Commissioner of Taxation v Unit Trend Services Pty Ltd [2013] HCATrans 46 (14 March 2013)

Last Updated: 14 March 2013

[2013] HCATrans 046

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Brisbane No B61 of 2012

B e t w e e n -

COMMISSIONER OF TAXATION

Applicant

and

UNIT TREND SERVICES PTY LTD ACN 010 382 242

Respondent

FRENCH CJ
CRENNAN J
KIEFEL J
GAGELER J
KEANE J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 14 MARCH 2013, AT 10.00 AM

Copyright in the High Court of Australia

MR B.D. O’DONNELL, QC: May it please the Court, I appear with my learned friend, MR S.R. LUMB, for the applicant. (instructed by McInnes Wilson Lawyers)

MR F.L. HARRISON, QC: May it please the Court, I appear with my learned friend, MR P.G. BICKFORD, for the respondent. (instructed by MS & Cliff Lawyers Pty Ltd)

FRENCH CJ: Yes, Mr O’Donnell.

MR O’DONNELL: Could I take your Honours to some aspects of the facts briefly? If your Honours have the applicant’s submissions, in paragraph 16, they set out what was found to be the scheme. As your Honours see, it involves an intergroup transfer from group company A to group company B at a time when the construction or the development is well progressed. Then group company B completes the sale to the end buyer.

Can I explain why that matters in terms of the GST impact under the legislation? If your Honours have the applicant’s authorities, at page 111, section 165-10 sets out how the GST benefit is arrived at for the purpose of Division 165. The present benefit came within (1)(a). It is essentially a comparison between “with the scheme” and “without the scheme”, what would have been the GST payable on the supply? The Tribunal found with the scheme the intermediate company completed the sale to the end buyer. But without the scheme the original company, A, would have completed the sale to the end buyer.

FRENCH CJ: .....base - - -

MR O’DONNELL: Yes, and therefore lifts the base. The calculation of the GST, your Honours will see from page 106 in section 75-10. Section 75-5 gives the option to choose the margin scheme and the Tribunal found that whichever way the end transfer was completed, the seller would have opted to apply the margin scheme. Then under 75-10 when the intermediate company – that is Blesford and Mooreville – completed the transfer they came within subsection (2). So the margin was worked out on what they sold the unit for, compared to what they paid for it. But if Simnat had been the transferor to the end buyer, its situation would have come within subsection (3) and in particular, in the schedule item 1. That is its GST liability would have been calculated on the value of the interest, as at July 2000.

That had enormous financial implications because as of July 2000, towers two and three had not begun. There would be no construction. Towers two and three only began after July 2000. Hence, the margin would have been calculated using the original value of the bare land whereas when Blesford and Mooreville transferred to the end buyer, the price is calculated on the prices that Blesford and Mooreville paid for the partly completed towers which were in the hundreds of millions of dollars.

FRENCH CJ: The intragroup transfer was GST free because it was agreed to be - as a going concern. Is that right?

MR O’DONNELL: In fact, there were two reasons, your Honour. One was it was a going concern. The second was that they were members of the same GST group. So for each of those reasons there was no GST on the transfer. The going concern was, in a sense, overkill. Therefore, the difference in the GST is the difference between the GST that Blesford and Mooreville paid on the transfers and the GST that Simnat would have paid had it completed the transfers to the end buyers. Our learned friends have summarised this in their submissions at paragraphs 10 and 11, with which we agree.

Could I point out that the GST benefit, which is the crucial thing for determining the application of 165-5(1)(b), was the GST benefit on the transfer to the end buyer, not on the transfer from Simnat to Blesford and Mooreville. That was recognised in the Full Federal Court, for example, in the majority judgment in the application book at page 321 at paragraph 161. I would emphasise on the second line the words “on end sales to purchasers”.

Then if I could take your Honours to page 311 in the same book, at paragraph 132 their Honours set out the statutory choices contended for by the respondent. Now, (a) through to (c) go to say that when Simnat transfers the partly completed towers for Blesford and Mooreville no GST is payable on that transfer. It does not negate the GST reduction on the transfer to the end buyer but has an economic consequence, that is, unless you save the GST on the transfer from Simnat to Blesford and Mooreville you are not overall saving by reason of your reduction on the transfer to the environment. So it is an economic equivalence situation.

Now (d), which is the choice to apply the margin scheme, that was a choice where Blesford and Mooreville elected to apply the margin scheme on the transfer to the end buyer and therefore the GST was not one eleventh of the contract price but one eleventh of the difference between acquisition and sale prices.

FRENCH CJ: You say (b) and (c) are redundant choices in a sense?

MR O’DONNELL: Yes, your Honour, we do. The Commissioner did not negate the application of the margin scheme, that is, that choice or the GST benefit that flowed from it. What the Commissioner negated was the difference between “with the scheme” and “without the scheme”. So the Commissioner accepted the margin scheme could be applied but with the scheme you have a different acquisition price than from without the scheme. Hence, none of those choices alone account for the saving in GST that you have by comparing with and without the schemes, but they are necessary to achieve the economic advantage inherent in the scheme. For example, if you did not elect to apply the margin scheme, you could not have achieved the GST benefit from the scheme.

CRENNAN J: So they have some causal connection with the GST benefit but on your analysis not a sufficient one for the benefit to be attributable to these choices?

MR O’DONNELL: Exactly, your Honour. We say that the majority in the Full Federal Court adopted essentially a contributory causal test. If the statutory choices make a contribution to causing the GST benefit, their Honours said, we would say that is enough. In our submission, that is too broad a test.

GAGELER J: How do you put the test?

MR O’DONNELL: We say, your Honour, that there has to be a much closer link between the statutory choice and the GST benefit. We say a contributory causal test is not close enough.

GAGELER J: It is a sole cause test?

MR O’DONNELL: No, we do not put it quite as high as that. We have put in our submissions proximate, proximate or direct, so that the statutory choice must be a proximate or direct cause of the GST benefit.

GAGELER J: The word “proximate” hides perhaps some policy choices that perhaps need to be teased out.

MR O’DONNELL: Yes. How one expresses the test in a positive way is always difficult. Justice Dowsett in his dissenting judgment put it as a direct link - were the words he used - the GST benefit must be in a direct link to the exercise of the statutory choice.

CRENNAN J: Perhaps that is not the only way of describing the idea that is intended, although what his Honour was doing perhaps was focusing on – if I can call it this - the grammar of the subsection so that the starting point is the GST benefit. It is not the choices that have been made. Then the question is whether the GST benefit is attributable in the sense, I suppose, that the choices made somehow explain the GST benefit. All I am saying is direct may not be the only way of describing the idea that I think is being grasped at to make a distinction between contributory causes and causes which are able to be accurately described as a cause to which the benefit is attributable.

