Commissioner of Taxation (Cth) v Smith [1981] HCA 10

High Court of Australia Gibbs, C.J. Stephen, Mason, Murphy and Wilson JJ. Commissioner of Taxation (Cth) v Smith [1981] HCA 10

Cur. adv. vult.

The following written judgments were delivered:—

20 Feb. 1981 Gibbs, Stephen, Mason and Wilson JJ.

The taxpayer is a medical practitioner. He was injured in a traffic accident on 19 October 1977. At the time of the accident he was employed by a hospital, and in consequence of his injuries he was unable to work until 16 February 1978. He had maintained since February 1975 a personal disability insurance policy, and pursuant to this policy he received payments amounting to $2,112 in respect of the period of his incapacity. This sum included a bonus of 20 per cent of the sum payable under the policy.

In his income tax return for the year ended 30 June 1978 the taxpayer included as income the sum of $2,112. He also claimed a deduction under s. 51 of the Income Tax Assessment Act 1936, as amended for $91, this being the amount of a premium paid by him on the renewal of the policy for the year commencing 1 June 1978. The Commissioner included the sum of $2,112 in the computation of assessable income, but rejected the deduction. The taxpayer objected to the assessment, and on the objection being overruled appealed to the Supreme Court of Western Australia. Wickham J. decided that the moneys received under the policy were not income, and that no deduction should be allowed for the premium [1] .

1. (1978) 9 A.T.R. 389; 78 A.T.C. 4741.

The Commissioner appealed to the Federal Court, claiming that the payments under the policy were income, and the taxpayer cross appealed, claiming that the premium was an allowable deduction. The Federal Court (Bowen C.J., Franki and Toohey JJ.) unanimously allowed both the appeal and the cross appeal [2] . The Commissioner now appeals by special leave to this Court from the decision on the cross appeal, and the taxpayer pursues a cross appeal which seeks to restore the decision of Wickham J. in respect of the moneys received under the policy.