AusNet Services Limited v Commissioner of Taxation

ISSUE 4 The applicant objected to income tax assessments issued to it in respect of years of income ended 31 March 2016 to 31 March 2020 in lieu of the years ended 30 June 2016 to 30 June 2020 (the relevant income years). 5 The issue for determination in these proceedings concerns the construction of the rollover provisions in Div 615 of the ITAA97. The resolution of the issue determines whether the applicant is entitled to an uplift in the cost bases of the assets formerly held by the Distribution TCG. An uplift in those cost bases would have the effect of, amongst other things, increasing the capital allowance deductions that could be claimed by the applicant. 6 The applicant contends that Div 615 does not apply to the scheme of arrangement by which it came to be the holder of the shares in Distribution, with the consequence that it could not have made a valid rollover election under that Division and therefore is entitled to an increase in the cost bases of the assets of the former Distribution TCG. The Commissioner contends that the applicant had made a valid rollover election for Div 615 to apply with the consequence that the applicant is not entitled to an increase in those cost bases. 7 The parties initially proposed that this matter proceed by way of a preliminary question of law. The Court raised concerns with the parties that this proposal would leave open the possibility of complex unresolved issues of unidentified scope. By the time of hearing, the parties agreed that the resolution of the following two questions concerning the application of Div 615 will be dispositive of the matters in issue between them: (1) Was there a scheme for reorganising the affairs of Distribution for the purposes of s 615-5(1)(c)? (2) Were the ratios in s 615-20(2) equal?

FACTS 8 The parties provided the Court with an agreed statement of facts accompanied by an agreed bundle of documents. The following findings are based on these materials.

The Stapled Structure 9 On 19 October 2005, Distribution, Transmission and AusNet Services (RE) Ltd as trustee of Finance (together, the SPI Group), entered into a stapling deed. 10 Among other things, the terms of the stapling deed and constitution of each of Distribution, Transmission and Finance: (1) prevented any share or unit (as applicable) in Finance, Distribution or Transmission from being transferred or otherwise dealt with unless the securities to which it was stapled were also transferred to the same transferee or dealt with in the same way (as applicable); (2) prevented any of Distribution, Transmission or the trustee of Finance from issuing any security unless each of the others issued a corresponding security at the same time to the same person; (3) prevented any of Distribution, Transmission or the trustee of Finance from cancelling, buying-back or redeeming any security unless at the same time there was a corresponding cancellation, buy-back or redemption of the securities issued by the others; (4) required that each stapled security be listed as a stapled security and be the subject of a joint certificate or joint holding statement; (5) required that consolidated reports be prepared by combining the financial reports of each of them, as their primary form of financial reporting; (6) required each of them to co-operate with each other in respect of all matters concerning the stapled securities, including adopting consistent accounting and valuation policies, facilitating the composition of the boards of each of Transmission, Distribution and the trustee of Finance to be identical, taking a consistent approach to proposed investments, holding security holder meetings concurrently or where necessary, consecutively, agreeing on the terms and timing of all new issues, bonus and rights issues, placements, redemptions and buy-backs of securities, consulting before taking any action which may materially affect the value of the stapled securities, and co-ordinating any dividend; (7) provided for each to agree with the others in relation to reorganising or restructuring the capital of any of them; (8) modified their duties including in the following ways: (a) Each was required to perform its obligations under the stapling deed and carry out its duties under its respective constitution (including the raising of capital by debt or equity) with a view to enhancing the market value of the stapled securities (as a whole) to the extent permitted by law. (b) While stapling applies, notwithstanding any rule of law or equity to the contrary, in exercising any power or discretion, each was, subject to the Corporations Act 2001 (Cth) and any ASIC relief, to have regard to the interests of the security holders as a whole and not only to the interests of their respective unitholders or shareholders considered separately. 11 The effect of the stapling arrangements was that, as a matter of commerce, the stapled entities were to be managed as though they were a single entity. The stapling arrangement was, like the dual-listed company arrangement described by the High Court in BHP Billiton v Federal Commissioner of Taxation [2020] HCA 5; (2020) 270 CLR 60 at [8]-[11], a form of synthetic merger pursuant to which the businesses of separate entities were to be managed on a unified basis.

Background to the Restructure 12 Following a review by the Australian Taxation Office of the financing arrangements between the stapled groups, and the terms of a settlement reached with the Commissioner in early 2015, the stapling structure became sub-optimal for security holders. By the terms of settlement, the SPI Group agreed, amongst other things, to not claim deductions for payments of interest on certain intra-group financing arrangements. The payments remained assessable to the recipient financier, Finance. 13 The officers / directors of the stapled group decided it would be in the interests of security holders to interpose a single holding company between the security holders and each of the stapled entities so that rather than security holders holding three securities stapled to each other, each security holder became a shareholder in the new holding company. Colloquially this type of transaction is sometimes termed "top hatting". 14 The applicant had been incorporated on 11 December 2014, as a shelf company with two ordinary fully paid $1 shares issued to a wholly-owned subsidiary of Distribution.

The Schemes 15 On 14 April 2015, Transmission, Distribution, AusNet Services (RE) Ltd as trustee of Finance and the applicant entered into an Implementation Deed under which they agreed to undertake a restructure on the terms and subject to the conditions set out in the deed, and the applicant executed a "Deed Poll - NewCo" under which it covenanted in favour of the security holders of Transmission, Distribution and Finance to do all things necessary to implement the proposed restructure. 16 The restructure was to involve the following steps in the following order as provided for in Schedule 1 of the Implementation Deed: (1) Transmission shares, Distribution shares and Finance units were to be "unstapled". (2) Transmission shares, Distribution shares and Finance units held by certain foreign security holders were to be transferred to a nominee for a sale facility who was to sell the shares in the applicant it would come to hold after the implementation of the restructure and distribute the sale proceeds to those foreign security holders. (3) The applicant was to acquire all the Transmission shares for consideration in the form of shares in the applicant, subject to the approval of the security holders and the Court. At the same time, the applicant was to cancel the two shares held by the subsidiary of Distribution, under a selective capital reduction. (4) The applicant was to make an election that the Transmission TCG was to continue in existence. (5) The applicant was to acquire all the Finance units for consideration in the form of shares in the applicant, subject to the approval of the security holders and the Court. (6) The applicant was to acquire all the Distribution shares for consideration in the form of shares in the applicant, subject to the approval of the security holders and the Court. (7) By resolution of the applicant's shareholders, all the shares in the applicant were to be converted to that number of shares equal to the number of stapled securities that had been on issue at the record date. 17 Clause 5.1 of the Implementation Deed provided: 5.1 Implementation Steps (a) On or before the Implementation Date, subject to the satisfaction or waiver of the relevant Conditions Precedent and this deed not otherwise being terminated, each party must perform its obligations under the Schemes and take such Implementation Steps as relate to it. (b) The Implementation Steps must be taken in the order set out in Schedule 1 or as otherwise agreed between the parties. Subject to such other agreement of the parties and except as specified in Schedule 1, each Implementation Step must only be taken if the previous Implementation Steps have been taken. (c) No party is obliged to perform any Implementation Step unless all Implementation Steps will occur on or before the Implementation Date, as completion of the steps are interdependent and all Implementation Steps will be taken as occurring on the Implementation Date. (emphasis added.) 18 Following implementation of the restructure, Transmission, Distribution and Finance were to be delisted: cl 5.3 of the Implementation Deed. 19 The Transmission scheme of arrangement provided in cls 2.4, 4.1 and 4.2: 2.4 Implementation steps Transmission acknowledges that under the Implementation Deed, the implementation steps for the Proposal will take place at the times and in the order described in the Implementation Deed, including the Unstapling of the Stapled Securities which will occur immediately before the first of the transfers… … 4.1 Effective Date Subject to clause 4.2, this Scheme will come into effect pursuant to section 411(10) of the Corporations Act on and from the Effective Date. 4.2 End Date This Scheme will lapse and be of no further force or effect if the Effective Date does not occur on or before the End Date. 20 Clause 2.4 of the Distribution scheme of arrangement provided: 2.4 Implementation steps Distribution acknowledges that under the Implementation Deed, the implementation steps for the Proposal will take place at the times and in the order described in the Implementation Deed, including the Unstapling of the Stapled Securities which will occur immediately before the first of the transfers…and on the condition that Distribution must not affect the transfer [of the Distribution shares to the applicant] unless and until after the transfer [of the Transmission shares to the applicant], an election to continue the Transmission tax consolidated group and [the transfer of the units in Finance to the applicant] have been completed in that order. 21 Clauses 4.1 and 4.2 of the Distribution scheme of arrangement were in the same terms as cls 4.1 and 4.2 of the Transmission scheme. 22 The Finance scheme provided for the amendment of the trust constitution of Finance. One of the new clauses to be inserted was cl 24.2 in the following terms: The Trustee acknowledges that under the Implementation Deed, the implementation steps for the Proposal will take place at the times and in the order described in the Implementation Deed, including the Unstapling of the Stapled Securities which will occur immediately before the first of the transfers [of the units held by certain foreign security holders to the Sale Nominee], and on the condition that the Trustee must not affect the transfer [of units to the applicant] unless and until after the transfer [of the Transmission shares to the applicant] and then followed by an election to continue the Transmission tax consolidated group have been completed in that order. 23 Clauses 29.4(a) and (b) of the Finance trust constitution were inserted to provide (emphasis added): From the Effective Time: (a) clauses 24 to 29 bind the Trustee and all of the present and future Unit Holders (including those who did not attend the Meetings, did not vote at the Meetings, or voted against the Resolutions) and, to the extent of any inconsistency, overrides any other part of this deed; (b) the Trustee and, so far as is relevant, the Unit Holders, must give effect to this Scheme in accordance with its terms; 24 "Effective Time" was defined to mean the earliest time and date on which all of the schemes become "Effective" pursuant to s 411(10) of the Corporations Act (in respect of the company schemes of arrangement) and s 601GC(2) (in respect of the trust constitution amendments). 25 Pursuant to orders of the Supreme Court of Victoria, a "Securityholder Booklet" and "Information Memorandum" in relation to the proposed restructure were prepared. The "Securityholder Booklet" described the proposal to security holders in terms that included the following: AusNet Services is currently a triple-stapled entity. AusNet Services Securityholders hold AusNet Services Distribution Shares, AusNet Services Transmission Shares and AusNet Services Trust Units, which are stapled together. This means that they can only be dealt with together and effectively represent one single stapled security despite comprising interests in three separate legal entities. … If the Proposal is implemented, a new entity called AusNet Services Ltd [the applicant] (referred to in this Securityholder Booklet as NewCo) will become the new single head entity of the AusNet Services group. Securityholders will hold their interest in AusNet Services through NewCo Shares, rather than through AusNet Services Stapled Securities. Eligible Securityholders will receive one share in NewCo for each AusNet Services Stapled Security they hold on the Record Date. … The underlying business and assets of AusNet Services will not change as a result of the Proposal and therefore the economic interest of AusNet Services Securityholders will not change. Eligible Securityholders will hold the same number of NewCo Shares as the number of AusNet Services Stapled Securities they currently hold. 26 On 29 May 2015, the security holders resolved to approve the Transmission and Distribution schemes of arrangement and the amendments to Finance's constitution. 27 On 4 June 2015, the Supreme Court of Victoria approved the schemes of arrangement pursuant to s 411(4)(b) of the Corporations Act and made a further order to the effect that AusNet Services (RE) Ltd as trustee of Finance was justified in acting upon the resolutions passed by the security holders to implement the proposed restructure.

