Commissioner of Taxation (Cth) v National Australia Bank Ltd

High Court of Australia Gummow and Callinan JJ Commissioner of Taxation (Cth) v National Australia Bank Ltd

Gummow and Callinan JJ

MR NJ YOUNG, QC: May it please the court, I appear with MR CM MAXWELL, for the applicant (instructed by the Australian Government Solicitor).

MR DH BLOOM, QC: May it please the court, I appear with MR JW deWIJN, QC, for the respondent (instructed by Mallesons Stephen Jaques).

GUMMOW J: We have been favoured with particularly succinct and helpful submissions from both sides, so perhaps we can get to the heart of it.

MR YOUNG: There is, as we put it, essentially only one point we wish to raise. In GP International Pipecoaters Pty Ltd (1990) 170 CLR 124; 21 ATR 1; 90 ATC 4413, the High Court described the chief, if not the critical, factor in distinguishing capital and income as being the character of the advantage sought. In an earlier case, Colonial Mutual Life Assurance Society Ltd v FCT (1946) 73 CLR 604 Justice Fullagar expressed the test more colloquially in two questions: what is the money really paid for? Is what it is really paid for in truth and in substance a capital asset? It is our submission …

GUMMOW J: What does the word "really" mean, what is "truth"; a very deep question.

MR YOUNG: I think it is a reference to the practical and business point of view proposition stated by Justice Dixon in Hallstroms Pty Ltd v FCT (1946) 72 CLR 634, your Honour.

GUMMOW J: Yes. But the reason why I mention this is that this whole realm of discourse is filled with somewhat imprecise criteria.

MR YOUNG: It is, your Honour, which is why, in our submission …

GUMMOW J: Which will always yield results which, to reasonable minds, could go either way, I suppose.

MR YOUNG: That is not our point, your Honour. Our point is that the Full Federal Court has misconceived those authorities and reformulated a test, in a radically different fashion, which will lead to results in a whole range of cases, which are quite inconsistent with established principle. What they have done, if the court pleases, is to take a test that focuses on the character of the advantage sought by making the payment, and to translate that into a proposition that you ask this question: if the ultimate purpose of making the payment is to achieve an increase in sales, revenues or profits, then the payment is one made on revenue account. That is to fall directly into the error mentioned by the High Court in Mount Isa Mines v FCT (1992) 176 CLR 141; 24 ATR 261; 92 ATC 4755. The court is probably familiar with the footnote at CLR 149; ATR 265; ATC 4758 of that case. At CLR 141 footnote (45); ATR 261; ATC 4755 footnote (22) there is a reference to the case of Tucker v Granada Motorway Services Ltd [1979] 1 WLR 683 at 693, where reference is made to the speech of Lord Edmund-Davies. The reference is: