Publish Date
Mar 07, 2024
Australia Bulletin
AusNet Services Ltd v Commissioner of Taxation [2024] FCA 90
Background
AusNet Services was a stapled group consisting of AusNet Services (Transmission) Limited, AusNet Services Finance (Finance) Trust and AusNet Services (Distribution) Limited.
Each unit in Finance was linked to a share in Transmission and a share in Distribution, such that none could be transferred or otherwise dealt with without the others.
The stapled securities were listed on the Australian and Singapore stock exchanges.
The full case transcript is available here.
AusNet Services’ Restructure
In 2015, AusNet Services underwent a restructure.
The restructure involved a series of schemes of arrangement that resulted in AusNet Services acquiring all of the shares in Transmission, the units in Finance and the shares in Distribution.
The former holders of the stapled securities became shareholders of AusNet Services.
Distribution became a subsidiary member of a tax consolidated group, with AusNet Services as the head company.
The Taxation Issue
The issue in this case was whether AusNet Services was entitled to an uplift in the cost bases of the assets formerly held by the Distribution tax consolidated group, which would have increased the capital allowance deductions that could be claimed by AusNet Services.
Court’s Decision
The Commissioner stated that AusNet Services had made a valid rollover election for Division 615 to apply, with the consequence that AusNet Services was not entitled to an increase in those cost bases.
AusNet Services disputed this, saying that the requirements of Sections 615-5(1)(c) and 615-20 could not be satisfied in relation to Distribution because of the characteristics of the company as the interposed company at the time of the Distribution scheme, i.e., the interposition was not a “shelf company.” Instead, because the applicant had at that moment already acquired the Transmission and Finance businesses, it was a company with a substantial market value.
The Court stated that § 615-5(1)(c) of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) required, by its terms, a focus on that which a shareholder receives under the scheme in exchange for the shares. It does not look to the consequences of the scheme, but rather the consideration or quid pro quo received for the disposal of the shares. Hence, the scheme satisfied the description of § 615-5(1)(c).
The Court held that whilst the scheme was a restructure of the affairs of Distribution and its associated entities, not just Distribution, under the terms of the Distribution scheme of arrangement, the Distribution shareholders in fact received one share in the applicant in exchange for the disposal of each Distribution share and “nothing else.”
The Court stated that the ratio comparison required by § 615-20(2) is seeking to ascertain whether at the completion of the scheme, the proportionate interest of each exchanging member in the market value of the interposed entity is the same as the proportionate interest that exchanging member held in the market value of the original entity, before the scheme.
Justice Hespe went on to state that AusNet’s construction of § 615-20(2)(a) was founded on the implicit importation into Div 615 of a requirement that the interposed company be a “shelf company.” On the applicant’s construction, the ratio in § 615-20(2)(a) does not equal the ratio in § 615-20(2)(b) unless the interposed is a “shelf company” prior to the scheme being carried out. It was not disputed that prior to the implementation of the schemes on 18 June 2015, the applicant was a “shelf company.” The applicant’s submission was that it was not a shelf company at the moment in time the Distribution scheme took place because the Distribution scheme took place after the Transmission scheme and the Finance scheme. At that point in time, the applicant was a company of significant value. The result, it is said, is that in the present case the ratios are not equal because persons who were Distribution shareholders already held shares of substantial value in the applicant, immediately prior to the disposal of their Distribution shares.
However, Justice Hespe found that when understood in the particular factual context, the Distribution scheme of arrangement implemented on 18 June 2015 was a scheme for reorganising the affairs of Distribution. The fact that the Distribution scheme was undertaken as part of a broader scheme involving schemes relating to Transmission and Finance does not alter the fact. Expressly, a requirement that the interposed company be a shelf company is not found in the express terms of the operative provisions of Div 615.
Significance AusNet Services Ltd v Commissioner of Taxation
A stapled arrangement was not contemplated by the drafters of the explanatory memorandum; however, as Justice Hespe noted, “[W]hen legislative “intention” is to be ascertained, “what is involved is the ‘intention’ manifested by the legislation.” “Statements as to legislative intention made in explanatory memoranda or by ministers or, in this case, by the Commissioner in a taxation ruling, cannot overcome the need to carefully consider the words of the statute to ascertain its meaning: Saeed v Minister for Immigration and Citizenship [2010] HCA 23; (2010) 241 CLR 252 at [31]; Mitsui & Co (Australia) Ltd v Commissioner of Taxation [2011] FCA 1423 at [132].”
The sequencing of the transaction therefore did not have the effect proposed by AusNet to avoid application of the Div 615 rollover.