Other Agreed Facts 28 As at the beginning of 18 June 2015, Distribution, Transmission and Finance each had 3,466,913,009 shares or units (as applicable) on issue, with each security holder holding the same percentage shareholding or unitholding (as applicable) in respect of each of Finance, Distribution or Transmission. 29 It was an agreed fact that as at the beginning of 18 June 2015: (a) Finance's market value was $2.874 billion; (b) Distribution's market value was $2.025 billion; and (c) Transmission's market value was $0.525 billion. 30 On 18 June 2015, the steps set out at [16] above occurred in the order as set out. 31 On 18 June 2015, the applicant's public officer signed a document titled "AusNet Services Ltd - choice under subsection 615-30(1) of the Income Tax Assessment Act 1997" which stated that the applicant "hereby chooses to apply section 615-65 of that Act in respect of the acquisition" by the applicant of Finance and Distribution respectively. 32 On 1 July 2015, the Commissioner issued Class Ruling CR 2015/45. The ruling was made on the basis that: (a) the Security Holders will either: • choose roll-over for the exchange of shares in Transmission, units in Finance Trust and shares in Distribution for the [applicant] shares, or • not choose roll-over for the exchange of shares in Transmission, units in Finance Trust and shares in Distribution for the [applicant] shares. (b) [the applicant] will make the required choices under section 615-30 in respect of Transmission, Distribution and Finance Trust within the timeframes as prescribed by subsection 615-30(3). 33 The Commissioner ruled that the conditions for rollover under Div 615 were satisfied in relation to the disposal of each Transmission share, Distribution share and Finance unit to the applicant and therefore security holders were eligible to choose rollover under Div 615 in respect of their disposal of Transmission shares, Distribution shares and Finance units to the applicant. 34 In respect of each of the relevant income years, the applicant lodged income tax returns prepared on the basis that Div 615 applied in connection with the acquisition of its shares in Distribution, contrary to what the applicant described as its longstanding position. 35 By notices of objection lodged on 13 October 2020 and 21 April 2021, the applicant objected to the assessments issued to it in respect of the relevant income years, on the basis that (relevantly) s 615-65 did not apply, with the consequence that the cost base of the applicant's shares in Distribution was $2.025bn. 36 The respondent disallowed the objections, rejecting the applicant's construction of s 615-65.

STATUTORY SCHEME 37 Division 615 of the ITAA97 provides for rollover relief for transactions under certain schemes pursuant to which a holder ceases to own shares in a company or units in a unit trust (original interests) and in exchange, the holder becomes the owner of new shares in another company. 38 Section 615-5 provides for one of the circumstances in which a holder can choose to obtain rollover relief. It provides: (1) You can choose to obtain a roll-over if: (a) you are a *member of a company or a unit trust (the original entity); and (b) you and at least one other entity (the exchanging members) own all the *shares or units in it; and (c) under a *scheme for reorganising its affairs, the exchanging members *dispose of all their shares or units in it to a company (the interposed company) in exchange for shares in the interposed company (and nothing else); and (d) the requirements in Subdivision 615-B are satisfied. Note 1: For paragraph (c), see section 124-20 if an exchanging member uses a share sale facility. Note 2: After the completion of the scheme, later dealings between the interposed company and the original entity may be subject to the rules for consolidated groups (see Part 3-90). (2) You are taken to have chosen to obtain the roll-over if: (a) immediately before the completion time (see section 615-15), the original entity is the *head company of a *consolidated group; and (b) immediately after the completion time, the interposed company is the head company of the group. Note: The consolidated group continues in existence because of section 703-70. 39 The requirements that must be satisfied in order for the rollover to be available are set out in Sub-div 615-B. It contains requirements that must be satisfied by the interposed entity (in this case, the applicant) and by the holders of the original interests. The relevant provisions provide: 615-15 Interposed company must own all the original interests The interposed company must own all the *shares or units in the original entity immediately after the time (the completion time) all the exchanging members have had their shares or units in the original entity disposed of, redeemed or cancelled under the *scheme. 615-20 Requirements relating to your interests in the original entity (1) Immediately after the completion time, each exchanging member must own: (a) a whole number of *shares in the interposed company; and (b) a percentage of the shares in the interposed company that were issued to all the exchanging members that is equal to the percentage of the shares or units in the original entity that were: (i) owned by the member; and (ii) disposed of, redeemed or cancelled under the *scheme. (2) The following ratios must be equal: (a) the ratio of: (i) the *market value of each exchanging member's *shares in the interposed company; to (ii) the market value of the shares in the interposed company issued to all the exchanging members (worked out immediately after the completion time); (b) the ratio of: (i) the market value of that member's shares or units in the original entity that were disposed of, redeemed or cancelled under the *scheme; to (ii) the market value of all the shares or units in the original entity that were disposed of, redeemed or cancelled under the scheme (worked out immediately before the first disposal, redemption or cancellation). Example 1: There are 100 shares in A Pty Ltd (the original entity), all having the same rights. B Pty Ltd (the interposed company) acquires all the shares in A by issuing each shareholder in A 10 shares in itself for each share they have in A. All shares in B have the same rights. Bill owned 15 shares in A and received 150 shares in B in exchange. Example 2: There are 1,000 units in the A unit trust (the original entity), all having the same rights. 2 new units in A are issued to B Pty Ltd (the interposed company), and all other units in A are cancelled. Each unitholder in A is issued 10 shares in B for each 100 units they have in A. All shares in B have the same rights. Alison owned 200 units in A and received 20 shares in B in exchange. (3) Either: (a) you are an Australian resident at the time your *shares or units in the original entity are disposed of, redeemed or cancelled under the *scheme; or (b) if you are a foreign resident at that time: (i) your shares or units in the original entity were *taxable Australian property immediately before that time; and (ii) your shares in the interposed company are taxable Australian property immediately after the completion time. 615-25 Requirements relating to the interposed company (1) The *shares issued in the interposed company must not be *redeemable shares. (2) Each exchanging member who is issued *shares in the interposed company must own the shares from the time they are issued until at least the completion time. (3) Immediately after the completion time: (a) the exchanging members must own all the *shares in the interposed company; or (b) entities other than those members must own no more than 5 shares in the interposed company, and the *market value of those shares expressed as a percentage of the market value of all the shares in the interposed company must be such that it is reasonable to treat the exchanging members as owning all the shares. 615-30 Interposed company must make a particular choice (1) Unless subsection (2) applies, the interposed company must choose that section 615-65 applies. (2) The interposed company must choose that a *consolidated group continues in existence at and after the completion time with the interposed company as its *head company, if: (a) immediately before the completion time, the consolidated group consisted of the original entity as head company and one or more other members (the other group members); and (b) immediately after the completion time, the interposed company is the head company of a *consolidatable group consisting only of itself and the other group members. Note: Sections 703-65 to 703-80 deal with the effects of the choice for the consolidated group. (3) A choice under subsection (1) or (2) must be made: (a) within 2 months after the completion time, if the choice is under subsection (1); or (b) within 28 days after the completion time, if the choice is under subsection (2); or (c) within such further time as the Commissioner allows. The choice cannot be revoked. (4) The way the interposed company prepares its *income tax returns is sufficient evidence of the making of the choice. 40 The consequences of rollover applying are set out in Sub-divs 615-C and 615-D. Generally, the consequences of rollover applying for the applicant as the interposed company are set out in s 615-65. Relevantly, s 615-65(4) provides: (4) The first element of the *cost base of the interposed company's *shares or units in the original entity that are not taken to have been *acquired before 20 September 1985 is: (a) the total of the cost bases (as at the completion time) of the original entity's assets that it acquired on or after that day; less (b) its liabilities (if any) in respect of those assets. The first element of the *reduced cost base of those shares or units is worked out similarly.

