Commissioner of Taxation v McNeil [2007] HCA 5

HIGH COURT OF AUSTRALIA

GUMMOW ACJ

HAYNE, CALLINAN, HEYDON AND CRENNAN JJ

COMMISSIONER OF TAXATION APPELLANT

AND

HELEN MARY McNEIL RESPONDENT

Commissioner of Taxation v McNeil

[2007] HCA 5

22 February 2007

S56/2006

ORDER

1. Appeal allowed.

2. Set aside order 1 of the Full Court of the Federal Court made on 8 August 2005 and in its place order that the appeal to that Court be allowed, the orders of Conti J made on 14 April 2004 be set aside, and the appeal by the taxpayer against the objection decision of the Commissioner made on 31 October 2002 be dismissed.

3. The appellant pay the costs of the respondent of this appeal.

On appeal from the Federal Court of Australia

Representation

B J Shaw QC with G J Davies QC and S H Steward for the appellant (instructed by Australian Government Solicitor)

D H Bloom QC with W G Muddle and K J Deards for the respondent (instructed by Mallesons Stephen Jaques)

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 McNeil

Income tax – Derivation of income – Respondent acquired shares which were later the subject of a buy-back arrangement that gave the respondent "sell-back rights" – The sell-back rights were held on trust and sold for the absolute benefit of the respondent – The increase in value of the sell-back rights was subject to capital gains tax upon sale – Whether the remaining income from the sale was subject to either income tax or capital gains tax – Whether the remaining proceeds of sale amounted to a derivation of income according to ordinary concepts – Whether character of receipt as income to be determined according to its quality in the hands of the recipient or the character of the expenditure by the other party – Whether sell-back rights can be treated as being "severed" or "detached" from the respondent's shares for taxation purposes.