Financial Synergy Holdings Pty Ltd v FC of T  FCAFC 31 - High Court denies application for special leave to appeal
On 11 October 2016 the High Court refused the Commissioner’s application for special leave to appeal against the Full Federal Court’s decision in Financial Synergy Holdings Pty Ltd v FC of T  FCAFC 31.
The decision concerned the value attributable for the purposes of calculating the allocable cost amount (ACA) under s 705-65 of ITAA 1997, to the cost base of the head company taxpayer’s interest in a unit trust on the formation of the tax consolidated group on 1 July 2007.
The units had been transferred by the transferor to the head company on 29 June 2007 for 30 million $1 shares in the head company. A subdivision 122-A roll-over had been applied to disregard any capital gain and preserve the pre-CGT status of the units.
The taxpayer contended that the units had a market value of $30 million for the purposes of the ACA calculation rather than $1.5 million (as contended by the Commissioner).
The Full Federal Court determined that the ‘time of acquisition’ of the units for the purposes of s 110-25(2) was the time when the head company taxpayer acquired the units (29 June 2007). In doing so, the court confirmed the taxpayers position that the units had a market value of $30 million for the purposes of the ACA calculation.
Further, the court observed that:
- the effect of s 122-70 (preserving pre-CGT status) did not extend to the time of acquisition of the shares for the purposes of determining cost base under s 110-25(2); and
- while s 716-855 provided that the cost base of a pre-CGT asset for a recipient under a Subdivision 126-B roll-over was the same as that of the transferor, there was no similar provision in the context of subdivision 122.
The decision highlights the inconsistencies between the CGT rollover provisions and the tax consolidation provisions, which were identified by the Board of Taxation in its 2013 Post-Implementation Review into Certain Aspects of the Consolidation Regime. Legislative amendments are required to address these inconsistencies.
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