Financial Synergy Holdings Pty Ltd v Commissioner of Taxation

REASONS FOR JUDGMENT 1 The principal issue for determination in this proceeding is the time of acquisition, within the meaning of ss 110-25(2)(b) of the Income Tax Assessment Act 1997 (Cth), of an asset acquired by an entity in a consolidated group in reliance upon a roll-over governed by Division 122. The issue arises in the context of the need to determine the first element of the cost base of an asset for the purposes of determining the allocable cost amount upon the formation of a consolidated group. A consequence of reliance upon Division 122 is that an asset which had been acquired by the transferor entity before 20 September 1985 is deemed by ss 122-70(3) to be acquired by the transferee entity before that day. The taxpayer contended, however, that the deeming effect of ss 122-70(3) did not apply to ss 110-25(2)(b) and that the cost base under that provision was to be determined as at the actual date of acquisition of the assets in question rather than the date of acquisition deemed by ss 122-70(3). 2 Financial Synergy Holdings Pty Ltd formed a consolidated group governed by Part 3-90 of the 1997 Act with effect from 1 July 2007, comprising itself, the Financial Synergy Unit Trust ("the unit trust"), Financial Synergy Actuarial Pty Ltd, Financial Synergy Tasmania Pty Ltd and Top Quartile Management Pty Ltd. The formation of a consolidated group required, amongst other matters, that the tax cost to Financial Synergy Holdings of each of the assets of the unit trust be set as the tax cost setting amount calculated in accordance with ss 705-35(1). That subsection prescribed how the tax cost setting amount was worked out for each asset of the entity joining a consolidated group. The first element of the process required working out the "allocable cost amount for the joining entity" of the joined group in accordance with s 705-60. That section, in turn, required that the allocable cost amount for the joining entity be worked out by following a number of steps. The first step was to determine the cost of the membership interests in the joining entity held by the members of the joined group worked out under s 705-65. The application of ss 705-65(1) to the Financial Synergy Group required working out the sum of the cost bases of the units in the unit trust. 3 Financial Synergy Holdings lodged tax returns for the 2008 to 2013 years of income on the basis that the cost base of the units for the purposes of ss 705-65(1) was $30 million. On 28 February 2014 the Commissioner issued amended assessments for each of those years on the basis that the cost base of the units for the purposes of ss 705-65(1) was $33,909. Objections were lodged against the amended assessments for each of those years but the objections were disallowed in respect of the 2008, 2012 and 2013 years and were treated as invalid in respect of the 2009 to 2011 years on the basis that there was no tax payable under the amended assessments for those years. Financial Synergy Holdings appealed to this court under Part IVC of the Taxation Administration Act 1953 (Cth) against the objection decisions in respect of the 2008, 2012 and 2013 income years which the Commissioner had disallowed. The Commissioner no longer maintained at the hearing that the cost base of the units was $33,909 but that, as at the date of acquisition, the cost base of the units was $1,560,649 (being the value as at 1 July 1985 of the business effectively acquired by transfer of the units in the unit trust) rather than the $30 million claimed by Financial Synergy Holdings. The resolution of the difference between the parties depended mainly upon whether the time of acquisition of the units, for the purpose of calculating the cost base, was the actual date of acquisition (as the taxpayer contended), namely 29 June 2007, or the date deemed by Division 122 as the date of acquisition (as the Commissioner contended), namely before 20 September 1985. The facts upon which that depended were otherwise agreed between the taxpayer and the Commissioner for the purposes of the proceeding and were set out in a written statement of agreed facts supplemented by additional statements made by counsel for the taxpayer upon instructions with the Commissioner's agreement. The course adopted by the Commissioner in part reflected the view that he considered himself administratively bound by an Advance Opinion he had given in 1989 upon which the taxpayer had acted. 4 The underlying value of the relevant units relates to an actuarial business which has been conducted from December 1978 by Financial Synergy Pty Ltd. On 21 December 1978 Financial Synergy Pty Ltd was appointed trustee of the Orford Family Trust and began to conduct the Financial Synergy business in its capacity as trustee of that trust. The Orford Family Trust was a discretionary trust whose beneficiaries included Mr David Orford. In June 1985 Mr Orford and his then business associate, Mr William Szuch, orally agreed that from 1 July 1985 Financial Synergy would henceforth conduct the Financial Synergy business as trustee for a unit trust "to be established" by them and that 80% of the units would be held by the Orford Family Trust and 20% of the units would be held by an entity to be nominated by Mr Szuch. The terms for the agreement between Financial Synergy, Mr Orford and Mr Szuch were set out in an undated memorandum from Mr Orford to Mr Szuch entitled "Financial Synergy Pty Ltd Financial Basis of Operation as from 1 July 1985" which contemplated the creation of a legal structure which, however, was not formally documented at the time, but which the parties to the agreement acted upon and which is not challenged by the Commissioner in these proceedings to be the source of the trust obligations subsequently formalised by the creation in 1989 of a unit trust: see Federal Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520, 539, [49], 550, [105]. 