Applicant's Contentions 41 The applicant contended that s 615-65 does not apply to it in respect of its shares in Distribution for two reasons: (1) The conditions in s 615-5(1)(c) were not satisfied because there was no scheme for reorganising Distribution's affairs as required by the terms of the section. (2) The ratio calculated under s 615-20(2)(a) in relation to the Distribution scheme did not equal the ratio calculated under s 615-20(2)(b). As a result, it was contended that the requirements in Sub-div 615-B were not met and therefore s 615-5(1)(d) could not be satisfied. 42 In framing its contentions, the applicant pointed to the timing aspect of the restructure scheme: (1) The sequence in which the transactions were to take place was expressly provided for in cl 5.1(b) of the Implementation Deed and cl 2.4 of the scheme of arrangement. (2) The transactions did in fact take place in the order stated. It was submitted that the steps took place sequentially and not simultaneously. 43 The applicant did not seek to dispute the application of Div 615 to the acquisition of its shares in Transmission nor to the acquisition of its units in Finance.

Section 615-5(1)(c) 44 Section 615-5(1)(c) requires that under a "scheme for reorganising its affairs," the Distribution shareholders disposed of all their Distribution shares to the applicant in exchange for shares in the applicant and "nothing else". 45 The applicant contended that the requirements of s 615-5 should be understood in the present circumstances as follows: (1) The scheme for the reorganisation of Distribution's affairs was the Distribution scheme. (2) For s 615-5(1)(c) to be satisfied, it would need to be concluded that the Distribution scheme was undertaken for reorganising its affairs and not for reorganising Distribution's affairs and the affairs of another different entity. The subject of the scheme is "its affairs", a singular entity. The section does not refer to a scheme for reorganising its affairs and the affairs of the interposed entity. (3) It is apparent from the context that s 615-5 is concerned only with a singular entity. Section 615-5(1)(a) directs attention to the original entity. Section 615-5(1)(b) requires the exchanging members to own all the shares in it. The ratios provided for in s 615-20 are framed by reference to a singular entity. In referring to the "affairs", the section is referring to the affairs of the singular company. (4) Section 615-5(1)(c) required that the scheme be "for reorganising its affairs". The term "reorganising" means the same as "reconstruction" of a company (Hooper v Western Counties & South Wales Telephone Company Limited (1892) 68 LT 78 at 80) and in the extrinsic materials is used interchangeably with "restructuring". The term "reorganisation" is to be distinguished from "merger" or "amalgamation". (5) The words "and nothing else" at the end of s 615-5(1)(c) emphasise that there must be a strict "share-for-share" exchange. 46 It was contended that it followed that for Div 615 to apply, the reorganisation had to be of the affairs of Distribution and not the reorganisation of other businesses or entities under which, among other things, the shareholding of Distribution is also reorganised. The reorganisation must have the result that immediately following the reorganisation, the entity carries on substantially the same business as immediately before. 47 It was contended that the requirements of s 615-5(1)(c) were not satisfied in the present case. 48 The applicant contended that the Distribution scheme was not for reorganising Distribution's affairs alone: (1) The applicant contended that the Distribution scheme was not a scheme for reorganising its affairs. It was contended that following the Distribution scheme, substantially the same business was not being carried on by Distribution. The scheme was not simply an internal arrangement because by the time of the Distribution scheme, the applicant was a company with a market value of $3.4bn and the effect of the scheme was to expand the business being carried on from just being Distribution's business to that of both the applicant and Distribution. What occurred under the Distribution scheme is more accurately described as an amalgamation or a merger. (2) Even assuming the Distribution scheme was a scheme for a reorganisation, it was a scheme for the reorganisation of Distribution and the applicant (and not a scheme for the reorganisation of Distribution alone). It was contended that the Distribution scheme involved the reorganisation of the affairs of the applicant as head company of the Transmission TCG in that: (a) The shares in the applicant that had been held by a subsidiary of Distribution were cancelled; (b) More shares were issued by the applicant to the Transmission shareholders and the Finance unitholders; (c) The applicant's shares were subsequently consolidated and listed; (d) The Distribution TCG became part of what was previously the Transmission TCG (with the consequence that the taxable income of the members of the Distribution TCG would be taxed to the applicant and transactions between members of the Transmission TCG and Distribution TCG would not have the tax consequences they otherwise would have had). (3) It was contended that at the time of the Distribution scheme, the applicant was a substantial entity with a market value of $3.4bn and Distribution had a market value of $2.025bn. The result of the scheme was that the affairs of both entities were "reorganised". 49 It was contended that a reorganisation that results in some change in the business of the entity, or under which there is an alteration to the percentage ownership interests in the entity, is not one that is eligible for rollover relief. These two disqualifying consequences were said to be present here. First, it was submitted that carried forward tax losses of the Distribution TCG were cancelled as a result of the scheme because the same business test could not be satisfied. Second, it was submitted a reorganisation can satisfy s 615-5(1)(c) only if the reorganisation is confined to the existing ownership group and does not work any alteration to the percentage interest of the existing ownership group. On the applicant's submission (discussed below) that s 615-20 was not satisfied, it followed that the Distribution scheme could not satisfy the description of a scheme for reorganising in s 615-5(1)(c). It was said that because s 615-20 was not satisfied, there had been an alteration to the percentage ownership interests in Distribution (when calculated by reference to value). 50 It was further contended that the Distribution scheme did not satisfy the "and nothing else" requirement as required by the concluding words of s 615-5(1)(c). It was submitted that as a result of the "features of the [a]pplicant by the time of the Distribution Scheme, the shareholders entering into the Distribution Scheme received shares in an entity [the applicant] carrying on businesses that Distribution did not previously carry on". The shareholders of Distribution became shareholders in a company with substantial franking credits with the ability to immediately pay franked distributions (unlike Distribution). As discussed further below, the applicant submitted that an examination of the ratios in s 615-20 discloses that mathematically it could be demonstrated that the Distribution shareholder received not only shares in the applicant but also "something else" in the form of an uplift in value in the shares each of them held in the applicant as a result of the Transmission and Finance schemes.

s 615-20 ratio 51 There was no dispute that the requirements of s 615-20(1) were satisfied in the present case. The applicant contended that s 615-20(2) is not satisfied in the present case. (a) The applicant contended that the ratio in s 615-20(2)(a) is as follows: (i) The numerator is the market value of all shares in the applicant owned by each person who is an exchanging member, including shares in the applicant issued to that person as a result of the Distribution scheme, the Transmission scheme and the Finance trust scheme. (ii) The denominator is the market value of only those shares in the applicant issued in exchange for the Distribution shares under the Distribution scheme. (b) The applicant contended that the ratio in s 615-20(2)(b) is as follows: (i) The numerator is the market value of the exchanging member's shares in Distribution that were disposed of under the scheme. (ii) The denominator is the market value of all the shares in Distribution that were disposed of under the Distribution scheme. (c) The denominator in both ratios is referring only to shares either issued or disposed of under the Distribution scheme. The numerator for the first ratio is referring to all shares in the applicant held by each person who is an exchanging member (ie including the shares issued under the Transmission scheme, the Finance scheme and the Distribution scheme). The numerator in the second ratio is referring only to shares disposed of under the Distribution scheme. (d) Because each person who was an exchanging member under the Distribution scheme would also be issued a share in the applicant under the Transmission scheme and the Finance trust scheme, the ratio under s 615-20(2)(a) would be three times the ratio under s 615-20(2)(b). 52 The applicant used the position of a notional security holder holding a 1% interest in the SPI Group as an example: In this example: (a) before the Distribution Scheme, there were approx. 6.94b shares issued by the Applicant with a market value of $3.4b (a 1% interest being $34m)- with 3.47b issued under the Transmission Scheme and 3.47b issued under the Finance Trust Scheme; (b) before the Distribution Scheme, all the 3.47b shares in Distribution had a market value of $2.0b (a 1% interest being $20m); (c) the Distribution Scheme involved an issue of an additional 3.47b shares by the Applicant to all exchanging members (that is, a one-third interest in the Applicant by market value, being one-third of $5.4b = $1.8b); and (d) following the Distribution Scheme, the combined market value of each of Transmission, Finance and Distribution was $5.4b (a 1% interest being $54m). The ratio calculated pursuant to s 615-20(2)(a) is: Market value of shares in the Applicant owned by the exchanging member $54m Market value of shares in the Applicant issued in exchange for shares in Distribution to all exchanging members (worked out immediately after the completion time) $1.8b Ratio 1:33 1/3

The ratio calculated pursuant to s 615-20(2)(b) is: Market value of the exchanging member's shares in Distribution that were disposed of, redeemed or cancelled under the scheme $20m Market value of shares in Distribution that were disposed of, redeemed, or cancelled under the scheme $2b Ratio 1:100

53 Because s 615-20(2) was not satisfied, the applicant contended that the requirements for rollover in s 615-5 could not be met. 54 The applicant contended that the examination of the integers of the s 615-20(2) ratios demonstrates that the Distribution shareholders received more than shares in the applicant in exchange for their Distribution shares, as explained further below at [62]. On the applicant's analysis, a notional 1% Distribution shareholder disposed of Distribution shares worth $20m (being the numerator of the ratio calculated under s 615-20(2)(b)) in exchange for 1% of shares in the applicant, which at the time of exchange the applicant contended was worth $18m (being 1% of $1.8bn).

Crux of Applicant's Submissions 55 The crux of the applicant's submissions was that the requirements of s 615-5(1)(c) and 615-20 could not be satisfied in relation to Distribution because of the characteristics of the applicant as the interposed company at the time of the Distribution scheme. The applicant's submission was that Div 615 was premised on a rollover involving a valuable or substantial original entity and the interposition of a company of nominal value, colloquially referred to as a "shelf company". It was submitted that, in essence, here there had been a merger or amalgamation or reorganisation of two valuable entities because at the time of the Distribution scheme, the interposed company was not a shelf company. Instead, because the applicant had at that moment already acquired the Transmission and Finance businesses, it was a company with a substantial market value. The applicant submitted that because Div 615 was not intended to apply in circumstances where the interposed company was not a shelf company, it was not surprising in the applicant's submission, that the ratios in s 615-20 were not equal. The requirement that the interposed company be a shelf company was said to be consistent with the views expressed by the Commissioner in Taxation Ruling TR 97/18.

