Shell wins appeal in CGT dispute with ATO

The decision, Shell Energy Holdings Australia Limited v Commissioner of Taxation [2026], concerned the calculation of the cost base of certain shares held in Woodside Petroleum Limited for the purposes of income tax.

Shell disposed of the shares in the years ended 31 December 2010, 2014 and 2017. The capital gains made by Shell on the disposals of the shares were calculated by taking the sale price received for the shares and then deducting the cost base of the shares.

In the 1970s and 1980s, entities forming part of the Shell and BHP groups of compliance had acquired substantial shareholdings in Woodside Petroleum Limited (WPL). Some were held indirectly through an entity called North West Shelf Development Pty Ltd, which was jointly owned by Shell and BHP.

During 1990 and 1994, the BHP group disposed of its interests in WPL. On 28 June 1990, BHP sold a 30 per cent shareholding in WPL by way of sales to multiple institutional investors, at a discount to the opening listed share price on that day of 1.87 per cent.

In October 1994, BHP also sold a 10 per cent shareholding in WPL, by way of sales to multiple institutional investors at a discount to the opening listed share price on that day of 3.64 per cent. That interest had been held directly, as to 4.24 per cent, and indirectly, as to 5.76 per cent through the North West Shelf Development Pty Ltd.

Shell also disposed shares held through the North West Shelf Development Pty Ltd in October 1994. It disposed of its indirect interest in 5.75 per cent of WPL shares.

Taken together, the disposals of shares in October 1994 by BHP and Shell constituted the disposal of 15.76 per cent of the total shares in WPL, at a discount to the listed share price of 3.64 per cent.

The Court noted that the Shell's management contemplated several options in relation to the disposal of the shares in October 1994, including purchasing BHP's interest or disposing of Shell's indirect interest in WPL, which was held by North West Shelf Development. The latter option was pursued by Shell's management.

Following the second BHP disposal, Shell Australia was by far the largest shareholder in WPL, holding 228,456,275 WPL shares or 34.27 per cent of the total shares in WPL.

On 20 January 1997, WPL had 666,666,667 ordinary shares on issue. Shell Australia continued to hold around 34.27 per cent of the shares.

Throughout the course of 20 January 1997, 733,574 of the shares in WPL were actually traded, for a volume weighted average price (VWAP) of $9.41. The closing price was $9.42.

Shell Energy Holdings Australia made three sets of disposals of WPL shares over the course of 2010, 2014 and 2017, which were sold to multiple institutional investors.

When Shell Energy Holdings Australia lodged its tax returns for the 2011, 2015 and 2018 income years, the assessable capital gains on disposal of the shares in WPL was calculated on the basis of $11.38 per share, representing a premium of 18 per cent to the closing listed price on 20 January 1997 plus indexation.

In May 2018, the Commissioner commenced a review of Shell Energy Holdings Australia in relation to its disposal of shares in WPL in the 2015 and 2018 income years. It then commenced an audit in relation to the disposal of the shares in September 2019.

It then issued amended assessments to Shell Energy Holdings Australia, reflecting the Commissioner's determination that Shell's net capital gain for the income years was greater than what had been calculated by Shell.

This was because the Commissioner did not accept that, in working out the cost base for the shares in WPL, a premium should be applied to the listed price.

The effect of the increase to SEHAL’s net capital gain was a reduction in carried forward tax losses and the earlier utilisation of non-refundable research and development tax offsets, leading to an increase in tax payable in the 2019 income year.

The Court had to examine whether Shell Energy Holdings Australia was entitled to claim as part of the cost base, a premium over the VWAP of WPS shares on 20 January 1997, reflecting the significant influence which the WPL shareholding conferred.

The Commissioner submitted that the reality of the market was that on 20 January 1997, Shell Energy Holdings Australia could have sold the shares comprising 34.27 per cent of WPL off-market to institutional investors in smaller parcels at a discount to the listed price.

The Commissioner claimed, therefore, that the market value for the highest and best use of the WPL Shareholding was therefore, at most, the listed price, which is the value at which the Commissioner has assessed SEHAL.

Justice Jackman rejected the Commissioner's submission and concluded that the market value of each share in the WPL shareholding at 20 January 1997, for the purposes of former section 60 ZZSC(1) of the ITAA 1936, was $11.12.

The Federal Court concluded that Shell Energy Holdings Australia had successfully discharged its burden of proving that the amended assessments, which were the subject of the proceeding, were excessive within the meaning of section 14ZZO of the TAA.

"It follows that the Commissioner’s objection decision of 23 February 2024 should be set aside," said Justice Jackman.