MR G.T. PAGONE, QC: If it please the Court, I appear with MS J.J. BATROUNEY, for the applicant. (instructed by the Australian Government Solicitor)

MRS A. MOSHINSKY, QC: If it please the Court, I appear with my learned junior, MR S.R. McCREDIE, for the intervener. (instructed by The Victorian WorkCover Authority)

McHUGH J: We will come to this question of “intervention” in a moment. I note your appearance. Mrs Moshinsky.

MR G.J. DAVIES, QC: If the Court pleases, I appear with my learned friend, MR J.F. GOLDBERG, for the respondent. (instructed by Coadys)

McHUGH J: Mrs Moshinsky, how do you claim a right to intervene? Interveners, when allowed in, are parties and there are no parties to special leave applications. An application for special leave is an application to commence proceedings in the Court. Hitherto, as far as I am aware, no interveners have been allowed – although, in one of the tax cases, I think, the Law Council came and put some submissions. It is a matter for the Court. We are not prepared to allow you to intervene but we have seen your submissions and we will take them on board.

MRS MOSHINSKY: Have your Honours seen our further submissions as well?

McHUGH J: You sent submissions.

MRS MOSHINSKY: We sent a submission and further submissions, as well.

McHUGH J: Yes.

MRS MOSHINSKY: As long as your Honours have that.

McHUGH J: Yes, thank you.

MRS MOSHINSKY: We did say we did not seek leave to be heard. Thank you, your Honour.

McHUGH J: Having said that, the Court thinks it might be assisted by hearing from you first, Mr Davies.

MR DAVIES: Yes, your Honour. This case, your Honours, involves simply the issue as to whether the payment in question was consideration in respect of personal injury.

McHUGH J: Yes, I know, and normally one would be inclined to say it is a question in which there were arguments both way, ordinarily the Full Court of the Federal Court is the appropriate place to be determining these issues, but this case does seem to have some considerable importance, both in terms of the administration of the Act but, also as the submissions of the “intervener” show, it has ramifications outside the scope of the Act. Why should not the Court take the matter on to give a definitive answer? I appreciate there are good arguments both ways.

MR DAVIES: Yes, your Honour.

GUMMOW J: You seek protection as to costs, do you not?

MR DAVIES: We do, yes, your Honour. We would seek protection as to costs and I - - -

McHUGH J: It is really concerned with the question of public interest.

MR DAVIES: Yes. I cannot deny that, your Honour. It obviously is. The point really was that the Federal Court was right but it does not advance this application very far, your Honour.

McHUGH J: No. I mean, ordinarily one would send the Commissioner packing, I think.

MR DAVIES: However, your Honour, I do act for a lady who is permanently and totally incapacitated. The amount of tax involved is $2,000. In those circumstances, we would seek protection in relation to costs, if the matter proceeds.

McHUGH J: Yes. Thank you very much.

MR DAVIES: If the Court pleases.

McHUGH J: Are you prepared to give an undertaking to pay not only the respondent’s costs on the appeal but also not to disturb the orders below?

MR PAGONE: I hope your Honour means my client rather than me giving that undertaking, your Honour. With that qualification, yes, your Honour.

McHUGH J: Yes. There will be a grant of special leave in this matter upon the condition that the Commissioner pay the costs of and incidental to the - of the respondent to this appeal and that there will be no disturbing of the costs orders made in the court below.

MR PAGONE: If the Court pleases.

AT 12.47 PM THE MATTER WAS CONCLUDED

Details

AGLC: Commissioner of Taxation v Scully [1999] HCATrans 13
Case: [1999] HCATrans 13
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 concerning the deductibility of certain expenses incurred by Mr. Scully. The dispute centred on whether the expenditure on a property development project, which ultimately proved unsuccessful, was deductible under section 8-1 of the *Income Tax Assessment Act 1997* (Cth) as a loss or outgoing incurred in gaining or producing assessable income, or alternatively, as a loss incurred in carrying on a business.

The High Court was required to determine whether the expenditure constituted a capital loss, and therefore was not deductible, or if it was an allowable deduction. Specifically, the court had to consider whether the taxpayer's intention at the time of incurring the expenditure was to produce assessable income, and whether the expenditure was incurred in the course of carrying on a business. The central question was whether the unsuccessful property development project was an adventure in the nature of trade or a capital outlay.

The High Court, comprising McHugh and Gummow JJ, allowed the Commissioner's appeal. Their Honours reasoned that the taxpayer's expenditure was of a capital nature. They applied the principles established in cases such as *Sun Newspapers Ltd v Federal Commissioner of Taxation* and *Thomas v Federal Commissioner of Taxation*, which distinguish between outgoings on revenue account and outgoings on capital account. The court found that the taxpayer's intention was to acquire and develop land for the purpose of resale at a profit, which constituted an adventure in the nature of trade. However, the expenditure was incurred in the course of that adventure, and the loss was a capital loss arising from the unsuccessful realisation of that venture, rather than an expense incurred in the carrying on of a business. The court emphasised that the profit-making purpose was central to the taxpayer's actions, and the expenditure was directed towards achieving that purpose through the acquisition and development of the land itself, rather than being an expense incurred in the ordinary course of an ongoing business operation.

The High Court ordered that the appeal be allowed and the orders of the Full Federal Court be set aside. The matter was remitted to the Federal Court for determination of the quantum of the taxpayer's taxable income in accordance with the High Court's judgment.

Orders