COAL DEVELOPMENTS (GERMAN CREEK) PTY LTD v FC of T

Judges:
Spender J
Ryan J
Emmett J

Court:
Full Federal Court, Brisbane

MEDIA NEUTRAL CITATION: [2008] FCAFC 27

Judgment date: 11 March 2008

Spender, Ryan and Emmett JJ

1. This is an appeal from orders made by Dowsett J on 28 August 2007 dismissing an appeal by the appellant taxpayer ("CDGC") against an objection decision of the respondent Commissioner ("the Commissioner"); see
Coal Developments (German Creek) Pty Ltd ACN 009 974 896 v Commissioner of Taxation 2007 ATC 4991; [2007] FCA 1324. By that decision, the Commissioner disallowed CDGC's objection against an assessment of income tax for the income tax year ended 31 December 2001 (in lieu of the year ended 30 June 2002) ("the 2002 year").

2. In making that assessment, the Commissioner disallowed a claimed deduction of $13,372,739 for carried-forward losses. The last relevant change in the ownership and control of CDGC before 2001 had occurred on 25 March 1998. It was not disputed that CDGC was entitled to deduct carried forward losses incurred after that date provided that it satisfied the "same business" test by carrying on throughout the relevant business test period the same business as it had carried on immediately before the "test time" which in this case commenced on 25 March 1998; see s 165-13 of the Income Tax Assessment Act 1997 (Cth) ("the Assessment Act 1997").

3. The "same business" test was relevantly erected by s 165-210 of the Assessment Act 1997 which provides:

"165-210 The test

(1) The company satisfies the same business test if throughout the same business test period it carries on the same business as it carried on immediately before the test time.

(2) However, the company does not satisfy the same business test if, at any time during the same business test period, it derives assessable income from:

(a) a business of a kind that it did not carry on before the test time; or

(b) a transaction of a kind that it had not entered into in the course of its business operations before the test time.

(3) The company also does not satisfy the same business test if, before the test time, it:

(a) started to carry on a business it had not previously carried on; or

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(b) in the course of its business operations, entered into a transaction of the kind that it had not previously entered into;

and did so for the purpose, or for purposes including the purpose, of being taken to have carried on through the same business test period the same business as it carried on immediately before the test time.

(4) So far as the same business test is applied for the purpose of Subdivision 165-B (which is about working out the taxable income and tax loss for the income year of change of ownership or control), the company also does not satisfy the test if, at any time during the same business test period, it incurs expenditure:

(a) in carrying on a business of a kind that it did not carry on before the test time; or

(b) as a result of a transaction of a kind that it had not entered into in the course of its business operations before the test time."

4. It has been submitted on behalf of CDGC that the primary facts are not disputed. The following recital of what are said to be the salient facts is taken, omitting footnotes, from the written submissions filed on behalf of CDGC.

"2. …

(1) On 18 January 1980, CDGC and the other participants in an unincorporated join venture called the Capricorn Coal Developments Joint Venture (CCDJV) entered into a Joint Venture Agreement (Joint Venture Agreement) and associated documentation to govern the joint venture. At this time CDGC's interest in the CCDJV was 20%.

(2) As contemplated by clause 7 of the Joint Venture Agreement, throughout the period from 1980 to (at least) December 2002, Capricorn Coal management Limited (CCM) conducted the management of the CCDJV on behalf of the CCDJV participants (including CDGC) at mines located in the German Creek region of the Bowen Basin, Queensland.

(3) In addition, from around 1992 to (at least) December 2002, CCM mined coal on behalf of the CCDJV participants (including CDGC) from another open cut mine operated by the Roper Creek Joint Venture at German Creek (the German Creek East Mine) pursuant to an agreement dated 30 march 1992 between each of the CCDJV participants (including CDGC) and each of the participants in the Roper Creek Joint Venture (German Creek East Agreement). The term of the German Creek East Agreement was 10 years from 1 April 1992 to 1 April 2002.

(4) In order to facilitate the day to day operations of the German Creek Mine and the German Creek East Mine, the participants in the CCDJV (including CDGC) entered into contractual agreements with third parties, which included the following:

(a) a contract for the transport of coal to the Dalrymple Coal Terminal at the port of Hay Point, Queensland being the Rail Haulage Agreement dated 28 march 1997 between CCM and Queensland Rail (Rail Haulage Agreement).

(b) a contract for the loading of the coal on to vessels at the port, being the Port User Agreement dated 25 November 1999 between Ports Corporation of Queensland and Shell Coal Pty Ltd (acting as agent for the participants in both the CCDJV and the Moranbah North Joint Venture)(Port User Agreement); and

(c) a lease of a conveyer network, being a lease dated 11 May 1995 from National Australia Bank Ltd to CCM (NAB Lease).

(5) Each of the agreements referred to in paras (3) and (4) imposed long term obligations directly on each of the CCDJV participants, including CDGC which extended beyond 31 December 2001.

