Federal Commissioner of Taxation v Wade

The Federal Commissioner of Taxation appealed to the High Court of Australia against a decision of a Board of Review that had reduced the taxpayer Michael Wade's assessable income. Wade, a dairy farmer, received £2,016 in compensation for 110 dairy cows compulsorily destroyed due to disease. He subsequently spent £1,886 to replace these cattle. The Commissioner had initially included the full compensation amount in Wade's assessable income, but the Board of Review excluded £130 of this amount, representing the excess of compensation received over the replacement cost.

The legal issues before the High Court were whether the compensation received was assessable income. Specifically, the court considered whether the destruction and compensation constituted a "disposal of trading stock" under section 36(1) of the *Income Tax Assessment Act 1936-1947* (Cth), or if the compensation was an amount "received by way of indemnity in respect of any loss of trading stock" under section 26(j) of the Act. A further question arose as to whether the Commissioner was precluded from relying on section 26(j) if it had not been cited in the initial assessment.

Dixon and Fullagar JJ. held that the compensation was properly included in assessable income. They reasoned that, irrespective of specific provisions like section 26(j), dairy cattle were defined as trading stock under sections 28 and 32 of the Act. Consequently, compensation received in respect of such stock must be treated as a revenue receipt. They also found that section 36(1) did not apply because the compulsory destruction by governmental authority was not a "disposal by sale or otherwise howsoever" in the natural meaning of those words, as it lacked a voluntary act of alienation by the taxpayer. Kitto J., while agreeing with the outcome, based his reasoning solely on section 26(j), finding that the compensation was indeed received by way of indemnity for the loss of trading stock.

The High Court allowed the Commissioner's appeal, setting aside the decision of the Board of Review. The court ordered that the assessment be confirmed, meaning the £130 previously excluded by the Board was to be included in Wade's assessable income. No order was made as to costs.