Submissions Based on Context and Purpose 56 The contention that Div 615 was premised on an interposed company being a shelf company was said to be supported by the following context and purpose. 57 First, s 615-25(3)(b) was said to contemplate a circumstance where the "interposed company" may have had up to five shareholders who have retained their shareholdings but the market value of those shares is no more than nominal. It was contended that this section supported a conclusion that an interposed company was not contemplated as being capable of encompassing a company of substantial value. 58 The predecessor section in the Income Tax Assessment Act 1936 (Cth) (ITAA36) was s 160ZZPA(10). That section was relevantly in the following terms: (10) Where (a) immediately after the completion time, the exchanging taxpayers are the owners of some, but not all, of the shares in the interposed company; (b) the number of the remaining shares does not exceed 5; and (c) the Commissioner is of the opinion that, having regard to: (i) the ratio calculated in accordance with the formula: MV of remaining shares MV of total shares where: MV of remaining shares is the number of dollars in the market value of the remaining shares immediately after the completion time; and MV of total shares is the number of dollars in the market value of the replacement shares immediately after the completion time; and (ii) such other matters as the Commissioner considers relevant; it would be unreasonable not to treat the exchanging taxpayers as being the owners of all the shares in the interposed company… 59 The explanatory memorandum to s 160ZZPA(10) stated: This means that arrangements where up to 5 shares are not owned by the former unitholders after the re-organisation are not necessarily ineligible for roll-over relief under this section. The cases in contemplation here are where a small number of the original shares were subscribed for on incorporation of the company. Arrangements of this kind may be necessary to facilitate the carrying out of the re-organisation. The requirement of subparagraph 160ZZPA(10)(c)(i) that the Commissioner have regard to the market value of the remaining shares compared with that of the other shares is intended to safeguard against arrangements where a disproportionately high value might be attached to the remaining shares. 60 The remaining shares would not have a nominal value if the interposed company had held assets of a substantial value immediately prior to the completion time. 61 Second, it was a requirement under Div 615 that the exchanging members dispose of their shares in the original company to the interposed company in exchange for shares in the interposed company "and nothing else". It was contended that by the time of the Distribution scheme, the shareholders entering into the Distribution scheme received shares in an entity carrying on businesses that Distribution did not previously carry on, with different tax attributes (franking credits rather than carried forward tax losses). In oral submissions, it was submitted that the requirement of "and nothing else" supported the contention that the interposed company itself brought nothing else to the group other than its existence as a company and that here Distribution shareholders did not get shares in a shelf company in return for their shares in Distribution. It was submitted that: Distribution shareholders did not get shares in a shelf - company in return for their shares [in] Distribution. [The Distribution shareholders] got additional shares in the applicant, being an entity that they already owned outright, that already owned enormously valuable businesses. They did it in a way that facilitated the payment of the finance loans. They did it despite knowing that the scheme itself would deprive them of the ability to use some half a billion dollars in losses, and they created value in something else that they already owned, being the other shares that they already owned in the applicant…what the Distribution shareholders gave up was $2 billion worth of shares in [D]istribution. But what they received in exchange by way of shares was 1.8 billion in value of shares in the new combined entity. 62 Although acknowledging that it was "counterintuitive" that Distribution shareholders would "give up" shares with a value of $2bn to receive shares worth $1.8bn, the outcome was explained by the applicant's Senior Counsel in the following way: The Distribution scheme involved contributing all of the Distribution assets to the Transmission group which thereby increased in value. So the Transmission group, as a result of the Distribution scheme, was worth $2 billion more than it had been before the Distribution scheme was undertaken, and because each of the exchanging members of Distribution was already a shareholder in the applicant they already owned the Distribution group; they got the benefit of that value through their existing shareholding. To make them equal in terms of value with where they were at the beginning of the day, they had to be given $1.8 billion worth of shares in the newly engrossed… [t]he newly enlarged entity being the applicant. So what they got was $1.8 billion in shares plus a boost in the value of something they already had. Although, in our submission they did get something else. They got their shares, and they got the value. I mean, they didn't lose anything, but that's just how it happened; that was the - that's just the maths of how the value was worked out. 63 Third, the purpose of Div 615 as evidenced by the extrinsic material and legislative history was said to support the proposition that Div 615 was only intended to apply to an interposed company that was a "shelf company". 64 The immediate statutory predecessor to Div 615 is relevantly Sub-div 124-G. This in turn was the successor to ss 160ZZPA, 160ZZPB, 160ZZPC and 160ZZPD of the ITAA36. 65 The relevant ratio requirement was originally in s 160ZZPA(1)(m) which was in the following terms: in the case of each exchanging taxpayer - the ratio calculated in accordance with the formula: MV of taxpayer's shares MV of total shares where: MV of taxpayer's shares is so much of the market value, immediately after the completion time, of the replacement shares owned by the taxpayer immediately after that time as is attributable to the exchange units held by the interposed company; and MV of total shares is so much of the market value of all the replacement shares, immediately after the completion time, as is attributable to the exchange units held by the interposed company; is the same as the ratio calculated in accordance with the formula: MV of taxpayer's units MV of total units where: MV of taxpayer's units is the market value, immediately before the exchanging taxpayer's disposal time, of the exchange units held by the taxpayer immediately before that time; and MV of total units is the market value of all the exchange units immediately before the exchanging taxpayer's disposal time; 66 By operation of s 160ZZPC, s 160ZZPA applied in a corresponding way to a scheme for the reorganisation of the affairs of a company (being the original company rather than the unit trust). 67 When the former Part IIIA of the ITAA36 was rewritten into the ITAA97, s 160ZZPA(1)(m) was replaced with s 124-365(3) of the ITAA97 by the Tax Law Improvement Act (No 1) 1998 (Cth). That section was in the following terms: (3) The ratio of: • the *market value of each exchanging member's *shares in the interposed company to the market value of the shares in the interposed company issued to all the exchanging members (worked out just after the completion time); must equal the ratio of: • the market value of that member's shares in the original company that were *disposed of to the interposed company to the market value of all the shares in the original company that were disposed of to the interposed company (worked out just before the first disposal). Example: There are 100 shares in A Pty Ltd (the original company), all having the same rights. B Pty Ltd (the interposed company) acquires all the shares in A by issuing each shareholder in A 10 shares in itself for each share they have in A. All shares in B have the same rights. Bill owned 15 shares in A and received 150 shares in B in exchange. 68 The applicant relied upon the omission of the phrase "as is attributable to the exchange [shares] held by the interposed company" in the first part of the ratio found in s 124-365(3) (which is now replicated in s 615-20(2)(a)) as having "the result that the first part of the ratio required the taking into account of not just shares held in place of the 'exchange units' but all the shares held in the interposed company". It was contended that this "change (later replicated in s 615-20) means that the ratio does not accommodate circumstances where valuable shares were held in the interposed entity prior to the reorganisation". As a result, it was contended, Div 615 rollover is "in effect confined to situations in which the interposed company is a shelf company". 69 The requirement that the interposed company be a shelf company was said to be consistent with the publicly expressed views of the Commissioner in his Taxation Ruling TR 97/18 and its addendum. The addendum relevantly stated (emphasis added): 6. In effect, schemes for reorganising the affairs of more than one entity can only satisfy the legislative requirements for roll-over relief where: • exchanging members are the same across each entity whose affairs are being reorganised; • an exchanging member holds the same proportion of shares in each entity being reorganised; and • the reorganisation of each entity occurs at the same time thus ensuring that a shelf company is interposed and that economic interests in the underlying assets of each entity are maintained just after its reorganisation. 70 The applicant referred to the Explanatory Memorandum to the New Business Tax System (Capital Gains Tax) Bill 1999 (Cth) that introduced Sub-div 124-M (scrip for scrip rollover). The explanatory memorandum to that bill states (emphasis added): 2.48 A common feature of a takeover or merger is the interposition of the acquiring entity, the takeover or merger target, or another entity as part of the process of acquiring at least 80% of the equity in the target. Existing roll-over relief under Subdivisions 124-G and 124-H ensures that the full effect of the interposition is recognised and dealt with appropriately for wholly internal reconstructions with 100% beneficial ownership of the interposed entity. The provisions do not apply to mergers or takeovers of the type contemplated by the scrip for scrip proposals. 2.49 The Government is examining options for dealing with the cost base of assets acquired by an interposed entity as part of a takeover or merger process where the scrip for scrip roll-over applies to the exchanging shareholders or unitholders, and will be consulting on this issue. 71 The applicant contended that the interaction of Div 615 with the consolidation rules in Part 3-90 and in particular the interaction between s 615-30(2) and ss 703-65 to 703-80 supported the contention that Div 615 was only intended to apply to an interposed company that was a "shelf company". Sections 703-65 to 703-80 are entitled "Effects of choice to continue group after shelf company becomes new head company". Additionally, a note to s 703-5(2) and an annotation in s 719-90(2)(c) each expressly refer to a "shelf company" becoming the new head company after a consolidation. 72 The applicant also referred to the Explanatory Memorandum to the New Business Tax System (Consolidation and Other Measures) Bill (No. 1) 2002 (Cth) which relevantly introduced ss 703-65 to 703-80. That explanatory memorandum states (emphasis added): Interposed shelf head company 2.6 Generally, a consolidated group will cease to exist where the head company of the group no longer satisfies the conditions for being a head company. An exception to this rule now operates to ensure that a consolidated group will not cease to exist in limited circumstances despite an entity ceasing to be the head company of the group. 2.7 These changes will help to reduce unnecessary compliance costs. For example, by preserving a consolidated group in certain cases where nothing of substance has changed within the group, the group will be relieved of the burden of applying the consolidation cost setting rules (and obtaining the necessary market valuations). The changes will also aid in protecting the integrity of the consolidation regime. For example, the changes effectively prevent the cost bases of a group's assets from being reallocated between those assets where nothing of substance has changed within the group. Other integrity benefits of these changes are discussed in paragraphs 2.30 and 2.35. … 2.11 Before the interposed company can make a choice that the consolidated group is to continue in existence, the share exchange which results in the interposed company being interposed between the original company and its shareholders must also be in accordance with the conditions set out in Subdivision 124-G of the ITAA 1997. For example, the interposed company needs to be a shelf company. Also, the entities described as the interposed company and the original company in paragraph 2.8 must come within the existing meanings of those terms given by Subdivision 124-G. Broadly, the term 'original company' means the existing resident company in which the shareholders originally held shares before the share exchange. The term 'interposed company' broadly means a resident company that acquires all of the shares in a company whose shares are held by the original shareholders. 73 In the New Business Tax System (Consolidation and Other Measures) Act (No. 1) 2002 (Cth) itself, Schedule 2 (which introduced the predecessor provisions in Sub-div 124-G) was titled "Schedule 2 - Consolidation: group continues when shelf company becomes new head company". 74 In 2008, the Tax Laws Amendment (2008 Measures No. 6) Bill 2008 (Cth) was introduced to modify Sub-divs 124-G and 124-M and in particular introduced s 124-784A. The applicant referred to the explanatory memorandum to that bill which states (emphasis added): 1.2 Currently, depending on circumstances, Subdivision 124-G of the ITAA 1997 (exchange of shares in one company for shares in another company) or Subdivision 124-M (scrip for scrip roll-over) may apply to allow a CGT roll-over for shareholders who dispose of shares in a company (the original entity) in exchange for shares in another company (the acquiring entity). In essence: • the exchange of shares roll-over is designed for corporate restructures; and • the scrip for scrip roll-over is designed for corporate takeovers. 1.3 The exchange of shares roll-over provides a tax neutral outcome for corporate restructures where there is no substantive change in the underlying assets or the ownership of the original entity. If this roll-over applies, the cost base of the shares that an acquiring entity receives in the original entity reflects the cost bases of the underlying net assets of the original entity. 1.4 The scrip for scrip roll-over can apply to an arrangement only if the exchange of shares roll-over does not apply. If the scrip for scrip roll-over applies, the market value substitution rule generally applies so that the cost base of the shares that the acquiring entity receives in the original entity reflects the market value of the underlying net assets of the original entity. This recognises that, in a commercial takeover, shares are given in consideration for the acquisition of the value represented by those assets. … 1.6 Companies are able to gain significant tax benefits by restructuring in a way that attracts the scrip for scrip roll-over rather than the exchange of shares roll-over. These tax benefits are compounded if the entity taken over becomes a member of the acquiring entity's consolidated group. … Summary of new law 1.9 The scrip for scrip CGT roll-over provisions will be modified to prevent a market value cost base from arising for any qualifying interests acquired by the acquiring entity under an arrangement that is taken to be a restructure. 1.10 An arrangement will be taken to be a restructure if, broadly, just after the arrangement was completed (the completion time) the market value of the replacement interests issued by the acquiring entity under the arrangement in exchange for qualifying interests in the original entity is more than 80 per cent of the market value of all the shares (including options, rights and similar interests to acquire shares) issued by the replacement entity. 75 The applicant relied upon this explanatory material in support of a conclusion that "Subdivision 124-G was intended to be limited to a particular set of circumstances that would not always arise in the case of an entity being 'top-hatted' as part of a restructure. If this were not the case, s124-784A would have no work to do.".

