock’s conditions requires the identification of the precise purpose of the provision. McColl JA said that s 12 of the Liability Act and s 125 of the MAC Act evince the same legislative purpose. Her Honour adopted Hodgson JA’s description of the latter as demonstrating: “a clear legislative intention that there be an effective limit put on claims by dependants of persons whose efforts would have produced very high financial benefits to those dependants.”

23.    The second of Lord Diplock’s conditions requires satisfaction that the drafter and the Parliament inadvertently overlooked an eventuality that must be dealt with if the provision is to achieve its purpose. McColl JA considered it plain the drafter of s 9 of the HCL Act had failed to appreciate the irrelevance of the claimant’s earnings to a damages award falling within the equivalent to s 12(1)(c) and that this omission had been carried over to s 12(2).

25.    The third of Lord Diplock’s conditions requires the court to identify the words that the legislature would have included in the provision had the deficiency been detected before its enactment. McColl JA was satisfied that had the deficiency been identified the legislature would have included the words “or deceased person’s” after the word “claimant’s” consistently with the drafting of s 125 of the MAC Act and s 151I of the WC Act.

…

39.    Lord Diplock’s three conditions (as reformulated in Inco Europe Ltd v First Choice Distribution) accord with the statements of principle in Cooper Brookes and McColl JA was right to consider that satisfaction of each could be treated as a prerequisite to reading s 12(2) as if it contained additional words before her Honour required satisfaction of a fourth condition of consistency with the wording of the provision. However, it is unnecessary to decide whether Lord Diplock’s three conditions are always, or even usually, necessary and sufficient. This is because the task remains the construction of the words the legislature has enacted. In this respect it may not be sufficient that “the modified construction is reasonably open having regard to the statutory scheme” because any modified meaning must be consistent with the language in fact used by the legislature. Lord Diplock never suggested otherwise. Sometimes, as McHugh J observed in Newcastle City Council v GIO General Ltd, the language of a provision will not admit of a remedial construction. Relevant for present purposes was his Honour’s further observation, “[i]f the legislature uses language which covers only one state of affairs, a court cannot legitimately construe the words of the section in a tortured and unrealistic manner to cover another set of circumstances”.

75    Their Honours also stated, at [38] (footnotes omitted):

38.    The question whether the court is justified in reading a statutory provision as if it contained additional words or omitted words involves a judgment of matters of degree. That judgment is readily answered in favour of addition or omission in the case of simple, grammatical, drafting errors which if uncorrected would defeat the object of the provision. It is answered against a construction that fills “gaps disclosed in legislation” or makes an insertion which is “too big, or too much at variance with the language in fact used by the legislature”.

76    Gageler and Keane JJ stated at [65] (footnotes omitted):

65.    Statutory construction involves attribution of legal meaning to statutory text, read in context. “Ordinarily, that meaning (the legal meaning) will correspond with the grammatical meaning … But not always”. Context sometimes favours an ungrammatical legal meaning. Ungrammatical legal meaning sometimes involves reading statutory text as containing implicit words. Implicit words are sometimes words of limitation. They are sometimes words of extension. But they are always words of explanation. The constructional task remains throughout to expound the meaning of the statutory text, not to divine unexpressed legislative intention or to remedy perceived legislative inattention. Construction is not speculation, and it is not repair.

77    In HFM043 v Republic of Nauru (2018) 359 ALR 176 at [24], Kiefel CJ, Gageler and Nettle JJ referred to Taylor at [38], [39] and [65], stating:

24.    The task of construction of a statute is of the words which the legislature has enacted. Any modified meaning must be consistent with the language in fact used by the legislature [Taylor at [39]]. Words may be implied to explain the meaning of its text [Cooper Brookes at 310-311]. The constructional task remains throughout to expound the meaning of the statutory text, not to remedy gaps disclosed in it or repair it [Taylor at [38], [65]]. On any view, as was conceded, to construe s 31(5) in the manner contended for the respondent would go far beyond any implication of legislative intention that may be ascertained from the provisions of the statute, including the policy discernible from those provisions [Cooper Brookes at 321]. The respondent’s construction cannot be accepted.

78    Underlying the applicants’ case in this regard is the proposition that the legislature should be taken to have intended to provide for the capital gains discount to be available in circumstances such as the present. That proposition is not made out from a consideration of the legislative history or the Explanatory Memorandum. Accordingly, the contention that the Court should read a reference to s 115-30 into s 115-34(2) must be rejected.

CONCLUSION

79    Each application must be dismissed.

Associate:

Dated:    22 March 2019

ANNEXURE A

The following facts have been drawn principally from the parties’ Statement of Agreed Facts.

S&TP Trust

(1)    Each of the Paules was a beneficiary of the S&TP Trust.

(2)    As at 14 January 2008, the S&TP Trust held all of the issued units in The Lifeplan Insurance Agencies Unit Trust (Lifeplan Unit Trust). It had held those units for a period of more than 12 months.

(3)    On 14 January 2008:

(a)    the Lifeplan Unit Trust disposed of all of its assets to STP Holdings; and

(b)    the S&TP Trust’s ownership of the units in the Lifeplan Unit Trust ended and were replaced by shares in STP Holdings.

(4)    The S&TP Trust chose to obtain a roll-over under Subdiv 124-N of the 1997 Act in respect of the disposal of each of its units in the Lifeplan Unit Trust – see: 1997 Act s 124-870.

