Minerva Financial Group Pty Ltd v Commissioner of Taxation

Minerva Financial Group Pty Ltd v Commissioner of Taxation - [2022] FCA 1092 - FCA 2022 case summary — Zoe

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O'CALLAGHAN J: Introduction [1] Procedural history [18] The facts [24] The relevant entities [32] Securitisation and securitisation trusts [42] LF's sources of income [62] Capital raising, proposed restructure and proposed public offering of shares [69] Income flow from the securitisation trusts [138] MHT's income and distributions [138] MFGT's income and distributions [153] LF's revenue in the relevant years [164] Intercompany loans [172] MHT and LF [174] MHT and MFGT [179] Division 7A [211] 2012 [216] 2013 [219] 2014 [222] 2015 [226] Cash transferred from LF to shareholders Jupiter, Vesta, and Juno [230] LF and MFGT [236] The Commissioner's diagram [237] Net effect of the loan offsets used to discharge the MHT and MFGT unpaid present entitlements [238] Liberty's source of funding [241] The statutory provisions [252] The schemes alleged [278] The first scheme [284] The second scheme [290] The third scheme [297] The expert evidence [305] The competing findings contended for by the parties [351] The first scheme [353] Abandonment of IPO [355] Interest free, unwritten loans, not repaid in cash [385] Transition to RIUs being held by MHT [388] Consolidation relevant to minimising CGT [388] Failure to establish avoidance of stamp duty and CGT generally [394] Lack of evidence regarding the commercial benefits of the stapled structure [406] Reasons for adopting the stapled structure [406] Unfranked cash distributions [410] Borrowing flexibility [430] Acquisitions [449] The second scheme [451] The steps that gave Jupiter/Vesta the entitlement to MFGT's distributable income [459] LF's loans from MHT, "cash flow", and credit rating [466] LF's capital adequacy ratio [482] Capital injections and Good Hill borrowing [490] NAB limit and policy of not declaring dividends [495] Exercise of discretion regarding the distribution of MHT's net income [498] The third scheme [521] First scheme - s 177D factors considered [523] The first factor: the manner in which the first scheme was entered into or carried out [523] The second factor: the form and substance of the first scheme [531] The third factor: the time at which the first scheme was entered into and the length of the period during which it was carried out [535] The fourth factor: the result in relation to the operation of the ITAA36 that, but for Part IVA, would be achieved by the first scheme [539] The fifth factor: any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result from the first scheme [543] The sixth factor: any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the relevant taxpayer, being a change that has resulted, will result or may reasonably be expected to result, from the first scheme [545] The seventh factor: any other consequence for the relevant taxpayer … of the first scheme having been entered into or carried out [549] The eighth factor: the nature of any connection between the relevant taxpayer and any person referred to in the sixth factor [551] Conclusion about the first scheme [556] Second scheme - s 177D factors considered [557] The first factor: the manner in which the second scheme was entered into or carried out [557] The second factor: the form and substance of the second scheme [566] The third factor: the time at which the second scheme was entered into and the length of the period during which it was carried out [569] The fourth factor: the result in relation to the operation of the ITAA36 that, but for Part IVA, would be achieved by the second scheme [573] The fifth factor: any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result from the second scheme [576] The sixth factor: any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the relevant taxpayer, being a change that has resulted, will result or may reasonably be expected to result, from the second scheme [577] The seventh factor: any other consequence for the relevant taxpayer … of the second scheme having been entered into or carried out [578] The eighth factor: the nature of any connection between the relevant taxpayer and any person referred to in the sixth factor [579] Conclusion about the second scheme [580] Third scheme - s 177D factors considered [581] The first factor: the manner in which the third scheme was entered into or carried out [581] The second factor: the form and substance of the third scheme [582] The third factor: the time at which the third scheme was entered into and the length of the period during which it was carried out [585] The fourth factor: the result in relation to the operation of the ITAA36 that, but for Part IVA, would be achieved by the third scheme [586] The fifth factor: any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result from the third scheme [589] The sixth factor: any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the relevant taxpayer, being a change that has resulted, will result or may reasonably be expected to result, from the third scheme [590] The seventh factor: any other consequence for the relevant taxpayer … of the third scheme having been entered into or carried out [591] The eighth factor: the nature of any connection between the relevant taxpayer and any person referred to in the sixth factor [592] Conclusion about the third scheme [593] Disposition [594]

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Introduction 1 Minerva Financial Group Pty Ltd (MFG or the applicant) is a member of the group of companies and trusts which carries on the financial services business known as "Liberty Financial" (Liberty or Liberty group). Liberty is a "non-bank" provider of financial services. That means that it is not an authorised deposit-taking institution. It obtains capital through a process called securitisation, which involves the pooling of loan receivables and related securities (usually mortgages) into securitisation trusts, in order to fund loans it arranges for customers. 2 MFG appeals under s 14ZZ of the Taxation Administration Act 1953 (Cth) (TAA) from an objection decision made by the Commissioner of Taxation, the respondent (the Commissioner), dated 14 May 2020 against amended assessments for the income years ended 30 June 2012 to 30 June 2015 (the relevant years). It concerns the application of Part IVA of the Income Tax Assessment Act 1936 (Cth) (ITAA36) to income which the Commissioner contends would have been, or might reasonably be expected to have been, included in the applicant's assessable income in its capacity as the head of a tax consolidated group in the relevant years, if one of the three schemes identified by the Commissioner in his further amended appeal statement dated 25 November 2021 had not been carried out. 3 The Commissioner has made determinations under s 177F of the ITAA36, the effect of which is to cancel the tax benefits obtained in connection with the identified schemes by including in the applicant's assessable income in each of the relevant years an amount equal to the omitted income in that year. The power to make a determination under s 177F arises where Part IVA applies to a scheme in connection with which a tax benefit has been obtained (or would be obtained but for a determination made under s 177F). Part IVA relevantly applies to a scheme if it would be concluded, having regard to the matters set out in s 177D, that a person who entered into or carried out the scheme, or any part of the scheme, did so for the dominant purpose of enabling the taxpayer (or the relevant taxpayer and another or other taxpayers) to obtain a tax benefit in connection with that scheme. 4 In 2007 and 2008, the Liberty group implemented a series of steps in anticipation of it conducting an initial public offering (IPO) of "stapled securities" in the applicant and a trust (Minerva Financial Group Trust (MFGT)). Those steps included a decision to establish all future securitisation trusts under a holding trust (Minerva Holding Trust (MHT)), rather than under the main operating company in the Liberty group, namely Liberty Financial Pty Ltd (LF), as had been done in the past. 5 The planned 2007 IPO did not proceed, for a variety of reasons, including because of a downturn in global financial markets. The Commissioner submitted that the establishing of securitisation trusts under MHT and not LF "had the effect of removing income that would have been derived within the 'corporate silo', relevantly comprising … [LF], and its parent company, being the [a]pplicant, and instead having that income flow through the newly established 'trust silo' comprising [MHT] and MFGT, ultimately to the non-resident owners, first, Jupiter Holdings BV (Jupiter) and, from 12 April 2013, Vesta Funding BV (Vesta)". 6 LF and another company in the group, Secure Credit Pty Ltd (Secure Credit) held special units in MHT. The trustee of MHT had a discretion to distribute MHT's distributable income to those special unitholders and thus, as the Commissioner put it, "re-direct income back to the corporate silo". 7 A simplified diagram of the structure set up in 2007 and 2008 is this: (Minerva Financial Group Ltd in the above diagram is a reference to the applicant, which was converted from a public company to a private company in 2008.) 8 On 9 September 2009, but with effect from 1 July 2007, LF became a subsidiary member of the income tax consolidated group that was formed for the purposes of Part 3-90 of the Income Tax Assessment Act 1997 (Cth) (ITAA97). The applicant was the head company of it. 9 The effect of the income flowing through the trust silo to the non-resident owners was that the income was subject to 10% withholding tax, as opposed to the 30% corporate tax rate that would have applied had it continued to have been derived in the corporate silo. The Commissioner gave the following uncontroversial example in his written closing submissions in respect of the 2013 year. In 2013, MHT received $33,648,735 in residual income from the relevant securitisation trusts. Had that amount instead been received by LF directly, then under the single entity rule, it would have been included in the assessable income of the applicant as head company of the consolidated group. In the hands of the applicant, it would have been subject to the corporate tax rate of 30% such that, subject to deductions, tax of $10,094,621 would have been payable. Similarly, had it been received by MHT and then distributed to LF as a special distribution, the same result would have followed. If instead (as occurred) it was distributed by MHT to MFGT, and from there to Jupiter or Vesta, then 10% withholding tax would have been payable, such that the tax bill reduced to $3,364,873.50. 10 The applicant did not dispute that it obtained a tax benefit in connection with the schemes identified by the Commissioner within the meaning of s 177C in the relevant years. 11 The Commissioner put the applicant to proof of establishing that, objectively and having regard to the matters set out in s 177D, none of the persons who entered into or carried out the schemes, or any part of the schemes, did so for the dominant purpose, as he put it in submissions, of "diverting assessable income away from the applicant". 12 Broadly speaking, the three schemes alleged are: (1) the first scheme: establishing the corporate and trust silos, and nominating MHT (and not LF) as the residual income unitholder of the securitisation trusts established from 2009, and directing income from the securitisation trusts through MHT; (2) the second scheme: transferring ownership of MFGT from the applicant to Jupiter in December 2007, and the failure of the applicant, as trustee of MHT, to distribute more than only nominal amounts of MHT's distributable income to the corporate silo (through the special unitholders, each of which was a subsidiary member of the tax consolidated group of which the applicant was head company) in the relevant years, instead distributing the majority of income to the trust silo; and (3) the third scheme: this scheme is similar to the second scheme, except that it does not involve the transfer of ownership of MFGT from the applicant to Jupiter. 13 The Commissioner submitted that: Central to each scheme is the fact that MHT became the holder of the [residual income units] in the Securitisation Trusts established from 2009, such that an income stream that would have been distributed to LF, and assessable to the [a]pplicant, but for this was now distributed to MHT. With the exception of nominal amounts, the income stream was then distributed by MHT through the trust silo to MFGT and then to the offshore unitholder (Jupiter or Vesta, as the case may be), albeit with the offshore unitholder's entitlement to the distributions being satisfied by accounting offsets rather than the physical payment of cash. LF, which still required the cash flow from this income stream to perform its functions, including providing subordinated loans to the Securitisation Trusts, then borrowed amounts from MHT. The funds borrowed by LF from MHT effectively can be traced to the [residual income units] held by MHT, being the same source of income that LF previously received directly before the internal restructure implemented by the Liberty Group from late 2007 through to 2011. Thus, the Liberty Group's business continued to operate as it had before the restructure, with the only difference being that LF used funds borrowed from MHT to perform its pre-existing functions, where it had previously used funds from income distributed to it directly by the Securitisation Trusts. Establishing Securitisation Trusts with MHT as the [residual income unit] holder such that LF would not receive the income stream from those Securitisation Trusts and replacing the funds from such income with borrowings had negative consequences for LF's capital adequacy ratio … 14 Liberty's case, to the contrary, and in substance, was that in 2007 and 2008, the decision to establish all future securitisation trusts under MHT, rather than LF, as had been done in the past, was made after receiving advice from capital market advisers to segregate its active operating assets from its passive financial assets with a view to making an IPO of stapled securities, each consisting of a share in a company, holding the active assets, stapled to a unit in a unit trust, holding the passive assets. (They are "'stapled securities' in the sense that their conditions of issue … prevent the shares and the [units] being traded separately". See Mills v Commissioner of Taxation (2012) 250 CLR 171 at 178 [5] (Gageler J, with whom French CJ, Hayne, Kiefel and Bell JJ agreed).) The applicant said that the decision to hold newly formed securitisation trusts in a holding trust, separately from the operating assets of the business, was driven by a desire to optimise the Liberty group's capital structure and improve access to funding, including by way of an IPO. It also pointed to the fact that it had received consistent advice over the years that an IPO of stapled securities, consisting of a unit in a trust holding the groups passive financial assets and a share in a company holding the group's active assets, was the optimal way to go to market. 15 The applicant said that after the IPO planned for July 2007 did not proceed, objectively viewed, it would have been commercially irrational for Liberty not to carry out the steps identified in the schemes relied on by the Commissioner, and that: (a) establishing new securitisation trusts within the corporate structure would have meant those assets would not have been where they were meant to be when the time came to conduct an IPO; (b) it would have caused Liberty to incur significant restructuring costs, including stamp duty and capital gains tax (or CGT) in the lead up to an IPO; and (c) it would have denied Liberty a number of other material commercial benefits for it and its shareholders, including the ability to raise funds externally. 16 The applicant said that Part IVA does not apply to any of the Commissioner's three schemes and that the Commissioner was not authorised to make the determinations to include amounts in MFG's assessable income for the relevant years. It seeks orders that the objection decision be set aside and that the objection be allowed in full. 17 For the reasons that follow, I will set aside the objection decision in part, and accordingly allow the objection in part.

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The facts 24 The applicant adduced the following lay evidence: (a) affidavit of Sherman Ma affirmed 24 November 2021; (b) second affidavit of Sherman Ma affirmed 24 November 2021; (c) affidavit of Suresh Elias Kanapathippillai (known as Mr Pillai) sworn 26 February 2021; (d) affidavit of Suresh Elias Kanapathippillai sworn 24 November 2021; (e) affidavit of Peter Riedel affirmed 25 February 2021; (f) affidavit of Peter Riedel affirmed 24 November 2021; and (g) affidavit of Peter Riedel affirmed 18 November 2021. 25 The applicant also relied on the following expert evidence: (a) expert report of Mozammel Ali dated 19 March 2021; and (b) supplementary expert report of Mozammel Ali dated 1 October 2021. 26 The Commissioner relied on an amended expert report of Anthony FitzGerald dated 1 September 2021. 27 I will deal with the expert evidence later in these reasons. 28 Mr Ma is an Executive Director and one of the founders of Liberty, and is involved with its operations in Australia and New Zealand. He is a resident of the United States of America. In his first affidavit, Mr Ma gave an overview of how Liberty was established, a description of the securitisation process and Liberty's sources of funding, an overview of the events between 2004 and 2008 when Liberty explored various funding and growth initiatives (including a planned IPO of stapled securities), and evidence about other funding and growth initiatives that Liberty undertook in parallel with and after the planned IPO, including the eventual IPO in December 2020. In his second affidavit, Mr Ma deposed to what he referred to as "certain factual inaccuracies or assumptions" in Mr FitzGerald's report, including about Liberty's corporate debt facility with National Australia Bank Ltd (NAB), the $140 million that MHT borrowed from Good Hill Master Fund LP (Good Hill) in 2019, and Liberty's successful IPO in 2020. 29 Mr Pillai was first employed by Liberty as a Group Project Manager in 2000, and shortly thereafter took responsibility for its finance, tax, capital markets, and treasury functions. In late 2009, his role changed and he took on responsibility for general business strategy, mergers and acquisitions, and product development. In January 2011, he "took on a customer-facing role in the commercial lending division of Liberty's business". He resigned from Liberty in 2015, and started his own consultancy business. Liberty is now one of his clients. During his time at Liberty, Mr Pillai was variously a director and/or company secretary of a number of companies within the Liberty group. In Mr Pillai's first affidavit, he gave evidence about Liberty's short and long-term funding arrangements, the operation and constitution of securitisation trusts, Liberty's ongoing need for funding (including portfolio growth, securitisations, and product range growth), "strengthening the funding platform" (which concerned evidence about Liberty's initial consideration of an IPO in 2004 through to early 2007), the proposed restructure, the decision to postpone the IPO made in 2007, and other initiatives in late 2007 to late 2008 concerning raising capital. He also gave evidence about Liberty's successful and unsuccessful attempts to acquire other businesses or assets between mid-2005 and early 2015. In his second affidavit, Mr Pillai gave evidence about why he did not consider that the trustee of MHT should choose to distribute all or substantially all of MHT's income to the special unitholders, and the transfer of the two units that MFG held in MFGT to Jupiter on 14 December 2007. 30 Mr Riedel commenced employment with LF in September 2007 and was responsible for accounting and financial reporting. Since that time, his responsibilities have expanded to include the overall management of financial and portfolio performance, and capital management and enterprise risk management of the companies and trusts forming the Liberty business. He is and was responsible for the preparation of LF's financial statements. His current title is Chief Financial Officer. In his first affidavit, Mr Riedel exhibited various relevant financial statements and other financial documents evidencing LF's categories of income, its financial performance during the relevant years, the relevant distributions made by MFG as trustee of MHT, intercompany loans, and distributions and loan offsets. In his second affidavit, Mr Riedel exhibited various loan ledgers for certain loan accounts and deposed to the net amounts owing by LF to MHT as at 30 June in the financial years 2009 to 2015. In his third affidavit, Mr Riedel deposed to cash transfers from LF to shareholders. (I note that an unsworn copy of Mr Riedel's second affidavit affirmed 24 November 2021 was filed before his third affidavit dated 18 November 2021, but was affirmed at a later date.) 31 The Commissioner objected to some parts of the applicant's lay affidavit evidence. Most of the objections were resolved on the basis that the evidence would be admitted subject to relevance. In some other instances, where the evidence went to advice given to Liberty by external parties, it was agreed that use of the evidence would be limited to the non-hearsay purpose contended for by the applicant and not the truth of the asserted contents of the advice pursuant to s 136 of the Evidence Act 1995 (Cth).

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The relevant entities 32 Liberty was established by Mr Ma in 1997 after he developed what is said to be a novel risk management system for determining lending risk and pricing loans. It arranges finance for customers throughout Australia and New Zealand. It started operations in the residential mortgage sector, but over time expanded its offerings to include motor finance loans, commercial loans, business loans, personal loans, investment products, finance broking, real estate listings, and insurance. 33 MFG was incorporated on 28 February 2007 in preparation for a planned IPO and was, during the relevant years, the head company of the MFG tax consolidated group. That meant that, among other things, MFG's subsidiaries were treated as part of MFG, and their actions were treated as actions of MFG, because it was, as a result of the consolidation, the only entity recognised for the purposes of working out the income tax liability of the consolidated group. See Part 3-90 of the ITAA97 and Commissioner of Taxation v Macquarie Bank Ltd (2013) 210 FCR 164 at 187-190 [91]-[99] and 200-203 [139]-[148] (Middleton and Robertson JJ). 34 Liberty's Australian business has at all times involved LF and Secure Funding Pty Ltd (Secure Funding). The former was established in January 1997, the latter in March 1998. Both became members of the MFG tax consolidated group upon its formation. 35 Secure Funding acted as the trustee of the securitisation trusts, which raised funds from financiers and institutional investors to acquire financial assets (being loan receivables and related securities). It was the lender on record for every loan originated by LF. 36 LF was and remains the principal operating entity of Liberty's Australian business. It provided services to Secure Funding (as trustee of the securitisation trusts) as well as to other members of the Liberty group, including loan origination, management, financing, and administration services. 37 At all material times until 29 June 2007, LF was wholly-owned by Jupiter, which was incorporated in the Netherlands. Jupiter was, in turn, wholly-owned by Juno Holdings S.a.r.l (Juno), a company incorporated in the Netherlands Antilles. 38 On 28 February 2007, Jupiter incorporated MFG, which acted as the holding company for LF as part of the restructure. 39 On 12 April 2013, Vesta, also incorporated in the Netherlands, acquired the shares in MFG and the units in MFGT from Jupiter. Vesta was wholly-owned by another Dutch company, Vesta Financial BV. 40 The ultimate shareholders of the Liberty group were at all relevant times entities associated with investors Messrs Ma, Parseghian and Moh, who are non-residents of Australia. 41 The relevant entities, together with their respective name changes over time, were helpfully set out in the Commissioner's closing submissions, relevantly as follows: Definition Entity Former name(s) Date of name change Juno Juno Holdings S.a.r.l. Juno Holdings NV 7 December 2012 Minerva Holdings NV 26 November 2008 Jupiter Jupiter Holdings BV Liberty Financial BV 20 November 2007 LF Liberty Financial Pty Ltd ACN 077 248 983 Progressive Funding Pty Ltd 19 February 1997 MFG (the applicant) Minerva Financial Group Pty Ltd Minerva Financial Group Limited 19 March 2008 ACN 124 171 759 Minerva Financial Group Pty Ltd 28 October 2016 Liberty Financial Group Pty Ltd 8 October 2020 MFGT Minerva Financial Group Trust MHT Minerva Holding Trust Minerva Fiduciary Liberty Fiduciary Ltd ACN 119 884 623 Ghan Management Limited 28 February 2007 Minerva Fiduciary Ltd 11 January 2011 Minerva Technology Liberty Financial Group Limited Minerva Technology Pty Ltd 7 October 2020 ACN 125 611 574 Liberty Financial Group Pty Ltd 14 December 2020 Secure Credit Secure Credit Pty Ltd ACN 124 171 768 Minerva Credit Pty Ltd 9 June 2011 Secure Funding Secure Funding Pty Ltd ACN 081 982 872 Liberty Funding Pty Limited 25 October 2006 Vesta Vesta Funding BV

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Securitisation and securitisation trusts 42 Since 2002, Liberty has obtained funds to arrange loans to customers through a process called securitisation, using securitisation trusts, which were established under and governed by various documents, being master trust deeds, master origination deeds, master servicer deeds, master management deeds, and master registry agreements. It obtains funds in that way because, unlike banks, it is not permitted to raise funds through deposits. 43 Liberty's business continues to be operated in the manner described below, but I will adopt the past tense in the description that follows, because, obviously enough, for the purposes of this proceeding, the relevant question is how the group was structured and operated during the relevant years. 44 Every securitisation trust was established by a notice of creation of trust executed by Secure Funding as trustee. For every securitisation trust, there was a supplementary terms notice containing details of the unitholders and creditors and other supplementary terms. 45 The beneficial interest in each securitisation trust was usually constituted by one residual income unit (RIU) and one residual capital unit (RCU), each of which was issued prior to the securitisation trust receiving receivables. 46 An RIU entitled the holder to receive the balance of the income of the securitisation trust after the trustee had paid interest to the noteholders and/or financiers and fees to service providers (including the fees payable to LF), and the recoupment of any losses. 47 An RCU entitled the holder to receive the balance of the capital of the securitisation trust after the trustee had paid the principal due to noteholders and financiers, which typically held the highest security ranking. 48 LF was the holder of the RIUs and RCUs in the securitisation trusts established between 2002 and 15 April 2008. 49 Since 2002, the securitisation program has operated as follows. 50 One of LF's activities was to originate loans through brokers or directly with customers. Secure Funding advanced funds to the customer as the lender on record, and held the interest in the security granted to secure the loan (such as the mortgage over real property). 51 After Secure Funding made a loan to the customer, the loan was used as collateral to enable Secure Funding to obtain funding in respect of the loan. This was achieved by Secure Funding equitably assigning a pool of loan receivables to a warehouse trust. 52 Each warehouse trust was a special purpose, bankruptcy-remote trust and was established once a financier, usually a commercial or investment bank, agreed to provide senior funding to the warehouse trust. Mr Ma deposed that the term "bankruptcy-remote" was one used by rating agencies and in the debt markets industry to describe "an entity formed so as to minimise the risk of it becoming a debtor in a bankruptcy case, resulting in its obligations to creditors being very secure and clearly defined even if any of its related parties become bankrupt". The financier provided funding to the warehouse trust by way of a warehouse debt facility and subscribed for a note in the trust. Such facilities were typically provided on terms of 364 or 365 days, following which the facility needed to be renewed. 53 Senior financiers which provided warehouse debt facilities did not typically lend 100% of the face value of the receivables. That meant that another source of funding was required to provide a loan that was subordinated to the warehouse debt facility. The percentage required to be funded by such subordinated loans varied from financier to financier, and depended upon the nature of the assets against which the facility was secured, ranging from 3% to 15% or more. The subordinated loans were typically provided by LF. 54 The funding required for LF to provide such subordinated lending was principally sourced from income that it received in its capacity as holder of the RIUs in the securitisation trusts. According to Mr Riedel, investors would like the proposition that LF, as the originator, had a stake in the securitisation trusts by providing subordinated debt to them and therefore had "an economic alignment in the assets of the trust" (a concept which he said was colloquially known as "skin in the game"). 55 The warehouse trust used the funds raised to acquire loan receivables and related securities. 56 Secure Funding entered loan contracts with borrowers up to the limit of the relevant warehouse debt facility. Once the value of loan receivables from customers in a warehouse trust approached the facility limit, and in order to be able to continue providing loans to new borrowers, Secure Funding pooled the loans and sold them to a newly established, bankruptcy-remote trust called a term trust, for which Secure Funding also acted as trustee. This process was effected by Secure Funding, as trustee of the warehouse trust, equitably assigning the loan receivables to the term trust. Warehouse trusts and term trusts are referred to collectively as securitisation trusts. 57 Term trusts typically have a life of approximately four years, notwithstanding they typically have a legal life of 31 years. They therefore provided a longer-term source of funding than warehouse trusts. 58 A term trust issued notes (which are publicly quoted instruments) of varying classes to institutional investors. The proceeds were used to acquire the loan receivables and related securities from the warehouse trust. The warehouse trust used those funds to repay the warehouse debt facility and the subordinated loan which "refreshed" the short-term funding capacity for new loan originations. 59 Where Liberty did not sell notes of all classes in a term trust, LoanNET Pty Ltd (LoanNET), a wholly-owned subsidiary of LF, could acquire some notes (typically the most junior ones). Mr Riedel deposed that LoanNET purchased those notes in term trusts which did not have a credit rating and which the trustee chose not to sell to external investors. LF provided loans to LoanNET to enable it to acquire the notes. 60 When a term trust was finalised, LoanNET repaid the loan from LF, and paid LF a dividend equal to the income it had earned from the investment in the term trust. 61 Some term trusts paid a fee to Liberty Credit Enhancement Company Pty Ltd (Credit Enhancement Co), a wholly-owned subsidiary of LF. Credit Enhancement Co received cash from most term trusts by way of a guarantee fee until a predetermined maximum balance (described as the "Guarantee Fee Reserve Account Maximum Amount") held by it was achieved. The guarantee fee was worked out as a percentage of the aggregate amount of all trust notes on the first day of a payment period. Credit Enhancement Co provided a limited guarantee to the relevant term trust to reimburse noteholders should a loss be incurred. The guarantee was secured by funds that Credit Enhancement Co accumulated in a controlled bank account. When a term trust was finalised without loss to noteholders, Credit Enhancement Co retained the balance in the controlled account for its own benefit and paid those funds to LF by way of dividend. The applicant led evidence to the effect that this arrangement provided credit enhancement to noteholders in term trusts; support for the credit rating assigned to a term trust by ratings agencies; and an incentive for LF effectively to carry out the services it provided to the term trusts. The applicant also led evidence to the effect that, to date, no term trust has experienced a loss that has required it to call upon the guarantee. Mr Riedel said that "[t]his credit enhancement feature aligns the interests of LF with investors, provides an additional layer of protection to noteholders, and is an attractive feature compared to other competing investments".

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LF's sources of income 62 LF derived income as follows. 63 First, it derived origination, service, and management fees from the securitisation trusts. As: (a) originator of the loans to customers, it was entitled to an origination fee of up to 1% of all loan receivables originated by it under the master origination deed; (b) servicer of the loan receivables, it received a fee of 0.55% per annum of the value of the loan receivables under the master servicer deed; and (c) manager of the loan receivables, it received a fee that was generally 0.05% per annum of the value of the loan receivables under the master management deed. 64 Secondly, it derived interest from the subordinated loans provided to warehouse trusts, related party loans, and any notes taken in the term trusts. 65 Thirdly, it derived dividends from subsidiaries, including: (a) LoanNET, which derived income from the interest on the junior notes in the term trusts; (b) Credit Enhancement Co, which derived income from the limited guarantee arrangement with term trusts; (c) Secure Credit, which performed risk and treasury management services for LF; and (d) Secure Funding. 66 Fourthly, it derived management fees charged to other entities in the Liberty group being Secure Funding, Secure Credit, Secure Funding Limited (SFL), and from the 2012 income year, MHT. 67 Finally, it derived income as the holder of the RIU in the securitisation trusts. LF's gross income that it derived as the RIU holder is called the "net interest margin", being the margin between the interest payable by the securitisation trust to its lenders (the financier in the case of a warehouse trust and the noteholders in the case of a term trust) and the interest paid to the securitisation trust by the customers (being the borrowers under each loan). 68 During the 2002 to 2007 income years, LF's gross income from RIUs in securitisation trusts was as follows: Income year Income from RIUs in securitisation trusts % of LF's gross income 2002 $1,774,000 4.41% 2003 $18,145,000 22.86% 2004 $55,300,000 54.85% 2005 $78,452,000 68.61% 2006 $92,558,000 71.89% 2007 $78,951,000 52.78% Total $325,180,000

