Federal Commissioner of Taxation v Hipsleys Limited

The Federal Commissioner of Taxation (the Commissioner) brought an action against Hipsleys Limited (Hipsleys) seeking to recover war-time profits tax and additional tax. The dispute arose from the transfer of a business previously operated by Hipsley & Waddell Ltd. (the old company) to Hipsleys after the commencement of the War-time Profits Tax Assessment Act 1917-1918. The Commissioner assessed the old company for tax on profits earned in the years preceding the transfer, and subsequently sought to recover these amounts from Hipsleys, as the transferee, on the basis that payment had not been secured. The case was stated for the opinion of the Full Court of the High Court of Australia.

The legal issues before the Court were whether subsections 2 and 5 of section 14 of the War-time Profits Tax Assessment Act 1917-1918 authorised the assessment of the transferor after the transfer of the business, and whether subsection 5 imposed a personal liability on the transferee to pay such tax. A further issue was whether this liability extended to the additional tax imposed by section 34 of the Act. Finally, the Court was asked to consider whether section 14(5) was invalid by reason of infringing section 55 of the Constitution, which restricts the subject matter of taxation bills.

The majority of the Court, comprising Knox C.J., Higgins and Gavan Duffy JJ., held that subsections 2 and 5 of section 14 authorised the assessment of the transferor for profits made before the transfer, and that subsection 5 imposed a personal liability on the transferee to pay the tax so assessed. However, by a majority, the Court determined that this liability did not extend to the 10 per cent additional tax imposed by section 34. The reasoning applied was that while subsection 5 created a personal liability for the assessed tax, it did not encompass the additional tax, which was a consequence of default in payment rather than part of the original assessment. The Court also unanimously held that section 14(5) did not contravene section 55 of the Constitution, as it dealt with the subject of war-time profits tax and did not introduce a new or different subject of taxation. Isaacs and Rich JJ. dissented on the question of whether the additional tax was recoverable from the transferee.

The Court ordered that the Commissioner was entitled to recover the amounts of war-time profits tax assessed against the old company, but not the additional tax claimed.