(6) During the period from (at least) 1997 to 25 June 2001, all CDGC's share of the coal produced by the CCDJV (which was indistinguishable from the coal owned by the other participants) was sold by it to German Creek Coal Pty Ltd which was the entity which marketed and sold the coal to overseas buyers and had the relationships with customers.

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(7) At all material times in the period from 3 December 1990 to 25 June 2001, CDGC held a 12.06% direct interest in the CCDJV and a 2.75% indirect interest in the CCDJV through its holding of units in the Jena Unit Trust (the trustee of which was another participant in the CCDJV).

(8) On 25 March 1998, RAG Australia Coal Pty Ltd (RAGAC) acquired all the ordinary A class shares in CDGC and from that time until 25 June 2001, CDGC was a wholly owned subsidiary of RAGAC. This was the relevant change in ownership of shares in CDGC which had the result that the "same business test" had to be thereafter satisfied in relation to the carry forward of the losses for which a deduction has been claimed.

(9) On 8 June 2001, RAGAC and CDGC entered into an Asset Purchase Agreement

(10) In the period from 25 June 2001 to sometime in 2002, CDGC carried out the following activities:

(a) The computation and finalisation of the allocation of the purchase price to the assets sold under the APA pursuant to clause 3.10 of the APA. The allocation statement was not finalised until after December 2001.

(b) The computation and finalisation of the amount o the 'tax adjustment' in respect of the period from 1 January 2001 to 25 June 2001 pursuant to clause 16.9 of the APA. This occurred sometime during the period from 25 June 2001 to 30 September 2001.

(c) The novation of the rights to and obligations of CDGC under the Port User Agreement to Anglo Coal. The Deed of Covenant between CL-NG Anglo Coal and CDGC to novate the Port User Agreement was not executed until after 31 December 2001.

(d) The novation of the rights and obligations of CDGC under the German Creek East Agreement. The Deed of Novation was not executed until after 31 December 2001.

(e) The finalisation of CDGC's obligations in respect of the mining leases, which were assets of the CCDJV, occurred around August 2001.

(f) The preparation and finalisation of financial statements and statutory returns of CDGC, including its income tax returns of CDGC, including its income tax returns for the 2000 and 2001 years and registration with AusIndustry for the purpose of claiming the tax concession for its share of the research and development expenditure of the CCDJV while it was a participant.

3. It is also not in dispute that the business conducted by CDGC immediately before 25 March 1998 was the participation by it in the CCDJV, but as is apparent from the above, this did not consist merely of being a party to agreements with the other participants in the CCDJV - it also included being a party to the contractual obligations with third parties noted in paras (2), (3), (4) and (5) above."

5. The learned primary Judge identified in these terms at [7] of his reasons the issue for resolution before him:

"On 25 June 2001 RAGAC and the applicant sold their interests in the joint venture to Anglo Coal. The relevant question is whether, from 25 June 2001 until 31 December 2001, the applicant continued to carry on the same business as it had carried on immediately before 25 March 1998. It is accepted that it did so between that date and 25 June 2001. The applicant claims that after 25 June 2001 it 'continued to carry out activities arising out of its participation in the joint venture', and that those activities continued until after 31 December 2001."

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After reviewing the competing contentions of CDGC and the Commissioner and the authorities to which they referred, his Honour adopted these observations of Brennan J (as he then was) in
Northern Engineering Pty Ltd v Federal Commissioner of Taxation 80 ATC 4025; (1979) 42 FLR 301, at 304:

"When a company's business is closing down there comes a time when the activity of a trading or profit-making nature comes to an end. The business of the company is not carried on merely by managing or disposing of the company's assets otherwise than in a business. There was, as it seems to me, no element of business in the circumstances of the case here appearing in the movement of funds between the appellant and the other companies in the group. It was not shown that the movement of those funds was for the purpose of deriving any commercial benefit for the appellant and the mere existence of a debt owing by the holding company during the income year had no element of a business about it, nor was it in any relevant sense an incident of the trading business in which the appellant had been engaged."

7. Dowsett J then concluded at [46] - [47] of the reasons below:

"46. The negotiations and correspondence concerning the material contracts were incidents of the sale of the applicant's interest in the joint venture and not incidents of a continuing business. The continuing liability to the National Australia Bank should be similarly characterized. Similar comments apply to the finalization of the allocation of the purchase price, the agreement as to tax adjustments and finalization of the applicant's obligations in connection with the mining tenements. The preparation and lodgement of applications for tax concessions associated with research and development might well occur in the course of conducting a business. However when such actions occur after sale of the principal asset of the business, it may be otherwise. The better view is that in this case, these transactions were also incidents of the management or disposal of assets following the discontinuance of business, rather than incidents of the continued conduct of the business. The maintenance of records and preparation of accounts and tax returns should be similarly treated.

