Harding v Federal Commissioner of Taxation

Harding (the taxpayer) appealed to the Full Federal Court against a decision of a single judge of that court, which had upheld an assessment by the Federal Commissioner of Taxation (the Commissioner) for income tax. The dispute concerned the characterisation of a payment made by the taxpayer, which the Commissioner treated as assessable income.

The central legal issue before the Full Federal Court was whether a payment received by the taxpayer, described as a "percentage of the value of land," constituted assessable income under the *Income Tax Assessment Act 1936* (Cth). This required the court to determine the nature of the taxpayer's entitlement to the payment and whether it arose from an assessable source.

The Full Federal Court reasoned that the payment was not a capital receipt but rather an income receipt. It applied the principle that the character of a receipt is determined by the nature of the transaction that gives rise to it. In this instance, the court found that the taxpayer's entitlement to the payment was derived from a contractual right to receive a share of the proceeds of a sale, which was an income-producing activity. Therefore, the payment was properly treated as assessable income. The appeal was dismissed.