Commissioner Of Taxation v Consolidated Media Holdings Ltd (ACN 009 071 167)

[2012] HCATrans 186

[2012] HCATrans 186

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney   No S98 of 2012

B e t w e e n -

COMMISSIONER OF TAXATION

Applicant

and

CONSOLIDATED MEDIA HOLDINGS LTD (ACN 009 071 167)

Respondent

Application for special leave to appeal

FRENCH CJ
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 17 AUGUST 2012, AT 10.15 AM

Copyright in the High Court of Australia

MR B.J. SULLIVAN, SC:   May it please the Court, I appear with my learned friend, MR T.M. THAWLEY, for the applicant.  (instructed by Australian Government Solicitor)

MR D.H. BLOOM, QC:   May it please the Court, I appear with my learned friends, MS K.J. DEARDS and MS C.A. BURNETT, for the respondent.  (instructed by King & Wood Mallesons)

FRENCH CJ:   Yes, Mr Sullivan.

MR SULLIVAN:   Your Honours, in 2002, Crown Melbourne Limited, a wholly owned subsidiary of the respondent, carried out an off‑market share buy‑back by which it bought back some 840,000 shares held by the respondent for a consideration of $1 billion, the taxation consequences to shareholders of the share buy‑back governed by section 159GZZZP.  The language of that section, your Honours, makes it clear that the section is concerned to identify the extent to which the buy‑back is funded by a return of share capital.  If I can take your Honours to the section in the statutory materials it is at tab 5, page 22 by the numbering on the bottom right‑hand corner.  Subsection (1) provides that:

For the purposes of this Act, but subject to subsection (1A), where a buy‑back of a share or non‑share equity interest by a company is an off‑market purchase, the difference between:

(a)the purchase price; and

(b)the part (if any) of the purchase price in respect of the buy‑back of the share or non‑share equity interest which is debited against amounts standing to the credit of:

(i)the company’s share capital account if it is a share that is bought back ‑

Subparagraph (ii) we can ignore –

is taken to be a dividend paid by the company -

Now, that language, your Honours, is a little convoluted, but it has this consequence.  To the extent that the purchase consideration was debited against amounts standing to the credit of the company’s share capital account, it would be taken into account for the purpose of determining any capital gain.  Alternatively, to the extent that the amount was not debited against amounts standing to the credit of the company’s share capital account, it would be deemed to be a dividend.  So the evident concern of the section was with how the buy‑back is funded and that was confirmed by explanatory memorandum comments in 1990 at the time of enactment of the provision.

Your Honours, the sole issue in the case is how much of the consideration of $1 billion was debited against amounts standing to the credit of the company’s share capital account within the meaning of that section.  The applicant contends, and the primary judge held, all of it.  The respondent contends, and the Full Court held, none of it.  The different conclusions turned on the construction of the Act with respect to the way in which a debiting occurred to record the buy‑back. 

The debiting occurred in the way described by the primary judge at the application book at page 11, lines 15 to 40, and in essence it came down to this.  Prior to 28 June 2002, Crown’s general ledger included an account called the shareholders equity account in which the subscribed capital was recorded.  On 28 June a new account was established called the share buy‑back reserve account.  The only entry to that account was a debit entry of $1 billion made on 28 June 2002 in relation to the buy‑back of the shares. 

There were never any credit entries to that account or any other entries, and as a consequence that account still exists with a debit balance of $1 billion.  The respondent’s contention has been that the debiting of the share buy‑back reserve account had the consequence that there was no amount within the meaning of 159GZZZP which was debited against amounts standing to the credit of the company’s share capital account.                 Now, with respect to that argument, the learned primary judge found, and the Full Court accepted, that the buy‑back resulted in $1 billion of share capital being returned by Crown to the respondent. 

FRENCH CJ:   Now, that happened by an assignment of a debt, did it not?

