Coles Myer Finance Ltd v Federal Commissioner of Taxation

The High Court of Australia considered an appeal by Coles Myer Finance Ltd (the applicant) against a decision of the Federal Commissioner of Taxation concerning the deductibility of certain outgoings. The dispute centred on whether amounts of discount incurred by the applicant in raising funds through the issue of bills of exchange and promissory notes were deductible in the year they were incurred or whether they should be apportioned over the period until the instruments matured.

The primary legal issues before the High Court were whether the discount amounts represented outgoings incurred by the applicant in the year of income under section 51(1) of the *Income Tax Assessment Act 1936* (Cth), and if so, when those outgoings were incurred. Specifically, the court had to determine whether the applicant was presently liable to pay the face value of the bills and notes at the time of their sale at a discount, or only upon their maturity.

The High Court, in allowing the appeal, reasoned that the discount represented the cost of obtaining working capital and was an outgoing incurred by the applicant at the time the bills and notes were drawn and sold. The court held that the applicant was presently liable to pay the face value of the instruments upon their maturity, and the discount represented the cost of borrowing funds for that period. Therefore, the entire amount of the discount was deductible in the year in which the instruments were issued and sold, as it was an expense incurred in gaining assessable income. The court set aside the answers of the Full Court to the stated case and answered the questions in favour of the applicant, finding that the specified amounts were losses incurred in the year of income ended 30 June 1984.