47. Whether these matters are taken separately or together, it is impossible to resist the inference that the applicant's business ceased when its interest in the joint venture was sold. Thereafter it sought to finalise obligations arising under the sale agreement, get in some assets (the tax concessions) and dispose of others. It also maintained its records. Although those actions arose out of its previous business undertaking, they did not constitute the continuation of the business of developing and exporting coal deposits at German Creek or anywhere else."

8. The matters identified by his Honour at [46] of the passage just quoted were part of the sequence of events identified in a chronology prepared on behalf of CDGC for the purposes of this appeal as occurring after 25 June 2001. That chronology was relied on as showing that thereafter CDGC continued to carry on the same business as it had carried on immediately before 25 March 1998. The chronology, omitting appeal book references, recites:

" 25 June 2001 Settlement of the APA occurred and the CDGC executed the '10^th Deed of Amendment'.

25 June 2001 to January 2002 The computation and finalisation of the allocation of the purchase price to the assets sold under the APA pursuant to clause 3.10 of the APA which involved the following correspondence during the period from 25 June 2001 to January 2002:

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27 August 2001 (a) a facsimile from Mr Portas of Anglo Coal to Mr Purkiss of CDGC dated 27 August 2001 attaching a draft statement for review by Mr Purkiss;

20 November 2001 (b) a facsimile dated 20 November 2001 from Mr Portas of Anglo Coal to Mr Purkiss of CDGC attaching what Mr Portas refers to as a "final allocation statement as agreed with your advisers KPMG" and notices for the transfer of CDGC's allowable capital expenditure, and the 'rollover' of tax depreciation, to Anglo Coal, executed by Anglo Coal;

13 December 2001 (c) a facsimile dated 13 December 2001 from KPMG to Mr Purkiss stating that certain amendments should be made to the allocation statement;

13 December 2001 (d) a facsimile dated 13 December 2001 from Mr Purkiss of CDGC to Mr Portas of Anglo Coal requesting further amendments to the allocation statement, which contains a handwritten note of Mr Portas that the changes were agreed by him which is dated 2 January 2002, and also enclosing the two notices referred to in para (b) above executed by CDGC.

The allocation statement was not finalised until January 2002.

25 June 2001 to 30 September 2001 The computation and finalisation of the amount of the 'tax adjustment' in respect of the period from 1 January 2001 to 25 June 2001 pursuant to clause 16.9 of the APA, which occurred sometime during the period from 25 June 2001 to 30 September 2001.

25 June 2001 to (at least) January 2002 The novation of the rights and obligations of the CDGC under the Port User Agreement to Anglo Coal involved the following steps:

22 May 2001 (i) the Ports Corporation sent a letter to Anglo Coal setting out Ports Corporation's requirements for the novation, including the form of a Deed of Covenant to effect the novation;

28 September 2001 (ii) Mr Kean of Anglo Coal wrote to CL-NQ Management Pty Ltd (which had by that time acquired the interest of the Ports Corporation in the Dalrymple Bay Coal Terminal) which referred to the fact that CDGC had sold its 12.06% interest in the CCDJV to Anglo Coal and sought confirmation that the requirements set out in the letter dated 22 May 2001 applied to the transfer of CDGC's rights and obligations to Anglo Coal. The letter also set out suggested amendments to the draft Deed of Covenant enclosed with the 22 May 2001 letter;

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12 October 2001 (iii) Mr Keane of Anglo Coal sent a letter to Mr Purkiss of CDGC, enclosing a copy of the 28 September 2001 letter stating as follows:
"As you are aware, we have been negotiating with CL-NQ and [Potts Corporation] to effect the transfer of RAGAC's and CDGC's rights and obligations. The completion of this process is obviously in your interests.
In the circumstances, we consider that our efforts to finalise this matter have been more than reasonable.
If CL-NQ does not promptly agree to our proposals as set out in the enclosed letter, we ask that you take over and pursue any further negotiations that are required.
We will continue to deal with the other outstanding matters relating to the assignment of material contracts under the Sale Agreement."

14 December 2001 (iv) Ms Dodds of Anglo Coal wrote to CL-NQ seeking a response to the letter dated 28 September 2001 referred to in para (ii) above. This letter states:
"As outlined in [the letter dated 28 September 2001], the Sellers sold their respective interests in the Capricorn Coal Joint Venture to Anglo Coal (German Creek) Pty Ltd some time ago. As a result, the Sellers are keen to finalise the assignment of their associated rights and obligations in the above agreement to Anglo Coal (German Creek Pty Ltd), as soon as possible.
Could you please advise your requirements in relation to this matter."