5 The undated memorandum of the June 1985 agreement between Financial Synergy, Mr David Orford and Mr Bill Szuch recorded, amongst other matters: 3. Legal Structure Financial Synergy acts as Trustee of the Orford Family Trust. I suggest that a unit trust be formed in order to facilitate the addition of new directors or partners and the easy deletion of existing partners. Financial Synergy would become the Trustee of this unit trust. Would Financial Synergy's Memorandum and Articles of Association need amendment? You would become a (real) director of Financial Synergy as soon as possible. June and I would have to form a new company to act as Trustee of the Orford Family Trust and appoint it as the Trustee in place of Financial Synergy. Units in the unit trust would be held by the Trustee of the Orford Family Trust and by a legal entity nominated by you. The allocation of the unit holdings will have to be discussed. The allocation need not be pro-rata to first charges ... 4. Future Arrangements - income As a basis for discussion, I suggest we each set ourselves a "first charge". This is similar to a salary but would include items such as superannuation, car expenses, personal expenses paid by the business, income splitting etc etc. Once the gross profit for the year is known (which would be estimated as at 30 April, or (better) at the end of each month), "superprofit " would be determined as: (1) gross profit less (2) total first charges less (3) a percentage of the net tangible asset value of each unit "Superprofit" would be split pro-rata on the basis (say) of first charges. 5. Purchase price of units We will have to agree a basis for the purchase/sale of units in future ... However I understand that the market value of actuarial practices is 3 times the gross revenues. It seems that this should be a reasonable basis for future parties to buy into the business I would think it unreasonable that you should have to buy in at the full unit price. 6. Buy/sell agreement We should effect a buy/sell agreement which sets out the terms on which units will be purchased/sold in the future and the arrangements which should take place should one of us die or become disabled and unable to work in the business. 9. Exact details (1) Units to be allocated: • David Orford 80% • Bill Szuch 20% (2) First charges (salary) for year commencing 1 July 1985 to be: • David Orford $110,000 p.a. • June Orford $20.000 p.a. • Bill Szuch $60,000 p.a Total $190,000 (3) Value of business Gross value (3 x annual fees) = $ * 20% to be purchased * % Gross price $ Less value of business built on by Bill Szuch, net of subsidy etc = $ less purchase of assets from Bill Szuch = $ Net purchase price $ Consistently with the broad terms of the agreement, Mr Szuch became an employee of Financial Synergy and a member of the Financial Synergy Superannuation Fund on 1 July 1985. 6 On 24 September 1985 Mr Orford met with his solicitors, Messrs Cumming & Co, to seek advice in relation to the documentation of the oral agreement made in June 1985. On 18 November 1985 Mr Szuch was appointed a director of Financial Synergy and became a shareholder in Financial Synergy. A formal unit trust was not, however, created at that time, although Financial Synergy, Mr Orford and Mr Szuch acted consistently with the broad terms of the June 1985 agreement. A supplemental deed dated 30 June 1986 appointed Mr Szuch as a beneficiary of the Orford Family Trust. A written agreement made on the same day between Mr Orford and Mr Szuch agreed, amongst other things, that the net income of the Orford Family Trust derived during the 1986 income year be set aside for the benefit of Mr Orford, Mr Szuch and Mrs Barbara Orford in the proportions of 58%, 32% and 10% respectively, adjusted in accordance with clause 4 of the undated memorandum for the distribution of super-profits and an agreement which had been made in 1990 following discussions between Mr Orford and Mr Szuch and known to them as "the package basis" for the adjustment of profit and losses. The 1986 agreement also provided, consistently with the June 1985 agreement, that as from 1 July 1986 the business of Financial Synergy would be carried on "as trustee for a Unit Trust to be formed" in which "Orford [would] initially hold Eighty (80) per centum of the issued units and Szuch [would] initially hold twenty (20) per centum of the issued units". The unchallenged intention of the relevant persons concerned with the conduct of, and ownership of the equity in, the Financial Synergy business was that the equitable interests in the trust were to be held on trust for "Mr Orford" as to 80% and for Mr Szuch as to 20% from 1 July 1985. 7 The formal documentation recording the existence of a unit trust to give effect to the agreement had not been adopted by 20 April 1989 when the then solicitors for Financial Synergy, Messrs Phillips Fox, wrote to the Commissioner requesting an Advance Opinion concerning the rights arising from the agreement which had been reached with effect from 1 July 1985. Specifically the Commissioner was requested to provide an Advance Opinion of: (a) the right of the Financial Synergy Unit Trust on 1st July, 1985 to the ownership of the business of consulting actuaries conducted up to that date by the Orford Family Trust; and (b) the right on 1st July, 1985 to ownership by Mr Szuch of 20% of the units in that trust and of the Orford Family Trust to 80% of the units in that trust. On 23 June 1989 Messrs Phillips Fox wrote to the Commissioner renewing the request for the Advance Opinion with additional information, namely that W.S.A Financial Consulting Pty Ltd had been the trustee of the William Szuch Family Trust since 30 June 1982, and that it was proposed that the William Szuch Family Trust hold 20% of the units in the Financial Synergy Unit Trust. 