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Capital raising, proposed restructure and proposed public offering of shares 69 On 29 April 2004, Minerva Holdings NV (now Juno) entered into a "Strategic Alliance Agreement" with Macquarie Bank Limited (Macquarie). As part of that agreement, Minerva Holdings NV issued Macquarie with an unsecured, interest-bearing note for USD11.2 million, with an option to exchange it for equity. These funds were loaned to LF, which used them in its business. 70 Under the Strategic Alliance Agreement, as Mr Pillai deposed, "Macquarie became the preferred provider of services in relation to raising debt capital, securitisation of any assets and investment banking services (including advice on corporate restructures, raising equity and leading an IPO)". Macquarie also appointed Laurie Cox as a director of LF. Mr Cox was also a director of MFG and Minerva Fiduciary Ltd (Minerva Fiduciary) (now known as Liberty Fiduciary Ltd), and held all three positions until 26 March 2008. 71 Clause 6 of the Strategic Alliance Agreement enabled Macquarie, and certain other shareholders, to issue a request to commence an "IPO Process". Clause 6.1(a) provided that "[a]t any time from the day that is 12 months after the Completion Date, Macquarie or any Shareholder other than a Small Shareholder may issue a request to commence an IPO Process ("IPO Notice") to Minerva and to the other Shareholders other than the Small Shareholders". 72 Clause 6.2 provided: Minerva and the Founding Shareholders must use their respective reasonable endeavours to ensure the Business is operated in a manner that is conducive to a successful IPO (including adoption of appropriate corporate governance policies and practices), utilising the Business as a material asset underlying the basis of the IPO. 73 Clause 7.6 provided: Notwithstanding clause 7.5, the parties will procure (to the extent that it is within their capacity to do so and acting reasonably) the IPO Entity and Macquarie to negotiate in good faith the appointment of Macquarie to act as lead manager and underwriter to the proposed IPO, on terms which reflect commercially acceptable practices, to the extent that such agreement to negotiate does not contravene any applicable law or generally accepted good corporate practices. As part of the IPO Process, Macquarie would seek to achieve competitive pricing for the IPO, generate appropriate research and, subject to all applicable law, maintain an after-market for the listed shares. 74 Stamp duty and CGT issues were, among many other things, raised at a meeting between, among others, Mr Ma and Mr Pillai with lawyers from Mallesons Stephen Jaques on 15 July 2004. It was described as an "initial strategy and planning session" about different ways that Liberty could access capital. The suggested agenda for that meeting under the heading "Trade sale" contained the following: • Note potential stamp duty application on transfer of assets from existing entity(s) to Newco (including on value of contracts/goodwill, IP etc.). No stamp duty reconstruction relief available if transfer of dutiable assets to Newco pre trade sale - potentially significant stamp duty costs • Stamp duty analysis required to determine quantum of duty on any restructure/transfer to Newco prior to trade sale 75 The agenda also included under the heading "IPO" the following agenda item: "Formulate preferred sell-down structure (after consideration of tax, stamp duty, GST, regulatory and third party consents)". 76 In mid-2005, Macquarie proposed to Liberty a public capital raising by way of an IPO of stapled securities, which involved establishing a listed fund and a holding company that would issue stapled securities of trust units and company shares to the public. Macquarie also proposed that a company in which Macquarie and Liberty would have an interest would act as the manager of the newly incorporated company and the newly created unit trust, and that the unit trust would be a registered managed investment scheme. 77 In April 2006, Macquarie provided a draft term sheet, a summary of fees, and engagement letters to act as joint lead manager for the IPO and to provide investment banking services. 78 In early 2006, Liberty appointed Macquarie and Citigroup to act as joint lead managers for the IPO and established a due diligence committee to evaluate, oversee and coordinate the IPO process. 79 During 2006 and the first half of 2007, Liberty continued to work towards an IPO of stapled securities to occur in July 2007. 80 In February 2007, Liberty's advisors prepared materials for the purposes of marketing the offering to potential investors, and seeking regulatory approvals and consents and input from rating agencies and Liberty's lenders. For example, Macquarie prepared marketing materials to explain the benefits of the IPO to potential investors. In addition, Baker & McKenzie prepared papers to brief the Australian Securities and Investments Commission (ASIC) and the Australian Securities Exchange (ASX) on the proposed IPO. 81 On 28 February 2007, the applicant was incorporated in anticipation of it acting as the head company of the corporate side of the stapled group. The shares in MFG were held by Liberty Financial BV (now Jupiter). 82 Mr Pillai deposed that: In order for Liberty to undertake an IPO of stapled securities in the manner proposed by Macquarie, it was necessary for Liberty to establish a structure for its business going forward as well as undertake a restructure of parts of is existing business. Part of that restructure involved Liberty transferring its RIUs in the Securitisation Trusts to a newly established unit trust which would issue units to the public as part of the stapled security. 83 Mr Pillai continued: During meetings I had with representatives of Baker & McKenzie, Macquarie and Citibank in early 2007, it became apparent that the transfer of the units to [MFGT] would be commercially problematic. The issue was that all income generated by the Securitisation Trusts would be distributed to [MFGT] and then likely distributed to the ultimate investors in the stapled securities. This meant that the total flow through of distributions to stapled security holders could result in yields greater than the 4% to 5% that had been planned. Macquarie and Citibank advised Liberty at the time and I believe that there was no valuation benefit to Liberty in providing investors with a yield in excess of the distribution policy outlined in the IPO prospectus. It would also be difficult to manage the yield from year to year causing fluctuations in stapled security holder returns. The proposed IPO of stapled securities (in the manner proposed by Macquarie) required that LF would transfer all of its existing RIUs to [MFGT]. This may also have meant that LF would not have had sufficient cashflow to meet its requirements including operational expenses and developing new business. To resolve these issues, Baker & McKenzie proposed that Liberty should create an interposed unit trust … which would hold the units in the Securitisation Trusts and which would, in turn, issue ordinary units to [MFGT] and a discretionary unit to LF. 84 Mr Pillai also produced a paper that he prepared for the board of LF, MFG, and Minerva Fiduciary dated 27 April 2007 analysing the restructure as it was then proposed. It included the following observations: The following paper has been prepared to provide a summary of the restructure of Liberty Financial Pty Ltd ("Liberty") and its wholly owned subsidiaries ("the Liberty Group") into a stapled security structure ("the Minerva Group") which will then be the subject of an initial public offering ("IPO") and listing. This paper also considers the on-going legal, tax, and funding considerations for Minerva Financial Group Limited ("Minerva" [now MFG]) and Minerva Fiduciary Pty Ltd (as responsible entity ("RE") for the Minerva Trust [that is, MFGT]). This paper has been divided into five distinct parts dealing with various discrete issues or components of the restructure as follows: 1. Analysis of the restructure steps required to transfer the businesses of the Liberty Group to the Minerva Group companies comprising Minerva and the Minerva Trust ("the Corporate Restructure"); 2. Analysis of the specific restructure steps required to effect the transfer of the existing Liberty funding program (comprised of securitisation and warehouse trusts and Secure Funding Pty Ltd ("Secure Funding")) to the Minerva Group ("the Funding Restructure"); 3. Analysis of the Liberty-specific issues resulting from the above restructure steps and any transitional matters; 4. Analysis of the legal considerations affecting the stapled structure, focusing on a summary of the key legal documents and an overview of the ASIC and ASX waivers that have been requested; and 5. Analysis of the funding considerations for the Minerva Group structure and implications for distribution policy. … 1. PROPOSED CORPORATION RESTRUCTURE STEPS 1.1 Corporate Restructure Overview … • Step 5a - Establishment of the Holding Trust and transfer of financial assets: Liberty will establish a trust ("Holding Trust") and will sell its financial assets to Holding Trust in return for (i) two discretionary units, (ii) "normal" fixed units and (iii) promissory notes. The value of the fixed units will be 1/10th of the value of the financial assets sold to the Holding Trust and the value of the promissory notes will be 9/10th of the value of the financial assets. Based on the financial assets being valued at $300m, the fixed units will be valued at $30m and the promissory notes valued at $270m. … 5. FUNDING & CAPITAL MANAGEMENT ISSUES This section provides a detailed explanation of the "holding trust" structure and the role it [plays] within the Minerva Group from a cashflow management perspective. The Board has previously sought confirmation that the holding trust structure is appropriate from a legal, tax and accounting standpoint. These confirmations will form part of the opinions currently being prepared and listed in Schedule 2. 5.1 Background Management have prepared an analysis of the implications of the proposed structure on cashflow management within the Minerva Group. This involved superimposing the operating cashflows for Liberty for the financial year ended 30 June 2007 on the proposed stapled structure. The results of this analysis were as follows: • Minerva would have [received] $22.8m of fee income (being the servicer and [manager] fees charged to the various securitisation and warehouse trusts and Secure Funding); • Minerva (through Liberty Credit Enhancement Pty Ltd) would have received a further $28m of cash by way of the guarantee fee paid by the various securitisation and warehouse trusts. These amounts are used to fund reserves for the benefit of securitised noteholders and are only available when the underlying securitisation trust is paid in full. For the purpose of this analysis we have assumed that 50% of this cash will be available to meet Minerva's day-to-day requirements during the period of analysis; and • Minerva would have been required to meet $85.7m of cash outgoings composed predominantly of commissions paid to Introducers of $30m, wages and other staff expenses of $26m, interest expense of $4.5m, securitisation expenses of $4m and other operating expenses such as rent. Based on the above there is a prima facie cash difference of $48.9m. Under the existing structure, this would have been met by residual income distributions from the various securitisation and warehouse trusts which totalled $89m. Under the proposed structure, the Holding Trust enables the group to achieve a similar result. 5.2 The role of the Holding Trust The primary operational purpose of the Holding Trust is to act as an efficient aggregation mechanism for cash within any financial year. Every month the various securitised and warehouse trusts will make distributions of income to the Holding Trust and some or all of these amounts may be required to meet Minerva's monthly outgoings. As cash is required, the trustee of the Holding Trust would make a determination to issue a discretionary distribution to Minerva to ensure that it can meet its commercial obligations. Any cash not required will continue to be retained within the Holding Trust to meet future cash requirements of Minerva or to satisfy the Minerva Trust's distribution policy. Based on the analysis conducted using FY 06 cashflows this would mean that $48.9m would be distributed to Minerva to allow it to meet its expenses and at year end, $40.1m would have been held within the Holding Trust. 5.3 Distribution Policy Management are currently working with Macquarie Bank and Citibank to finalise the distribution policy for the Minerva Group. Preliminary indications suggest that an unfranked distribution yield of 4% is acceptable to the market. The current analysis proceeds on this basis. Based on the above structure, at year-end the Directors of the RE will be in a position [to] assess the available cash held within Holding Trust. The Directors of Minerva will also be in a position to assess Minerva's cash requirements for (i) the next few months and (ii) medium to long-term capital requirements. Based on these two assessments, as well as the proposed distribution policy, the RE of Holding Trust will be able to distribute income to the Minerva Trust to meet its obligations to security holders. Therefore, based on a market value of $700m, a 4% distribution policy will require Holding Trust to distribute $28m to the Minerva Trust. This amount will in turn be distributed to unitholders. The remaining $12.1m within Holding Trust can either be distributed to Minerva (where it will be subject to tax at the corporate tax rate) or retained within the Holding Trust (where it will be subject to tax at the top marginal rate). Alternatively, if the cash is not required within the structure the Directors could opt to pay a higher distribution yield. The Directors of the RE and Minerva can, of course, determine to change the distribution policy (for example, to increase the yield, or to retain more cash within the group to fund future growth initiatives). Ultimately, these decisions will translate into a determination to distribute a greater or lesser amount of income from the Holding Trust to the Minerva Trust at the point that the distribution policy is set. 85 On 25 May 2007, Minerva Technology Pty Ltd (Minerva Technology) was incorporated as a wholly-owned subsidiary of LF. 86 On 31 May 2007, MFGT was settled. Minerva Fiduciary (now known as Liberty Fiduciary Ltd) was the trustee. Two units were issued to the applicant. MFGT was to be the "head trust" in the stapled structure and its units were to be stapled to the shares in MFG. 87 Clause 24 of MFGT's Constitution, contained in a deed poll dated 14 June 2007, relevantly provided: 24 Duration of the Trust Initial Settlement 24.1 The Trust commences when the Responsible Entity's [being Minerva Fiduciary] nominee [MFG] subscribes A$2.00 for 2 Units in the Trust (the Initial Units). 24.2 The Responsible Entity's nominee must be issued with the Initial Units in return for that payment. 24.3 The Initial Units are automatically withdrawn and cancelled upon issue of the first Units under the first [disclosure document issued in respect of, among other things, an issue of units on any stock exchange] in accordance with clause 7.1(a). … 88 On 27 June 2007, a draft "plan of reorganisation" (comprising a "Proposed Restructure Steps" PowerPoint presentation, a "Restructure Step Plan", and a document list) was circulated to the directors of LF in preparation for a board meeting to take place on 29 June 2007. 89 On 29 June 2007, the directors of LF met. The minutes of that meeting relevantly recorded as follows: 1. Restructure The Chairman noted that the Proposed Restructure Steps PowerPoint presentation and Restructure Step Plan and Documents List were previously distributed to Directors. Laurie Cox informed the meeting that Macquarie Bank is unable to support the restructure in its present form. Macquarie Bank cannot support the restructure because the IPO has been de-linked from the restructure and they have not done due diligence on the restructure itself and that Macquarie Bank is not across the detail of the restructure. The Managing Director noted that the restructure steps must take place if the Company is going to proceed with the IPO. The Chairman informed the meeting that the issue for the Directors is whether or not the Board proceed with the IPO having heard Macquarie's concerns. The Chairman asked whether the views of the shareholder of the Company are known. It was noted that the Company has received a written resolution of Minerva Holdings NV as the sole shareholder of Liberty Financial BV, which is the sole shareholder of the Company, authorising all of the steps of the restructure to proceed. The Chairman noted that the documents previously circulated to the Directors with the Notice of Meeting were the Proposed Restructure Steps PowerPoint presentation and Restructure Step Plan and Documents List. The Chairman outlined the content of the documents, more particularly Steps 1, 2 and 3 of the Proposed Restructure Steps as: (a) the Company entering into a Deed of Termination in respect of a licence of certain intellectual property from Liberty Financial B.V.; (b) the Company registering a transfer of all its issued capital to Minerva Financial Group Limited; and (c) the Company electing to form part of a consolidated tax group with Minerva Financial Group Limited and other entities (each referred to as an "Eligible Transaction"). 2. Approval of Restructure The Chairman proposed the resolution that the Board approve the restructure (as set out in Proposed Restructure Steps), approve each Eligible Transaction and approve each document relating to the restructure and each Eligible Transaction, together with such amendments, alterations, deletions and additions to any document, transaction or Eligible Transaction as the committee of the Board established for this purpose may consider necessary. Laurie Cox voted against the resolution. All other Directors voted in favour of the resolution. 3. Appointment of Committee of the Board The Chairman proposed the resolution that the Board appoint a committee of the Board to effect the resolution set out in item 2 above … Laurie Cox voted against the resolution. All other Directors voted in favour of the resolution. 4. Other Business It was noted that it is intended that the Offer Document be lodged on either 10 July 2007 or 11 July 2007. … 90 On the same day, Juno assigned its intellectual property to Minerva Technology; the applicant acquired all of the shares in LF from Jupiter, by providing $700 million in consideration for the shares in the form of three notes issued by the applicant to Jupiter on 29 June 2007; and the applicant acquired all of the shares in Secure Funding. 91 The election to form part of a consolidated tax group with Minerva Financial Group Limited (now MFG) and other entities referred to in the minutes was in fact made on 9 September 2009. According to the "Notification of formation of an income tax consolidated group" lodged with the Australian Taxation Office on that date, the consolidation was to have retrospective effect from 1 July 2007 and MFG was to be the head company. 92 As is apparent from the minutes of the 29 June 2007 board meeting, Macquarie did not agree to support the restructure. The steps taken by the Liberty group on 29 June 2007 triggered a dispute with Macquarie which culminated in Macquarie bringing court proceedings against Juno. As a result, the assignment of intellectual property from Juno to Minerva Technology on 29 June 2007 was ultimately treated as if it never occurred. 93 The structure of the Liberty group following these events, as at 29 June 2007, is set out in the following diagram, which was included in the Commissioner's closing submissions. The Commissioner dubbed this "Restructure I": (As the Commissioner noted, the diagram does not include all entities, including some securitisation trusts, that fall within the group structure.) 94 Mr Pillai deposed that when Liberty was planning to transfer the units in the securitisation trusts from LF to MHT in readiness for an IPO in 2007, Minerva Holdings BV sought advice from Mr JD Merralls AM QC in relation to a series of questions about possible liability for stamp duty, including in Queensland, the Northern Territory and South Australia, "arising from the transfer of various interests and business assets in the Liberty Financial group in Australia … [which] transfers will occur in the course of the reconstruction of the group to make an Initial Public Offering of stapled securities comprising shares in a new public company and units of a public unit trust". 95 Part of the instructions given to Mr Merralls included "that a key part of the proposed reconstruction of the group will be the transfer of the Residual Income Units and the Residual Capital Units in the present securitisation Trusts and Warehouse Trusts and subordinated debt securities and loans from Liberty Financial to the trustee of a new trust ("the Holding Trust") to be held upon trust for the trustee of another new trust ("the Public Trust") which will be a unit trust in which the units are stapled to shares in a new public company". 96 Mr Merralls' written opinion dated 2 July 2007 was in evidence. He advised that stamp duty would be payable in Queensland, the Northern Territory and South Australia if the units were to be transferred in the way contemplated in his instructions. Mr Pillai gave evidence that he recalled that around the time that the advice was given, approximately 20% of Liberty's loan book related to assets in Queensland and that he also recalled the stamp duty exposure in that state would have been approximately $40 million. 97 I should interpolate that the applicant submitted, by reference to audited financial statements of LF for the 2007 financial year and an undisputed summary of the relevant statutory provisions applicable, based on the duty rates applicable in 2007 in Queensland and the Northern Territory, that if a transfer of the units in the securitisation trusts from LF to MHT had occurred in those jurisdictions at that time the stamp duty payable would have been $35,973,305 and $1,585,494, in the case of Queensland and the Northern Territory respectively. (South Australia was not included because the value of any dutiable property (unsecured debts) in that jurisdiction at that time was minimal.) 98 In the course of July or August 2007, Liberty decided to postpone the IPO. The factors contributing to that decision included: (a) a downturn in global financial markets (later referred to as the global financial crisis or "GFC"); (b) feedback received from potential investors that the market did not support the IPO with an external management structure; and (c) the dispute with Macquarie. 99 Mr Ma explained in his affidavit that the phrase "external management structure" refers to the use of a management company which was not to be owned by the investors in the stapled group. 100 On 12 July 2007, Mr Ma wrote an email to a number of other directors of the Liberty group, including as follows: The four investment banks have completed their pre-sounding of investors. Feedback has been consistent with strong concerns around the manager arrangements, but otherwise positive on the company and its prospects. Based on our discussions with 3 of the 4 banks, it would seem the value impact of the manager arrangements significantly outweighs its benefits. We are awaiting feedback from the JLMs [joint lead managers] on likely valuation if the manager is removed. Once we receive this information, we should be able to quickly form a view as to whether we redraft and lodge the offer documentation and commence a formal roadshow. 101 Mr Ma deposed that he received a letter from Citigroup and Macquarie dated 16 July 2007 in which they confirmed advice given at a meeting on 11 July 2007 that "having regard to the feedback received from the analyst investor education process conducted by the Joint Lead Managers and Co-Lead Managers, the market does not support an IPO of Minerva Financial Group under the current external management structure". The letter also responded to Mr Ma's request that Citigroup and Macquarie consider the price earnings multiple at which they anticipated a successful IPO could be undertaken. This was referred to as the "Bookbuild Range". Having identified the Bookbuild Range at which they believed a successful IPO could be achieved, the letter continued: In addition to the assumptions you have asked us to make, we note that in arriving at the Bookbuild Range we have assumed: • there being no material changes to the structure of the IPO or material changes to the Prospectus other than to effect the internalisation of the management structure; • there being no material adverse change, or a development involving a prospective material adverse change, in the reasonable opinion of the JLMs [joint lead managers], in relation to Minerva's current business or any businesses or assets acquired between the date of this letter and the IPO; and • no material adverse change in financial market conditions, including any material underperformance in the share price of RAMS post listing. 102 On 25 July 2007, the directors of MFG and Minerva Fiduciary met and resolved to have further discussions with Macquarie before deciding whether or not to proceed with the IPO. The minutes of that meeting relevantly recorded: The Managing Director [Mr Ma] updated the Board on the steps required for the IPO. The first three steps of the restructure occurred as at 29 June 2007. Further, the Minerva Trust [MFGT] has been established but has no assets. The remaining steps include but are not limited to the transfer [of] the securitisation units into the Trust (which would incur stamp duty), issue of discretionary unit by the Trust to Minerva Financial and the licensing of technology to various companies. Due to the impasse with Macquarie Bank and market feedback, the contemplated IPO may be postponed. Although Minerva Financial owes consideration for the purchase of Liberty Financial Pty Ltd, it may be necessary for it to meet this obligation through the issuance of securities in the Minerva Group. The current structure is sustainable for a short period of time as originally anticipated. A full analysis is needed if the present structure was to become permanent and, in particular, assessment of the implications for Minerva Group to proceed without an external manager. The Managing Director outlined the following options going forward: (1) maintain the status quo but proceed with the stapled structure; (2) proceed with an IPO but internalise the manager; or (3) seek an investment by a private equity company. This was followed by a general discussion about the reasons for the IPO, the motivations of shareholders and market perceptions about any future IPO. It was agreed to await the outcome of current discussions with Macquarie Bank in its capacity as Joint Lead Manager and principal before deciding on how to proceed. 103 The board of directors of LF, including Mr Ma, met on 9 August 2007. Mr Pillai attended as a guest. The minutes of that meeting recorded that the Chairman, Mr Richard Longes, "noted the need to complete all the steps for Project Claremont, other than the IPO, management company and stapling structure. Also, the existing securitisation trusts will not be transferred to [MFGT] and any new securitisation trusts will be established under [MFGT]". (Project Claremont was the name given in 2004 to the potential public capital raising.) The minutes also recorded that Mr Pillai was asked to prepare, by 24 August 2007, a paper outlining the steps needed to complete the restructure. 104 On 18 September 2007, Baker & McKenzie (external legal advisers to the Liberty group) sent to Mr Pillai, among others, a revised version of the proposed restructure in the form of a PowerPoint presentation. The slide entitled "Step 11 - IPO" had had added to it the words "this step will no longer occur". 105 On 21 September 2007, based on the Baker & McKenzie document and tax advice from KPMG about the tax implications of forming a consolidated tax group, Mr Pillai wrote a confidential memorandum to the directors of MFG, Minerva Fiduciary, and LF, including Mr Ma, entitled "Draft Summary of Revised Restructure", relevantly as follows: 3. Additional steps to effect the final corporate structure Completion of the restructure requires that: • The convertible notes to be converted to ordinary equity in Minerva and the promissory note issued by Minerva to Liberty Financial BV be redeemed in exchange for ordinary shares in Minerva. The conversion and redemption will be on the basis that the value of the ordinary shares should not have a value greater than the face value of the notes; • The sale of $2 of units in the Minerva Trust [MFGT] to Liberty Financial BV for the same value; • The consolidation of Minerva and its subsidiaries which would have the benefit of facilitating intra-group transactions (e.g., dividends within subsidiaries); and • The conversion of the [sic] Minerva Financial Group Limited into a Pty Ltd until such time market conditions warrant the consideration of a public listing. 106 Mr Pillai spoke to his paper at a board meeting of MFG, Minerva Fiduciary, and LF on 25 September 2007. Mr Pillai deposed that at that meeting, he explained to the board that one of the benefits of forming a tax consolidated group was that the tax cost bases of LF's units in the securitisation trusts would be increased, which would reduce the CGT cost of transferring the units to the holding trust when the transfer of those units became necessary. He further deposed that he recommended that any new securitisation trusts should be established with units held by the holding trust. He also deposed that that recommendation was given on the basis of his understanding that "an IPO was not imminent but that Liberty wanted to be IPO ready". 107 As recorded in the minutes, at that meeting, the directors of all three entities resolved to proceed with the conversion of the notes into equity, transfer the two units in MFGT to Jupiter (at the time, Liberty Financial BV), and convert MFG into a proprietary limited company. The minutes recorded that Mr Cox abstained from voting in relation to the conversion of the notes and the transfer of the units in MFGT. (The decision to transfer the two units MFG held in MFGT to Jupiter was given effect on 14 December 2007.) As for consolidation, the minutes recorded that consolidation was possible, but "more analysis" was required before making that decision, "particularly in relation to including the Trust as part of any such consolidated group". 108 On 19 November 2007, an article appeared in "The Australian" newspaper which included the following: Liberty Financial management will take another look at floating the mortgage lender in the 2008 financial year but managing director Sherman Ma says there is no urgency. "We have continuously looked at options," Mr Ma said. "This year again we looked at another option … but we never made a decision to list." But Mr Ma said it would have a look at an Australian Securities Exchange listing this financial year. "We owe it to our shareholders to do that - they own the company." 109 Mr Ma gave the following evidence in his first affidavit about what he was quoted as saying in that article, as follows: Liberty had not abandoned the IPO altogether but had postponed it due to the market disruption and uncertainty caused by events leading up to the GFC. While it was not known at that time when another attempt would be made, I considered and discussed with the other directors and with senior management on many occasions that there would likely be a public offering at some time in the future. [He then produced the article.] MHT was part of the original Plan which had been developed by various advisors in order to ensure that Liberty optimised its capital structure and that it could grow and attract funding from diverse sources. For this reason, I believed it was important to implement as many steps of the Plan as possible to ensure that Liberty would be in position to attempt another equity capital raising once market conditions improved. Based on the reasons set out above, I therefore considered that it was important for Liberty to establish MHT despite having decided to defer the IPO. 110 Mr Ma was cross-examined in relation to the article, as follows: COUNSEL: … tell me if you get to page 6498 … ? MR MA: Yes. I have 6498. It's an article in The Australian. COUNSEL: You see there, on the second line, you are quoted as having said, this article being as at 19 November 2007 - you are quoted as having said: This year, again, we looked at another option, but we never made a decision to list. That was - you said that in about November 2007? MR MA: I trust the journalist to have quoted me correctly. COUNSEL: And it was correct you had never made a decision to list? MR MA: Yes. In my mind, a decision to list is to actually list. COUNSEL: Sorry. My question was you had never made a decision to list? MR MA: I made a decision to pursue a listing. COUNSEL: But never made the decision that that would be the path you would necessarily take? MR MA: No. My decision was I would like to list as the first preference, but the market conditions did not allow me to make a decision to list. COUNSEL: But, in fact, you were - at the time you were pursuing the possibility of listing, you were also pursuing other equity and capital options? MR MA: Yes. Investing - "considering" might be the word I would say is more accurate as to my mindset at the time. COUNSEL: "Considering". And raising for the consideration of the board, also, the possibility of considering those options? MR MA: Yes. As the listing was uncertain. 111 On 10 December 2007, Mr Pillai wrote a confidential memorandum to the directors of MFG, Minerva Fiduciary, and LF, including Mr Ma, entitled "Update on Revised Restructure Plan", relevantly as follows: Update on Revised Restructure Plan The following memorandum sets out further information in relation to the revised restructure plan that was tabled at the Board meeting on 21 September 2007 (a copy of which is attached as an appendix to this memo). 1. Proposed Final Structure Shown below is the proposed final structure of the Minerva Financial Group ("Group") after effecting the various restructure steps set out in the appendix: The final structure will involve Liberty Financial B.V. ("Liberty BV") owning 100% of the equity of the [sic] Minerva Financial Group Limited ("Minerva") which in turn will own 100% of the equity of Liberty Financial Pty Ltd ("Liberty") and its controlled entities. In addition, Liberty BV will also directly own 100% of the equity in the Minerva Trust [MFGT], which in turns owns the majority of Holding Trust (other than a Special Unit held by Liberty). This is a departure from the original Claremont plan, as it was originally proposed that the equity in Minerva would be stapled to units in the Minerva Trust and subsequently that Liberty Financial BV would hold a direct interest in stapled securities (rather than a separate holding of shares and units). However, as a public listing is not contemplated in the near future, the stapled structure has not been pursued because this would bring with it (i) additional complexity in relation to day to day management of the structure and (ii) a stapled structure would limit flexibility in relation to any future restructures or acquisitions using scrip for scrip roll over provisions. 2. Executing the Revised Structure The process of arriving at the above revised structure merely involves finalising certain of the steps that were implemented prior to 30 June 2007 as part of the Claremont process. These steps are: • Conversion of convertible notes into equity: The sale of Liberty to Minerva prior to 30 June 2007 was effected through the issue of a combination of promissory notes and convertible notes by Minerva to Liberty BV. These instruments included provisions for arm's length interest to be charged (which means that taxable income is currently being generated in the Netherlands). It is proposed that the convertible notes be converted into ordinary equity in Minerva and the promissory notes be redeemed for further ordinary equity in Minerva. Based on the opinions received on these steps as part of the Claremont process, these conversions do not give rise to any material consequence in Australia; • Sale of Minerva Trust: The Minerva Trust currently has $2 of units outstanding. Further, the trust has no assets other than this amount. The sale of the $2 of units currently held by Minerva to Liberty BV will prima facie be a CGT event, but no capital gains tax exposure is expected as there has not been any accretion in the value of the Minerva Trust since it was established; and • Conversion of Minerva to a Private Company: As a private company, Minerva will be subject to less stringent reporting requirements. The conversion of Minerva to a private company is not expected to give rise to any accounting or tax issues. 112 The minutes of a concurrent board meeting of MFG, Minerva Fiduciary, and LF held on 10 December 2007 noted under the heading "Restructure Update": Laurie Cox excused himself from the meeting due to a conflict of interest arising from Macquarie Bank's interest. Suresh Pillai explained that the Minerva Trust will be used for future securitisations. It was noted that the transfer of existing securitisation trusts will incur stamp duty liability. This liability can be reduced by transferring warehouse trusts once the outstanding amount of those trusts is reduced. It is proposed that finalisation of the restructure is to take place by the end of 2007, with the exception of the conversion of the Minerva Financial Group from a public to private company which has procedural timelines. 113 Mr Pillai was asked some questions in cross-examination about his 10 December 2007 memorandum and the board meeting, as follows: COUNSEL: I think we're - I think we're in violent agreement that at this stage, 10 December 2007, that there was to be, my words, the trust silo and the corporate silo in respect of future securitisation trusts being established under the trust silo - that decision had been made? MR PILLAI: … COUNSEL: Okay. And as at that date, there was no then contemplated public listing in the foreseeable future? MR PILLAI: I don't know what you mean when you say foreseeable future. In - COUNSEL: Well - ? MR PILLAI: In December 2007, the market conditions did not look great, but as I said earlier, they did look up a bit in January/February of 2008, so it wasn't a slam dunk that we could IPO in the next two months, but there was some, albeit slim, optimism. COUNSEL: Well, there was nothing in the order of the preparation of a plan for IPO as at 10 December 2007 as there had been in June 2007? MR PILLAI: Absolutely. Like I said, there was slim optimism. We were certainly not talking to the market then. COUNSEL: And not talking to any bankers about IPO in the next six months? MR PILLAI: The bankers were always thereabouts. There was I think perhaps a month or two before these minutes an approach by one of the banks to create a consolidated IPO entity, a project by the name of Project Globe, which is referred to in one of my annexures. And that Project Globe did involve some level of going to the market, slightly differently, but still going to the market. So the bankers were talking to us all the way through. 114 On 19 March 2008, the applicant was converted to a private company. 115 By April 2008, as Mr Riedel noted in a confidential memorandum to the directors of MFG, Minerva Fiduciary, and LF, including Mr Ma, "[e]quity markets [were] effectively closed to specialty finance companies" and no work was being performed on the IPO. He also noted that an IPO was a "[l]ong-term capital solution" and the "[m]ost flexible means to raise future capital". 116 On 15 April 2008, the holding trust, MHT, was established. MHT was settled with MFG as trustee and with one ordinary unit issued to MFGT; one special unit issued to LF; and one special unit issued to Minerva Credit Pty Ltd (now Secure Credit). 117 As at 15 April 2008, LF held the RIUs and RCUs in the following securitisation trusts that had been formed prior to 2008 (LF securitisation trusts): Name Type Date formed Liberty Series 2002-2 Trust Term 5 September 2002 Liberty Series 2003-1 Trust Term 27 March 2003 Liberty NZ Series 2003-1 Trust Term 15 October 2003 Liberty Series 2003-2 Trust Term 8 December 2003 Liberty Series 2004-1 Trust Term 2 June 2004 Liberty Series 2005-1 Trust Term 31 January 2005 Liberty Series 2005-1 Auto Trust Term 13 July 2005 Liberty Series 2006-1 Trust Term 20 February 2006 Liberty Series 2006-1 Auto Trust Term 21 September 2006 Liberty Series 2006-2 Trust Term 13 October 2006 Liberty CP Trust 2007-1 (formerly named Liberty Scarborough Trust) Warehouse 7 September 2007 Liberty Series 2007-1 SME/CMBS Trust Term 28 September 2007 Liberty Series 2007-1 Auto Trust Term 9 November 2007 Liberty PRIME Series 2007-1 Trust Term 11 December 2007

[19]

120 The Commissioner relies on the following additional (undisputed) facts as comprising what he referred to as "Restructure II". 121 On 1 July 2010, five units in MFGT were issued to Jupiter as consideration for Jupiter assigning a promissory note issued by the applicant to MFGT. 122 On 10 August 2010, Minerva Fiduciary applied to deregister MFGT as a managed investment scheme. 123 On 30 June 2011, Jupiter received a further 199,409,253 units in MFGT. 124 The Commissioner's closing submissions accurately depicted the structure of the Liberty group as at 30 June 2011, in a diagram entitled "30 June 2011: Liberty Group after Restructure II", as follows: (As with the diagram set out at [93] above, this diagram does not capture all entities falling within the group structure, including some securitisation trusts.) 125 As noted above, on 1 July 2012, the RIU and RCU in the Liberty/SPAN Warehouse Trust 2003-1 established 12 June 2003 were transferred from LF to MHT. 126 On 12 April 2013, Vesta replaced Jupiter as the sole unitholder in MFGT and the sole shareholder in the applicant, but the ultimate owners of the Liberty group did not change. 127 In mid-September 2016, Liberty decided to revisit an IPO. It engaged JPMorgan as a potential lead manager of the IPO, and PricewaterhouseCoopers and KPMG to provide legal, tax, and accounting advice. 128 JPMorgan advised Liberty that it should raise capital through issuing stapled securities comprising of shares in MFG which would be stapled to units in MFGT and to shares in Minerva Fiduciary. (The evidence of this advice was admitted subject to relevance and for the non-hearsay purpose of establishing that advice was given, rather than the truth of the advice. I have determined that it is relevant and have considered it in the limited fashion agreed by the parties. See [31] above.) JPMorgan prepared a draft prospectus and product disclosure statement in October 2016. It recorded, among many other things, the following under the heading "Introduction": What is the structure of Liberty Group? Liberty Group is a triple stapled group comprising the Company, the Responsible Entity and the Trust.

[23]

129 Mr Ma deposed that his belief was that: … due to the Plan steps undertaken in 2007 and 2008, the only steps that would have been necessary to undertake an IPO of a listed security at that time were the following: (a) transfer the intellectual property to Liberty; (b) convert MFG into a public company; (c) staple the relevant company shares with the trust units; and (d) update due diligence and offer documents. 130 However, Liberty ultimately did not proceed because of volatility in the share market following what was described by Mr Ma as the unexpected result of the US Presidential election in that year. 131 Liberty again revisited an IPO of a stapled security in late 2019. 132 Liberty engaged Credit Suisse as the lead manager and again PricewaterhouseCoopers and KPMG to provide legal, tax, and accounting advice. 133 Credit Suisse prepared a draft prospectus and product disclosure statement in October 2019, which included the following under the heading "Group structure": 3.7.2 GROUP STRUCTURE The Liberty Group structure on completion of the Offer [PwC note: Structure diagram must be included to satisfy ASX listing application requirements. Management agreement arrangements to be added.] The Liberty Group is comprised of two entities that have entered into arrangements, such that a security in each entity comprising the Liberty Group must be dealt with on an aggregated basis. Therefore, each of the following securities are stapled together to form a Security in the Liberty Group: • one fully paid ordinary share in the Company; and • one unit in the Trust. The following entities form the Liberty Group: Liberty Financial Group Limited (the "Company") • The Company is an operating company generating active financial services income from activities such as origination, underwriting and servicing of financial assets and businesses. • The Company enters into arrangements with the Trust to provide services. Profits generated by the Company are distributed to Security Holders as dividends. Liberty Financial Group Trust (the "Trust") • The Trust is a holding trust for underlying entities including Liberty's wholesale and securitisation entities. The Responsible Entity is the trustee of the Trust, holder of the Liberty Group's AFSL [Australian Financial Services Licence] and the responsible entity for the purposes of the Trust's registration as a Managed Investment Scheme. • As a result of holding these entities, the Trust holds the rights to receive interest and fee income from principal amounts lent to borrowers, along with the obligation to pay interest amounts to the various funding sources. • Income is distributed from the Trust to Security Holders as a trust distribution of passive income.