20 December 2001 (v) Mr Kasmer of Freehills (apparently acting for CL-NQ) wrote to Ms Dodds of Anglo Coal responding to the letter referred to in the previous paragraph. The letter states as follows:
"I actually spoke to Matthew Keane in early October about the matters raised in his letter of 28 September 2001 to CL-NQ.
As mentioned to Matthew, CL-NQ was substituted for POQ under the User Agreement pursuant to a Novation Deed dated 7 September 2001 (which I also provided to Matthew). Given that CL-NQ only became counterparty to the User Agreement on 7 September 2001 (the effective date under the Novation Deed), I don't see how it can agree to Anglo Coal (German Creek) Pty Ltd assuming the rights and obligations of Ticor et al from an earlier date.
For this reason, I would suggest that the relevant date should in each case be the date of execution of the relevant Deed of Covenant, Assignment and Assumption (and should also show CL-NQ rather than POQ as the current counterparty to the User Agreement).
If you agree, could you please provide drafts of the three deeds (incorporating your suggested amendments to clause 22.2 of the User Agreement). Please call me if you have any queries."
The Deed of Covenant between CL-NQ, Anglo Coal and CDGC to novate the Port User Agreement was not executed until some time after January 2002.

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25 June 2001 to (at least) January 2002 The novation of the rights and obligations of CDGC under the German Creek East Agreement. The steps taken to achieve this included the following:

11 July 2001 (i) Ms Moubarak of Freehills (acting for Anglo Coal) sent an email to Ms Pham of Atanaskovic Hartnell (acting for CDGC) enclosing a draft Deed of Novation.

17 July 2001 (ii) Ms Pham sent an email to Ms Moubarak enclosing a revised draft of the deed incorporating some changes requested by CDGC.

2 August 2001 (iii) Ms Pham sent an email to Ms Moubarak which states:
"I have not received a response from you to date. Could you please provide me with a status update on this deed.
You should also have received the ASIC forms you requested, signed by RAG and CDGC."

20 September 2001 (iv) Ms Moubarak sent an email to Ms Pham enclosing a revised draft of the Deed of Novation, incorporating further changes to it;

24 September 2001 (v) Ms Pham sent an email to Ms Moubarak stating that the change requested by Anglo Coal to clause 4 of the draft Deed of Novation was acceptable;

21 January 2002 (vi) Ms Moubarak sent a letter to Ms Pham enclosing copies of the Deed of Novation for execution by CDGC;

31 January 2002 (vii) Ms Pham sent a letter to Ms Moubarak enclosing original counterparts of the Deed of Novation duly executed on behalf of CDGC;v

4 April 2002 Ms Jandera of Freehills sent a letter to Ms Pham enclosing an original counterpart of the Deed of Novation executed by the other parties to it and stamped.

25 June 2001 to August 2001 The finalisation of CDGC's obligations in respect of the mining leases, which were assets of the CCDJV, occurred around August 2001.

25 June 2001 to November 2002 The finalisation of financial statements and statutory returns of CDGC, including its income tax returns for the 2000 and 2001 years and registration with AusIndustry for the purpose of claiming the tax concession for its share of the research and development expenditure of the CCDJV while it was a participant.

March 2003 CDGC lodged its tax return for the year ended 31 December 2001 in which it disclosed assessable income of $58,149,383 and claimed a deduction for a carry forward loss of $13,372,139 (being the balance of the losses for the 1996 and 1997 years which remained unrecouped in prior years).
The assessable income of CDGC for the year ended 31 December 2001 included income from participation in the CCDJV, a capital gain of $12,411,751 from the disposal of its units in the Jena Unit Trust (the trustee of which was a participant in the CCDJV) pursuant to the APA and other assessable income of $13,612,526 relating to the recoupment of allowable capital expenditure (originally incurred by it as a direct participant in the CCDJV) resulting from the sale of its interest in the CCDJV."

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In support of the appeal, Counsel for CDGC contended that the application of the "same business" test erected by s 165-210 of the Assessment Act 1997 requires, in the present case, two steps. The first was said to be the identification of the business carried on by CDGC immediately before 25 March 1998 when the last relevant change of ownership or control of CDGC occurred. The terms in which that identification was said by CDGC to have been made by the primary Judge seemed to change at different parts of CDGC's argument. At one point it was suggested that his Honour appeared to have regarded the relevant business as being that "of developing and exporting coal deposits at German Creek through participation in the CDDJV." At another point it was said of his Honour's identification that "it amounts to treating the taxpayer's business as having a particular description [participation in a joint venture]."

10. In our view, little turns, for present purposes, on the language or descriptive terms used to identify the business carried on immediately before the test time provided that the identification does not lead the decision-maker to disregard or give undue weight to a factor relevant to the second step required for the application of the "same business" test, namely, determining whether the same business has been carried on during the same business period. In the present case the errors imputed to the reasoning at first instance were in attaching undue weight to the sale of CDGC's interest in the Capricorn Coal Developments Joint Venture ("CDJV") which took effect on 25 June 2001 and in regarding activities undertaken by CDGC after that date as merely incidental to that sale and not as part of winding up, or ceasing to carry on, the business which CDGC had carried on immediately before 25 March 1998.

