Federal Commissioner of Taxation v. Casuarina Pty. Ltd.

Members: Barwick CJ
McTiernan J
Owen J
Walsh J

Gibbs J

Tribunal:
High Court (Full Court)

Decision date: Judgment handed down 23 April 1971.

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Gibbs J.: I have had the advantage of reading the reasons for judgment prepared by my brother Walsh and agree with those reasons and with his conclusions. I would, however, add a few remarks.

I have given much consideration to the suggested application of sec. 260 of the Income Tax Assessment Act 1936-1968 (Cth) (``the Act'') to the present case, because it seems so clear that ``reluctant taxpayers and their ingenious advisers'' (as my brother Menzies described the class in
Peate v. F.C. of T. (1962-64) 111 C.L.R. 443 at p. 445 ) have found that the provisions of sec. 103A(2)(d)(v) and sec. 103A(4) of the Act offer a

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ATC 4081

way of escape from a liability to tax that would otherwise have fallen upon them or upon the companies they control and, in those circumstances, it might at first be thought that the general provisions against tax avoidance contained in sec. 260 would render the attempt to escape ineffectual. However,
W.P. Keighery Pty. Ltd. v. F.C. of T. (1956-57) 100 C.L.R. 66 and
F.C. of T. v. Sidney Williams (Holdings) Ltd. (1956-57) 100 C.L.R. 95 , establish that where the Act itself imposes different tax liabilities on public companies on the one hand and private companies on the other, the conversion of a public into a private company is not, so far as the company is concerned, rendered void as against the Commissioner by sec. 260, notwithstanding that it will entail a reduced liability to tax. In such a case no liability to tax imposed by the Act on the company is avoided for whatever tax is appropriate to its situation remains payable. The same result follows in other cases in which the Act imposes different liabilities according as the taxpayer answers one description or another, and some examples of such cases were given by my brother Windeyer in his judgment in the present case (reported in 44 A.L.J.R. at p. 304). No doubt the formation of a private company may form part of an arrangement which has the purpose or effect of avoiding a liability imposed by the Act on some other person but the application of sec. 260 does not result from the mere fact that the company has become a private instead of a public company.

The facts in
Newton v. F.C. of T. (1958) 98 C.L.R. 1 , are quite distinguishable from those of W.P. Keighery Pty. Ltd. v. F.C. of T. and F.C. of T. v. Sidney Williams (Holdings) Ltd. (supra), and it is clear from what their Lordships said in the former case (at p. 9) that they had no intention of overruling those two decisions, but on the contrary recognised them as correct. I must confess, with great respect, that I do find some difficulty in their Lordships' remark (at p. 9) - ``Nor can anyone, by seeing a private company turned into a non-private company, predicate that it was done to avoid Div. 7 tax, see W.P. Keighery Pty. Ltd. v. F.C. of T. '' In W. P. Keighery Pty Ltd. v. F. C. of T., Mr. Keighery had candidly admitted in evidence, and the Court in effect predicated, that the substantial object of turning the private company into a public company was so that the company would not be required to pay Div. 7 tax (see at p. 92 of 100 C.L.R.). It can be predicated that the redeemable preference shares in Casuarina Pty. Limited were issued to Forum Holdings Limited in the present case with a similar purpose. For myself I would prefer to say that although one can predicate that the conversion of a private into a public company was done to escape Div. 7 tax, this does not mean that the purpose or effect of the arrangement was to avoid a liability imposed on the company by the Act, since the Act itself imposes the additional tax payable under Div. 7 only on private companies, and contemplates that companies will, and lawfully may, choose to become public companies within the description of sec. 103A and so escape liability to pay the tax. It seems to me that the authority of W.P. Keighery Pty. Ltd. v. F.C. of T. and F.C. of T. v. Sidney Williams (Holdings) Ltd. (1957) 100 C.L.R. 95; 11 A.T.D. 164, 368 has not been affected by Newton v. F.C. of T. or by any subsequent decision.

I hold, therefore, that sec. 260 does not close the gap that has been found in the provisions of Div. 7. It is entirely a matter for the legislature, if it considers that the gap ought to be stopped, to enact appropriate legislation.

In the view that I share with my brother Walsh, it is, as he has said, unnecessary to consider the question raised as to the effect of sec. 46 of the Act. However, I have found it necessary to decide that question in Finance Facilities Pty. Limited v. F.C. of T. (judgment not yet handed down) and, for the reasons that I shall give in that case, I am in agreement with the conclusions of my brother McTiernan in the present case that the word ``may'' in sec. 46(3) entrusts a discretion to the Commissioner.

I would dismiss the appeals.

ORDER:

Appeals dismissed with costs.