Macquarie Bank Ltd v Commissioner of Taxation; Court ruled Tax Avoidance Scheme not established

The Federal Court in Macquarie Bank Limited v Commissioner of Taxation [2011] FCA 1076 has ruled that Part IVA of Income Tax Assessment Act 1936 (Cth) could not be relied upon by the Commissioner of Taxation to deny the application of joining rules for consolidated groups owning assets with cost base below their value at the date of joining.

Justice Richard Edmonds of the Federal Court in Sydney dismissed the Australian Tax Office’s claim that Macquarie Bank had used a tax avoidance scheme when it initiated the sale of 165.5 million shares held by MatlinPatterson Global Opportunities Partners LP at $2.90 each. The court ruled that it could not be established that the party had in fact entered into the scheme for the relevant dominant purpose of obtaining a tax benefit.

The court found on the facts that some of the steps identified in the process where not purely for the purpose of the tax benefit. Indeed, Justice Edmonds found that some of the steps taken were for the dominant purpose of profit-making. He assessed that it enabled the group to make a greater profit than would otherwise have been allowed; albeit at a greater commercial risk.

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