MR SULLIVAN:   Yes, there was a satisfaction of the consideration by the assignment of a debt, your Honour.  The primary judge also found that the share buy‑back reserve debiting resulted in that amount of $1 billion being debited against amounts standing to the credit of the company’s share capital account and on that question the Full Court came to a contrary view holding that the share buy‑back reserve was not a share capital account within the meaning of section 6D, nor was there any debiting against amounts standing to the credit of the share capital account. 

So the primary judge and the Full Court, as matters turned out, differed in their approaches to the construction of two key statutory provisions.  The first was section 6D, as to what constitutes a share capital account, and the second was section 159GZZZP as to what constitutes debiting against amounts standing to the credit of the share capital account.

Now, we would submit, your Honours, that the case raises important questions of statutory construction.  The issue concerning the construction of section 159GZZZP and the meaning of the expression “debited against amounts standing to the credit of the company’s share capital account” is an important question because that section still governs the consequences of off‑market share buy‑backs.  The meaning of the expression is fundamental to determining the taxation consequences under 159GZZZP.

Your Honours will have noted that the respondent’s submissions refer to potential new legislation.  What has occurred is that there has been released by Treasury an exposure draft of legislation which may replace Division 16K.  Now, whether it will proceed is presently unknown.  At this point in time no bill has been tabled in Parliament.  However, it should be noted, your Honours, that the exposure draft uses the same language as section 159GZZZP and raises the same question as to the extent to which the purchase consideration is debited against amounts standing to the credit of the company’s share capital account. 

It is also significant, your Honours, that the expression “debited against amounts standing”, et cetera, is used in the legislation in another place.  If I can take your Honours in the statutory materials to tab 1 at page 6, and if I can in fact commence at the bottom of page 5 your Honours will see this is the definition of “dividend” in section 6(1) of the Act:

dividend includes –

(a) and (b) –

but does not include:

(d)moneys paid or credited by a company to a shareholder . . . where the amount of the moneys paid or credited, or the amount of the value of the property, is debited against an amount standing to the credit of the share capital account of the company –

So we see the same statutory expression used in that definition.  The consequence is that the decision of the Full Court in this matter is of significance in relation to the operation of that definition. 

Your Honours, the question of the construction of section 6D, we would submit, is a question of importance because the present definition of “share capital account”, which is in section 975‑300 of the 1997 Act, is relevantly in the same terms.  There are a number of provisions of the Assessment Acts which use that defined expression - just a few examples:  the share capital tainting provisions in Division 197, the identification of unfrankable distributions pursuant to section 202‑45 and section 45BA in relation to demerger benefits.  Consequently both issues of construction on which the primary judge and the Full Court differed are important to provisions of the Act other than just section 159GZZZP. 

Your Honours, the applicant’s primary argument concerns the meaning of the expression “debited against” as used in section 159GZZZP.  The Full Court appears to have assumed that the debiting referred to in 159GZZZP(1)(b) had to be a debiting in the share capital account, and if I can take your Honours in the application book to page 56 at about line 37, commencing in paragraph 46 of the judgment, the Full Court said:

In any event, even if the Share Buy‑Back Reserve Account did fall within s 6D(1)(b) and, by virtue of s 6D(2), was taken with the Shareholders Equity Account to be a single account, for s 159GZZZP not to apply so as to deem a dividend to have been paid by Crown the consideration for the shares bought back must be debited against amounts standing to the credit of the share capital account.  Section 6D(2) creates but one statutory fiction, not two.  It deems multiple accounts to be a single account.  It does not deem the act of debiting against one account to have occurred against an amount standing to the credit of another account.

Then picking up on the last two lines of the page:

Here, there was a debit entry in Crown’s Share Buy‑Back Reserve Account.  There was also a credit balance in Crown’s Shareholder’s Equity Account.  That debit was never, in terms of s 159GZZZP(1)(b) of the 1936 Act, applied against that credit balance.

Now, your Honours, the applicant submits that even assuming, contrary to the basis upon which those comments were made, that the share buy‑back reserve – sorry, I withdraw that - upon the basis upon which the Full Court treated it, that the share buy‑back reserve account was not a share capital account.  Nevertheless, there was a debiting against amounts standing to the credit of the company’s share capital account within the meaning of 159GZZZP. 

