Howland-Rose v Commissioner of Taxation [2002] FCA 246

FEDERAL COURT OF AUSTRALIA

Howland-Rose v Commissioner of Taxation [2002] FCA 246 INCOME TAX – prospectus issued for prescribed interests – whole of funds subscribed for prescribed interests lent to participants by promoters – "round-robin" effected by bills of exchange negotiated between related promoter companies (involving lender and researcher) without bank account entries – part of loans (25%) repayable by participants over two years with interest – thereafter balance unpaid of loans (75%) and interest non-recourse, except to extent of profitable returns derived by participants – immediate purpose of funds subscribed for research and development in Australia and overseas to be undertaken over ensuing two years – thereafter financial returns forecast by prospectus from sale and distribution of manufactured products in Australia and overseas arising from that research and development – research and development in fact never finalised at least to stage of regulatory product approval and commencement of manufacture – whether 100% of funds subscribed and interest thereon for initial two yearly period deductible pursuant to subs 51(1) of Income Tax Assessment Act 1936 (as amended) – alternatively whether deductibility to be derived pursuant to Pt IVA of the Act – alternatively whether deductibility subject to ten year provisions of s 82KZM of the Act – evidentiary issues as to operation of subs 51(1) of the Act in circumstances where prospects of derivation of assessable income remote or "extremely" remote from the outset – whether "round-robin" of bills of exchange effective.

Taxation Administration Act 1953 (Cth) s 1422(a)(ii) Income Tax Assessment Act 1936 (Cth) subs 51(1), subs 67, s 82KZM and Part IVA, s 177A, s 177C, s 177D, s 221D Therapeutic Goods Administration Act 1989 (Cth) Parsons Income Taxation in Australia 1985 AAT Case V137 (1988)88 ATC 865 distinguished Brajkovich v Federal Commissioner of Taxation (1989) 89 ATC 5227 distinguished Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305 considered Ocean Marine Mutual Insurance Association (Europe) OV v Jetopay Pty Ltd [2000] FCA 1463 considered Ferguson v Federal Commissioner of Taxation (1979) 37 FLR 310 considered Magna Alloys & Research Pty Ltd v Federal Commissioner of Taxation (1980) 33 ALR 213 referred to Federal Commissioner of Taxation v Radnor (1991) 91 ATC 4689 referred to Thomas v Commissioner of Taxation (1972) 46 ALJR 397 referred to Walker v Federal Commissioner of Taxation (1983) 70 FLR 354 considered Federal Commissioner of Taxation v Walker (1984) 2 FCR 283 considered Federal Commissioner of Taxation v Lau (1984) 6 FCR 202 considered Federal Commissioner of Taxation v Emmakell Pty Ltd (1988) 22 FCR 157 distinguished Federal Commissioner of Taxation v Brand (1995) 95 ATC 4633 distinguished Sun Newspapers Ltd & Associated Newspapers Ltd v Federal Commissioner of Taxation (1938) 61 CLR 337 cited Goodman Fielder Wattie Ltd v Federal Commissioner of Taxation (1991) 29 FCR 376 followed Federal Commissioner of Taxation v Osborne (1990) 26 FCR 63 referred to Griffin Coal Mining Co Ltd v Federal Commissioner of Taxation (1990) 90 ATC 4870 referred to Federal Commissioner of Taxation v Riverside Road Lodge Pty Ltd (in liq) (1990) 23 FCR 305 considered J & R O'Cain v Inland Revenue Commissioners (1922) 12 TC 303 cited Hope v Bathurst City Council (1980) 144 CLR 1 cited John Fairfax & Sons Pty Ltd v Federal Commissioner of Taxation (1959) 101 CLR 30 referred to Esso Australia Resources Ltd v Commissioner of Taxation (1998) 84 FCR 541 referred to Inglis v Federal Commissioner of Taxation (1979) 40 FLR 191 referred to Southern Estates Pty Ltd v Federal Commissioner of Taxation (1967) 117 CLR 481 referred to Federal Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199 cited Fletcher v Federal Commissioner of Taxation (1991) 173 CLR 1 approved Australian Horticultural Finance Pty Ltd v Jekos Holdings Pty Ltd (MacPherson JA, Thomas and de Jersey JJ, 9 December 1999, unreported) Moreau v Federal Commissioner of Taxation (1926) 39 CLR 65 referred to Federal Commissioner of Taxation v Spotless Services Limited (1995) 62 FCR 244 considered Federal Commissioner of Taxation v Spotless Services Limited (1996) 186 CLR 404 followed Federal Commissioner of Taxation v Consolidated Press Holdings Limited (2001) 2001 ATC 4343 followed Hart v Commissioner of Taxation [2001] FCA 1547 followed Commissioner of Inland Revenue v BNZ Investments Limited (2001) 20 NZTC 17,103 distinguished Metal Manufactures Ltd v Federal Commissioner of Taxation (1999) 99 ATC 5229 referred to Federal Commissioner of Taxation v Metal Manufactures Ltd (2001) 108 FCR 150 considered FIONA HOWLAND-ROSE & ORS v COMMISSIONER OF TAXATION N101-104 OF 2000 CONTI 18 MARCH 2002 SYDNEY