Is a change (to a stapled structure) as good as a (tax) holiday?

By Martin Fry, Scott Lang
Disputes & Investigations Tax

The Federal Court says 'yes', but also 'no' 15 min read

In the second case to consider the general anti-avoidance rule contained in Part IVA since it was amended in 2013, a single judge of the Federal Court has held that the overall restructuring of a loan securitisation business from a corporate group to a corporate group and a separate trust group, which ultimately became a stapled structure, was legitimate and not rendered ineffective for income tax purposes.

However, the judge went on to find that the failure to exercise a power, created as part of the restructure, to make discretionary distributions from the trust group to the corporate group could only be explained by the desire to pay a lower rate of income tax. It followed that the restructure as a whole was ineffective for income tax purposes.

Subject to any appeal to the Full Federal Court, the reasoning in this case should be of interest to taxpayers who have undertaken, or are planning to undertake, a restructure, as well as taxpayers with existing stapled structures.

Key takeaways

  • As expected, group restructures will not be caught by the general anti-avoidance rule in Part IVA, provided there is sufficient evidence that the dominant purpose of the restructure was not to obtain a tax benefit.
  • An inability to explain by evidence even a single aspect of a restructure can result in Part IVA applying to effectively render the entire restructure ineffective for income tax purposes.
  • The Federal Court appeared to accept the legitimacy of stapled structures—most importantly, it held that there is no dominant purpose of obtaining tax benefits by offering a structure to the market which is responsive to the tax attributes and preferences of target investors, and which might therefore be expected to maximise the capital raised from the offering. However, it also held that the general anti-avoidance rule was engaged by a failure to make what was effectively a cross staple payment.

A brief summary of Minerva Financial Group Pty Ltd v Commissioner of Taxation

An IPO 13 years in the making

From 2002, a financial services business was operated under the name 'Liberty Financial' by a group of Australian companies and trusts, the head company of which was wholly owned by a foreign resident entity. Liberty Financial provided loans to its customers and obtained the capital to do so by securitising (pooling) those loans and mortgages into securitisation trusts and obtaining third-party financing. The Liberty Financial group was subject to tax on the interest income derived by the securitisation trusts at the corporate tax rate of 30%.

Based on external advice, the Liberty Financial group commenced a restructure in 2007 with a view to conducting an initial public offering (IPO) of stapled securities. Due to the onset of the Global Financial Crisis (GFC), the IPO did not proceed. However, the restructure still proceeded throughout 2007 and 2008 in the hope that Liberty Financial would be ready to recommence the IPO after the GFC abated. The restructure involved the following key elements:

  • All new securitisation trusts were established under a newly formed intermediate holding trust. All of the 'ordinary units' in this holding trust were held by a head trust. This head trust was wholly owned by the same foreign resident entity that already owned the Australian head company. Together, these trusts became the 'trust silo' of the group. Interest income distributed from the securitisation trusts via the intermediate holding trust and head trust to the foreign resident entity was subject to interest withholding tax at 10%.
  • The existing securitisation trusts, which remained ultimately owned by the Australian head company, progressively reached the end of their commercial lives. The Australian companies that conducted the active business activities of the Liberty Financial group continued to do so and remained ultimately owned by the Australian head company. These companies became the 'corporate silo'. The head company and its subsidiaries formed a tax consolidated group that was subject to corporate tax at 30%.
  • Most importantly, two of the Australian companies in the corporate silo held 'special units' in the intermediate holding trust. The trustee of that trust, which was the Australian head company, had discretionary power to distribute the trust income to those companies rather than to the head trust. Exercising the discretion to distribute income to those companies effectively resulted in the income being subject to tax at 30% rather than 10%. In fact, in the relevant years the Australian head company either did not exercise the discretion (ie no income distributed to the companies) or determined to only distribute less than 2% of the trust income to the companies.

Liberty Financial ultimately succeeded in conducting its IPO in 2020.

The Commissioner objects to the restructure

Aggrieved by the decrease in the effective tax rate from 30% to 10%, the Commissioner of Taxation issued determinations pursuant to Part IVA of the Income Tax Assessment Act 1936 (Cth) that, broadly speaking, sought to negate that decrease. Part IVA permits such determinations where there is a scheme in connection with which a taxpayer obtains a tax benefit and the dominant purpose of a person who entered into or carried out any part of the scheme was to enable the taxpayer to obtain that tax benefit.

