02 Sep 1010 No Part IVA tax benefit - Futuris
The Federal Court (Besanko J) has upheld the taxpayer's appeal against the Commissioner's objection decision, which disallowed the taxpayer's objection against an amended assessment that included a capital gain of $82,950,090 in the taxpayer's assessable income for the year ended 30 June 1998.
The Court held that the taxpayer did not obtain a tax benefit in the amount identified by the Commissioner for the purposes of Part IVA ITAA 1936. However, the Court went on to decide that, if it was wrong in this regard, the scheme was entered into or carried out for the dominant purpose of enabling the applicant to obtain a tax benefit within s 177D(b).
The scheme that the taxpayer entered into was complex but, in general terms, involved the sale of assets by one of the taxpayer's subsidiaries to another of the taxpayer's subsidiaries, and the subsequent public float of that other subsidiary. As a result of various steps in the scheme, the cost base of shares the other subsidiary significantly increased through the operation of the value shifting provisions in the former Div 19A of Part IIIA of ITAA 1936.
The taxpayer's first argument was that as Div 19A was itself a specific anti-avoidance provision, the Legislature could not have intended that Part IVA operate to negate or partially negate the operation of Div 19A. This argument was rejected by the Court.
However, the Court accepted the taxpayer's argument that there was no tax benefit, because if the scheme had not been entered into or carried out, it could not reasonably have been expected that the taxpayer would have entered into either the alternative postulate proposed by the Commissioner (involving as it did the doubling up of capital gains), or the two alternative postulates proposed by the taxpayer (which would have resulted in no greater capital gains). Thus, there was no tax benefit for Part IVA purposes.
However, as noted above, the Court went on to decide that, if it was wrong in this regard, the scheme was entered into or carried out for the dominant purpose of enabling the applicant to obtain a tax benefit within s 177D(b).
Futuris Corporation Limited v FCT  FCA 935 (Federal Court, Besanko J, 31 August 2010).