11. According to Counsel for CDGC, activities incidental to the sale of a business and activities directed to a cessation of a taxpayer's involvement in the business, compendiously called "winding down", are not mutually exclusive. This was said to be partially true of procuring releases from obligations to third parties which have been assumed by the taxpayer in setting up or conducting the business. To characterise a business as participation in a joint venture and then treat the business as having ceased when the taxpayer's activities no longer fit that description was said to be akin to the error of "nominalism" stigmatised by Lord Millett in
Khan v Miah [2000] 1 WLR 2123 at 2127. In that case, the parties had proposed to open an Indian restaurant. To that end, they opened a bank account, acquired premises in the third defendant's name and laid out money in converting the premises, purchasing furniture and equipment, and advertising. They also entered into a contract for laundry. The Court of Appeal, by majority, held that, although the parties had agreed to carry on a restaurant business, as they had not been trading as a restaurant when the relationship was terminated, they had not become partners in a restaurant business by the date when the relationship broke down. The House of Lords upheld an appeal from that conclusion and Lord Millett observed at 2127:

"I think that the majority of the Court of Appeal were guilty of nominalism. They thought that it was necessary, not merely to identify the joint venture into which the parties had agreed to enter, but to give it a particular description, and then to decide whether the parties had commenced to carry on a business of that description. They described the restaurant, meaning the preparation and serving of meals to customers, and asked themselves whether the restaurant had commenced trading by the relevant date. But this was an impossibly narrow view of the enterprise on which the parties agreed to embark. They did not intend to become partners in an existing business. They did not agree merely to take over and run a restaurant. They agreed to find suitable premises, fit them out as a restaurant and run the restaurant once they had set it up. The acquisition, conversion and fitting out of the premises and the purchase of furniture and equipment were all part of the joint venture, were undertaken with a view of ultimate profit and formed part of the business which the parties agreed to carry on in partnership together.

There is no rule of law that the parties to a joint venture do not become partners until

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actual trading commences. The rule is that persons who agree to carry on a business activity as a joint venture do not become partners until they actually embark on the activity in question. It is necessary to identify the venture in order to decide whether the parties have actually embarked upon it, but it is not necessary to attach any particular name to it. Any commercial activity which is capable of being carried on by an individual is capable of being carried on in partnership. Many businesses require a great deal of expenditure to be incurred before trading commences. Films, for example, are commonly (for tax reasons) produced by limited partnerships. The making of a film is a business activity, at least if it is genuinely conducted with a view of profit. But the film rights have to be bought, the script commissioned, locations found, the director, actors and cameramen engaged, and the studio hired, long before the cameras start to roll.

The work of finding, acquiring and fitting out a shop or restaurant begins long before the premises are open for business and the first customers walk through the door. Such work is undertaken with a view of profit, and may be undertaken as well by partners as by a sole trader."

We have not derived any assistance from that authority. In the present case, there can be no dispute that the business of the CCDJV commenced to be undertaken when leases were entered into, finance was procured, and necessary statutory licences and permits were obtained. All that occurred long before any coal was won or sold on behalf of one or other of the joint venturers, including CDGC. The critical question for the application of the "same business" test was whether CDGC continued to carry on the business of an investor in the joint venture after it had sold its interest to Anglo Coal on 25 June 2001. An affirmative answer to that question is not mandated by the fact that CDGC, after 25 June 2001, remained subject to liabilities from which it was still procuring releases.

12. We accept, at least for the purposes of the argument, that a business does not lose its identity or cease to be the same business merely because it is being wound down. As Mr Sullivan SC, who appeared with Mr Richmond of Counsel for CDGC, instanced, a business can pass through a life cycle marked, perhaps, by an establishment phase, a period of operation or income production, and ending with cessation. However, in our view the business in which CDGC had been engaged did not come to an end on or after 25 June 2001. Control or ownership of the business simply passed to Anglo Coal with certain consequential effects on the rights and liabilities which CDGC had acquired in connection with the joint venture when the losses were incurred or the business sustained the losses. "Business" is defined, for relevant purposes, in s 995-1(1) of the Assessment Act 1997 as including;

"any profession, trade, employment, vocation or calling but does not include occupation as an employee."

That does not exclude from the concept of "business" the winding down of a professional or trading activity of the kind comprehended within the definition. Equally, however, the definition does not preclude a professional practice or trading enterprise from being sold so that the same business is thereafter carried on by the purchaser.

13. We also accept that there is no suggestion in the present case of "trafficking" in a loss company or of diverting income, which would otherwise be taxable, to a business with accumulated losses against which the diverted income could be offset. That can, in a relevant sense, be regarded as "the mischief which the statute was designed to overcome"; see
CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408. Accordingly, the legislative history of s 165-210 of the Assessment Act 1997 evinces a concern by Parliament to confine the benefit of deductibility of carried-forward losses to the entities which owned the loss-making business at the time when the losses were incurred and continued to carry on the same business in the year in respect of which the deduction is claimed.

14. Acknowledgement of the features of the legislation identified at [12] and [13] above does not entail that the "same business test" is to be applied with more elasticity than is

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inherent in the concept of "the same business as a matter of ordinary usage or commercial practice. Nor does the legislative history illuminate what Parliament intended should happen if the entity which had owned the previously loss-making business were to sell it during a subsequent year in which it generated assessable income.