ANALYSIS 76 The applicant's contentions are premised on at least two related assumptions: (1) That at the "completion time" the market value of the applicant was substantial and equal to the value of Transmission and Finance. (2) That the reorganisation of Distribution not only occurred after the reorganisation of Transmission and Finance but that value was transferred to the applicant in the same sequence so that at the time the Distribution scheme took place, the market value of the shares in the applicant was reflective only of the value of Transmission and Finance.

Scheme for Reorganisation of its Affairs 77 There are a number of factual and legal difficulties with the applicant's contentions concerning the phrase "scheme for reorganising its affairs" in the context of the present case. 78 At a factual level, the applicant's contention that the scheme in the present case was not a scheme for reorganising Distribution's affairs (because the scheme had the effect of not only reorganising Distribution's affairs but also the affairs of the new interposed entity) overlooks the fact that prior to the restructure, Distribution did not operate a separate stand-alone business. Distribution's business had been intertwined with the business of Transmission and Finance. Distribution was part of a stapled structure whose operations were governed by the terms of Distribution's constitution and the stapling deed. Distribution was required to co-operate with Finance and Transmission in respect of all matters concerning the stapled securities including accounting and valuation policies. The board members of Distribution were the same as the board members of the trustee of Finance and Transmission. The directors and officers of Distribution were required to carry out their duties with a view to enhancing the market value of the group as a whole and have regard to the interests of the security holders as a whole rather than only to the interests of Distribution shareholders considered separately. 79 As a matter of economic substance, from the time the stapling arrangements were put in place, the business of the Distribution group had been managed and operated as though it were part of a single economic entity that included Transmission and Finance. The affairs of Distribution had been inextricably linked to the affairs of Transmission and Finance. Having regard to the terms of the stapling arrangement as reflected in the stapling deed and the constitution of Distribution, it was not possible for the business affairs of Distribution to be reorganised independently of the business affairs of Transmission and Finance. The shares in Distribution could not be traded separately from the shares in Transmission or the units in Finance. There was in substance a single economic unit created so that the security holders in the stapled group owned an economic interest in the entirety of the group. There is an air of unreality in positing a moment in time in which Distribution is hypothesised as carrying on a business that had an existence and value independent of Transmission and Finance. 80 The effect of the scheme was not to alter Distribution's business undertaking. Tax attributes aside, the assets and liabilities of Distribution remained unchanged by the scheme of arrangement. This was consistent with the representation made to security holders in the scheme booklet that there would be no change to the underlying business and assets of AusNet Services. 81 The fact that tax losses were cancelled does not support a conclusion that the scheme resulted in a change in Distribution's business. The cancellation of carried forward tax losses of the Distribution TCG was not the result of a failure of the same business test because of changes to Distribution's business that occurred by reason of the scheme. The losses were cancelled because of changes to the Distribution business as a result of disposals of parts of that business that occurred since the years in which the losses were incurred. 82 The effect of the Distribution scheme was to align its legal structure with its economic structure. Economically it had been operated as though it were part of a wider group involving Transmission and Finance. Post the Distribution scheme, Distribution was legally owned within the same corporate group with a single parent company. The business of Distribution was restructured in that limited sense. 83 As a matter of statutory construction, in s 615-5, the term "affairs" is used in the context of an arrangement that involves shareholders in the original company disposing of their shares to another company in exchange for shares in that other company. The "affairs" being referred to in s 615-5 are those relating to the company's ownership structure. The term "affairs" does not refer to a restructure or reorganisation of the assets and liabilities of the original company. 84 The phrase used in s 615-5 is "a scheme for reorganising its affairs". There is no basis for construing the term "reorganising" by reference to or as a contrast from the company law concepts of "amalgamation" or "merger" or "reconstruction". As the legislative history demonstrates, the rollover was first introduced with the enactment of s 160ZZPA in respect of the affairs of unit trusts. The word "reorganising" thus has a history divorced from the company law context. When the rollover was expanded to deal with the affairs of a company by the introduction of s 160ZZPC, the language of "reorganising" was retained and was intended to bear the same meaning it had in s 160ZZPA. 85 In any case, the meaning ascribed to the terms "amalgamation" and "reconstruction" by Finkelstein J in Re Opes Prime Stockbroking Ltd [2009] FCA 813; (2009) 179 FCR 20 connotes a dealing by a company with the assets or undertaking of that company rather than a dealing by the company's members of their membership interests. As was said in Re Opes Prime at [74] (emphasis added): The words 'amalgamation' and 'reconstruction' are not defined. Neither is a term with a precise meaning…It appears that a reconstruction refers to a transfer by a company where the transfer comprises the undertaking, but not necessarily all the assets or liabilities, of the company and such transfer is made by one company to a new company which is formed for the purpose of taking such transfer and which is practically the same company as the transferring company with some alterations in its constitution, in consideration of the allotment of shares in the new company, to the members of the transferring company. The term 'amalgamation' may be taken to mean a transfer by one or more than one company of substantially the whole of its or their undertaking or undertakings and assets to an already existing company or the transfer by two or more companies of substantially the whole of their undertakings and assets to a new company formed to take such a transfer, the consideration for such transfer in each case being the allotment of shares in the purchasing company to members of the transferring company. 86 Here, there was no transfer or dealing by Distribution of its assets or undertaking. The suggestion that there was a merging of the Distribution business into the Transmission group does not accurately describe the effect of the transactions the subject of the Distribution scheme of arrangement. 87 The contention that the phrase "scheme for reorganising its affairs" in s 615-5 is incapable of encompassing a scheme which also impacts the "affairs" of another entity is not accepted. The reorganisation envisaged by s 615-5 involves necessarily the exchange of shares in the company whose affairs are being reorganised for shares in another interposed company. The interposed company's "affairs" will necessarily be impacted by such a reorganisation. 88 The issue of the application of Div 615 is to be resolved by reference to the other requirements of s 615-5 - namely, whether it can be said that the shareholders of Distribution received shares in the applicant "and nothing else" and whether the ratio requirements of Sub-div 615-B are satisfied.

