Bankers and Traders' Insurance Company Limited v Federal Commissioner of Taxation

The High Court of Australia heard an appeal by Bankers and Traders' Insurance Company Limited against an assessment for war-time company tax made by the Federal Commissioner of Taxation. The dispute concerned the calculation of "capital employed" for the purposes of the War-time (Company) Tax Assessment Act 1940-1944, specifically whether capital invested outside Australia, but producing income assessable under the Income Tax Assessment Act, should be included in the capital employed in Australia.

The primary legal issue before the Court was whether, in ascertaining the capital employed by a resident company for the purposes of the War-time (Company) Tax Assessment Act, the Commissioner was entitled to deduct capital employed outside Australia, even if that capital generated income assessable under the Income Tax Assessment Act. A related question was whether certain specific investments, including Australian Consolidated Bonds held overseas and Metropolitan Water, Sewerage and Drainage Board Dollar Bonds held in Australia, constituted capital employed in Australia.

A majority of the High Court (Rich, Starke, Dixon, and McTiernan JJ.) held that the Commissioner was entitled to deduct capital employed outside Australia, notwithstanding that it produced income assessable under the Income Tax Assessment Act. The Court reasoned that the War-time (Company) Tax Assessment Act, particularly sections 3 and 24, contemplated the exclusion of capital employed outside Australia when calculating capital employed for the purposes of the Act. This decision affirmed the majority view in *Warner Bros. First National Pictures Pty. Ltd. v. Federal Commissioner of Taxation*. The Court further held that the Metropolitan Water, Sewerage and Drainage Board Dollar Bonds, despite being held in Australia, were not capital employed in Australia, while the Australian Consolidated Bonds held overseas were also not considered capital employed in Australia.

The appeal was dismissed, with the Court ordering that the assessment made by the Commissioner be affirmed.