iscover Tabcorp loses appeal over deduction for $1.49bn loss
TaxThe Full Federal Court has ruled that the termination of gaming licenses in Victoria did not create a financial arrangement subject to the taxation of financial arrangements rules.
Tabcorp Maxgaming Holdings Limited (Tatts) has lost an appeal in the Full Federal Court in a case examining whether Tatts could claim a $1.49 billion deduction under the Taxation of Financial Arrangements (TOFA) rules.
Tatts claimed it was entitled to a deduction for a loss under Division 230 of the Income Tax Assessment Act 1997 from a financial arrangement that it said came into existence on the expiry of its gaming licence in August 2012.
The arrangement, it said, consisted of a contingent right to receive a terminal payment from the Victorian government arising from an agreement made with the state of Victoria in 1995 or section 3.4.33 of the Gambling Regulation Act 2003.
The right under the agreement was contingent on a new gaming operator's licence being granted to another entity within six months.
However, the court noted that this could never occur due to a legislative change in 2009 eliminating the possibility of a new gaming operator's licence being issued. The 2009 legislation amended section 3.4.33 of the Gambling Regulation Act 2003.
Justices Mohinsky, Hespe and Button noted that the conditions that needed to be satisfied for Tatts to be entitled to a terminal payment were set out in section 3.4.33 of the 2003 legislation. It stated that for the right to payment to be a right subject to a 'contingency', there needed to be a real possibility of the conditions being satisfied.
"As at 16 August 2012, the Commission did not have power to grant a licence under Div 3 of Pt 4 of Ch 3 of the 2003 Act to anyone. As at 16 August 2012, section 3.4.3 relevantly provided that Pt 4 of Ch 3 did not authorise the grant of any further gaming operator’s licence," they said.
The condition provided for in section 3.4.33(1)(b) was therefore not capable of being satisfied under the law as enacted and had no real possibility of being satisfied.
"For a gaming operator’s licence to be granted (to anyone), the Victorian Parliament would have needed to pass legislation to not only make amendments to the new regulatory regime it had enacted in 2009, but to revert to the terms of the former duopoly which it had abolished and to reinstate the issue of gaming operator’s licences under Div 3 of Pt 4 of Ch 3 of the 2003 Act. There was no real possibility of this occurring," the court said.
For these reasons, the Full Court determined that Tatts did not have, as at 16 August 2012, pursuant to section 3.4.33 of the 2003 Act, a “cash settlable legal or equitable right to receive a financial benefit” within the meaning of section 230-45(1).
The Court concluded that because Tatts did not have a contingent cash settlable legal or equitable right to receive a terminal payment, a financial arrangement was not commenced at the time its gaming operator's licence expired.
It therefore upheld the previous decision of the Federal Court that Tatts was not entitled to a deduction for a loss under Division 230 of the ITAA 1997 as it did not have a financial arrangement within the meaning of section 230-45 of the ITAA 1997.
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Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
