• Service: Tax, Corporate Tax
  • Industry: Financial Services
  • Type: Regulatory update
  • Date: 4/10/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Peter Mallyon

Peter Mallyon
Director, Tax

+61 2 9335 7562

Tax consolidation rules – What do you mean, 'just before'? 

by Peter Mallyon, Financial Services Specialist

In a case awaiting decision in the Federal Court, the meaning of the words 'just before the joining time' is in issue. This phrase is of critical importance to many aspects of the tax consolidation regime – it appears within those provisions over 60 times. Similar phrases such as 'at' a particular time, 'just before' and 'just after' appear over 240 times.

In Handbury Holdings, the Court considered the phrase 'at the time of' and found that the meaning of the phrase could be elastic. Kenny J noted that 'phrases such as ‘at the time of’, the word ‘at’ conveys no very precise meaning…for example, ‘at Christmas time’ doesn’t mean on Christmas day – a period a few days either side is also included'.


In the matter currently before the Court, the phrase 'just before the joining time' has been tested in the context of section 705-47, which determines whether the consolidation tax cost setting cap for privatised assets applies. The critical factor for determining whether the cap will apply is whether the head company and the joining company were associates just before the joining time.


In the context of corporate acquisitions, it is possible (or even likely) that the target and the acquirer will become associates at some point prior to completion of the acquisition. This is particularly the case where, under a scheme of arrangement, the final share acquisitions may occur through compulsory acquisition or through staggered acceptance in a takeover bid.


In the current matter, KPMG Tax Lawyers acted for the Applicant and submitted the phrase 'just before the joining time' must mean the point in time prior to the process of acquisition occurring – here, the takeover bid. The Commissioner argued that the meaning of the term is plain and inelastic. If the Commissioner is found to be correct, this could have potentially adverse consequences, particularly in relation to privatised infrastructure assets.


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