Federal Commissioner of Taxation v Austin

The Federal Commissioner of Taxation appealed to the High Court of Australia against a decision of the Supreme Court of Victoria concerning the assessment of income tax for the financial year 1929-1930. The dispute centred on the application of subsection 9 of section 13 of the Income Tax Assessment Act 1922-1929, which provides for a special assessment method for taxpayers whose taxable income has been permanently reduced due to retirement or other causes.

The legal issues before the High Court were: (1) whether the comparison required by subsection 9 was between the taxable income under assessment and two-thirds of the average taxable income of the years ending with the commencement of the income year, or the years ending with the termination of that income year; and (2) whether the taxpayer, having retired in 1926 and experienced a year with no taxable income in 1927, could still claim the benefit of subsection 9 in subsequent years, even if the permanence of the reduction was only established later.

A majority of the High Court (Gavan Duffy C.J., Rich, Dixon, and McTiernan JJ.) held that the comparison under subsection 9 must be between the taxable income of a given year and two-thirds of the average taxable income of the average years ending with the termination of that given year. They further held that while the reduction must be permanent and attributable to retirement, the taxpayer could still claim the benefit of subsection 9 in a subsequent year if the permanence was established in that later year, effectively resetting their tax history as if they had never been a taxpayer prior to the year of reduction. This meant the taxpayer was entitled to be assessed for the financial year beginning 1 July 1929 as if they had never been a taxpayer prior to the financial year beginning 1 July 1927, even though no assessment was made for that intervening year due to a lack of taxable income. The Court noted that unusual deductions could not be treated similarly to unusual receipts for the purpose of calculating average taxable income.

The High Court allowed the appeal in part, remitting the matter to the Supreme Court for reconsideration of the factual question of whether the reduction in income was permanent, and varied the order to declare that the taxpayer should be assessed for the financial year 1929-1930 as if they had never been a taxpayer in any previous year. Starke J. dissented, finding that the taxpayer's income in the financial year 1929-1930 was less than two-thirds of their average taxable income, and that the reduction was permanent, thus agreeing with the Supreme Court's outcome.