Inkster v The Commissioner of Taxation of the Commonwealth of Australia

This matter came before the High Court of Australia on an application for special leave to appeal. The applicant, Mr Harold Maynard Inkster, sought to challenge a decision concerning the taxability of payments received for the loss of his income-earning capacity due to asbestosis. The respondent was the Commissioner of Taxation of the Commonwealth of Australia.

The central legal issue before the Court was whether payments received for the loss of income-earning capacity, which the applicant contended was a capital asset, should be characterised as income rather than capital for taxation purposes. A key factual element was that the applicant had not actually suffered a loss of income, but rather received payments for the loss of this capital asset.

The applicant's submissions relied on a line of cases, including *Tinkler v Commissioner of Taxation* and *Slaven's case*, both decisions of the Full Federal Court, and *D.P. Smith v Commissioner of Taxation*, a decision of the Full Court of the Supreme Court of Western Australia. In *Tinkler*, compensation for loss of income was held to be assessable, with dicta suggesting that compensation for reduced capacity to earn income might also be assessable. However, in *Slaven's case*, which concerned amended legislation specifically providing for compensation for "deprivation or impairment of earning capacity", the Full Federal Court held that periodical payments received under this legislation were capital in nature and not assessable. The applicant argued that the payments in his case, being for the loss of a capital asset (income-earning capacity) and not actual income, should be treated as capital, drawing a parallel with the outcome in *Slaven's case*.