While the Commissioner identified three alternative schemes, those three can essentially be summarised down to two: first, the decision to restructure the business from a corporate structure into a corporate silo and trust silo and, second, the failure to exercise the discretionary distribution power. The Australian head company admitted each scheme gave rise to a tax benefit. However, it disputed that the failure to exercise the discretionary distribution power was a scheme and that the dominant purpose of obtaining a tax benefit existed in respect of any of the schemes.

Everything turns on the existence/non-exercise of the discretionary distribution power

Justice O'Callaghan held that the restructure of the Liberty Financial business from a single corporate silo to a dual corporate silo/trust silo was not itself entered into or carried out for the dominant purpose of obtaining any tax benefit. Rather, the restructure was undertaken to establish a stapled structure, which the external advisors consistently stated would result in the highest returns from the future IPO. Delaying the restructure would have resulted in higher restructuring costs at a later date (including capital gains tax and stamp duty). In addition, after the restructure the corporate silo remained profitable even without the income flows from the securitisation trusts.1

In relation to the tax consequences that resulted from the restructure, his Honour concluded that these were neutral in terms of determining the dominant purpose, because the fact that a transaction has certain tax consequences does not imply it was entered into for the dominant purpose of obtaining them, relying on what was said by Justice Edmonds in Commissioner of Taxation v Ashwick.2

However, having rejected the Commissioner's case in relation to the decision to split the group into the corporate silo and trust silo, Justice O'Callaghan then accepted the Commissioner's more specific case that the dominant purpose of the failure to exercise the discretionary distribution power to transfer income from the trust silo to the corporate silo was to not pay the additional 20% tax.

His Honour held that the failure to exercise the discretionary distribution power was a scheme because the broad statutory definition of 'scheme' includes any 'course of action or course of conduct'3, which in turn includes the failure to do things.4 Having accepted there was a scheme, Justice O'Callaghan held that it had been entered into or carried out for the dominant purpose of obtaining the tax benefit of lower rates of income tax because the taxpayer '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'.5

2013 amendments to Part IVA effective in focusing analysis on dominant purpose

Minerva is the second case to consider the application of the 2013 amendments to Part IVA.6 Parliament enacted those amendments to clarify how to determine whether a taxpayer has obtained a tax benefit (by either of the annihilation approach or the reconstruction approach) and to make consideration of the dominant purpose test the starting point of any Part IVA analysis.7

In Minerva, the taxpayer conceded it had obtained a tax benefit in connection with each of the alternative schemes.8 This meant almost the entire dispute between the taxpayer and the Commissioner, as well as the focus of the judgment, was the application of the dominant purpose test, which remained substantively unchanged by the 2013 amendments.9

Consequently, at least in the second case to apply them, the 2013 amendments achieved their aim.

The 'true gist' of the case: lack of 'cross staple' discretionary distributions

Justice O'Callaghan held that the failure to exercise the power to distribute income from the trust silo to the corporate silo was 'the true gist' of the two schemes to which Part IVA applied.10 His Honour's conclusion that the taxpayer provided no reason other than the tax benefit for failing to make distributions to the corporate silo was based upon an extended cross-examination of the taxpayer's chief financial officer extracted in the judgment.11 The cross-examination is an excruciating read.

However, the taxpayer had adduced other evidence regarding the rationale for the discretionary distribution power. The power was originally recommended by the external advisors who promoted the IPO in early 2007 to ensure that the yields on the stapled securities would not exceed 4-5%, which was considered commercially undesirable due to potential yield fluctuation and valuation issues, and to ensure the corporate silo would have sufficient cashflow to meet its requirements.12 It is unclear why Justice O'Callaghan did not address this justification in his reasoning, particularly given that his Honour repeatedly held that the special unitholders in the corporate silo remained profitable after the restructure.13 If the special unitholders were profitable without any distributions, perhaps the dominant purpose in not exercising the distribution power was that there was simply no reason to do so. Part IVA does not appear to require a trustee to distribute income to the highest rate taxpayer.14

Déjà vu on the Commissioner's anti-restructure argument

This is not the first time the Commissioner has sought (and failed, at least partially) to negate the income tax effect of an internal group restructure.