[24]

Liberty first implemented this type of formation in 2007 (without the stapling of the securities of each entity) when it recognised that to participate in an increasingly diverse range of financial opportunities, a further evolution of Liberty was required. This evolution has resulted in the following benefits: • Transparency: to key functions within the business (i.e. Operations, Funding and Responsible Entity); • Efficiency: provides scale and coordination by centralising the entity and governance for all financial assets; • Sustainability: a platform to better engage emerging pools of domestic and international funds; and • Flexibility: a platform for future financial asset acquisitions. … 134 The steps that were undertaken to prepare for an IPO in December 2019 were: (a) the shares in Minerva Technology were sold to Vesta; (b) the intellectual property was sold, through a number of steps, to Minerva Technology; (c) the shares in LF were sold, through a number of steps, to Minerva Technology; and (d) Minerva Technology replaced MFG as the head company of the tax consolidated group. 135 Ultimately, however, Liberty decided not to proceed because of the onset of the COVID-19 pandemic. 136 On 15 December 2020, Liberty successfully listed a stapled security on the ASX. Each stapled security is comprised of a share in Minerva Technology (now known as Liberty Financial Group Limited) and a unit in MFGT (now known as Liberty Financial Group Trust). The additional steps that were required to do so involved Liberty: (a) preparing a prospectus and product disclosure statement; (b) meeting with investors; (c) converting Minerva Technology into a public company; (d) incorporating Liberty SaleCo Limited; (e) transferring shares in MFG and units in MFGT to Liberty SaleCo Limited (conditional on the IPO taking place); (f) consolidating the shares in MFG and subdividing the units in MFGT into 303,600,000 shares and units respectively; and (g) executing a stapling deed. 137 As at 30 June 2007, Liberty's loan portfolio was $3.69 billion. By 30 June 2020 it was $11.66 billion.

[27]

140 The applicant, as trustee for MHT, had a discretion under clause 13.5 of the MHT Constitution to direct all or any of that net income ("Distributable Income") to LF and Secure Credit, each of which held one special unit in MHT. 141 MFGT, which held all ordinary units in MHT, was entitled to any income not directed to the special unitholders by operation of clause 13.8 of the MHT Constitution. 142 Clause 4.8 of the MHT Constitution provided: A Special Unit will confer upon the Holder of the Special Unit the right to receive: (a) such proportion of the Distributable Income of the Trust during each Financial Year as the Trustee may in its sole discretion determine; and (b) upon Redemption of a Special Unit, the Redemption Price payable in respect of that Special Unit; (c) if the Trust is would up, the Redemption Price in respect of each Special Unit, and in priority to the Holders of all other classes of Units in the capital of the Trust, but not any right to any further participation in the profits or assets of the Trust. 143 Clause 13.5 of the MHT Constitution provided: The Trustee may, at its sole discretion, determine to distribute all or any proportion of Distributable Income in respect of a Distribution Period (Special Distribution) to Holders of Special Units. 144 Clause 13.8 of the MHT Constitution provided: A person who at any time during the Financial Year is or has been a Holder of Ordinary Units, is presently entitled as at midnight on the last day of the Financial Year to the Distributable Income of the Trust for the Financial Year in the proportion that the Income Distributions made (or allocated under clause 13.9) to the Holder of Ordinary Units in respect of the Financial Year bear to the sum of: (a) the Income Distributions made (or allocated under clause 13.9) to all persons who are or have been Holders of Ordinary Units at any time during the Financial Year; and (b) the Special Distributions made (or allocated under clause 13.6) to all persons who are or have been Holders of Special Units any time during the Financial Year. 145 In the 2008 income year, the applicant, as trustee for MHT, exercised its discretion to distribute 100% of the distributable income to the special unitholders. 146 In the 2009, 2011 and 2012 income years, the applicant, as trustee of MHT, did not exercise its discretion to distribute income to LF or Secure Credit as special unitholders, such that all of the distributable income was distributed to MFGT as ordinary unitholder. 147 In the 2010 income year, the applicant, as trustee for MHT, exercised its discretion to distribute 100% of the distributable income that was capital in nature to the special unitholders and 100% of distributable income that was income in nature to the ordinary unitholder, such that no distributable income that was income in nature was distributed to the special unitholders. 148 In the 2013 and 2014 income years, the applicant, as trustee for MHT, exercised its discretion to distribute 2% of the distributable income to LF and Secure Credit in equal shares and to distribute 98% of the distributable income to the ordinary unitholder. 149 In the 2015 income year, the applicant, as trustee for MHT, exercised its discretion to distribute 1% of the distributable income to Secure Credit as special unitholder and 99% of the distributable income to the ordinary unitholder. 150 By Supplemental Deed dated 19 May 2015, the applicant, in its capacity as trustee of MHT, amended the MHT Constitution so that distributions to special unitholders could be made in any proportion (which was previously not the case). 151 The amounts MHT distributed in each of the 2009 to 2015 income years were as follows: Income year MFGT LF Secure Credit Total 2008 $327,355 Unknown 2009 $6,638,422 $6,638,422 2010 $5,460,049 $1,990,847 $7,450,896 2011 $15,829,098 $15,829,098 Subtotal $27,927,569 $1,990,847 $29,918,416 2012 $13,381,213 $13,381,213 2013 $20,397,322 $208,136 $208,136 $20,813,594 2014 $30,406,351 $310,269 $310,269 $31,026,889 2015 $33,467,433 $338,055 $33,805,488 Subtotal $97,652,319 $518,405 $856,460 $99,027,184 Total $125,579,888 $2,509,252 $856,460 $128,945,600

[34]

LF's revenue in the relevant years 164 Mr Riedel deposed that in the financial years ended 30 June 2008 to 2015, LF primarily earned revenue in the following categories: (a) distributions from warehouse trusts and term trusts (securitisation trusts) in which LF held RIUs; (b) management fees from MHT, Secure Funding, Secure Credit, and SFL as compensation for services provided by LF; (c) dividend income from subsidiaries; (d) fees for acting as loan originator, loan servicer, and manager to the securitisation trusts established from time to time; (e) interest income from the loan receivables it provided to borrowers directly, from cash, and from loans to related parties; and (f) income distributions from the special unit LF held in MHT. 165 As to management fees, Mr Riedel explained that MHT, Secure Funding and Secure Credit did not employ staff. LF employed all the staff necessary to manage the operations of Liberty including MHT, Secure Funding and Secure Credit. LF charged a fee to each of them to recoup a portion of staff and overhead costs consistent with their proportionate share of revenue to total revenue. 166 The management fees were generally calculated by apportioning LF's total operating expenses based on the proportion of total revenue (after deducting interest expense and excluding intercompany dividends and distributions) earned by each of LF, Secure Funding, Secure Credit, SFL and, from the year ended 30 June 2012 onwards, MHT. 167 The management fees LF charged to MHT in the 2012 to 2015 income years were $9,733,459, $12,150,880, $20,358,850 and $18,187,503 respectively. 168 Mr Riedel gave the following example: … for the year ended 30 June 2015, Secure Funding's revenue represented 16.6% of the revenue generated by LF, MHT, Secure Funding, Secure Credit and SFL, so its management fee equated to 16.6% of LF's total operating expenses ($57.5 million). 169 As to dividends, Mr Riedel deposed that LF received dividends from the following wholly-owned subsidiaries: Credit Enhancement Co (see [61] above), LoanNET (see [60] above), Secure Funding, and Secure Credit. 170 Mr Riedel also deposed that Secure Funding paid a dividend to LF from the net profit it earned from performing its functions, and that Secure Credit (which performed risk and treasury management services for LF) did likewise. 171 Mr Riedel gave evidence about LF's financial performance in the relevant years, which he extracted from LF's financial statements, which may be summarised in tabular form as follows: Income year Profit before tax Total operating revenue Management fees Dividends Management and service fees 2008 $15.137 million $23.283 million $15 million $12.31 million 2009 $36.032 million $34.287 million - $9.13 million 2010 $35.91 million $19.943 million - $7.039 million 2011 $35.547 million $12.115 million - $5.728 million. 2012 $26.094 million $18.91 million $23 million $9.521 million 2013 $28.461 million $32.829 million $25 million $11.552 million 2014 $26.432 million $32.261 million $27 million $13.49 million 2015 $20.228 million $31.16 million $30.5 million $14.541 million

[35]

Intercompany loans 172 Mr Riedel deposed that LF acted as the central treasury function and managed the cash management cycle for the Liberty group, providing cash to other companies in the group to enable those companies to perform their respective roles and functions. He also said that because LF acted as the group treasurer, not all entities in the group had bank accounts. 173 He further deposed that LF, as the treasurer and central service provider in the Liberty group, borrowed amounts from, and lent amounts to, entities within the group which were recorded in intercompany loan accounts. These included amounts borrowed from and lent to group companies in New Zealand as well as LF's parent company, Jupiter, and later Vesta. In that regard, Mr Riedel's evidence included the following: During the Relevant Years, there were various loans between the entities forming the Liberty group, both within and outside of Australia. The Liberty group's operating cash management cycle is managed through LF given the economies of scale gained from its role as originator, servicer and manager of the securitisation program and as the contracting party for many group operations. In essence, LF acts as the Liberty group's treasury function by arranging funding as follows: (a) LF principally sources cash from recurring Manager and Servicer Fees and Management Fees, interest and fee income from its financial services activities and loans from various sources, including MHT; and (b) LF principally uses cash to pay operating expenses, interest payments on its external borrowings and to make advances to group companies both within and outside of Australia, among other uses. As the provider of the group's primary treasury function, LF relevantly arranges cash to the following group companies, among others: (a) Secure Funding to enable it to make advances to customers; (b) Credit Enhancement to provide credit enhancement to term trusts; (c) Loannet to acquire notes in term trusts; (d) warehouse trusts by way of subordinated loans or notes; (e) Group companies in New Zealand for working capital; and (f) Group companies outside Australia and New Zealand, as directed by the ultimate shareholders. LF manages cash amongst group companies so that a bank account is not required for each company. During the Relevant Years, there were various loans between LF and its parent company, Jupiter … and Vesta … which became LF's indirect parent company on 12 April 2013.

[39]

MHT and MFGT 179 Mr Riedel deposed that during the relevant years, there was a loan account between LF and MFGT which was established in the financial year ended 30 June 2011. He produced a copy of the loan ledger showing that as at 30 June 2015, MFGT owed LF $18.452 million. He also said that the nature of the transactions between LF and MFGT affecting the loan balance during the years ended 30 June 2011 to 30 June 2015 principally included payments of withholding tax made by LF on behalf of MFGT, and interest charged by LF to MFGT. 180 Mr Riedel's evidence about the relationship between MHT and MFGT was as follows. 181 During the relevant years, there was a loan account between MHT and MFGT which was established during the year ended 30 June 2009. As at 30 June 2015, MHT owed MFGT $38.27 million. The nature of the transactions between MHT and MFGT affecting the loan balance during the years ended 30 June 2009 to 30 June 2015 principally included: (a) trust distributions made by MHT to MFGT; and (b) payments of withholding tax made by MHT on behalf of MFGT. 182 In the year ended 30 June 2009, MHT made a distribution to MFGT of $6,638,422. In the year ended 30 June 2012, MHT made a cash payment to LF as part of a loan offset, in partial settlement of the 2009 distribution in the sum of $1,935,000. The balance of $4,802,803 remained as an unpaid entitlement during the relevant years. 183 In the year ended 30 June 2009, MFGT made a distribution to Jupiter of $6,638,422. Because MFGT did not have a bank account, withholding tax was paid by MHT on behalf of MFGT during the year ended 30 June 2012, which was accounted for in the loan account between MHT and MFGT. The distribution from MFGT to Jupiter net of tax ($5,843,357) remained as an unpaid entitlement during the relevant years. 184 In the year ended 30 June 2010, MHT made a distribution to MFGT of $5,460,049. This entitlement was satisfied by intercompany loan offset in 2012. 185 In the year ended 30 June 2010, MFGT made a distribution to Jupiter of $5,460,049. Withholding tax was paid by MHT on behalf of MFGT during the year ended 30 June 2012 and was accounted for in the loan account between MHT and MFGT. The distribution from MFGT to Jupiter net of tax ($4,803,713) was satisfied by intercompany loan offset in 2012. 186 In the year ended 30 June 2011, MHT made a distribution to MFGT of $15,726,614. This entitlement was satisfied by intercompany loan offset in 2012. 187 In the year ended 30 June 2011, MFGT made a distribution to Jupiter of $31,924,714. Withholding tax was paid by MHT on behalf of MFGT during the year ended 30 June 2012 and was accounted for in the loan account between MHT and MFGT. The distribution from MFGT to Jupiter net of tax ($28,452,765) was satisfied by: (a) treating a cash payment made by LF to Jupiter on 20 December 2010 of USD10,000,000 (at that point, AUD10,131,712.26) as an advance payment of the distribution and LF increasing the intercompany receivable from MFGT in the same amount; and (b) intercompany loan offset in 2012. 188 In the year ended 30 June 2012, MHT made a distribution to MFGT of $13,318,200. This entitlement was satisfied including among others by: (a) payment of withholding tax owed by MFGT on its behalf ($4.575 million); and (b) intercompany loan offset in 2013. 189 In the year ended 30 June 2012, MFGT made a distribution to Jupiter of $30,551,749. Withholding tax was paid by MHT on behalf of MFGT during the year ended 30 June 2013 and was accounted for in the loan account between MHT and MFGT. The distribution from MFGT to Jupiter net of tax ($27,297,503) was satisfied by intercompany loan offset in 2013. 190 In the year ended 30 June 2012, a loan offset occurred to satisfy the 2010 and 2011 entitlements of MFGT (from MHT) and of Jupiter (from MFGT) in the sum of $23,124,766. The offset had the effect of: (a) for MFGT, reducing the distribution receivable from MHT and reducing the distribution payable to Jupiter; (b) for MHT, reducing the intercompany receivable from LF and reducing the distribution payable to MFGT; (c) for LF, reducing the intercompany receivable from Jupiter and reducing the intercompany payable to MHT; and (d) for Jupiter, reducing the intercompany payable to LF and reducing the distribution receivable from MFGT. 191 The effect of the loan offset was to reduce the loan owing by Jupiter to LF rather than for Jupiter to receive a physical payment from MFGT. 192 In the year ended 30 June 2013, MHT made a distribution to MFGT of $20,397,322. This entitlement was satisfied including among others by: (a) payment of tax owed by MFGT on its behalf ($3.342 million); and (b) intercompany loan offset in 2014. 193 In the year ended 30 June 2013, MFGT made a distribution to Jupiter of $28,632,391. Withholding tax was paid by MHT on behalf of MFGT during the year ended 30 June 2014 and was accounted for in the loan account between MHT and MFGT. The balance net of tax ($25,517,301) was satisfied by intercompany loan offset in 2014. 194 In the year ended 30 June 2013, MFGT made a distribution to Vesta of $8,037,163. Withholding tax was paid on behalf of MFGT during the year ended 30 June 2014 and was accounted for in the relevant loan account. The balance net of tax ($7,162,751) was satisfied by intercompany loan offset in 2014. 195 In the year ended 30 June 2013, a loan offset occurred to satisfy the 2012 entitlements of MFGT (from MHT) of $5,237,891. The offset had the effect of: (a) for MHT, reducing the intercompany receivable from LF and reducing the distribution payable to MFGT; (b) for LF, reducing the intercompany payable to MHT and reducing the intercompany receivable from MFGT; and (c) for MFGT, reducing the intercompany payable to LF and reducing the distribution receivable from MHT. 196 The effect of the loan offset was to reduce the loan owing by MFGT to LF rather than for MFGT to receive a physical payment from MHT. 197 In the year ended 30 June 2013, a loan offset occurred to satisfy the 2012 entitlements of Jupiter (from MFGT) of $27,297,504. The offset had the effect of: (a) for MFGT, increasing the intercompany payable to LF and reducing the distribution payable to Jupiter; (b) for LF, reducing the intercompany receivable from Jupiter and increasing the intercompany receivable from MFGT; and (c) for Jupiter, reducing the intercompany payable to LF and reducing the distribution receivable from MFGT. 198 The effect of the loan offset was to reduce the loan owing by Jupiter to LF rather than for Jupiter to receive a physical payment from MFGT. 199 In the year ended 30 June 2014, MHT made a distribution to MFGT of $30,406,351. This entitlement was satisfied by: (a) payment of withholding tax owed by MFGT on its behalf ($3.586 million); and (b) intercompany loan offset in 2015. 200 In the year ended 30 June 2014, MFGT made a distribution to Vesta of $47,381,247. Withholding tax was paid on behalf of MFGT during the year ended 30 June 2015 and was accounted for in the relevant loan account. The balance net of tax ($42,178,334) was satisfied by issue of units to Vesta in 2015. 201 In the year ended 30 June 2014, a loan offset occurred to satisfy the 2013 entitlements of MFGT (from MHT) of $14,937,606. The offset had the effect of: (a) for MHT, reducing the intercompany receivable from LF and reducing the distribution payable to MFGT; (b) for LF, reducing the intercompany payable to MHT and reducing the intercompany receivable from MFGT; and (c) for MFGT, reducing the intercompany payable to LF and reducing the distribution receivable from MHT. 202 The effect of the loan offset was to decrease the loan owing by MFGT to LF rather than for MFGT to receive a physical payment from MHT. 203 In the year ended 30 June 2014, a loan offset occurred to satisfy the 2013 entitlements of Jupiter (from MFGT) of $25,517,302. The offset had the effect of: (a) for MFGT, increasing the intercompany payable to LF and reducing the distribution payable to Jupiter; (b) for LF, reducing the intercompany receivable from Jupiter and increasing the intercompany receivable from MFGT; and (c) for Jupiter, reducing the intercompany payable to LF and reducing the distribution receivable from MFGT. 204 The effect of the loan offset was to reduce the loan owing by Jupiter to LF rather than for Jupiter to receive a physical payment from MFGT. 205 In the year ended 30 June 2014, a loan offset occurred to satisfy the 2013 entitlements of Vesta (from MFGT) of $7,162,751. The offset had the effect of: (a) for MFGT, increasing the intercompany payable to LF and reducing the distribution payable to Vesta; (b) for LF, reducing the intercompany receivable from Vesta and increasing the intercompany receivable from MFGT; and (c) for Vesta, reducing the intercompany payable to LF and reducing the distribution receivable from MFGT. 206 The effect of the loan offset was to reduce the loan owing by Vesta to LF rather than for Vesta to receive a physical payment from MFGT. 207 In the year ended 30 June 2015, MHT made a distribution to MFGT of $33,467,433. This entitlement was satisfied by intercompany loan offset in 2016. 208 In the year ended 30 June 2015, MFGT made a distribution to Vesta of $51,641,903. Withholding tax was paid on behalf of MFGT during the year ended 30 June 2016 and was accounted for in the relevant loan account. The balance net of tax ($45,915,963) was satisfied by the issue of units to Vesta in 2016. 209 In the year ended 30 June 2015, a loan offset occurred to satisfy the 2014 entitlements of MFGT (from MHT) of $30,406,351. The offset had the effect of: (a) for MHT, reducing the intercompany receivable from LF and reducing the distribution payable to MFGT; (b) for LF, reducing the intercompany payable to MHT and reducing the intercompany receivable from MFGT; and (c) for MFGT, reducing the intercompany payable to LF and reducing the distribution receivable from MHT. 210 The effect of the loan offset was to decrease the loan owing by MFGT to LF rather than for MFGT to receive a physical payment from MHT.

[45]

Cash transferred from LF to shareholders Jupiter, Vesta, and Juno 230 Mr Riedel deposed that during the relevant years, there was a loan from Jupiter to LF which was established in the year ended 30 June 2001. He produced a copy of the loan ledger which showed that as at 30 June 2015, LF owed Jupiter $9.165 million. The nature of the transactions between Jupiter and LF included cash transferred by LF to Jupiter; licence fees payable by LF to Jupiter; technology fees payable by Jupiter to LF; and withholding tax paid by LF on behalf of Jupiter. 231 As Mr Riedel also deposed, there was also a loan from LF to Jupiter which was established in the year ended 30 June 2000. The loan ledgers that he produced showed that as at 30 June 2015, Jupiter owed LF $4.292 million. The nature of the transactions between LF and Jupiter principally included cash advances made by LF to Jupiter; interest charged by LF to Jupiter; technology fees payable by Jupiter to LF; and reallocation between the LF-Jupiter loan and the Jupiter-LF loan. 232 The terms of the loans were documented in "Intra-Group Credit Facility" agreements between LF and Jupiter, which Mr Riedel also produced. 233 LF also maintained a loan account with Vesta which was established during the 2013 year, about which Mr Riedel also gave evidence. This account principally recorded cash advances LF made to Vesta, and interest. He produced a copy of a loan ledger that showed that, as at 30 June 2015, Vesta owed LF $1.146 million. 234 Mr Riedel also deposed that, during the relevant years, there was a loan account between LF and Juno which was established in the year ended 30 June 2001. The nature of the transactions between LF and Juno affecting the loan balance during this period principally included: (a) cash advances made by LF to Juno; (b) interest charged by LF to Juno; and (c) payments of expenses made by LF on behalf of Juno, particularly in relation to the potential 2007 IPO (dubbed "Project Claremont") and litigation involving Bluestone, a competitor. 235 Mr Riedel deposed that he and his staff had undertaken an analysis of the ledgers for the LF-Vesta loan account going back to July 2012, and of the ledgers for the Jupiter-LF, LF-Jupiter, and LF-Juno loan accounts going back to 1 July 2000. He deposed that the amounts of cash transferred by LF was as follows: (a) $126,796,041.23 to Jupiter between 1 July 2000 and 30 June 2015; (b) $7,826,560.92 to Vesta between 1 July 2012 and 30 June 2015; and (c) $7,655,009.51 to Juno between 1 July 2000 and 30 June 2015.

[49]

Liberty's source of funding 241 Mr Ma gave evidence that Macquarie advised Liberty that having the RIUs held separately from the "operating business" meant that Liberty could attract investors that were otherwise precluded from investing in the securitisation trusts because of security arrangements with LF's corporate facility provider. His evidence was that he considered this to be critical because one of Liberty's long-term goals was for it to be able to borrow from "a specialised population of financiers" with the "expertise and interest to lend against the fluctuating cashflows" of RIUs. (This evidence was admitted subject to relevance and for the non-hearsay purpose of establishing that advice was given, rather than the truth of the advice. I have determined that it is relevant and have considered it in the limited fashion agreed by the parties, and accept it as evidence of Mr Ma's and therefore of Liberty's genuinely held beliefs. See [31] above.) 242 Mr Ma deposed that from October 1988 to May 2007, LF had a corporate debt facility with Australia and New Zealand Banking Group Limited (ANZ), initially with a limit of $11 million, progressively increased to $80 million in the final year. The facility was secured by a fixed and floating charge over Liberty's assets, which included the RIUs and RCUs in the securitisation trusts held by LF. 243 Mr Ma deposed that he had formed the view that ANZ's approach to Liberty's provision of security was restrictive to its growth and in May 2007, LF refinanced the ANZ facility with NAB. The original NAB facility agreement dated 23 May 2007 and the various variations to it from time to time up until July 2014 were in evidence. It is sufficient to note however that the NAB facility was also secured with a fixed and floating charge over Liberty's assets, which included the RIUs and RCUs in the securitisation trusts held by LF. 244 As at 2007 and 2008, the NAB facility prevented LF from paying a dividend in excess of $40 million absent NAB's consent. That restriction was removed in June 2012. LF had a policy of not paying dividends which was promoted to ratings agencies, investors, and financiers. 245 The NAB facility agreement, which was in evidence, also relevantly included the following negative undertakings: 15.2 Negative undertakings The Company agrees: … (b) (no Financial Indebtedness) not to incur any Financial Indebtedness, nor permit any Subsidiary to incur any Financial Indebtedness, except: (i) Financial Indebtedness incurred by a trustee of a Securitisation Trust solely in its capacity as trustee and in the ordinary course of business where recourse for such Financial Indebtedness is limited to the assets of the relevant Securitisation Trust; and (ii) Financial Indebtedness that is owed solely to the Company by a Subsidiary in relation to transactions between the Company and any Subsidiary, without the Financier's prior written consent which will not be unreasonably withheld; and … (d) (no Encumbrances) without the Financier's consent which will not be unreasonably withheld, not to create an Encumbrance or allow one to exist on the whole or any part of its present or future property other than any Permitted Encumbrance; and … (h) (extension to Subsidiaries) to ensure that none of its Subsidiaries does anything which the Company is prohibited from doing under this clause 15.2 unless the Subsidiary has the Financier's consent which will not be unreasonably withheld; … 246 Mr Ma gave evidence about what the parties called the "Good Hill borrowing", of $140 million, which occurred in 2019. The applicant said that it is wrong to rely on commercial decisions made by it four years after the relevant years to challenge commercial decisions made during the relevant years, but that in any event, the Good Hill borrowing was an example of the commercial benefits of the "silo" structure including because it "gave the Liberty [g]roup more optionality in terms of funding from other sources". The Commissioner, on the other hand, in particular in relation to the third scheme, said that had MHT distributed all, or substantially all, of its income to LF and Secure Credit, and that because they would have had higher retained earnings had MHT done so, there would have been no need for the Good Hill borrowing, which he said was, among other things, expensive. The Commissioner contended that such things pointed to the lack of good commercial sense of the "silo" structure. The applicant, on the other hand, contended to the contrary that the proceeds of the loan were used to make an equity capital injection to LF. 247 Mr Ma gave the following evidence about the so-called Good Hill borrowing. He deposed that in the latter half of the 2010s, a number of developments in the market place, including the imposition of various regulatory restrictions on banks, presented Liberty "with a rare opportunity to gain market share and grow its business". He said, however, that its "growth was limited by its available capital resources", explaining as follows: For example, Liberty's 'investment grade' rating assigned by S&P is based on its capital adequacy ratio which is broadly calculated as the proportion of equity capital in a business relative to its assets which are adjusted based on the profile of those assets. It was critical to LF that its capital adequacy ratio was above 15%. If LF's capital adequacy ratio was lower than the threshold of 15%, S&P would have downgraded its rating of LF causing any notes issued by LF closer [sic] to 'non-investment grade' or 'junk' status. Such a downgrade would have had stunted LF's newly established [Medium Term Notes] program which had only raised $100m in 2016. 248 Mr Ma deposed that in July 2019, he "decided that it was appropriate to borrow against the [RIUs] whereby MHT secured $140 million in funding from a sophisticated global investor. The investor advanced the funds to MHT in exchange for MHT pledging as security the [RIUs] it own[ed] in the Securitisation Trusts". 249 Mr Ma further explained that MHT then loaned the $140 million to MFGT which, in turn, loaned the same amount to Vesta. As Mr Ma explained, this "allowed Liberty's shareholders to make a large lump sum injection of equity capital of $189m into LF". As Mr Ma deposed, that injection of capital "ensured that LF maintained its 'investment grade' rating while being able to expand its access to capital. For example, LF's [Medium Term Notes] program grew from $100m in 2016 to over $1.150b in March 2020 and was at $875m by October 2020". 250 Mr Ma further deposed that "[b]etween 2008 and 2020, Liberty expanded its business from $3.5b to over $13.0b of total financial assets". 251 Mr Ma also deposed that another source of funding for the Liberty group was LF issuing Medium Term Notes (MTNs), which he explained "are senior unsecured obligations of the issuer and the raised funds can be used for general purposes including but not limited to warehouse lending, providing subordinate loans, acquiring any class of term securities, making acquisitions or even paying dividends". LF commenced its MTN program with an inaugural issue of $100 million in March 2015.