The terminology of the Act does not require that there be a debit in the share capital account, only against the account, and the fact that the buy‑back consideration was debited against the share capital account is confirmed by the 2002 financial statements.  If I can take your Honours to page 71 of the application book at about line 30 there is an extract there from the accounts and your Honours will see, comparing the 2001 and 2002 years, that in the 2001 year, contributed equity was shown at $2.4 billion and in the 2002 year the effect of the buy‑back is reflected, contributed equity, shown at $1.4 million, and on the left‑hand side your Honours will see the reference to:

Issued and Paid Up Capital

Ordinary shares fully paid

We would submit that it is clear from the financial statements that the debit entry to the share buy‑back reserve account was made to record a return of paid up capital.  The financial statements confirm that it was a debit against amounts standing to the credit of the company’s share capital account.  The other observation we would make, your Honours, if I can go back to the legislative materials in tab 1 at page 6 in the definition of “dividend”, and I have already taken your Honours to the expression at the end of paragraph (d), where it says:

debited against an amount standing to the credit of the share capital account –

By contrast, your Honours, paragraph (e), which refers to:

moneys paid or credited, or property distributed, by a company for the redemption or cancellation of a redeemable preference share if . . . 

(iii)     the amount is debited to the company’s share capital account -

So the distinction is drawn there between “debited against” and “debited to”.  If it had, as the Full Court concluded, been an intention that the debit must be in the share capital account then, in our submission, the language used would have been similar to that in subparagraph (e)(iii). 

Your Honours, the legislative object of 159GZZZP was to prevent profits being used to effect buy‑backs and being distributed to shareholders as a return of capital.  It was not an object of Division 16K and section 159GZZZP to deem returns of capital to be dividends.  The Full Court’s construction of the section has the effect that, inconsistently without evident legislative intent, what is a return of capital has been deemed to be a dividend.

There has long been a general principle in respect to dividends that a return of capital will not give rise to a dividend and that is exactly what paragraph (d) of the definition of “dividend” is directed at.  It enshrines that principle.  The Full Court’s reasoning in this matter has significantly limited the operation of the paragraph (d) exclusion. 

Your Honours, with respect to the second argument, in the alternative we put that the Full Court erred in construing section 6D(1)(a) and finding that the share buy‑back reserve account was not a share capital account.  If I can take your Honours to the terms of section 6D, it is in the legislative materials at tab 2, page 13.  At the foot of the page you will see the definition, your Honours.  This definition has moved.  It is now in similar terms in section 975‑300 of the 1997 Act.  It states that:

A share capital account is:

(a)an account which the company keeps of its share capital; or

(b)any other account (whether or not called a share capital account), created on or after 1 July 1998, where the first amount credited to the account was an amount of share capital.

Now, in addition to 159GZZZP there are a number of other provisions of the Act that depend upon that definition.  There is the section 6(1) definition of “dividend”, the paragraph (d) exclusion, the share capital tainting provisions in Division 197, the identification of unfrankable distributions in section 202‑45(e).  So paragraph (1)(a), your Honours, simply refers to an account which the company keeps of its share capital.  The reference to “an account” rather than “the account” prima facie contemplates that there might be more than one such account.

FRENCH CJ:   Well, all of this goes to make your point that there is a constructional debate.  What do you say to the respondent’s proposition that this case turns on “particular facts”, paragraph 2?

MR SULLIVAN:   Well, those facts may arise in a variety of buy‑back situations, so it is not as if this is unique, particularly if the decision stands.  What it does is it opens up the possibility for anybody effecting an off‑market buy‑back to effectively make a choice as to whether the buy‑back consideration will be a dividend or whether it will be relevant for capital gains tax purposes by either debiting it to the share capital account or creating one of these debit only accounts, which the Full Court would say is not a share capital account, and producing a different result but it will be a dividend.  In our submission, the legislation was not intended to give that choice, but that is the effect that the Full Court decision has.

