Sydney Water Board Employees' Credit Union Ltd v Commissioner of Taxation (Cth) [1973] HCA 47

High Court of Australia Barwick C.J. Menzies, Walsh, Stephen and Mason JJ. Sydney Water Board Employees' Credit Union Ltd v Commissioner of Taxation (Cth) [1973] HCA 47

ORDER Questions in the case stated answered as follows:

1.

a No.

b No.

2.

a No.

b No.

Appellant to pay respondent's costs of the case stated.

Cur. adv. vult.

The following written judgments were delivered:—

Oct. 17 Barwick C.J.

In the reasons for judgment prepared by my brother Mason the facts of the case stated under s. 18 of the Judiciary Act 1906-1971 for the opinion of the Court so far as relevant to the resolution of the questions asked by the case are fully set out along with the material provisions in the rules of the taxpayer.

The question is whether the amount of interest received by the taxpayer on loans made to its borrowing members constitutes income in the taxpayer's hands within the meaning of the Income Tax Assessment Act 1936-1968 (the Act). The reason offered by the taxpayer for a negative answer to that question is that the "mutuality principle" would in the circumstances of the taxpayer and its borrowing members deny the quality of income to such interest payments. The description "mutuality principle" is used, unfortunately as I think, to express the reason for the conclusion that the return to a taxpayer of a share of the surplus of a fund to which he has contributed in common with others after its use for a purpose agreed between them is not income. There is, in my opinion, no independent principle involved in reaching such a result and the description of mutuality is apt to be misleading. The creation of such a fund, its intended use and the repayment of a surplus or unused amount to the contributors will have their origin in agreements governing the amount of contribution, the purpose for which the fund may be employed, and the occasions for and the extent of any refunds. What mutuality there is, is to be found in those agreements and, in some instances, in the purpose for which the fund is to be used, i.e. for some common benefit. What distinguishes the amount refunded in such circumstances from profit or income is that the payment is made out of moneys which are in substance the moneys of the contributors. This, in the final analysis, is all that was decided by the House of Lords in New York Life Insurance Co v Styles [1] . There the premiums paid were in substance pro forma; their ultimate amount was to depend on the experience of the assurance fund administered by the company. If the amount then paid exceeded the requirement of the fund, refunds were made to policy holders. Such refunds were thus no more than a return of the contributors' own money.