CBH wins blue with the taxman

GRAIN storage, handling and marketing giant CBH Group has won a Federal Court appeal over its tax-exempt status that could have cost it millions of dollars a year.

CBH estimated that, had it not been tax-exempt, the average tax bill for the past decade would have been $13 million per year.

The battle with the taxman took place after CBH sought a private ruling from the Commissioner of Taxation about its tax status as the board and management considered the future structure of the organisation.

CBH is still considering its future structure. The group recently surveyed members and found that they wanted CBH to retain cooperative principles. Growers also want to keep control of the storage and handling side of the business.

However, growers were also looking for more information on the issues caused by the changing environment and for some direction on the different ways that value can be returned to them.

This week, Federal Court Justice John Gilmour released his conclusion that the tax commissioner was wrong when he decided that CBH was liable for tax because the business it carried on was for the profit or gain of its members.

“The fact that growers who are also members benefit from the activities of CBH, not because they are members but because they are growers, does not make CBH an association carried on for their individual profit or gain,” Justice Gilmour said in his reasons.

Justice Gilmour also dismissed the commissioner’s legal argument that because CBH’s activities fell outside the farm gate it did not fit into the legislated tax-exemption category.

“I am satisfied for the following reasons that the principal, dominant or main purpose of CBH was and remains to promote the development of Australian agricultural resources by promoting the development of the grain industry of Western Australia,” he wrote.

“I have already concluded, contrary to the commissioner’s submissions that both the grain harvested from the land and the means by which it is transported, stored and loaded in bulk for consumption and export for part of Australia’s agricultural resources.”

The 77-year-old agricultural cooperative has held tax-exempt status since 1972.

Its accounts show that, for the year ending October 31 2009, it had an income tax expense of $21.2 million. CBH does not reveal what, if any, portion of this would have been tax exempt. In the previous corresponding period it exempted more than $10 million in pre-tax income as relating to the tax-exempt parent entity, suggesting a $3 million tax saving.

Its 2007-08 income tax expense was $17.1 million.

Although CBH has subsidiaries, which are taxable entities in their own right, the decision is likely to influence the debate within the organisation about its future structure.

The tax commissioner has 21 days to lodge an appeal.