W and a McArthur Ltd v Federal Commissioner of Taxation

W. and A. McArthur Ltd. (the taxpayer) appealed against assessments for war-time profits tax for the financial years ending 30 June 1917, 1918, and 1919. The taxpayer carried on business both within and outside Australia and had paid excess profits duty in England on profits earned from both sources. The dispute concerned the extent to which payments of English excess profits duty, and subsequent relief received under the Imperial Finance Act 1921, should be deductible from the Australian war-time profits tax liability. The matter came before the High Court of Australia.

The legal issues before the Court were twofold. Firstly, whether the Commissioner of Taxation had the power to issue an amended assessment after having previously indicated that an original assessment would be withdrawn. Secondly, and more significantly, the Court had to determine whether sums received by the taxpayer as relief under the Imperial Finance Act 1921, which were partly set off against future excess profits duty, partly against other liabilities, and partly refunded in cash, should be taken into account when calculating the deduction for sums paid as excess profits duty under section 15(4) of the War-time Profits Tax Assessment Act 1917-1918.

By a majority decision (Isaacs C.J. and Starke J., with Gavan Duffy and Rich JJ. dissenting), the High Court held that the Commissioner was entitled to re-assess the taxpayer even after purporting to cancel an original assessment, relying on the broad powers granted by section 23 of the War-time Profits Tax Assessment Act 1917-1918. On the issue of deductibility, the majority found that the relief received under the Imperial Finance Act 1921, to the extent it was refunded or set off against liabilities other than excess profits duty, effectively meant that the original payments were no longer to be considered as "paid" for the purposes of the Australian deduction. However, the sum of £21,478 10s. which was set off against subsequent excess profits duty was not considered a "payment" in the relevant sense. The remaining sum of £47,435 10s. was to be proportionately deducted from the excess profits duty assessed in respect of the relevant accounting periods.