8 The Commissioner accepted at that time that the arrangement between the parties was as had been conveyed to him. On 28 June 1989 he wrote to Messrs Phillips Fox stating: You will appreciate that it is not possible to give binding rulings in matters like this. However, from the evidence supplied by your firm and the examination of taxation returns available within this office it is accepted, in this case, that the actuarial business was vested in the respective cestui que trust in the proportion of 20% to the William Szuch Family Trust and 80% to the Orford Family Trust as from 1st July 1985, such that the Unit Trust evidenced by the proposed deed forwarded to this office on 23 June, 1989 will be acquired on 1st July, 1985 for the purposes of Part IIIA of the Income Tax Assessment Act, and the units in the trust will similarly be acquired by the family trusts referred to above. On 29 June 1989 the Financial Synergy Unit Trust was formally created by deed of settlement executed on that day by Financial Synergy Pty Ltd, Mr Orford and W.S.A Financial Consulting. Financial Synergy became the trustee of the unit trust and continued to carry on the Financial Synergy business in its capacity as a trustee. Clause 3 of the deed of settlement executed on 29 June 1989 recited: a) From 1st July, 1985 [Financial Synergy] has held, and until [1 July 1989] will continue to hold the Actuarial Business in its capacity as trustee of the Orford Family Trust, but subject to beneficial trusts identical to the terms set out herein. b) From [1 July 1989] [Financial Synergy] shall hold the trust fund and any income thereon pursuant to the trusts, powers and conditions set out herein. It was acknowledged in clauses 4(a) and 5(a), and in the first schedule, of the 29 June 1989 deed of settlement, that 100,000 initial units "were created" in the trust fund as from 1 July 1989. 80,000 of those units were to be held by Mr David Orford in his capacity as trustee of the Orford Family Trust and 20,000 were to be held by W.S.A Financial Consulting in its capacity as trustee of the William Szuch Family Trust. In fact only 61,100 units had been issued in the unit trust until 29 June 2007 and were held on trust for the Orford Family Trust by the trustee of that trust from time to time. Mr Orford replaced Financial Synergy as trustee of the Orford Family Trust with effect from 1 July 1989 and Superannuation Systems (Aust) Pty Ltd replaced Mr Orford as trustee of the Orford Family Trust with effect from 30 July 1993. Superannuation Systems (Aust) then came to hold all 61,100 of the initial units in the unit trust (then known as "A Class Units") which were all of the issued units in the unit trust until 29 June 2007 (notwithstanding the acknowledgements found in the deed of settlement executed on 29 June 1989). It may, perhaps, be surprising to see a failure to attend to formalities by those engaged in the conduct of an actuarial business (where it may be assumed that care and attention to detail is important, if not essential) but for the purposes of this proceeding the parties accepted the evidence to be, and proceeded upon the basis that, the units formally evidenced by the unit trust in 1989 gave effect to the beneficial entitlements created with effect from or around 1 July 1985. It may be assumed for these proceedings, therefore, that the 61,100 units in the unit trust formally acquired by the trustee of the Orford Family Trust, and which in 1993 were transferred to Superannuation Systems (Aust) as the trustee of the Orford Family Trust, were interests created around June 1985. 9 Superannuation Systems (Aust) transferred those units to Financial Synergy Holdings on 29 June 2007 in transactions undertaken in reliance upon Division 122 and which preceded consolidation of the group with effect from 1 July 2008. Financial Synergy Holdings was incorporated on 22 June 2007 with one share paid to $1 owned by Superannuation Systems (Aust) as trustee of the Orford Family Trust. On 29 June 2007 Superannuation Systems (Aust) disposed of its units in the unit trust to Financial Synergy Holdings in consideration of the issue to Superannuation Services (Aust) of 30 million ordinary shares in Financial Synergy Holdings paid to $1 each. The disposal by Superannuation Services (Aust) of the units to Financial Synergy Holdings would have triggered a CGT event but for the fact that Superannuation Services (Aust) chose to obtain roll-over relief under subdivision 122-A of the 1997 Act in respect of the CGT event which happened upon its disposal of its units in the unit trust. On 29 June 2007 a further 25,302 "A Class Units" were issued in the unit trust to Financial Synergy Holdings in part satisfaction of $12,423,741 owed to it. The parties to this proceeding accept that $12,423,282 is the cost base of the additional units. In consequence of the disposal by Superannuation Systems (Aust) of its units to Financial Synergy Holdings and the acquisition by the latter of the additional units: (a) Superannuation Systems (Aust) owned 42,423,742 shares in Financial Synergy Holdings (being all of the then issued shares in Financial Synergy Holdings); (b) Financial Synergy Holdings owned 86,402 "A Class Units" in the unit trust (being all of the then issued units in the unit trust); and (c) Financial Synergy Holdings was the head company of a consolidatable group which was formed with effect from 1 July 2007. 10 The formation of a consolidated group gave rise to the need to determine the cost base of the units in the unit trust for the purpose of determining the allocable cost amount. The first step in working out the allocable cost amount for the purposes of s 705-60 of the 1997 Act is governed by s 705-65 which requires determining the sum of, relevantly, the "cost base" of the relevant asset. The words "cost base" in ss 705-65(1) are used in the meaning defined in Division 995, namely, the meaning given by subdivision 110-A. Section 110-25 (found in subdivision 110-A) contains the general rules about "cost base" and ss 110-25(1) provides that the cost base of a CGT asset consists of five elements. The first of those elements is identified in ss 110-25(2) as the total of: a) the amount [the taxpayer] paid, or [was] required to pay, in respect of acquiring [the asset]; and b) the market value of any other property [the taxpayer] gave or [was] required to give, in respect of acquiring it (worked out as at the time of the acquisition). The application of this provision in the usual case may present little difficulty, but in the present case a difficulty arises concerning the words "as at the time of the acquisition" found in the parentheses in ss 110-25(2)(b). The Commissioner contended that the application of those words in this case identified the time of acquisition by Financial Synergy Holdings of the units in the unit trust to be the time at which they were deemed to have been