Payne v Federal Commissioner of Taxation

In the case of Payne v Federal Commissioner of Taxation, the taxpayer, a resident and domiciled in Australia, was assessed for income tax by the Commissioner of Taxation on the basis of income he had received in British sterling. The taxpayer had received interest from British funded stock amounting to £5,671, which was credited to his bank account in London. The Commissioner assessed the taxpayer on the amount that would have been produced if the sum had been transferred to Australia at the prevailing rates of telegraphic transfer, amounting to £6,768. The taxpayer appealed against the assessment, arguing that the income should be assessed at the £5,671 received in London. The legal issue before the court was whether the income received in foreign currency should be converted into Australian currency for the purpose of calculating the income tax payable. The High Court was divided on the issue, with three judges holding that the assessment was correct and three judges holding that the assessment was incorrect. The taxpayer then appealed to the Privy Council.

The Privy Council held that the income received in foreign currency must be converted into Australian currency for the purpose of calculating the income tax payable. The court noted that the Australian Income Tax Assessment Act and the Income Tax Act referred to "pounds" as units of Australian currency and not foreign currency. The court held that for the purpose of calculating Australian income tax, it is necessary that the assessable income be expressed in terms of Australian currency. The court further held that the decision of the House of Lords in Adelaide Electric Supply Co. Ltd. v. Prudential Assurance Co Ltd. did not necessitate or justify a different conclusion. The court dismissed the taxpayer's appeal and held that the assessment of £6,768 was correctly made.

The final orders of the court were that the appeal be dismissed and that the appellant must pay the costs of the appeal. The case highlights the importance of converting foreign currency income into Australian currency for the purpose of calculating income tax in Australia.