AUSTRALIA AND NEW ZEALAND SAVINGS BANK LIMITED RESPONDENT
Commissioner of Taxation v Australia and New Zealand Savings Bank Limited (M108-1997 and M109-1997) [1998] HCA 53 2 September 1998
ORDER
In each of matters M108/1997 and M109/1997 –
Appeal allowed with costs.
Set aside the orders of the Full Court of the Federal Court of Australia entered on 21 July 1997 and in lieu thereof order that:
(a)the matter be remitted to the Commissioner of Taxation for reassessment:
(i)in accordance with the reasons for judgment of this Court and;
(ii)so far as the deductibility of interest is concerned, in accordance with the judgment of Jenkinson J entered on 18 March 1996.
(b)respondent to pay the costs of the appellant of the proceedings in the Federal Court of Australia, including reserved costs.
On appeal from the Federal Court of Australia
2.
Representation:
B J Shaw QC and G T Pagone QC with G P Harris for the appellant (instructed by Australian Government Solicitor)
D H Bloom QC with B J Sullivan for the respondent (instructed by Freehill Hollingdale & Page)
Notice: This copy of the Court’s Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.
CATCHWORDS
Commissioner of Taxation v Australia and New Zealand Savings Bank Limited
Income Tax – Deductions and rebates in calculating taxable income – Annuities – Purchase by trust – Whether whole of annuity payments capital or exempt income of the trust – Interest on money borrowed to acquire units in trust – Whether interest expense to be apportioned on ground that it was partly incurred in relation to the gaining or production of exempt income.
GLEESON CJ. For a number of years the appellant Commissioner and the respondent taxpayer have been engaged in litigation concerning the income tax consequences of a transaction entered into by the respondent in 1986. In brief, the respondent, as a member of a partnership, incurred interest expenses in respect of moneys borrowed to acquire units in a trust estate which derived income from annuities. Disputes as to the appropriate tax treatment of the arrangements entered into have already been to this Court on a previous occasion.[1]
The essential facts of relevance to this appeal are as follows. The respondent and a related company were the members of a partnership which was formed to acquire units in a trust known as the Narvaez Trust. The trust was established by deed dated 29 April 1986 ("the trust deed") for the purpose of purchasing annuities to be issued by the New South Wales Treasury Corporation. In order to put themselves in funds to subscribe for units in the trust, the partners borrowed the bulk of the subscription…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
Commissioner of Taxation v Australia and New Zealand Savings Bank Ltd [1998] HCA 53
Case
[1998] HCA 53
Decision Date
CaseChat Overview and Summary
The Commissioner of Taxation appealed to the High Court of Australia against a decision of the Full Court of the Federal Court concerning the deductibility of interest expenses incurred by Australia and New Zealand Savings Bank Limited (ANZ) in acquiring units in a trust. The dispute centred on whether the whole of the annuity payments received by the trust were capital or exempt income, and consequently, whether interest paid on money borrowed to acquire units in the trust should be apportioned as partly incurred in relation to the gaining or production of exempt income.
The High Court was required to determine two primary legal issues. Firstly, whether the annuity payments received by the trust constituted capital or exempt income. Secondly, and flowing from the first, whether the interest expense incurred by ANZ in borrowing money to acquire units in the trust was deductible in full, or if it should be apportioned on the basis that a portion of the income derived from the units was exempt income.
The High Court allowed the appeal, setting aside the orders of the Full Court of the Federal Court. The Court remitted the matters to the Commissioner of Taxation for reassessment in accordance with the reasons of the High Court and the judgment of Jenkinson J entered on 18 March 1996, concerning the deductibility of interest. The respondent was ordered to pay the costs of the appellant in the Federal Court.
Orders
Orders of the court
In each of matters M108/1997 and M109/1997 –
1.
Appeal allowed with costs.
2.
Set aside the orders of the Full Court of the Federal Court of Australia entered on 21 July 1997 and in lieu thereof order that:
(a) the matter be remitted to the Commissioner of Taxation for reassessment:
(i) in accordance with the reasons for judgment of this Court and;
(ii) so far as the deductibility of interest is concerned, in accordance with the judgment of Jenkinson J entered on 18 March 1996.
(b) respondent to pay the costs of the appellant of the proceedings in the Federal Court of Australia, including reserved costs.