The questions of construction, to make a second point, your Honour, arise not only in relation to the facts of buy‑back, but also generally in relation to the definition of “dividend”, the section 6 definition and the

paragraph (d) exclusions.  That is a much broader question.  There are a number of provisions that depend upon the definition of “share capital account”, the ones that I have briefly referred to.  So the consequence of those matters is that the implications of this decision go well beyond just buy‑backs.

FRENCH CJ:   Yes, I think your time is up.  Thank you.

MR SULLIVAN:   Thank you, your Honour.

FRENCH CJ:   Yes, Mr Bloom.You say this is a “once in a blue moon” event and ‑ ‑ ‑

MR BLOOM:   Yes, your Honour.

FRENCH CJ:   But can you avoid the constructional argument?

MR BLOOM:   Yes, your Honour, the effect of the constructional argument is to create more revenue these days because of the absence of section 46.  This was a case where the taxpayer was a public company and so was entitled to the full rebate in respect of the dividend that was paid.  But that section went the year after.  So now, if there was an amount debited to such a reserve it would be a deemed dividend and fully assessable, so the revenue suffers not at all going forward. 

As your Honours have seen, the amount of tax involved in this actual case is very small.  The Commissioner certainly points to the availability of capital losses that would have otherwise been used up if his argument was correct, but the availability of those depends upon there being capital gains in the future and the legislation remaining the same and permitting a set‑off off one against the other.

Your Honours, what is now the applicant’s primary argument, namely that the debit to the reserve account fell within GZZZP(1)(b), did not find favour with any of the four judges below.  If I could ask your Honours to return to the section, it is actually set out in the application book at page 40 , and trouble your Honours again with the wording of the section which, after all, is what we are concerned with:

debited against amounts standing to the credit of:

(i)the company’s share capital account –

Now, our learned friends would say, do not look at those words but replace them with the words “funded from”, and yet you will see in paragraph (d) that what is taken to be a dividend is deemed to be paid “out of profits”.  So as far as funding or source is concerned it does not matter where it comes from, it is deemed to be paid out of profits and the question which is asked is, was this amount debited against amounts standing to the credit of the company’s share capital account?  Now, that terminology is not new.  In the booklet of legislation your Honours have the section 6 definition of “dividend” as it existed in 1967 at page 2.  Dividend does not include (d):

moneys paid or credited . . . where the amount of the moneys paid or credited . . . is debited against an amount standing to the credit of [then] a share premium account –

In contradistinction, paragraph (e):

moneys paid or credited, or property distributed, by a company by way of repayment by the company of moneys paid up on a share –

Now, the fact that every reduction of capital, every buy‑back, will involve some return of capital, not necessarily in the amount of the buy‑back, does not mean that it falls within the first of those expressions as opposed to the second.  The test which the Act has given involves looking at the account and seeing whether an amount was debited against an amount standing to the credit of the company’s share capital account.  That, as all of the judges below seem to have agreed, at least in the context of ZZZP, was the equity account. 

Now, all of the judges below, your Honours, proceeded upon the basis that to amalgamate the equity account with the reserve you needed some sort of statutory authority of the kind found in section 6D.  So the question was whether 6D achieved that result and the trial judge thought it did, the full Federal Court that it did not, but the difference between them was, with respect, that while the Full Federal Court had regard to the full text of section 6D(1) and to the wider context, the trial judge does not appear to have done so. 

Now, if I could ask your Honours to go to the judgment at first instance, paragraph 11 on page 8 of the application book, your Honours see that the trial judge refers to ZZZP and then 6D, and then at paragraph 12 – I am sorry, in 12 he refers to 6D, and in paragraph 67, which is at page 25, he says:

The critical question for present purposes is whether the purchase price of the $1,000,000,000 paid by Crown to the Taxpayer was debited against amounts standing to the credit of Crown’s share capital account.  That is to say, the question is whether any part of that sum was debited against amounts standing to the credit of an account that Crown keeps of its share capital.

