Decision impact statement
GE Capital Finance Australasia Pty Limited and Anor v Commissioner of Taxation
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Court Citation(s):
[2011] FCA 849
(2011) 219 FCR 420
2011 ATC 20-270
(2011) 84 ATR 128
Venue: Federal Court of Australia
Venue Reference No: VID 1042 of 2010 & VID 309 of 2011
Judge Name: Gordon J
Judgment date: 28 July 2011
Appeals on foot: No.
Impacted Advice
Impacted Practice Statements:- None
Subject References:
MEC group
Choice in writing
Rectification
Brief Summary of Facts
From March 2003 until 26 May 2004, the GE Capital Corporation (GECC) group undertook extensive planning for a potential initial public offering (IPO) of its global lenders' mortgage insurance businesses. In Australia, the businesses were conducted by two wholly owned subsidiaries of GE Capital Australia (GECA), GE Mortgage Insurance Pty Ltd (Old GEMI) and its subsidiary, GE Capital Mortgage Insurance Corporation (Australia) Pty Ltd (Old GEMICO).
The GE Company (GE) decided to aggregate the global businesses under a US company, Genworth Financial Inc (Genworth), the company to be listed in the IPO. As Old GEMI and Old GEMICO were not subsidiaries of Genworth, a decision was taken to incorporate GE Mortgage Insurance Holdings Pty Ltd (GEMIH) and a wholly owned subsidiary, GE Mortgage Insurance Company Pty Ltd (GEMICO) as subsidiaries of Genworth on 10 November 2003, with the intention that Old GEMI and Old GEMICO would later transfer their businesses to GEMICO.
In early 2003, Chris Vanderkley, the CFO and Tax Director of the Australian GE group, established a project to prepare the group for the new income tax consolidation regime as from 1 July 2003. The proposed consolidated groups, and their membership, were constantly being reviewed over the course of the 2004 income year. Mr Vanderkley formed a Steering Committee, with representatives from each of the group's major business units, to monitor the project. Chris Davies, the tax compliance manager of GE Capital Finance Australasia Pty Ltd (GECFAsia), was appointed to lead the project.
As part of that project, a number of proposals were considered about how Old GEMI, Old GEMICO, GEMIH and GEMICO would be treated under the new regime, particularly in the light of what was happening with the Genworth IPO project. In early March 2004, Mr Vanderkley decided that GECA and GECFAsia should form a MEC group as from 1 July 2003, being eligible tier-1 companies (indirectly wholly owned subsidiaries) of GECC as a top company, and that GEMIH and GEMICO would become members of that group. That decision was not formally recorded or noted on relevant project spreadsheets.
Old GEMI and Old GEMICO transferred their insurance businesses to GEMICO on 31 March 2004. The MEC group expected that the capital gain arising on that transfer would be ignored under the single entity rule in the consolidation regime. Genworth ceased to be owned by GECC when its shares were floated on the New York Stock Exchange on 25 May 2004. As such, GEMIH and GEMICO left the GECFAsia MEC group on that date.
Minutes of the project Steering Committee of 26 May 2004, and minutes of resolutions of the directors of GECFAsia, GECA and GEMIH of 12 July 2004, approved the formation of the GECFAsia MEC group as from 1 July 2003. The minutes record GEMIH and GEMICO forming part of the MEC group as from 1 July 2003, when they could only become members when incorporated on 10 November 2003.
The mistakes flowed into the approved form (NAT 7024) that Mr Davies and Mr Vanderkley sent to the Commissioner in August 2004, under the then form of subsection 719-50(1) of the ITAA 97, notifying him of the formation of the GECFAsia MEC group (including GEMIH) as from 1 July 2003, but not notifying, under the then form of subsection 719-5(4), of the choice by GECFAsia that GEMIH became a member of the group after that date, and left on 25 May 2004. The Commissioner acknowledged the incorrect information in the notice on 27 August 2004.
GECFAsia's tax returns for the income years ended 31 December 2003 and 2004 were lodged on the basis that GEMIH and GEMICO were members of its MEC group from 10 November 2003 to 25 May 2004.
Tax Laws Amendment (2010 Measures No 1) Act 2010 retrospectively amended paragraph 719-5(4)(c) to only require GECFAsia to make a choice in writing that GEMIH become a member of its MEC group as from when GEMIH became an eligible tier-1 company of GECC, i.e., from 10 November 2003. The Commissioner contended that no choice was made for GEMIH to join the GECFAsia MEC group and that, if a choice was made, the choice was not made in writing, as required by paragraph 719-5(4)(c).
GECFAsia and GECA sought declarations under section 39B of the Judiciary Act 1903 and section 21 of the Federal Court of Australia Act 1976 that GEMIH and GEMICO became members of the GECFAsia MEC Group with effect from 10 November 2003. Alternatively, they sought an order that the NAT 7024 form be rectified by inserting '10 November 2003' after 'if joined after date of consolidation, give date joined the group' in each section dealing with GEMIH and GEMICO. In related tax appeal proceedings under Part IVC of the Taxation Administration Act 1953, it was agreed that a similar question be decided about whether GEMIH and GEMICO became members of the MEC Group from 10 November 2003.
