Case: Tio v Minister for Immigration and Multicultural and Indigenous Affairs [2003] FCAFC 53 ; (2003) 126 FCR 185
Outcome: referred to
The broad subject matter is the tax treatment of consolidated groups and leaving members. Section 711-5(3) expressly states that the object in s 711-5(2) preserving the relevant alignment of head company's costs for membership interests is to be "achieved by recognising the head company's cost for those interests, just before the leaving time" as equalling "the cost of the leaving entity's assets at the leaving time" reduced by its liabilities. In this context, the phrases "just before the leaving time" and "at the leaving time" are intended to refer to essentially the same time. Whilst it might be thought that the use of different words was intended to refer to different points in time ("just before" as opposed to "at"), this interpretation would not, so it seems to me, make much sense in this context. It is to be borne in mind that the calculation under s 711- 45 (1) is for the purpose of determining the tax liability of the consolidated group be reference to the assets in the subsidiary company that is about to leave the group. Absent any contrary indication, it seems most reasonable to make this calculation done just before the company leaves the group. It therefore makes much better sense if the expression "at the leaving time" (a somewhat elastic phrase) is understood as synonymous with the phrase "just before the leaving time". The phrase "at the leaving time" has a different connotation from the phrase "at midnight", which was discussed by Stone J in Tio v Minister for Immigration and Multicultural and Indigenous Affairs [2003] FCAFC 53 ; (2003) 126 FCR 185 at [41] . 63 If the phrase "at the leaving time" is properly to be understood as meaning "just before the leaving time" in s 711-5(3), then, in the absence of any contrary indication, the same phrase is to be understood in the same way elsewhere in Div 711 and Pt 3 - 90 and, in particular, in s 711- 45 (1). I reject the taxpayer's submission that the phrase "just before the leaving time" and "at the leaving time" refer to different and distinct concepts. 64 There are a number of considerations that provide further support for this approach. First, as the analyses accompanying the Commissioner's written submissions showed, the taxpayer's construction would mean that the gain made on the sale of the shares was not brought to tax under Pt-3-90. That is, the taxpayer's construction would leave out of account under this regime the deduction of liabilities of about $25 million, which were said to be due to Mr Handbury and Nominees, although, as the taxpayer pointed out, part at least might be taxed on some other basis. The result would appear to be inconsistent with the principles on which Pt 3 - 90 is said to be based, especially s 711-5(3), and with its stated objects. It is worth emphasizing that the overarching object is to align the cost of the membership interests in a leaving entity with the cost of the net assets of the entity when the head company held all the membership interests in the leaving entity: see ss 701 -15(2) and 711-5(2). It is scarcely necessary to refer to s 15AA of the Acts Interpretation Act 1901 (Cth) to affirm the principle that a construction that promotes the objects of the statutory regime in Pt 3 - 90 , as a whole and in specific aspects, is to be preferred to a construction that does not promote these objects. Whilst I accept that, in the taxation context, a consideration of this kind is not necessarily determinative, nonetheless it seems to me an important one. I reject the taxpayer's argument that I should not place much weight on this consideration.