"And nothing else" 89 The applicant submitted that the requirements of s 615-5 were not satisfied because Distribution shareholders did not receive only shares in the applicant but also something else in the form of a "boost" in the value of their existing shares in the applicant (acquired as a consequence of the Transmission and Finance schemes). 90 The applicant's submission is premised on the factual assumption that the shares issued in the applicant immediately prior to the completion of the Distribution scheme had a market value equal to the agreed market value of Transmission and Finance. That factual assumption is not accepted. 91 Although it was an agreed fact that the market value of Distribution was $2.025bn as at the beginning of 18 June 2015, the basis for that valuation was not explained. As set out above, financial results of Distribution were not separately reported. As represented to security holders in the scheme booklet: As a result of the Stapling Deed, the combined financial statements of AusNet Services are currently prepared as an aggregation of the financial statements of AusNet Services Distribution and its controlled entities, AusNet Services Transmission and its controlled entities and AusNet Services Trust as if all entities operate together. For statutory reporting purposes, AusNet Services Distribution was identified as the acquirer in the AusNet Services stapled group and accordingly presents the combined financial report of the stapled group. Shares in Distribution did not and could not trade separately from the shares in Transmission or the units in Finance. The shares in Distribution did not have an identifiable trading value that was separate and independent of its existence as part of a stapled structure. From the time they were stapled, each of the enterprises of Transmission, Finance and Distribution was intrinsically interrelated. 92 The disposal of the Distribution shares by the Distribution shareholders occurred pursuant to the terms of the Distribution scheme of arrangement as performed by Distribution and the applicant in accordance with the terms of the Implementation Deed. Each of the Distribution scheme, Transmission scheme and Finance scheme were interrelated. Neither the applicant nor Distribution was required to perform any of the implementation steps unless all of the implementation steps were to occur on or before the Implementation Date. Completion of the steps was interdependent and all of the steps were to be taken as occurring on the Implementation Date. 93 Following the hearing, the parties were asked to address the effect, if any, of cl 5.1(c) of the Implementation Deed, and in particular its provision that completion of all of the steps were interdependent, on the market values identified in each party's submissions. 94 The applicant submitted that the agreed point in time market values were based upon a premise that is consistent with cl 5.1(c) of the Implementation Deed, such that the clause does not affect the market value position as set out in both parties' submissions. The applicant submitted that it was clear from cl 5.1(b) that the implementation steps were required to be carried out in a prescribed sequence. The phrase "completion of the steps are interdependent" in cl 5.1(c) did "no more than provide an explanation as to why no party is obliged [under cl 5.1(a)] to perform any Implementation Step unless all Steps will occur on or before the Implementation date". The effect of cl 5.1(c) was not to displace the operation of cl 5.1(b) with the consequence that all the implementation steps were to take place sequentially and not simultaneously. It was submitted that the "reference to 'interdependence' in cl 5.1(c) simply recognises the relationship between the Steps and the schemes more generally; it does not carry with it anything beyond the various impacts between the Steps that are explicit in the Implementation Deed and the Steps themselves". It was submitted that because cl 5.1(c) did not alter the separate and sequential operation of each of the schemes, that clause could not affect the values set out in the agreed statement of facts and in each party's submissions. 95 The respondent submitted that, because of cl 5.1(c), completion of the Transmission exchange, the Finance exchange and the Distribution exchange were interdependent. As a consequence, immediately after the Finance exchange, the market value of the shares in the applicant could not be calculated without taking into account the impending Distribution exchange. Immediately after the Finance exchange, it was effectively certain that the Distribution exchange would occur. In those circumstances, it would be artificial to value the shares in the applicant issued on the first two exchanges without having regard to the third exchange. And it would be artificial to regard the Distribution exchange, when it did occur later that same day, as giving rise to something "else" which the exchanging members received in exchange for their shares in Distribution. 96 The respondent's submission is accepted. 97 The effect of cl 5.1(c) of the Implementation Deed was that completion of the Distribution scheme was interdependent on completion of the Transmission and Finance scheme. The operation of each scheme was dependent upon the operation of each other scheme and none could have effect independently of the other. Although cl 5.1(b) provided that the Distribution scheme steps were to "be taken" after the Transmission and Finance scheme steps, the inter-conditional nature of the schemes meant that either all the schemes were to be implemented or none were. Such an effect is consistent with the terms of the deed more generally. For example, the effect of cl 7 was that the termination of the stapling deed was "[s]ubject to the Schemes becoming Effective" which in turn was driven by the order of the Court approving the member resolutions passed at the second scheme meetings. 98 Read together, each of the Transmission, Finance and Distribution schemes and the Implementation Deed were "different, though connected, parts of the same transaction": Isles v Daily Mail Newspaper [1912] HCA 18; (1912) 14 CLR 193 at 205 (Isaacs J). 99 It is not accepted that the value of the applicant incrementally increased in the compartmentalised manner contended for by the applicant. This is because of the inter-conditional and interdependent nature of the schemes. Although it may be accepted that the Implementation Deed provided for the steps to be taken to occur sequentially, the effect of the Implementation Deed was that at the instant each step was performed there was a binding obligation to perform the next step. At the instant in time when the applicant issued its shares in exchange for the Transmission shares, the applicant was subject to the obligation to take a transfer of the Distribution shares and to take a transfer of the Finance units and to issue further shares in itself to the Distribution shareholders and Finance unitholders. Similarly, at the instant in time when the applicant issued its shares in exchange for the Finance units, the applicant was subject to the obligation to take a transfer of the Distribution shares and to issue further shares in itself to the Distribution shareholders. Embedded in the value of the shares in the applicant issued under each of the schemes was the value of the obligations to which the applicant was then subject. 100 By reason of the inter-conditional nature of the Distribution scheme, there was no instant in time when shares in the applicant held by a security holder had a value that was independent of the value of Distribution. A 1% shareholder in Transmission was issued with 1% of the shares in the applicant at an instant in time when the applicant was obligated to thereafter acquire the shares in Distribution in exchange for an issue of further shares in the applicant. There was no moment in time when a 1% shareholding in the applicant was limited to the value of Transmission and Finance. There was no incremental increase in the value of the applicant as each scheme was completed because the completion of each scheme was inter-conditional on the completion of all the schemes. 101 Because of the legal interdependence of the schemes, there is an air of unreality to the applicant's submission that immediately prior to the completion of the Distribution scheme, the Transmission and Finance schemes had transferred value to the applicant that was independent of the value of the Distribution. The reality was that all the value accrued to the applicant and in the shares issued by it at the same moment because either all the schemes were completed or none were. There was no moment in time when the applicant could reflect the value of Transmission and Finance and not also reflect the value of its obligation to acquire Distribution in exchange for the issue of shares. 102 The premise of the applicant's submission that the Distribution scheme boosted or created value fails to take into account the interdependent nature of the Transmission, Finance and Distribution schemes. None could take effect unless they all took effect. From the time the schemes were approved, the practical reality was that each scheme would come into effect. The market value of a share is affected by the market's expectation of the effect of future events: see generally, Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25; (1999) 199 CLR 413 at [50]-[51], [56] (McHugh J). It was that practical reality that created value in the shares of the applicant. That expectation was created at a single point in time. The Court therefore attaches no weight to the applicant's hypothetical example of the notional 1% Distribution shareholder and in particular to the apparent "boost in the value". The Court does not accept that Distribution shareholders disposed of Distribution shares worth $2bn in exchange for shares in the applicant worth $1.8bn or that the applicant's value increased from $3.4bn to $5.4bn at the moment in time when the Distribution scheme was completed. 103 As a matter of statutory interpretation, the requirement in s 615-5(1)(c) is that under a scheme for reorganising the affairs of Distribution, the exchanging members (being the existing owners of the shares in Distribution) dispose of their shares in Distribution "in exchange for" shares in the applicant "and nothing else". By its terms, s 615-5(1)(c) focusses on that which a shareholder receives under the scheme in exchange for the shares. It does not look to the consequences of the scheme, but rather the consideration or quid pro quo received for the disposal of the shares. 104 Clause 6.1(a) of the Distribution scheme of arrangement provided: In consideration for the transfer of Distribution Shares under clause 5.4(a), each Eligible Securityholder will be entitled to receive 1 [applicant] Share for every 1 Distribution Share transferred under the Scheme. Under the terms of the Distribution scheme of arrangement, the Distribution shareholders received one share in the applicant in exchange for the disposal of each Distribution share and "nothing else".

Conclusion in relation to Subdivision 615-A 105 When understood in the particular factual context, the Distribution scheme of arrangement implemented on 18 June 2015 was a scheme for reorganising the affairs of Distribution. The fact that the Distribution scheme was undertaken as part of a broader scheme involving schemes relating to Transmission and Finance does not alter the fact that it was a scheme satisfying the description in s 615-5(1)(c) but is a reflection of the fact that prior to the restructure, the three entities had been owned and operated as a single economic unit.

