Commissioner of Taxation v R & D Holdings Pty Limited [2007] FCAFC 107

FEDERAL COURT OF AUSTRALIA

Commissioner of Taxation v R & D Holdings Pty Limited [2007] FCAFC 107

INCOME TAX – claims by RD for transferred losses of its wholly owned subsidiary CR for 1997, 1998 and 1999 tax years – CR owner of tenanted office building subject to mortgage – default by CR – mortgagee enters into possession – very large accumulation of interest liability – for 1998 and 1999 years change in beneficial ownership of RD – CR required to satisfy "same business" test for RD to deduct losses for those years Held: 1. CR entitled to allowable deduction for excess of interest over rental income in each year; 2. CR not carrying on same business for 1997 and 1998 years and thus CR losses not allowable deductions for RD; 3. No error in primary judge's upholding of penalties. Income Tax Assessment Act 1936 (Cth) ss 51(1), 80G, 226H, 226K, 222C(1) Income Tax Assessment Act 1997 (Cth) ss 8-1, 165-13, 165-210 Real Property Act 1900 (NSW) ss 57, 63(1) Avondale Motors (Parts) Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia(1971) 124 CLR 97 cited BRK (Brisbane) Pty Ltd v Commissioner of Taxation (2001) 46 ATR 347approved Commissioner of Taxation (Cth) v Citylink Melbourne Ltd (2006) 288 ALR 301 cited Commissioner of Taxation (Cth) v Riverside Road Lodge Pty Ltd (In liq) (1990) 23 FCR 305discussed Commissioner of Taxation v Munro (1926) 38 CLR 153 cited Deputy Commissioner of Taxation (Vic) v General Credits Ltd [1988] VR 571 applied Federal Commissioner of Taxation v Brown (1999) 43 ATR 1 followed Federal Commissioner of Taxation v James Flood Pty Ltd (1953) 88 CLR 492 cited Federal Commissioner of Taxation v Jones (2002) 117 FCR 95 followed Federal Commissioner of Taxation v Murray (1998) 193 CLR 605 cited Federal Commissioner of Taxation v Total Holdings (Aust) Pty Ltd 79 ATC 4279 cited Fletcher v Commissioner of Taxation of the Commonwealth of Australia (1991) 173 CLR 1cited Forsyth v Blundell (1973) 129 CLR 477cited Guest v Commissioner of Taxation 2007 ATC 4265 referred to Gurfinkel v Bentley Proprietary Limited (1966) 116 CLR 98cited Hart v Commissioner of Taxation (2002) 121 FCR 206 cited Kennedy v De Trafford [1897] AC 180 cited Kennedy v General Credits Limited (1982) 2 BPR 9456discussed Latec Investments Limited v Hotel Terrigal Pty Limited (in liq) (1965) 113 CLR 265 cited Placer Pacific Management Pty Ltd v Federal Commissioner of Taxation 95 ATC 4459 followed Pollard v Director of Public Prosecutions (1992) 28 NSWLR 659 cited Pridecraft Pty Ltd v Federal Commissioner of Taxation (2005) 213 ALR 450 followed Quennell v Maltby [1979] 1 WLR 318 cited R v McKinnon [1959] 1 QB 150 cited Rowe v Wood (1822) 2 Jac & W 553 considered Salt v Marquess of Northampton [1892] AC 1 applied Steele v Federal Commissioner of Taxation (1999) 197 CLR 459 cited Stern v McArthur (1988) 81 ALR 463cited Walstern v Commissioner of Taxation (2003) 138 FCR 1 followed Wragg v Denham (1836) 2 Y&C Ex 117 considered