So, he has stated the question under P in terms of the words of 6D.  Then in paragraph 72 at page 26, he concludes:

Accordingly, the Share Buy‑Back Reserve account, number 310250, was part of the account kept by Crown of its share capital within the meaning of s 6D.

Now, your Honours, 6D is in the application book at page 42 if that is a convenient place.  Your Honours see it has no only 1(a), but also 1(b):

(a)an account which the company keeps of its share capital; or

(b)any other account (whether or not called a share capital account), created on or after 1 July 1998 –

Now, 1 July 1998 was the date upon which the Corporations Law abolished the distinction between share capital, share premium and capital reserves and this provision, 6D, was made retrospective to 1 July 1998 because, as the Minister said, it was inserted to ameliorate certain harsh effects of the taxation and corporations legislation that had come in in 1998.  I will come to that in a moment, but the problem with the trial judge’s view of section 6D, and of the submission of our learned friends, is that it gives no work to subsection (b), and as this Court reminds us, of course, in Project Blue Sky, part of the task is to give effect to all of the words of the section if that is possible.

Now, paragraph (1)(b) applies to any post‑30 June 1998 account to which the first, but not the only amount credited, is share capital. On that basis, paragraph (1)(a) applies to an account to which only share capital has been credited or, as the Full Federal Court held, the company’s ordinary share capital account. Now, unlike the account in (b), the account in (a) might have been created before 1 July 1998. Now, your Honours see section 1446 of the Corporations Law at page 47 of the application book.

Immediately after commencement, any amount –

I draw your Honours’ to the wording here too ‑

standing to the credit of the company’s share premium account and capital redemption reserve becomes part of the company’s share capital.

Now, the Corporations Law and the Tax Act (1998) were brought in together, the Tax Act first anticipating what the Corporations Law would do, and the Corporations Law immediately thereafter, but the terminology is quite important -, “any amount standing to the credit of”, and is deliberately used, in our submission. 

Now, the Full Federal Court found that the interpretation of 6D(1)(a) for which we contend was supported amply by the wider context and as I said, his Honour the trial judge, with respect, did not look at that.  But before I go to that I need to tell your Honours something very quickly about the concept of tainting, and I am sure your Honours are really looking forward to this.

FRENCH CJ:   We think of little else, Mr Bloom?

MR BLOOM:   I do not think I can avoid doing it, your Honour.  The 1998 company law amendments by section 254S authorised a company to transfer profits to its share capital account.  Now, tax did not like that and so the 1998 amendments that anticipated the company law provisions, these are the amendments to the Tax Act, said that if you do transfer anything from a non‑capital account to your share capital account you will taint the share capital account and if you did that there would be an immediate debit to your franking account.  It is a penal provision.  If you then distributed later out of that account it would be a deemed dividend assessable in full but not frankable and not rebatable.  So that, in a nutshell, is tainting in the tax context.

Now, at least two unintended consequences were seen to arise from this.  Firstly, despite transitional provisions in section 9 of the 1998 Act, which are in the materials, the automatic merger of the share capital account with a share premium account which was already itself tainted would taint the share capital account.  That was the first problem.  Secondly, if share capital such as preference share capital issued in a financing arrangement was, after 1 July 1998, first credited to another account and then later transferred to the share capital account that would involve a tainting even though what was being transferred was share capital to share capital. 

Now, the 1999 Act which inserted section 6D was retrospective, as I have said, to 1 July 1998 and it sought to avoid those unintended consequences.  The first was avoided by a new transitional provision, which your Honours do not have, and the second by section 6D, and both provisions were intended to ameliorate or reverse unintended tainting consequences of the 1998 Act.  Neither was intended to enlarge the operation of any general provision such as section 159GZZZP.

