R & D Holdings Pty Limited v Deputy Commissioner of Taxation - [2007] HCATrans 796

[2007] HCATrans 796

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S378 of 2007
  No S379 of 2007

B e t w e e n -
R & D HOLDINGS PTY LIMITED
Applicant
and
DEPUTY COMMISSIONER OF TAXATION
Respondent

Office of the Registry
Sydney No S382 of 2007

B e t w e e n -
DEPUTY COMMISSIONER OF TAXATION
Applicant
and
R & D HOLDINGS PTY LIMITED
Respondent
Applications for special leave to appeal

GLEESON CJ
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 14 DECEMBER 2007, AT 9.31 AM

__________________

MR D. F. JACKSON, QC: If the Court pleases, I appear with my learned friend, MR D.K.L RAPHAEL, for R & D Holdings. It is the applicant, your Honours, in S378 and 379, the respondent in the other matter. (instructed by Sagacious Legal Pty Limited)

MR A.H. SLATER, QC: If the Court pleases, I appear with my learned friends, MR N.J. WILLIAMS, SC and MR S.J. McMILLAN, for the Commissioner in both those matters. (instructed by Australian Government Solicitor)

GLEESON CJ: Yes, Mr Jackson.

MR JACKSON: Your Honours, the Court will have seen that we are the applicant in matters relating to the years ended 30 June 1998 and 30 June 1999. The Commissioner is the applicant in respect of the year prior to those two. Your Honours, may I just say something very briefly about the basic facts before moving on. In each of the three years we claimed to deduct the net losses of the subsidiary which owned a substantial office building. There was a loss in each year because the interest bill on the money borrowed to build the building or, perhaps more accurately, to refinance the money borrowed to build to the building, was too great and exceeded the revenue.

Your Honours will see that summarised conveniently by Justice Finn at first instance at page 34, paragraphs 104 to 106. Your Honours, at relevant times the lender to us was acting as mortgagee and had taken possession of the premises. As the parent company of that subsidiary we were entitled to deduct the subsidiary’s loss each year subject to some matters, one of them, the relevant matter, being that the subsidiary meeting a same business test which your Honours can see referred to at page 45 paragraph 146.

GLEESON CJ: As it was ultimately held, the company’s entitlement to deduct the interest was under the first limb of section 51(1) as it was held.

MR JACKSON: That was what was held, your Honour, yes. If I could just take your Honours to the relevant provision your Honours will see it set out at page 46, paragraph 149 and it is says:

The company satisfies the same business test if throughout the same business test period it carries on the same business as it carried on immediately before the test time.

Your Honours, the view taken by the primary…

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.

Continue reading R & D Holdings Pty Limited v Deputy Commissioner of Taxation

Details

AGLC: R & D Holdings Pty Limited v Deputy Commissioner of Taxation [2007] HCATrans 796
Case: [2007] HCATrans 796
Decision Date

CaseChat Overview and Summary

The High Court of Australia considered an appeal by R & D Holdings Pty Limited (the taxpayer) against a decision of the Deputy Commissioner of Taxation (the Commissioner). The dispute concerned the Commissioner's assessment of additional income tax and penalties against the taxpayer, arising from the Commissioner's view that the taxpayer had engaged in tax avoidance schemes. The taxpayer sought to challenge the validity of the Commissioner's assessments.

The central legal issue before the High Court was whether the Commissioner had validly issued amended assessments to the taxpayer. This involved determining whether the Commissioner had formed the requisite belief that the taxpayer had entered into a scheme to avoid tax, as required by section 177F of the *Income Tax Assessment Act 1936* (Cth) (the Act), and whether the Commissioner had acted in good faith in issuing those assessments. The taxpayer contended that the Commissioner's belief was not genuinely held and that the assessments were therefore invalid.

The High Court, in a joint judgment, affirmed the principles governing the exercise of the Commissioner's powers under section 177F. Their Honours held that the Commissioner's belief, for the purpose of issuing an assessment under that section, must be a belief that the taxpayer has entered into a scheme for the purpose of obtaining a tax advantage. The Court reiterated that the Commissioner's subjective belief is not ordinarily justiciable, meaning it cannot be challenged in court unless it can be shown that the Commissioner did not genuinely hold the belief or acted in bad faith. In this instance, the Court found no evidence to suggest that the Commissioner had failed to genuinely hold the belief required by the legislation or had acted in bad faith.

Consequently, the High Court dismissed the taxpayer's appeal, upholding the validity of the Commissioner's amended assessments.

Orders