Federal Commissioner of Taxation v Henderson

The Federal Commissioner of Taxation (the Commissioner) appealed to the High Court of Australia against a decision of Williams J. in favour of the taxpayer, Anketell Matthew Henderson (Henderson). The dispute concerned the taxability of shares Henderson received as consideration for assigning his interests in certain "slum dumps" to a company, Gold Dumps Pty. Ltd., and the deductibility of calls paid on shares Henderson held in that company.

The primary legal issues before the High Court were: first, whether the value of the shares received by Henderson constituted assessable income, specifically whether it was a profit arising from the sale of property acquired for the purpose of profit-making by sale, or a capital receipt; and second, whether Gold Dumps Pty. Ltd. was a mining company carrying on mining operations for gold, thereby entitling Henderson to a deduction for calls paid on his shares.

Latham C.J., with whom Rich and Starke JJ. agreed, held that the value of the shares received by Henderson was a capital receipt and not assessable income. The Court reasoned that while Henderson may have initially acquired his interests with a view to profit, the transaction by which he received the shares did not represent a sale of property acquired for profit-making by sale. Instead, he effectively remained in the enterprise by taking shares and becoming a director and manager of Gold Dumps Pty. Ltd., indicating he looked to the use of his rights for profit rather than their disposition. The Court also affirmed the decision of Williams J. that Gold Dumps Pty. Ltd. was a mining company carrying on mining operations for gold, making the calls paid by Henderson on his shares an allowable deduction.

The High Court allowed the Commissioner's appeal in part. It reversed the decision of Williams J. regarding the taxability of the shares, finding them to be a capital receipt. However, it affirmed Williams J.'s decision regarding the deductibility of the calls paid on shares in Gold Dumps Pty. Ltd.