Commissioner of Taxation of the Commonwealth of Australia v Allina Pty Limited

[1991] HCATrans 188

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S33 of 1991

B e t w e e n -

COMMISSIONER OF TAXATION OF THE

COMMONWEALTH OF AUSTRALIA

Applicant

and

ALLINA PTY LIMITED

Respondent

Application for special leave

to appeal

MASON CJ
DEANE J

McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON MONDAY, 5 AUGUST 1991, AT 12.37 PM

Copyright in-the High Court of Australia

Allina 1 5/8/91

MR D.H. BLOOM, QC: If it please the Court, I appear with my

learned friend, MR S.J. McMILLAN, for the

applicant. (instructed by the Australian

Government Solicitor)

MR R.J. ELLICOTT, QC: If it please the Court, I appear with

MR A.H. SLATER and MR R.F. EDMONDS, for the

respondent. (instructed by Dunhill Madden Butler)

MASON CJ:	Mr Bloom.
MR BLOOM:	Your Honours, we have a small bundle of relevant

sections of the Capital Gains Tax provisions and

John's case, if I might just hand to Your Honours

four copies. I will not have to take Your Honours

to too much of that.

Your Honours are now familiar with the

provisions of the Capital Gains Tax Division,

Part IIIA.

MASON CJ: That is a bold statement.

MR BLOOM:  But I make it nonetheless, Your Honour.

Your Honours know that in very broad terms there

will be a capital gain if the proceeds of disposal

exceed the indexed cost to the taxpayer of an asset

which is acquired and disposed of after the time

when the Division commenced.

So, it is fundamental, Your Honours, to

ascertain the true cost to the taxpayer of the

asset at the time of its acquisition and for that

purpose assets are given a cost base. There are

two presently relevant types of acquisition,

Your Honours. The first are those which proceed

from a disposal and the second are those which do

not. This case falls into that second category.

It concerns the issue of rights by BHP Gold to

shareholders in BHP for - it is accepted for the

purpose of this argument - no consideration.

Now, Your Honours, the issue of shares in a

company involves no disposal by the company of

those shares to the shareholder and so much is made

clear by the decisions of this Court in Ord Forrest
and St Helens Farm. Indeed, in the latter case,

Sir Garfield Barwick said that is because nothing

passes from the company to the shareholder. He

used words which are felicitous for us in this

particular case.

It is clear, and it not contested in this

case, that the issue of rights, likewise, involved

no disposal by the company to the shareholders in

BHP. The sole question is whether, for the

purposes of section 160ZH(9)(a), which is the

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relevant part of the cost base provision, the

shareholders in BHP should be treated as having

acquired the rights from BHP Gold. Your Honours

have section 160ZH, firstly at page 9 of the bundle

of documents - ZH(l):

Subject to the following provisions of this section, for the purposes of this Part, the

cost base to a taxpayer of an asset is the sum

of -

(a) the amount of any consideration in

respect of the acquisition of the asset;

et cetera. Section ZH(9) appears over the page in

a page which we have reprinted from the appeal book

to show ZH(9) in a form in which it has now been

amended to cover the situation which this case

concerned:

For the purposes of the application of sub-section (1), (2) or (3) in determining the

cost base -

et cetera -

if -

(a) the taxpayer acquired the asset from

another person -

and those words in brackets and underlined have

since been added -

and did not pay or given any consideration in

respect of the acquisition;

the taxpayer shall be deemed to have paid or

given as consideration in respect of the

acquisition of the asset an amount equal to

the market value of the asset at the time of

the acquisition.

Now, Your Honours, that is the general

provision. The draftsmen of Part IIIA dealt

specifically with a number of acquisitions not

preceded by disposals. There are thus specific

Divisions dealing with options generally, with

leases, with bonus shares and with rights and units

in unit trusts, that sort of thing. But at the

relevant time, Division 10, which dealt with

rights, did not cover this sort of situation,

namely, the issue of rights to the shareholders in

an associated company rather than in the company

itself.

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The common intention which is evinced in all

the specific provisions is that the cost base to

the taxpayer should not exceed what he actually

pays for the rights or units or whatever it is that

he acquires without disposition to him. In

particular, he is not to get what might be called a

"free debit" under any of these provisions.

The question really is this, and it is a short

question, Your Honours, and involves a large amount
of money: should section 160ZH(9)(a), as it stood

at the relevant time, be given its literal and

grammatical meaning or should it be read upon the

assumption that the legislature did not intend to

give to taxpayers a free debit in a case of this

kind? That is the question of statutory

construction that arises.

Your Honours, our learned friends say that it

is quite simple. If you give the words "acquired

from" their literal and grammatical meaning then
the rights were acquired from someone and that

someone had to be BHP Gold and they say there is no

reason to depart from that ordinary meaning or that

literal or grammatical meaning which becomes,

therefore, the ordinary meaning. Therefore these

shareholders in BHP who gave nothing for the rights

should be treated as paying something like $1.32

per right

Now, there are 430 million rights and whether

a shareholder renounced his rights or not he gets

this $1.32 benefit for the purpose either of

calculating a capital gain, if any, to him or

reducing his capital gain, as in this case, or for

the purposes of giving rise, when he renounces the

rights, to a capital loss. So that there are still

shareholders who may have renounced their rights

who will be entitled to carry forward capital loss

as a result of getting this $1.32 opening free

debit.

