Tasman Group Services Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2008] FCA 23

FEDERAL COURT OF AUSTRALIA

Tasman Group Services Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2008] FCA 23 INCOME TAX – claims by applicant (SBAF) that the forgiveness of commercial debt provisions do not apply to its assessment for 2003 and 2004 tax years – SBAF's Japanese parent company SBC made several loans to SBAF for purposes of initial acquisition of the business and to provide working capital – loans extended over time and interest and principal amounts never repaid by subsidiary – SBC gave several "letters of comfort" to bank and auditors – SBC sold all shares in SBAF – under sale of shares agreement SBC covenanted that on completion no financial indebtedness would be owed by SBAF to SBC Held: 1. Amounts owing under loans from SBC to SBAF were debts 2. Loans were commercial debts 3. Debts had been forgiven 4. In valuing debts, statutory solvency assumption did not apply 5. Valuation of the debt identified by notional liquidation was appropriate 6. SBC's debts ranked pari passu with other unsecured creditors Income Tax Assessment Act 1936 (Cth) s 6 and Div 245 of Sch 2C Income Tax Assessment Act 1997 (Cth) ss 8, 104-25, 108-5 and 136-25 Emu Bay Railway Co Ltd v Federal Commissioner of Taxation (1944) 71 CLR 596 distinguished Federal Commissioner of Taxation v Citylink Melbourne Limited (2006) 228 CLR 1 cited Spassked v Federal Commissioner of Taxation (2003) 136 FCR 441 cited GP International Pipecoaters Pty Ltd v Federal Commissioner of Taxation (1990) 170 CLR 124 cited Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305 cited Grundt v Great Boulder Gold Mines Ltd (1937) 59 CLR 641 cited McDermott v Black (1940) 63 CLR 161 cited Sandell v Porter (1966) 115 CLR 666 cited TASMAN GROUP SERVICES PTY LTD v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA VID 605 AND 606 OF 2005