acquired by operation of the roll-over provisions engaged by reliance upon subdivision 122-A, namely, before 20 September 1985. The market value of the cost base of the units before 20 September 1985 would be about the value of Financial Synergy's business as at 1 July 1985, namely $1,560,649 (the Commissioner accepting in the proceeding that the figure of $33,909 which he had originally determined could not be maintained). Financial Synergy contended, however, that the cost base of the units was $30 million because it contended that "the time of the acquisition" referred to in the section was to be understood as a reference to the actual date of acquisition, namely, on 29 June 2007 and that the units were acquired on that day upon the issue of 30 million shares paid to $1 each. 11 The dispute between the parties about the meaning and application of the words "as at the time of the acquisition" in ss 110-25(2)(b) arises because an effect of reliance upon the roll-over provisions in subdivision 122-A is to deem an acquisition to occur before 20 September 1985 rather than at the actual time of acquisition. The application of the ordinary and natural meaning of the words in ss 110-25(2)(b), without reference to the deeming effect of ss 122-70(3), would refer to the actual date of acquisition on 29 June 2007. Section 122-70 (found in Division 122) identifies a number of consequences for a company in relation to the disposal of assets where it has been chosen to rely upon the roll-over provisions. Subsection 122-70(2) deals with the case of an asset which had been acquired by the disposing company on or after 20 September 1985. That section identifies the first element of the asset's cost base and reduced cost base, respectively, in the hands of the company, as being, in effect, the asset's cost base and reduced cost base when the taxpayer disposed of it. Subsection 122-70(3), in contrast, deals with the situation of assets which had been acquired by the disposing company before 20 September 1985 and provides that the company acquiring the assets is taken to have acquired the assets before 20 September 1985. The subsection provides: If you acquired the asset before 20 September 1985, the company is taken to have acquired it before that day. The legislative policy thus evinced by ss 122-70(3) is that the CGT status of an asset having been acquired before the introduction of the capital gains tax provisions is preserved in the hands of a company which obtains the asset in reliance upon the roll-over provisions in Division 122. The effect of the transactions entered into on 29 June 2007 would have been the happening of a CGT event but for the reliance of the parties upon Division 122. The effect of reliance upon the roll-over provisions in Division 122 ensured both that any capital gain arising from the CGT event would be disregarded and that any pre-CGT status of the asset would be preserved in the hands of the company acquiring the asset. That policy, and the specific deeming effect upon the time of acquisition in ss 122-70(3), makes the Commissioner's contention the better view of the operation of ss 110-25(2)(b) in the case of Financial Synergy Holdings. The ordinary and natural meaning of the words in ss 122(70)(3) is to deem the time of acquisition of pre-CGT assets in the hands of an entity taking advantage of roll-over relief. Both ss 122-70(3) and ss 110-25(2)(b) use derivatives from the word "acquire" and in each case the word when first used in the section is asterisked to indicate that the word is being used in the sense defined by the 1997 Act. In ss 110-25(2)(b) the derivative of "acquire" which is used and asterisked is "acquiring" and in ss 122-70(3) is "acquired". The ordinary and natural meaning of the words "as at the time of the acquisition" in the parentheses in ss 110-25(2)(b) is apt to include that time which is deemed by ss 122-70(3). It follows that the cost base is to be determined as at before 20 September 1985 and not as at 29 June 2007. 12 Financial Synergy Holdings contended that the time referred to in ss 110-25(2)(b) should be taken to be the actual time of acquisition without regard to the deeming effect of ss 122-75(3) because the literal and grammatical construction of ss 110-25(2)(b) links the words in the parentheses to that time of acquisition at which consideration was given in exchange for the property acquired. It is true, and unsurprising in light of the usual operation of its terms, that the literal and grammatical construction of ss 110-25(2)(b) links the expression "worked out as at the time of the acquisition" of the CGT asset to the actual time of the acquisition of the CGT asset that was acquired in exchange for consideration, and that, all things being equal, in this case that would be 29 June 2007. However the link occurs for the purpose of determining the value of what was given for the acquisition and does not govern how the time of acquisition is to be determined. The words in parentheses are not restricted or narrowed in their meaning by the link the words ordinarily have with the occasion in which something of value is given for the assets which are acquired. It is, rather, the time of acquisition which impacts upon, and which directs the determination of, the market value of what had been given in exchange. Financial Synergy Holdings relied, in support of its construction and application of the expression, on a passage by Gibbs CJ in Cooper Brookes (Woolongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297 where the Chief Justice had said at 305: […] [I]f the language of a statutory provision is clear and unambiguous, and is consistent and harmonious with the other provisions of the enactment, and can be intelligibly applied to the subject matter with which it deals, it must be given its ordinary and grammatical meaning, even if it leads to a result that may seem inconvenient or unjust. To say this is not to insist on too literal an interpretation, or to deny that the court should seek the real intention of the legislature. The danger that lies in departing from the ordinary meaning of unambiguous provisions is that "it may degrade into mere judicial criticism of the propriety of the acts of the