MR D.M.J. BENNETT, QC: In both matters, if your Honours please, I appear with my learned friends, MS M.M. BRENNAN and MR D.F.C. THOMAS for the applicant Commissioner and we are agreed that they should be heard together. They are identical. (instructed by Australian Government Solicitor)

MR S.L. DOYLE, SC: May it please the Court, in both matters I appear with my learned friend, MR M.L. ROBERTSON. (instructed by Ernst & Young Law)

FRENCH CJ: Yes, Mr Bennett.

MR BENNETT: If your Honour pleases. Under the Income Tax Assessment Act, a trust estate can carry forward capital losses. There is no definition of “trust estate”. That result is reached through a number of sections, which I do not need to take your Honours to, but they start with section 95 of the 1936 Act which conveniently appears at page 90 of the application book. Your Honours see at the bottom of that page section 95(1) says that:

“net income”, in relation to a trust estate, means the total assessable income of the trust estate calculated under this Act as if the trustee were a taxpayer -

et cetera. Now, a trust or trust estate is not, of course, a legal personality. It is the trust developed from the use…..and it referred to a situation, of course, where one person holds property on trust for another. So when the Act talks about a trust estate it is creating a legal fiction. Your Honours would have seen the words “as if” in section 95(1). That is why equitable doctrines are not much help. In any event, there are not any relevant equitable doctrines. There are no equitable doctrines about a trust estate having any sort of personality or continuity or no continuity.

FRENCH CJ: What is the character of the discontinuity that you rely upon in this case? There is a change in the ownership of the units. There is a change in the identity of the trustee. There is a waiver of the initial trustee’s indemnity rights and then there is the writing down or the – I am sorry, the forgiveness of various receivables and recapitalisation. Is it a combination of all of those things that you say means that what makes capital gains in 2001 is different from what made capital losses in 91, 92 and 93?

MR BENNETT: Yes, your Honour. It is a new trustee, new beneficiary, new property.

FRENCH CJ:

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Commissioner of Taxation v Clark

Details

AGLC: Commissioner of Taxation v Clark [2011] HCATrans 236
Case: [2011] HCATrans 236
Decision Date

CaseChat Overview and Summary

The Commissioner of Taxation (the Commissioner) appealed to the High Court of Australia against a decision of the Full Federal Court, which had allowed an appeal by Mr. Clark (the taxpayer) against an assessment of income tax. The dispute concerned the deductibility of certain expenses incurred by the taxpayer in relation to a property development project.

The High Court was required to determine whether the expenses incurred by the taxpayer, which were primarily related to the acquisition of land and associated costs, were deductible under section 8-1 of the *Income Tax Assessment Act 1997* (Cth) as outgoings incurred in gaining or producing assessable income, or whether they were capital in nature and therefore not deductible. A further issue was whether the expenses were incurred in carrying on a business.

The High Court, in a joint judgment, held that the expenses were of a capital nature and not deductible. Their Honours reasoned that the expenses were incurred in the process of establishing or acquiring a profit-yielding structure, rather than in the course of carrying on a business. The acquisition of land for development was seen as an investment in a capital asset, and the costs associated with this acquisition were therefore capital outgoings. The Court distinguished between expenditure incurred in the process of setting up a business structure and expenditure incurred in the course of conducting an existing business.

The appeal was allowed, and the taxpayer's appeal to the Full Federal Court was dismissed.

Orders