Your Honours, we say that to read

section 160ZH9(a) in that way, even before its

amendment to make that clear, is to read it in a

way which does not reflect legislative intent. It

is unlikely, in our respectful submission, that the

legislature intended to give taxpayers in the

position of the shareholders in BHP the free debit

in the circumstances of this case.

Now, that such a question is important, is

shown, with respect, by the decision of this Court

in John's case. Your Honours have a copy of it.

That, of course, concerned quite a different point.

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DEANE J: Is it really a free debit? I mean, their company

gave consideration for the rights and if the

consideration given by the company is valuable,

indirectly they have suffered.

MR BLOOM: Well, Your Honour, this part of the argument is

put upon the basis that that is not so. There is a

second part of the argument which was run

unsuccessfully below that does depend upon that

transference of value argument. But this argument

is based upon the assumption and needs to to come

into the words of ZH9(a) that no consideration

passes from them whatsoever in any way, shape or

form. There is a second argument that says they

should be treated as giving consideration because

of what happens in terms of the company's assets.

But that failed because it was not shown below that

the company acquired anything less than what it

gave.

DEANE J: But this argument that you are putting would apply

if the company had granted the rights to its

shareholders, notwithstanding the fact that any

value in the rights would automatically be

reflected in the decreased value of the existing

shares.

MR BLOOM:  There is a difference if the company grants it to

the shareholders themselves, per se.

DEANE J:  I do not follow it on the argument that you are

putting that there is a difference.

MR BLOOM: There is an essential difference, of course,

about the grant of rights for capital gains tax

purposes by the company to the shareholders

themselves because, at that particular time, there

was Division 10 dealing specifically with the

situation. So, for capital gains tax purposes the

situation is different. Without taking Your Honour

through the arguments below on the facts upon which

Your Honour that this was canvassed below and the	it was based to demonstrate why, I can tell	finding, at least of Mr Justice Wilcox, was
certainly that no consideration passed. It
involved a regurgitation of the Archibald Howie
decision and Davis Investments and a bit of John's
case to look at what passes in fact from the
shareholder.

DEANE J: All I was really putting to you is I am not

persuaded of the justification for the description
"free benefit" if one is concerned with true

considerations of what is fair.

MR BLOOM:  When we get to the issue to the shareholders

themselves, Division 10 at the time said they shall

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be treated as not having given any consideration

for the rights; that is, the shareholders in the

company itself. But this was a case which was,

per se, no doubt to be outside Division 10 and
gives rise to the problem it does for that very

reason. We also have the difficulty, we freely

acknowledge, that there has been an amendment since

to cure the problem but there is so much money

involved and so many potential cases. When I say

"so much money involved", Your Honours have seen a

reference to some $49 million in the affidavit.

This case is a test case for the BHP Gold

issue and this case involves approximately

$50 million in terms of those taxpayers who have

been assessed to capital gains. We do not know

what the effect is on those who would have a

capital loss. There are other cases that have been

since identified that involve at least that amount

in relation to other companies.

Your Honours, John's case, involved this Court

reversing a long-standing decision, the decision in

Curran's case. The Court did so notwithstanding

that Curran had stood for 13 years and

notwithstanding that there were very powerful

reasons advanced by the Court for following a

previous decision which had stood for that long.

But it did so because Curran gave an

interpretation, in our submission, to the Income

Tax Assessment Act that would give to taxpayers, in
the situation of Mr Curran, a free debit that the

Tax Act did not intend that they should give.

That was a sufficient reason, in the view of

this Court, to overrule Curran notwithstanding all

the powerful reasons that stood in the way of doing

that. We submit, with respect, that the same

reasons could apply here and that, if so, that

would lead to a result different to that to which

the Full Court of the Federal Court came in this

case.

Your Honours, in our submission, the

interpretation for which we contend is preferable

because it is harmonious with the specific
provisions dealing with acquisitions not preceded
by disposals and it is the more likely reflection

of legislative intent. If Your Honours please.

MASON CJ: Yes, Mr Ellicott.

MR ELLICOTT:  Your Honours, the amount of money involved

has, we would say, no real ·relevance to the

question as to whether there is a matter of public

importance involved. This is really a simple

question of construction and it is an·appealing

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answer that they gave because what the section asks

is where did you - if I could just take

Your Honours to the exact words - "was the asset

acquired from another person?" If one were to ask

the question, "Where did you get these rights

from?", surely the simple answer would be that you

acquired them or obtained them or got them - as the

dictionary defines it - from BHP Gold; that is

where they came from. If you have a lease, as

granted, where did you get the lease from? It did not exist until the lease was granted; you got it

from the lessor. Where did you get an option from?

You got it from the person who granted the option;

it did not exist before.

It is not just a literal meaning; it is a

common sense meaning and it is a meaning which the

Court has adopted and, we would submit, is plainly correct. For that reason alone the Court should

not interfere but it is a simple point of

construction.

MASON CJ:  We need not trouble you further, Mr Ellicott.

MR ELLICOTT: If Your Honours please.

MASON CJ:  Do you want to say anything in response to what

Mr Ellicott said?

MR BLOOM:	No, Your Honour.
MASON CJ:	The Court is of opinion that the decision of the court below is not attended with sufficient doubt
to justify the grant of special leave to appeal. The application is therefore refused.
MR ELLICOTT:	Your Honour, I would make an order for cost.
MASON CJ:	You do not oppose that, Mr Bloom?
MR BLOOM:	No, Your Honour.

MASON CJ:  The application is refused with costs.

AT 12.51 PM THE MATTER WAS ADJOURNED SINE DIE

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