Legislature", as Lord Moulton said in Vacher & Sons Ltd. v. London Society of Compositors; it may lead judges to put their own ideas of justice or social policy in place of the words of the statute. [Citation omitted.] His Honour made that observation in the context of stating that it "is an elementary and fundamental principle that the object of the court, in interpreting a statute, 'is to see what is the intention expressed by the words used' ", and went on to say (immediately after the passage quoted above): On the other hand, if two constructions are open, the court will obviously prefer that which will avoid what it considers to be inconvenience or injustice. Since language, read in its context, very often proves to be ambiguous, this last mentioned rule is one that not infrequently falls to be applied. In this case the words "worked out as at the time of the acquisition" may be open to the two competing constructions advanced by the parties but, for the reasons stated above, the construction which accords with the intention expressed by the words used by the legislature, in my view, is that advanced by the Commissioner. In this case the actual time of acquisition was 29 June 2007, but on that day Financial Synergy Group acquired the units in a transaction in which roll-over relief under subdivision 122-A was sought, and an effect of that transaction, on the actual day of the acquisition, was to deem by ss 122-70(3) the date of the acquisition to be before 20 September 1985. There is no compelling reason to construe the words "worked out as at the time of the acquisition" in ss 110-25(2)(b) to exclude the impact upon them of the express deeming effect of ss 122-70(3). 13 The provisions governing the time of acquisition of CGT assets also contemplate that an asset may be acquired at some time other than its actual time of acquisition. Division 109 contains both general operative rules dealing with when a CGT asset is acquired as well as non-operative signposts to other acquisition rules. Subdivision 109-A contains the operative rules and, by ss 109-5(1), provides that "in general" a taxpayer will acquire a CGT asset when the taxpayer becomes its owner. Subsection 109-5(2), however, sets out specific rules for the circumstances in which, and the time at which, a taxpayer will otherwise acquire a CGT asset as a result of the happening of a CGT event. Section 109-10 deals with the time of acquisition of a CGT asset when an asset is acquired without a CGT event, and provides, for instance, that a taxpayer will acquire equity interests or non-equity shares in a company when a contract is entered into or, if none is entered into, when the equity interests or non-equity shares are issued or allotted. 14 Subdivision 109-B contains provisions which are expressed not to be operative but the subdivision directs attention to other operative provisions, including Division 122, which deal with the time at which an asset is acquired. Subdivision 109-B may not contain operative provisions but it does contain signposts to other acquisition rules which are operative and to that extent Division 109 generally contemplates that there may be other provisions (apart from those in subdivision 109-A) that may govern the time at which an asset is acquired. Section 109-55 sets out a table of those other provisions which is preceded by the following explanation: This table sets out other acquisition rules in this Part and Part 3-3. Some of the rules have effect only for limited purposes. Item 8 in the table dealt with the circumstance of a taxpayer obtaining a "same-asset roll-over for a CGT asset" acquired from a transferor who had acquired the asset before 20 September 1985. The table referred the reader in that context to subdivision 124-N and Divisions 122 and 126. The table specifically informed the reader that in such cases the taxpayer will acquire the asset in those circumstances, and as contemplated under those subdivisions, before 20 September 1985. There are other examples of acquisitions in other items in the table which are contemplated to impact upon the calculation of the cost base where the time of acquisition is modified by some other provision found elsewhere in the capital gains tax provisions of the 1997 Act. Item 11, for example, deals with the acquisition of shares in a company or of units in a unit trust by converting a convertible interest. In that case the time of acquisition is contemplated in the table in s 109-55 to be as contemplated by s 130-60, namely, when the conversion of the convertible interest happened rather than, for instance, upon the making of a contract pursuant to which the conversion might be effected. Items 12 and 14 provided other examples of the modification of the date of acquisition which were contemplated in subdivision 109-B to have effect for the purposes of calculating capital gains and capital losses. 15 Financial Synergy Holdings also emphasised that subdivision 109-B was expressed to be only a "guide" and to have limited effect. In that context attention was drawn to s 950-150 concerning guides and their role in the interpretation of the 1997 Act which, relevantly, provided: Guides, and their role in interpreting this Act (1) A Guide consists of: (a) sections under a heading indicating that what follows is a Guide to a particular Subdivision, Division etc.; or (b) a Subdivision, Division or Part that is identified as a Guide by a provision in the Subdivision, Division or Part. (2) Guides form part of this Act, but they are kept separate from the operative provisions. In interpreting an operative provision, a Guide may only be considered: (a) in determining the purpose or object underlying the provision; or (b) to confirm that the provision's meaning is the ordinary meaning conveyed by its text, taking into account its context in the Act and the purpose or object underlying the provision; or (c) in determining the provision's meaning if the provision is ambiguous or obscure; or (d) in determining the provision's meaning if the ordinary meaning conveyed by its text, taking into account its context in the Act and the purpose or object underlying the provision, leads to a result that is manifestly absurd or is unreasonable. Financial