[50]

The statutory provisions 252 As explained below, the Commissioner relies on three schemes. The first two are governed by the version of Part IVA that applied before 15 November 2012. The third is governed by the version that applied after that date. The parties did not suggest that there was, for the purposes of this proceeding, any material difference between the two provisions, but they are different nonetheless. 253 Part IVA is concerned with "schemes to reduce income tax". The relevant provisions of Part IVA, as they applied before 15 November 2012, were in the following terms: 177A Interpretation (1) In this Part, unless the contrary intention appears: … scheme means: (a) any agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings; and (b) any scheme, plan, proposal, action, course of action or course of conduct. … (5) A reference in this Part to a scheme or a part of a scheme being entered into or carried out by a person for a particular purpose shall be read as including a reference to the scheme or the part of the scheme being entered into or carried out by the person for 2 or more purposes of which that particular purpose is the dominant purpose. 177C Tax benefits (1) Subject to this section, a reference in this Part to the obtaining by a taxpayer of a tax benefit in connection with a scheme shall be read as a reference to: (a) an amount not being included in the assessable income of the taxpayer of a year of income where that amount would have been included, or might reasonably be expected to have been included, in the assessable income of the taxpayer of that year of income if the scheme had not been entered into or carried out; … and, for the purposes of this Part, the amount of the tax benefit shall be taken to be: (c) in a case to which paragraph (a) applies - the amount referred to in that paragraph; … 177D Schemes to which Part applies This Part applies to any scheme that has been or is entered into after 27 May 1981, and to any scheme that has been or is carried out or commenced to be carried out after that date (other than a scheme that was entered into on or before that date), whether the scheme has been or is entered into or carried out in Australia or outside Australia or partly in Australia and partly outside Australia, where: (a) a taxpayer (in this section referred to as the relevant taxpayer) has obtained, or would but for section 177F obtain, a tax benefit in connection with the scheme; and (b) having regard to: (i) the manner in which the scheme was entered into or carried out; (ii) the form and substance of the scheme; (iii) the time at which the scheme was entered into and the length of the period during which the scheme was carried out; (iv) the result in relation to the operation of this Act that, but for this Part, would be achieved by the scheme; (v) any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result, from the scheme; (vi) any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the relevant taxpayer, being a change that has resulted, will result or may reasonably be expected to result, from the scheme; (vii) any other consequence for the relevant taxpayer, or for any person referred to in subparagraph (vi), of the scheme having been entered into or carried out; and (viii) the nature of any connection (whether of a business, family or other nature) between the relevant taxpayer and any person referred to in subparagraph (vi); it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for the purpose of enabling the relevant taxpayer to obtain a tax benefit in connection with the scheme or of enabling the relevant taxpayer and another taxpayer or other taxpayers each to obtain a tax benefit in connection with the scheme (whether or not that person who entered into or carried out the scheme or any part of the scheme is the relevant taxpayer or is the other taxpayer or one of the other taxpayers). 177F Cancellation of tax benefits etc. (1) Where a tax benefit has been obtained, or would but for this section be obtained, by a taxpayer in connection with a scheme to which this Part applies, the Commissioner may: (a) in the case of a tax benefit that is referable to an amount not being included in the assessable income of the taxpayer of a year of income - determine that the whole or a part of that amount shall be included in the assessable income of the taxpayer of that year of income; … (2) Where the Commissioner determines under paragraph (1)(a) that an amount is to be included in the assessable income of a taxpayer of a year of income, that amount shall be deemed to be included in that assessable income by virtue of such provision of this Act as the Commissioner determines. (3) Where the Commissioner has made a determination under subsection (1) or (2A) in respect of a taxpayer in relation to a scheme to which this Part applies, the Commissioner may, in relation to any taxpayer (in this subsection referred to as the relevant taxpayer): (a) if, in the opinion of the Commissioner: (i) there has been included, or would but for this subsection be included, in the assessable income of the relevant taxpayer of a year of income an amount that would not have been included or would not be included, as the case may be, in the assessable income of the relevant taxpayer of that year of income if the scheme had not been entered into or carried out; and (ii) it is fair and reasonable that that amount or a part of that amount should not be included in the assessable income of the relevant taxpayer of that year of income; determine that that amount or that part of that amount, as the case may be, should not have been included or shall not be included, as the case may be, in the assessable income of the relevant taxpayer of that year of income; … 254 Part IVA was amended by the Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013 (Cth). Section 10 of that Act provided that the amendments "apply in relation to all schemes except schemes that were entered into, or that were commenced to be carried out, on or before 15 November 2012". Relevantly, the amendments added a new s 177CB and repealed and substituted the above version of s 177D, as follows: 177CB The bases for identifying tax benefits (1) This section applies to deciding, under section 177C, whether any of the following (tax effects) would have occurred, or might reasonably be expected to have occurred, if a scheme had not been entered into or carried out: (a) an amount being included in the assessable income of the taxpayer; (b) the whole or a part of a deduction not being allowable to the taxpayer; (c) the whole or a part of a capital loss not being incurred by the taxpayer; (d) the whole or a part of a foreign income tax offset not being allowable to the taxpayer; (e) the taxpayer being liable to pay withholding tax on an amount. (2) A decision that a tax effect would have occurred if the scheme had not been entered into or carried out must be based on a postulate that comprises only the events or circumstances that actually happened or existed (other than those that form part of the scheme). (3) A decision that a tax effect might reasonably be expected to have occurred if the scheme had not been entered into or carried out must be based on a postulate that is a reasonable alternative to entering into or carrying out the scheme. (4) In determining for the purposes of subsection (3) whether a postulate is such a reasonable alternative: (a) have particular regard to: (i) the substance of the scheme; and (ii) any result or consequence for the taxpayer that is or would be achieved by the scheme (other than a result in relation to the operation of this Act); but (b) disregard any result in relation to the operation of this Act that would be achieved by the postulate for any person (whether or not a party to the scheme). 177D Schemes to which this Part applies Scheme for purpose of obtaining a tax benefit (1) This Part applies to a scheme if it would be concluded (having regard to the matters in subsection (2)) that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for the purpose of: (a) enabling a taxpayer (a relevant taxpayer) to obtain a tax benefit in connection with the scheme; or (b) enabling the relevant taxpayer and another taxpayer (or other taxpayers) each to obtain a tax benefit in connection with the scheme; whether or not that person who entered into or carried out the scheme or any part of the scheme is the relevant taxpayer or is the other taxpayer or one of the other taxpayers. Have regard to certain matters (2) For the purpose of subsection (1), have regard to the following matters: (a) the manner in which the scheme was entered into or carried out; (b) the form and substance of the scheme; (c) the time at which the scheme was entered into and the length of the period during which the scheme was carried out; (d) the result in relation to the operation of this Act that, but for this Part, would be achieved by the scheme; (e) any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result, from the scheme; (f) any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the relevant taxpayer, being a change that has resulted, will result or may reasonably be expected to result, from the scheme; (g) any other consequence for the relevant taxpayer, or for any person referred to in paragraph (f), of the scheme having been entered into or carried out; (h) the nature of any connection (whether of a business, family or other nature) between the relevant taxpayer and any person referred to in paragraph (f). Tax benefit (3) Despite subsection (1), this Part applies to the scheme only if the relevant taxpayer has obtained, or would but for section 177F obtain, a tax benefit in connection with the scheme. … Schemes outside Australia (5) This section applies whether or not the scheme has been or is entered into or carried out in Australia or outside Australia or partly in Australia and partly outside Australia. 255 Although subsequent amendments added further paragraphs to ss 177CB and 177D prior to 30 June 2015, those additional paragraphs are not applicable here, and neither party made any reference to them. 256 As described in the explanatory memorandum to the corresponding Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013 (Cth), the above amendments were intended to address perceived "weaknesses" in the operation of s 177C, said to arise from the fact that there are two limbs for identifying tax benefits that require comparing the tax consequences of the scheme with the tax consequences that either (1) "would have" or (2) "might reasonably be expected to have" resulted if the scheme had not occurred. 257 The introduction of s 177CB addressed two of the perceived weaknesses identified in the explanatory memorandum. 258 The first perceived weakness was that some authorities had treated the two limbs as "ends of a spectrum of certainty within which acceptable postulates must lie", rather than two distinct bases for establishing whether there was a tax benefit, the latter which was more desirable from a policy perspective. 259 The second perceived weakness was that the second limb was a broad-ranging and open inquiry and, among other things, permitted the taxpayer to rely upon evidence that it would have done something entirely different in the absence of the scheme, including that it would have deferred or abandoned a wider transaction entirely. 260 The amendment to s 177D, in essence, moved the question of whether a taxpayer has obtained, or would but for section 177F obtain, a tax benefit in connection with the scheme from the beginning of the section (where it was previously para (a)) to the end of the section (as new sub-s (3)). As to these amendments, the explanatory memorandum said: 1.56 Under the current law, the first question to be answered when determining whether Part IVA applies is whether a taxpayer has obtained a tax benefit in connection with the scheme (as defined in section 177C). Only if the answer is yes does attention turn to the section 177D inquiry and the question whether a participant in the scheme had the dominant purpose of securing a tax benefit for the taxpayer in connection with the scheme. 1.57 For instance, in [RCI Pty Ltd v Commissioner of Taxation] [2011] FCAFC 104 (at [151]) the Full Federal Court concluded it was 'strictly unnecessary', in disposing of that matter, for it to consider the paragraph 177D(b) issue as to purpose (although it did in fact go on to consider the issue out of 'deference to the primary judge's reasons and to the submissions on the hearing of the appeal'). Similarly, a differently constituted Full Federal Court in [Commissioner of Taxation v Futuris Corporation Limited] [2012] FCAFC 32 was able to dismiss the Commissioner's appeal (at [81]) without considering the question of whether any person had the relevant tax avoidance purpose. 1.58 This approach is undesirable from a policy perspective. The objects of Part IVA are more likely to be served if the analysis starts with the section 177D inquiry about whether a person participated in a scheme for the sole or dominant purpose of enabling the taxpayer to obtain a tax benefit. This inquiry has two components, in that the relevant purpose must be about a tax benefit, but it is nonetheless a single inquiry. 1.59 The inquiry looks at how the scheme was implemented, what it achieved as a matter of substance or reality (that is, its end effect) and the nature of any connection between the taxpayer and other parties. A consideration of alternative possibilities should form part of that inquiry. Gummow and Hayne JJ indicated in [Commissioner of Taxation v Hart (2004) 217 CLR 216] [at 66] that subsection 177C(1) and paragraph 177D(b) must be read together. 261 The explanatory memorandum summarised the changes as follows: 1.69 The amendments target deficiencies in section 177C, and the way it interacts with other elements of Part IVA, particularly section 177D, as revealed by recent decisions of the Full Federal Court. 1.70 The amendments are not intended to change the operation of Part IVA in any other respect. 1.71 Consistent with the policy underlying Part IVA, the amendments are intended to have the following effects: • to put it beyond doubt that the 'would have' and 'might reasonably be expected to have' limbs of each of the subsection 177C(1) paragraphs represent alternative bases upon which the existence of a tax benefit can be demonstrated; • to ensure that, when obtaining a tax benefit depends on the 'would have' limb of one of the paragraphs in subsection 177C(1), that conclusion must be based solely on a postulate that comprises all of the events or circumstances that actually happened or existed other than those forming part of the scheme; • to ensure that, when obtaining a tax benefit depends on the 'might reasonably be expected to have' limb of one of the paragraphs in subsection 177C(1), that conclusion must be based on a postulate that is a reasonable alternative to the scheme, having particular regard to the substance of the scheme and its effect for the taxpayer, but disregarding any potential tax costs; and • to require the application of Part IVA to start with a consideration of whether a person participated in the scheme for the sole or dominant purpose of securing for the taxpayer a particular tax benefit in connection with the scheme; and so emphasising the dominant purpose test in section 177D as the 'fulcrum' or 'pivot' around which Part IVA operates. 262 The amendments to these sections of Part IVA focus on the definition of tax benefit under s 177C and how it interacts with other provisions in the ITAA36, including s 177D. The applicant did not dispute that it obtained a tax benefit for the purposes of s 177C. Thus, although the provisions of Part IVA differ as between the version applicable to the first and second schemes on the one hand, and the third scheme on the other, they do not differ relevantly as no issue about the basis upon which the applicant obtained the tax benefit for the purposes of s 177C or s 177CB, or whether the applicant obtained a tax benefit for the purposes of s 177D, is said to arise in this proceeding. In particular, I note that the factors set out in what was previously s 177D(b) are identical to those listed in current s 177D(2). 263 In Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404 at 421-422, the plurality (Brennan CJ, Dawson, Toohey, Gaudron, Gummow and Kirby JJ) said this about the nature of the inquiry posed by s 177D: The eight categories set out in … s 177D as matters to which regard is to be had "are posited as objective facts". That construction is supported by the employment in s 177D of the phrase "it would be concluded that …". This phrase also indicates that the conclusion reached, having regard to [those] matters … , as to the dominant purpose of a person or one of the persons who entered into or carried out the scheme or any part thereof, is the conclusion of a reasonable person. In the present case, the question is whether, having regard, as objective facts, to the matters answering the description in [s 177D], a reasonable person would conclude that the taxpayers entered into or carried out the scheme for the dominant purpose of enabling the taxpayers to obtain a tax benefit in connection with the scheme. (Footnotes omitted.) 264 In Commissioner of Taxation v Hart (2004) 217 CLR 216 at 232 [34], Gummow and Hayne JJ also said this about the categories: The schemes to which Pt IVA applies are identified in s 177D. Leaving aside what s 177D says about the time and place at which a scheme is entered into or carried out, there are two elements that must be satisfied. First, it must be shown that the relevant taxpayer has obtained, or would but for s 177F obtain, a tax benefit in connection with the scheme. Secondly, it must be shown that having regard to eight matters "it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for the purpose of enabling the relevant taxpayer to obtain a tax benefit in connection with the scheme" or enabling the relevant taxpayer and one or more other taxpayers to obtain a tax benefit in connection with the scheme. 265 As set out above, s 177A(5) provides that a reference to a scheme being entered into or carried out by a person for a particular purpose shall be read as including a reference to the scheme being entered into or carried out "for 2 or more purposes of which that particular purpose is the dominant purpose". 266 In Spotless Services (1996) 186 CLR 404 at 416, the plurality said that "dominant" means "the ruling, prevailing, or most influential purpose". Their Honours also said at 416: A taxpayer within the meaning of the Act may have a particular objective or requirement which is to be met or pursued by what, in general terms, would be called a transaction. The "shape" of that transaction need not necessarily take only one form. The adoption of one particular form over another may be influenced by revenue considerations and this … is only to be expected. A particular course of action may be … both "tax driven" and bear the character of a rational commercial decision. The presence of the latter characteristic does not determine the answer to the question whether, within the meaning of Pt IVA, a person entered into or carried out a "scheme" for the "dominant purpose" of enabling the taxpayer to obtain a "tax benefit". (Footnote omitted.) 267 Along the same lines, in Hart (2004) 217 CLR 216 at 243 [64], Gummow and Hayne JJ said that as was held in Spotless Services, there is a false dichotomy between a rational commercial decision and the obtaining of a tax benefit as the dominant purpose of the taxpayers in making the investment, and that: Pointing to the "commercial end" of the scheme reveals the adoption of the same, or at least a substantially similar, false dichotomy. The presence of a discernible commercial end does not determine the answer to the question posed by s 177D. As Hely J rightly said [in the Full Court below, (2002) 121 FCR 206 at 230 [81]]: "A particular course of action may be both tax driven, and bear the character of a rational commercial decision. The presence of the latter characteristic does not determine in favour of the taxpayer whether, within the meaning of Pt IVA, a person entered into or carried out a 'scheme' for the dominant purpose of enabling a taxpayer to obtain a tax benefit." 268 On the other hand, "the fact of a tax consequence … resulting from a given transaction, attracts no inference that the parties to the transaction entered into it or carried it out for the dominant purpose of obtaining that tax consequence". See Commissioner of Taxation v Ashwick (Qld) No 127 Pty Ltd (2011) 192 FCR 325 at 380 [189] (Edmonds J, with whom Bennett and Middleton JJ agreed), citing Hart (2004) 217 CLR 216 at 227 [15] and 243 [65]. 269 Further, s 177D does not permit any inquiry into the subjective motives or state of mind of any person. As Gummow and Hayne JJ said in Hart (2004) 217 CLR 216 at 243 [65], s 177D(b) "requires the drawing of a conclusion about purpose from the eight identified objective matters; it does not require, or even permit, any inquiry into the subjective motives of the relevant taxpayers or others who entered into or carried out the scheme or any part of it". 270 However, because it is "hardly surprising if objective intention in fact accords with the person's subjective intention", if it be the case that "subjective intention is reflected in objective evidence, no error is made by taking that evidence into account albeit that it is consistent with the person's subjective intention". See Commissioner of Taxation v News Australia Holdings Pty Ltd [2010] FCAFC 78; (2010) 79 ATR 461 at 472 [30] (Stone, Jessup and Jagot JJ), cited with approval in Commissioner of Taxation v Macquarie Bank Ltd (2013) 210 FCR 164 at 214 [189] (Middleton and Robertson JJ). 271 It is also important to bear in mind that "[c]ase law recognises that there is overlap between the eight factors. Some of them may point one way; some may point another; some may be neutral … Accordingly, there is no requirement that a judge must specifically divide up their analysis under s 177D according to each criterion. All that is required is that all of the eight matters actually be considered for the purpose of the s 177D inquiry … To this end, a global assessment of the s 177D(b) factors may, in an appropriate case, be permissible". See Macquarie Bank (2013) 210 FCR 164 at 216 [200] (Middleton and Robertson JJ) (citations omitted and emphasis added). 272 Although "s 177D does not expressly contemplate what would have happened if the scheme had not been entered into or carried out" (see Macquarie Bank (2013) 210 FCR 164 at 222 [204]), "the inquiry directed by Pt IVA requires comparison between the scheme in question and an alternative postulate" and "[t]o draw a conclusion about purpose from the eight matters identified in s 177D(b) will require consideration of what other possibilities existed". See Hart (2004) 217 CLR 216 at 243 [66] (Gummow and Hayne JJ). See also British American Tobacco Australia Services Ltd v Commissioner of Taxation (2010) 189 FCR 151 at 163 [53] (Dowsett, Jessup and Gordon JJ) ("In addressing s 177D(b)(i) to (v) and (vii), the trial judge compared the Scheme as carried out with the counterfactual … Such an approach was not only open but is usually required in assessing the dominant purpose of a scheme"); Mills v Commissioner of Taxation (2012) 250 CLR 171 at 203 [66] (Gageler J, with whom French CJ, Hayne, Kiefel and Bell J agreed) ("counterfactual analysis is not antithetical to the statutory inquiry mandated by s 177EA(3)(e). Purpose is a matter for inference and incidentality is a matter of degree"). 273 As Middleton and Robertson JJ said in Macquarie Bank (2013) 210 FCR 164 at 223-224 [210]-[211]: Despite the fact that s 177D does not expressly refer to possibilities other than the scheme that was implemented, the High Court in both Spotless Services (1996) 186 CLR 404 and Hart (2004) 217 CLR 216 considered it necessary to invoke this concept for the purpose of the s 177D analysis. In Spotless Services, the Court acknowledged the "other alternatives which had been under consideration by Spotless Services" (at 418) and the "[v]arious courses of action" that were considered before the relevant scheme was carried out (at 422) in the course of setting out the events and circumstances "to which regard may be had for the purposes of pars (i) and (ii) of s 177D(b))" (at 420). It was in part by reference to these other possibilities that the Court was ultimately able to conclude that, under s 177D, the dominant purpose of the taxpayers was to obtain the tax benefit in question, as "[w]ithout that benefit, the proposal would have 'made no sense'" (at 422). Similarly, in Hart (2004) 217 CLR 216, Gummow and Hayne JJ confirmed in relation to their analysis of s 177D(b)(i) that "[t]he conclusions as just described, as being indicated by the manner in which the scheme was entered into or carried out, are indicated by a consideration of how else the loan might have been arranged" (at 244). In light of this authority, it is clear that, where appropriate, regard may be had to the other possibilities that existed for the purpose of conducting the s 177D analysis. This does not mean that the s 177D inquiry merely becomes a "but for" test (as was the subject of express warning in Citigroup Pty Ltd v Commissioner of Taxation 81 ATR 412 at [24]; see also British American Tobacco Australia Services Ltd v Federal Commissioner of Taxation [(2010) 189 FCR 151] at 162). That is clearly not required - or permitted - on the face of the statute. But from a practical perspective, if the s 177D(b) analysis were to be carried out without any consideration of the other possibilities that may have been open to the relevant taxpayer/s at the relevant time, the analysis would risk being artificial and sterile. 274 As Gordon J said in Noza Holdings Pty Ltd v Commissioner of Taxation [2011] FCA 46; (2011) 82 ATR 338 at 423-424 [296]: In evaluating the s 177D(b) factors, the pursuit of a commercial objective is not inconsistent with the existence of a dominant purpose of enabling the taxpayer to obtain a tax benefit … Therefore, in ascertaining objective purpose, it is important to consider the question of purpose by reference to the particular way the transaction was structured and the particular features of the transaction that gave rise to the tax benefit … and to compare how the scheme was structured with alternative ways of achieving the same commercial objectives [citing Hart, Spotless Services and Commissioner of Taxation v Consolidated Press Holdings Ltd (2001) 207 CLR 235]. (Emphasis in original.) 275 I should also say something about the question of onus. As Steward J said (Greenwood and Logan JJ agreeing) in Commissioner of Taxation v Cassaniti (2018) 266 FCR 385 at 409 [88]: The following propositions, derived from the judgment of Hunt J in Allied Pastoral [Holdings Pty Ltd v Federal Commissioner of Taxation [1983] 1 NSWLR 1] apply … to a tax appeal made to this Court pursuant to s 14ZZ of the TAA … (1) … where the onus is on the taxpayer (whether pursuant to s 14ZZO of the TAA or otherwise) the degree or standard of proof required is that which ordinarily applies in civil proceedings. The direction given to a jury in civil cases aptly describes that onus by reference to a pair of scales and to the arguments of each party being placed at each end. As Hunt J said in Allied Pastoral: … if the plaintiff succeeds … in weighing down those scales ever so slightly in his favour then he has discharged the burden he carries … (2) … for that purpose it is not obligatory for a taxpayer, in order to discharge his burden of proof, to call all material witnesses and to produce all material documents which support her or his or its position; (3) … there is no requirement that evidence can only be accepted as admissible and probative if it is corroborated. 276 The issue of timing is also important here, including because both parties sought to rely on evidence of matters that occurred well outside the relevant years (including, most obviously, the Good Hill borrowing). The case law is clear. Dominant purpose under s 177D needs to be evaluated at the time the relevant scheme is entered into or carried out. See Vincent v Commissioner of Taxation (2002) 124 FCR 350 at 371 [93] (Hill, Tamberlin and Hely JJ) ("But in all cases the question of dominant purpose arises before ever there has been an assessment and by reference to a date no later than the expiration of the year of income in which the scheme is either entered into or is being carried out."). Therefore, in this case: (a) for the first scheme, the dominant purpose needs to be evaluated as at 15 April 2008, being the date of the transfer of the RIUs and RCUs in the Sirius Trust from LF to MHT and up to the end of the 2015 year; (b) for the second scheme, the dominant purpose needs to be evaluated as at 14 December 2007, being the date of the transfer of the two units in MFGT from the applicant to Jupiter and up to the end of the 2015 year; and (c) for the third scheme, the dominant purpose needs to be evaluated during each of the relevant years. 277 The applicant submitted that forming an evaluative judgment of the relevant purpose by regard to the eight matters in s 177D of the ITAA36 requires a comparison of what was done with the Commissioner's alternative postulates and with other possibilities that existed, citing Hart (2004) 217 CLR 216 at 243 [66]; British American Tobacco (2010) 189 FCR 151 at 163 [53]; Mills (2012) 250 CLR 171 at 203 [66]; Macquarie Bank (2013) 210 FCR 164 at 223-224 [210]-[211]. That involves a comparison of how the scheme was structured with alternative ways of achieving the same commercial objectives, citing Noza Holdings [2011] FCA 46; (2011) 82 ATR 338 at 424 [296]. The applicant contended, and I agree, that because s 177D requires such a comparison, any "unreasonableness of the alternative postulate(s) relied upon by the Commissioner will be a relevant matter for the purposes of determining objective purpose", citing Noza Holdings at 421 [283], 425-427 [303]-[313] and 438 [376].

[51]

The schemes alleged 278 At the commencement of his closing address, Mr P Looney QC, who appeared with Ms ML Baker and Ms AR Wilson for the Commissioner, said this: We say that the principal issue … is the question of the dominant purpose, but the dominant purpose … [which] is to be addressed by reference to each scheme. And you may recall that, in the [applicant's closing address], and also in the written submissions for the applicant, questions of dominant purpose have been looked at in globo, and references to each scheme are made along the way by reference to the various factors. We would encourage you, in the way that the written submissions for the Commissioner proceed, to consider the dominant purpose scheme by scheme, rather than consider dominant purpose overall. We think it's potentially - it has the potential to lead the court into error to conflate dominant purpose by reference to each factor, and trying to deal with each scheme factor by factor. Start with the scheme, consider dominant purpose, form a conclusion, move to the next scheme. They're independent. 279 I agree that each scheme is to be taken in turn. Each is to be evaluated according to the relevant factors set out in s 177D(b) and s 177D(2), for the first and second schemes, and the third scheme, respectively. That, of course, involves considering the parties' differing submissions with respect to each scheme. 280 I confronted at least two practical problems in following that course. 281 First, and for reasons that escaped me, the Commissioner's written opening and closing submissions dealt with the schemes in reverse order. I was thus left with the time consuming - and at times, I confess, difficult - task of having to realign the Commissioner's submissions to accord with the logical order of things. 282 Secondly, the applicant's written submissions, although they considered seriatim each of the factors under ss 177D(b) and 177D(2), dealt with the three schemes, as Mr Looney said, "in globo". That, too, left me with the time consuming task of unpicking the submissions, and attempting to deal with them in turn. 283 I should also make the following observation at this point. As will become apparent when I turn to consider the schemes, one by one, factor by factor, a number of the factual matters and the various competing submissions made about them aired during the trial and in written closing submissions were not, in the end, said to have any material or significant bearing on the ultimate evaluative judgment of dominant purpose.

[52]

The first scheme 284 The first scheme alleged relates to the establishment of the trust silo in April 2008 with MHT later being nominated as the RIU holder of the securitisation trusts established from 2009, and directing income through it. It is said to be constituted by the following steps, matters, things or actions: (a) the nomination of the applicant (as the trustee of MHT) as the RIU holder of each MHT securitisation trust, and not LF; (b) (less significantly) the transfer of the RIUs and RCUs in the Sirius Trust from LF to MHT and, insofar as the scheme relates to the 2014 and the 2015 years, the transfer of the RIUs and RCUs in the Liberty/SPAN Warehouse Trust 2003-1 from LF to MHT in the 2013 year; and (c) MHT lending funds obtained as RIU holder of the MHT securitisation trusts in the 2012 to 2015 years to LF via interest free, unwritten loans and the MHT and MFGT unpaid present entitlements not being satisfied by the payment of cash to MFGT and Jupiter/Vesta respectively. 285 The Commissioner's case in relation to the tax benefit of the first scheme is that if it had not been entered into or carried out, it might reasonably be expected that LF would have been nominated as the RIU holder of each MHT securitisation trust, and the RIU and RCU in the Sirius Trust and the Liberty/SPAN Warehouse Trust 2003-1 would not have been transferred from LF to MHT. Consequently, MHT would not have lent to LF funds obtained associated with income earned as RIU holder of the MHT securitisation trusts, because LF would have been entitled to receive those funds directly. In other words, there would have been no change in the course of conduct by entities in the Liberty group in relation to the establishment of the securitisation trusts, and the applicant, as the head company of the income tax consolidated group, would have continued to be taken to derive the residual income from the securitisation trusts. 286 The tax benefit obtained by the applicant in the relevant years under the first scheme is the residual income of the MHT securitisation trusts received by MHT as RIU holder of those trusts, being these amounts: Year Tax benefit 2012 $24,521,888 2013 $33,648,735 2014 $52,685,353 2015 $57,309,594

[54]

The second scheme 290 The second scheme alleged relates to the transferring of ownership of the units in MFGT from the applicant to Jupiter in December 2007. In respect of the second scheme, the Commissioner did not take issue with the establishment of MHT, or with MHT being nominated as the RIU holder of any of the securitisation trusts. Rather, the Commissioner's issue was with the transfer of the units in MFGT from the applicant to Jupiter, and the failure to distribute any, or any more than nominal, income to the special unitholders in MHT (LF and Secure Credit). The second scheme is said to be constituted by the following steps, matters, things or actions: (a) the steps that gave Jupiter (and from 12 April 2013, Vesta, when it replaced Jupiter as the sole unitholder in MFGT and the sole shareholder of the applicant) the entitlement to all of MFGT's distributable income in each of the relevant years, being one or more of the following: (i) the transfer of the two initial units in MFGT from the applicant to Jupiter on 14 December 2007 (see [107] above); (ii) the issue of 5 units in MFGT to Jupiter on 1 July 2010 (see [121] above); and (iii) the issue of 199,409,253 units in MFGT to Jupiter on 30 June 2011 (see [123] above); (b) the applicant, acting in its capacity as the trustee of MHT, choosing not to exercise its discretion to make any (or any substantial) distribution in respect of the distributable income of MHT to special unitholders of MHT (LF and its wholly-owned subsidiary, Secure Credit) in each of the relevant years, with the consequence that the trustee of MFGT, as sole ordinary unitholder of MHT, was entitled to all or the majority of the distributable income of MHT for the relevant years (such that the income was not therefore re-directed to the corporate silo); and (c) MHT lending funds obtained as RIU holder of the MHT securitisation trusts in the relevant years to LF via interest free, unwritten loans, and the MHT and MFGT unpaid present entitlements not being satisfied by the payment of cash to MFGT and Jupiter/Vesta respectively. 291 The Commissioner's case in relation to the tax benefit of the second scheme, is that if it had not been entered into or carried out, it might reasonably be expected that: (a) the applicant, in its capacity as trustee of MHT, would have exercised its discretion under clause 13.5 of the MHT Constitution (see [143] above) to distribute all or substantially all of the distributable income of MHT to the special unitholders of MHT in each of the relevant years; (b) MHT would not have lent funds to LF; and (c) the steps that gave Jupiter (and then Vesta) the entitlement to all of MFGT's distributable income in each of the relevant years would not have occurred, that is: (i) the two initial units in MFGT would not have been transferred from the applicant to Jupiter; (ii) the promissory note would not have been assigned to MFGT in return for the issue of five units in MFGT to Jupiter on 1 July 2010; and (iii) MFGT would not have issued 199,409,253 units to Jupiter on 30 June 2011, such that the applicant would have been entitled, as sole unitholder in MFGT, to any distributable income of MHT that was distributed to MFGT. 292 In other words, the Commissioner contended: [I]f the Court finds that MHT would have been nominated as the RIU Holder of each MHT Securitisation Trust and the residual income and capital units in the Sirius Trust and [Liberty/]SPAN Warehouse Trust 2003-1 would have been transferred from LF to MHT then, at least until the point that an IPO actually occurred, MHT might reasonably have been expected to have distributed its distributable income to the special unitholders (LF and Secure Credit) via the special unit and/or MFGT would have been kept within the tax consolidated group such that any of the distributable income of MHT that was not distributed to LF nonetheless remained within the tax consolidated group. 293 The tax benefit obtained by the applicant in the relevant years under the second scheme is that part of the distributable income of MHT not already distributed to either LF or Secure Credit, being these amounts: Year Tax benefit 2012 $13,381,213 2013 $20,397,322 2014 $30,406,351 2015 $33,467,433

[55]

294 The second scheme therefore accepts the applicant's position that it wanted to proceed with a restructure of the Liberty group insofar as that restructure involved directing the income from the RIUs through MHT to MFGT. However, the Commissioner said that, with what he called "the collapse" of the IPO in 2007, the dominant or prevailing reason for moving MFGT out of the consolidated group was the tax benefit of doing so. The Commissioner's submission in relation to the second scheme was that the applicant, as trustee of MHT, would have, in the absence of the scheme, distributed the net income of MHT to LF, but to the extent that any of MHT's net income was not distributed to LF, that income would have found its way back to the applicant as the owner of MFGT in any event. 295 The Commissioner submitted that the only, or the overwhelming, material benefit from the scheme was the tax benefit obtained from it. In particular, in support of that submission, the Commissioner said that the change in the structure effected by the scheme was not justified by its economic effect in that: (a) LF relied on the cash flows associated with the RIUs it held for the operation of its business and intended to and did continue to rely on the cash flows associated with the RIUs held by MHT following the restructure; (b) the restructure adversely affected LF's capital adequacy ratio (c) LF needed to undertake a capital injection at a greater cost than would otherwise have been the case; (d) any alleged benefit from the restructure associated with the ability to distribute income to the ultimate owner: (i) was incorrect insofar as reliance is placed on any restriction in the terms of LF's borrowings from NAB; (ii) is specious in that LF had a policy of not distributing income to the ultimate owner in order to maintain its level of retained earnings rather than because of any adverse effect of making such distributions; and (e) the applicant has not provided evidence of any cogent commercial or other reason why it failed to distribute, or did not distribute more of, MHT's distributable income to the special unitholders. 296 The Commissioner also contended that: (a) the transfer of the units in MFGT from the applicant to Jupiter was not part of a continuous course of conduct that had commenced in 2007 with respect to becoming "IPO ready" because the IPO planned in 2007 had already been abandoned and the restructure had been delinked from the IPO; and (b) the applicant has not proved that transferring the units in MFGT at a later time, more proximate to when the IPO was actually implemented, would have resulted in a liability to pay stamp duty and CGT, based on the same plans it had proposed to implement in preparation for the IPO in 2007 before it was abandoned.

[56]

The third scheme 297 The third scheme alleged relates to the "failure" of the applicant, as trustee of MHT, to distribute more than only nominal amounts of MHT's distributable income to the corporate silo through the special unitholders, LF and Secure Credit, each of which was a subsidiary member of the tax consolidated group of which the applicant was the head company, in the relevant years. 298 As the Commissioner said in his closing submissions, it is the narrowest scheme insofar as it leaves intact everything done by the Liberty group to list with a stapled structure, assuming that is in fact found to be objectively commercially advantageous to the Liberty group. The third scheme accepts the applicant's position that it wanted to proceed with a restructure of the group and, in particular, that it wanted to direct the income from the RIUs through MHT to MFGT and ultimately to the offshore equity owner. However, the Commissioner said that, having set up the structure to direct the income from the RIUs through MHT, "delinked from any IPO", in the period of over ten years before an IPO took place, the dominant or prevailing reason for that income being distributed offshore, rather than directed to the operating entity, LF, was the tax benefit of doing so. 299 The third scheme is said to be constituted by the following steps, matters, things or actions (which also forms part of the second scheme): (a) the applicant, acting in its capacity as the trustee of MHT, choosing not to exercise its discretion to make any (or any substantial) distribution in respect of the distributable income of MHT to special unitholders of MHT in each of the relevant years, with the consequence that the trustee of MFGT, as sole ordinary unitholder of MHT, was entitled to all or the majority of the distributable income of MHT for the relevant years; and (b) MHT lending funds obtained as RIU holder of the MHT securitisation trusts in the relevant years to LF via interest free, unwritten loans, and the MHT and MFGT unpaid present entitlements not being satisfied by the payment of cash to MFGT and Jupiter/Vesta respectively. 300 The Commissioner's case in relation to the tax benefit of the third scheme was put this way. 301 For the purposes of s 177C(1)(a), the Commissioner contended, it is reasonable to expect that if one or all of the three schemes identified above had not been entered into, then LF would have derived some or all of the residual income from the MHT securitisation trusts such that the tax benefit is the non-inclusion of the relevant amount of residual income of the MHT securitisation trusts in the applicant's assessable income under s 6-5 and Part 3-90 of the ITAA97 in each of the relevant years. 302 If the third scheme had not been entered into or carried out, the applicant, in its capacity as trustee of MHT, might reasonably have been expected to exercise its discretion under clause 13.5 of the MHT Constitution (see [143] above) to distribute all or substantially all of the distributable income of MHT to the special unitholders of MHT in each of the relevant years; consequently, MHT would not have lent funds to LF. 303 In other words, the Commissioner contended, if the court finds that MHT would have been nominated as the RIU holder of each MHT securitisation trust, that the RIUs and RCUs in the Sirius Trust and Liberty/SPAN Warehouse Trust 2003-1 would have been transferred from LF to MHT, and that MFGT would have been transferred out of the tax consolidated group then, at least until the point that an IPO actually occurred (and at least in the relevant years), MHT might reasonably have been expected to distribute its distributable income to LF and Secure Credit via the special units. 304 As the Commissioner pointed out, strictly speaking, the third scheme is a self-contained scheme that occurred in each of the relevant years when distributions of income were made by MHT in that year and loans were advanced to LF. Therefore, the provisions of Part IVA set out at [254] above (as amended from time to time) will apply to this scheme insofar as it relates to the 2013 to 2015 years. Nonetheless, the tax benefit obtained by the applicant in the relevant years under the third scheme is the same as that under the second scheme.

