Court rules against commissioner in dispute over tax losses

In the decision, Evolution Mining Limited v Commissioner of Taxation [2026] FCA 935, the court had to examine whether a choice made in Part B of the losses schedule for Evolution Mining's 2014 income tax return to cancel any transfer of certain tax losses was effective for the purposes of section 707-145 of the Income Tax Assessment Act 1997.

Back in 2011, two mining companies, Conquest Mining and Catalpa Resources, merged to create one company, Evolution Mining.

The tax losses were certain losses reported by Conquest in its tax returns for the income years ending 30 June 2007 to 30 June 2010 and amounted to $31,292,880.

Evolution, as the head company of the joint group, sought to utilise some of those losses in the income year ending 30 June 2017. However, the Commissioner of Taxation opposed this.

Evolution acquired all of the shares in Conquest in November 2011, with Conquest becoming a subsidiary member of the consolidated group, and Evolution becoming the head company.

On 25 June 2014, Evolution lodged its 2012 tax return, in which it did not exercise any choice under s 707-145 of the ITAA 1997 to cancel the transfer of the updated Conquest tax losses in its 2012 tax return. Evolution took the same approach in its 2013 tax return, which it lodged on 22 August 2014.

On 13 March 2015, Evolution lodged its 2014 tax return, in which it recorded the cancellation of the transfer of losses which included the updated Conquest tax losses.

Evolution said that the choice purportedly made in its 2014 tax return to cancel the transfer of the updated Conquest tax losses, which occurred at the joining time on 2 November 2011 in the income year ending 30 June 2012, was too late and of no effect. It contended that the choice had to be made in relation to the income year in which the joining entity became a member of the consolidated group. The commissioner rejected this, contending that the choice to cancel the transfer of the tax losses was effective.

The commissioner submitted that the choice to cancel the transfer can be made at any time in relation to any income year before the head company has utilised any of the transferred losses.

The ATO said that wherever a choice is made under section 707-145, it is always directed to the subject matter of the provision, which is the transfer of the loss that occurred at the joining time, such that the choice purportedly made in the 2014 income year was in relation to the 2012 income year and every year thereafter.

Justice Jackman rejected this argument, stating that it was inconsistent with the fact that Evolution expressly did not make such a choice in relation to the 2012 and 2013 income years.

"The question is one of fact, as to which the statutory deemed consequences under s 707-145(2) may be relevant but are not determinative," said Justice Jackman.

The commissioner submitted that the operation of the transfer is “spent” upon the head company choosing to utilise losses transferred to it by the joining entity, and there is then no relevant transfer that continues to exist.

"However, the notion that the transfer ceases to exist finds no support in the legislation. On the contrary, s 707-140(1) provides that the transfer operates in perpetuity for income years ending after the transfer, and section 707-145(2) provides that a choice to cancel the transfer operates in perpetuity for all income years ending after the transfer," said Justice Jackman.

"In my view, the construction advanced by Evolution is correct. The upshot is that Evolution’s purported choice to cancel the transfer of the Updated Conquest Tax Losses in its income tax return for the 2014 income year, contrary to the absence of such a choice in relation to the 2012 income year, was too late to be effective under s 707-145."