Federal Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd

The High Court of Australia heard an appeal from the Full Court of the Federal Court of Australia concerning the date of disposal of assets for capital gains tax purposes. The dispute was between the Federal Commissioner of Taxation and Sara Lee Household & Body Care (Australia) Pty Ltd (the respondent). The core of the disagreement lay in determining whether the disposal of certain assets by the respondent occurred under an initial sale agreement dated 31 May 1991, or a subsequent variation agreement dated 30 August 1991.

The legal issue before the High Court was to ascertain the correct date of disposal of assets for the purposes of the capital gains tax provisions of the *Income Tax Assessment Act 1936* (Cth). This required the Court to determine which of the two agreements, the initial purchase and sale agreement or the later variation agreement, was the operative contract under which the disposal of the assets was effected.

The High Court reasoned that where multiple contracts affect the rights and obligations of parties to a disposal of assets, the identification of the contract giving rise to the disposal obligation is a matter of judgment. The Court must determine which contract is properly to be seen as the source of the obligation to effect the disposal. In this case, the Court found that the purchase and sale agreement of 31 May 1991 was the contract that established the obligation to dispose of the assets.

The appeal was allowed with costs. The orders of the Full Court of the Federal Court of Australia were set aside, and in their place, it was ordered that the appeal to that Court be dismissed with costs.