MR O’DONNELL: Yes. We would prefer to put it in terms of how close are the two, how close is the relationship between the statutory choice and the GST benefit. We say it would need to be a very close connection in order that Division 165 should not apply to the scheme at all.

CRENNAN J: I think in the AAT they use the language of explanation so you look at the choices made and ask do they explain the GST benefit? That is one way of approaching it, I suppose and indeed, I think the majority in the Full Court did take that as an approach. Their difference with the AAT was that they regarded the approach as not correctly applied. So is that an approach, is that how you would construe what is required by the subsection?

MR O’DONNELL: I would not adopt a test I have explained, because again, that masks the subject of assessments. An explanation to one person might be different from what is explained to another person. It is difficult to put into - - -

CRENNAN J: Same as the direct problem, in a sense, or the approximate problem.

MR O’DONNELL: That is right. It is difficult to put into positive language an expression of the test which is not vulnerable to some criticism. But we do submit it should be a much closer nexus than merely a contributory cause.

CRENNAN J: Perhaps that is supported, that point, by the fact that it is a negative test, not a positive test.

MR O’DONNELL: Yes, that is right.

CRENNAN J: Sun Alliance involved a positive test.

MR O’DONNELL: Yes, it did. If I could take your Honours back to the applicant’s written submissions at paragraph 16, could I point out that the statutory choices on which the respondent relies account for some elements found to be the scheme, but not all. That is, the respondent’s choices account for item (d) and item (f), but not the other components of the scheme.

KIEFEL J: You are referring to the scheme found by the AAT?

MR O’DONNELL: Yes, your Honour, which we have reproduced in paragraph 16. Critical to the financial success of the scheme was (a) that there be the intragroup transfer, and (b) that the transfer occur at a time when development had substantially progressed.

KIEFEL J: So it is (c) in the scheme that is the key to the scheme? It is the timing.

MR O’DONNELL: Yes, and that was what Justice Dowsett in his Honour’s dissenting judgment referred to as the heart of the scheme.

KIEFEL J: Your argument is that that is unexplained by any choice that is expressly provided by statute?

MR O’DONNELL: Yes, your Honour, and that was essentially the Tribunal’s view, and also Justice Dowsett’s view. It is our submission that the contributory causal test that their Honours in the majority in the Federal Court adopted does not sit comfortably with the purpose of subsection (1)(b).

Can I take your Honours to some passages dealing with that in the applicant’s authorities? The section is set out at page 110. We point to the inference we say should be drawn, that Division 165 was intended to have a broad application. On page 109 in section 165-1, it sets out:

The object of this Division is to deter schemes –

and says in the third paragraph –

This Division is aimed at artificial or contrived schemes –

The structure of the division is to adopt a very broad definition of “scheme”, as your Honours will see at page 110, subsection (2). So broad, in fact, that if you get to the stage where the scheme does produce a GST benefit and has the purpose or effect of producing a GST benefit, there is no automatic avoidance of the benefit. Rather, the Commissioner has a discretion whether to negate the benefit in a particular case, as your Honours see at page 113, 165-40.

FRENCH CJ: Does it really matter to you whether it is 165-5(1)(b) limits attribution to a single choice election application of agreement or a multiplicity of choices, given that your focus is on the timing?

MR O’DONNELL: For the purposes of this particular scheme, no. But, for the more generally the proper interpretation of the section, it does matter to the applicant, your Honour and the applicant submits that the proper interpretation only applies to a single choice, not to multiple choices. So, we adopt Justice - - -

FRENCH CJ: Why is that?

MR O’DONNELL: We adopt Justice Dowsett’s - - -

FRENCH CJ: Yes, but what is the policy underlying that proposition?

MR O’DONNELL: We say that it was only intended to apply where you have a statutory choice which itself produces the benefit, not where you have a scheme composed of multiple statutory choices which together produce a benefit.

CRENNAN J: What if you had a choice and an election?

MR O’DONNELL: In that case we say that scheme should be exposed to Division 165.

CRENNAN J: But as a policy matter why would it matter if you had two choices? If the purpose of this scheme is to – sorry, I take that back. What lies behind the subsection is a distinction between, on the one hand, legitimate tax planning and on the other hand, tax avoidance. So that lies behind the section and the purpose would be to isolate legitimate tax planning that has been undertaken, by reference to some provision in the statute or related statute. So as a matter of policy, why would it matter if two choices were involved or three, or a choice plus an election because the question is always going to be whether or not the GST benefit is not attributable to some legitimate tax planning undertaken under the legislation.

MR O’DONNELL: I would put the analysis slightly differently, your Honour. I would say that the purpose of the subsection was to avoid a clash between Division 165 and those provisions which allow a person to make a choice and, thereby, derive a benefit. The concern was that Division 165 would override express provisions entitling someone to make a choice to which the Act attaches.

CRENNAN J: The collateral damage idea.

MR O’DONNELL: Exactly. So the idea was to preserve your ability to make a choice or an agreement under the statute. Division 165 should not apply in that situation. That is contemplating the exercise of a single choice or agreement under the Act. Where you have someone who puts together a scheme involving multiple statutory choices, then that is a different situation. That is not a situation of Division 165 overriding a choice under an express provision. It is rather someone who has contrived a scheme comprised of a number of statutory choices and in that case, in our submission, it should be exposed to the potential application of Division 165, depending on what is the purpose of the overall scheme.

GAGELER J: You have inserted into that explanation, of course, the pejorative language of contrive.

MR O’DONNELL: Yes.

GAGELER J: That there may well be multiple statutory choices available to a taxpayer that within the policy exposed by section 165-1 are legitimate choices.

MR O’DONNELL: That is true.

GAGELER J: Why do you draw the distinction between one choice and two choices, or three choices?

MR O’DONNELL: Well, if you have multiple choices then we would say the scheme is exposed to scrutiny under Division 165 but you still have the hurdles to get over a purpose, in effect. So if the purpose of the multiple statutory choices was not to get the GST benefit – it had some other purpose – then the division would not apply, or if the Commissioner, even if that was the purpose, the Commissioner has the discretion whether or not to negate, and again, if the Commissioner was satisfied it was not a contrived arrangement the Commissioner might not exercise that power.

FRENCH CJ: What do you say – do you accept the analysis that Justice Dowsett offers at paragraph 47 of his judgment at page 22 in the book - and it is the last two sentences in that paragraph:

Where one benefit is attributable to the interaction of numerous choices, it would be more accurate to attribute such benefit to that interaction, rather than to individual choices, taken discretely.

MR O’DONNELL: Yes, your Honour, we adopt that proposition. This was a classic case of an interaction because here you had several statutory choices and commercial choices, commercial agreements. It was the interaction of them altogether which produced the huge saving in GST, not any one alone.

