AusNet appeals Federal Court capital allowance deductions case
AusNet has confirmed to Accounting Times it has appealed the Federal Court’s decision to uphold the Tax Commissioner's findings.
Last month, the Federal Court rejected AusNet Services’ claim that it was entitled to an uplift in the cost bases of assets involved in its restructuring. The company has confirmed to Accounting Times it has lodged its appeal.
The decision was an “interesting” one, said Neil Pereira, managing director of corporate and international tax at Alvarez & Marsal.
Typically, cases of this nature tend to involve a company seeking to apply Division 615 of the Income Tax Assessment Act 1997 to their restructuring, therefore making available certain capital gains tax deductions. In this case, however, AusNet Services was making the opposite case.
The dispute concerned the restructuring of the AusNet Group, a tripled-stapled structure made up of two companies, AusNet Services (Transmission) Limited and AusNet Services (Distribution) Limited, and a trust, AusNet Services Finance Trust.
After a previous dispute with the ATO, the Group decided to un-staple and roll the entities over into a shelf company, AusNet Services Limited.
Importantly, the rollover was carried out in three stages, the first involving the shelf company’s acquisition of Transmission, followed by Finance, and Distribution – each conducted separately.
Per Division 615, the rollover was carried out to obtain CGT benefits, for which AusNet Services applied to the Tax Commissioner.
Later, AusNet Services claimed it was entitled to an uplift in the cost bases of the assets formerly held by Distribution, which would have increased the capital allowance deductions available to AusNet Services.
“They wanted an uplift, even though it was just a restructuring scenario, and therefore they didn’t want rollover to apply, because if it did, they would just inherit the historical cost base,” said Pereira.
The Federal Court, in approving the Tax Commissioner’s case, denied AusNet from accessing the uplift by application of the rollover provisions under Division 615.
While AusNet has not made public the grounds of its appeal, Pereira said the other major aspect of the decision – which dealt with questions around the “nothing else” qualification of Division 615 – was “not too controversial.”
“What they were pushing pretty hard were the shelf company requirements,” he said, adding it will be this limb he expects AusNet will “hang their hat on.”
AusNet Services claimed Division 615 ought not to apply to the Distribution acquisition because the provisions, by implication, apply only to shelf companies. In making this case, it relied on an interpretation of Taxation Ruling TR 97/18.
Given that the Distribution acquisition took place after the other two acquisitions, it cannot be said that AusNet Services was a shelf company at the time of the Distribution acquisition.
Justice Lisa Hespe did not accept this interpretation. Her Honour claimed that, while the drafters did not anticipate the application of the Division to stapled arrangements, a strict interpretation of the instrument precluded a finding that it applied only to shelf companies.
While the impact of the decision might be limited given the unusual nature of the taxpayer's case, Pereira said the “significance” of Justice Hespe’s findings lies in Her Honour’s statutory interpretation.
Pereira said the Court’s decision to look beyond the Distribution decision to consider it as part of a broader arrangement was “almost like an integrity measure.”
