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12 Apr 1111 Deductions for intra-group bad debts, interest and loss transfers upheld - Ashwick

The Full Federal Court (Bennett, Edmonds and Middleton JJ) has dismissed appeals by the Commissioner against the decision of Ryan J, who had held that various taxpayer companies in the Foster's Group were entitled to deductions for bad debts written off, for interest expenses incurred, and for losses transferred between group companies.

Specifically, deductions were claimed by borrowing companies in the group for interest incurred on loans made to them by lending companies in the group, as well as deductions claimed by lending companies in the group for the writing off of bad debts, some for both outstanding principal and unpaid interest and others for only unpaid interest, owed by borrowing companies in the group in respect of such loans. Some companies in the group were both lenders and borrowers. As a result of the deductions, losses were incurred which were transferred to other companies in the Foster's group.

The Commissioner denied all deductions on various grounds, all of which were dismissed by the Full Court.

However, in the event that the deductions were allowable, the Commissioner had also made determinations pursuant to s 177F of ITAA1936 Act cancelling the deduction(s) otherwise allowable to each taxpayer company. The Commissioner's appeal on the ground that Part IVA applied was also dismissed, the Full Court finding that, having regard to the matters enumerated in s 177D(b), it would not be concluded that any of the persons who entered into or carried out any of the schemes posited by the Commissioner did so for the sole or dominant purpose of enabling any of the taxpayers to obtain a tax benefit.

FCT v Ashwick (Qld) No 127 Pty Ltd [2011] FCAFC 49 (Full Federal Court; Bennett, Edmonds and Middleton JJ; 8 April 2011).


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