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15 Apr 088 Company was a former exempting entity for franking purposes - Hastie

The Federal Court (Edmonds J) has dismissed an objection against a private ruling by the Commissioner that a company, Austral Refrigeration Holdings Pty Ltd (Austral), became a "former exempting entity" as defined in s 208-50(1) of ITAA 1997 at the time of its acquisition by an Australian controlled company, Hastie Holdings Pty Ltd (Hastie).

At the time of its acquisition by Hastie, Austral had been an "exempting entity" (effectively owned by non-residents) for less than 12 months, although at an earlier time it had been an "exempting entity" for longer than 12 months. Between the 2 periods, Austral had been a "former exempting entity". The applicants sought to argue that s 208-50(2), which provided that a company that was effectively owned by non-residents for less than 12 months did not become a "former exempting entity" on ceasing to be an "exempting entity, applied to Austral to prevent it becoming a "former exempting entity". If the applicants' arguments were upheld, the consequence would have been that quarantined franking credits in Austral would have become available to Hastie.

The applicants' arguments were rejected by the Edmonds J. He said, at paras 41 and 43:

"There does not seem to me to be any rational reason, nor any support in the explanatory memoranda, for the proposition that a period of effective ownership by non-residents lasting for less than 12 months should operate to free quarantined franking credits (arising from a prior period of several years of effective ownership by non-residents) from the restrictions of the legislative scheme under Div 208...

For the foregoing reasons, I am of the view that when Austral Holdings was taken over by Hastie Holdings on 6 February 2004, it became (again) a former exempting entity by reason of the provisions of subs 208-50(1); subs 208-50(2) did not preclude this. On the contrary, it facilitated that status by requiring its less than 12 month transitory status as an exempting entity to be ignored."

Hastie Group Limited v FCT [2008] FCA 444 (Federal Court, Edmonds J, 7 April 2008).

For a copy of the decision, go here

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