FEDERAL COURT OF AUSTRALIA Tasman Group Services Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia (No 2) [2008] FCA 218 INCOME TAX – orders giving effect to earlier reasons Income Tax Assessment Act 1936 (Cth) Sch 2C TASMAN GROUP SERVICES PTY LTD v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA VID 605 AND 606 OF 2005 HEEREY J 3 MARCH 2008 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID 605 of 2005 VID 606 of 2005 BETWEEN: TASMAN GROUP SERVICES PTY LTD Applicant AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent JUDGE: HEEREY J DATE OF ORDER: 3 MARCH 2008 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The appeal in each application be allowed. 2. Each of the objection decisions the subject of the appeals be set aside. 3. Each objection be allowed in part on the footing that s 245-55(4) of Schedule 2C of the Income Tax Assessment Act 1936 (Cth) applies, thus the solvency assumption in s 245-55(2)(a) and (3)(a)(ii) does not apply, in determining the notional value of the debts the subject of the appeals and accordingly: 3.1 the "notional value" of the debts calculated in accordance with s 245-55 was $58,906,123; 3.2 the "consideration" in respect of the forgiveness of the debts determined in accordance with s 245-65 was $17,481,614; 3.3 the "gross forgiven amount", the "net forgiven amount" and the "total net forgiven amount" determined in accordance with ss 245-75, 245-85 and 245-105(1), respectively, was $41,424,509; 3.4 ss 245-105 and 245-115 apply to the extent that the total "deductible revenue losses" of the Applicant at 31 December 2001 of $70,699,732 be reduced by $41,424,509 to $29,275,223; 3.5 ss 245-105 and 245-130 do not apply to reduce the Applicant's "deductible net capital loss" of $761,439 as at 31 December 2001; 3.6 ss 245-105 and 245-145 do not apply to reduce the Applicant's "deductible expenditures" of $19,170,937 as at 31 December 2001; 3.7 ss 245-105 and 245-175 do not apply to reduce the Applicant's "relevant cost base of reducible assets" of $15,673,198 as at 31 December 2001; and 3.8 as a result of the foregoing the taxable income of the Applicant in the 2003 and 2004 tax years is nil. 4. The Respondent will issue amended assessments to the Applicant for the 2003 and 2004 tax years to give effect to order 3. 5. Except as provided for in order 6, the Respondent pay 50% of the costs of the Applicant in respect of the appeals including reserved costs but excluding the Applicant's costs in the Notice of Motion filed on behalf of the Applicant on 10 February 2006. 6. The Applicant pay the Respondent's costs in the Notice of Motion filed on behalf of the Applicant on 10 February 2006. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VID 605 of 2005 VID 606 of 2005 BETWEEN: TASMAN GROUP SERVICES PTY LTD Applicant AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent JUDGE: HEEREY J DATE: 3 MARCH 2008 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 The parties agree that the following orders should be made to give effect to the reasons contained in Tasman Group Services Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia [2008] FCA 23: 1. The appeal in each application be allowed. 2. Each of the objection decisions the subject of the appeals be set aside. 3. Each objection be allowed in part on the footing that s 245-55(4) of Schedule 2C of the Income Tax Assessment Act 1936 (Cth) applies, thus the solvency assumption in s 245-55(2)(a) and (3)(a)(ii) does not apply, in determining the notional value of the debts the subject of the appeals and accordingly: 3.1 the "notional value" of the debts calculated in accordance with s 245-55 was $58,906,123; 3.2 the "consideration" in respect of the forgiveness of the debts determined in accordance with s 245-65 was $17,481,614; 3.3 the "gross forgiven amount", the "net forgiven amount" and the "total net forgiven amount" determined in accordance with ss 245-75, 245-85 and 245-105(1), respectively, was $41,424,509; 3.4 ss 245-105 and 245-115 apply to the extent that the total "deductible revenue losses" of the Applicant at 31 December 2001 of $70,699,732 be reduced by $41,424,509 to $29,275,223; 3.5 ss 245-105 and 245-130 do not apply to reduce the Applicant's "deductible net capital loss" of $761,439 as at 31 December 2001; 3.6 ss 245-105 and 245-145 do not apply to reduce the Applicant's "deductible expenditures" of $19,170,937 as at 31 December 2001; 3.7 ss 245-105 and 245-175 do not apply to reduce the Applicant's "relevant cost base of reducible assets" of $15,673,198 as at 31 December 2001; and 3.8 as a result of the foregoing the taxable income of the Applicant in the 2003 and 2004 tax years is nil. 4. The Respondent will issue amended assessments to the Applicant for the 2003 and 2004 tax years to give effect to order 3. 5. Except as provided for in order 6, the Respondent pay 50% of the costs of the Applicant in respect of the appeals including reserved costs but excluding the Applicant's costs in the Notice of Motion filed on behalf of the Applicant on 10 February 2006. 6. The Applicant pay the Respondent's costs in the Notice of Motion filed on behalf of the Applicant on 10 February 2006. I certify that the preceding one (1) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey. Associate: Dated: 3 March 2008 Counsel for the Applicant: J W de Wijn QC and F J Alpins Solicitor for the Applicant: Arnold Bloch Leibler Counsel for the Respondent: G J Davies QC and D Harding Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 17, 18 December 2007 Date of Judgment: 3 March 2008