High Court refuses taxpayer appeal involving small business CGT concessions

The case involved the sale of two 20 per cent parcels of shares in the gambling company Punters Paradise to News Corp for $6.2 million each. The two appellants in the case, Sarah Kilgour and Tamara Isterling, were the vendors of the 20 per cent parcels.

While the total sale of Punters to News Corp was $31 million, the appellants argued that the ‘enterprise value’ of the shares was actually $18.2 million, and that News Corp purchased the shares at an additional ‘special’ or ‘strategic’ price at $12.5 million.

They relied on evidence from chartered accountant Andrew Fressl and intangible asset valuation specialist Michael Churchill to argue that News Corp had paid more than market value due to the willingness of other shareholders to dispose of their respective parcels, and “synergies”.

They said the deal between Punters and News Corp was not at arm’s length, and that market value substitution rules should apply to revise the capital proceeds from $31 million to $18.2 million, significantly reducing their tax bills.

Kilgour and Isterling also sought to apply small business CGT concessions to reduce or eliminate their capital gains tax. 

However, the court found that News Corp had prepared detailed internal documents before the 2016 sale, outlining the potential acquisition strategy, benefits, risks, and financial implications of acquiring Punters Paradise. These documents valued Punters at approximately $30 million.

The lack of pre-existing relationship and News Corp’s thorough internal decision-making process supported the conclusion that News Corp was influenced by strategic commercial interests, the court found.

“Evidence of the internal deliberations showed that Punters’ business was viewed as a valuable adjunct to News Corp’s existing wagering and sports coverage business activities,” court documents read.

As such, the primary judge determined that News Corp and Punters were not related parties, and therefore the transaction was arm’s length and the market value substitution rule did not apply.

This also meant that Kilgour and Istelring were not eligible for the small business CGT concessions because they exceeded the maximum net asset value threshold of $6 million. 

In its decision to refuse special leave for an appeal, the court said that the application had "insufficient prospects of success to warrant a grant of special leave to appeal". It also said the application did not raise any questions of general importance.