Ratio Requirements of Subdivision 615-B 106 It was agreed that, apart from s 615-20(2), the requirements of Sub-div 615-B were satisfied. 107 Section 615-20(2) requires that two "ratios" be equal. In this context, a ratio refers to a mathematical concept. The Complete Oxford English Dictionary (Second Edition) defines a ratio as: The relation between two similar magnitudes in respect of quantity, determined by the number of times one contains the other (integrally or fractionally). Modern usage of the term "ratio" refers to a geometrical ratio (see Complete Oxford English Dictionary definition of "geometrical ratio") and is the quotient expressing "that kind of relation between two quantities which is expressed by dividing the first by the second". 108 As the ratio may be expressed fractionally, it is proposed to refer to the first number as the numerator and the second as the denominator. 109 There was no dispute concerning how the ratio in s 615-20(2)(b) was to be calculated. Both parties agreed that the numerator in s 615-20(2)(b)(i) and denominator in s 615-20(2)(b)(ii) referred to the Distribution shares that were disposed of under the scheme. The numerator referred to the market value of each Distribution shareholder's Distribution shares and the denominator referred to the total market value of all Distribution shareholders' Distribution shares. 110 The dispute was confined to the calculation of the ratio in s 615-20(2)(a). (a) The applicant contended that the numerator in s 615-20(2)(a)(i) was referring to the market value of all shares each person who was a Distribution shareholder held in the applicant irrespective of how those shares in the applicant had come to be acquired. The respondent contended that the numerator was referring to the market value of those shares in the applicant that were issued to the Distribution shareholder in exchange for the disposal of the Distribution shares under the scheme. (b) The applicant contended that the denominator in s 615-20(2)(a)(ii) should be taken as referring to the market value of the shares issued by the applicant to all Distribution shareholders in exchange for their Distribution Shares. The respondent accepted this construction as its primary submission. As an alternative submission, the respondent contended that if the applicant's construction of the numerator was correct, the denominator should be construed as referring to all of the shares issued by the applicant to persons who were Distribution shareholders even if not issued in consideration for the exchange of Distribution shares. 111 The effect of the applicant's calculation of the ratio in s 615-20(2)(a) in the context of a notional shareholder holding a 1% interest in Distribution is set out at [52] above. 112 The effect of the respondent's alternative calculations of the ratio in s 615-20(2)(a) in the context of a notional shareholder holding a 1% interest in Distribution is set out below: Primary submission The ratio calculated pursuant to s 615-20(2)(a) is: Market value of shares in the Applicant owned by the exchanging member {in their capacity as former Distribution shareholders) $18m Market value of shares in the Applicant issued in exchange for shares in Distribution to all exchanging members (worked out immediately after the completion time) $1.8b Ratio 1:100

Alternative Submission The ratio calculated pursuant to s 615-20(2)(a) is: Market value of shares in the Applicant owned by shareholders who were also former Distribution shareholders $54m Market value of shares in the Applicant issued to all persons who were also former members of Distribution $5.4bn Ratio 1:100

Statutory Language and Context 113 Much of the difficulty in the present case arises from the shorthand manner in which the elements of the ratio in s 615-20(2) have been expressed in the statute. The numerator is expressed as "the market value of each exchanging member's shares in the interposed company" but does not identify the time at which that market value is to be determined. The denominator refers to the market value of the shares in the interposed entity issued to all exchanging members but does not specify the consideration for the issue of those shares. 114 The applicant's construction of s 615-20(2)(a) accepted that: (1) the words "(worked out immediately after the completion time)" ought to be read into s 615-20(2)(a)(i); and (2) the words "in exchange for the Distribution shares" ought to be read into s 615-20(2)(a)(ii). However, at the same time, the applicant maintained that no other words were to be read into s 615-20(2)(a)(i). 115 The task is to construe the statute by reference to the language of the instrument viewed as a whole, and having regard to context, the general purpose and policy of the provision and its consistency and fairness: Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 at [69]. 116 The applicant correctly submitted that in construing s 615-20(2)(a), it is necessary to determine what the ratio in s 615-20(2)(a) is purporting to measure. The applicant contended that the purpose of the ratio comparison was to "ensure that there is no value in the interposed entity that has been allocated to shareholders outside the scheme for reorganisation". In other words, it was to ensure that the interposed entity was a shelf company and not some company with valuable assets that had been interposed. The respondent contended that the purpose of the comparison was to ensure that the reorganisation did not result in a reallocation of value between shareholders. 117 In this respect the following observations are made: (1) Division 615 as a whole is intended to facilitate a choice in respect of certain transactions which satisfy statutory criteria. The purpose of the Division is to confer an ability to make a choice in the circumstances which the legislature has considered appropriate. One of the criteria is the satisfaction of the ratio criteria set out in s 615-20. (2) The exercise required to be performed by the terms of s 615-20(2) is a comparison of two ratios to determine if they are equal. It is in the context of that statutory task that s 615-20(2)(a) is to be construed. The statutory task is not one of considering the ratio in s 615-20(2)(a) independently of the ratio in s 615-20(2)(b). In other words, the calculation of the ratio in s 615-20(2)(a) is not a stand-alone measure but is a basis for a comparative exercise. (3) The ratio in s 615-20(2)(a) cannot be construed separately from the ratio in s 615-20(2)(b). This is not only because the ratios are being calculated in the context of a comparison exercise, but also because the statutory language itself so requires. Section 615-20(2)(b)(i) refers to "the market value of that member's shares" (emphasis added). The identification of "that member" is by reference to the same member referred to in s 615-20(2)(a)(i). Each of the ratios in s 615-20(2)(a) and s 615-20(2)(b) are thus directed at ascertaining the position of the same "exchanging member". (4) In the statutory context, it is difficult to identify a logical basis for comparing two ratios to see if they are equal if the numerators in each ratio do not represent a proportion or subset of the denominator of each ratio. This is consistent with the mathematical definition of "ratio" as referring to the number of times one element of the ratio is contained in the other. (5) Both the ratio in s 615-20(2)(a) and the ratio in s 615-20(2)(b) are to be determined in the context of a scheme under which the exchanging member in Distribution disposes of all of their shares in the original company (Distribution) to the interposed company (the applicant) in exchange for shares in the interposed company (the applicant). The ratios are measuring the effect of the scheme on an exchanging member. This is evident from reference to "exchanging member" and "completion time" in s 615-20(2)(a) and the reference to shares or units in the original entity that were "disposed of, redeemed or cancelled under the *scheme" in s 615-20(2)(b). (6) Against this background, and when read in conjunction with s 615-20(2)(b)(i), the reference to the market value of the exchanging member's shares in the interposed company in s 615-20(2)(a)(i) should be taken as a reference to each exchanging member's shares in the interposed company issued to that member in exchange for that member's shares in the original company under the scheme. (7) When construed in this way, the comparison required to be made by s 615-20(2) is between: (a) an exchanging member's proportionate share of the market value of the interposed entity they acquire as a result of the scheme; and (b) the exchanging member's proportionate share of the market value of the original entity before the scheme. The comparison is between the holdings of an exchanging member in the original company with the holdings acquired by that member in the interposed company as a result of the scheme. (8) When understood in the statutory context, the comparison to be undertaken is between the relative position of each member vis-à-vis all exchanging members, after the scheme for the reorganisation has been completed (s 615-20(2)(a)) with the relative position of each member vis-à-vis all exchanging members, before the scheme (s 615-20(2)(b)) in order to evaluate the effect of the scheme. The first ratio is examining the "after" position - being the market value of the interest of each exchanging member in the interposed company which that member acquired as a result of the scheme as a proportion of the market value of all interests in the interposed company that were issued to exchanging members under the scheme. The second ratio is the "before" position - being the market value of the interest of each exchanging member in the original company (Distribution) that that member held and were disposed of as a result of the scheme as a proportion of the market value of all exchanging members' interests in the original company that were disposed as a result of the scheme. (9) The purpose of the exercise is to examine the effect of the scheme on the relative position of each exchanging member. By requiring the ratios to be equal, the section ensures that rollover relief under Div 615 is only available if the proportionate interest of each Distribution member in the interposed applicant (measured after the scheme is completed) is the same as the proportionate interest each Distribution member held in Distribution prior to the scheme. 118 The applicant's construction of s 615-20(2)(a)(i) is not accepted. The reference to "each exchanging member's shares" is to be construed as a reference to the shares acquired by each member in their capacity as a Distribution member exchanging their Distribution shares for shares in the applicant. Such an interpretation is consistent with the structure of s 615-20. 119 As a matter of fact, a Distribution member holding a 1% interest in Distribution did not acquire a 3% interest in the applicant in exchange for their Distribution shares pursuant to the Distribution scheme. A Distribution member holding a 1% interest in Distribution acquired a 1% interest in the applicant upon completion of, and as a result of, the Distribution scheme. The Distribution scheme did not alter the proportionate interest of each Distribution member in the market value of the total shares held by Distribution members. The effect of the scheme was not to shift value between Distribution members. 120 The applicant's construction is premised on a legislative purpose that is not based on the text of Div 615. If the legislature had the purpose of ensuring that the interposed company was a shelf company (as that term had been defined in s 80G), the ratio comparison is most inapt to do so. The requirements for the interposed company are those set out in s 615-25, none of which refer to a requirement that the interposed company be a shelf company. Furthermore, if that were the legislative intent, the appropriate comparison would be between the market value of the shares acquired by an exchanging member in the interposed company with the market value of the shares disposed of by an exchanging member. A proportionate ratio exercise would not be required. 121 It is observed that the same ratio outcome as that contended for by the respondent is achieved if a literal interpretation of s 615-20(2)(a)(ii) is adopted and the phrase "in exchange for Distribution shares under the scheme" is not read into either s 615-20(2)(a)(i) or (ii). On that strictly literal approach, the denominator in s 615-20(2)(a)(ii) would capture all shares issued to persons who had held shares in Distribution irrespective of whether the shares were issued in exchange for the Distribution shares or not. As all the shares in the applicant were issued to persons who had held shares in Distribution because of the stapled structure (and no shares were acquired otherwise than by reason of being issued), the ratio in s 615-20(2)(a) would equal the ratio in s 615-20(2)(b). 122 That literal interpretation is not preferred over the construction set out at [117(6)]. A strict literal construction divorces the ratio in s 615-20 from the context of the scheme for reorganisation. The context of the ratio comparison is in a division concerned with schemes for reorganisation. The ratio in s 615-20(2)(a) is required to be calculated at the "completion time". The ratio is directed at the effect of the scheme on exchanging members.

