Commissioner of Taxation (Cth) v Sun Alliance Investments Pty Limited (in liquidation) [2005] HCA 70

HIGH COURT OF AUSTRALIA

GLEESON CJ,

GUMMOW, KIRBY, CALLINAN AND HEYDON JJ

COMMISSIONER OF TAXATION OF THE

COMMONWEALTH OF AUSTRALIA APPELLANT

AND

SUN ALLIANCE INVESTMENTS PTY LIMITED

(IN LIQUIDATION) RESPONDENT

Commissioner of Taxation (Cth) v Sun Alliance Investments Pty Limited (in liquidation) [2005] HCA 70

17 November 2005

S126/2005

ORDER

1. Appeal allowed with costs.

2. Set aside the orders of the Full Court of the Federal Court dated 9 March 2004 and, in their place, order that the appeal to that Court be dismissed with costs.

3. Cross-appeal dismissed with costs.

On appeal from the Federal Court of Australia

Representation:

G J Davies QC with R L Hamilton and S H Steward for the appellant (instructed by Australian Government Solicitor)

B J Shaw QC with M M Gordon SC and M T Flynn for the respondent (instructed by Maddocks)

Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS

Commissioner of Taxation (Cth) v Sun Alliance Investments Pty Limited (in liquidation)

Income tax – Capital gains and losses – Reduced amount of any consideration in respect of the acquisition of an asset – Royal and Sun Alliance Insurance Australia Holdings Limited ("RSA") formed by merger of the Royal Group and the Sun Alliance Group – RSA deemed by operation of s 160ZZS of the Income Tax Assessment Act 1936 (Cth) ("the 1936 Act") to have acquired shares in two wholly owned subsidiaries on date of merger for a consideration equal to the market value of those shares on that date – Reconstructed accounts of subsidiaries showed unrealised accretions to the value of their assets at the merger date – Subsidiaries subsequently declared and paid dividends to RSA which attracted a rebate of tax payable on the dividends – RSA disposed of its shares in the subsidiaries and claimed capital losses on the disposals – Losses sought, in part, to be transferred to taxpayer – Whether, pursuant to s 160ZK of the 1936 Act, the consideration in respect of RSA's deemed acquisition of shares in the subsidiaries was required to be reduced by a rebatable dividend adjustment – Whether dividends distributed by the subsidiaries were attributable to profits derived by them before RSA's deemed acquisition of shares in those subsidiaries – Whether unrealised accretions to the value of assets must have permanent character in order to be profits – Whether unrealised profits can be said to be derived.