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The Full Court of the Federal Court (Edmonds, Griffiths and Davies JJ) has upheld the appeals by the Commissioner from the decisions of the AAT in Dickinson and FCT [2013] AATA 25 (21 January 2013) and Fabig and FCT [2013] AATA 26 (21 January 2013).

The AAT held that scrip for scrip roll-over relief under Div 124-M of ITAA 1997 was available to the taxpayers in relation to the sale of shares in one company (iMega) for cash and shares in the acquiring company (Photon), notwithstanding the fact that, as a result of an agreement made between themselves (to which the acquiring company was not a party) the proportion of cash and shares that each of the taxpayers received from or in the acquiring company was different to the value of shares that they held in the original company.

For roll-over relief to be available, each exchange must be in consequence of a single arrangement, where that arrangement is one in which participation was available on substantially the same terms for all of the owners of interests of a particular type in the original entity. The shareholders (including the taxpayers) had entered into a Shareholders Agreement which provided that the consideration for any sale would be split between them in proportions different to their respective shareholdings. The Commissioner argued that this meant that the shareholders' participation was not on substantially the same terms.

The Full Court agreed with the Commissioner. Davies J said at para 27:

"There was, in my view, legal error in the reasoning of the Tribunal that the condition in s 124-780(2)(c) was satisfied. The Tribunal reasoned that the condition in s 124-780(2)(c) was satisfied because Photon was willing to buy the shares on the same terms for all shareholders and was indifferent to the break-up of consideration amongst the shareholders. The Tribunal thereby concluded at Fabig [38] and Dickinson at [37] that Photon’s offer could have been accepted by the shareholders on the same terms. However, that conclusion was reached without regard to the legal obligations on the shareholders under the Shareholders’ Agreement. Photon may have been indifferent about the allocation of consideration when it made the offers but the Shareholders’ Agreement meant that it was not open to the shareholders to accept Photon’s offer on the same terms. They were contractually obliged to sell their shares for different consideration and in consequence, participation in the share sales was not available to them on substantially the same terms. The Tribunal was wrong to conclude otherwise."

The appeals were allowed, the decisions of the AAT set aside and the objection decisions of the Commissioner affirmed.

FCT v Fabig [2013] FCAFC 99 (Full Federal Court; Edmonds, Griffiths and Davies JJ; 28 August 2013).


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