Your Honours, in the application book at page 51, there are extracts from the explanatory memorandum at the bottom of page 51, paragraph 36 over to page 52:

The tainting rule within the Act prevents companies disguising a profit distribution as a tax‑preferred capital distribution –

Can I just pause there?  If the legislature regards capital distributions as tax‑preferred, not dividends, we have the reverse situation here where what was paid was a dividend not a tax‑preferred capital distribution.  They refer to the similar rule applying to share premium accounts and 1.7:

Since the tainting rule’s inception two unintended outcomes have emerged. First, the merger of tainted premiums with share capital on 1 July 1998 has the effect of tainting the new share capital account for tax purposes –

and 1.8:

Second, under the rules formerly applicable to share premium accounts before 1 July 1998, a share premium account did not become tainted when share premiums were credited to another account and then transferred to the share premium account –

Then the specific provisions which deal with section 6D appear in 1.23, 1.24, and if I could ask your Honours to look at 1.25:

To ensure that the delayed crediting of share capital to the share capital account does not inappropriately taint the account the amendments insert a new definition of ‘share capital account’ -

namely, section 6D.  Now, the Minister, in that explanatory memorandum, refers to 6D(1)(a) as referring to the company’s ordinary share capital account, which supports the construction which the full Federal Court reached, and they reached it not just by reference to the explanatory memorandum, but by reference to every relevant textual and contextual matter. 

Now, your Honours, as I said, the applicant’s real complaint in this case is that the respondent here obtained the benefit of a full rebate under former section 46, which no longer exists, because it was a public company and because none of the specific rebate anti‑avoidance provisions, and they are many, applied to it.  But what the applicant here seeks to do is to have ZZZP construed in some sort of anti‑avoidance way to reverse the particular result of this case and, in our respectful submission, as the Full Federal Court held, such an attempt should fail. 

That a rebate might be available for a deemed dividend under ZZZP was specifically envisaged in ZZZQ, which is at page 41 of the application book, and your Honours see over the page at page 42, subparagraph (8),

there is a reference to the rebatable amount and, your Honours, the purpose of that section was to ensure that a seller in a buy‑back did not get both a rebate and a capital loss.  So, it took away the capital loss if it got a rebate.

Now, the possibility of the availability or not of the former rebate can have no bearing, in our respectful submission, on the proper construction of 159GZZZP, and in particular as to whether and to what extend the buy‑back consideration is assessable as a dividend or is otherwise assessable, because in all circumstances the consideration is assessable.  That is why GZZZP is merely an allocation provision; it will lead to an assessable dividend or to an assessable capital receipt or an assessable revenue receipt depending upon the circumstances and depending upon whether there has been a debit to the amount standing for the credit of the shared premium account.  The section itself evinces no preference.

The evidence before the trial judge included expert accounting evidence and the financial reports upon which our learned friends rely, but that did not lead his Honour to conclude that ZZZP applied, that is, without the assistance of section 6D, which is what his Honour focused upon.  Now, your Honours, not only has the rebate since been abolished, but as our learned friends concede, following the Ralph Report, the intention to replace the existing provision with a new enactment has been announced.  If it is in truth desired to abolish the choice between dividends and other assessable receipts, which choice Ralph expressly recognised and remarked upon, then the opportunity can be taken in enacting the new replacement legislation to do whatever the revenue needs to have done.

Finally, your Honours, in contrary to the applicant’s unsupported assertions, there is no detriment to the revenue flowing from the Full Federal Court’s construction.  In fact, as I have pointed out to your Honours, there will be an increase in revenue if there is a debit to such a reserve because it will be a fully assessable dividend.  If the Court pleases.

FRENCH CJ:   Thank you, Mr Bloom.  Yes.

MR SULLIVAN:   Thank you, your Honour.  Your Honours, with respect to my learned friend’s comments about section 6D, the effect of the Full Court’s construction of 6D(1)(a) is that one cannot have a purely debit account in relation to share capital.  That does not, on the Full Court’s view, come within the provisions of 6D(1)(a). 

If I can take your Honours back to the statutory materials, tab 2 at page 13.  Paragraph (a) and paragraph (b) stand, in our submission, in some contrast.  Paragraph (a) refers to “an account which the company keeps of its share capital”, paragraph (b) “any other account . . . where the first amount credited to the account was an amount of share capital” where that crediting occurred after 1 July 1998.

