Tasman Group Services Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia (No 2)

Case [2008] FCA 218

FEDERAL COURT OF AUSTRALIA

Tasman Group Services Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia (No 2) [2008] FCA 218

INCOME TAX – orders giving effect to earlier reasons

Income Tax Assessment Act 1936 (Cth) Sch 2C

TASMAN GROUP SERVICES PTY LTD v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

VID 605 AND 606 OF 2005

HEEREY J

3 MARCH 2008

MELBOURNE


IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

VID 605 AND 606 OF 2005

BETWEEN:

TASMAN GROUP SERVICES PTY LTD
Applicant

AND:

COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Respondent

JUDGE:

HEEREY J

DATE OF ORDER:

3 MARCH 2008

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.The appeal in each application be allowed.

2.Each of the objection decisions the subject of the appeals be set aside.

3.Each objection be allowed in part on the footing that s 245-55(4) of Schedule 2C of the Income Tax Assessment Act 1936 (Cth) applies, thus the solvency assumption in s 245-55(2)(a) and (3)(a)(ii) does not apply, in determining the notional value of the debts the subject of the appeals and accordingly:

3.1the “notional value” of the debts calculated in accordance with s 245-55 was $58,906,123;

3.2the “consideration” in respect of the forgiveness of the debts determined in accordance with s 245-65 was $17,481,614;

3.3the “gross forgiven amount”, the “net forgiven amount” and the “total net forgiven amount” determined in accordance with ss 245-75, 245-85 and 245-105(1), respectively, was $41,424,509;

3.4ss 245-105 and 245-115 apply to the extent that the total “deductible revenue losses” of the Applicant at 31 December 2001 of $70,699,732 be reduced by $41,424,509 to $29,275,223;

3.5ss 245-105 and 245-130 do not apply to reduce the Applicant’s “deductible net capital loss” of $761,439 as at 31 December 2001;

3.6ss 245-105 and 245-145 do not apply to reduce the Applicant’s “deductible expenditures” of $19,170,937 as at 31 December 2001;

3.7ss 245-105 and 245-175 do not apply to reduce the Applicant’s “relevant cost base of reducible assets” of $15,673,198 as at 31 December 2001; and

3.8as a result of the foregoing the taxable income of the Applicant in the 2003 and 2004 tax years is nil.

4.The Respondent will issue amended assessments to the Applicant for the 2003 and 2004 tax years to give effect to order 3.

5.Except as provided for in order 6, the Respondent pay 50% of the costs of the Applicant in respect of the appeals including reserved costs but excluding the Applicant's costs in the Notice of Motion filed on behalf of the Applicant on 10 February 2006.

6.The Applicant pay the Respondent’s costs in the Notice of Motion filed on behalf of the Applicant on 10 February 2006.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.


IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

VID 605 AND 606 OF 2005

BETWEEN:

TASMAN GROUP SERVICES PTY LTD
Applicant

AND:

COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Respondent

JUDGE:

HEEREY J

DATE:

3 MARCH 2008

PLACE:

MELBOURNE

REASONS FOR JUDGMENT

  1. The parties agree that the following orders should be made to give effect to the reasons contained in Tasman Group Services Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2008] FCA 23:

    1.The appeal in each application be allowed.

    2.Each of the objection decisions the subject of the appeals be set aside.

    3.Each objection be allowed in part on the footing that s 245-55(4) of Schedule 2C of the Income Tax Assessment Act 1936 (Cth) applies, thus the solvency assumption in s 245-55(2)(a) and (3)(a)(ii) does not apply, in determining the notional value of the debts the subject of the appeals and accordingly:

    3.1the “notional value” of the debts calculated in accordance with s 245-55 was $58,906,123;

    3.2the “consideration” in respect of the forgiveness of the debts determined in accordance with s 245-65 was $17,481,614;

    3.3the “gross forgiven amount”, the “net forgiven amount” and the “total net forgiven amount” determined in accordance with ss 245-75, 245-85 and 245-105(1), respectively, was $41,424,509;

    3.4ss 245-105 and 245-115 apply to the extent that the total “deductible revenue losses” of the Applicant at 31 December 2001 of $70,699,732 be reduced by $41,424,509 to $29,275,223;

    3.5ss 245-105 and 245-130 do not apply to reduce the Applicant’s “deductible net capital loss” of $761,439 as at 31 December 2001;

    3.6ss 245-105 and 245-145 do not apply to reduce the Applicant’s “deductible expenditures” of $19,170,937 as at 31 December 2001;

    3.7ss 245-105 and 245-175 do not apply to reduce the Applicant’s “relevant cost base of reducible assets” of $15,673,198 as at 31 December 2001; and

    3.8as a result of the foregoing the taxable income of the Applicant in the 2003 and 2004 tax years is nil.

    4.The Respondent will issue amended assessments to the Applicant for the 2003 and 2004 tax years to give effect to order 3.

