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The ATO has published a Decision Impact Statement in relation to the Federal Court decision in Noza Holdings Pty Ltd and Ors v FCT [2011] FCA 46; 2011 ATC 20-241; 82 ATR 338 and the decision, on the appeal, of the Full Federal Court in FCT v Noza Holdings Pty Ltd [2012] FCAFC 43; 2012 ATC 20-313.

The case concerned the allowability of a s 25-90 deduction in respect of an arrangement which utilised redeemable preference shares as a means of financing. The deduction was claimed by the taxpayer (Noza) as head of a consolidated group of which CSA Pty Ltd (CSA) was a member. CSA issued redeemable preference shares to CSFI LLC (CSFI), a Delaware company.

The Full Court found that, having regard to the terms of the CSA redeemable preference shares, a deduction was available to Noza, as the relevant taxpayer, in the 2003 income year when the dividend was declared and/or paid by CSA to CSFI.

The Full Court also upheld the finding of Gordon J below that only part of the amount paid by CSA to CSFI, i.e. an amount of $170,983,354, was allowable to Noza, as the relevant taxpayer, in the 2003 income year. This was because the balance of the payment was not 'interest, an amount in the nature of interest or another amount that is calculated by reference to the time value of money' for the purposes of s 820-40(1)(a)(i) of ITAA 97.

Gordon J at first instance had held that Part IVA did not apply to the obtaining of the s 25-90 deduction. The Commissioner did not appeal this part of the decision. The Decision Impact Statement states that it was open to her Honour, on the facts of the case, to find that the dominant purpose of both the deduction and Withholding Tax schemes entered into was not to obtain a tax benefit.

The Decision Impact Statement states that the Full Federal Court found that an amount had been incurred for the purposes of s 25-90 of the ITAA97 when the dividend was declared by CSA to CSFI. The Full Court applied, by analogy, the principles developed in relation to s 51(1) of ITAA 36 and s 8-1 of ITAA 97. The Commissioner's view is that the application of these principles will require, in each case, a consideration of the terms of the relevant instruments to determine if, and when, they give rise to an amount being incurred.

As a result, Taxation Determination TD 2009/21 - footnote 3 in paragraph 6 of that determination will need in be reviewed.


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