CRENNAN J: But on your suggested construction of “attributable”, you could have two choices sanctioned by legislation and still be in the position where the GST benefit was on the construction you have ventured related to something completely different, a commercial decision that has nothing to do with the choices, and you could have the reverse as well. I am just not quite able to understand why you would confine the operation of the section to a single choice or a single choice with multiple elements, because it does not seem to have any necessary relationship with the construction of “attributable” which you have ventured.

MR O’DONNELL: That is the closeness of the connection.

CRENNAN J: Yes, yes.

MR O’DONNELL: If you say that - - -

CRENNAN J: You could have two choices which in a sense make a contribution causally but are not the reason for the GST benefit.

MR O’DONNELL: Yes, in which case we would say that (1)(b) would not apply, the test in (1)(b) would not be satisfied.

CRENNAN J: You could have interlinked two choices, or a choice plus an election, which when you analyse the choice plus the election you are able to predicate that the GST benefit was referable to that choice in election on your construction of “attributable”. I am sorry I am not making myself clear.

MR O’DONNELL: I am not sure I followed your Honour’s question.

CRENNAN J: Taking your construction of “attributable”, I cannot see why a step in the argument requires that the section only applies if there is one choice.

MR O’DONNELL: The single choice versus multiple choices.

CRENNAN J: Single choice versus any constellation, multiple choices or choice plus election, because the question always is whether benefit is attributable to something.

MR O’DONNELL: Yes, that is right. The hardest for me to justify is where the benefit is attributable to choice A and choice B both being statutory choices and there is a close connection. But, if it was the case that that would be protected under (1)(b), then equally if the benefit was attributed to 50 statutory choices it would follow that that benefit would also be protected from Division 165. Once you get into multiple choices making up the scheme you are much more in the realm of someone electing to put together an arrangement so as to attract a GST and thereby having the purpose of - - -

CRENNAN J: It may just be the case the more you get into multiple choices the further you get from legitimate tax planning as distinct from tax avoidance.

MR O’DONNELL: That is so, and we would say the further you are getting from the mischief at which the section was intended to apply - - -

FRENCH CJ: Well, what you then do is you are approaching - with respect to Justice Dowsett’s analysis, you conjure some emergent thing called the interaction and you make the attribution to that.

MR O’DONNELL: Yes.

FRENCH CJ: It seems to me that the notion of “attribution” in this context is inescapably purposive or normative and may not be reducible to a formula.

MR O’DONNELL: Yes. It is very hard to come up with a formula.

KIEFEL J: The attribution operates by way of an exception, or can I ask you this? Does the attribution to an express statutory choice operate to negate purpose in relation to a scheme?

MR O’DONNELL: No, not to negate purpose.

KIEFEL J: So you have the two functioning together? You can have a dominant purpose of obtaining a benefit, but the exercise of a statutory choice.

MR O’DONNELL: Yes. So if you exercised statutory choice, and that in itself produces a GST benefit, no question of purpose intrudes because you are automatically outside Division 165 because there are essentially four requirements to be within 165. You must have the scheme producing a benefit, you must have the purpose of achieving the GST reduction or the effect of achieving the GST reduction, and it must not be attributable to statutory choice. So if it is attributable to statutory choice Division 165 cannot apply.

KIEFEL J: Yes, I see.

MR O’DONNELL: Indeed, when people exercise a choice given by statute in order to get a GST benefit they are exercising the statutory choice for the purpose of getting the GST benefit. That would be a normal situation.

KIEFEL J: Well, in that case the purpose would be the exercise of the statutory choice rather than the purpose of obtaining a benefit through a scheme. That is the distinction. So they can operate together.

MR O’DONNELL: Well, although when you exercise the statutory choice it is ordinarily to get a GST advantage.

KIEFEL J: But, nevertheless, the two can operate together in that way.

MR O’DONNELL: Yes, your Honour.

FRENCH CJ: Your primary position is that that does not matter because the benefit is attributable to the timing.

MR O’DONNELL: Yes, it is, your Honour.

FRENCH CJ: Which is calculated to ensure that the transfer occurs at a time when the value is uplifted and so the margin less.

MR O’DONNELL: Exactly. If everything had happened the same as it did but they transferred the Towers II and III at a very early stage of construction, there would have been an enormous difference in the dollars of the GST. You only get the huge saving by leaving the transfer until towards the very end of construction.

KIEFEL J: Did the majority in the Full Court exclude (c) in the AAT’s scheme at all?

MR O’DONNELL: No, they did not exclude it, your Honour.

KIEFEL J: Did they read it down in some way - - -

MR O’DONNELL: They dealt with it in this way, if I could take your Honours to their reasons, particularly at 332 to 333. In paragraph 200, they say they accept the Commissioner’s submission that the choice to transfer the towers was essentially a commercial choice and that:

that brought about, in effect, an uplift in the intermediate cost base . . . However, entry into those intra-group - - -

KIEFEL J: I am sorry, where did you go to?

MR O’DONNELL: Page 333 at about line 10, your Honour, the second line on the page. They say:

entry into those intra-group transactions on terms consistent with a sale of a “going concern” in a manner which conformed with s 38-325(1)(c) . . . did involve an election or choice to transfer on terms expressly in conformity with s 38-325 and thus in a manner expressly consistent with the GST Act.

So, in effect, their Honours are saying, yes, there was the intragroup transfer and, yes, that was a commercial act, but it was done in a manner which was a going concern transfer and that was a manner consistent with the choice under the statute.

CRENNAN J: But that does not explain the choice of timing.

MR O’DONNELL: No.

CRENNAN J: So you would say, would you, well, that did not effect the reduction in GST related to timing, as Justice Kiefel points out?

MR O’DONNELL: Exactly. We would say in fact that there were two things occurring. One was the decision to transfer the towers and the second, having made the decision to transfer the towers, the second decision, to form the agreement in a way which made it a going concern.

CRENNAN J: So these choices standing alone do not effect the $21 million reduction in GST?

MR O’DONNELL: Exactly. Their Honours go on in paragraph 201 to say:

If what lies at the heart of the GST benefit obtained from the scheme is the intermediate transaction resulting in an uplift in the transactional cost base –

that that transaction –

involved the taxpayer making a choice or election to enter into a going concern . . . But for the making of the choice or election to transfer Towers II and III as a going concern in conformity with s 38-325(1)(c), a GST liability would have arisen –

on the transfer, which is essentially the “but for” test.

CRENNAN J: Well, a contributory cause test, I suppose.

MR O’DONNELL: Yes. It is certainly true that the going concern choice was important, but the going concern election does not explain the commercial transfer of the towers, and it was the commercial transfer which achieved the uplift in the cost base. So, in other words, yes, there was a statutory choice, but there was also a non-statutory choice and the non-statutory choice was critical to the cost saving. Their Honours go on in paragraph - - -

KEANE J: Mr O’Donnell, do you read 165-5(1)(b) as being – when it says “the GST benefit” it is actually the GST benefit that the entity gets - or got - is not attributable to – is that how you read it?

