CHANNEL PASTORAL HOLDINGS PTY LTD v FC of T

Judges:
Allsop CJ
Edmonds J
Gordon J
Pagone J
Davies J

Court:
Full Federal Court, Sydney

MEDIA NEUTRAL CITATION: [2015] FCAFC 57

Judgment date: 7 May 2015

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Allsop CJ

1. I have read the reasons to be published of Edmonds and Gordon JJ, Pagone J and Davies J. The three bodies of reasons reflect a difference of opinion (between Edmonds and Gordon JJ, on the one hand, and Pagone J and Davies J, on the other) as to questions 1 and 2 in the special case, and the reasons for the answer to question 3 (though there is agreement as to the answer to question 3). For the reasons that follow, I agree with the answers to the three questions proposed by Edmonds and Gordon JJ.

2. The surrounding circumstances and statutory provisions are fully described in the reasons of the other members of the bench. I will use abbreviations used in the other judgments.

3. The issues that arise, and the differences of view, concern the meaning and effect of Pt IVA of the 1936 Act concerning " Schemes to Reduce Income Tax " and of Pt 3 - 90 of the 1997 Act concerning " Consolidated Groups " , and of the inter-relationship between the two Parts.

4. Of central importance to the resolution of the controversy is the approach required by McHugh, Gummow, Kirby and Hayne JJ in
Project Blue Sky Inc v Australian Broadcasting Authority [ 1998 ] HCA 28 ; 194 CLR 355 at 381 - 382 [ 69 ] - [ 71 ] :

69 The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. The meaning of the provision must be determined " by reference to the language of the instrument viewed as a whole " . In Commissioner for Railways (NSW) v Agalianos , Dixon CJ pointed out that " the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed " . Thus, the process of construction must always begin by examining the context of the provision that is being construed.

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70 A legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals. Where conflict appears to arise from the language of particular provisions, the conflict must be alleviated, so far as possible, by adjusting the meaning of the competing provisions to achieve that result which will best give effect to the purpose and language of those provisions while maintaining the unity of all the statutory provisions. Reconciling conflicting provisions will often require the court " to determine which is the leading provision and which the subordinate provision, and which must give way to the other " . Only by determining the hierarchy of the provisions will it be possible in many cases to give each provision the meaning which best gives effect to its purpose and language while maintaining the unity of the statutory scheme.

71 Furthermore, a court construing a statutory provision must strive to give meaning to every word of the provision. In The Commonwealth v Baume Griffith CJ cited R v Berchet to support the proposition that it was " a known rule in the interpretation of Statutes that such a sense is to be made upon the whole as that no clause, sentence, or word shall prove superfluous, void, or insignificant, if by any other construction they may all be made useful and pertinent " .

(Footnotes omitted)

5. These passages are important in two relevant respects: the importance of determining the relevant hierarchy (whether express or implied) in reconciling the operation of the provisions in question; and the importance of context, purpose and policy of a provision and its consistency and fairness as guides to its meaning.

6. Revenue statutes of the detail of the 1936 Act and the 1997 Act may not admit of the flexibility of interpretation that may attend statutes expressed in more general terms: Delaware & Hudson Co v Commissioner of Internal Revenue 65 F 2d 292 at 292 - 293 (1933 2nd CCA per Learned Hand J). As the same judge said in Helvering v Gregory 69 F 2d 809 at 810 (1934 2nd CCA) " as the articulation of a statute increases, the room for interpretation must contract. " In closely structured and finely worded legislation, the importance of the text may be paramount: Joffe v The Queen ;
Stromer v The Queen [ 2012 ] NSWCCA 277 ; 82 NSWLR 510 at 518 [ 36 ] . Nevertheless, even in such statutes, context and purpose may be important:
Quikfund (Australia) Pty Ltd v Airmark Consolidators Pty Ltd [ 2014 ] FCAFC 70 ; 222 FCR 13 at 30 [ 75 ] ;
Snedden v Minister for Justice [ 2014 ] FCAFC 156 ; 315 ALR 352 at [ 99 ] . Purpose and policy in such statutes are unlikely to be broad social policies embedded in the Act and extrapolated to the case at hand; rather, they will likely be the particular purpose and policy of a section, division or part found in their words and in the context in which the particular provisions appear.

