Decision Impact Statement – Shell Energy Holdings case
The ATO has issued a Decision Impact Statement (DIS) regarding:
At issue was whether:
- Shell had acquired mining, quarrying or prospecting rights (MQPR); and
- the cost to acquire such rights was immediately deductible to it under section 40-80 of the ITAA 1997.
The facts of the case were complex, as was the consideration of the relevant legal issues. Each decision was mostly unfavourable to the Commissioner, with:
- the Full Federal Court upholding the first instance decision that Shell was entitled to an outright deduction under section 40-80 of the ITAA 1997 for the cost of acquiring another oil company’s interests in an offshore exploration project; and
- the High Court rejecting the special leave application on the basis that the case’s procedural history made it a distinctly inappropriate vehicle to consider the question of whether an interest in joint venture property arises merely from acquiring a participating interest.
In the DIS, the Commissioner also confirms that TD 2019/1 will be withdrawn, and a number of other rulings updated, as a result of the decisions.
TD 2019/1 withdrawn
Consistently with the above, TD 2019/1 has been withdrawn with effect from 2 February 2023. This Determination set out the Commissioner’s view regarding what constitutes ‘use’ (and potentially first use) of a MQPR that is a depreciating asset for the purposes of section 40-80(1) of the ITAA 1997.
The reason for the withdrawal is that the Commissioner’s view in the Determination (that a MQPR is only ‘used’ for the purposes of section 40-80 if the holder does something that the MQPR permits or authorises) is inconsistent with the Full Federal Court’s decision reported at  FCAFC 2. In that case, the Court held that:
- the ‘first use’ of a depreciating asset to which section 40-80 can apply corresponds with its ‘start time’ within the meaning of section 40-60(2) (i.e. when a taxpayer first uses the asset, or has it installed ready for use, for any purpose); and
- in practice, the ‘first use’ and ‘start time’ for a bundle of rights such as an MQPR corresponds with when the MQPR is held for use.
In the withdrawal notice, the Commissioner confirmed that they consider the Full Federal Court’s decision provides certainty regarding what constitutes the ‘use’ of an MQPR. As such, no new ruling will be issued.
Class ruling issued
The ATO has issued CR 2023/3 – EFTsure Pty Ltd – Employee share scheme – Minimum holding period and exchange of options.