Synergy Holdings submitted that it was to be concluded from this provision that it was "not permissible to use Item 8 of the table in s 109-55 in Subdiv 109-B to point to other acquisition rules in Subdiv 124-N and Divs 122 and 126 of the 1997 Act, and hence [to] import a different 'time of acquisition' (being 'before 20 September 1985')" rather than the actual time of acquisition. However there is nothing in s 950-150 that warrants the conclusion that the limited application contemplated in s 109-55 did not include the full effect to which the limitation related. The limited purpose contemplated by s 109-55 included the circumstances referred to in Item 8 which included giving effect to the full operation of, amongst other provisions, those found in Division 122. Subdivision 109-B may itself have no operative effect, but Division 122 does have effect and Item 8 in subdivision 109-B helpfully, if unnecessarily, contemplated that the time of acquisition effected by Division 122 was likely to apply when needing to determine the time of acquisition of CGT assets for the purposes of Part 3-1 (which includes ss 110-25(2)(b)). Subsection 122-70(3) would, in other words, apply whether or not subdivision 109-B drew attention to its existence. 16 It was also contended that ss 122-70(3) of Division 122 could not be used as "a guide for interpreting ss 110-25(2)(b)" because the former was "not concerned with the cost base of CGT assets" but with the pre-CGT status of assets. The written submissions went on to submit: When enlivened, the effect of s 122-70(3) is that the applicant "is taken to have acquired" the Units "before 20 September 1985". But s 122-70(3) does not say that the market value of the shares in the applicant issued 29 June 2007 to [Superannuation Systems (Aust)] in consideration for the acquisition of the Units is to be worked out as at a deemed date of acquisition "determined before 20 September 1985". This submission necessarily makes a distinction between the time of acquisition of an asset and its CGT status. However, relevantly in this case (if not also in all cases), the CGT status of the units in question depends only upon their time of acquisition. An asset may, conceivably, have a "CGT status" for some reason other than its date of acquisition, but in this case, and in the context of this submission, the CGT status of the units in question depended only upon them being deemed to have been acquired before 20 September 1985. Indeed, it was to secure the benefit of that particular effect that roll-over relief was relied upon on the very day that Financial Synergy Holdings acquired the units. It is, accordingly, a false dichotomy in this case to draw a distinction between the date of acquisition of assets and their CGT status. It is clear from the effect of ss 122-70(3) that the relevant feature of the CGT status conferred upon assets by reliance upon the provision was that they were deemed to have been acquired before 20 September 1985. It is, in other words, the status of deemed acquisition before 20 September 1985 which attaches to the assets for the purposes of calculating capital gains and losses. The purpose of ss 122-70(3) may perhaps be limited but there is no reason to exclude the determination of the first element needed to calculate capital gains and losses from its (limited) application, namely, to exclude its operation to determining the cost base under ss 110-25(2)(b). It would, furthermore, be curious if the taxpayer in the position of Financial Synergy Holdings would be placed by the legislature in the position of being able to obtain a market value cost base for assets which have preserved their pre-CGT status yet also enjoy such benefits as are conferred by s 705-125 in working out the pre-CGT factor for assets of a joining entity. Section 705-125 is found in the consolidation regime and recognises the pre-CGT status of the membership interests of joining entities by allocating a pre-CGT factor to the assets of the joining entity. The Commissioner's construction, in contrast to that urged for the taxpayer, is also consistent with the policy evinced by the introduction of s 716-855 with effect from 1 July 2002 dealing with the cost base or reduced cost base of a pre-CGT asset after a roll-over under subdivision 126-B. 17 Financial Synergy also relied, in the alternative, upon ss 110-25(12) of the 1997 Act for its contention that it was taken to have "acquired" the units within the meaning of ss 110-25(2)(b) at the "joining time" under s 705-65(1). Subsection 110-25(12) of the 1997 Act provided: If: (a) It is necessary to work out the cost base at a particular time; and (b) a CGT event does not happen in relation to the asset at or just after that time; assume, for the purpose only of working out the cost base at the particular time, that such an event does happen in relation to the asset at or just after that time. The Commissioner accepted that the cost base of the units needed to be determined at the joining time (see Envestra Ltd v Federal Commissioner of Taxation (2008) 169 FCR 300) but contended that ss 110-25(12) did not bear upon the time of acquisition of the units for the purpose of working out their cost base. Subsection 110-25(12) requires there to be an assumption that a CGT event happens when the two conditions mentioned in the section are present. The section does not, however, provide that the time of acquisition of the assumed CGT event must be at the time the CGT event is to be assumed to have occurred. The assumption of the CGT event having occurred at the time it is required to be assumed to permit the working out of the cost base at a particular time is consistent with the deemed date of acquisition effected by ss 122-70(3). At the time the CGT event is to be assumed for the purposes of ss 110-25(12), namely the joining time, the date of acquisition in this case is that which had been deemed by ss 122-70(3). 