[57]

The expert evidence 305 Mr Ali, the expert called on behalf of the applicant, described his relevant experience and qualifications to include the following: I have over 25 years of experience within the financial services industry, including 18 years across two top tier global investment banks. I am currently Managing Director of Theorem Consulting, an independent consulting firm established in 2018, that specialises in advising on mergers and acquisitions, acquisition financing, capital raisings and capital structuring. 306 In the periods from 2007 to 2009 and 1 July 2011 to 30 June 2015, Mr Ali was a senior executive within the Corporate Finance division of Deutsche Bank. His responsibilities at Deutsche Bank during that time involved a focus on advising Australian financial institutions in connection with mergers and acquisitions, acquisition financing, and the raising of debt, equity, and hybrid capital. 307 Mr FitzGerald, the expert called on behalf of the Commissioner, described his qualifications as follows: Over 45 years of experience, focused on credit markets and credit risk management in both the origination and investment areas of the market and as a member of a major superannuation fund investment committee and as advisor to fixed interest asset manager [sic]. 308 The applicant submitted, and the Commissioner in the end did not dispute, that although Mr FitzGerald was relevantly qualified to venture an expert opinion about debt capital markets, he had never worked for or as a manager or underwriter of an equity IPO, or in any business preparing for such an IPO, nor had he given structuring advice for the purposes of a private equity capital raising. See [333] below. 309 The applicant adduced evidence from Mr Ali in support of the proposition that the reason Liberty set up the trust silo was to enable it to "go to market" with a stapled structure and that the stapled structure was anticipated to bring the commercial benefits mentioned earlier in these reasons. In what follows, I have not included all his views, because not all of them were relied on, at least not for much. 310 Mr Ali gave evidence that stapled securities have been in existence in Australia for over three decades, with the first stapled security on the ASX being the stapling of Stockland Trust and Stockland Corporation Limited following a restructure of the Stockland group in 1988. As at the date of Mr Ali's first report (19 March 2021), he said that there were 22 stapled security structures within the ASX200 that comprise stapling of trust units and company shares, with a total market capitalisation of $204 billion, representing approximately 10.5% of the aggregate market capitalisation of the ASX200. 311 Mr Ali explained that typical stapled security structures comprise a trust which holds passive assets receiving rental or finance income, together with an operating company which carries out the trading and administrative operations of the group. Distributions from the trust entity are generally flow through, gross cash distributions. Conversely, distributions from the company will generally be from after-tax profits of the company and may therefore be franked to the extent the company has available franking credits. 312 His analysis of the then most recent annual reports of stapled security groups within the ASX200 showed that, on average: (a) the proportion of distributions from the trust relative to total distributions was approximately 95%; and (b) the proportion of total distributions, whether paid from the trust or the company, that were unfranked, was approximately 98%. 313 He further opined that the "general market expectation" is that distributions from stapled security groups predominantly arise from the trust and substantially comprise gross cash (unfranked) distributions. 314 In his first report, Mr Ali addressed three inter-related questions: (1) As at 2007, what advantages, if any, would you expect to be obtained from an IPO of stapled securities (consisting of a unit in MFGT and a share in LFG (that is, the applicant, now known as MFG)) as opposed to an IPO of shares in LF? (2) How, if at all, would you expect the legal form adopted by the Liberty group in 2007 and 2008 (including the decision to issue the units in future securitisation trusts to MHT) to assist the group in raising capital in the future (including by way of a future IPO)? (3) To what extent, if at all, would you expect the legal form to provide commercial benefits, advantages or efficiencies when acquiring other financial services businesses or financial assets? 315 Mr Ali opined that the fundamental advantage that he would expect to arise from an IPO of stapled securities, as opposed to an IPO of shares, is improved transaction pricing, resulting in an enhanced valuation for the listed group. He said that he would expect the improved pricing outcome to be primarily the result of increased Australian domestic institutional investor demand for the securities and furthermore as a consequence of increased overall demand for the securities. 316 He further opined that the "key considerations driving the expectation of increased investor demand and an improved IPO pricing outcome, are a series of actual and perceived benefits to investors, resulting from the stapled structure that would either be non-existent or perceived to be reduced in the absence of the stapled structure". The key considerations included the following. 317 First, the majority of ASX listed equity securities pay franked distributions, and although institutional investors comprise the overwhelmingly largest component of the shareholder base for all ASX listed stocks, they will prefer to receive, all other things being equal, unfranked gross cash distributions as opposed to franked distributions, mainly because: (a) a dollar of franking credits is valued by the market at less than a dollar of cash; and (b) franking credits received by institutional investors are often not incorporated or allowed for within the calculation of returns upon which fund performance is measured or presented. 318 He gave the following evidence about the value of franking credits: Franking credits have realisable value to investors when two conditions are met: 1 The Distribution Condition - the franking credits must be distributed by the corporate, by attaching available franking credits to dividends paid. The propensity for corporates with available franking credits to actually distribute them via dividends is referred to as the Distribution Factor. 2. The Utilisation Condition - the franking credits must have an economic value in the hands of the investors upon receipt. The propensity for investors to be able to utilise franking credits that are received, having regard to both the ability to receive a benefit from the franking credits as well as the timing impact associated with receipt of that benefit, is commonly referred to as the Utilisation Rate (or Theta). The estimated market value of franking credits is the product of the Distribution Factor and the Utilisation Rate, and is commonly referred to as the Gamma estimate. Since the introduction of the dividend imputation system in Australia, there have been numerous studies and research publications that seek to estimate the values of Theta and Gamma to determine a market estimate of the value of franking credits. An article by Deloitte Corporate Finance released in November 2014 provides a summary of the Theta and Gamma estimates by a number of researchers based on various methods for assessing the values of Theta and Gamma, as shown in Table 5.1 below. Table 5.1: Theta and Gamma estimate studies Researcher Year Theta Gamma Type of study The Strategic Finance Group 2011 35% 25% Dividend drop-off Handley and Maheswaran 2008 74% 67% Tax statistics Beggs and Skeels 2008 57% n/a Dividend drop-off Hathaway and Officer 2004 40-50% 40% Dividend drop-off Twite and Wood 2002 n/a 45% Share futures Hathaway and Officer 1996 44% n/a Dividend drop-off McKinsey & Company 1994 68% n/a Dividend drop-off Bruckner, Dews & White 1994 71% 69% Dividend drop-off Brown & Clarke 1993 72% n/a Dividend drop-off Source: "Franking credits - who is right?", Deloitte Corporate Finance Infrastructure Series, November 2014.

[58]

The Deloitte Corporate Finance article also notes that Utilisation Rates adopted by investors in recent years in their valuation analysis ranged between 50% and 100%, and typically fell within the 70%-80% range. In summary, there are a range of views across the market regarding the estimated value of franking credits, which is impacted by: • the propensity for companies to distribute franking credits to their shareholders; • the ability for investors to realise an economic benefit from those franking [credits] that are distributed; and • the delay or timing impact associated with the realisation of any such economic benefit. The estimated value of franking credits can also depend on the company or industry sector being assessed. However, there is overwhelming consensus across both market participants and researchers alike, that the estimated market value of franking credits is lower than the corresponding dollar value of cash. 319 Further, Mr Ali also opined that in relation to dividend and distribution income received on investment portfolios, depending on the tax characteristics of the investor, institutional investors will either pass on the relevant share of franking credits to underlying investors or, where applicable, realise the economic benefit of franking credits received. In the latter case, he explained, the economic benefit realised from receipt of franking credits will generally be proportionately attributed to the underlying fund investors. 320 However, notwithstanding the fact that the economic benefits of franking credits received may be passed on or attributed to underlying investors or fund members, the measurement and presentation of fund investment performance in marketing materials often excludes any allowance for franking credits, because investment performance is very often presented relative to indices or benchmarks which are predominantly calculated on a cash (pre-tax) basis. 321 Mr Ali further opined, in the case of Liberty, that another benefit was improved access to debt funding, as follows: Liberty's primary funding source for its lending activities is through its securitisation program, whereby wholesale or term funding is obtained via special purpose trust vehicles. Liberty also had a corporate level secured loan facility with an Australian major bank lender, initially with ANZ between 1998 and 2007 and subsequently with NAB from 2007 onwards, in each case secured over all of the assets of LF. The establishment of a stapled security structure with the various investment assets and funding trust vehicles under the Trust Vertical can be viewed as a natural extension of Liberty's trust based debt financing framework. In particular, the issue of RIUs and RCUs to MHT in respect of the MHT Securitisation Trusts ensured that: a) the RIUs and RCUs held by MHT were not subject to the charge that Liberty's corporate facility lender had over all of the assets of LF; and b) the cash flows arising on those RIUs and RCUs were distinct and not comingled with cash flows arising within the administrative and operational aspects of the business. The segregation of these residual unit cash flows from Liberty's operational cash flows facilitated greater optionality with regard to debt funding sources by providing Liberty with the option to source distinct funding secured against the RIUs and RCUs from specialty high yield funds that focus on such lending. Ultimately the structure adopted enabled Liberty to clearly separate its passive investment income from its administrative cash flows, giving it the flexibility to opportunistically source distinct subordinated funding. I believe that institutional investors would view the increased debt funding optionality as beneficial given that it would aid Liberty in sourcing debt funding in the most optimal and cost efficient manner. 322 Mr Ali further expressed the opinion that the "investor universe" within the ASX listed equity market can broadly be as follows: (a) large institutional investors - generally larger institutional fund managers or superannuation funds that tend to invest in amounts exceeding about $5 million and trade in shares in amounts exceeding about $1 million; (b) middle market investors - generally smaller fund managers, family office funds or high net worth individual investors that tend to invest in amounts between $250,000 and up to $10 million and trade in shares in amounts exceeding about $100,000; and (c) retail investors - individual retail investors that tend to invest in amounts below $250,000 and generally trade in smaller parcels of shares in amounts less than $100,000. 323 He also opined that the view that, all things being equal, institutional investors are expected to have a preference for an ASX listed stapled security structure relative to a corresponding ASX listed company share structure, is supported by his empirical analysis of ASX200 shareholders. 324 In conducting what he called a "shareholder distribution analysis", Mr Ali said that "a common market rule of thumb" is to classify shareholders with holdings that exceed $250,000 in value as institutional shareholders, while shareholders with holdings lower than $100,000 in value are generally viewed as retail investors. (Shareholders with holdings valued between $100,000 and $250,000 can comprise both large retail investors and smaller institutional investors.) 325 Mr Ali said that based on his analysis of shareholdings for all ASX200 companies, the estimated weighted average proportion of shareholdings (by value of holding) where the value of each individual holding is above or below $250,000, is shown in this table: Weighted average percentage of issued capital held where individual holdings are: $250,000 Stapled security structures within the ASX200 7.6% 92.4% All ASX200 listed companies (excluding stapled securities) 15.6% 84.4%

[61]

328 In response to the second question ("How, if at all, would you expect the legal form adopted by the Liberty group in 2007 and 2008 … to assist the group in raising capital in the future (including by way of a future IPO)?"), Mr Ali opined that the advantages associated with the structure relating to a future IPO, a private equity capital raising, and debt financing, were as follows: The legal form and structure adopted by the Liberty Group in 2007 and 2008, comprised: • the restructure of the group to hold new securitisation trusts under MFGT, and to coordinate the operational, management and administrative functions of the business under LFG … ; and • the decision to issue units in future Securitisation Trusts to MHT I believe the legal form and structure adopted to be commercially advantageous to the Liberty Group and its shareholders, as I expect that it would have assisted the group in raising capital, by way of: a) a future IPO - as the structure adopted would facilitate an IPO of stapled securities, thereby improving the IPO transaction pricing due to increased investor demand resulting from a series of actual and perceived investor benefits (as specified in the answer to Question 1 … ); b) a private equity capital raising - on the basis that the investor benefits associated with the group structure are also prevalent in the case of equity investors in the private capital markets; and c) debt financing - due to enhanced flexibility and access to debt funding sources to aid Liberty in sourcing debt financing in the most optimal and cost efficient manner. 329 As for the third question, Mr Ali's opinion was that the legal form and structure adopted "was commercially advantageous to the Liberty Group in its pursuit of acquisition led growth, by facilitating enhanced flexibility in relation to both the structuring and financing of potential acquisitions". 330 Mr FitzGerald responded to Mr Ali's first report. 331 He was asked the following questions: 1. Based on the information with which you have been instructed, please provide your opinion on the likely impact of the restructure of the Liberty group that took place in the course of 2007‐2009 as described in paragraphs 29 to 52 of Appendix A to our letter dated 16 June 2021: a. on the credit profile of Liberty's Australian financial services business, particularly in respect of the period from 1 July 2011 to 30 June 2015; and b. on Liberty's ability to access credit markets, particularly: - in the period from 1 July 2011 to 30 June 2015; and - with respect to the position of Liberty Financial Pty Ltd, the entity that principally operated Liberty's Australian lending business. 2. In addition, please consider the report of Mr Ali and, to the extent that it deals with matters within your expertise, please identify those matters in respect of which you agree and those matters in respect of which you disagree. To the extent that you disagree with Mr Ali's views, please explain the basis for your disagreement. 332 From 2002 to January 2009, Mr FitzGerald was the Head of Credit Funds/Co‐head Global Fixed Interest and Credit at Colonial First State Global Asset Management, which he said was one of the largest fixed interest and credit investors in Australia at the time. His team "was a major player in debt capital markets both domestically and internationally with billions of dollars invested in credit markets". Before that, he held senior positions in debt capital markets origination (in Australia, Asia, Europe and the USA). He also held senior positions in the risk policy areas of the Union Bank of Switzerland and Commonwealth Bank, including credit risk policy. He developed the first internal credit risk rating system for Union Bank of Switzerland and implemented that system globally. He held substantial authority to approve credit applications personally and as part of credit committees. During his time at Colonial First State, he had substantial interaction with the equities team and the teams that measured fund performance. Since 2011 he has been a member of the Investment Committee of UniSuper where he has "been involved in the full spectrum of investment products, including domestic and global equity products, where performance and performance measurement is a significant focus". 333 The applicant did not dispute that Mr FitzGerald had the necessary knowledge and experience to opine on matters relevant to debt and credit issues, but submitted that Mr FitzGerald did not have the necessary knowledge or experience to opine on matters relating to equity capital transactions, whether in the context of an IPO or in the context of a private capital raising. In particular, the applicant submitted that, as Mr FitzGerald largely admitted in cross-examination: (1) his professional experience was in fixed interest and credit markets (he described himself as a "credit analyst"); (2) he has never advised on an IPO, has never worked in an equities team of an investment bank, and has never supervised anyone working in such a team; (3) he has never worked as a manager/joint lead manager for an IPO (outside of advising on debt aspects) and has never acted as an underwriter for an equity IPO; (4) he has never worked for a business preparing for an IPO, has never given advice to a business in relation to an IPO, nor has he given structuring advice for the purposes of an IPO or a private equity investment; (5) his experience in equity markets was limited to (i) his role on the UniSuper investment committee, which set investment policy and strategy and monitored investment managers, but generally did not make decisions about buying individual investments or consider the structure of proposed equity investments, and (ii) his experience investing his personal funds in the market place; and (6) the considerations of an equity investor (or an advisor to an equity investor) are different to those of a business looking to attract equity investors, and Mr FitzGerald has limited experience in the former and no experience in the latter. 334 The Commissioner did not ultimately place any particular reliance on Mr FitzGerald's opinions in respect of matters relating to equity capital transactions, whether in the context of an IPO or a private capital raising, quite rightly so, because the points made in cross-examination of Mr FitzGerald about the limitations of his expertise were well made, and largely conceded by the witness. Mr Looney made this concession in his closing address: [W]e're bound to accept that there's a difference [of] experience between [Mr Ali and Mr FitzGerald]. We say that, to the extent that Mr FitzGerald has relevant equity experience - and I don't state it beyond what it is, and that's a member of a relevant committee that's considering equity investments - then he does have adequate experience to be regarded as an expert and not disregarded, but we have to [concede] that it may go to weight. 335 Because of the concessions (quite properly made) about the limits of his expertise, I have not had regard to Mr FitzGerald's opinion evidence about matters relating to equity capital transactions, in particular his assertion (at [16] of his report) that "based on [his] experience [he did] not believe an IPO of stapled securities would increase demand for the stock and would not increase transaction pricing". 336 In relation to the (equity markets) question, "as at 2007, what advantages, if any, would you expect to be obtained from an IPO of stapled securities (consisting of a unit in MFGT and a share in LFG) as opposed to an IPO of shares in LF?" Mr FitzGerald opined that from his experience, "financial services companies (banks, insurance companies and companies like LF) are among the most difficult for equity or credit analysts to assess because of the complex nature of their businesses and the lack of transparency in their true underlying risks". He continued: History has shown that the credit ratings of banks and insurance companies go from investment grade to sub‐investment grade or default almost overnight when an idiosyncratic shock occurs. The idiosyncratic shocks are shared by equity and debt capital markets at the same time and have usually resulted from an inability of [analysts] to detect the 'hidden' risk in such complex 'risk taking' entities … Of note are the failures post 2000. Many of these were unexpected and resulted from fraud or the undisclosed risks in their investment portfolios that were exposed in the GFC. Lehman Brothers was a good example where the internal risks were not transparent to outside analysts including the rating agencies. This difficulty of analysis is compounded if the capital structure of a company increases in complexity. The increased complexity of Liberty's capital structure as a result of the 2007‐2009 restructure may have potentially reduced value, but in my opinion would definitely not have increased the value or demand for the stock. Increased complexity results in the need for more detailed analysis, but this extra analysis may not readily answer the questions raised … I cannot see how this increased complexity would have increased institutional or other investor demand for the stock. 337 Mr FitzGerald also disagreed with Mr Ali in relation to his opinion that stapled securities facilitate unfranked cash distributions, thereby increasing demand, as follows: It is correct that the stapled securities would allow for unfranked distributions. However, it is incorrect to suggest that unfranked cash distributions would increase institutional demand for the stock. From my personal experience from within a major instructional investor, it is my opinion that the tax benefit of franked dividends is desirable to institutional investors especially Australian superannuation funds which are taxed at 15%. Funds in 'pension stage' do not pay tax so the franking credit is even more valuable, as it represents a direct cash reimbursement of the franked amount. 338 Mr FitzGerald also disagreed with Mr Ali in relation to his opinion that stapled securities result in improved access to debt funding options, as follows: I cannot see how this would arise. The funding options to an organisation such as LF are generic, they must rely on wholesale markets, so they are limited to bank debt and the ability to access the debt capital markets via such instruments as securitisation or the Medium Term Note (MTN) program. LF subsequently (in 2019) obtained finance against the collateral of the RIU's and RCU's, they also launched investment funds in 2011 and 2012 - neither of these options were dependent on the restructure or would have been influenced by the issue of stapled securities. What would have enabled the financing against the RIUs and RCUs was NAB's consent to MHT encumbering these assets. The ability to raise debt financing is primarily reliant on the borrower's ability to service that debt with available cash flow, and the reliability of that cash flow. The restructure did nothing to improve the cash flow or capital structure of LF. 339 Mr FitzGerald also disagreed with Mr Ali's opinion about the commercial benefits of the corporate and trust silos, in essence because: (a) from his knowledge and experience, institutional investors - in Australia dominated by superannuation funds - do not favour cash dividends over franked dividends; (b) stapled structures add complexity, not transparency; (c) Liberty's ability to raise debt is primarily dependent on its assessed default risk, determined by its ability to service its debt with reliable cash flow and adequate capital reserves, which risk would predominantly be assessed from an analysis of LF's published consolidated financial accounts, and the restructure, as MHT was still part of the consolidated group, would have had no impact on the consolidated financial statements of LF; (d) although it is true that performance may also be measured on a before fees and taxes basis against benchmarks, performance provided to members of the major funds, and the comparison of funds' performance in the market, is on an after fees and taxes basis; and (e) Mr Ali "grossly overstat[ed]" the perceived benefit of improved operational efficiency (which, as I note at [407] below, was not a point ultimately pressed by the applicant) "as it is at a level of detail that, from [his] experience, would not even feature in any analysis or buy decision by any credit or equity analyst on either the sell or buy side of a transaction in the institutional market". 340 Mr FitzGerald also disagreed with Mr Ali in relation to the second question (see [328] above), including because, in relation to an IPO, he did not believe an IPO of stapled securities would increase transaction pricing based on his experience, and in relation to a private equity capital raising, he did not accept that the benefits described by Mr Ali exist. Mr FitzGerald also disagreed with Mr Ali's opinion that stapled securities would enhance flexibility and access to debt funding sources to source funding in the most optimal and cost efficient manner, as follows: It would have been useful if Mr Ali had provided examples of these benefits. In my opinion the restructure did not in any way improve LF's flexibility to access previously unavailable funding sources, nor would it have improved the perception of credit risk such that it would lead to more 'optimal' or lower risk (cheaper) pricing or better loan conditions. This is supported by the fact that neither in the NAB credit submission of 21/5/2012 nor the annual rating agencies reviews was the restructure mentioned as a credit enhancement/risk mitigant … The removal of MHT from the net worth covenant by NAB added little to LF's flexibility or access to debt funding. NAB consent to the RIUs and RCUs being encumbered allowed the 2019 asset‐based [Good Hill] financing against those units. However, considering the high cost of this financing, with a risk margin of 10.85%pa above the bank bill swap rate (assuming the drawdown was on 28/6/2019 and for the 24 month term of the facility, the all in rate would have been 11.919% using the 2 year swap rate on 28/6/19 of 1.069%), it was hardly 'optimal or cost efficient'. Also, the same high yield financing against the collateral of the RIUs and RCUs would have been available to LF (assuming equivalent market conditions and following NAB consent to those assets being encumbered) prior to the implementation of the restructure. 341 Mr Ali responded in his supplementary report. I will not include each and every source of disagreement or response, because many of them did not feature in closing submissions. I will instead summarise the arguably more relevant responses. 342 First, he said that Mr FitzGerald has misunderstood his point about franking credits, and that, by way of clarification, he said that in his view, all other things being equal, institutional investors will prefer to receive $100 of cash distributions as opposed to receiving $70 of cash and $30 of franking credits. He continued: Mr Fitzgerald notes that in the Deloitte Corporate Finance research article referenced in my Initial Report, Deloitte "concluded that franking credits have value to Australian investors", quoting the statement in the Deloitte article that, "The majority of investors consider franking credits to be valuable to their underlying securityholders and therefore value franking credits". Mr Fitzgerald also correctly points out that, "Although this Deloitte paper focused on infrastructure assets, their conclusion applies generally to the investor market." I concur with Mr Fitzgerald and the conclusions in the Deloitte paper that, franking credits have value to Australian investors. I also agree with Mr Fitzgerald that the conclusions in the Deloitte paper apply generally to the investor market. 343 Having reiterated his view that the overwhelming consensus across both market participants and researchers alike is that the estimated value of franking credits is lower than the corresponding dollar value of cash, and the importance of the different tax characteristics of investors, he continued: … depending [on] the tax characteristics of the investor, institutional investors will either pass on the relevant share of franking credits to underlying investors or where applicable, realise the economic benefit of franking credits received. Superannuation funds are in the latter category, whereby the economic benefit realised from receipt of franking credits will generally be proportionately attributed to underlying fund members. Conversely, unit trusts or managed investment schemes are in the former category whereby the franking credits will be passed through to underlying unit holders. Not all institutional investors are in a position to realise the full economic benefit of franking credits, for example: • corporates and insurance companies can use franking credits to offset tax liabilities but are not necessarily eligible to receive cash refunds in respect of excess franking credits; and • international investors can only realise the economic benefit of franking credits to the extent that they offset any applicable dividend withholding tax. Institutional fund managers that pass on franking credits to underlying unit holders are also cognizant of the fact that not all of their underlying unit holders will be able to fully realise the economic benefit of franking credits. Accordingly, having regard to their underlying unitholder base, they will ascribe less than full face value to franking credits received. 344 Under the heading of "Timing delay associated with realisation of franking benefits", Mr Ali responded to Mr FitzGerald as follows: Mr Fitzgerald states that, "the tax benefit of franked dividends is desirable to institutional investors especially Australian superannuation funds which are taxed at 15% [and that] funds in 'pension stage' do not pay tax so the franking credit is even more valuable, as it represents a direct cash reimbursement of the franked amount." Whilst I agree with Mr Fitzgerald's assertion that the tax benefit of franking credits is desirable to Australian institutional investors, I do not consider that Australian institutional investors value franking credits more than the corresponding dollar amount of cash. Furthermore, I disagree that the value of those franking credits to Australian investors differs merely as a function of the investors' tax rate resulting in a cash refund. Where an Australian investor is able to fully utilise franking credits, the franking credits so received will result in either a tax offset or a cash refund (or a combination of both) depending on the investor's applicable tax rate. However, in relation to the utilisation of any given quantum of franking credits, the cash flow implications of a tax offset versus a cash refund would be the same. Consequently, it cannot be the case that a rational investor would ascribe more value to franking credits merely because they give rise to a cash refund as opposed to a tax offset. However, even in cases where investors are able to fully realise the economic benefit of franking credits, they are likely to value franking credits at less than 100% of face value due to the timing delay associated with the realisation of that economic benefit (i.e. until the relevant tax returns are completed). Figure 4.1 below illustrates that, for franking credits attached to a dividend payment received by an investor in August of a given year, the potential timing delay associated with realising the economic benefit of those franking credits can be up to 19 months (depending on the timing of completion of the investor's tax returns). 345 Mr Ali also said, in relation to the market ascribed value of franking credits, that: Although there may be some institutional investors that ascribe full (or close to full) value for franking credits, this represents only a subset of the universe of potential investors in an IPO. Based on my interaction with a significant number of major Australian and international institutional investors over the past two decades and my direct experience in advising Australian companies on IPO transactions and equity capital raisings, in my view there is a substantial proportion of institutional investors that ascribe materially less than 100% value to franking credits. This view is supported by numerous research publications on the estimated market value of franking credits referenced within the Deloitte research article, which illustrate that the Theta factors derived from these research studies range between 35% and 74%. Investors in an IPO must also have regard for their ability to sell or liquidate their investments. Accordingly, when considering an investment decision, investors will not only consider their own fundamental views of the cash flow prospects and valuation of a company but would also consider the market views of valuation of the company. Consequently, in assessing the value ascribed to the future expected receipt of franking credits, institutional investors will not only consider their own ability to utilise those franking credits but also have regard for the market valuation ascribed to franking credits. Results of a Deloitte survey of utilisation rates adopted by selected investors in infrastructure funds are illustrated in a graph within the Deloitte research article, which shows that even superannuation funds adopt utilisation rates of between 70% and 80%, when assessing the value of franking credits. To the extent that institutional investors ascribe less than 100% face value to franking credits, they will value a projected stream of expected gross cash distributions (e.g. a stream of $100 distributions) more highly than a stream of correspondingly lower cash distributions together with associated franking credits attached (i.e. a stream of $70 cash dividends and $30 of franking credits). It is therefore unambiguous in my opinion that (all other things being equal), institutional investors will generally value an IPO candidate more highly where the group is structured in a manner that facilitates the payment of unfranked gross cash distributions as opposed to the payment of franked dividends (that have a lower corresponding cash component together with attached franking credits). I consider this view to be supported by the empirical analysis in … my Initial Report, which show that on average the weighting of institutional size shareholdings of ASX200 listed groups with stapled security structures is observably higher than that for ASX200 listed companies without stapled security structures. 346 Mr Ali also said, in relation to leveraged funds, that: There are also many investment funds or market participants (such as hedge funds) that take leveraged positions, whereby their stock market investments are partially debt funded. These investors will tend to have an increased preference for gross cash distributions over correspondingly lower franked dividends, because they will have a strong preference to receive cash distributions to cover debt interest obligations. Again, even in cases where such funds are able to fully realise the economic benefit of franking credits, the associated timing delay will result in a preference for cash over franking credits. 347 Mr Ali also said, in relation to ASX hybrid markets, that: Since 2003, I have advised as structuring adviser and/or joint lead manager on 24 ASX listed hybrid transactions representing in excess of $23 billion of capital raised. Fifteen of those transactions (representing $17.5 billion of capital raised) paid franked distributions, including four that were structured as stapled securities. Based on the ASX listed hybrid transactions that I have been involved in and the interactions with domestic and international institutional investors during these transactions, my experience has been that institutional investor appetite for franked hybrid securities is materially lower than for unfranked hybrid securities. Institutional investor demand in the franked ASX listed hybrid transactions that I have advised on, have typically been in the range of approximately 5% to 10% of the aggregate order book, with the remainder being broker firm demand representing retail or high-net-worth individual investors. The institutional investor demand in the unfranked ASX listed hybrid transactions that I have advised on have, by contrast, been in the range of approximately 20% to 50% of the aggregate order book. Furthermore, the international investor demand in the franked ASX listed hybrid transactions that I have advised on has been zero in all cases, whereas the international investor demand in unfranked ASX listed hybrid transactions that I have advised on, has been up to approximately 20% of the aggregate order book. 348 Mr Ali also said, in relation to performance measurement, that superannuation funds represent a subset of the potential universe of institutional investors in an IPO and that Mr FitzGerald's observations did "not derogate from [Mr Ali's] key premise … that, investment management performance is very often presented relative to indices or benchmarks which are predominantly calculated on a cash (pre-tax) basis". He gave a series of examples which, he opined, illustrate that "not only do fund managers measure and present their Australian share fund absolute return performance on a pre-tax basis, but they present performance relative to benchmark indices (such as the S&P/ASX200 Accumulation Index or S&P/ASX300 Accumulation Index) that are also determined on a basis that has no allowance for franking credits". 349 Mr Ali also said, in relation to investor disclosure and analyst review, that: Mr Fitzgerald contends that, "Analysts only have access to public information [and] they therefore focus their analysis mainly on published financial statements." In my experience, the analysis that equity analysts conduct in assessing a prospective IPO candidate, extends far beyond merely a focus on published financial statements. I would expect that discerning analysts within institutional investors and equity research analysts at investment banks or stockbroking firms, will not only focus on published financial statements, but will also (among other things): • carefully review and consider the IPO Prospectus or PDS and investors presentations; • interrogate management via detailed Q&A during investor briefings; • consider the market, competitive and economic environment within which the company operates; • thoroughly assess management's capabilities, competencies and commitment to risk management, corporate governance and operational efficiency; and • prepare a rigorous financial model including forecasts based on carefully considered assumptions informed by their review and interactions with management, together with their judgement and experience as analysts. I disagree with Mr Fitzgerald's assertion that, "any analyst would assume that for any professionally managed company [the areas that I refer to, being operational, management and business support functions], would be appropriately managed and the investors would rely on external auditors to support this view". Rather, I expect that in the context of a potential IPO, discerning equity analysts would thoroughly investigate the disclosure materials and interrogate management during investor Q&A to develop an independent assessment of the company and management's ability to achieve optimal operational efficiency. 350 In relation to the Good Hill borrowing, Mr Ali responded: As noted in … my Initial Report, Liberty obtained $140 million of funding from a specialised credit investment firm, in the form of a structured facility secured against the RIUs and RCUs held by MHT. This bespoke MHT financing was similar in concept to the Colonial FMS transaction, in that they were both borrowings secured against future income streams with little to no tangible net assets associated with the relevant security. Mr Fitzgerald states that, "It was when the RIUs and RCUs were segregated from NAB's fixed and floating charge that those cash flows could have been made available to service another borrowing." However … the RIUs and RCUs issued to MHT were never subject to the NAB fixed and floating charge. Due to its revised group structure, Liberty was able to issue these new RIUs and RCUs directly to MHT and avoid these units being subject to the NAB fixed and floating charge. If these RIUs and RCUs had been issued to LF instead, they would indeed have been subject to the NAB fixed and floating charge. In that scenario, Liberty would have required specific release from NAB in order to utilise these RIUs and RCUs as collateral to facilitate standalone borrowing. Furthermore, if these RIUs and RCUs were held by LF, it would have been considerably more cumbersome for Liberty to source bespoke financing secured against this collateral since it would have likely involved: • more complexity associated with ring-fencing of the relevant cash flows; • more detailed subordination provisions in respect of the bespoke facility; and • specific permission to incur the relevant financial indebtedness under the NAB Facility. Accordingly, I reiterate [my] view … that, the structure adopted by Liberty provided it with improved funding flexibility. I note that in the absence of the revised group structure, Liberty could not have readily procured the $140 million of financing from a specialist credit investor in July 2019, because such a financing would have required specific release from NAB which may not have been readily forthcoming. NAB may also have required that any such specialist lender under these circumstances be subordinated to NAB in terms of cash flows and enforcement rights. I consider that a specialist lender may have been less likely to lend against the RIUs and RCUs under such circumstances.

