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High Court decision has M&A implications, warns Pitcher Partners


A recent High Court decision has highlighted the need to carefully consider contractual negotiations in merger and acquisition transactions, according to Stuart Dall, executive director of tax consulting at Pitcher Partners.

By Mitchell Turner2 minute read

Mr Dall said the decision in Ausnet Transmission Group Pty Ltd v The Commissioner of the Commonwealth of Australia may be used as a point of distinction in future cases in which assets are acquired subject to a future contingent liability.


The High Court, with a 4:1 majority, found that transmission licence fees incurred by the taxpayer (Ausnet) in the years following the acquisition of electricity assets from the Victorian state government were not deductible, on the basis that they were capital in nature.

“Without this case, it’s something that people may not consider or think about too much. They may just assume it’s an assumed liability that’s going to be deductible in the future because it’s incurred in the ordinary course of business”, Mr Dall said.

“In simple terms, it appears that it does not pay to contractually assume a future contingent liability unless it is a necessary commercial imperative, borne out of a requirement of an insistent vendor,” he added.

Asked what this would mean for accountants and advisers advising on M&A transactions, Mr Dall noted that valuations would need to be carried out in a more sophisticated manner.

“This case will refocus people’s minds when they’re actually involved in the contractual negotiations, looking at it a bit more closely and making sure that it’s reflecting the commercial outcome as well as any unexpected tax outcomes as a consequence,” he said.

“Potentially, if there was a situation that arose like Ausnet again, in the cash flow valuation model that they were putting together there would be an adjustment made to deal with this non-deductibility issue.”

High Court decision has M&A implications, warns Pitcher Partners
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