(5)    On or around 15 January 2008, the S&TP Trust exchanged all of its shares in STP Holdings for newly issued shares in E-Quest. The trust chose to obtain a scrip for scrip roll-over under Subdiv 124-M – see: 1997 Act s 124-780(3)(d).

(6)    On 15 January 2008, the trust exchanged all of its shares in E-Quest for shares in Findex. It chose to obtain a scrip for scrip roll-over under Subdiv 124-M.

(7)    On 18 January 2008, the trust sold its Findex shares to Macquarie, realising a capital gain of $5,256.432.

(8)    On 29 June 2008, the trustee of the S&TP Trust resolved to distribute 25% of its income for the relevant period to each of the Paules.

STP Trust

(1)    Terry Paule was a beneficiary of the STP Family Trust (STP Trust).

(2)    As at 15 January 2008, the STP Trust held 40% of the issued units in the E-Quest Unit Trust. It had held those units for a period of more than 12 months.

(3)    On 15 January 2008:

(a)    The E-Quest Unit Trust disposed of all of its assets to E-Quest;

(b)    the STP Trust’s ownership of the units in the E-Quest Unit Trust ended and were replaced by shares in E-Quest.

(4)    The STP Trust chose to obtain a roll-over under Subdiv 124-N of the 1997 Act in respect of the disposal of each of its units in the E-Quest Unit Trust.

(5)    On 15 January 2008, the STP Trust exchanged all of its shares in E-Quest for shares in Findex and chose to obtain a scrip for scrip roll-over under Subdiv 124-M.

(6)    On 18 January 2008, the STP Trust sold 800,000 shares in Findex to Macquarie for $1 a share, realising a capital gain.

(7)    On 29 June 2008 the trustee of the STP trust resolved to distribute to Terry Paule 100% of its income (including the capital gain) for the relevant period.

SP Trust

(1)    Mr Spiro Paule was a beneficiary of the SP Family Trust (SP Trust).

(2)    The SP Trust held units in the E-Quest Unit Trust, which it had held for more than 12 months.

(3)    On 15 January 2008:

(a)    The E-Quest Unit Trust disposed of all of its assets to E-Quest; and

(b)    The SP Trust’s ownership of the units in the E-Quest Unit Trust ended and were replaced by shares in E-Quest.

(4)    The SP Trust chose to obtain a roll-over under Subdiv 124-N in respect of the disposal of each of its units in the E-Quest Unit Trust. .

(5)    On 15 January 2008, the SP Trust acquired shares in Findex in exchange for its E-Quest shares and chose to obtains a scrip for scrip roll-over under Subdiv 124-M.

(6)    On 18 January 2008, it sold 800,000 of the Findex shares for $1 a share, realising a capital gain.

(7)    On 29 June 2008, the trustee of the SP Trust resolved to distribute to Spiro Paule 100% of its income for the relevant period.

Grosvenor Trust

(1)    Mr Philip Hart was a beneficiary of the Grosvenor Trust.

(2)    On 14 January 2008, the Grosvenor Trust disposed of all of its assets to P Hart Holdings Pty Ltd in exchange for 100% of its shares. The Grosvenor Trust chose to obtain a roll-over under Subdiv 122-A in respect of the disposal of assets – see: 1997 Act s 122-15.

(3)    On or around 15 January 2008, the Grosvenor Trust exchanged its shares in P Hart Holdings for newly issued shares in E-Quest. It chose to obtain a scrip for scrip roll-over under Subdiv 124-M for the disposal of each of its shares.

(4)    On 15 January 2008, the Grosvenor Trust exchanged all its shares in E-Quest for newly issued Findex shares. It chose to obtain a scrip for scrip roll-over under Subdiv 124-M in respect of the disposal of each of its shares.

(5)    On 18 January 2008, the Grosvenor Trust sold its shares in Findex to Macquarie, realising a capital gain of $2,269,134.

(6)    On 17 June 2008, the trustee of the Grosvenor Trust resolved to distribute to Ms Susan Hart $25,000 of the income and distribute the balance to Mr Hart.

Audit, assessment and objection

(1)    On 17 October 2014, each of the Paules made a voluntary disclosure to the respondent of the distribution of capital gains realised by the S&TP Trust, the STP Trust and the SP Trust on the disposal of Findex shares.

(2)    On 27 May 2016, following an audit of Terry and Spiro Paule’s tax affairs and associated entities, the respondent issued notices of amended assessment for the year ended 30 June 2008 to each of the Paules. The notices of amended assessment increased:

(a)     Terry Paule’s taxable income from $64,478 to $2,508,691.

(b)    Anna Paule’s taxable income from $43,484 to $1,504,069.

(c)    Cornelia Paule’s taxable income from $37,408 to $1,466,040.

(d)    Spiro Paule’s taxable income from $99,287 to $2,379,643.

(3)    On 15 June 2016, each of the Paules lodged objections against the amended assessments.

(4)    On 24 April 2018, the respondent disallowed the objections in full.

(5)    On 30 August 2017, following an audit of Mr Hart’s tax affairs and associated entities, the respondent issued a notice of amended assessment to Mr Hart, increasing his taxable income from $353,031 to $2,612,252.

(6)    On 20 October 2017, Mr Hart lodged an objection against the amended assessment.

(7)    On 20 June 2018, the respondent disallowed the objection in full.