7. In this legislation, Parliament has made clear in s 177B(1) of the 1936 Act the relevant hierarchy of importance of the provisions of Pt IVA and Pt 3-;90: the former is to prevail, in that " nothing in the provisions of this Act other than this Part … shall be taken to limit the operation of this Part " : s 177B(1). The 1997 Act is part of " this Act " when that phrase is used in the 1936 Act: s 6(1) of the 1936 Act. Thus, Pt 3-90 is subordinate to Pt IVA. That relationship of subordination, however, is only relevant to the extent that the meaning and effect of the subordinate provisions might otherwise " limit the operation " of Pt IVA.

8. To the extent that all of the judgments of Edmonds and Gordon JJ, Pagone J and Davies J permit a determination under s 177F(1) in respect of CCC as a taxpayer, I respectfully agree. Section 701-1 and the rules therein cannot limit the operation of Pt IVA: s 177B(1). Further, s 701-1 does not remove or destroy the existence of an entity in the group, but makes it a part of the head company. To the extent that the decision of the majority of the Full Court in
Federal Commissioner of Taxation v Macquarie Bank Ltd [ 2013 ] FCAFC 13 ; 210 FCR 164 may be taken to decide to the contrary of the availability of a determination under s 177F(1) concerning an entity that is part of a group contemplated by Pt 3-90 in circumstances such as the present, in my respectful view, it is wrong and should not be followed.

9.

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ATC 17009

The tax benefit that is referable to an amount not being included in assessable income (s 177F(1)(a)); or a deduction or part of a deduction being allowable (s 177F(1)(b)); or a capital loss or part of a capital loss being incurred (s 177F(1)(c)), is of, to, or by the taxpayer. Section 701-1 does not deny the existence of CCC, rather it states it to be part of the head company of the group for the relevant purposes in s 701-1.

10. The determination under s 177F(1) is conditioned upon a tax benefit being obtained, but for the section, in connection with a scheme. The place of the determination in the ascertainment of substantive liability to tax illuminates the centrality of the postulates upon which the cancellation of the tax benefit from the entry into the scheme is founded. Not only do the postulates frame the debate or controversy for resolution if there be a dispute, but also they form the foundation of the liability to tax.

11. How then can a determination as to CCC ' s tax benefit be " given effect " for the purposes of s 177F(1)? The essence of the view of Edmonds and Gordon JJ is that one cannot give effect to a determination under s 177F as to a tax benefit obtained by one taxpayer by assessing another taxpayer in circumstances where the position of that other taxpayer was contrary to the postulates founding the determination. Put simply in terms of the facts here, the tax benefit was obtained by CCC by its joining the group; had CCC not joined the group it, CCC, would have had assessable income and assessable net capital gain; in these circumstances, CPH cannot be assessed by reference to those tax consequences because to do so accepts that CCC did join the group. In other words, one cannot " give effect " to a determination by assessing someone whose only relationship with the taxpayer in the determination is denied by a postulate in connection with the scheme not being entered into and founding the determination.

12. There is, with respect, great force in this approach. It gives coherence and harmony to the postulated facts and the structure of the scheme and, without otherwise restricting the extent of the power given to the Commissioner to give effect to the determination, it requires her or him to conform to the determination to which effect is being given. This approach does not give a narrow role or effect to the phrase " give effect " in s 177F(1); but it does recognise the necessary limitation from the whole phrase " to give effect to that determination " . The determination is one in which amounts, deductions or losses should or should not be taken into account or recognised on the basis of a relationship with postulated facts in connection with a scheme. The determination is the product, as objective facts, of a relationship between the taxpayer, the postulated facts and the scheme. To give effect to the determination is to do that which is appropriate and adapted to bring about liability to tax on that factual hypothesis.