15. The legislature has chosen to predicate the entitlement to deduct carried-forward losses partly on the taxpayer's carrying on the same business throughout the same business test period as it carried on immediately before the test time. In the present case, CDGC, during the same business test period ie, on 25 June 2001, ceased to carry on the business in which the carried-forward losses had been incurred because it disposed of that business to Anglo Coal. On that date, it became unable to satisfy the same business test. In those circumstances, it cannot avail CDGC that it might be fair or equitable or conformable with some policy said to underlie the Assessment Act 1997 for it to be allowed a deduction for carried-forward losses unclaimed before the same business test period.

16. It was next argued on behalf of CDGC that "same business" in s 165-210 is used in contradistinction to "different business." There is no "different business", so the argument went, where a business expands through organic growth or where the business ceases. Cessation of a business gives rise to a question which is one of fact and degree, as to when the cessation occurs; see
Inglis v Federal Commissioner of Taxation 80 ATC 4001; (1979) 40 FLR 191, at 196. But at any point on the continuum before the time of actual cessation, the same business continues to be carried on. The validity of this analysis may be acknowledged, but disposal by sale of a business cannot be equated with its cessation or its "winding down." The distinction was succinctly illustrated by Gibbs J in
Avondale Motors (Parts) Pty Ltd v Federal Commissioner of Taxation 71 ATC 4101; (1971) 124 CLR 97 where his Honour was called upon to apply the same business test as erected by s 80E of the Income Tax Assessment Act 1936-1968 (Cth). In that case, it was observed, at 102;

"During the period from 29th February 1968 to 15th March 1968 the company had no liabilities, and with the exception of the stationery, no assets. It had no employees and no premises of its own. It earned no income and incurred no liabilities. It had no trade in stock and entered into no contracts. In these circumstances the Commissioner submits that immediately before 15th March 1968 the taxpayer was not carrying on any business. In reply to this submission the taxpayer relies on the rule, established in bankruptcy cases, that a trader who has put up his shutters and has, in fact, ceased to trade is regarded as continuing to carry on business until all trade debts have been paid and all sums due have been collected:
Theophile v. Solicitor-General ([1950] A.C. 186);
In re Bird v. Inland Revenue Commissioners;
Ex parte The Debtor ([1962] 1 W.L.R. 686). It has been held that this rule does not extend beyond the field of bankruptcy and into that of taxation law (
Tryka Ltd. v. Newall ((1963) 41 T.C. 146, at p. 158)) but although I am doubtful whether the principle can be applied for the purpose of holding that a company was carrying on business within the meaning of s. 80E of the Act I need not decide that question. In the present case, by 29th February 1968 all the trade debts of the taxpayer had been discharged and the taxpayer had assigned its right to any moneys that had been owing to it. Assuming that the rule affirmed in
Theophile v. Solicitor-General ([1950] A.C. 186) is not confined to bankruptcy cases the facts calling for its application in the present case do not exist."

17. We similarly doubt the applicability to taxing statutes of the line of bankruptcy cases to which Gibbs J referred and to which we would add
Re Dagnall [1896] 2 QB 407 on which Counsel for CDGC placed particular reliance. However, like Gibbs J, we regard it as unnecessary to reach a concluded view on that question because there can be here no suggestion that the business, however it be characterised, which had been carried on by CDGC between 25 March 1998 and 25 June 2001 had "put up its shutters" and ceased to trade. The same business, after 25 June 2001 was carried on as before but under different ownership.

18.

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The present case is distinguishable on its facts from
Federal Commissioner of Taxation v Broken Hill South Ltd (1941) 65 CLR 150 which CDGC invoked in its written submissions in reply. In that case a base metal mine was being maintained by enginemen and caretakers in a "closed-down" condition because the ore was low grade and unprofitable to work at the prevailing price of lead. It was held that the owner of the mine continued to carry on "mining operations" within s 23(1)(i) of the Income Tax Assessment Act 1922-1934. However, there was no change, in that case, in the ownership of the mining business. We agree with Counsel for the Commissioner that what occurred was merely a "lull" in the conduct of the same business.

19. The fact that a former owner, after the sale of a business, retains liabilities in respect of some incidents of the business, such as a lease of real estate or machinery, does not require the conclusion that the former owner continues to carry on the same business after control of it has passed to the purchaser. The activities undertaken by CDGC in the present case, such as the assignment of mining leases and novation of rights under port user agreements and other contracts as well as the preparation of tax returns and the claiming of concessions for research and development, are more explicable, as a matter of fact, as having been engaged in as a consequence of the sale of the business rather than of its being "wound down."

