Visy Packaging Holdings Pty Ltd v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Federal Court of Australia (VID 979-80, 1123-4, 1126, 1131, 1133, 1135, 1137-8 and 1144-5 of 2010)
Judgment date: 2 November 2012
Date published: 12 March 2013

Summary of decision:
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.

Overview 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.

Issues decided:
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
Subject references: Losses Loss transfers Profit making scheme Evidence of profit making purpose