MR O’DONNELL: Yes, your Honour.

KEANE J: So that it focuses you on the particular GST benefit that the entity says it has got and then the question is whether that particular benefit that is got is got, by reason of the making of a choice. If it is not got by reason of making a choice, but by other factors associated with the scheme you are not in 165-5(1)(b).

MR O’DONNELL: That is my submission, your Honour.

CRENNAN J: Is this a necessary, but not sufficient argument as Justice Keane has put to you?

MR O’DONNELL: Yes, that is right.

CRENNAN J: So there could be all sorts of choices that are necessary or in some sense have to do with an ultimate Act, the ultimate Act being the Act that explains the GST benefit.

MR O’DONNELL: Exactly, the statutory choices here were necessary for the scheme to produce the dollar saving, but they were not in themselves sufficient.

KIEFEL J: What you are looking for is effective cause. It might be outmoded in tort, but it might be applicable in taxation?

MR O’DONNELL: Exactly. There has got to be, we would say, a much closer connection between the statutory choice and the GST benefit than just saying the statutory choice was necessary, but not itself sufficient to produce the benefit which essentially is, we would see, what the majority adopted in their reasoning. For example, if your Honours look at paragraph 199. Their Honours begin:

Had not these choices been made –

and they go on to say the GST benefit would not have arisen.

KIEFEL J: Well that is a “but for” test.

MR O’DONNELL: Exactly.

KIEFEL J: You are saying it has to be much more than that.

MR O’DONNELL: Yes. Your Honours say in paragraph 202, particularly at the end of the paragraph essentially that the scheme consists of a number of choices, some statutory some not, but that is no reason why the GST benefit is not attributable to the making of those choices; in other words each choice.

FRENCH CJ: I imagine it would be pretty hard to do anything which yielded a GST benefit which did not involve some choice under the Act.

MR O’DONNELL: Yes. Then, their Honours say at paragraph 204 the Tribunal did not fall into error by saying that the question was whether:

the GST benefit belongs to or is directly explained by that choice . . . The Tribunal, however, fell into error in concluding that for settlements up to and including 16 March 2005 the GST benefit was not explained by the choices, elections etc made by Unit Trend, as the GST benefit deriving from the scheme was properly explained by each choice –

In other words, each component of the scheme can be said to explain the GST reduction. Then their Honours in 205 seem to adopt the test in the last line of whether:

the GST benefit must be answerable to, explained by or belong to those choices.

which, we submit, is an unsatisfactory state to leave the test under this subsection. What those concepts mean will mean different things to different people.

Overall, if one asks what outcome did the majority judgment reach it is not altogether clear. Their Honours at an earlier stage – this is back on 331 – at paragraph 194 seemed to reject the notion that the test under the subsection could be merely a contributory causal test. I would emphasise on the third line the words “seems to more properly contemplate”. But then at 195, their Honours - - -

CRENNAN J: Well, at the midpoint of the paragraph, too.

MR O’DONNELL: Yes. But then at 195, their Honours go on the other foot and look at the obverse situation:

if . . . a view is formed that “attributable to” imports the notion of causation in the sense of “some connection” . . . or the notion that “a contributory causal connection is quite sufficient”, then, clearly enough, Unit Trend has satisfied that test –

If one compares that to the end result their Honours reach where they say the test was satisfied here, it does appear that they have adopted the test in paragraph 195, which is a contributory causal test, which is slightly odd because they seem to reject that in 194.

GAGELER J: Well, the first sentence of 199 suggests that there is a “but for” test being applied, does it not?

MR O’DONNELL: Yes. We would say also in paragraph 201, last sentence.

FRENCH CJ: But you put this into the same conceptual box as terms like “in relation to” or “connected with” that turn up in revenue statutes from time to time. In other words, as I said before, there is a purposive or normative judgment being made by reference to the objects of the Act and the provision. But in a sense, your primary argument is sidestepping all this controversy, is it not?

MR O’DONNELL: Yes, it is, your Honour. We say that a contributory causal test would not satisfy the legislative purpose of subsection (1)(b), that the legislative purpose was designed to remedy the mischief, the mischief being that unless you have (1)(b), Division 165 can override express statutory provisions, allowing people to make elections or agreements and get a GST benefit as a result. Their Honours’ test would go much further than that and exempt from the scrutiny of Division 165 a scheme which consists of an aggregated arrangement as long as it involves at least one statutory choice which is necessary, but not in itself sufficient to produce the GST benefit. Could I take your Honours back to the applicant’s authorities?

FRENCH CJ: That does not logically exclude the possibility of an attribution to, say, three choices which are together sufficient and necessary to produce the benefit.

MR O’DONNELL: No, I accept that, your Honour.

FRENCH CJ: So we are not in a rather narrow construction that says it is one choice or nothing which attracts the exemption, or the offence, if you like, under 165-5(1)(b).

MR O’DONNELL: That is what the applicant would argue for, although it is not expressly raised on the facts of this - - -

FRENCH CJ: No, no, I am putting to you that you do not have to go down the track of saying that 165-5(1)(b) relates only to a single statutory choice. It all depends upon the causal connection between the choice, or choices, and the benefit.

MR O’DONNELL: Yes. How close is the connection?

FRENCH CJ: Yes.

KIEFEL J: At paragraph 39 of your written submission I took you to, I understood the Commissioner’s argument to be that there need not be a single statutory choice and nothing else operating.

MR O’DONNELL: That is so, your Honour. We accept that the scheme can consist of more than just the statutory choice.

KIEFEL J: The statutory choice, but that is still the single choice argument, is it not - - -

MR O’DONNELL: It is.

KIEFEL J: - - - that is connected with other factors.

MR O’DONNELL: It is. So I was going to take your Honours to the applicant’s authorities, page 131.

KEANE J: Mr O’Donnell, is that not though what the explanatory memorandum was talking about? Was it not saying you need 165-5(1)(b) because otherwise the statute will create a conflict within itself in that an expressly authorised choice that will produce a benefit might be denied because it would be also a scheme? So why is it not that if you are looking at the scheme by which a benefit is got, the section – 165-5(1)(b) - is telling you that if that benefit is got by a scheme which consists of a statutory choice the anti-avoidance provisions do not trump the specific choice?

MR O’DONNELL: I am sorry, your Honour.

KEANE J: Well, I am struggling with your first sentence in paragraph 39 of your submissions because I must say I read the explanatory memorandum on which you rely – the one that explains the insertion of 165-5(1)(b) – as concerned to make precisely that point that because “scheme” is defined so broadly that it could encompass the exercise of a choice the Parliament chose to exclude that possibility – to cover that possibility. I am just struggling with why you shy away from saying that for the subsection to operate it is concerned with a scheme that consists of a statutory choice and nothing else?