Legislative History 123 As a matter of legislative history, s 615-20(2) is the current rewritten enactment of former s 160ZZPA(1)(m) (as modified by s 160ZZPC) of the ITAA36. At the time s 160ZZPA(1)(m) was drafted it is apparent that the author of the explanatory memorandum was unlikely to have contemplated a stapled structure where the stapled entities had been managed as a single economic entity, with the holders of equity interests in each of those entities treated as a single body of security holders. 124 Parts of the language of the explanatory memorandum do not match the language of the Act. Notwithstanding the reference in the 1987 explanatory memorandum, the statute does not and has never required that the interest of an exchanging member in the interposed company be of the same market value as the prior interest in the original company. The legislation has never required a direct comparison of the market value of the shareholding acquired with the market value of the shareholding disposed of. Rather the comparison required to be undertaken has been by reference to ratios or proportionate interests. It is the equation of a ratio (originally expressed as a fraction) that needed to be satisfied. 125 In the course of seeking to simplify the drafting of sections previously enacted as part of the ITAA36, words and phrases are sometimes omitted. Whether the omission of particular words is intended to effect a change in meaning depends on whether the rewritten provision appears to have expressed the same idea in a different form of words: s 1-3 of the ITAA97. An idea is not taken to be different just because a different form of words is used: s 1-3 of the ITAA97. 126 The immediate predecessor to s 615-20(2) was s 124-365. Section 124-365 included neither a reference to "replacement shares" nor the phrase "attributable to the exchange shares held by the interposed company" (as had previously been the effect of the combined operation of s160ZZPA and s 160ZZPC). Although the applicant contended that the omission of the words was intended to carry with it a new idea (to indirectly incorporate the concept of a shelf company), the explanatory memorandum to the bill introducing s 124-365 (namely, the Tax Law Improvement Bill (No. 2) 1997 (Cth)) did not refer to any intended change to the effect of former s 160ZZPA(1)(m) but limited its identification to changes in respect of the effect of former s 160ZZPA(1). This included changes to: require that each exchanging shareholder be issued a whole number of shares in the interposed company, remove the requirement that each exchanging shareholder dispose of all their shares or units in the original company at the same time and change the time for measuring the ratio of the market value of the taxpayer's shares in the original company to the market value of all the shares in that company. 127 In s 124-365(3) the words "each" in the first part of the ratio was italicised as was the word "all" in the second part of the ratio. The italicisation supports the conclusion that the section was seeking to measure the market value of a single exchanging member's interest as a proportion of the market value of all the exchanging member's interests. A "ratio" can refer to either a quotient of two numbers or can express the number of times the first number is contained in the second (see Macquarie Dictionary; Complete Oxford English Dictionary). The italicisation of "each" and "all" is consistent with the term "ratio" being used in the second manner so that the first part of the ratio should be taken to refer to a subset of the second. 128 On this construction the first part of the ratio in s 615-20(2) (and in the former s 124-365) is referring to a subset of the same body of shares as the second part of the ratio. More specifically, the ratio is seeking to compare the market value of a single exchanging member's shares in the applicant with the market value of all exchanging member's shares in the applicant so that mathematically if one were to express the ratio for each member as a percentage and add up the ratios as calculated for all exchanging members one would have a sum total of 100%. So understood, the ratio comparison required by s 615-20(2) is seeking to ascertain whether at the completion of the scheme, the proportionate interest of each exchanging member in the market value of the interposed entity is the same as the proportionate interest that exchanging member held in the market value of the original entity, before the scheme. 129 The applicant's construction of s 615-20(2)(a) was founded on the implicit importation into Div 615 of a requirement that the interposed company be a "shelf company". On the applicant's construction, the ratio in s 615-20(2)(a) does not equal the ratio in s 615-20(2)(b) unless the interposed is a "shelf company" prior to the scheme being carried out. It was not disputed that prior to the implementation of the schemes on 18 June 2015, the applicant was a "shelf company". The applicant's submission was that it was not a shelf company at the moment in time the Distribution scheme took place because the Distribution scheme took place after the Transmission scheme and the Finance scheme. At that point in time, the applicant was a company of significant value. The result, it is said, is that in the present case the ratios are not equal because persons who were Distribution shareholders already held shares of substantial value in the applicant, immediately prior to the disposal of their Distribution shares. 130 A requirement that the interposed company be a shelf company is not found in the express terms of the operative provisions of Div 615. 131 The term "shelf company" was not employed in s 160ZZPA, the original predecessor to Div 615, notwithstanding that the same Act that introduced that section also introduced a defined concept of "shelf company" in other sections of the ITAA36, including the common ownership test in former s 80G and the rollover of an asset between companies in the same group in former s 160ZZO. 132 There is no requirement in Div 615 that the interposed company be a "shelf company". The Division is concerned with restructures that do not alter the economic interests which exchanging members own in underlying assets. Before the restructure, a Distribution shareholder with a 1% interest in Distribution was also required to hold a 1% interest in Transmission and a 1% interest in Finance. At the conclusion of the Distribution scheme, the 1% shareholder in Distribution owned a 1% interest in a holding company that also owned Transmission, Finance and Distribution and nothing else. As a part of a stapled security, the Distribution shares had been attendant with an obligation on their holder to also hold shares in Transmission and units in Finance. From the moment of de-stapling, each Distribution share was subject to an obligation to be transferred to the applicant for a share in the applicant and the applicant was subject to an obligation to acquire all of the Transmission shares, Finance units and Distribution shares in exchange for the issue of shares in itself. There was no point in time in which the economic interest of the Distribution shareholder could be divorced from Transmission and Finance. 133 The applicant relied on the interaction between s 615-30(2) and ss 703-65 to 703-80 to demonstrate that if Div 615 was capable of applying to an interposed company that was not a "shelf company" but instead was a company with significant assets, anomalous results could arise. A consequence of the application of s 703-75 is that the actual history of the interposed entity is substituted with the history of the original entity. If the interposed entity had substantial assets prior to the completion time, and the requirements of s 615-30(2) could be satisfied, the tax history of those pre-existing assets would be lost. 134 This hypothetical anomaly does not arise in the present case. There was no suggestion that s 615-30(2) could apply in the present case. That is because on any view, immediately after the Distribution scheme, the applicant was not the head company of a group that consisted only of the applicant and Distribution (together with Distribution's subsidiaries). If there is a lacuna in the interaction of the consolidation rules and Div 615 when applied to a restructure of a stapled group, it is not a lacuna that is present here. Whilst s 615-30(2) was not satisfied in the present case, s 615-30(1) applied. 135 Section 615-30(2) is not a precondition to the application of Div 615 but provides for a consequence. Resort to anomalous consequences of a particular construction is to be approached with caution: ConnectEast Management Ltd v Commissioner of Taxation (Cth) [2009] FCAFC 22; (2009) 175 FCR 110 at [41]. A theoretical lacuna in the interaction of different complex divisions of the income tax legislative landscape enacted at different points in time is not a sound basis for rejecting what otherwise seems to be the correct construction of the legislative text of Div 615: see, Peter Greensill Family Co Pty Ltd v Commissioner of Taxation [2021] FCAFC 99; (2021) 285 FCR 410 at [70].

Other Requirements of Div 615 136 It was not disputed by either party that the requirements of s 615-25(3) were satisfied. Because of the stapled structure and the effect of the schemes, only persons who were shareholders of Distribution (and therefore necessarily also shareholders of Transmission and unitholders in Finance) became shareholders of the applicant. This would not be the case if prior to the reorganisation scheme being entered into, the shareholders of the company to be interposed were an independent and different body of shareholders. Rollover relief under Div 615 is available in the present case because the exchanging members of each entity acquired by the applicant interposed company are identical. 137 The applicant's reliance on s 615-25(3) to support its contention that the interposed company must be a shelf company is not accepted. Section 615-25(3) is a requirement that is additional to the other requirements of Div 615. 138 The applicant's submission concerning s 124-784A was not developed in oral submissions. It is not apparent why the application of Div 615 in the present (where there is identity between the shareholders of Distribution and the shareholders of the applicant) would render the operation of a provision in Sub-div 124-M otiose. Subdivision 124-M does not have an equivalent requirement to s 615-25(3). The scope of the operation of Sub-div 124-M to "top hatting" is different from the scope and operation of Div 615.

CONCLUSION 139 It is apparent that the drafters of the Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 5) 1987 (Cth) and the Commissioner in his taxation ruling issued in 1997 did not contemplate the reorganisation of a stapled entity where all security holders held the same proportionate share in three stapled entities and all security holders were issued with the same proportionate interest in a new holding company in exchange for the proportionate interests they had held in the three stapled entities. 140 However, as Gummow J observed in Wik Peoples v Queensland [1996] HCA 40; (1996) 187 CLR 1 at 169, when legislative "intention" is to be ascertained, "what is involved is the 'intention' manifested by the legislation". Statements as to legislative intention made in explanatory memoranda or by Ministers or in this case by the Commissioner in a taxation ruling, cannot overcome the need to carefully consider the words of the statute to ascertain its meaning: Saeed v Minister for Immigration and Citizenship [2010] HCA 23; (2010) 241 CLR 252 at [31]; Mitsui & Co (Australia) Ltd v Commissioner of Taxation [2011] FCA 1423 at [132]. 141 Based on the statutory language, Div 615 is capable of applying to such a restructure. 142 The applicant's case rested on the proposition that Div 615 did not apply if there is "any value that is brought in that is not attributable to the exchange". The disentitling element in the present case was said to arise by reason of the so-called sequential acquisition of Transmission, Finance and then Distribution. For the reasons explained above, the sequencing did not have the effect contended for by the applicant.t 143 The applicant's application is to be dismissed with costs. I certify that the preceding one hundred and forty-three (143) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Hespe.