Now, my learned friend, in his submissions, suggested that this definition was introduced in 1999 to deal with the unintended tainting consequences.  In our submission, the comments in the explanatory memorandum that my learned friend went to at page 53 indicate that that was the work done by paragraph (b) but, with respect, paragraph (a) stood separately and, in our submission, it is inappropriate that paragraph (a) be read down as my learned friend suggests, and as the Full Court has done, to include only one account and that is the account to which share capital was originally credited. 

In our submission that is an impermissibly narrow view.  The words “an account” contemplate that it might be more than one, and there is no reason why “an account” in relation to share capital cannot be a debit account.  As a consequence, a company which creates an account for the purpose of recording returns of share capital and records only debits in that account, on the view of the Full Court, that would not be a share capital account. 

Now, that has an anomalous consequence that occurs in this case.  While the company had share capital before the buy‑back of $2.4 billion and it returned $1 billion of share capital and as the accounts that I have taken your Honours to reflect that the share capital now for company law and accounting purposes has been reduced to $1.4 billion, because of the definition of “paid‑up share capital”, which is at page 8 of the statutory materials:

paid‑up share capital of a company means the amount standing to the credit of the company’s shared capital account reduced by –

(a) and (b), which are not presently relevant.  Now, on the basis that the share buy‑back reserve account is not a share capital account then this company has for tax purposes a paid‑up share capital of $2.4 billion notwithstanding that for company law and accounting purposes its share capital is clearly only $1.4 billion, and that is an anomalous consequence which can affect all of the provisions of the Act which operate in respect of that definition of “paid‑up share capital” which in turn depends upon the definition of “share capital account”.

So the consequence, your Honours, is that we would submit that the reading down of paragraph (a) of the definition of “share capital account” is a critical aspect of this case in respect of which the Full Court erred because it viewed that as somehow appropriate having regard to the amelioration

amendments which were made in 1999, which my learned friend has taken you to, and that is where the Full Court went astray.

FRENCH CJ:   Mr Sullivan, can you briefly just address the point relating to section 46?

MR SULLIVAN:   The rebate?

FRENCH CJ:   The vanishing rebate, yes.

MR SULLIVAN:   Yes, I was about to come to that, your Honour.  Our real complaint is not about the rebate; the real complaint is the fact that the Full Court’s conclusion effectively gives a shareholder a complete choice as to whether the buy‑back consideration will be treated as a dividend on the one hand or as a capital gains tax receipt on the other.  That was not an intention of the legislation. 

Now, there might be a number of other consequences that flow, notwithstanding the abolition of the rebate.  So, rebatability is not really the issue here.  The issue is whether or not the section should stand and operate in a form which just entitles a company effecting a buy‑back to make a choice as to whether or not the buy‑back consideration, be it a return of capital, will be capital gains tax consideration or whether it will be a dividend, and, in our submission, the latter consequence was just never intended by the Act.

FRENCH CJ:   Thank you, Mr Sullivan.

MR SULLIVAN:   If it please the Court.

FRENCH CJ:   There will be a grant of special leave.  A time estimate, Mr Sullivan?

MR SULLIVAN:   One day I would think, your Honours.

FRENCH CJ:   Mr Bloom?

MR BLOOM:   A day, your Honour.

FRENCH CJ:   Yes.  Now, again, I will put the same inquiry to you as I put to the previous parties.  Would you be ready for a hearing in the first week of the October sittings?

MR SULLIVAN:   Your Honours, I do not have my diary with me, but I have other matters that give me difficulty in the first week of October.  I am in much the same position as I think counsel were in the previous matter, but the second week might be achievable, but the first week is problematic for me.

FRENCH CJ:   Yes.

MR BLOOM:   I can only speak for myself, I am available in the first week, your Honour, but I do not think your Honours just want me there.

FRENCH CJ:   No, no, no.  It would make it shorter I suppose, Mr Bloom.

AT 10.59 AM THE MATTER WAS CONCLUDED