MR O’DONNELL: I think the concern was - - -

KEANE J: Sorry, a scheme from which you get a benefit.

MR O’DONNELL: Yes.

KEANE J: So in each case the analysis is, first of all, identify your benefit. Ask how you got it. If you got it from a scheme, the anti-avoidance provisions apply. If the scheme whereby you got it also answers the description of a choice it gives you that benefit – the anti-avoidance provisions do not apply, but in each case you start with identifying the benefit.

MR O’DONNELL: That is true, your Honour.

KEANE J: If you start by identifying the benefit being this big difference, on your argument it is not the choice to transfer as a going concern, or to transfer between entities, it is the other aspects of the scheme, it is step (c).

MR O’DONNELL: Yes, which was - - -

KEANE J: If it is step (c) then we see a case where the scheme does not consist of the statutory choice and nothing else.

MR O’DONNELL: Exactly, but your Honour was asking me why do we put the proposition in paragraph 39 that we do not contend for the subsection to operation the scheme, it must be the choice and nothing else. I think the concern was that scheme is defined so broadly that it could be said to encompass a statutory choice and other things, but as long as the statutory choice is the effective cause of the benefit, or the direct cause of the benefit, that would be enough to exclude it from Division 165. In other words, the thinking was it would be going too far to say, or give too narrow an operation to (1)(b) to say that it only applies where the scheme is just the statutory choice. Now, it is a product of the width of the definition of scheme.

KEANE J: Yes.

KIEFEL J: Is it necessary to your case that we determine the question of whether there is a single choice?

MR O’DONNELL: No, it is not, your Honour.

KIEFEL J: Well, why do we do it?

MR O’DONNELL: Well, it is bound to come up.

KIEFEL J: This might not be the case to really challenge the - - -

MR O’DONNELL: It might not be the appropriate vehicle.

KIEFEL J: - - - question about multiple choices though.

MR O’DONNELL: That is true, although it was raised in the Full Federal Court and we have raised it in the argument here. So, we adopt Justice Dowsett’s analysis in that regard.

FRENCH CJ: There seemed to be a tension between the answer you gave to me and the answer you gave to Justice Kiefel earlier. I understood you accepted the proposition – and you had better correct it if it is wrong – that you can get the benefit of 165-5(1)(b) where you have a GST benefit which is attributable to more than one statutory choice, excluding anything else.

MR O’DONNELL: If I said that, I apologise, your Honour; I had understood I had said that.

FRENCH CJ: It is one statutory choice that is all you get.

MR O’DONNELL: Yes. In other words, we would say that if the scheme comprises two statutory choices and they are together necessary to produce the GST benefit then (1)(b) would not apply.

KIEFEL J: Do you place much reliance upon the reference to a singular choice in the section, the literal reading of the section?

MR O’DONNELL: We say it helps that argument.

KIEFEL J: Together with the examples which are singular as well.

MR O’DONNELL: Yes and also the mischief at which we say the section was directed. Could I take your Honours to the explanatory memorandum in that regard? I begin in the applicant’s authorities at 131. This is the explanatory memorandum for the introduction of the 1998 Bill. At 132, paragraph 6.303, and I would emphasise the words “other than that intended by the GST law”.

CRENNAN J: Sorry, may I have the page and number again?

MR O’DONNELL: Page 132, your Honour, about two-thirds of the way down, 6.303 and I emphasise the last words “other than that intended by the GST law.” Then if I go to 133 this is amending the Bill during its passage through Parliament. At 134 the very last paragraph on the page addresses a concern as to the unintended effect of the current form of the Bill in 165.

FRENCH CJ: What paragraph number are you referring to? I am just working off an electronic copy.

MR O’DONNELL: Paragraph 1.118, your Honour. I underline the words “an explicit option”, suggesting singular. Then at 135, paragraph 1.121, in the second sentence. The situation where you have a scheme comprised of multiple statutory choices which together produce the GST reduction is, I would submit, outside the intended mischief.

KIEFEL J: Are you able to say that the options available provided by the statute are all singular, cannot work together?

MR O’DONNELL: We have not seen any multiple options, your Honour.

KIEFEL J: But whether they could be aggregated – singular options could be aggregated, is it possible?

MR O’DONNELL: I am sorry, I am not quite sure I follow, your Honour.

KIEFEL J: Two different options, whether or not there might be a case which factually throws up two different kinds of options in operation. You say it is unlikely?

MR O’DONNELL: It is unlikely on their own. Once you get to a situation where the GST reduction is produced by the interaction of two things, be they statutory choices or other things, we say you are outside the mischief that the subsection was intended to deal with.

KEANE J: But the mischief surely is not that you might have two options being used. The mischief surely is the possibility that because of the width of the definition of scheme you could have an option or options, plural, that the statute is perfectly content for the taxpayer to use that might be defeated or at least hamstrung because the statute would treat them as a scheme because of the width of the definition of scheme. It seems to me the mischief is not about multiple options. The mischief is option or options that also fall within the definition of “scheme”.

MR O’DONNELL: Or overriding an express entitlement given in another part of the Act.

KEANE J: Yes, exactly. This idea has a long history in going back to section 260 and Keighery’s Case, Cridland and Mullens. The idea was always that general anti-avoidance provisions were trumped by specific statutory rights of election or option. The concern was never that you might have two bases, two statutory rights that you could exercise together or that that would be somehow illegitimate. The concern was rather that the general provisions gave way to the specific. Why is not that thinking applicable here, or why do we not see that approach imminent in 165-1?

MR O’DONNELL: My submissions were that we do, that we do see the intention of Division 165 not to override other specific provisions which allow someone to make a choice to which the Act attaches a GST benefit.

KEANE J: I am just saying it just seems to me that the debate about one choice or two is a bit of a red herring.

MR O’DONNELL: Yes, although it does not arise on the facts of this particular case.

KEANE J: No and sufficient unto the day is the evil thereof.

MR O’DONNELL: Yes, your Honour.

CRENNAN J: May I in that context just ask you to look just for a moment at application book 228, paragraph 110, which is the decision of the Administrative Appeals Tribunal, and if you look at the second sentence there:

We take the view that the purpose of s 165-5(1)(b) is to preserve entitlements to benefits (measured in terms of reductions in GST that would otherwise apply) as a consequence of specified legislative provisions which create those benefits.

Do you disagree with that? That is entirely consonant with what Justice Keane has been putting to you in relation to the provenance of this idea of what used to be called the choice principle, I think, in relation to dealing with the width of section 260.

MR O’DONNELL: No, I do not disagree with that sentence, your Honour.