13. The questions that then arise are whether the terms of Pt 3 - 90 require or permit CPH to be assessed because it is now the head company of a group to which Pt 3-90 applies and whether to do so can be seen to give effect to the determination about CCC as taxpayer (as a " part " of the head company) by assessing the head company which is responsible for CCC as its " part " : see s 701-1(1).

14. In considering these questions, it is to be recalled that s 177B(1) prevents (relevantly) Pt 3-90 from limiting the operation of Pt IVA. To contemplate CPH being assessed for liability to tax in respect of the determination concerning the disallowance of the tax benefit of CCC would not limit the operation of Pt IVA. It would involve the giving effect to a determination concerning the liability to tax of CCC (as " part " of the head company) by permitting assessment of the head company of the group. The inconsistency of the object of the assessment (CPH) and the postulate can be recognised, but the result, and that inconsistency, can be reconciled by the posited intended work of s 701-1 of making the head company liable for the tax of its parts.

15. This conclusion cannot, however, require the converse: that CCC not be an available object for assessment in giving effect to the determination. To the extent that the issue of an assessment to CCC would be a natural and

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ATC 17010

appropriate consequence of an otherwise authorised determination to CCC under s 177F(1), any conclusion that s 701-1(1), (2) and (3) prevented same would be to limit the operation of Pt IVA.

16. One is therefore left with the position, on this hypothesis, of Pt IVA and Pt 3-90 authorising the assessment to two taxpayers CCC and CPH where the assessment to one (CCC) would be giving effect to the terms of the determination and the factual postulates in connection therewith, and the assessment to the other (CPH) would not be giving effect to the terms of the determination and the factual postulates in connection therewith, but Pt 3-90 could be seen to permit the assessment to CPH as the now responsible head company for the liability of CCC (as its " part " ) to tax. Once, however, one recognises that the objectives of Pt 3-90 are as set out in s 700-10 (to prevent double taxation of the same economic gain, to prevent a double tax benefit from an economic loss, and to provide a systematic solution to prevent such double taxation and double tax benefit), and once one accepts that Pt 3-90 cannot prevent an assessment to CCC to give effect to the determination concerning it, one is drawn to the conclusion that the context, general purpose and policy of Pt 3-90 and its consistency and fairness are a sure guide that an assessment to CPH, absent a prohibition on the assessment to CCC, does not fall within the intended reach of the words of s 701-1, in circumstances where (as here) such assessment would not otherwise give effect to the terms of the determination to CCC.

17. Nor can the Commissioner make a determination under s 177F(1) on the postulated facts of the scheme that CPH obtained a tax benefit referable to the net capital gain that CCC would have made had the scheme not been entered. The postulated facts would have seen CPH as foreign or irrelevant to any dealing with the land. That it later became the head company of the group cannot transform the relevant step in working out the tax liability of CCC or CPH as one which gave it a tax benefit of the relevant kind from the entry into the scheme. If the scheme had not been entered into, and CCC had not joined the group, CPH would have had no relevant income or gain, nor lost any relevant deduction, on the postulated facts.

18. Thus, I would answer question one, " yes " and question two, " yes " .

19. Question three raises the same issue as question one insofar as it is directed to the authority to make the determination to CCC. Nothing further needs to be said as to this.

20. Question three also raises the question whether by reason of Div 701 of Pt 3-90 the Commissioner was not authorised to issue the alternative assessments to CCC. This is to be answered " no " for the reasons given by Edmonds and Gordon JJ or Pagone J and Davies J. Given the approach of Edmonds and Gordon JJ, it may not be necessary to resort to the hierarchy found in s 177B(1). Nevertheless, as I have said, to the extent that the issue of an assessment to CCC would be a natural and appropriate consequence of an otherwise authorised determination to CCC under s 177F(1), any conclusion that s 701-1(2) and (3) prevented same would be to limit the operation of Pt IVA, a circumstance not permitted by s 177B(1).

21. Question three should be answered, " no " .