Cooper v Federal Commissioner of Taxation - [1957] HCA 72

97 CLR 397

FEDERAL COMMISSIONER OF TAXATION Income Tax (Cth.)-Allowable deductions-Annuities paid to acquire interests in

lease of land-Whether outgoing incurred in gaining assessable income or of capital nature-Premium paid for lease of undivided share in land-Whether deductible-Income Tax and Social Services Contribution Assessment Act 1936- 1956 (No. 27 of 1936-No. 25 of 1956), ss. 51 (1)*, 88 (1) (5)*.

C., the owner of certain property upon which an hotel business was con- ducted, leased it to six lessees until the death of the survivor of such lessees or for a term of thirty-five years commencing on 6th September 1936 which- ever should be the longer period. The rent payable under the lease included a sum equal to one-half the net profits made by the lessees in carrying on the hotel business and the lease declared that the furniture plant stock in trade tenant's fixtures and fittings belonged to the lessor and lessees in equal undivided shares as tenants in common. C. subsequently purchased the interest in the lease and business of one of the lessees. Some time later, in Sections 51 (1) and 88 (1) and (5)

income, and in the year of income- (a) he is the lessee of the land, premises or machinery are, SO far as relevant, as follows :-

part of the amount of that premium, Section 51-(1) All

arrived at by distributing that amount to the extent to which they are incurred

proportionately over the period of the in gaining or producing the assessable

lease unexpired at the date when the income, or are necessarily incurred in

premium was paid; shall be an allow-

(5) For the pur- carrying on a business for the purpose

poses of the application of this section of gaining or producing such income,

in relation to-(a) a premium paid in shall be allowable deductions except

respect of land which is to the extent to which they are out-

subject of a lease of indefinite duration goings of capital, or of a capital, private

the taxpayer who paid the or domestic nature, or are incurred in relation to the gaining or production

may elect that the period of the lease unexpired at the of exempt income.

date when the premium was paid Section 88-(1) Where a taxpayer

shall be deemed to be two years, and has paid any premium in respect of

where such an election has been made, land, premises or machinery used for

the provisions of this section shall be the purpose of producing assessable

applied accordingly.

97 CLR 398

settlement of litigation taken by C. against the others for breach of covenant, deeds were executed by which C. covenanted to pay an annuity to each of these lessees as consideration for the assignment to C. of their interests in the lease and a lump sum as consideration for the assignment of their interests in the business. C. thereafter conducted the business in partnership with his wife, the partnership agreement providing that C. should be indemnified from the…

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 Cooper v Federal Commissioner of Taxation

Details

AGLC: Cooper v Federal Commissioner of Taxation [1957] HCA 72
Case: [1957] HCA 72
Decision Date: 5 November 1957

CaseChat Overview and Summary

Reginald Frederick Cooper appealed to the High Court of Australia against an assessment of income tax for the year ended 30 June 1956. The dispute concerned the deductibility of £3,825 paid by Cooper in that year as annuities to former lessees of hotel premises he owned. Cooper claimed these payments were deductible under section 51(1) of the Income Tax and Social Services Contribution Assessment Act 1936-1956 as outgoings incurred in gaining assessable income, or alternatively, a portion of this amount was deductible under section 88(1) as a premium paid in respect of a lease. The Commissioner of Taxation disallowed both claims.

The court was required to determine two primary legal issues. Firstly, whether the annual payments made by Cooper to the former lessees constituted outgoings of a capital nature, thereby rendering them non-deductible under section 51(1). Secondly, whether the payments qualified as a deductible premium under section 88(1), considering the specific wording of the section regarding the taxpayer's status as a lessee and the nature of the interest in the land in respect of which the premium was paid.

Kitto J. held that the annual payments were the price of a capital asset acquired by Cooper, namely the interests in the lease and business, and were therefore of a capital nature, making them non-deductible under section 51(1). His Honour distinguished the case from *Egerton-Warburton v. Deputy Federal Commissioner of Taxation* by finding no comparable circumstances that would imbue the payments with the character of income charges. Regarding section 88(1), the court found that the section only permitted a deduction for a premium paid in respect of land or premises where the taxpayer was the lessee of the entirety of that land or premises. As Cooper was only the lessee of an undivided share of the land in question, he was not entitled to a deduction under this section.

Consequently, the appeal was dismissed.

Orders