[63]

The first scheme 353 The Commissioner submitted that the following findings should be made in respect of the first scheme: (1) establishing MHT as part of the "trust silo" in April 2008 and subsequently having MHT nominated as the RIU holder of the securitisation trusts were steps performed as part of an internal restructure that was undertaken after Liberty's planned IPO had been abandoned in mid-2007, and therefore were not steps that were part of any continuous course of conduct that commenced in 2007 with a view to ensuring that the Liberty group was "IPO ready"; (2) given that no IPO was in immediate contemplation at the time that the first scheme was implemented, the applicant's suggestion that the first scheme was implemented in the manner it was and at the time it was for the dominant purpose of minimising any stamp duty or CGT that might otherwise have applied to the transfer of the RIUs should not be accepted because: (a) there was nothing in the evidence to gainsay the proposition that securitisation trusts could have been established with MHT as the RIU holder at a later date, closer in time to the proposed IPO in either 2016 or 2020 in a manner that also minimised stamp duty or CGT; (b) further or alternatively, the applicant led no evidence that provided a reliable basis for concluding that stamp duty would have been imposed (and, if so, in what amount) had the RIUs been transferred at a later date, nor did it lead evidence that showed that it could not have used consolidation in the manner that had been proposed in 2007 to minimise its exposure to CGT (see [106] above); and (3) in any event, the commercial advantages associated with the establishment of the "trust silo" as part of any plan to be "IPO ready" for the purposes of listing as a stapled structure were overstated. 354 The Commissioner made submissions about more specific findings that he said should be made under the following rubrics: (1) Transition to RIUs being held by MHT: stamp duty and CGT (a) Consolidation relevant to minimising CGT (b) Failure to establish avoidance of stamp duty and CGT generally (2) Lack of evidence regarding the commercial benefits of the stapled structure (a) Reasons for adopting the stapled structure (b) Unfranked cash distributions (c) Borrowing flexibility (d) Acquisitions

[64]

Abandonment of IPO 355 I will deal with each of the submissions made under the rubrics set out above, and the submissions made by the applicant in response, in turn. It is, however, first necessary to deal with the Commissioner's contention that establishing MHT as part of the "trust silo" in April 2008, and subsequently having MHT nominated as the RIU holder of the securitisation trusts, were steps performed as part of an internal restructure that was undertaken after the IPO had been "abandoned" in mid-2007, and "were not part of any continuous course of conduct that commenced in 2007 with a view to ensuring that the Liberty Group was 'IPO ready'" and, relatedly, that "no IPO was in immediate contemplation at the time that the first scheme was implemented". 356 Along the same lines, the Commissioner contended - indeed his submissions were structured around the proposition - that between 2006 and 2007, the Liberty group "prepared" for a restructure and IPO, and that thereafter there were three restructures - the first, being constituted by the acts, matters and things done on 29 June 2007, the second by the acts, matters and things done between late 2007 and 2011, and the third by the "eventual" IPO in 2020. 357 In furtherance of that contention, it was submitted that the date on which MHT was established - namely, 15 April 2008 - "is a matter that bears on the question of whether there was one restructure or two; as a matter of impression, the greater the delay in establishing MHT, the less likely that the internal restructure undertaken after the IPO was either abandoned or postponed in mid-2007 could be viewed as a continuous course of conduct". 358 The Commissioner also submitted that I should find that the eventual IPO "was motivated by a desire on the part of the ultimate shareholders to realise and recoup the investment made by them in the Liberty Group from 1997"; that "there was no capital raising purpose, making it a very different proposition to what was planned in 2007"; and that it was "not the end point of a continuum such that the hope or planning for an eventual IPO was also not the reason the steps involved in Restructure II were taken". 359 As I have already explained, the applicant contended that Liberty had received consistent advice over the course of many years from its advisers that an IPO of stapled securities consisting of a unit in a trust holding the group's passive financial assets and a share in a company holding the group's active assets, and holding newly formed securitisation trusts in MHT, was the optimal way to go to market. The applicant also contended, among other things, that after the IPO planned for July 2007 did not proceed, objectively viewed, it would have been commercially irrational for Liberty not to carry out the steps identified in the schemes relied on by the Commissioner, and that: (1) establishing new securitisation trusts within the corporate structure would have meant those assets would not have been where they were meant to be when the time came to conduct an IPO; (2) it would have caused Liberty to incur significant restructuring costs, including stamp duty and CGT, in the lead up to an IPO; and (3) it is not reasonable to conclude that it would have ordered its affairs in 2007 and 2008 on the basis that any future IPO would be an IPO of shares. 360 In my view, the Commissioner's attempts to shoe-horn the events that occurred between 2007 and 2011 (and then up to and including 2020) into three separate "restructures", and to characterise the IPO as being "abandoned" in 2007, were artificial and ultimately unpersuasive. It seems to me that the evidence set out above under the heading "Capital raising, proposed restructure and proposed public offering of shares", most of which was uncontradicted, does, as the applicant contended, demonstrate that it received and acted upon consistent advice over the course of some years from its advisers that an IPO of stapled securities was the optimal way to go to market. Although the question of when the IPO might occur, and with what precise structure, was one that was viewed internally with varying degrees of confidence or pessimism, most relevantly between 2006 and 2011, the evidence shows that Liberty, generally speaking, had committed to a stapled security IPO in 2007 and remained committed to it, subject to market conditions, until it eventually occurred in 2020, and was not abandoned in 2007, or if it be relevant, at any other time. 361 As those facts show (see [69]ff above), Minerva Holdings NV, now Juno, entered into a strategic alliance with Macquarie, part of which involved Macquarie being the preferred provider of services, including in relation to raising debt capital, securitising assets, and investment banking services, which services specifically included leading an IPO. The Strategic Alliance Agreement provided that Macquarie and certain other shareholders could issue a request to commence an "IPO process" (see the clauses set out at [71]-[73] above). It was also a term of the Strategic Alliance Agreement that Minerva Holdings NV and the founding shareholders would use their reasonable endeavours to ensure that the "Business" (as defined) was operated in a manner that was conducive to a successful IPO. As part of that IPO process, Macquarie was also obliged to achieve competitive pricing for any IPO and maintain an after market for any listed shares. 362 Consistently with the Strategic Alliance Agreement, Mr Ma deposed (see [76] above) that in mid-2005, Macquarie proposed to Liberty a public capital raising by way of an IPO of stapled securities. It was to involve establishing a listed fund and a holding company that would issue stapled securities of trust units and company shares to the public. 363 Mr Ma also deposed, in evidence about which he was not challenged, as follows: Macquarie advised Liberty, and I believe, that to issue stapled securities comprising of a share in a company and a unit in a unit trust would enable Liberty to segregate the active operating business of the company from the passive financial assets of the Securitisation Trusts. Any existing or newly acquired operating businesses would be held under a holding company and any existing and newly acquired passive financial assets would be held by the newly created trust. This would have involved LF transferring any units in the existing Securitisation Trusts to a newly created unit trust. I considered that this arrangement was wholly consistent with Liberty's long-term funding goals that were established near the inception of the business … Macquarie advised Liberty, and I believed, that this arrangement would provide a number of commercial benefits which would maximise Liberty's ability to raise capital and grow its business through the acquisition of other finance businesses and financial assets. One benefit was that the separation of Liberty's businesses and financial assets in the Securitisation Trusts would attract a wider range of public investors because the stapled security would allow a distribution of profits from the businesses by way of franked dividends from the holding company, and profits from the Securitisation Trusts by way of pre-tax distributions from the trust. The segregation of businesses and financial assets would also provide better transparency in relation to the performance of the group to make it easier to attract funding and investors for specific business assets. Another benefit was that the separation of the businesses and financial assets would make it easier for Liberty to invest in other businesses and assets in the future and thereby fulfil its growth plans. That is because Liberty could continue to generate passive assets under the holding trust and operating businesses under the holding company with minimal future restructuring. Finally, having the residual income units held separately from the operating businesses meant that Liberty could attract an expanded universe of investors that were otherwise precluded from investing in the financial assets held by the Securitisation Trusts due to the prevailing security arrangements with LF's corporate facility provider which prevented securitising or pledging the residual income units. I considered this to be critical because Liberty has a rapidly increasing need for capital and one of my long-term goals for the business was to attract this funding from a specialised population of financiers who have the expertise and interest to lend against the fluctuating cashflows of residual income units. I set out to obtain this funding by aggregating these assets into one trust to smooth out the inherent volatility of residual income units. 364 All of this evidence, except for the second and third sentences of the first paragraph, and the whole of the second paragraph, was admitted subject to relevance and for the non-hearsay purpose of establishing that advice was given, rather than the truth of the advice. I have determined that it is relevant and have considered it in the limited fashion agreed by the parties, and accept it as evidence of Mr Ma's and therefore of the applicant's genuinely held beliefs. See [31] above. 365 It was uncontroversial that during 2006 and during the first half of 2007, Liberty worked towards an IPO of stapled securities with a view to it occurring in July 2007. As part of that work, Macquarie and Liberty's legal advisers prepared materials for marketing purposes and for the purposes of regulatory approvals and input from rating agencies and Liberty's lenders. Those materials included an explanation of the benefits of an IPO to potential investors. See [79]-[80] above. 366 In February 2007, the applicant was incorporated with a view to it acting as the head company in the corporate "silo". Three months later, MFGT was settled. It was to be the head trust in the stapled structure and its units were to be stapled to the shares in MFG. See [81]ff above. 367 The draft "plan of reorganisation" that was circulated to the directors of LF on 27 June 2007 (see [88] above) contemplated that a variety of steps were to take place to facilitate the IPO, which Mr Ma summarised as follows: (a) Minerva Holdings NV (now Juno) would transfer certain intellectual property to a newly incorporated wholly-owned subsidiary of LF; (b) the establishment of a new public company, MFG (which had occurred in February 2007 - see [81] above); (c) Jupiter, LF's immediate parent company, would sell the shares in LF to MFG; (d) MFG would acquire all of the shares in Secure Funding; (e) a tax consolidated group would be formed comprising MFG and its wholly-owned subsidiaries; (f) MFG would establish a public trust; (g) the newly formed public trust and LF would establish a holding trust; (h) LF would sell its units in the securitisation trusts to the holding trust; and (i) the new company to which the intellectual property would be transferred would licence the intellectual property to the new public company. 368 Other steps involved the capitalisation of the head public trust, a transfer of the units in the head public trust to Jupiter, certain steps to prepare for the stapling of shares to units, the redemption of certain notes, the stapling of shares and units, the issue of stapled securities to the public, and a series of transactions to disburse the proceeds from the IPO. 369 The minutes of the board meeting held on 29 June 2007 (set out at [89] above), at which the draft plan of reorganisation was presented and discussed, recorded Mr Ma (the Managing Director) as having noted that these restructure steps "must take place if [LF] is going to proceed with the IPO". Those steps included dealing with intellectual property, LF registering a transfer of all its capital to MFG, and electing to form part of a consolidated tax group. As those minutes recorded, the "proposed restructure steps" were approved by the board (notwithstanding Mr Cox's views). 370 As a result of the board's resolution, the applicant acquired all of the shares in LF from Jupiter, and it acquired all of the shares in Secure Funding (see [90] above). 371 It is uncontroversial that at least as at July or August 2007, the decision was made to "postpone" the IPO for reasons explained at [98]ff above. 372 Mr Pillai gave this evidence in cross-examination about the position with the IPO around and shortly after mid-July 2007: The reality was that in - post the suspension of the IPO in mid-July 2007, there was some hope initially that we would be able to go back to the market, minus the external manager and that was - that was the initial hope leading - you know, after mid-July. There then was some real difficulties in the capital markets in third quarter, fourth quarter of 2007 that made me call that into question. But then, equally, there was a need to have the structure in place in case an IPO became one of the fundraising options that we needed to have. So I guess what I'm saying is early on in July/August of '07 there was still the hope that we could have the [IPO] that we wanted to have and as the GFC started unfolding, more and more it looked like we may need to have an IPO because we were forced into because of the dire state of the capital markets, so with that mind with the hope that we could either go back to the markets in July/August/September of '07 or that we may be forced to go back to the markets late '07, all of '08, getting ready for that - and I use the term IPO-ready in my affidavit - meant taking the steps then for consolidation. I did not have a crystal ball in '07, nor do I have one now. And preparing for an IPO meant preparing for an IPO in the near future, not some theoretical down the track if it happened, which is what I think was the question you put to me before this one. 373 I accept that evidence as evidence of Liberty's corporate state of mind in relation to the question of its preparedness for an IPO. In essence, that evidence was that there was still "the hope" that the IPO could occur in July or August 2007, but that because of "the dire state of the capital markets" it was "hoped" to "go back to the markets in July / August / September" of 2007, or late 2007, or 2008. As Mr Pillai also said, by "preparing for an IPO" he "meant preparing … in the near future, not some theoretical down the track". That is not the language of abandonment. 374 The minutes of the meeting of the directors of MFG and Minerva Fiduciary on 25 July 2007 (set out at [102] above) are also inconsistent with any notion that a proposal to IPO had been abandoned: … the Minerva Trust [MFGT] has been established but has no assets. The remaining steps include but are not limited to the transfer [of] the securitisation units into the Trust (which would incur stamp duty), issue of discretionary unit by the Trust to Minerva Financial and the licensing of technology to various companies. Due to the impasse with Macquarie Bank and market feedback, the contemplated IPO may be postponed. … The Managing Director outlined the following options going forward: (1) maintain the status quo but proceed with the stapled structure; (2) proceed with an IPO but internalise the manager; or (3) seek an investment by a private equity company. This was followed by a general discussion about the reasons for the IPO, the motivations of shareholders and market perceptions about any future IPO. 375 The minutes of the meeting of the board of LF on 9 August 2007 (see [103] above) also evidence the fact of the decision made by the board that the existing securitisation trusts would not be transferred to the new trust and any new securitisation trusts would be established under that trust. 376 Mr Pillai also deposed that following that board meeting, he and Mr Ma "discussed completing the restructure to a point that would facilitate Liberty being 'IPO ready' in the near future but without incurring any unnecessary costs". 377 It is true that Baker & McKenzie's PowerPoint presentation dated 18 September 2007 said in respect of the proposed IPO, "this step will no longer occur" (see [104] above). But whatever the provenance or authority of that qualification (it was not apparent), it is clear that Liberty in fact continued to seek advice about questions relating to the proposed IPO, including the tax implications of forming a consolidated tax group and the conversion of MFG into a private company "until such time [as] market conditions warrant the consideration of a public listing". See [105]ff above. As Mr Pillai deposed, and I accept, his recommendation that any new securitisation trusts should be established with units held by the holding trust was given on the basis of his understanding that an IPO "was not imminent but that Liberty wanted to be IPO ready" (see [106] above). Mr Pillai also deposed, and I accept, that "[b]y establishing the new Securitisation Trusts under MHT, Liberty would be ready to move quickly to list as a stapled group, when the time was right, without having to undergo any significant restructure". 378 The notion that the IPO was still being considered is also apparent from the minutes of the concurrent board meeting of MFG, Minerva Fiduciary, and LF held on 25 September 2007 where it was resolved that certain steps, set out at [107] above, would be proceeded with. 379 Mr Pillai was cross-examined about the position concerning the IPO as at September 2007, as follows: COUNSEL: But we're now early August, and I'm now taking you up to including your consideration early to mid-September? MR PILLAI: Sure. Australian market - Australian equity market was still going up. It peaked in November of '07. The pre-GFC peak. So you know, there's a whole bunch of information that one's taking in. Equity markets still continued to improve even though there were issues in the capital markets. So mixed - mixed information. COUNSEL: Come mid-September or from the board meeting in the second half of September '07 - ? MR PILLAI: Yes. COUNSEL: - it was clear, was it not, Mr Pillai, that there was going - there wasn't going to be an IPO for the group in the months ahead? MR PILLAI: … so by mid-September - sorry, I said mixed [information] - inputs. I forgot to mention one thing that was happening in September. RAMS floated in I think late July, and by September RAMS IPO was in a lot of trouble, so that's one of many different bits of information we were processing, but it is fair to say by September it certainly wasn't happening in the next couple of months unless things really improved, which they didn't. COUNSEL: So whatever - whenever an IPO might have presented itself as an opportunity, there was every prospect, was there not, that what the market would want by way of a structure might be different to what had been suggested in '05 was being pursued up to mid '07? MR PILLAI: We had not received any feedback from the market and from the banks to question the value of the stapled security, and equally in what was going on with - in the market generally, there seemed to be no adverse reaction to the stapled securities that were already listed. So the best and latest intelligence that we had was that the stapled security structure was still something that should be pursued. COUNSEL: Well, you just hadn't had any advice to the contrary from what had prevailed previously I think was your evidence, was it not? MR PILLAI: The advice to the contrary was that they didn't like the external manager. Nothing about the staple. COUNSEL: Yes. Yes. Accepting that. I'm not suggesting that you had advice that stapled security was a bad idea in mid-June 2007. What I'm putting to you is that the proposal for going down the IPO path, the timeframe for that had certainly, by mid-September, blown out from being months to potentially years? MR PILLAI: It had blown out from months - as it turned out, years - I could not have told you that in September of '07. COUNSEL: But what you could certainly tell me in September - mid September '07, given the RAMS float and given everything else we spoke about, is that there was most unlikely to be any float by Christmas of 2007? MR PILLAI: By Christmas, yes, absolutely. COUNSEL: And given the way the position of the markets were in particular and the RAM float, 2008 at the earliest was the window of opportunity for thinking about a float? MR PILLAI: 2008 would have been the earliest. I think there was some optimism in early 2008, and then Bear Stearns happened, and I think that optimism evaporated. 380 Again, it seems to me that Mr Pillai's evidence is not consistent with any "abandonment" of the IPO or the stapled security concept. 381 The same can be said about Mr Ma's evidence about his interview with the journalist from "The Australian" newspaper (see [108] above), which is consistent with what Mr Pillai told the directors of MFG, Minerva Fiduciary, and LF in his confidential memorandum dated 10 December 2007, in which he said, among many other things, that "a public listing is not contemplated in the near future". See [111] above. And as Mr Pillai said when asked about that memorandum in cross-examination, "the bankers were talking to us [about IPO] all the way through". See [113] above. 382 It is also the case that by April 2008, no work was being performed on the IPO (equity markets were effectively closed to specialty finance companies), but nonetheless Mr Riedel observed at the time that an IPO was a "[l]ong term capital solution" and the "[m]ost flexible means to raise future capital". See [115] above. Again, that is inconsistent with the notion that an IPO had been abandoned. 383 For those reasons, I do not accept the Commissioner's contention that establishing MHT as part of the trust silo in April 2008, and subsequently having MHT nominated as the RIU holder of the securitisation trusts, were steps performed that were undertaken after the IPO had been "abandoned" in mid-2007, that these steps were not part of any continuous course of conduct that commenced in 2007 with a view to ensuring that the Liberty group was "IPO ready", and that no IPO was in immediate contemplation at the time that the first scheme was implemented. 384 I also do not accept the Commissioner's contention that there were three restructures - the first, being constituted by the acts, matters and things done on 29 June 2007, the second by the acts, matters and things done between late 2007 and 2011, and the third by the IPO in 2020. It seems to me that the whole process, though a long one, is more appropriately characterised as part of a continuum.

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Consolidation relevant to minimising CGT 388 The Commissioner submitted in closing that Liberty could have mitigated CGT costs by delaying the formation of a tax consolidated group. As part of that submission, it was submitted that LF "has been less than fully transparent with respect to the election to consolidate, why it did not occur until 9 September 2009, what advice was received in the context of that decision and how that advice related to the decision to remove MFGT from the consolidated group in December 2007". In the absence of such evidence, so it was submitted, I should "not accept that the tax consolidation that occurred in 9 September 2009 was part of any course of conduct commenced in 2007" and "conclude that the consolidation advice provided contained steps by which CGT could be minimised on any subsequent transfer of RIUs and RCUs in Securitisation Trusts by LF to MHT". 389 I do not agree. 390 First, LF formed a tax consolidated group with effect from 1 July 2007. 9 September 2009 was the date on which the form to notify the Commissioner of the formation of the tax consolidated group was lodged with the Australian Taxation Office. There is nothing exceptional or contrived about that. See [91] above. 391 Secondly, as the applicant submitted, the decision to form a tax consolidated group was not a part of any of the schemes or alternative postulates identified by the Commissioner. Nor was the date on which LF chose to form a tax consolidated group and the date on which it lodged the notification form part of any of the schemes or alternative postulates. 392 Thirdly, as the applicant said, the reasons behind the choice to form a tax consolidated group, the matters that influenced the date of consolidation, and the matters that caused the notification form to be lodged in 2009, were not alleged in the Commissioner's Appeal Statement. 393 For those reasons, it is not open to the Commissioner now to contend that LF could have mitigated CGT costs by delaying the formation of the consolidated tax group.

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Failure to establish avoidance of stamp duty and CGT generally 394 The Commissioner next submitted that future liabilities to stamp duty and CGT may never have arisen because Liberty could have conducted an IPO of shares in the applicant (rather than an IPO by way of a stapled structure). 395 The applicant submitted that I should reject this contention. It submitted that the evidence demonstrated that Liberty had received consistent advice over the course of many years from its advisers that an IPO of stapled securities consisting of a unit in a trust holding the group's passive financial assets and a share in a company holding the group's active assets was the optimal way to go to market, and that on the face of the evidence, it is not reasonable to conclude that Liberty would have ordered its affairs in 2007 and 2008 on the basis that any future IPO would be an IPO of shares. For the reasons given above, I accept that proposition. 396 The Commissioner submitted that: (a) the applicant led no evidence that provides a reliable basis for concluding that stamp duty would have been imposed, and if so, in what amount, had the MHT securitisation trusts been established under LF and later transferred to MHT; and (b) there was no probative evidence as to what duty, if any, would have been incurred in 2020 when the IPO actually took place, and in the absence of such objective evidence, little weight should be given to the witnesses' assertions that exposure to duty was a significant concern. 397 I am unable to accept those submissions. As the applicant submitted, and as the evidence set out earlier in these reasons demonstrates: (a) Liberty obtained advice from Senior Counsel (see [94]ff above) about the stamp duty implications of a transfer of the units in the securitisation trusts at the time of the proposed 2007 IPO; (b) the advice was that the transfer of the units would give rise to duty in Queensland, the Northern Territory, and South Australia; (c) absent a substantial change in the stamp duty laws in those jurisdictions, there was no reason why Liberty would expect that the position would change if the units were transferred at a later point in time; (d) Liberty management estimated the duty exposure in Queensland at that time to be approximately $40 million; and (e) the value of Liberty's loan portfolio grew over time (see [137] above). 398 Further, the applicant made submissions about the way in which: (a) the Queensland and Northern Territory duty provisions; and (b) the CGT provisions, would have applied to a later transfer of the units in the securitisation trusts (from LF to MHT) and a transfer of the units in MFGT (from MFG to Jupiter/Vesta). 399 The Commissioner did not challenge the evidence regarding the values of the assets, nor did he challenge the legal submissions regarding the application of the duty and CGT provisions. Indeed, in his opening written submissions dated 8 November 2021, his counsel stated: "It may be accepted that a CGT event would occur on any future transfer of the units. However, there is no evidence that quantifies the potential exposure to CGT". 400 The applicant submitted that, therefore: [T]here is more than sufficient evidence from which the Court can find that Liberty would have been subject to substantial stamp duty and CGT costs if the MHT Securitisation Trusts had been established under LF and later transferred to MHT. The fact that it is not possible to definitively establish the amount of the exposure does not affect things - particularly as purpose is to be determined as at the time the scheme was entered into or carried out. Objectively viewed, the amounts could reasonably be expected to have been substantial and no rational business would unnecessarily incur costs that are preventable. 401 The applicant's submissions on these points must be accepted. It is difficult to imagine what else the Commissioner expected the applicant to do, to answer a necessarily hypothetical question - what amount of stamp duty or CGT would have been payable if LF had acted in a manner in which it chose not to act at the relevant time? 402 The Commissioner next submitted that even if it is accepted that "the goal" was a listing of stapled securities, I should find that any stamp duty or CGT liability on a transfer of the RIUs immediately prior to an IPO was "acceptable" and "could have been managed with appropriate advice". The following propositions were put in support of that proposition: (1) the stamp duty liability on a transfer of the RIUs from LF to MHT was considered acceptable in the context of the 2007 IPO; (2) the minutes of the meeting of the directors of MFG, Minerva Fiduciary, and LF on 10 December 2007 recorded Mr Pillai as stating that: "This liability [for stamp duty] can be reduced by transferring warehouse trusts once the outstanding amount of those trusts is reduced" (see [112] above); (3) the issues with respect to the transfer of RIUs in the term trusts "could also be managed" because they typically only have a life of approximately four years; (4) the RIUs and RCUs in the Sirius Trust and Liberty/SPAN Warehouse Trust 2003-1 Trust were transferred to MHT without stamp duty or CGT; and (5) there was a strategy to ensure no CGT exposure on a transfer of the RIUs in the context of the 2007 IPO and a similar strategy could have been employed in 2020. 403 The applicant submitted the contrary. As to points (1) and (2) and (5), it submitted that the fact that the estimated stamp duty cost of $40 million was acceptable in 2007 (in the context of an impending IPO where Liberty had no choice but to transfer the securitisation trusts in order to list a stapled security) did not mean that the same cost would or should be acceptable later. There was no evidence that, once the IPO was postponed, Liberty considered stamp duty costs to be acceptable. To the contrary, the minutes of the 10 December 2007 board meeting recorded Mr Pillai proposing ways to reduce the stamp duty exposure, so it was clear that stamp duty was no longer an "acceptable" cost - particularly in circumstances where there was an opportunity to prevent it with respect to future securitisation trusts. And the likely stamp duty cost of transferring the units in the securitisation trusts at the time of the 2020 IPO would have been substantially higher than $40 million - it was estimated at something in the vicinity of $118 million. There was no evidence that such cost would have been acceptable, and such a proposition was never put to any of the witnesses. 404 As to points (3) and (4), the applicant submitted that the units in the Sirius Trust and the Liberty/SPAN Warehouse Trust 2003-1 were able to be transferred without stamp duty or CGT because the transfers took place at times when the trusts had no assets. It noted that this strategy was recorded in the minutes of a meeting of the directors of MFG, Minerva Fiduciary, and LF held on 10 December 2007. See [112] above. Units in all future warehouse trusts were issued to MHT such that it was not necessary to transfer them at a later point in time. Further, it was submitted that term trusts have a legal life of 31 years, but typically last for four years, after which time they are not reused. As term trusts will always have assets after their creation, there is no opportunity to transfer them during their lifetime. 405 It seems to me, with respect, that the applicant's submissions on these points must also be accepted - they are a complete answer to each of the Commissioner's contentions in that regard.

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Reasons for adopting the stapled structure 406 It will be recalled that it was part of the applicant's case that the commercial benefits of the trust silo and the associated stapled structure were a higher listing price based on expected increased institutional demand and increased overall demand from all investor types due to actual or perceived investor benefits, including in particular unfranked cash distributions (see Mr Ali's evidence at [315]ff above). The other commercial benefits were said to be improved access to debt funding options (see [321]); increased opportunity for private equity capital raising because the benefits identified in connection with an IPO would apply to private capital markets (see [328]); enhanced flexibility and access to debt funding sources (see [328]); and advantages when acquiring other financial services businesses or financial assets (see [329]), all of which, collectively, the Commissioner was content in closing submissions to deal with under the single rubric of "borrowing flexibility". In that regard, he also relied on Mr Ali's concession in cross-examination that "when [he] talk[ed] about enhanced flexibility in financing options, [he was] really focusing on the private debt market". Mr Ali also opined that the stapled structure would support acquisition led growth (see [329]). 407 I should mention that Mr Ali opined that another actual or perceived benefit of the stapled structure would be "improved operational efficiency". Mr Ma also gave evidence that Macquarie advised, and that he believed, that the silo structure would provide transparency in relation to the performance of the Liberty group, making it easier to attract funding and investors for specific assets. These were not contentions ultimately pressed by the applicant, so I put them to one side. 408 As I have already noted, the Commissioner's case was that I should find that the commercial benefits asserted by the applicant did not exist, or were overstated, and that the major benefit sought from the stapled structure was the reduced tax impost on the residual income from the securitisation trusts available when the income is distributed to offshore. 409 Taking the asserted commercial benefits in turn, the parties submitted as follows.

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Unfranked cash distributions 410 The applicant submitted that I should accept Mr Ali's evidence in respect of franking credits, which was to the effect that an increased demand in stapled securities would predominantly be driven by a number of things, including institutional investors' strong preference for receiving cash over franking credits and consequently a strong preference for unfranked cash distributions over franked dividends. The two main reasons Mr Ali gave were first, that research shows that a dollar of franking credits is valued by the market at less than a dollar of cash (in support of which Mr Ali cited an independent report prepared by Deloitte) and secondly, fund performance and fund manager performance is usually measured without regard to franking credits, which has a behavioural impact by diluting the perceived value of franking credits. Mr Ali opined that not all investors are in a position to realise the full economic benefit of franking credits, that only international investors who would otherwise be subject to dividend withholding tax of 30% would fully value franking credits, and that even those investors who could get the benefit of franking credits face a timing delay in realising their benefit. Mr Ali also opined that investors must have regard not only to how they themselves can benefit from distributions, but also to their ability to sell their investment, meaning they would consider their own views as well as market views. 411 The Commissioner submitted that limited weight should be given to the views expressed by Mr Ali about whether investors prefer unfranked cash distributions, and how they value franking credits. 412 The Commissioner relied on Mr Ali's evidence in cross-examination that his opinion rose no higher than to say that a preference for unfranked cash distributions "may not be [a] material consideration for some investors" and "may be a material consideration for other investors". 413 The Commissioner suggested that Mr Ali's opinion needed to be seen in light of the fact that it was only "based on what he had seen through the course of his work in capital markets and treasury analysis, his transaction experience and discussions with market participants". It was also submitted that Mr Ali's opinion should be given less weight because he did not provide any basis for his assertion that he had the expertise or knowledge to value franking credits as compared to unfranked cash distributions; he had not sought to value franking credits in his report, otherwise than by referencing literature; and he had not undertaken a full exploration of how the tax system works for all investors for the purposes of expressing his opinion. 414 The Commissioner also pointed to the fact that both Mr FitzGerald and Mr Ali agreed that, when institutional investors are making investment decisions, there is a whole range of factors that are taken into account and that whether or not the distributions are franked may or may not be of material influence. 415 The Commissioner also criticised Mr Ali's opinion that, in marketing IPOs, companies want to be able to appeal to the largest quantum of the investor base that is possible, because no superannuation funds in fact invested directly in Liberty's 2020 IPO, and "where superannuation funds make up a large proportion of Australian institutional investors and Australian institutional investors are the overwhelming majority of the institutional investor base in the Australian listed equities market, a failure to attract any superannuation funds to directly invest in an IPO suggests that the IPO does not appeal to a wide cross section of investors". 416 The Commissioner also relied on the fact that a higher listing price due to increased institutional investor demand was not realised in Liberty's 2020 IPO because the securities were offered at a fixed price. 417 The Commissioner submitted that having regard to those matters, I should infer that the stapled structure was preferred not, as the applicant contended, to increase the desirability of the stock for Australian investors, but to reduce the tax payable on the income from the securitisation trusts. 418 In my view, the evidence of Mr Ali on the question of franking credits is to be preferred. 419 It seems to me that, unlike Mr FitzGerald (and leaving aside the limitations on his expertise discussed above), Mr Ali recognised an obvious and important feature of the market - that is, that investors or potential investors will almost invariably have a variety of different objectives. They will have a variety of different motives for investing. Their appetite for risk will vary. So too will their return objectives. 420 It also seems to me, as much as a matter of common sense as anything else, that stapled securities must necessarily have some relative advantage over other products or investments to some particular cohort of investors. Were that not so, either to a greater or lesser extent in any context, why would the product exist in the first place? 421 I accept Mr Ali's uncontradicted evidence that an IPO of a stapled structure (as opposed to an IPO of shares) was, during the relevant years, anticipated to bring improved transaction pricing, resulting in an enhanced valuation of a listed group. See [315] above. That anticipation was a reasonable one because, and again, this seems to me to be a matter of common sense, there would have been a cohort or cohorts of investors who preferred to receive, all other things being equal, unfranked gross cash dividends, as opposed to franked dividends, including for the reasons Mr Ali gave, namely: (a) a dollar of franking credits is valued by the market at less than a dollar of cash; and (b) franking credits received by institutional investors are often not incorporated or allowed for within the calculation of returns upon which fund performance is measured or presented. 422 Further, the tables set out at paragraphs [325]-[327] above were not contradicted and they bear out Mr Ali's opinion that, all other things being equal, institutional investors are expected to have a preference for an ASX listed stapled securities structure relative to a corresponding ASX listed company share structure. 423 Whether or not any such a given cohort of potential investors would actually invest - and in what amounts and at what price - were all matters that at any relevant time remained to be seen. 424 It is, with respect to Mr FitzGerald, hardly to the point that from his professional experience the tax benefit of franked dividends is desirable to institutional investors. No doubt that is true of some and not true of others. Mr Ali did not contend otherwise. 425 As Mr Ali said, the preferences of investors will depend, among other things, on their tax characteristics. See [343] above. 426 And as he explained, for example, unit trusts or managed investment schemes will normally pass on the relevant share of franking credits to the underlying investors. Superannuation funds, on the other hand, will normally realise the benefit of the credits by attributing them proportionately to fund members. See [343] above. 427 And the most obvious example of an institutional investor who would generally not favour franked dividends is a foreign investor, who cannot take advantage of the franking credit system in the same way as a resident taxpayer. 428 It follows that Mr Ali's statement in cross-examination relied upon by the Commissioner that his opinion rose no higher than to say that a preference for unfranked cash distributions "may not be [a] material consideration for some investors" and "may be a material consideration for other investors" is hardly a concession - it was the gist of his evidence. It follows that the Commissioner's criticism of Mr Ali that he "had not undertaken a full exploration of how the tax system works for all investors for the purposes of expressing his opinion" falls away. 429 I also do not accept the Commissioner's contentions about the relevance of what happened in the 2020 IPO. The first point was that the fact that no superannuation funds in fact invested directly in Liberty's 2020 IPO suggests that the IPO did not appeal to a wide cross section of investors. The second point was that in the 2020 IPO, the securities were offered at a fixed price. It seems to me, with respect, that such matters have very little to do with the question at hand.