CRENNAN J: Well, you might have choices in relation to a number of benefits then that are perfectly legitimate. This is just suggesting to you that when you take that to be the purpose and when you do think back to the role of the choice principle in relation to the construction of 260, it is just a red herring to talk about one choice or two in terms of the purpose that is sought to be achieved by this subsection, which is to preserve entitlements to legitimate benefits.

MR O’DONNELL: I see your Honour is referring me to this in the context of single choice or multiple choices producing the benefits?

CRENNAN J: Yes, because if you are preserving entitlements to benefits, there may be more than one choice that is involved in, say, two benefits.

MR O’DONNELL: But the trouble you get into there is - let us say you have got three statutory choices which together produce the reduction in GST. Choice A does not itself produce that reduction in GST, that is, the GST reduction does not flow from choice A, choice B itself does not produce that reduction and choice C does not produce that reduction, but it is the combination of the three that does. You are then not preserving a statutory benefit which was intended to apply to choice A. The scheme is achieving a benefit which is essentially greater than the sum of its parts.

CRENNAN J: I suppose, as you say, it does not arise on these facts because of your reliance on the uplift step (c), so perhaps it is something we should worry about on another day.

MR O’DONNELL: I am in your Honours’ hands.

KIEFEL J: All that is really required I think, and as your reliance upon paragraph (c) perhaps shows, is that the GST benefit has been brought about by each identified choice.

MR O’DONNELL: Yes, your Honour, or I will put it in this case that the statutory choices here do not have the sufficiently close relationship to the GST benefit derived that they can be said to be - - -

KIEFEL J: But if you say “attributable” means brought about by, that is your causal connection. That is direct enough, is it not, by the statutory choice? It has to operate, but the statutory choice, whether it be one or two or more, has to actually operate to effect the benefit.

MR O’DONNELL: Yes, your Honour. That is my submission.

CRENNAN J: It has to be the cause responsible for the GST benefit. That is your point, is it not, about construction of the attributable?

MR O’DONNELL: Yes, your Honour, it is.

FRENCH CJ: This does not rely upon the reasoning in the paragraph and the judgment of Justice Dowsett that I put to you, which was attribution to something called the “interactions of the choices”. You are just saying it is the timing.

MR O’DONNELL: Yes.

GAGELER J: Another way of perhaps putting it in the language of the statute, is that the GST benefit is attributable to the timing. Is that a way of putting it?

MR O’DONNELL: Yes, that is a way of putting it. If it is attributable to the timing then, we say, it is not attributable to the statutory choices which, even in combination with the statutory choices here, do not themselves produce the reduction in GST.

GAGELER J: So this is perhaps going back over old ground, but is that not simply putting your case in terms of sole attribution? So when we read the word “attributable” in section 165-5(1)(b), do we not simply read it as being solely attributable?

MR O’DONNELL: That is one way of putting it. It is not the way we have in our written submissions. We thought that might be putting it a little bit too high. So, in our submissions, we put it more that the statutory choice must be the director or proximate - - -

GAGELER J: I saw what you put in your submissions. I am perhaps putting to you another way of encapsulating the point.

MR O’DONNELL: Yes, I understand. That is another way of putting my proposition, but it is a slightly more strict test.

CRENNAN J: But is that right? If you are saying that what you have got to find is the cause responsible for the GST benefit, there might be other causes that cannot be analysed in that way that make some contribution, but – this is back to the “but” – perhaps, it is going over old ground because it goes back to the “but for” idea.

MR O’DONNELL: Yes that is right. The trouble with the “but for” test is that you then - - -

CRENNAN J: All I am saying is are you really meaning to agree with Justice Gageler about sole because I took you to be saying that what you are searching for is the cause responsible for the GST benefit. So it is that cause that you are looking for in order to determine whether there is an exclusion or not. There might be other – as you put to Justice Keane before – necessary choices made which are not sufficient for explaining the GST benefit. So sole is not really what you are arguing, is it?

MR O’DONNELL: It is not what we have put in our submissions, no. To put the tests – one requiring that the statutory choice be the sole producer of the GST benefit – might be putting the test too high. So we have argued that there needs to be a much closer connection between the statutory choice and the GST benefit than just a contributory causal connection because that then removes too much from the operation of Division 165. How one expresses in positive language what should be the test – it is easy to say what should not be the test than what should be the test - how one expresses it in positive language is difficult. We have put it as approximate, or immediate, or direct link, mirroring Justice Dowsett’s - - -

FRENCH CJ: Just swap one normative or purpose of category for another really.

MR O’DONNELL: Yes, there is an element of that, your Honour.

I was then going to move to subsection (3), which is raised against us as a reason not to grant special leave. Your Honours will see this in the applicant’s authorities at page 116. The legislation introducing subsection (3) in 2008 has not altered the meaning of (1)(b). What we say Parliament has done is to create, in effect, a second hurdle to get over, if you wish your scheme to be not within Division 165. So if you want to avoid Division 165, your first hurdle is under (1)(b) that the GST is attributable to a statutory choice. If you get over that then you have to face the second hurdle in subsection (3). Has this particular statutory choice been brought about in circumstances where - - -

FRENCH CJ: Just a minute, Mr O’Donnell. We will hear you in reply on that.

MR O’DONNELL: Yes, your Honour.

FRENCH CJ: Is there anything further on your - - -

MR O’DONNELL: No, thank you, your Honour.

FRENCH CJ: Yes. Yes, Mr Harrison.

MR HARRISON: If the Court pleases, my learned friend has focused in his submissions on the intermediate choices, and focused on an argument that the GST benefit is not attributable to those choices. Let us assume for the moment that that is right, and follow through the way the scheme works. We accept that when the election to apply the going concern provisions was made, no GST benefit resulted then. So that we get to the stage where absent the scheme there would have been a supply by Simnat to an end purchaser, but with the scheme there is a supply by another entity to the same end purchaser, Blesford or Mooreville.

Now, up until, and even at the time of that supply, there was no GST benefit under the statute as it stood then, because section 75-5(1) relating to the margin scheme, which may be found conveniently for example in the majority judgment at page 296, provided:

If you make a taxable supply of real property by:

. . .

you may choose to apply the margin scheme in working out the amount of GST on the supply.

So up until the time that the GST is worked out – and we submit that the working out takes place when the GST return required by section 31-5 is lodged – up until that time, the matter is up in the air. Prima facie there is going to be a full amount of GST paid. It is only at that last point that an election is made when the taxpayer fills out his business activity statement. We say at that point an election is made, and if there is a GST benefit it is so closely connected to that election that is made then that if any meaning is to be given to “attributable”, it must be attributable to that choice or that election. Before that choice, there is no GST benefit. After that choice, there is.