20. Likewise, the collection by the vendor of a business of unpaid debts owing by trade debtors which have not been assigned to the purchaser may be an incident of the sale of business. It will not necessarily signify that the vendor continues to carry on the same business because, as Deane J observed in
Northern Engineering Pty Ltd v Federal Commissioner of Taxation 80 ATC 4025; (1979) 42 FLR 301, at 307;

"In my view, it [Theophile's case] cannot be taken as authority for the proposition that a taxpayer is, for the purposes of s 80E of the Income Tax Assessment Act 1936 (in the form applicable to the tax year) carrying on business while so ever any debt owing to him remains uncollected or unpaid."

21. Steps like arranging an assignment of a lease may be both incidents of a sale and the further carrying on of the business. We disagree with the contention of Counsel for CDGC that the two activities may be mutually exclusive if the business is sold as a going concern. It is otherwise if various assets formerly deployed in the business are sold separately to several purchasers and releases are procured from liabilities incurred in the earlier conduct of the business. In that event, the dispositive owner's activities may properly be characterised as the further carrying on of the business in the sense of winding it down. However, that characterisation, in our opinion, is not available where all of the assets of the business are sold to a single purchaser with a view to its assuming the control and conduct of the business.

22. It was also argued on behalf of CDGC that one consequence, unintended by the legislature, of the conclusion reached at first instance is that "the loss company could not in the year that it is being wound down utilise its prior year losses to offset any taxable gain arising from the gradual disposal of the assets of the business." The short answer to that contention is that, in this case, there was no disposal, gradual or otherwise of the assets, of the business. Rather, there was a disposal of the business as a whole, including its assets, which occurred once and for all on 25 June 2001. As the majority of the High Court pointed out in
Federal Commissioner of Taxation v Murry 98 ATC 4585; (1998) 193 CLR 605, at 626 [54];

"A business is not a thing or things. It is a course of conduct carried on for the purpose of profit and involves notions of continuity and repetition of actions."

Consequently, after 25 June 2001 CDGC could no longer be said, as a matter of fact, to be carrying on the same business.

Conclusion

23. It will be apparent from the reasons outlined above that we have not been persuaded by any of the arguments advanced on behalf of CDGC. On the contrary, we consider, with respect, that the analysis undertaken by Dowsett J in the passage reproduced at [7] above is

ATC 8136

correct. The appeal must therefore be dismissed with costs.

