Independent Order of Odd Fellows of Victoria v Commissioner of Taxation

The parties to this proceeding before the High Court of Australia were the Independent Order of Odd Fellows of Victoria (IOOF) as the appellant and the Commissioner of Taxation as the respondent. The dispute concerned the taxability of interest income derived by IOOF from investments in its "No 2 fund". IOOF, a registered friendly society, argued that its income was exempt from tax under section 23G of the *Income Tax Assessment Act 1936* (Cth), unless section 116G applied. The Commissioner contended that the interest income was derived from eligible insurance business and therefore not exempt.

The central legal issue before the High Court was whether the interest earned by IOOF on its investments in the No 2 fund constituted income derived from "eligible insurance business" as defined in section 116E of the *Income Tax Assessment Act 1936* (Cth). This definition required the business to be of, or in relation to, the issuing of, or the undertaking of liability under, eligible insurance policies. The Court also had to consider the nature of IOOF's "funds" and whether these internal divisions could be considered to be carrying on business or issuing policies in their own right, or if the Society as a whole was the entity undertaking such activities.

The Court reasoned that the *Friendly Societies Act 1958* (Vic) mandated that friendly societies operate through separate funds, requiring moneys paid into each fund to be kept distinct. While these funds were internal arrangements, they were legally required to be maintained separately. IOOF argued that its No 2 fund did not carry on eligible insurance business because it did not issue policies itself; rather, the Society issued policies, and these policies might be issued under different rules or depending on the specific fund. The Court noted that the definition of eligible insurance business referred to the issuing of policies or undertaking liability under them, and that the No 2 fund was one of eight funds that carried on eligible insurance businesses, with policies being issued under the rules of specific benefit funds.