Now, what my learned friend is, in essence, arguing is that “attributable” means attributable to one choice and no other choice but, in our submission, even assuming that it is not attributable to the earlier choices, if it is to have any meaning at all it must be attributable to that choice. If the legislature had intended to say “solely attributable” as your Honour Justice Gageler, I think, pointed out, one would have seen the expression “attributable”.

Now, my learned friend talks in vague terms about the purpose of the statute but the legislature has deliberately chosen, we would submit, a word whose meaning is well known, has been referred to in the authorities and which requires only a causal effect, not any causal effect but a causal effect in the ordinary meaning of that term.

CRENNAN J: When you say “by reference to the authorities” there are, of course, I think, a body of authorities in the repatriation context where “attributable” is construed from the point of view of assessing whether or not a widow is entitled to benefits because a death has - - -

MR HARRISON: Attributable to war service, yes.

CRENNAN J: Yes, that is right. Is that the body of authority you are referring to or is it a different body of authority?

MR HARRISON: That body of authority and Rother District Council, Sun Alliance but I hesitate to say that because I forget whether that was before – I think that was probably after the enactment of the section. Their Honours in the majority in the Full Court refer to the repatriation cases, your Honour.

CRENNAN J: Are any of those cases construing the expression “not attributable” as distinct from “attributable” or “reasonably attributable”?

MR HARRISON: No, not that I know of but I mean it is, one might say, I suppose, theoretically possible that one may have a middle ground but there is nothing in the context here to suggest that one should say this is attributable to or it is not attributable to. In my submission, the approach would be to say is it attributable, if it is not attributable, it is not attributable and that there is not a middle ground there - - -

CRENNAN J: The expression “not attributable” just carries with it the suggestion that something may be attributable to something else.

MR HARRISON: I would submit not, your Honour. One may say something is attributable to a number of things and one may look at the – one does not have to to apply the section but one may look and say this is attributable to A, to B, to C, to D and D is a statutory choice, therefore, it comes within the provision.

Now, it is, in my submission, a false argument to attribute to us a “but for” test. We would not argue, for example – take this case where a GST group is formed and then another member is added to that GST group, we would not say that the initial formation of the GST group is something that could be relied on here in a subsequent scheme. One needs to have a connection, in our submission, between the scheme and the choice of which the attribution test is asked.

That explains, in our submission, some of the rather vague expressions in the majority’s decision about not every choice being something that would give rise to the benefit. If one denies that the choice that is made in lodging the BAS return, without which there would be no GST benefit, then makes the benefit attributable to that choice then, with respect, it leaves very little left that could be said to be attributable.

Another problem with my learned friend’s analysis is that he is comparing the idea of attributable to a choice and then, with respect, creating, where there is no basis for that in the statute, a comparison with, not a statutory choice, but a physical action that has commercial consequences. That is creating a second test for which there is no basis in the statute. It only asks whether the benefit is attributable to the choice and that is - to seek to refer to choices that are non-statutory choices when there is no reference to non-statutory choices in the statue, with respect, ignores the progression of section 165-5(1), which starts:

This Division operates if:

(a) an entity (the avoider) gets or got a “GST benefit from a scheme; and

(b) the GST benefit is not attributable to the making, by any entity, of a choice –

et cetera, within the GST law which contemplates that there may be choices made within the scheme. The fact that you would say the interposition of the intermediate purchases occurred as part of the scheme, in my respectful submission, does not mean that one asks of them was the benefit attributable to that interposition. The legislature just does not look at that issue at all, it simply asks about attribution to the statutory choice.

CRENNAN J: Assuming you are right about multiple choices being protected and right about the fact that you can have a scheme in respect of which there are multiple protected choices, what then about step (c), does that interfere with the exclusion under subsection (b), assuming that you are right about the protection for multiple choices?

MR HARRISON: I am sorry, step?

CRENNAN J: Step (c). That is the timing point. This is step (c) in the scheme as described by the Administrative Appeals Tribunal. This is the timing of the sales for high value in relation to the - - -

MR HARRISON: With respect, in our submission, that has nothing to do with the question whether the benefit is attributable to the choice. It is a distraction from the statutory question.

CRENNAN J: What about if some effect is attributable to that step?

MR HARRISON: Well, your Honour then is falling into the error of reading it as attributable to one thing and to nothing else. Your Honour is rejecting without any, in my submission, statutory basis the ordinary meaning of the word “attributable” and saying, here - - -

CRENNAN J: Or the ordinary meaning of the expression “not attributable”.

MR HARRISON: Or “not attributable”, and introducing a new element to the test and is not attributable to some other step. When I say departing from the ordinary meaning of “attributable” which informs the meaning of “not attributable”, one has to say “attributable” means a cause, not the sole cause and your Honour is reversing that to the “not attributable” is saying the “not” makes it into a sole cause which, in my submission, there is no basis for doing.

FRENCH CJ: The premise of 165-5(1)(b) is that the entity has “got” a GST benefit from a scheme. So there is already a causal judgment about – and that is all expanded in 165-10, is it not?

MR HARRISON: Yes. I am sorry, I have not really responded to the implied question, but - - -

FRENCH CJ: I am sorry, it was not a question. In a sense I am just looking at the – obviously there is some anterior judgment about causal connection between benefit and scheme and then 165-5(1)(b) kicks in. So does that suggest there is more than one causal connection to the benefit?

MR HARRISON: Yes, it does indeed, your Honour. It is not as though the legislation said if a GST benefit is got from a scheme comprising a choice and the choice is attributable to an election, et cetera, provided by the statute that is what one would expect if that were the intention, taking “intention” to mean the intention derived from the words. Accordingly, and I appreciate I am being very short, but that, in my submission, is the gist of the interpretation that the Court should adopt, that is that there is nothing in the provision itself to require one to adopt a solely attributable connotation whatever the issues may arise in relation to being attributable to a number of choices.

Your Honour, we have, in our written submissions, discussed subsection (3). It is interesting to see how that would operate on a scheme in the present case because it seems to contemplate a case such as ours, although the EM gives a different example, of a scheme that has some artificial elements. Now, in our scheme there are a number of matters set up, including the interposition of the companies and the making of the choices, and then the final supply by a different entity.

Now, if one takes the view that the final supply by the different entity is not necessarily an artificial scheme, in effect, what the new provision will do will be not to get rid of the final supply but to get rid of the intermediate steps because they are the part of the scheme that subsection (3) is directed against.

My learned friend says that the section was unnecessary because those – the inference is that he is saying that subsection (3) was unnecessary because he is saying the benefit is not attributable to the intermediate steps, therefore it does not matter that they were artificial, whereas the new subsection really focuses on those intermediate artificial steps and takes them out of the scope of the choices that one can rely on for the purposes of (1)(b). But we say, with respect – if one may go to a further matter in relation to the subsection – the legislature seems to have had in mind the schemes – or it gives in the EM – an example that is quite similar to the case that we have here. If one goes to the 2008 EM, which is behind tab 11 in our book and it is also in my learned friend’s book, at page - - -

KEANE J: Page 131, Mr Harrison.