In Federal Commissioner of Taxation v Glencore Investment Pty Ltd, the Commissioner argued that a change to the cross-border contractual arrangements within a group for the sale and purchase of copper concentrate was ineffective for income tax purposes due to Australia's transfer pricing regimes because the change itself was not an arm's-length dealing. The Full Federal Court rejected this argument with Justices Middleton and Steward noting that '[w]ith respect we think the Commissioner has asked the wrong question.'15 The correct question was whether the revised contractual arrangements resulted in consideration within an arm's-length range.15 In a concurring opinion, Justice Thawley added that the Commissioner's 'argument hints at a case under Pt IVA of the ITAA 1936'.16

Perhaps prompted by Justice Thawley's own hint, the Commissioner effectively advanced the same argument under Part IVA against the Liberty Financial group's entire restructure. While Justice O'Callaghan rejected that argument, his Honour did not do so on the basis of statutory interpretation like the Court in Glencore, but by reference to the facts, in particular, the planned IPO. This raises some interesting questions. For instance, if Liberty Financial had conducted the restructure without any contemplation of a future IPO, would the fact that the corporate silo and trust silo were both profitable after the restructure have been sufficient to conclude that Part IVA did not apply? That profitability meant the restructure did not depend entirely for its efficacy upon, and was only explicable by, the tax benefit.17

Moreover, if as the Commissioner suggested the dominant purpose only lasted until the IPO occurred, then the IPO investors that acquired stapled securities can effectively enjoy the resulting tax benefits of the restructure without any further Part IVA determinations being issued against the Australian head company.18 Why shouldn't the existing foreign resident entity that owned the Liberty Financial group have also been entitled to enjoy those benefits as a result of a restructure? How is such a restructure to a stapled structure any different to selecting a stapled security in the first place at the commencement of business, in part due to the tax benefits?19 Ultimately, if there is such a difference, does that mean that the Commissioner will continue to assert that Part IVA precludes a business from restructuring to obtain a better income tax outcome?

Finally, Justice O'Callaghan made some specific findings about stapled structures:20

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?


I accept Mr Ali's uncontradicted evidence that an IPO of stapled securities (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…. 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 ….

His Honour appears to accept that stapled structures have commercial appeal to investors, but ultimately sources at least some of this appeal in the investor tax benefits. For this reason, we await with interest whether the taxpayer will appeal.

Intra-group loans and distributions paid by set-off are unremarkable

In articulating the relevant schemes in this case, the Commissioner emphasised certain interest-free unwritten loans and unpaid trust entitlements which were satisfied by set-off rather than cash payment. This appeared to be an attempt to paint the activities of the Liberty Financial group in an unflattering light. This attempt was flatly rejected by Justice O'Callaghan.

His Honour emphasised that the loans were recorded in the general ledgers of the lender and borrower and so 'are "written", or relevantly recorded and evidenced, in that sense'.21 There was 'nothing unorthodox' in that. Moreover, intragroup loans being interest-free is 'hardly unusual' and their repayment by set-off is 'nothing unorthodox'.22

A warning on the proper conduct of Part IVA cases

When determining whether the dominant purpose test is satisfied, a court is required to consider the eight factors specified in section 177D(2).23 These factors must be separately considered for each alternative scheme identified by the Commissioner.24

Justice O'Callaghan specifically criticised both parties' submissions for not dealing with each scheme separately and in order, not dealing with each factor separately for each scheme, not connecting relevant facts to any particular factor as opposed to the dominant purpose test as a whole, and including facts and associated submissions that ultimately had no material or significant relevance.25

Future litigants have been warned. It would be wise to address each scheme and factor separately, sequentially and with only relevant facts.