Issues decided by the Court
The Federal Court (Gordon J) made the declaration that GEMIH and GEMICO became members of the GECFAsia MEC Group with effect from 10 November 2003. Her Honour also answered the preliminary question in the Part IVC proceedings to similar effect.
Mr Vanderkley was authorised to make the choice
Her Honour accepted that, by reason of his office with the company, Mr Vanderkley had the requisite authority on behalf of GECFAsia to make the choice under paragraph 719-5(4)(c) (paragraph 65) and actually made the choice for GEMIH to become a member of the MEC group as from 10 November 2003 (paragraphs 74 and 76). The project Steering Committee approval was a mere formality, and the purpose of the board resolutions of GEMIH, GECA and GECFAsia was only to communicate finalisation of the project to the boards. Her Honour also found that the approved form was given by GECFAsia through Mr Vanderkley as its public officer under paragraph 252(1)(g) of the Income Tax Assessment Act 1936 (ITAA 36) (paragraph 68).
The choice did not need to specify a date that was fixed by law anyway
While subparagraph 719-5(4)(c)(ii) requires the head company of a MEC group to state in its 'choice in writing' that specified eligible tier-1 companies are to become members of the group 'with effect from' the time that they become eligible tier-1 companies, her Honour found that this does not require the head company to state a day or time in the written choice, because the time is fixed by the ITAA 97, and is not a matter for the head company to have a view about. The head company need do no more than specify the eligible tier-1 companies in the choice (paragraphs 81 to 84). Her Honour then found that the NAT 7024 form constituted the relevant 'choice in writing' for GEMIH to become a member of the MEC group (paragraph 85).
If it had mattered, the date was not in fact specified
Though not necessary to decide, her Honour also found that, if the 'choice in writing' was required to specify the date that GEMIH joined the MEC group, neither the NAT 7024 form on its own, nor other contemporaneous documents of the GE group read together, specified the relevant date of incorporation of GEMIH (paragraphs 95, 101 and 102).
If there were an omission, this was a mistake that the Court could rectify
Finally, if there was a view that no 'choice in writing' was made, her Honour was satisfied that the omission of '10 November 2003' from sections of the NAT 7024 form dealing with GEMIH and GEMICO was a mistake and should be rectified in the way sought by GECFAsia and GECA (paragraph 118). Mr Vanderkley's intention was for the GECFAsia MEC group to form on 1 July 2003, with GEMIH and GEMICO to join the group on 10 November 2003. By mistake, the form provided to the Commissioner did not include the joining date and failed to give effect to Mr Vanderkley's intentions. It was appropriate to rectify that mistake (paragraphs 110 to 117).
ATO view of Decision
Actual authority
The ATO accepts that it was open on the evidence before the Court for her Honour to find that Mr Vanderkley had the requisite authority on behalf of GECFAsia to make the choice in writing under paragraph 719-5(4)(c), and actually made the choice for GEMIH to become a member of the MEC group as from 10 November 2003.
Deemed act of the company under section 252
Her Honour accepted in paragraph 68 that Mr Vanderkley was required in 2004 to give to the Commissioner as a public officer the 'approved form' referred to in the form of paragraph 719-5(4)(c) before the amendments made by the Tax Laws Amendment (2010 Measures No 1) Act 2010, such that, in doing so, paragraph 252(1)(g) of the ITAA 36 deemed GECFAsia to have given the form. However, the ATO considers that paragraph 252(1)(g) does not apply to deem a 'choice in writing' made by a person acting as a public officer of a company as a choice made by the company under the current form of paragraph 719-5(4)(c) because making that choice is not something which a company, and therefore its public officer, is required to do (see Pearson v FC of T [2001] FCA 171, at [33]).
Further, the reasoning which led to her Honour accepting that, under the previous version of the law, the public officer was required to give a notice in the approved form to the Commissioner, in the sense contemplated by section 252, does not, with respect, clearly appear. The only consequence of not giving such a notice would be that the desired MEC group is not formed. The point at paragraph 68 is not essential to the decision reached in the case (in view of the earlier finding that Mr Vanderkley was in fact authorised to make the choice), was not the subject of detailed submissions by the parties and appears to conflict with the decision in Pearson.
In making the above observations, the ATO is not suggesting that there are any decisions or choices which only a company's board may make, or that a board might need to provide a public officer or any other agent with specific authority to do so every time such a decision is to be made. However, section 252 does not operate to deem a public officer to have the company's authority to do anything that a company may choose to do under the income tax law, as distinct from what it is required to do under the income tax law.
