In Commissioner of Taxation v Consolidated Media Holdings Ltd  HCA 55 (5 December 2012) the High Court decided that consideration from a share buy-back which was debited against amounts standing to the credit of a company's share capital account, was not a dividend but a capital gain. The Court unanimously allowed the appeal from a decision of the Full Court of the Federal Court of Australia, upholding an assessment by the Commissioner of Taxation (•the Commissioner•) that Publishing and Broadcasting Ltd (•PBL•) (later called •Consolidated Media Holdings Ltd•) made a capital gain when shares it held in Crown Ltd (•Crown•) were bought back by Crown in an off-market share buy-back.
The case was a test case about the meaning of the expression “debited against amounts standing to the credit of the company’s share capital account” in the Income Tax Assessment Act 1936 (Cth) (“the ITAA 1936”) s 159GZZZP(1). The section articulates how much of the purchase price for an off-market share buy-back is considered to be a dividend paid by the company to the seller out of company profits.
Principal to the High Court’s assessment as to whether an account would satisfy the description of “an account which the company keeps of its share capital” was the concurrent commencement on 1 July 1998 of the Corporations Law Part 2M.2 and ITAA 1936 ss 6D and 159GZZZP. Additionally, the High Court held that section 6D must be read in light of Part 2M.2’s replacement of the concept of a company having “accounts” and “accounting records” with the concept of a company having “financial statement” and “financial records”.
The Court held that an account that is a record of a transaction entered into by a company in relation to its share capital, or that is a record of a company's financial position in relation to its share capital, is a •share capital account• within the meaning of s 6D(1). It also held that s 6D(2) required all share capital accounts to be considered as a combined •share capital account•. Consequently, the $1 billion consideration PBL received under the share buy-back agreement was debited against amounts standing to the credit of Crown's •share capital account• and the Commissioner was correct to have assessed the taxpayer as having made a capital gain.
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