Decision impact statement

Visy Packaging Holdings Pty Ltd v Commissioner of Taxation

Court citation:
[2012] FCA 1195
2012 ATC 20-357
(2012) 91 ATR 810

Venue: Federal Court of Australia
Venue Reference No: VID 979-80, 1123-4, 1126, 1131, 1133, 1135, 1137-8 and 1144-5 of 2010
Judge Name: Middleton J
Judgment date: 2 November 2012
Appeals on foot: No
Decision Outcome: Adverse

Impacted Advice

Relevant Rulings/Determinations:

• Nil

Impacted Practice Statements:

• Nil

Subject References:
Losses
Loss transfers
Profit making scheme
Evidence of profit making purpose

Précis

Outlines the ATO's response to this case, which concerned whether companies in the Pratt Group were entitled to certain deductions and loss transfers for losses incurred in acquiring and disposing of various packaging businesses and assets of Southcorp Ltd.

Brief summary of facts

Until the late 1990s, the Pratt Group was principally involved in manufacturing cardboard cartons (secondary packaging) for supply to customers. In July 2000, the Group began to investigate the purchase of various packaging businesses from Southcorp Ltd, including those producing 'primary packaging', which provided 'synergies' to its existing businesses. However, continuing negotiations with Southcorp made it clear that Southcorp was only prepared to sell a wider range of businesses at a discount to market value. The Group considered it possible to make a profit from selling at market value those businesses which it did not want to keep. Southcorp agreed in August 2000 to sell all of the business assets to the Group for $828m. Final decisions were made in September 2000 about which businesses the Group would retain and which it would sell.

On 20 November 2000, Visy Packaging Holdings P/L (VPH) was incorporated as a wholly owned subsidiary of Visy Industries Australia P/L (VIA) to conclude a procurement agreement with Southcorp, whereby VPH would procure Group entities to purchase the Southcorp businesses for $822m. In December 2000, various Group subsidiaries were incorporated for that purpose, and the Group received financial results for the Southcorp businesses for October and November 2000, showing deterioration in earnings which might affect the market values of the businesses. On 31 January 2001, the new Group subsidiaries acquired the Southcorp businesses, and VPH, VIA and another subsidiary (VPO) acquired shares in those subsidiaries. Based on financial information then available, there was also little prospect of any profit being made on the proposed sales of the businesses to be sold.

In November 2001 and June 2002, the Group incurred losses on the disposal of the shares in the companies that acquired the Southcorp businesses to be sold. The losses were treated as revenue losses by the relevant Group entities involved. Some of the losses were transferred to other Group entities.

Issues decided by the Federal Court

His Honour, Middleton J accepted that the losses on the disposal of the shares were incurred in the course of gaining or producing the assessable income of VPH, VIA and VPO. While the Group acquired the Southcorp businesses in part to expand and strengthen its capital structure, part of the purpose of the overall scheme of acquisition was to divest some of the businesses that were not wanted at a profit. The divestment scheme envisaged the acquisition of the Southcorp businesses by newly incorporated Group subsidiaries, the acquisition of shares in those subsidiaries by VPH, VIA and VPO and the later sale of those shares at a profit. Accordingly, the acquisition of the shares in the subsidiaries is stamped with the same profit making purpose as the acquisition of the Southcorp businesses by the subsidiaries. His Honour was also not prepared to accept an argument that VPH, VIA and VPO abandoned their profit making scheme before realising the loss on disposal of shares in the subsidiaries.

ATO view of Decision

Based on the evidence before the Federal Court, and the facts as found, the ATO accepts that it was open to the Court to find that the losses incurred by VPH, VIA and VPO on the disposal of the shares in the subsidiaries were incurred as part of a scheme to divest some of the acquired Southcorp businesses for a profit.

Administrative Treatment

Implications for ATO precedential documents (Public Rulings & Determinations etc)

Nil

Implications for Law Administration Practice Statements

Nil

Legislative References:
Income Tax Assessment Act 1997
8-1

Case References:
ASIC v Hellicar
[2012] HCA 17
(2012) 286 ALR 501

BP Australia Ltd v FC of T
(1965) 112 CLR 386

Chapman (NT) v FC of T
(1968) 117 CLR 167

Dasreef Pty Limited v Hawchar
[2011] HCA 21
(2011) 243 CLR 588

FC of T v Becker
(1952) 87 CLR 456

FC of T v BHP Billiton Finance Ltd
[2010] FCAFC 25
(2010) 182 FCR 526
2010 ATC 20-169
76 ATR 472

FC of T v BHP Billiton Limited
[2011] HCA 17
(2011) 244 CLR 325
2011 ATC 20-264
79 ATR 1

FC of T v Citylink Melbourne Limited
(2006) 228 CLR 1
[2006] HCA 35
62 ATR 648
2006 ATC 4404

FC of T v Cooling
(1990) 22 FCR 42
21 ATR 13
90 ATC 4472

FC of T v Myer Emporium Ltd
(1987) 163 CLR 199
18 ATR 693
87 ATC 4363

FC of T v SNF (Australia) Pty Ltd
[2011] FCAFC 74
(2011) 193 FCR 149
2011 ATC 20-265
82 ATR 680

FC of T v Visy Industries USA Pty Ltd
[2012] FCAFC 106
2012 ATC 20-340
205 FCR 317

FC of T v Whitfords Beach Pty Ltd
(1982) 150 CLR 355
12 ATR 692
82 ATC 4031
[1982] HCA 8

GE Capital Finance Australasia Pty Ltd v FC of T
[2011] FCA 849
2011 ATC 20-270

Hallstroms Pty Ltd v FC of T
(1946) 72 CLR 634

Henry Jones (IXL) Limited v FC of T
(1991) 31 FCR 64
22 ATR 328
91 ATC 4663

Hobart Bridge Company Limited v FC of T
(1951) 82 CLR 372

King v Jetstar Airways Pty Ltd
[2011] FCA 1259

Macquarie Finance Ltd v FC of T
(2002) 146 FCR 77
[2005] FCAFC 205
2005 ATC 4829
61 ATR 1

Metal Manufactures Ltd v FC of T
[1999] FCA 1712
99 ATC 5229
43 ATR 375

Smorgon v Australia and New Zealand Banking Group Ltd
(1976) 134 CLR 475
76 ATC 4364
6 ATR 690

Spassked Pty Ltd v FC of T
[2003] FCAFC 282
(2003) 136 FCR 441
2003 ATC 5099
54 ATR 546

Spassked Pty Ltd v FC of T (No 5)
[2003] FCA 84
(2003) 197 ALR 553
2003 ATC 4184
52 ATR 337

Steinberg v FC of T
[1975] HCA 63
(1975) 134 CLR 640
3 ATR 570
73 ATC 4030

Summons v FC of T
(1986) 80 ALR 95
86 ATC 4979
18 ATR 235

Sun Newspapers Ltd v FC of T
(1938) 61 CLR 337

Tesco Supermarkets Ltd v Nattrass
[1972] AC 153
[1971] 2 All ER 127

Tweddle v FC of T
(1942) 180 CLR 1
21 ATR 1398
91 ATC 4234

Westfield Ltd v Commissioner of Taxation
(1991) 28 FCR 333
21 ATR 1398
91 ATC 4234

Visy Industries USA Pty Ltd
[2012] FCAFC 106
2012 ATC 20-340