Examples of matters that the company is required to undertake in the course of its normal compliance activity would include lodging tax returns and business activity statements as well as providing notifications of choices once they have been made (in circumstances where such notification is a statutory requirement). However, as noted earlier, the deeming under section 252 does not extend to the making of the relevant choices themselves.
Issues in relation to agency such as implied and actual authority, do not only arise in a tax context. In the normal course it would be expected that a company would know and could identify what sorts of tax decisions its public officer is actually authorised to make on its behalf, even implicitly.
A date that is fixed by law need not be specified in the written choice
The ATO accepts the view of the Court that the current form of paragraph 719-5(4)(c) only requires a head company of a MEC group to state, in its choice in writing, that specified eligible tier-1 companies are to become members of the MEC group, and does not require the head company to state a day or time of joining. However, the ATO would note that, once a valid choice in writing is made under paragraph 719-5(4)(c), the head company is required under subsection 719-77(2) to give the Commissioner a notice in the approved form of information relevant to the choice (although a failure to do so would not affect the validity of the choice itself). A notice given by the public officer of the head company would be deemed to have been given by the company through the operation of paragraph 252(1)(g).
Rectification
It is not clear from the decision whether her Honour's obiter comments about rectification of the NAT 7024 form were embodied in the declarations made in the proceedings under section 39B of the Judiciary Act or in the answer given to the preliminary question in the Part IVC proceeding. However, the ATO would note that, through the operation of sections 175 and 177 of the ITAA 36, the effect that rectification of the form has on whether the amount and all the particulars of an assessment are correct can only be reviewed in the Part IVC proceeding.
Administrative Treatment
For consistency with the view on the section 252 issue expressed by the ATO above, the ATO will amend section C7-1-110 of the Consolidation Reference Manual to remove the current statements that the public officer of the provisional head company (PHC) of a MEC group must sign the written choice. The removal of those statements should not be taken to mean that the ATO considers that choices in writing made under paragraph 719-5(4)(c) that have been signed and dated by the public officer of a PHC are ineffective. Nor does it imply any intention to carry out some broad review in practice of whether public officers have in fact been authorised to make choices on behalf of their companies.
Indeed, if a choice in writing is made by a company's public officer purportedly on behalf of the company, it in practice will usually be safe to infer that the public officer had the company's authority to do so, unless there is some particular reason to think otherwise.
Implications for ATO precedential documents (Public Rulings & Determinations etc)
None
Implications on Law Administration Practice Statements
None
Legislative References:
Federal Court of Australia Act 1976
s 21
Federal Court Rules
O 29 r 2
Income Tax Assessment Act 1936
s 252(1)(g)
Income Tax Assessment Act 1997
Part 3-90
701-1
Division 719
719-5(4)
719-5(4)(c)
719-10
719-15
719-20
719-50(1)
719-76
719-77
Judiciary Act 1903
39B
Taxation Administration Act 1953
Part IVC
Tax Laws Amendment (2010 Measures No 1) Act 2010
The Act
Case References:
Allnut v Wilding
[2006] EWHC 1905
Allnut v Wilding
[2007] EWCA Civ 412
Australia & New Zealand Banking Group Ltd v Widin
(1990) 26 FCR 21
BHP Petroleum (Timor Sea) Pty Ltd v Minister for Resources
(1994) 49 FCR 155
28 ATR 16
Butlin's Settlement Trusts In re
[1976] Ch 251
Chartbrook Ltd v Persimmon Homes Ltd
[2009] 1 AC 1101
[2009] 4 All ER 677
[2009] 3 WLR 267
CIC Insurance Ltd v Bankstown Football Club Ltd
(1997) 187 CLR 384
Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd
(1995) 41 NSWLR 329
31 ATR 281
95 ATC 4620
Fitzgerald v Masters
(1956) 95 CLR 420
Gibbon v Mitchell
[1990] 3 All ER 338
Harvey v Edwards, Dunlop & Co Ltd
[1927] HCA 13
39 CLR 302
Kent v Brown
(1942) 43 SR (NSW) 124
Maggbury Pty Ltd v Hafele Australia Pty Ltd
[2001] HCA 70
210 CLR 181
MW McIntosh Pty Limited v Commissioner of Taxation
[2009] FCAFC 88
178 FCR 100
2009 ATC 20-119
76 ATR 231
P v Board of Australian Crime Commission & Ors
(2006) 151 FCR 114
Project Blue Sky Inc v Australian Broadcasting Authority
(1998) 194 CLR 355
Pukallus v Cameron
(1982) 180 CLR 447
Racal Group Services v Ashmore
[1995] STC 1151
Spencer v The Commonwealth
[2010] HCA 28
241 CLR 118
Spunwill Pty Ltd v BAB Pty Ltd
(1994) 36 NSWLR 290
Telstra Corporation Ltd v Ivory
[2008] QSC 123
The Application of GE Mortgage Insurance Pty Ltd
[2004] FCA 154
Wills v Gibbs
[2007] EWHC 3361 (Ch)
Other References:
Consolidation Reference Manual