Commissioner of Income Tax (Qld) v Brisbane Gas Company

The Commissioner of Income Tax (Qld) appealed to the High Court of Australia against a decision of the Supreme Court of Queensland. The dispute concerned the liability of The Brisbane Gas Company to pay income tax on dividends declared in 1905. The company had declared dividends from an accumulated reserve fund and from profits realised on the sale of land. The Commissioner contended these dividends were taxable, while the company argued they were not, leading to the appeal.

The central legal issue before the High Court was whether dividends declared by a company, even if derived from accumulated profits or capital gains and applied towards the payment for new shares rather than paid in cash, were subject to income tax under the Queensland Income Tax Acts 1902-1904. Specifically, the court had to determine if the company could avoid tax liability by demonstrating that the declared dividends were not truly "profits" in the sense of current revenue or were effectively capitalised.

The High Court, in allowing the appeal, reasoned that the Income Tax Acts, particularly section 7(iv), mandated that a company's income be assessed at no less than the amount of dividends declared during the tax year. The court found that the company's power to declare dividends out of profits, whether reserved or unreserved, and its subsequent declaration of dividends, brought these amounts within the scope of the taxing legislation. The fact that the dividend from the reserve fund was not paid in cash but was used to subscribe for new shares, or that the profits originated from a prior period or a capital gain, did not provide grounds for exemption. The court distinguished the case of *Bouch v. Sproule* as being concerned with the interpretation of a will rather than a taxing statute, and held that the literal wording of the Income Tax Acts was decisive.

The High Court reversed the judgment of the Supreme Court of Queensland. It ordered that both the £20,000 dividend from the reserve fund and the £4,900 bonus derived from the sale of land were liable to be assessed for income tax at the rate of one shilling in the pound.