Commissioner of Taxation v Payne

[1999] HCATrans 452

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S60 of 1999

B e t w e e n -

COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

and

ANDREW PAYNE

Respondent

Application for special leave to appeal

GAUDRON J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 10 DECEMBER 1999, AT 11.38 AM

Copyright in the High Court of Australia

MR D.H. BLOOM, QC:   If it please the Court, in this matter I appear with my learned friend, MR S.W. GIBB, SC, for the applicant.  (instructed by the Australian Government Solicitor)

MR D.B. McGOVERN:   If the Court please, I appear with my learned friend, MR A.J. O’BRIEN, for the respondent.  (instructed by Locke Harris McHugh)

GAUDRON J:   We think we might be assisted if we hear first from Mr McGovern, thank you.

MR McGOVERN:   Your Honours, apart from the fact that if one takes into account the decision of the learned leader of the Administrative Appeals Tribunal that the judgments below are divided 3:2, and one also takes into account that there are largely undisputed facts and that the amount in question between the parties is about $10,000, we would submit that they are superficially attractive reasons why a grant of leave should be given in the circumstances.  We firstly submit that the ‑ ‑ ‑

GAUDRON J:   You are the respondent?

MR McGOVERN:   Yes, your Honour.

GAUDRON J:   I take it, therefore, you are not actually opposing the grant of leave.

MR McGOVERN:   We are opposing it.

GAUDRON J:   You are?

MR McGOVERN:   Yes.  We see the force of the fact that there is a strong dissenting judgment of his Honour Justice Hill in the Full Court ‑ ‑ ‑

HAYNE J:   It is a point of general application, is it not, that has wide ramifications and a point of fundamental principle in construction of the tax provisions, is it not?

MR McGOVERN:   We accept all of those matters, but what we submit, your Honours, is that the compass of the determination of the Full Court was quite relatively confined.  What their Honours decided at the appeal book page 100 was that the question of whether the expenditure was within the first limb of section 51(1) of the Act was merely – that the expenditure was capable of falling within the first limb, not that in fact that was the case.  Secondly, their Honours make it clear that the question of the factual controversy between the parties is yet to be quelled because the matter must be returned to the Administrative Appeals Tribunal for the making of relevant findings of fact.

In our respectful submission, the decision of the majority accords with authority and is correct and that so far as his Honour Justice Hill is concerned, he does not depart from the approach that the majority adopted but what he does do is to depart from the majority in the way in which the application of the relevant tests is to be satisfied.  The majority make it clear that in order to determine whether the expenditure is within the section, it is necessary to have regard for whether or not it is incidental and relevant to the gaining or producing of assessable income.  The majority, correctly we submit, postulate the test that it is necessary to determine what the essential character of the expenditure is and what we submit that the majority did, correctly, was to determine that the proper scope of the income-earning activities involved activities of two different sources of income, namely activities as a farmer and as a pilot, and that the general scope of the income‑earning activities was the gaining or producing of assessable income to which the expenditure in question had to be referable.  We submit that the ‑ ‑ ‑

HAYNE J:   But do you say there are insufficient facts found, or agreed, to make this a suitable vehicle for agitation of the issues?

MR McGOVERN:   Your Honour, I think our answer to that is no, although Justice Foster at first instance in the Federal Court did, of course, make a determination that the Tribunal was in error by reason of the failure to take into account relevant considerations or relevant facts, namely the higher level of interrelationship between the two business activities, or the income-earning activities.  So those are relevant facts which the Administrative Appeals Tribunal itself has not yet taken into account and which may bear upon the characterisation of the expenditure, as to whether or not it is a business expense or not.

HAYNE J:   I understand that if the principle for which you contend were adopted, it would have to go back.

MR McGOVERN:   Yes, your Honour.

HAYNE J:   But can the issue of principle usefully be considered by us or would there be an insufficiency of facts for us to come squarely up against the principles?

MR McGOVERN:   Your Honours, I think we have to accept that the issue of principle can be determined on the facts as found, but we would submit that what the majority decided was that the question of whether or not the expenditure bore the relevant business character was simply that it was capable of bearing the character and did not make that final determination.  It would be a very unusual set of circumstances where it would be incapable of bearing the relevant character.

HAYNE J:   That may owe much to the way in which it has come up through the system, may it not, given that the AAT is where it started?

MR McGOVERN:   Yes, your Honour.

HAYNE J:   Yes.  And that questions of law are that which then come up the system.

MR McGOVERN:   Yes.  Your Honours, what we submit in relation to the question of leave, of course, is - I have already put that the majority judgment is correct and in accord with principle.  We submit that the judgment of his Honour Justice Hill in the application of the principle was the point at which there was a departure between the majority and his Honour and we submit that the question of the way in which the characterisation is to be arrived is, as the majority approach suggests, entirely in accordance with the relevant statutory language.  We submit that the approach of the minority in hiving off, if you like, separate income‑earning activities is to focus wrongly upon the source of the income as opposed to the operations by which the income is generated.  We submit that his Honour fundamentally departed from principle by so deciding.

In our respectful submission, the overall income‑earning activities for the relevant years was what the language of the section required and we submit that the words in the course of “gaining or producing” according to the decided cases looks at the scope of the operations or activities and the relevance there to the expenditure and that the majority at page 88 point 28 and at page 93 point 21 correctly articulated that test.  We submit that the approach that suggested itself, or commended itself, to his Honour Justice Hill at page 80 line 10 and line 40 was to emphasise the relationship between the outgoing and some assessable income rather than, we submit, which is the correct test, the connection between the outlay and the operations by which the income is generated, which is the relevant test.

For those reasons, we submit that the matter is not appropriate for special leave.  If your Honours please.

GAUDRON J:   Thank you, Mr McGovern. 

Mr Bloom, I look at page 105 of your application book and I take it from that that you are happy to give undertakings in the event that special leave is granted that you will seek no order disturbing the orders for costs against the Commissioner in the Full Court of the Federal Court.

MR BLOOM:   Quite, your Honour.

GAUDRON J:   It is at first instance?

MR BLOOM:   At first instance and in the Full Court, your Honour.

GAUDRON J:   At first instance and in the Full Court, and that you would seek no order as to costs in this Court in the event ‑ ‑ ‑

MR BLOOM:   Quite so, your Honour.

GAUDRON J:   On those undertakings, there will be a grant of special leave, Mr McGovern.

MR McGOVERN:   If the Court pleases.

AT 11.47 AM THE MATTER WAS CONCLUDED