18 The date of acquisition by Financial Synergy Holdings of the units is, therefore, deemed by ss 122-70(3) to be "before" 20 September 1985 but the section does not expressly say whether any day before 20 September 1985 can be chosen as the date of deemed acquisition. It might be thought, for instance, that the date of acquisition to be deemed in the hands of the transferee is to be the earlier actual date of acquisition by the transferor. The provision does not say, however, that the assets are deemed to have been acquired at the earlier date of acquisition by the entity disposing of the assets under the roll-over provision. The provisions, in other words, do not maintain the earlier actual date of acquisition of the transferor (in this case Superannuation Systems (Aust)) as the deemed date of acquisition by the transferee (in this case Financial Synergy Holdings) upon the roll-over, but provide only that the deemed date of acquisition is taken to be before 20 September 1985. That, in my view, requires the date of acquisition to be practically, or immediately, before 20 September 1985 and not any other time before that date that may be chosen. The section does not say, of course, that the deemed date of acquisition is deemed to be "immediately before" 20 September 1985 but the fact that it also does not carry forward to the transferee the transferor's date of acquisition is significant and points, as the date of acquisition, to that time immediately before 20 September 1985, or such other time proximate to that time, as may practically be required to give effect to the provisions. 19 In Loizos v Carlton & United Breweries Ltd (1994) 117 FLR 135 the Court of Appeal of the Northern Territory had occasion to consider the meaning of the words "immediately before" in the context of the date in which a person became entitled to compensation. In that case Kearney J said at 137-9: The next question is as to the time-scope encompassed by "immediately before"; in particular, does it encompass the period which elapsed since the appellant last had "normal weekly earnings" prior to 23 March 1989? It is clear that the appellant last worked in 1986 though there was no specific finding to that effect by the Work Health Court: see its earlier judgment of 24 May 1989. This stemmed from the way the case was run before that court, the concentration being on his employment in 1961, any employment in 1986 being regarded as irrelevant. Mildren J has pointed to the difficulties, flowing from the way the case was conducted, in now dealing with the significance of the 1986 employment; however, for present purposes, I set those to one side. Since October 1986 the appellant has been an invalid pensioner. Different views have been expressed in the case law as to the time-scope of the words "immediately before", in different contexts. I turn to some of the cases, by way of illustration. Cockburn CJ said in R v Justices of Berkshire [1878] 4 QBD 469 at 471: "It is impossible to lay down any hard and fast rule as to what is the meaning of the word 'immediately' in all cases." I respectfully agree. The meaning, however, clearly depends on the context in which the words appear. The words do not necessarily connote the instant prior to the date in question. In Re Beaumont dec'd [1980] 1 Ch 444, a reference in inheritance legislation to a "person ... who immediately before the death of the deceased was being maintained" was held to require the Court to consider whether there was some settled basis or arrangement for that maintenance, and not merely the de facto position at the moment of death, though it was confined to the basis subsisting at the moment before death. That is, "a relationship of dependence which has persisted for years will not be defeated by its termination during a few weeks of mortal sickness", as Stephenson LJ put it in Jelley v Iliffe [1981] 2 WLR 801 at 807; [1981] 2 All ER 29 at 35. Clearly, the words "immediately before" refer to a more confined period of time than that connoted simply by "before": see for this approach Commissioner for Superannuation v Bayley (1979) 41 FLR 385, a case involving the construction of a statutory provision whereby an employee formerly eligible for superannuation benefits was deemed not to have ceased to be eligible, when "immediately after so ceasing" he had again become eligible. Lockhart J considered (at 401) that the deeming provision was: "... intended to ensure that a person does not lose his status as an eligible employee merely because he ceases to be one and later becomes one again, provided the gap in time is not unreasonably large." (Emphasis mine.) In a number of cases in England arising from the dismissal of employees shortly prior to the transfer of a business attention focussed on the meaning of "immediately before" in regulations which transferred to the transferee the transferor's liability etc under its contract of employment with those of its employees "employed immediately before the transfer": see the discussion in Alphafield Ltd v Barratt [1984] 1 WLR 1062; [1984] 3 All ER 795 at 10641067; 798-800, where a "flexible construction" was adopted. This was overruled in Secretary of State for Employment v Spence [1987] 1 QB 179: see at 191-198 per Balcombe LJ; see also Litster v Forth Dry Dock and Engineering Co Ltd (In Receivership) [1990] 1 AC 546 at 569 per Lord Oliver of Aylmerton, affirming that a "flexible construction" could not be adopted in this context and stating (at 575) that "either the contract of employment is subsisting at the moment of the transfer or it is not ... ". I respectfully agree with some general observations by his Lordship (at 567), viz: "The expression 'immediately before' is one which takes its meaning from its context, but in its ordinary signification it involves the notion that there is, between two relevant events, no intervening space, lapse of time or event of significance. If, for instance, the question is whether a deceased person was seized of property immediately before his death, attention is focussed upon the very instant at which the death occurred." (Emphasis mine.) The meaning of "immediate" in the context of "immediate unlawful violence" in the Public Order Act 1986 (UK) was considered, and the word differently construed, in R v Horseferry Road Metropolitan Stipendiary Magistrate; Ex parte Siadatan [1991] 1 QB 260. The Divisional Court said: "It seems to us that the word 'immediate' does not mean 'instantaneous'; that a relatively short time interval may elapse between the act which is threatening, abusive or insulting and the unlawful violence. 