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Borrowing flexibility 430 The applicant contended that the sources and types of debt capital Liberty had been able to access would not have been available to Liberty if it had continued to establish securitisation trusts under LF. 431 It pointed to the fact that prior to the steps taken in 2007 and 2008, Liberty's external debt funding principally came from the NAB (and previously ANZ) corporate facility, which was secured by a fixed and floating charge over LF's assets, and that under the new structure MHT was able to borrow by pledging the RIUs in the MHT securitisation trusts in exchange for debt - which units were not encumbered by NAB's fixed and floating charge. 432 The applicant pointed to the 2019 Good Hill borrowing, described at [246]ff above, as an example of improved borrowing flexibility. 433 The Commissioner, on the other hand, contended that the restructure did not provide any improved funding flexibility to LF nor to the Liberty group, and that it could just as easily have borrowed from Good Hill if the RIUs had been held by LF. 434 The Commissioner contended that the applicant's assertion that having the RIUs under MHT rather than LF gave the Liberty group greater borrowing flexibility because it removed the RIUs from the NAB charge, though "technically correct", ignored the fact that under clause 15.2(b) of the NAB facility agreement, LF agreed not to incur any financial indebtedness nor permit any subsidiary to incur any financial indebtedness without NAB's prior written consent, and that under clauses 15.2(d) and (h), LF agreed to ensure that none of its subsidiaries created an encumbrance over its present or future property without NAB's consent. See [245] above. 435 The applicant retorted by saying that the Commissioner's submission "ignore[d] the fact that clause 15.2(b) … provide[d] that NAB's consent must not be unreasonably withheld" and that "[i]n circumstances where NAB's fixed and floating charge did not attach to MHT's assets … it is difficult to envisage how NAB could have reasonably withheld consent for MHT to pledge its assets". 436 The applicant submitted that it could not have just as easily borrowed from Good Hill if the RIUs had been held by LF, as Mr FitzGerald opined, for the following reasons. 437 First, that would have required asking NAB to release the units from its fixed and floating charge, as distinct from merely seeking NAB's consent to a borrowing which could not be unreasonably withheld. The applicant pointed to Mr Ma's evidence that, in his experience, banks are generally very reluctant to release security, and Mr FitzGerald's concession that in the mid-2000s it was "more likely" that the "disengagement" of units held by LF "would not have been agreed to by ANZ or NAB". 438 Secondly, the applicant said that Good Hill required the RIUs to be segregated and quarantined from the assets and liabilities of LF. It submitted that Mr FitzGerald, in cross-examination, "said that such 'ring-fencing' of assets (or, rather, the cash flows from assets) was typical in asset-based lending but claimed that having the relevant assets owned by a single entity was only one way of achieving 'ring-fencing' and that other ways included the use of escrow accounts and LF having to give irrevocable undertakings that each of the 30 or so Securitisation Trusts would pay funds into the escrow account". In response to this evidence, the applicant said that "[t]he use of such onerous mechanisms was entirely unnecessary because the 'ring-fencing' occurred naturally: MHT owned all of the assets in question and its income was not controlled by the lender as Mr FitzGerald suggested would occur under the [Commissioner's] alternative postulate". The applicant also relied on Mr Ali's evidence that, in his opinion, ring-fencing the assets was "more cumbersome" and "unusual" and that the structure adopted inherently achieved that ring-fencing; and that it would be more cumbersome to ring-fence particular cash flows associated with the RIUs and offer them as security to a lender relative to offering the RIUs as security to a new lender in the structure actually in place. 439 Thirdly, the applicant relied on Mr FitzGerald's evidence in cross-examination that a borrowing of $140 million by LF at the interest rate charged by Good Hill would have impeded LF's ability to issue MTNs (see [251] above), as follows: COUNSEL: Do you agree that if LF had released the RIUs and RCUs that NAB would no longer have a security interest over the whole or substantially the whole of the company's property? MR FITZGERALD: Correct. It's a statement of fact, yes. COUNSEL: You are aware that in 2015, LF commenced a medium term note program? MR FITZGERALD: Yes. COUNSEL: And those notes were unsecured? MR FITZGERALD: Yes. COUNSEL: And could be used by LF for general purposes? MR FITZGERALD: Yes. COUNSEL: And LF commenced that program once it had obtained the investment grade rating - ? MR FITZGERALD: Correct. COUNSEL: - that we looked at. And between 2015 and 2020, the value of the notes that LF had on issue grew to over $1 billion? MR FITZGERALD: Correct. … COUNSEL: … can I just tell you that they were rated separately. The notes were rated? MR FITZGERALD: That - that - well, that's not unusual. COUNSEL: Yes? MR FITZGERALD: Yes. COUNSEL: Would you agree that had LF taken on a secured loan of $140 million, that that would have an adverse effect on the noteholders? MR FITZGERALD: Correct. COUNSEL: And those noteholders would have been subordinated to that $140 million borrowing? MR FITZGERALD: They would have been, yes. … COUNSEL: Well, if you assume, and I will ask you to assume - ? MR FITZGERALD: Yes. COUNSEL: - that it's in LF's interest to borrow - to raise as much capital as it can, and one of the ways in which it raises capital is via the issue of the [MTNs], and there is a company interest cover ratio which places a limit on the amount of interest that LF can pay, would you agree that a borrowing by LF from Good Hill in the amount of 140 million at that higher interest rate would be at the expense of the cheaper and unsecured [MTN] debt? MR FITZGERALD: It - it would be ill-advised relative to the cheaper and unsecured MTN debt but not necessarily at its expense. COUNSEL: Yes. But not something that would be commercially sensible? MR FITZGERALD: It depends on the purpose. It depends on the purpose. So it's - it's - that's a corporate decision. COUNSEL: You agree that it would, effectively, squeeze out the amount of [MTN] debt? MR FITZGERALD: It would potentially reduce its - the capacity to do it, yes. 440 It follows, so the applicant contended, that it is not the case that the same borrowing flexibility would have existed under the Commissioner's alternative postulates. 441 The Commissioner in turn replied with these points. 442 First, he relied upon Mr FitzGerald's evidence that if NAB were prepared to consent to MHT encumbering the RIUs, then it would have consented to release those assets from its charge to enable LF to raise debt finance on the strength of those assets - a view, so it was contended, that was fortified by the fact that, as Mr Ali agreed, NAB must have consented to the transfer of the Sirius Trust and the Liberty/SPAN Warehouse Trust 2003-1 from LF to MHT. 443 Secondly, the Commissioner contended that "[t]he borrowing flexibility referred to by the [a]pplicant only serves to highlight that, despite the benefits touted by [it] of having MHT hold the RIUs, those benefits never came to fruition" and that "[i]t was not until 2019 that the [a]pplicant raised debt on the strength of the RIUs in the Good Hill Borrowing". He further submitted that the applicant had not provided any "reason as to why this was not done earlier when it was apparently one of the benefits of the restructure". 444 It seems to me that the applicant is correct to say that the silo structure gave the Liberty group greater borrowing flexibility because it removed the RIUs from the NAB fixed and floating charge. The Commissioner conceded that point was "technically correct", which it self-evidently is. It seems to me therefore that, at least in that regard, the restructure did provide some marginal, technical legal advantage. 445 The other competing submissions about the question of borrowing flexibility were all generated by the applicant's reliance on the Good Hill borrowing as an example of the restructure providing "improved" borrowing flexibility. 446 The contretemps about it seems to me, with respect, to lead nowhere. 447 The applicant said that the Good Hill borrowing, which occurred 12 years after the first proposed IPO was postponed, improved borrowing flexibility and that it would have been more difficult to borrow under the old structure than under the new one. Its submissions about that borrowing invite consideration of the counterfactual - could the borrowing have been made on similar terms at some other time, if the restructure had not taken place? The applicant said no, because the bank would not have released its hold over the RIUs; it would have been more difficult to "ring-fence" those assets; and LF's ability to issue MTNs would have been impeded. The Commissioner said consent was not in fact a problem when it came to the bank agreeing to transfer two trusts from LF to MHT in 2008 and 2012 (see [118] above) and that in any event, the proof is in the pudding in that LF did not in fact raise debt using the RIUs as security until 2019. 448 It seems to me that each of those competing points has some degree of merit, insofar as they go, but that in the end, the evidence falls short of enabling a finding to be made, as a matter of fact, that the restructure improved borrowing flexibility. For the most part, the submissions made invite speculation, in particular about the counterfactual, and there is no sufficient basis for any finding on the balance of probabilities to be made about that question, beyond recognition of the marginal technical legal advantage referred to above.

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The second scheme 451 It will be recalled that the second scheme was constituted by the following steps, matters, things or actions in the relevant years: (1) the steps that gave Jupiter (later Vesta) the entitlement to all of MFGT's distributable income, being one or more of: the transfer of the two initial units in MFGT from the applicant to Jupiter on 14 December 2007; the issue of 5 units in MFGT to Jupiter on 1 July 2010; and the issue of 199,409,253 units in MFGT to Jupiter on 30 June 2011; (2) the applicant, acting in its capacity as the trustee of MHT, choosing not to exercise its discretion to make any (or any substantial) distribution in respect of the distributable income of MHT to special unitholders of MHT (LF and its wholly-owned subsidiary, Secure Credit) in each of the relevant years, with the consequence that the trustee of MFGT, as sole ordinary unitholder of MHT, was entitled to all or the majority of the distributable income of MHT for the relevant years such that the income was not therefore re-directed to the corporate silo; and (3) MHT lending funds obtained as RIU holder of the MHT securitisation trusts to LF via interest free, unwritten loans and the MHT and MFGT unpaid present entitlements not being satisfied by the payment of cash to MFGT and Jupiter/Vesta respectively. 452 As I have already said, the second scheme alleged accepts the applicant's position that it wanted to proceed with a restructure of the Liberty group insofar as that restructure involved directing the income from the RIUs through MHT to MFGT. But the Commissioner said that, with the collapse of the IPO in 2007, the dominant or prevailing reason for moving MFGT out of the consolidated group was the tax benefit of doing so. 453 The second scheme contemplates that the applicant, as trustee of MHT, would have, in the absence of the scheme, distributed the net income of MHT to LF, but to the extent that any of MHT's net income was not distributed to LF, that income would have found its way back to the applicant as the owner of MFGT. 454 It will be recalled that the matters, things, or actions listed under points (2) and (3) in [451] above are those matters, things, or actions alleged to constitute the third scheme in its entirety, and that the Commissioner's submissions proceeded in reverse order, dealing with the third scheme first. In the Commissioner's written closing submissions, it was asserted that "[b]ecause the Second Scheme includes the two steps that comprise the Third Scheme, all of the matters raised above in arriving at a determination of the dominant or prevailing purpose for the Third Scheme apply equally to the Second Scheme … [and] [t]he Commissioner therefore refers to and relies on the matters set out in paragraphs 152 to 235 above with respect to the second scheme". I have accordingly set out my consideration of those submissions here, rather than under the rubric of the third scheme. The findings sought that the Commissioner there referred to and relied on are that the change in the structure effected by the scheme was not justified by its economic effect in that: (1) LF relied on the cash flows associated with the RIUs it held for the operation of its business and intended to and did continue to rely on the cash flows associated with the RIUs held by MHT following the restructure; (2) the restructure adversely affected LF's capital adequacy ratio; (3) LF needed to undertake a capital injection at a greater cost than would otherwise have been the case; (4) any alleged benefit from the restructure associated with the ability to distribute income to the ultimate owner: (a) was incorrect insofar as reliance was placed on any restriction in the terms of LF's borrowings from NAB; (b) was "specious" in that LF had a policy of not distributing income to the ultimate owner in order to maintain its level of retained earnings, rather than because of any adverse effect of making such distributions; and (5) the applicant had not provided evidence of any cogent commercial or other reason why it failed to distribute, or did not distribute more of, MHT's distributable income to the special unitholders. 455 The Commissioner contended therefore that the only, or in the alternative overwhelming, material benefit from the second scheme was the tax benefit obtained from it. 456 The Commissioner also contended in relation to the second scheme (but not the third, because it is not relevant) that: • the transfer of the units in MFGT from the applicant to Jupiter was not part of a continuous course of conduct that had commenced in 2007 with respect to becoming "IPO ready" because the IPO planned in 2007 had already been abandoned and the restructure had been delinked from the IPO; • the applicant has not proved that transferring the units in MFGT at a later time, more proximate to when the IPO was actually implemented, would have resulted in a liability to pay stamp duty and CGT, based on the same plans it had proposed to implement in preparation for the IPO in 2007 before it was abandoned. 457 For reasons explained above at [355]ff and [388]ff where the same or similar contentions in relation to the first scheme are dealt with, I do not accept either of those two propositions. 458 I will now turn to the parties competing submissions on the other points.

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The steps that gave Jupiter/Vesta the entitlement to MFGT's distributable income 459 I will deal first with the submissions regarding the first part of the second scheme, being the steps that gave Jupiter (later Vesta) the entitlement to all of MFGT's distributable income, which is only applicable to the second, and not the third, scheme. The Commissioner submitted that "[t]he manner in which the ownership of MFGT was transferred from the [a]pplicant to Jupiter in December 2007 lacks transparency". 460 He submitted that: (1) the applicant had not produced any evidence of the further analysis that the board said was necessary in the board meeting on 25 September 2007 relevant to the choice that was made to transfer MFGT to Jupiter and remove it from the consolidated group on 14 December 2007 (see [107] above); (2) there was no evidence as to the reason why five units were issued to Jupiter on 1 July 2010 as consideration for Jupiter assigning a promissory note issued by the applicant to MFGT (see [121] above); and why there was a departure from the board resolution of 25 September 2007 to convert this promissory note to equity (see [107] above); (3) the applicant's explanation for why the units in MFGT were transferred from it to Jupiter (that it was pursuing an IPO with a stapled structure) "does not explain why it was done in December 2007 at a time when a public listing was not contemplated in the near future"; and (4) in the absence of any evidence as to the reason for the issue of additional units to Jupiter in the 2011 year (see [123] above), it should be inferred that such evidence would not assist the applicant. 461 The applicant's reply was in these terms: … the [Commissioner] is critical that there is no evidence as to why Jupiter was issued with five units in MFGT on 1 July 2010 as consideration for the assignment of a promissory note and why there was a departure from converting the promissory note to equity. With respect, those transactions have no relevance to the outcome of the case and the [Commissioner's] criticism should be ignored. The unit transfer that took place on 14 December 2007 is what caused MFGT to become wholly owned by Jupiter and leave the tax consolidated group. Any subsequent issue of units by MFGT to its 100% unitholder and any conversion of a promissory note into further equity in MFGT would have had no bearing on MFGT's ownership or on the "tax benefit" the Commissioner has identified and assessed. As the [a]pplicant has not sought to contend that it would have done anything other than issue those units, it was not necessary for it to lead any evidence in relation to them. The invitation … for the Court to make a Jones v Dunkel inference from "the absence as to the reason for the issue of additional units to Jupiter in the 2011 Year" and the claim about "confusing evidence of the [a]pplicant's witnesses with respect to this issue" should be rejected for the same reasons. 462 It seems to me, with respect, that there is very little to be said in support of the Commissioner's points here, for the reasons given by the applicant. 463 The applicant submitted, more fundamentally, that once Liberty decided that a stapled structure was the optimal structure for an IPO, objectively viewed, it would have made no sense for it to issue the RIUs and the RCUs in new securitisation trusts to LF and to have MFG continue to hold the units in MFGT, as the Commissioner postulated, because doing either of those things "would have caused Liberty to incur significant stamp duty and [CGT] when the time came for an IPO - whenever that may be. Indeed, given its growth, the longer it took Liberty to IPO, the worse the stamp duty and CGT consequences could be expected to be". 464 For the reasons given above at [388]ff, I agree. 465 The Commissioner also made a submission in his closing written submission under the heading "Stamp duty and CGT", the gist of which was that the CGT liability on a transfer of the units in MFGT immediately prior to an IPO could have been managed by implementing the applicant's original plan in June 2007 for LF to sell the securitisation trusts and other financial assets to MHT in exchange for promissory notes of equal value. See "Step 5a" of the paper prepared by Mr Pillai set out at [84] above. But this point was never raised before, so the Commissioner's submission that I should have regard to the fact that the applicant did not lead "any evidence that establishes that the CGT consequences of a transfer of the units in MFGT could not have been avoided by adopting [that strategy]" is misplaced.

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LF's loans from MHT, "cash flow", and credit rating 466 I will now deal with the remainder of the findings contended for set out at [454] above, all of which are relevant to both the second and third schemes. 467 In his opening written submissions the Commissioner repeatedly submitted that each of the three schemes, among many other things, created significant cash flow problems for LF and placed its credit rating at risk. These were the written submissions made in that regard: • Although Jupiter, and later Vesta, were the object of income distributed by MFGT in the relevant years, these distributions were not satisfied by the transfer of cash to them by MFGT. Rather, they were satisfied by a combination of MFGT issuing further units to Vesta and loan offsets, including against loans advanced to LF to address the cash flow shortages caused by the diversion of income. (At [5]) • The Third Scheme created significant cash flow problems for LF and placed its credit rating at risk. (At [142]) • By virtue of the trustee of MHT (the [a]pplicant acting in its capacity as trustee) exercising its discretion to distribute a total of only $1,374,865 of its net income to the special unitholders in the relevant years, MFGT as the sole ordinary unitholder was presently entitled to almost all of MHT's net income. This created cash flow problems for LF. (At [165]-[166]) • LF's dwindling cash flow has not gone unnoticed. On 3 April 2014, NAB raised queries regarding the credit submission dated 24 March 2014. (At [171]) • The Third Scheme gave LF significant cash flow problems requiring convoluted transactions and round robin journal entries to resolve. (At [177]) • The negative consequences of the Third Scheme for LF due to it suffering dwindling cash flow [were] such that it was in danger of losing its investment grade credit rating … (At [193]) • [A]s is the case with the Second and Third Schemes, the First Scheme created significant cash flow problems for LF and placed its credit rating at risk. (At [248]) • As is the case with the Second and Third Schemes, the First Scheme gave LF significant cash flow problems requiring convoluted transactions and accounting treatment to resolve. (At [275]) • Restructure II gave LF cash flow problems, which the Liberty Group sought to address through related party borrowings. As explored in paragraphs 163 to 166 above, because LF continued to receive some residual income even after Restructure II, the cash flow problems only became a substantial issue in the 2012 Year. With the reduction in the residual income received by LF over the relevant years, the cash flow problems became increasingly acute. (At [287]) • Further, as set out … above, those cash flow problems also threatened LF's investment grade credit rating. (At [288]) 468 The applicant responded in terms to each of those submissions in its closing written submissions. In his closing written submissions, however, the Commissioner, it is fair to say, wound back his case on the point, saying that he no longer used the expression "cash flow shortages" because it appeared that what he called "an infelicity of language" had "distracted" the applicant from what the Commissioner called his "central point", which was "simply that LF relied on the income stream from the residual units in the Securitisation Trusts to perform its functions, which included providing subordinated loans to the Securitisation Trusts, because it was important that LF, as the originator, had 'skin in the game'". The submission continued: Although it may be accepted that cash is fungible and LF had some other sources of income, the Chief Financial Officer of the Liberty Group [Mr Riedel] agreed that the funds borrowed by LF from MHT after MHT began to receive residual income from the Securitisation Trusts in which it held the RIUs could effectively be traced to that residual income received by MHT. The income received by MHT was almost exclusively the residual income. Therefore, the MHT-LF Loans were necessarily made from the same source of income that LF previously received directly before the internal restructure implemented by the Liberty Group from late 2007 through to 2011. Similarly, and again notwithstanding that cash is fungible and LF had some other sources of income, the evidence was that the MHT-LF Loans were used by LF to meet the capital funding requirements of the Securitisation Trusts. 469 It follows that the submissions made by the applicant in its principal written closing submissions dated 21 February 2022 in the belief that the Commissioner pressed the contention that each of the alleged schemes "created significant cash flow problems for LF" can be put to one side. 470 The passage of the transcript that the Commissioner relied on from Mr Riedel's evidence in cross-examination to support the propositions "that before the restructure the funding required for LF to provide subordinated lending to the warehouse trusts was principally sourced from income that LF received in its capacity as holder of the RIUs in the Securitisation Trusts" and that "[a]fter the restructure, this continued to be the case, except LF now received the funds under the [loans from MHT]" was this passage: COUNSEL: … While Liberty was the holder of the units in the securitisation trusts and it earnt profits from the distributions from those trusts as holder of those units, it could call on the securitisation trusts to satisfy the obligation created by the distribution by the payment of [cash] to Liberty Financial? MR RIEDEL: Yes. COUNSEL: And with that cash, Liberty Financial could then fund the subordinated … next warehouse trust? MR RIEDEL: Yes, it would loan funds. It would choose to loan funds to the wholesale trust by way of subordinated loan then, as it does now. COUNSEL: And the change that happened when MHT became … the holder of units in future securitisation trusts established was that Liberty, instead of obtaining the cash as a result of the income, it was entitled to, as the holder of the residual interest units, now have to borrow from MHT to access the same - the cash from the same source, namely, income from the units in the securitisation trusts? MR RIEDEL: Yes, Liberty chose to borrow from Minerva Holding Trust in order to be able to lend to its wholesale trust. That's correct. COUNSEL: So this was a … right word to put to you. This was a business model that saw income being generated by existing interests in existing securitisation trusts that was then used to fund the next or subsequent securitisation trusts that were being established in part, 90 per cent coming from external lender; 10 per cent by way of example. Not always 10 per cent but the lesser amount coming from, as a subordinated loan from Liberty Financial; is that correct? MR RIEDEL: That's the choices Liberty has made over the years, yes. 471 The Commissioner submitted that I should thus find that the loans made by MHT to LF: (a) were provided from funds related to the income received by MHT as the RIU holder in the securitisation trusts; and (b) replaced the income stream (and thus the source of funds) that LF had previously received directly from the securitisation trusts so that LF could continue making subordinated loans to the securitisation trusts, which was essential to the growth of the Liberty group's business. 472 The applicant submitted that the loan account between MHT and LF, upon which the Commissioner relied, is of no moment. 473 The applicant said that the lending of funds by MHT to LF on a short-term basis is a function of the fact that MHT (and not LF) received the income from the securitisation trusts because of steps which are not impugned; and LF's role as central treasurer for the group. 474 The applicant submitted that the Commissioner's contentions ignored the role that LF played as group treasurer in the Liberty group. It relied on Mr Ma's evidence in cross-examination as follows: Within the year as cash flow accumulates, anywhere in the group, it gets allocated to a central treasury functions, which has access to funds from across the group, as it needs to use that capital efficiently for group purposes, whether it's paying expenses, whether it's funding securitisation trusts, whatever. It's a short term - it's by short term nature. And then those funds are distributed. And then as funds accumulate again, there will be more treasury … that then existed. And that's what I meant by that qualification of between distributions, there is a - it doesn't just sit there. The requirement of a well-functioning treasury operation is to deploy capital in very efficient ways throughout the broader group. 475 The applicant submitted that the fact that cash came into MHT and was on-lent to LF was, given that LF acted as the group's central treasurer, " wholly unremarkable" and "says nothing about why MHT should or ought to have distributed all or substantially all of its income to LF and Secure Credit". Put another way, the applicant submitted that the Commissioner's case that MHT was "making loans to LF to prop it up for so-called reduced or redirected income" was not tenable because "there were no loans from MHT to LF that were made as a substitute for the distributions". (As to the role of a central treasurer, see Hancock Family Memorial Foundation Limited v Porteous [1999] WASC 55; (1999) 151 FLR 191 at 205 [58]-[59] ("It is quite common for one or two companies in a group of private companies to act as treasury companies so that the group need not operate bank accounts and maintain cheque-books for every entity in the group. A simple method for a treasury company to record its activities on behalf of other entities in the group is by a system of loan accounts. In this context, the mere fact that one company within the group habitually makes payments on behalf of the other entities in the group and keeps track of its expenditure through loan accounts does not necessarily point to impropriety. It does not necessarily mean that the loan accounts are not genuine.").) 476 The applicant submitted that the Commissioner's table setting out LF's income, including amounts advanced by MHT to LF totalling $200,664,188 for the 2009 to 2015 years, at [175] above and his diagram at [237] above show "no more than that as cash comes into the group, it is forwarded to LF as central treasurer" and "ignore other cash payments within the group, including the payment of expenses by LF on MHT's behalf and substantial payments of cash from LF to the shareholders (which created liabilities that were offset by distributions from MHT through MFGT)". 477 The applicant was critical of the table and the diagram because they "focus only on one of the loan accounts between MHT and LF … and, critically, only record payments in one direction - that is, advances by MHT to LF". 478 The evidence from relevant loan account ledgers between MHT and LF recorded not just the cash advances and income distributed by MHT to LF, but also payments of expenses by LF on MHT's behalf (thereby reducing the loan), and substantial repayments. Mr Riedel deposed that in the 2012, 2013, 2014 and 2015 financial years, LF repaid to MHT the following amounts lent to it, being $33,139,107, $3,664,030, $39,010,377 and $35,316,249 respectively. 479 The applicant said that the relevant evidence is contained in the three loan ledgers summarised under the heading "Loans by MHT to LF" above (at [177]), which show that in the 2009 to 2015 years, the net amounts owing by LF to MHT as at 30 June were as follows: Income year ended 30 June 2009 2010 2011 2012 2013 2014 2015 Balance $3,842,662 $7,545,658 $22,300,286 $7,958,026 $10,689,292 $23,258,861 $22,772,187

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LF's capital adequacy ratio 482 The parties disagreed about whether the schemes placed LF's credit rating at risk. 483 The Commissioner sought to contend that the schemes he posited resulted in LF's credit rating by Standard & Poor's (S&P) being put at risk. The applicant submitted that there was no evidence that LF's rating was at risk as a result of the schemes at any time, and materially during the relevant years. 484 Like the evidence about the Good Hill borrowing, the submissions on this topic invite (here at the Commissioner's invitation) the consideration of detailed evidence about events that occurred well after the relevant years, and speculation - in this case about whether, when, or how LF's credit rating was ever at risk. I say "speculation", including because no evidence was adduced from S&P, or any ratings agency or ratings expert, about the question. 485 The Commissioner's written submissions (the matter was not referred to in his counsel's closing address) on the question commenced with the unpromising statement that "LF's credit rating improved in the period … from 2009 to 2014", and that in November 2014, LF achieved an investment grade credit rating from S&P of BBB minus. 486 The Commissioner's submissions as to what happened after the end of 2014 may be summarised as follows: (1) Mr Riedel said that a capital adequacy ratio above 15.5% was needed to give Liberty "the extra 2 notches" in its credit rating that it required to obtain and maintain an investment grade rating of BBB minus; (2) before 2016, LF did not need equity, but following establishment of the MTN program (see [251] above), it needed equity to maintain its investment grade rating to support its MTN program; (3) if LF's capital adequacy ratio fell below 15%, it would have caused any notes issued by LF to be downgraded to "non-investment grade" or "junk" status; (4) S&P excluded MHT's profits when considering LF's capital position (because these profits were not distributed to LF, but instead to MFGT), therefore, the fact that the residual income from the securitisation trusts was distributed to MHT was "potentially deleterious" to LF's capital adequacy ratio and therefore its MTN program; (5) an S&P report dated 7 November 2016 gave LF a rating of BBB with a risk-adjusted capital ratio of 15.9%, noting "that the rating reflected LF's very strong capitalization supported by management's stated commitment to a risk-adjusted capital ratio above 15%, and demonstrated by an A$25 million capital injection in fiscal 2016 to support Liberty's very high lending growth"; and (6) in May 2017, S&P downgraded LF's long-term senior unsecured credit rating back to BBB minus. 487 Even taken at face value, those submissions do not support the proposition that the schemes posited by the Commissioner resulted in LF's credit rating by S&P being put at risk. 488 But in any event, even assuming that point (6) above was the high point of the Commissioner's case on the particular point, the fact of the matter was that LF's credit rating was downgraded in 2017 along with 23 other financial institutions. There was no evidence that the downgrade had anything specifically to do with LF, let alone that its credit rating reverted to BBB minus due to any part of the schemes. As the S&P report dated 21 May 2017 and headed "Ratings On 23 Australian Financial Institutions Lowered On Buildup Of Economic Imbalances" said: • In our opinion, economic imbalances in Australia have increased due to strong growth in private sector debt and residential property prices in the past four years, notwithstanding some signs of moderation in growth in recent weeks. Consequently, we believe financial institutions operating in Australia now face an increased risk of a sharp correction in property prices and, if that were to occur, a significant rise in credit losses. • Despite increased downside risks, in our base case we expect that recent and possible further actions by the Australian authorities should aid in an unwinding of the imbalances in an orderly fashion. • To reflect the increased risk, we have lowered our assessment of the stand-alone credit profiles (SACPs) of almost all financial institutions operating in Australia. • We are lowering our long-term issuer credit ratings on 23 financial institutions in Australia by one notch each. 489 For those reasons, even assuming, without deciding, the relevance of such matters, occurring as they did well after the relevant years, I do not accept that the schemes created placed LF's credit rating at risk.

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Capital injections and Good Hill borrowing 490 The Commissioner contended that: (1) the Good Hill borrowing was undertaken to "prop up" LF's capital adequacy ratio to support its MTN program; (2) the Good Hill borrowing was disadvantageous for the Liberty group because it was expensive and placed limitations on LF's MTN program; and (3) if LF, instead of MHT, had continued to hold the RIUs in all securitisation trusts, or if MHT had distributed its net income to LF via the special unit, the Good Hill borrowing and the capital injection of $189 million undertaken by Vesta in 2019 (see [249] above) would have been unnecessary. 491 The Commissioner's contentions were as follows: (1) LF's capital adequacy ratio as at 30 June 2019 slipped below 15.5%, such that its credit rating was in danger of being downgraded; (2) a downgrade in the credit rating would have had a negative impact on LF's MTN program; (3) that prompted the Liberty group to undertake the Good Hill borrowing (whereby MHT borrowed $140 million in July 2019 against the RIUs it held in the securitisation trusts at an interest rate which was high relative to the average cost of the Liberty group's other debt financing); (4) Mr Ma agreed that the equity injection enabled by the Good Hill borrowing supported Liberty's BBB minus rating, which would have been downgraded without an equity injection; (5) the funds borrowed by MHT were loaned to MFGT which, in turn, loaned the same amount to Vesta, which then made an equity injection of $189 million into the applicant - which was replicated by a $189 million equity injection by the applicant into LF (see [249] above); (6) had LF continued to be the RIU holder of all securitisation trusts after 2007, then by 30 June 2015 it would have had in excess of $87 million in additional retained earnings; (7) based on those figures, the court can reasonably infer that the RIU holder of the securitisation trusts would have had a considerably higher amount of retained earnings by 30 June 2019; and (8) the court should therefore find that the capital injection of $189 million would have been unnecessary (at least to the extent of $87 million and likely considerably more) and the Good Hill borrowing of $140 million would have been unnecessary. 492 It seems to me that these submissions again invite speculation about the significance of events that occurred years after the relevant years, and are of doubtful, if any, relevance. 493 But in any event, as the applicant submitted, the better evidence is that in assessing whether the Good Hill borrowing was cost efficient, the appropriate comparison is against the cost of equity, not debt. As Mr Ali said in his supplementary report, "the $140 million borrowing by MHT facilitated a defrayal of $140 million of the total equity capital amount that was injected by Liberty's shareholders and consequently directly boosted the equity capital position of Liberty by $140 million. Accordingly, in assessing whether the MHT financing was cost efficient, the appropriate comparison should be to consider the interest cost of the MHT financing (on an after-tax basis to Vesta) against Liberty's cost of equity, and not against the cost of Liberty's other debt". Mr FitzGerald said to the contrary, but given the admitted limitations on his expertise in relation to equity raisings (see [333] above), I prefer the evidence of Mr Ali in this respect. 494 In my view, the applicant correctly submitted that the evidence showed that LF did not suffer as a result of the commercial decisions impugned by the Commissioner and that LF remained profitable at all relevant times.