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" 25 June 2001	Settlement of the APA occurred and the CDGC executed the '10^th Deed of Amendment'.
25 June 2001 to January 2002	The computation and finalisation of the allocation of the purchase price to the assets sold under the APA pursuant to clause 3.10 of the APA which involved the following correspondence during the period from 25 June 2001 to January 2002:
ATC 8129 27 August 2001	(a) a facsimile from Mr Portas of Anglo Coal to Mr Purkiss of CDGC dated 27 August 2001 attaching a draft statement for review by Mr Purkiss;
20 November 2001	(b) a facsimile dated 20 November 2001 from Mr Portas of Anglo Coal to Mr Purkiss of CDGC attaching what Mr Portas refers to as a "final allocation statement as agreed with your advisers KPMG" and notices for the transfer of CDGC's allowable capital expenditure, and the 'rollover' of tax depreciation, to Anglo Coal, executed by Anglo Coal;
13 December 2001	(c) a facsimile dated 13 December 2001 from KPMG to Mr Purkiss stating that certain amendments should be made to the allocation statement;
13 December 2001	(d) a facsimile dated 13 December 2001 from Mr Purkiss of CDGC to Mr Portas of Anglo Coal requesting further amendments to the allocation statement, which contains a handwritten note of Mr Portas that the changes were agreed by him which is dated 2 January 2002, and also enclosing the two notices referred to in para (b) above executed by CDGC.
	The allocation statement was not finalised until January 2002.
25 June 2001 to 30 September 2001	The computation and finalisation of the amount of the 'tax adjustment' in respect of the period from 1 January 2001 to 25 June 2001 pursuant to clause 16.9 of the APA, which occurred sometime during the period from 25 June 2001 to 30 September 2001.
25 June 2001 to (at least) January 2002	The novation of the rights and obligations of the CDGC under the Port User Agreement to Anglo Coal involved the following steps:
22 May 2001	(i) the Ports Corporation sent a letter to Anglo Coal setting out Ports Corporation's requirements for the novation, including the form of a Deed of Covenant to effect the novation;
28 September 2001	(ii) Mr Kean of Anglo Coal wrote to CL-NQ Management Pty Ltd (which had by that time acquired the interest of the Ports Corporation in the Dalrymple Bay Coal Terminal) which referred to the fact that CDGC had sold its 12.06% interest in the CCDJV to Anglo Coal and sought confirmation that the requirements set out in the letter dated 22 May 2001 applied to the transfer of CDGC's rights and obligations to Anglo Coal. The letter also set out suggested amendments to the draft Deed of Covenant enclosed with the 22 May 2001 letter;
ATC 8130 12 October 2001	(iii) Mr Keane of Anglo Coal sent a letter to Mr Purkiss of CDGC, enclosing a copy of the 28 September 2001 letter stating as follows: "As you are aware, we have been negotiating with CL-NQ and [Potts Corporation] to effect the transfer of RAGAC's and CDGC's rights and obligations. The completion of this process is obviously in your interests. In the circumstances, we consider that our efforts to finalise this matter have been more than reasonable. If CL-NQ does not promptly agree to our proposals as set out in the enclosed letter, we ask that you take over and pursue any further negotiations that are required. We will continue to deal with the other outstanding matters relating to the assignment of material contracts under the Sale Agreement."
14 December 2001	(iv) Ms Dodds of Anglo Coal wrote to CL-NQ seeking a response to the letter dated 28 September 2001 referred to in para (ii) above. This letter states: "As outlined in [the letter dated 28 September 2001], the Sellers sold their respective interests in the Capricorn Coal Joint Venture to Anglo Coal (German Creek) Pty Ltd some time ago. As a result, the Sellers are keen to finalise the assignment of their associated rights and obligations in the above agreement to Anglo Coal (German Creek Pty Ltd), as soon as possible. Could you please advise your requirements in relation to this matter."
20 December 2001	(v) Mr Kasmer of Freehills (apparently acting for CL-NQ) wrote to Ms Dodds of Anglo Coal responding to the letter referred to in the previous paragraph. The letter states as follows: "I actually spoke to Matthew Keane in early October about the matters raised in his letter of 28 September 2001 to CL-NQ. As mentioned to Matthew, CL-NQ was substituted for POQ under the User Agreement pursuant to a Novation Deed dated 7 September 2001 (which I also provided to Matthew). Given that CL-NQ only became counterparty to the User Agreement on 7 September 2001 (the effective date under the Novation Deed), I don't see how it can agree to Anglo Coal (German Creek) Pty Ltd assuming the rights and obligations of Ticor et al from an earlier date. For this reason, I would suggest that the relevant date should in each case be the date of execution of the relevant Deed of Covenant, Assignment and Assumption (and should also show CL-NQ rather than POQ as the current counterparty to the User Agreement). If you agree, could you please provide drafts of the three deeds (incorporating your suggested amendments to clause 22.2 of the User Agreement). Please call me if you have any queries." The Deed of Covenant between CL-NQ, Anglo Coal and CDGC to novate the Port User Agreement was not executed until some time after January 2002.
ATC 8131 25 June 2001 to (at least) January 2002	The novation of the rights and obligations of CDGC under the German Creek East Agreement. The steps taken to achieve this included the following:
11 July 2001	(i) Ms Moubarak of Freehills (acting for Anglo Coal) sent an email to Ms Pham of Atanaskovic Hartnell (acting for CDGC) enclosing a draft Deed of Novation.
17 July 2001	(ii) Ms Pham sent an email to Ms Moubarak enclosing a revised draft of the deed incorporating some changes requested by CDGC.
2 August 2001	(iii) Ms Pham sent an email to Ms Moubarak which states: "I have not received a response from you to date. Could you please provide me with a status update on this deed. You should also have received the ASIC forms you requested, signed by RAG and CDGC."
20 September 2001	(iv) Ms Moubarak sent an email to Ms Pham enclosing a revised draft of the Deed of Novation, incorporating further changes to it;
24 September 2001	(v) Ms Pham sent an email to Ms Moubarak stating that the change requested by Anglo Coal to clause 4 of the draft Deed of Novation was acceptable;
21 January 2002	(vi) Ms Moubarak sent a letter to Ms Pham enclosing copies of the Deed of Novation for execution by CDGC;
31 January 2002	(vii) Ms Pham sent a letter to Ms Moubarak enclosing original counterparts of the Deed of Novation duly executed on behalf of CDGC;v
4 April 2002	Ms Jandera of Freehills sent a letter to Ms Pham enclosing an original counterpart of the Deed of Novation executed by the other parties to it and stamped.
25 June 2001 to August 2001	The finalisation of CDGC's obligations in respect of the mining leases, which were assets of the CCDJV, occurred around August 2001.
25 June 2001 to November 2002	The finalisation of financial statements and statutory returns of CDGC, including its income tax returns for the 2000 and 2001 years and registration with AusIndustry for the purpose of claiming the tax concession for its share of the research and development expenditure of the CCDJV while it was a participant.
March 2003	CDGC lodged its tax return for the year ended 31 December 2001 in which it disclosed assessable income of $58,149,383 and claimed a deduction for a carry forward loss of $13,372,139 (being the balance of the losses for the 1996 and 1997 years which remained unrecouped in prior years). The assessable income of CDGC for the year ended 31 December 2001 included income from participation in the CCDJV, a capital gain of $12,411,751 from the disposal of its units in the Jena Unit Trust (the trustee of which was a participant in the CCDJV) pursuant to the APA and other assessable income of $13,612,526 relating to the recoupment of allowable capital expenditure (originally incurred by it as a direct participant in the CCDJV) resulting from the sale of its interest in the CCDJV."