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The ATO has published a Decision Impact Statement in relation to the Full Federal Court decision in Handbury Holdings Pty Ltd v FCT [2009] FCAFC 141; 2009 ATC 20-136. At issue in the case was how a head company of a consolidated group works out its allocable cost amount for a leaving entity. The case turned on whether the allocable cost amount had to be reduced to recognise liabilities of the leaving entity just before the leaving time or only to recognise liabilities that the leaving entity took with it. The High Court refused the taxpayer's application for special leave to appeal the decision of the Full Federal Court.

At first instance and on appeal to the Full Federal Court, the Courts concluded that the phrase "at the leaving time" in s 711-45(1) ITAA 1997 had to be interpreted as meaning "just before the leaving time". This meant that the liabilities of the leaving entity owed to external creditors just before the leaving time had to be subtracted in working out the old group's allocable cost amount. The ATO agrees.

The Decision Impact Statement notes that Tax Laws Amendment (2010 Measures No 1) Act 2010 clarifies that when an entity leaves a consolidated group on or after 10 February 2010 the liabilities to be subtracted under step 4 in the table in s 711-20(1) in working out the old group's allocable cost amount are the liabilities held just before the leaving time.


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