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Exercise of discretion regarding the distribution of MHT's net income 498 While the various contentions set out above were said to be relevant to the second and third schemes, it seems to me that the submissions regarding the applicant's failure to exercise its discretion to distribute, or to distribute more, to MHT's special unitholders is the true gist of both the second and third schemes. 499 The Commissioner's case starts with the proposition that "[t]he failure by the [a]pplicant to make a distribution, or to make more of a distribution, to the special unitholders is a scheme for the purpose of Part IVA". 500 The Commissioner submitted, in summary, that with respect to the way that the applicant exercised, or failed to exercise, its discretion to distribute to the special unitholders, the court should find that: (a) the applicant actively considered its power to distribute MHT's distributable income in each of the relevant years and made a determination in each of the relevant years regarding the extent to which MHT's net income should be distributed to the special unitholders; (b) the applicant as the parent company of LF, and therefore the ultimate parent company of Secure Credit, had a duty to consider both LF and Secure Credit's interests when making that determination; (c) the applicant has not been fully transparent regarding the reasons for the decision in each case and in particular with respect to any analysis undertaken for the purposes of making the decision; (d) the applicant had only one reason as to why a greater distribution of income from MHT to LF would not be desirable, namely the return on equity "metric", but it did not provide any evidence as to how that was calculated, what assumptions underpinned the calculation (for example, that LF would make no distributions of its profits), whether or why that would not be desirable, or how that consideration outweighed the negative consequences of LF not receiving the income; and (e) the reason that the determination was made in each of the relevant years to distribute no more than 2% of MHT's net income to the special unitholders was the tax benefit of doing so. 501 I should explain the equity metric point, because the Commissioner correctly contended that it was the only reason of apparent substance proffered by the applicant to support its case that the tax benefit of distributing 98% of MHT's net income to MFGT was not the dominant purpose of the second or third schemes. 502 Mr Riedel's evidence in this regard is important because he was responsible for managing the treasury capital and equity capital on behalf of the Liberty group and making determinations about how the trustee of MHT should distribute income. And in its closing submissions, the applicant relied almost entirely on the evidence that he gave about why the determinations in respect of special unitholders were made in each relevant year (that is, for 2012 (0%), 2013 (2%), 2014 (2%) and 2015 (1%, to Secure Credit only): see [151]ff above). 503 The relevant passages from Mr Riedel's cross-examination upon which the applicant (and the Commissioner) relied included most of what appears in the lengthy extract below: COUNSEL: … Do you recall any specific discussion with Mr Ma about this particular trust distribution [for the 2013 year] before it was signed off? MR RIEDEL: Yes, I do. The parent company - I was advised that the parent company sought a distribution to the special unitholders being Liberty and Secure Credit, in particular, Secure Credit to support the parent company's situation offshore. COUNSEL: What does that mean? MR RIEDEL: I don't have particular knowledge of the arrangements that exist at the parent level. I was advised that Secure Credit provides a certain purpose that supports the parent entity and making a special distribution to Secure Credit supported that purpose. COUNSEL: And you weren't provided with any particulars as to what that purpose was? MR RIEDEL: No. COUNSEL: And notwithstanding the lack of information about that purpose, you nevertheless under your delegation determined to make this distribution in the manner that we see set out therein? MR RIEDEL: That's correct. … COUNSEL: How do you reconcile that answer with the fact that you proceeded on the basis of an indication from Mr Ma as to what the overseas owners wanted when you were exercising the discretion for MHT - the trustee of MHT without knowledge of the purpose for which the money was required? MR RIEDEL: One of my responsibilities in my various roles is to manage the performance and capital - treasury capital and equity capital on behalf of the group. So in making these determinations, I have a mind to that and in consultation with my colleagues make a determination. These - the distribution to Secure Credit is a very small number relative to the whole, so the distribution to Secure Credit did not put at any disadvantage the situation of the group to which I am responsible so I had no concern in signing the declaration to distribute one - a very small number - one per cent to Secure Credit. Ultimately, Secure Credit is owned by the same parent as MFGT. … COUNSEL: And for all of the distributions that we've dealt with - and I will include the distribution for 2015 in that, and 2014 in due course - it didn't matter, did it, whether the distribution - from a commercial point of view, it didn't matter whether the distribution went to the special unitholders or to the ordinary unitholder? MR RIEDEL: It mattered to the parent company that Secure Credit received a distribution. … COUNSEL: My proposition to you is that that objective of meeting your commercial requirements by ensuring that there was appropriate cash, wouldn't have been effected whether the distribution went some or all to the special unitholders versus some or all to the ordinary unitholders? MR RIEDEL: No, I don't agree with your proposition. COUNSEL: Why? MR RIEDEL: I feel that we are potentially confusing the concepts of cash versus income and versus equity, so the Australian group did not need income by way of special distribution to ensure its - to meet its - its objectives. Nor did it need equity. COUNSEL: Neither did the MFGT need income for its objectives or equity for its objectives? MR RIEDEL: Well, the - [MFGT's] purpose is to provide a distribution to its unitholders. COUNSEL: Well, its purpose is not to provide a distribution. That's simply the function of the fact that it has income, and if it has income, it will then distribute that income pursuant to its constitution. The group, at different entities, was generating income. And the availability, as a matter of an exercise of discretion, was to direct that income either to MFGT or the special unitholders. My proposition to you is, in part, that the - it didn't matter whether the income - from a commercial perspective, whether the income was directed by the distribution to the ordinary unitholder or the special unitholders? MR RIEDEL: Again, I - I - I don't agree with your proposition. COUNSEL: Why? MR RIEDEL: Well, if there's - for example, the extent to which income, by way of distribution - income earned by MHT is distributed to Liberty Financial by way of income. That will generate retained earnings in Liberty, and the return on equity - return on capital metrics would be different if income was not to be distributed. So it matters to me, my role, to ensure that Liberty's performance and position is optimally positioned. COUNSEL: You mean LF when you say "Liberty"? MR RIEDEL: I mean LF. Yes. COUNSEL: So you're suggesting that if it got more income by way of distribution from its holding of the special unit, that would be a bad thing, commercially? MR RIEDEL: I'm saying it wasn't necessary for it - COUNSEL: Well - ? MR RIEDEL: - to receive a special distribution. COUNSEL: I wasn't asking whether it was necessary. I said it different make a difference, from a commercial point of view, whether the income went to MFGT or went to the special unitholders, did it? MR RIEDEL: And I've disagreed. COUNSEL: Okay. And your basis for the disagreement is because LF didn't need any more income than it got; is that the reason? They were both owned, ultimately, by the same parents, that is, LF and MFGT; you agree with that? MR RIEDEL: Ultimately, yes. COUNSEL: And that's why you said to me, I think, that Secure Credit could take a two per cent distribution on the say so of Mr Ma, because, from your point of view, it didn't matter, because they were owned by the same people; that's correct? MR RIEDEL: Yes. COUNSEL: So what I'm suggesting to you is, from a commercial point of view, it didn't matter whether you, as part of your exercise of your delegation, directed the income up to MFGT to across to the special unitholders in the corporate silo? MR RIEDEL: I'm afraid I continue to disagree. Ultimately, part of my role is to ensure that Liberty's financial performance and position is appropriately described in order to meet the commercial objectives of the Australian group. COUNSEL: You're not suggesting to his Honour, are you, that receiving more income would have adversely affected LF? MR RIEDEL: It's - it's difficult to - impossible to make that assessment generally. We have to make that assessment at a particular date and point in time, depending on the conditions of the business and of the markets and the expectation of - the expected future performance. COUNSEL: So my proposition, then, to you is as at each of the relevant dates at which you exercised your delegation with Mr Ma to determine the distribution to be made by MHT in the years from 2009 through to 2015 - at each of those times, it wouldn't have been to the financial or commercial detriment of LF to have distributed more income to it or to Secure Credit? MR RIEDEL: Wouldn't - sorry. There's a double negative there that I'm just trying to understand. Would not have created a detriment? COUNSEL: It would not have been to the detriment of LF or Secure Credit on each of those dates that I've referred you to to distribute more income to either of those companies? MR RIEDEL: A greater distribution than what it received would have resulted in not an optimal performance or position for the Australian group at those - in those relevant years. COUNSEL: What does that mean, Mr Riedel, "not an optimal performance"? It would have made more money. You're not suggesting that's a bad thing, are you? MR RIEDEL: It's - there's more considerations that are - that go into - to take into account when making those decisions, Mr Looney. COUNSEL: Whether that's true or not, I put it to you you're not suggesting that it would have been a bad thing for LF or Secure Credit to receive more income at each of those relevant dates, are you? MR RIEDEL: If LF needed the distribution, consideration would have been made to provide it with a distribution. COUNSEL: Now, Mr Riedel, I didn't ask you whether it needed it. What we've got here is profit, profit in MHT. That profit could have gone in either of two directions: special units or ordinary units or some combination. My proposition was that if it had gone to the special unitholders, in part or in full, greater than it did, that would not have been a bad thing for the special unitholders irrespective of whether they needed the money or needed the income or needed the capital. It wouldn't have been a bad thing for them to make more money? MR RIEDEL: The return on equity metric would have been different had they received the distribution. That might not have been optimised from the group or the - or the parents' perspective. COUNSEL: With the greatest respect, Mr Riedel, isn't that just gobbledegook? MR RIEDEL: Not to me, I'm afraid. … COUNSEL: So you did have regard to more than simply the immediate unitholders of MHT when determining where to distribute MHT's income to? MR RIEDEL: Yes. COUNSEL: And part of the consideration was the effect of the determination as to distribution on the ultimate owners of MHT and the corporate group? MR RIEDEL: Yes. COUNSEL: And the most overwhelmingly significant factor on the effect on the ultimate owners from your decision as to where to distribute income from MHT was the tax consequences that differed between whether it was distributed to the ordinary unitholder or distributed to the special unitholders, wasn't it? MR RIEDEL: No. I disagree. COUNSEL: You disagree that that was the overwhelmingly largest consequence for the ultimate owners of the decision to distribute? MR RIEDEL: Yes. I disagree. COUNSEL: Do you agree that the differential in tax was of the order of 20 per cent of the distribution? MR RIEDEL: Yes. I agree. COUNSEL: And what do you identify that was greater in consequence for the ultimate owners than that 20 per cent of distribution additional tax that would arise if the distribution went to the special unitholders? MR RIEDEL: So the - it's - it's perhaps a question best directed to Mr Ma, but - COUNSEL: Well - ? MR RIEDEL: - in the context of where Vesta is - COUNSEL: - Mr Riedel, you're here. I'm directing it to you. You're one of the people who took on the role by delegation of determining the distribution, and you're the one who has just suggested that there was a greater impact on the ultimate owners from distributing - making a choice between the distributions between the ordinary unitholders and the special unitholders - greater in effect than 20 per cent of the distributions going in tax if the distributions went to the special unitholders. And I'm asking you to identify what that - you say that greater impact would be? MR RIEDEL: So there are other - in - Vesta owns a company and a trust that operate - and - in concept, the decision making as to where and how much to distribute is taken in the context of the financial performance and position at a point in time and in consideration of the likely future developments and in the context of the overall investment that Vesta has in its component parts - decisions are taken to optimise the income and cash flows and distributions as a consequence. COUNSEL: I will give you another chance to answer my question, Mr Riedel. Do you recall my question? MR RIEDEL: If I didn't answer it, then if you could repeat it, that would be helpful, please. COUNSEL: Yes. You've identified - or you've suggested that a greater financial consequence of the distribution choice between the special unitholders and the ordinary unitholders - there was a greater magnitude of consideration than the 20 per cent additional tax that would imposed on the distributions insofar as they were directed to the special unitholders. What greater consideration - greater financial consideration or commercial consideration was there than that 20 per cent of distributions that would be lost to tax? MR RIEDEL: So the - the - the 20 per cent differential is a consequence of the decision of the distribution. COUNSEL: Yes? MR RIEDEL: The nature of - the nature of the distribution is taken on the basis that what the group requires by way of financial performance and position, so that it can be available and ready to continue its commercial objectives, as determined by, particularly, the - Vesta and - and in concert with the board. COUNSEL: What consequence from distributing as between the special unitholders and the ordinary unitholders was a greater commercial consequence or financial consequence to the ultimate owners than 20 per cent being lost to tax? There wasn't one, was there, Mr Riedel? MR RIEDEL: I - I apologise. I am struggling with the "greater consequence" phraseology. COUNSEL: Well, I'm trying to adopt what you said in response to me, that there was, in fact, a greater consequence to the ultimate parent than the additional tax that would flow from a decision as to where to distribute. I'm simply trying to get you - ? MR RIEDEL: Perhaps it's - COUNSEL: - to tell me what that was? MR RIEDEL: I thought I answered the question - that the consequence - there was - I'm not sure I used the - if I used the word "greater", I misspoke - the consequence of a distribution in terms of its tax outcome is 20 per cent. I thought I agreed to that proposition being a numeric analysis. COUNSEL: You did. What I put to you was that was the single most important aspect from a commercial consideration, that is, the loss of 20 per cent to tax, that applied to the determination as to where to distribute the income to, and I thought you had said to me words to the effect that wasn't the greatest determination - the greatest factor in that determination, and I was trying to press you as to what you say was commercially a bigger consideration than losing 20 per cent to tax? MR RIEDEL: As previously - as I've tried to previous articulate - unsuccessfully, seemingly - the financial position and performance of the Australian group is also an important consideration, and so it's - it's - the way it's positioned and disclosed is an important consideration. COUNSEL: So then I've put to you that if LF had made more money as a result of a greater distribution, that would not have been a bad or adverse thing from LF's point of view or from the Australian group's point of view? MR RIEDEL: Its financial position and performance would have - would not have looked at the way in which we wished it to. 504 In the end, the best that the applicant could do in the face of this testimony was to submit that Mr Riedel was a credible witness and "there is no reason that the Court should not accept his evidence at face value". 505 Mr Ma also signed the distribution determinations for each relevant year, but he did not give any evidence relied on by the applicant on the point, other than a very general statement in his second affidavit that distributing all or substantially all of MHT's income to the special unitholders would have undermined Liberty's funding flexibility. 506 I mean no disrespect to Mr Riedel, but the fact of the matter is, as is clear from the lengthy exchanges between him and Mr Looney set out above, that other than the tax benefit, the only reason that he could muster in support of the limited distributions made to the special unitholders was that the "return on equity metric" would have been lower. And, with respect, he was unable to explain what he meant. 507 I accept the Commissioner's submission that there was no evidence as to how the applicant calculated the return on equity, what assumptions underpinned Mr Riedel's assertion about the return on equity metric or whether or why a lower return on equity metric would have had any commercial ramifications for LF and/or the applicant. 508 The applicant also submitted that, because the schemes "insofar as they relate to the distributions made by MHT, consist of MHT not doing something - namely positively exercising a discretion to distribute profits to LF and Secure Credit such that they would be taxed at a higher rate than if the discretion were not so exercised" are "not … scheme[s] to which Part IVA applies". 509 The applicant submitted that: (1) objective purpose is to be ascertained with reference to the particular way a transaction is structured and the particular features of the transaction that gave rise to the tax benefit (citing Noza Holdings Pty Ltd v Commissioner of Taxation [2011] FCA 46; (2011) 82 ATR 338 at 423 [296]) and that the non-exercise of a discretion in favour of a discretionary beneficiary is wholly unremarkable and an "ordinary transaction"; (2) MHT received income from the MHT securitisation trusts because it owned the RIUs and RCUs in those trusts - and LF did not receive income from the MHT securitisation trusts because it did not own the RIUs and RCUs in those trusts; (3) more is required for Part IVA to apply than that a taxpayer has merely arranged its business or investments in a way that derives a tax benefit (see Metal Manufactures Ltd v Commissioner of Taxation [1999] FCA 1712; (1999) 43 ATR 375 at 427 [260]-[261]; Commissioner of Taxation v Macquarie Bank Ltd (2013) 210 FCR 164 at 234-235 [260]; Commissioner of Taxation v Hart (2004) 217 CLR 216 at 240 [53]); (4) the use of flow through trusts to hold passive income producing assets is unremarkable and not a scheme to which Part IVA applies, even though there may be tax advantages in doing so; (5) the Commissioner now concedes that the distributions by MHT to MFGT and by MFGT to Jupiter and Vesta were paid such that they received an economic benefit from them; (6) it was a feature of the MHT and MFGT trust deeds that, in the ordinary course, income would flow to the ultimate unitholders, and that was mostly what occurred and, in the main, those distributions offset cash advances which had been made to the shareholders or funded capital contributions to MFGT; and (7) distributing all or substantially all of MHT's distributable income to the special unitholders would have denied the ultimate unitholders/shareholders distributions. 510 In its reply submissions, the applicant contended that "[i]n short", the Commissioner had not "grappled with or rebutted" its following "key points": (1) LF had no entitlement to or expectation of receiving the residual income that MHT derived from the MHT securitisation trusts; (2) the units in the MHT securitisation trusts belonged to MHT and the income flow was a natural result of the asset ownership; (3) just because LF had previously derived income from its ownership of RIUs in the LF securitisation trusts did not entitle it to receive special distributions from MHT because MHT happened to own assets of the same character and receive income of the same character that LF used to receive; and (4) the existence of the special units did not mean that they had to be used, let alone that MHT should have used them in a manner dictated by the Commissioner. 511 Turning to those key points first. The Commissioner did deal with them. In his closing address, Mr Looney made clear that "[i]t's not being said … that there was any entitlement of LF, or Secure Credit to any of the income of MHT, unless and until the discretion was exercised by the trustee of MHT to distribute to the special unitholders". In making that submission, the Commissioner is not to be understood as "dictating" anything. Ultimately, those key points are, it seems to me, beside the point. 512 I do not accept the proposition that because the schemes, and the third scheme in particular, consist of MHT "not positively" exercising a discretion to distribute profits to LF and Secure Credit, they are not schemes to which Part IVA applies. As Mr Looney said in his closing address: … LF was entitled to income from the securitisation of trusts that were established, where it was the holder of the relevant RIUs; where those trusts were established under MHT, LF wasn't entitled. But in a broad sense, LF has gone from being entitled to no longer being entitled, not because income was removed that it was otherwise entitled to, but simply because of the steps that were undertaken, and the consequence of those steps. 513 In my view that is a correct characterisation of both the second scheme (to the extent that it relates to the distributions made by MHT) and the third scheme, and there is no reason why they are schemes to which Part IVA is incapable of applying. As the Full Court said in Corporate Initiatives Pty Ltd v Commissioner of Taxation (2005) 142 FCR 279 at 285 [26] (Spender, Heerey and Lander JJ): We do not accept the argument that failure to do something cannot constitute an element of a "scheme" for the purposes of s 270-10(1). Part of the statutory definition of "scheme" is "any … course of action or course of conduct". This conveys the notion of a series of interrelated acts by a person or persons over a period of time. The non-doing of an act can form part of such a course, as for example where it is said that a student regularly fails to hand in essays. 514 Further, it seems to me, it is part of "the wider transaction" that may be looked to in order to understand and explain the scheme. Compare Commissioner of Taxation v Consolidated Press Holdings Ltd (2001) 207 CLR 235 at 264 [96] (Gleeson CJ, Gaudron, Gummow, Hayne and Callinan JJ). 515 I am also unpersuaded of the applicant's contention that had LF continued to receive residual income from the securitisation trusts, that would have had the effect of denying the ultimate unitholders/shareholders distributions. It seems to me that the Commissioner was correct to contend that directing the income to MHT rather than LF did not enable a distribution to the ultimate unitholders - and that what it enabled was an entitlement to income subject to 10% tax only, rather than 30%. As Mr Looney said in his closing address, and I agree: Firstly, what's clear is that before the schemes versus after the schemes, income was flowing through to the foreign owner. Previously, it - the income stopped at the domestic level and didn't flow through to the ultimate owner. Now income did flow through. What's important to recognise is that the amount that flowed through after the restructure, after the schemes, was an amount that was greater than it would have been if income was paid previously under the old structure because of the reduced incident of tax - 20 per cent of the amount of income paid. So while there's an economic benefit that we do accept was received by the foreign owner, it's an enhanced economic benefit attributable in - to that extent to the tax benefit. And the fact of it being paid through to the owner, we say, is because of the tax benefit of the scheme. It may be inferred that but for the tax benefit it wouldn't have been paid through to the owner, the inference being drawn based on it wasn't when there was a tax impost that would have occurred by a declaration from LF. And that's simply a reasoning process, as opposed to a particular evidential basis. 516 The Commissioner also contended that directing the income to MHT rather than LF did not provide the ultimate unitholders/shareholders with the flexibility to decide what to do with the funds. Rather, it threw up other problems that the Liberty group had to address, being the need to "prop up" LF's capital adequacy ratio and further, because the loan offsets being used to deal with the MHT and MFGT unpaid present entitlements had the net effect of increasing the Division 7A loan from LF to MFGT over time, an increasing amount of the income distributed by MHT to its ordinary unitholder, MFGT, was not available to be distributed to MFGT's unitholders in any event because it was required to service the Division 7A loan. 517 I have already found that the schemes did not put LF's credit rating at risk and created a need for LF to "prop up" its capital adequacy ratio. See [482] above. 518 As for the Commissioner's submission regarding the loan offsets, earlier in these reasons (see [172]ff), I set out a number of uncontroversial facts that were the subject of evidence concerning the way in which loan offsets were used to discharge the unpaid present entitlements from MFGT. Ultimately, the only use that the Commissioner sought to make of them was that the use of such offsets "ultimately caused less cash associated with income to be available to MFGT to distribute to its offshore unitholders" and that was inconsistent with the applicant's stated objective of facilitating distributions to be made to Liberty's offshore owners. The submission was put this way: (1) Jupiter/Vesta have not received any cash in discharge of their unpaid present entitlements from MFGT - rather, in 2012 and 2013, the outstanding amounts net of tax were discharged by loan offsets; (2) under cross-examination Mr Riedel asserted that the loan offsets that were used to discharge the MFGT unpaid present entitlements were available because of previous cash transfers made by LF to Jupiter; (3) in 2012 and 2013 the loan offsets that were used to discharge the MFGT unpaid present entitlements did involve a reduction in the amount owing from Jupiter/Vesta to LF to the extent of $26,873,033 in 2012 and $7,162,751 (for Vesta) and $25,517,302 (for Jupiter) in 2013; (4) that strategy caused the Division 7A loan between LF and MFGT to increase, which meant that MFGT's liability to pay LF both principal and interest was increasing; and (5) these were settled in 2014 and 2015 by the issue of additional units in MFGT to Vesta - arguably this was done in order to prevent the Division 7A loan balance owed by MFGT to LF to continue to increase. 519 The applicant responded: The [Commissioner] now accepts that the income entitlements of MFGT and of Jupiter/Vesta were paid. Despite this, [he]: (a) continues to deny that the shareholders had the flexibility to do what they wished with the funds; (b) continues to focus on the manner of payment and the fact that payment of the entitlements was not effected in cash; and (c) ignores the fact that the loan offsets had the effect of reducing the obligations of the ultimate shareholders owed to repay LF for cash they had received from LF over the years … Mr Riedel deposes to and exhibits documents which show that: i. between 1 July 2000 and 30 June 2015, LF transferred $116.64 million in cash to Jupiter; ii. between 1 July 2012 and 30 June 2015, LF transferred $7.82 million in cash to Vesta. The [Commissioner] has not challenged this evidence yet conveniently overlooks the fact that the ultimate shareholders received more than $124 million in cash from LF over the years and that the obligation to repay that cash was offset against amounts the shareholders received as income distributions from MFGT. Given that the [Commissioner] accepts that Jupiter and Vesta received income distributions and that those distributions were paid, [he] cannot deny that one of the effects of "failing" to distribute income to the special unitholders was that Jupiter and Vesta received substantial income and enjoyed real economic benefits. The [Commissioner] makes no mention of this in his analysis of the s 177D factors which is untenable. 520 As I said earlier ([212]), in the end neither party explained how the competing contentions in [518] and [519] were relevant to the application of the eight factors contained in s 177D, so, having recorded them lest they be said on appeal to have some relevance not apparent to me, I will put them to one side.

[82]

The first factor: the manner in which the first scheme was entered into or carried out 523 The Commissioner identified a number of features which he submitted went to the manner in which the first scheme was entered into or carried out and were explicable as actuated by a dominant purpose of obtaining a tax benefit. He submitted that the manner in which the first scheme was carried out was "artificial and contrived as LF's business operations did not change as a result of the restructure, but it was deprived of a major source of its income and that was replaced with unwritten, interest-free cash loans". He also relied on the contention that the applicant had "abandoned" the concept of an IPO, "such that by 2009 it had no intention of carrying out an IPO in the next five years" and that "the only credible explanation for the steps that were taken to bifurcate LF's income is the tax benefit that it provided to the [a]pplicant and therefore the Liberty Group". He also submitted that the first scheme, like the other two schemes, "reduced LF's cash flow, which in turn reduced its retained earnings, which in turn threatened its capital adequacy ratio and its investment grade credit rating requiring convoluted transactions and accounting treatment to resolve", and "did not give rise to the commercial benefits claimed". 524 In my view, those features identified by the Commissioner as going to "manner" were explicable as actuated by a dominant purpose other than the obtaining of a tax benefit. 525 I do not accept that the manner in which the first scheme was carried out was "artificial and contrived". 526 As to the contention that the applicant "was deprived of a major source of its income" that was "replaced with unwritten, interest-free cash loans", for reasons I gave at [386] above, the Commissioner never explained why it mattered that LF was lent money pursuant to unwritten, interest free loans, or why it mattered that they were repaid other than in cash. And as the evidence also showed (see [171] and [494] above), the applicant correctly submitted that LF was profitable in each of the relevant years, and it continued to derive income from the LF securitisation trusts, dividends it received from entities in the group, and origination, service and management fees from LF securitisation trusts, as well as new sources, viz the origination, management and loan servicing it provided to the MHT securitisation trusts, management fee income from MHT, and trust distributions from MHT. 527 Further, as explained above (see [482]ff), I do not accept that the first scheme threatened LF's capital adequacy ratio and its investment grade credit rating. 528 As I explained (at [359]-[360] above), I accept the applicant's case that Liberty had received advice over many years that an IPO of stapled securities consisting of a unit in a trust holding the group's passive financial assets and a share in a company holding the group's active assets, and holding newly formed securitisation trusts in MHT, was the optimal way to go to market. In my view, again for reasons I have earlier explained, after the IPO planned for July 2007 did not proceed, but given that the applicant continued to believe that it would go to market using the stapled structure at some point (subject to market conditions), objectively viewed it would have been commercially irrational for Liberty not to establish MHT as part of the trust silo in April 2008 and have MHT nominated as the RIU holder of the securitisation trusts because: (a) establishing new securitisation trusts within the corporate structure would have meant those assets would not have been where they were meant to be when the time came to conduct an IPO; and (b) it would have caused Liberty to incur significant restructuring costs, including stamp duty in the vicinity of $40 million and significant sums by way of CGT. 529 It follows that the Commissioner's alternate postulate - in essence that there would have been no change in the course of conduct by entities in the Liberty group in relation to the establishment of the securitisation trusts, and the applicant would continue to be taken to derive the residual income from the securitisation trusts - is not reasonable. 530 I accept the applicant's submission that this factor points away from the dominant purpose of obtaining a tax benefit.

[91]

The first factor: the manner in which the second scheme was entered into or carried out 557 It will be recalled that the second scheme comprised (i) the steps that gave Jupiter/Vesta the entitlement to all of MFGT's distributable income in the relevant years, (ii) the trustee of MHT choosing not to exercise its discretion to distribute its distributable income to one or both special unitholders, and (iii) MHT lending the funds obtained as RIU holder of the MHT securitisation trusts to LF. It is convenient to deal with this factor first in relation to point (i) (which I shall refer to as the "first part" of the second scheme), and then in relation to points (ii) and (iii) (which I shall refer to as the "second part" of the second scheme). 558 The Commissioner submitted that the manner in which the ownership of MFGT was transferred from the applicant to Jupiter in December 2007 "lack[ed] transparency". See [459] above. He also submitted that in the absence of any evidence as to the reason for the issue of additional units to Jupiter in the 2011 year, it should be inferred that such evidence would not assist the applicant. See [460] above. 559 He submitted that this contention went to the first factor of the second scheme, in the Commissioner's favour. 560 For the reasons set out under the rubric "The steps that gave Jupiter/Vesta the entitlement to MFGT's distributable income", I do not agree that the applicant's evidence lacked transparency or that I should draw a Jones v Dunkel (1959) 101 CLR 298 inference of some sort. 561 In my view, the manner in which the steps giving Jupiter the entitlement to all of MFGT's distributable income were carried out is a neutral factor. 562 As for the second part of the second scheme, in each of the relevant years, as the Commissioner submitted, the applicant in its capacity as trustee of MHT, had a choice as to whether to direct any or all of MHT's net income to the special unitholders (LF and Secure Credit), or whether to allow the ordinary unitholder, MFGT, to gain a present entitlement to that income. As I said earlier, the evidence established that the applicant considered its power to distribute MHT's distributable income in each of the relevant years and made a determination in each of the relevant years regarding the extent to which MHT's net income should be distributed to the special unitholders. See [140]ff. 563 The applicant could only proffer one reason why a greater distribution of income from MHT to LF would not be desirable, that is, the so-called return on equity "metric". As I also explained, the applicant was unable to provide any evidence as to how the metric was calculated, what assumptions underpinned it, whether or why a lower return on equity metric would not be desirable or how that consideration outweighed the negative consequences of LF not receiving the income. See [502]-[507]. 564 The applicant was unable to provide any cogent reason, other than the tax benefit, why the decision was taken in each of the relevant years to direct no more than 2% of MHT's net income to the special unitholders. The applicant submitted that neither LF nor Secure Credit had an "entitlement" to the income from the RIUs and that the power of the trustee of MHT to distribute income to the special unitholders was discretionary. So much, unsurprisingly, was accepted by the Commissioner. But neither factor goes to the relevant question of dominant purpose, objectively viewed. 565 In those circumstances, I agree with the Commissioner's submission that, viewed objectively, the exercise of the choice in each of the relevant years (the manner in which the second part of the second scheme was carried out) was driven by the tax benefit of directing income away from LF. Having found that this factor is neutral insofar as it relates to the first part of the second scheme, I agree with the Commissioner's submission that, objectively, the manner in which the second scheme was entered into is indicative of a dominant purpose of obtaining that tax benefit.

[93]

The third factor: the time at which the second scheme was entered into and the length of the period during which it was carried out 569 It is again useful to address this factor firstly in relation to the first part of the second scheme. In my view, there is nothing significant in the timing of the first part of the second scheme, that is, the taking of the steps that gave Jupiter/Vesta the entitlement to MFGT's distributable income, which is suggestive of a dominant purpose to obtain a tax benefit. To that extent, the factor is neutral. 570 As for the second part of the second scheme, those steps occurred during each of the relevant years. The Commissioner submitted that, because they occurred more than four years after the planned 2007 IPO did not proceed and five years and more away from the IPO that was ultimately undertaken in 2020, they "cannot be explained as being in connection with" either and that "[i]n the absence of any evidence as to the commercial reasons why the [a]pplicant only distributed nominal amounts of income from MHT to the special unitholders, if any, in the relevant years this factor is indicative of the dominant purpose of obtaining a tax benefit". 571 The applicant did not make a case that these steps were to be explained by reference to the planned or eventual IPO. It submitted that the second part of the second scheme "principally consists of MHT not doing something - viz. making a distribution of all or substantially all its income to the special unitholders as opposed to the ordinary unitholders" and that "[t]he loans from MHT to LF occurred at the times they did to facilitate cashflow management in circumstances where LF performed a group treasury function". It submitted that there was therefore "nothing significant in the timing or the length of the period during which the identified schemes were carried out". 572 I disagree. It seems to me, for the reasons given above, that the Commissioner is correct to contend that in the absence of any evidence from the applicant as to the commercial reasons why it only distributed nominal amounts of income from MHT to the special unitholders, in the relevant years this factor is indicative of the dominant purpose of obtaining a tax benefit.

At a glance

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Judgment (109 paragraphs)

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Cases Cited (20)

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