MR HARRISON: Page 137 is - - -

FRENCH CJ: This is the Tax Laws Amendment (2008 Measures No. 5) Bill 2008 EM?

MR HARRISON: Yes, your Honour, and, if one goes to paragraph 1.58, the drafters refer to a case when they say:

Division 165 will not apply –

and use the words of “artificial or contrived”. Then, going on in 1.59:

However, where entities take steps to create a circumstance where a statutory choice may be exercised, as part of an artificial or contrived scheme to defeat the object of the GST Act or particular provisions of the Act – such as schemes that seek to use multiple applications of the going concern concession to avoid GST on the value added by registered entities – the new provision may be relevant to the application of Division 165.

which assumes that the legislature took it to be applicable to multiple choices:

This new provision requires a conclusion to be drawn as to the purpose of creating the requisite circumstances or state of affairs consistent with the exception contained in Part IVA of the ITAA 1936. The purpose must be the sole or dominant purpose. This standard limits the potential application of the provision to those arrangements that are artificial or contrived in nature.

Then they give an example which has structural similarities to what we have here of a company that is registered for GST, transferring property to a third-party as a going concern and then the third-party transferring it back and then the first entity selling the property and takes the view that subsection (3) is intended to, as it were, negate the choices made in the course of that scheme – that is, to negate the choices equivalent to the intermediate choices; the going concern choice, and so on, that we have in the present case.

FRENCH CJ: Anyway, so you are saying are you that this diminishes the defence available under 165-5(1)(b) in such a way as to render any decision on that of limited utility for the future.

MR HARRISON: Yes.

FRENCH CJ: And that is a reason why special leave should not be granted.

MR HARRISON: Yes. But we are also referring to the fact that if my learned friend’s submission is correct we would say that subsection (3) is superfluous because, on my learned friend’s interpretation, the sort of scheme that it is aimed at never achieved the GST benefit anyway. Yet there is no suggestion that the legislation is being adopted out of an abundance of caution.

So that if it is a case where there is some ambiguity in the construction of the existing provision, one may refer to the amendments, in our respectful submission, to help resolve that uncertainty, although we would say in fact there is not any uncertainty. The meaning of “attributable” is clear, and the legislature was quite right. It needed to amend the section because the drafter of the original legislation overlooked the ingenuity of certain practitioners. If I do not address further, it is not that - - -

FRENCH CJ: No need for a disclaimer, Mr Harrison.

MR HARRISON: - - - I do not say that there are other worthwhile points in our written submissions, but I do not see any great point in reading them out to your Honours.

FRENCH CJ: Yes, thank you, Mr Harrison. Yes, Mr O’Donnell.

MR O’DONNELL: Just on the last point about subsection (3), in our submission, subsection (3) does not negate the utility of (1)(b) because if you come to apply the sections you first have to apply (1)(b), so you still have to ask is the GST benefit obtained from the scheme attributable to statutory choice? It is only if you answer yes that you then go to subsection (3) to decide whether it is back within the scrutiny of Division 165. So future applications of the section will still require to wrestle with (1)(b) and do you apply the effectively contributory causal test of the majority of the Full Federal Court or not?

Furthermore, we would submit that subsection (3) only deals with the limited class of cases that fall within (1)(b). It only deals with the limited class where part of the scheme is designed to generate the circumstances which give rise to the choice. So many situations will still fall within (1)(b), fall to be considered under (1)(b), I should say, which will not involve a scheme which is designed to generate a particular statutory choice.

For example, in the present case, the choice to become members of the same GST group, that could have been a choice made years before the particular scheme was thought of and a transfer of a partly completed development site would itself be a going concern transfer, not because anyone has engineered a going concern arrangement but because inherent in transferring the partly completed tower it is a transfer of a going concern because the purchaser is going to finish off the development.

So it might not come within subsection (3) at all but you still have to focus on (1)(b) and on the majority’s test it would be enough if just the statutory choice contributed to the overall reduction in GST without itself producing that benefit.

So we would submit that subsection (3) does not negate the utility of this Court properly determining (1)(b). I would point out though in the explanatory memorandum the Court has been taken to there is an underlying rationale of the operation of (1)(b), which rather supports our suggested interpretation of (1)(b). If your Honours look in the applicant’s authorities, page 137, paragraph 1.54, I would underline the words “but rather to the overall arrangement”. Similarly, at page 139 in Example 1.9 at about point 8 on the page in the second-last paragraph commencing “This transaction is brought”, if your Honours count down four lines to the words:

this does not mean that any GST benefit received by A was attributable to the agreement –

That is the going concern agreement –

because the agreement was but one step in the arrangement.

Moving away from subsection (3) to my learned friend’s other submissions there are just two other points I wish to make. One is he said that it was when Unit Trend came to complete its BAS that it made the election to apply the margin scheme and he says that is the crucial statutory choice which gives rise to the GST benefit. We would dispute that. The Commissioner did not negate the choice to apply the margin scheme.

My learned friend’s submissions suffer the problem he is focusing on the wrong GST benefit. Yes, there was a GST benefit from the choice to apply the margin scheme, but that was not negated by the Commissioner. What was negated was the GST benefit that you get from the comparison of with the scheme and without the scheme, that is, the GST benefit that derived from the fact that Blesford and Mooreville completed the transfers to the end buyers, not Simnat.

Finally, my learned friend argued that the interpretation of the expression “attributable to” derived from common law cases ought to be carried through to the statute. We have said in the written submissions, we submit, that is contrary to the purpose of rectifying the mischief at which the provision was aimed. But could I add also a reference to a passage from Justice Callinan in the Allianz Australia v GSF Case which is in the applicant’s authorities starting at page 29. In the report of that case at page 605 paragraph 126 his Honour pointed out some of the risks in incorporating common law understandings into the statute.

We would emphasise the words “it will be apparent that something different and stricter was intended” and apply that here that the expression “not attributable to” in our subsection was intended to serve a purpose which can only be served if a much stricter interpretation is given to those words than has been received in common law cases dealing with benefits going to people who have conditions attributable to - - -

GAGELER J: The purpose here is the purpose identified in section 165-1 of ensuring that the division only catches artificial or contrived schemes. Is that right?

MR O’DONNELL: Yes, your Honour. Unless I can assist the Court, they are my submissions.

FRENCH CJ: Thank you, Mr O’Donnell. The Court will reserve its decision. The Court adjourns until 9.30 tomorrow morning in Melbourne and 9.30 tomorrow in Sydney.

AT 11.38 AM THE MATTER WAS ADJOURNED