Commissioner of Taxation v Hart [2004] HCA 26

HIGH COURT OF AUSTRALIA

GLEESON CJ,

McHUGH, GUMMOW, HAYNE AND CALLINAN JJ

COMMISSIONER OF TAXATION APPELLANT

AND

TRUDY AMANDA HART & ANOR RESPONDENTS

Commissioner of Taxation v Hart [2004] HCA 26

27 May 2004

S159/2003

ORDER

1. Appellant's application for special leave to appeal on the ground set out in paragraph (2) in his draft notice of appeal filed with that application refused. 2. Appeal allowed. 3. Set aside the orders made by the Full Court of the Federal Court of Australia on 26 November 2002 and, in their place, order that the appeal to that Court be dismissed with costs. 4. Appellant to pay respondents' costs in this Court.

On appeal from the Federal Court of Australia

Representation:

B J Shaw QC and G T Pagone QC with J Davies for the appellant (instructed by Australian Government Solicitor)

R F Edmonds SC with M Richmond for the respondents (instructed by Gadens Lawyers)

Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS

Commissioner of Taxation v Hart

Income tax – Avoidance of tax – Tax benefit under Income Tax Assessment Act 1936 (Cth) – Whether scheme entered into for the dominant purpose of obtaining a tax benefit – Meaning of "scheme" – Split loan facility – Where money borrowed in part to purchase a principal place of residence and in part to refinance investment property used to produce assessable income – Where expenditure in relation to producing assessable income deductible – Where repayments on loan applied solely in satisfaction of that part of the loan not used to produce assessable income.

Words and phrases – "scheme".

Income Tax Assessment Act 1936 (Cth), ss 177A, 177C, 177D, 177F.

1. GLEESON CJ AND McHUGH J. The issues in this appeal, and the relevant facts, are set out in the reasons of Gummow and Hayne JJ. We agree that the Commissioner's appeal on the Pt IVA issue should succeed, and that the question relating to the deductibility, in the circumstances, of interest upon interest (which was answered by all four members of the Federal Court in favour of the respondents) does not arise. 2. It is convenient to begin a consideration of Pt IVA, in its application to the present problem, by reference to a matter on which Gyles J, at first instance, and all the members of the Full Court were in agreement. It relates to the tax benefit that was obtained by the respondents. An accurate understanding of that benefit is important to a resolution of the difference of opinion between Gyles J and the Full Court on the ultimate outcome.