'Immediate' connotes proximity in time and proximity in causation; that it is likely that violence will result within a relatively short period of time and without any other intervening occurrence." In Perfect v Northern Territory (1992) 107 FLR 428 the Court considered that "immediately" in the context of "immediately advise the claimant" in s 85(7) of the Act did not require that the advice be instantaneous. Mildren J said (at 437): " ... a literal construction of this word in a statute would, in strictness, exclude the lapse of any interval of time, and for that reason, has rarely, if ever, been preferred by the courts. ... Whether the notice was served 'immediately' is a question of fact to be determined in the circumstances of the case. As Cockburn CJ said in Alexiadi v Robinson (1861) 2 F&F 679 at 684; 175 ER 1237 at 1240; the word implies 'a more stringent requisition that what is ordinarily implied in the word "reasonable". Still, it must receive a reasonable interpretation, so far that it cannot be considered as imposing an obligation to do what is impossible'." His Honour said (at 438): " ... the notion of 'immediately' must take into account that the worker may not be able to be found - he may, for instance, have gone interstate to get urgent medical treatment. In my view, the word 'immediately' means, as Kennedy LJ expressed it, in Barker v Lewis & Peat [1913] 3 KB 34 at 37 'as immediately as the circumstances permit'." The foregoing cases illustrate the different meanings in different contexts. The question is, what is the meaning of the words "immediately before" in their context in s 65(3)? I consider that in s 65(3) they encompass at most some reasonably short period of time immediately preceding "the date on which he first became entitled to compensation". As noted earlier, since 1986 the appellant had been unemployed and during the period to March 1989 had no weekly earnings. Accordingly, he had no "normal weekly earnings" at the very instant before 23 March 1989. But if the words "immediately before" in s 65(3) are given a more flexible construction, as I believe they should, do they embrace any period in 1986 when he was last employed? I think the answer is best expressed by adopting the approach of Blackburn J in Hobbs v London and South Western Railway Co (1875) LR 10 QB III at 121: " ... it is something like having to draw a line between night and day; there is a great duration of twilight when it is neither night nor day. But ... though you cannot draw the precise line, you can say on which side of the line the case is ...." I consider that wherever the precise line limiting the period encompassed by "immediately before" in s 65(3) is to be drawn, giving those words a flexible construction, the appellant is well outside that line on the facts of this case; this applies to any earnings in 1986, or before that time. I consider that this was also the view taken by Martin J. The use of the words "before that day" in ss 122-70(3) are, like the words "immediately before" which were considered in Loizos, to be construed by reference to the context in which they appear. The context in the present case is the time of acquisition of assets for the purpose of roll-over relief. The words in that context should be read as referring to a date proximate to 20 September 1985 to preserve the CGT status of the assets acquired by a transferee relying upon the roll-over provision. The words do not permit an arbitrary choice of any other date before 20 September 1985 or of the earlier date of acquisition by the transferor. It is therefore sufficient and appropriate to the application of the roll-over provision in Division 122 that the date of deemed acquisition be about 19 September 1985. That construction also serves the purposes for which the date of acquisition is relevant in the application of ss 122-70(3) in the context of a consolidation. The need to determine the time of acquisition for the purpose of roll-over relief arises in many contexts including when needing, as in this case, to set costs when an entity joins a consolidated group. The head company of a consolidated group inherits the tax history of the subsidiary members and an object of consolidation is to preserve the alignment of the head company's costs for membership interests established when entities become subsidiary members: see Handbury Holdings Pty Ltd v Federal Commissioner of Taxation (2008) 74 ATR 560, [58]-[64]. The process of working out the head company's cost of becoming the holder of the assets of joining entities is complex and is required to be worked out at a particular time: see Envestra Ltd v Federal Commissioner of Taxation (2008) 169 FCR 300, 308-9, [32]. In many cases in which Division 122 is relied upon it may not matter what date is deemed by s 122-70(3) as long as it is before 20 September 1985 because the pre-CGT status will be maintained as long as the deemed date is before 20 September 1985. The exact date deemed by ss 122-70(3) does matter, however, when, as in the context of consolidation, a value as at a date needs to be determined. The choice of the date immediately before 20 September 1985 as the date of acquisition recognises the full pre-CGT value of the assets brought into the group. 20 In this case there is no evidence of the value of the units on or about 19 September 1985. The units themselves, of course, were only formally created in 1989 but there is no evidence of the value of the Financial Synergy business as at that date. There is, however, evidence of the value of the Financial Synergy business as at 1 July 1985 and it may fairly be inferred that its value at 19 September 1985 would have been at least the same. In other words that the cost base of the units as at 19 September 1985 was not less than $1,560,649. 21 Accordingly, the application has substantially failed subject to the Commissioner's concession concerning the amount of the cost base of the units. The parties are directed to provide minutes of orders to give effect to these reasons and will be heard on the question of costs. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Pagone.