    5.Except as provided for in order 6, the Respondent pay 50% of the costs of the Applicant in respect of the appeals including reserved costs but excluding the Applicant's costs in the Notice of Motion filed on behalf of the Applicant on 10 February 2006.

    6.The Applicant pay the Respondent’s costs in the Notice of Motion filed on behalf of the Applicant on 10 February 2006.

I certify that the preceding one (1) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey.

Associate:

Dated:        3 March 2008

Counsel for the Applicant: J W de Wijn QC and F J Alpins
Solicitor for the Applicant: Arnold Bloch Leibler
Counsel for the Respondent: G J Davies QC and D Harding
Solicitor for the Respondent: Australian Government Solicitor
Date of Hearing: 17, 18 December 2007
Date of Judgment: 3 March 2008
Details
AGLC
Tasman Group Services Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia (No 2) [2008] FCA 218
Case
[2008] FCA 218
Decision Date

CaseChat Overview and Summary

Tasman Group Services Pty Ltd sought judicial review of the decisions of the Commissioner of Taxation concerning objections lodged against amended assessments issued for the 2003 and 2004 tax years. The objection concerned the notional value of debts forgiven and the implications for the assessable income of the taxpayer. The case was heard in the Federal Court of Australia.

The central legal issue was the interpretation and application of sections 245-55, 245-65, 245-75, 245-85, 245-105, 245-115, 245-130, 245-145, 245-175 and 245-145 of Schedule 2C of the Income Tax Assessment Act 1936 (Cth). Specifically, the Court had to determine whether the solvency assumption under sections 245-55(2)(a) and 245-55(3)(a)(ii) applied, and if not, how the notional value of forgiven debts should be calculated. The Court also needed to resolve the implications of these calculations on the taxpayer's deductible revenue losses, deductible net capital losses, deductible expenditures and relevant cost base of reducible assets.

The Court found that the solvency assumption did not apply in this case. It held that the notional value of the debts was correctly calculated at $58,906,123, and the consideration for the forgiveness of the debts was $17,481,614. Consequently, the gross forgiven amount, net forgiven amount and total net forgiven amount were determined to be $41,424,509. The Court held that sections 245-105 and 245-115 applied to reduce the deductible revenue losses but did not apply to reduce the deductible net capital loss, deductible expenditures or relevant cost base of reducible assets. The Court's decision resulted in the taxpayer's taxable income for the 2003 and 2004 tax years being nil.

The Court ordered that the objections be allowed in part, the amended assessments be set aside, and the Commissioner issue new amended assessments reflecting the Court’s findings. The Court also directed that the Commissioner pay 50% of the costs of the taxpayer for the appeals, except for the costs incurred in a specific Notice of Motion. Conversely, the taxpayer was ordered to bear the costs associated with that Notice of Motion.

Orders

Orders of the court

1. The appeal in each application be allowed.

2. Each of the objection decisions the subject of the appeals be set aside.

3. Each objection be allowed in part on the footing that s 245-55(4) of Schedule 2C of the Income Tax Assessment Act 1936 (Cth) applies, thus the solvency assumption in s 245-55(2)(a) and (3)(a)(ii) does not apply, in determining the notional value of the debts the subject of the appeals and accordingly:

3.1 the “notional value” of the debts calculated in accordance with s 245-55 was $58,906,123;

3.2 the “consideration” in respect of the forgiveness of the debts determined in accordance with s 245-65 was $17,481,614;

3.3 the “gross forgiven amount”, the “net forgiven amount” and the “total net forgiven amount” determined in accordance with ss 245-75, 245-85 and 245-105(1), respectively, was $41,424,509;

3.4 ss 245-105 and 245-115 apply to the extent that the total “deductible revenue losses” of the Applicant at 31 December 2001 of $70,699,732 be reduced by $41,424,509 to $29,275,223;

3.5 ss 245-105 and 245-130 do not apply to reduce the Applicant’s “deductible net capital loss” of $761,439 as at 31 December 2001;

3.6 ss 245-105 and 245-145 do not apply to reduce the Applicant’s “deductible expenditures” of $19,170,937 as at 31 December 2001;

3.7 ss 245-105 and 245-175 do not apply to reduce the Applicant’s “relevant cost base of reducible assets” of $15,673,198 as at 31 December 2001; and

3.8 as a result of the foregoing the taxable income of the Applicant in the 2003 and 2004 tax years is nil.

4. The Respondent will issue amended assessments to the Applicant for the 2003 and 2004 tax years to give effect to order 3.

5. Except as provided for in order 6, the Respondent pay 50% of the costs of the Applicant in respect of the appeals including reserved costs but excluding the Applicant's costs in the Notice of Motion filed on behalf of the Applicant on 10 February 2006.

6. The Applicant pay the Respondent’s costs in the Notice of Motion filed on behalf of the Applicant on 10 February 2006.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.