Visbord v Federal Commissioner of Taxation

The case of *Visbord v Federal Commissioner of Taxation* concerned appeals by Marie Visbord to the High Court of Australia against assessments of Federal income tax. The dispute arose from the Commissioner's inclusion of certain sums, representing rents and profits collected by a receiver from mortgaged property, in Ms. Visbord's assessable income. Ms. Visbord contended that these moneys were not income to which she was presently entitled, as they had been directed to be applied towards the repayment of principal rather than interest.

The central legal issue before the High Court was whether moneys collected by a receiver appointed under the *Property Law Act 1928* (Vic.) were to be treated as assessable income of the mortgagee, even if the mortgagee and mortgagor had agreed that such moneys should be applied towards the discharge of principal rather than interest. Specifically, the court had to determine the effect of section 110 of the *Property Law Act 1928* (Vic.) on the characterisation of these moneys for income tax purposes, and whether the receiver's actions, directed by the mortgagee, could override the statutory order of application of funds.

A majority of the High Court (Rich, Starke, and Williams JJ.) held that the moneys collected by the receiver were assessable income of the appellant to the extent of the interest she was entitled to receive. Their Honours reasoned that while a receiver is appointed by the mortgagee, they are deemed to be the agent of the mortgagor. However, section 110 of the *Property Law Act 1928* (Vic.) mandates a specific order of application for moneys received by a receiver, requiring the discharge of outgoings, prior incumbrances, and then interest on the principal sum before any payment towards the principal itself. The majority found that the agreement between the mortgagor and Ms. Visbord to apply the collected rents towards principal did not alter the legal character of the moneys as income available for interest, and therefore, they were assessable to Ms. Visbord as income. Latham C.J. dissented, taking the view that the receiver's duty was owed to the parties concerned, and an agreement between the mortgagor and mortgagee to appropriate funds to principal was permissible and effective, meaning the moneys were not income in the hands of the mortgagee.

The majority of the High Court allowed the appeals in part, remitting the assessments to the Commissioner to be recalculated to include only the interest component of the moneys collected by the receiver, as opposed to the full amounts initially assessed.