Selleck, Henry Francis Howden v The Commissioner of Taxation for the Commonwealth of Australia

The case of Henry Francis Howden Selleck v The Commissioner of Taxation for the Commonwealth of Australia involved appeals against decisions disallowing the applicant’s objections to the inclusion of certain amounts in his assessable income. The amounts in question represented the applicant’s share in the benefit received by Arthur Robinson & Hedderwicks (AR&H), a firm of solicitors, from payments made by the Australian Mutual Provident Society Limited (AMP) towards the cost of fitting out premises leased by AR&H. The primary issue was whether these payments constituted assessable income under ordinary concepts. The court had to determine whether the gain made by AR&H from the AMP contributions was income or capital.

The court examined the nature of the transaction and the purpose behind it. AR&H, formed by the merger of two law firms, had negotiated with AMP for a contribution towards the fit out of its new premises. The firm had the intention to use the contribution to enable cash distributions to its partners, effectively treating the contribution as a tax-free capital receipt. The court found that the transaction was a business operation or commercial transaction, entered into with a profit-making purpose. Despite the transaction not being in the ordinary course of AR&H’s business, the purpose of obtaining a profit from the transaction meant the receipt was assessable as income.

The court referred to previous cases, notably FCT v Myer Emporium Ltd and Commissioner of Taxation v Cooling, to establish criteria for determining whether a gain is assessable as income. The court concluded that the $1M contribution was income because it was a gain from a commercial transaction with the purpose of making a profit. The court dismissed all three appeals, affirming the Commissioner’s decision that the amounts were assessable income.