Relevance of stapled structures amendments

In 2019, Parliament enacted legislation that increased from 15% to 30% the withholding tax upon certain payments from Australian managed investment trusts (MIT) to foreign resident investors that were ultimately sourced in payments made under cross staple arrangements (ie payments from an entity in a corporate silo of a stapled structure to an entity in a trust silo, namely, the MIT or a subsidiary trust).26

These amendments sought to address the Government's concern that cross staple payments from corporate silos to trust silos were being used to effectively convert active business income from the corporate silo, which would otherwise be subject to 30% corporate tax, into passive income in the trust silo, which would ultimately be subject to the 15% concessional rate of tax.27 It is fascinating to observe that the same concern underlay the Commissioner's case in Minerva, but in the other direction. In Minerva, the Commissioner's concern was that income resided in the lower taxed trust silo and the parties refrained from paying it over to the higher taxed corporate silo.

In relation to stapled structures more broadly, the Commissioner will pause before contending that the decision to establish a stapled trust and company structure can be struck down by Part IVA given Justice O'Callaghan's comments on the commercial benefits to be gained from offering the market a structure responsive to the tax attributes of the target investor market.

Actions you can take now

Tax managers of groups, including stapled structures, should do the following:

  • if the group is contemplating a restructure, ensure the tax and non-tax benefits are appropriately documented (including in advice from third-party advisors); and
  • monitor to see if either the Commissioner or the taxpayer appeals the decision in Minerva to the Full Federal Court.


  1. Minerva Financial Group Pty Ltd v Commissioner of Taxation [2022] FCA 1092 (16 September 2022) [526], [528], [537], [547].

  2. Ibid [540]-[542].

  3. Income Tax Assessment Act 1936 (Cth) s177A(1)(definition of 'scheme'). See also s177A(3).

  4. [2022] FCA 1092 (16 September 2022) [512]-[514].

  5. Ibid [564]. See also [563]-[565], [572], [581], [585].

  6. The first was Guardian AIT Pty Ltd v Federal Commissioner of Taxation (2021) 114 ATR 136. In that case, Justice Logan held that the alleged scheme produced no tax benefit and even if it did, the dominant purpose requirement was not satisfied.

  7. Explanatory Memorandum, Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013 (Cth) 16-7.

  8. [2022] FCA 1092 (16 September 2022) [10].

  9. Ibid [11], [262]. See also Guardian AIT Pty Ltd v Federal Commissioner of Taxation (2021) 114 ATR 136, 165.

  10. Ibid [498].

  11. Ibid [503]-[507].

  12. Ibid [83]-[84].

  13. Ibid [481], [494], [526].

  14. See, eg, Guardian AIT Pty Ltd v Federal Commissioner of Taxation (2021) 114 ATR 136, 167-9.

  15. (2020) 281 FCR 219, 272.

  16. Ibid 277-8.

  17. Ibid 301.

  18. Cf Commissioner of Taxation v Hart (2004) 217 CLR 216, 228 (Chief Justice Gleeson and Justice McHugh), 240 (Justices Gummow and Hayne).

  19. [2022] FCA 1092 (16 September 2022) [292], [303]. Note the dominant purpose does not need to be held by the taxpayer that obtains the tax benefit: Income Tax Assessment Act 1936 (Cth) s177D(1).

  20. When considering the unamended version of Part IVA, the High Court has held that tax is a cost of doing business and all transactions and structures have tax consequences that taxpayers take into account, which without more will not mean that the objective dominant purpose test is satisfied: Commissioner of Taxation v Hart (2004) 217 CLR 216, 222, 227 (Chief Justice Gleeson and Justice McHugh), 240 (Justices Gummow and Hayne).

  21. [2022] FCA 1092 (16 September 2022) [420]-[421].

  22. Ibid [386].

  23. Ibid. See also [475] regarding central treasury companies within groups. Similar comments were recently made by Justice Logan in the context of small and privately owned businesses in Melbourne Corporation of Australia Pty Ltd v Commissioner of Taxation [2022] FCA 972 (19 August 2022) [41]-[44] and Anglo American Investments Pty Ltd v Commissioner of Taxation [2022] FCA 971 (19 August 2022) [54], [100].

  24. Income Tax Assessment Act 1936 (Cth) s177D(1).

  25. [2022] FCA 1092 (16 September 2022) [279].

  26. Ibid [281]-[283], [351].

  27. Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 (Cth).

  28. Revised Explanatory Memorandum, Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2019 (Cth) 8-9.