Carlton Brewery Limited v Federal Commissioner of Taxation

Carlton Brewery Limited appealed to the High Court of Australia against an assessment for super-tax. The dispute concerned the extent to which the appellant was entitled to a rebate under section 46(2A) of the Income Tax Assessment Act 1936-1943. The appellant argued that a portion of a dividend it received from Victoria Brewery Pty. Ltd. was paid out of income on which super-tax had been paid or was payable by Victoria Brewery Pty. Ltd., entitling it to a full rebate. The Commissioner of Taxation contended that the rebate was only applicable to the extent that Victoria Brewery Pty. Ltd. had actually paid or was liable to pay super-tax, which, after accounting for a rebate received by Victoria Brewery Pty. Ltd., was a significantly smaller amount.

The central legal issue before the Full Court was the interpretation of the phrase "income on which super-tax has been paid or is payable" within section 46(2A) of the Income Tax Assessment Act. Specifically, the Court had to determine whether this phrase encompassed income where the prima facie liability to pay super-tax was offset by the allowance of a rebate, or if it strictly referred to super-tax that had been actually paid or was unequivocally required to be paid. The Court was also asked to consider whether the appellant was entitled to a rebate calculated on the footing that the entire portion of the dividend paid out of income on which super-tax had been paid or was payable by Victoria Brewery Pty. Ltd. qualified for the rebate, or only on the reduced amount that Victoria Brewery Pty. Ltd. had effectively paid super-tax on.

A majority of the High Court, comprising Dixon, McTiernan, and Williams JJ., held that super-tax was not "paid or payable" within the meaning of section 46(2A) where the prima facie liability to pay was offset by the allowance of a rebate. Their reasoning was that the phrase "paid or is payable" referred to an actual payment or an existing obligation to pay, and did not extend to a notional or prima facie liability that was nullified by a rebate. They reasoned that a rebate was not a means of payment but an adjustment in the calculation of liability, and that if a rebate eliminated the obligation to pay, then no super-tax had been "paid or is payable" in respect of that income. Latham C.J. and Rich J. dissented, arguing that the phrase "is payable" could encompass a liability that was discharged by a rebate, and that the Commissioner's interpretation would lead to an illogical "chain" of tax liability and rebates.

The majority of the Court therefore answered the first question in the negative and the second question in the affirmative, meaning the appellant was not entitled to a rebate calculated on the full portion of the dividend, but only on the reduced amount that Victoria Brewery Pty. Ltd. had effectively paid super-tax on. The Court ordered that the appellant pay the respondent's costs of the case.