Case: Resch v Federal Commissioner of Taxation [1942] HCA 2 ; (1942) 66 CLR 198
Outcome: discussed
J decided (at [31]) that the expression "the Australian income tax" in subpara (1)(a) of Art 2 of the Swiss Agreement meant income tax as assessed under the ITAA 1936, and (at [49]) that the expression included tax on net capital gains under the Pt IIIA r&eacute;gime. His Honour referred (at [44]) to several examples of capital gains that were already included in assessable income under the ITAA 1936 when the Swiss Agreement was signed in 1980, as showing that income tax under the ITAA 1936 was not limited to tax on income in accordance with ordinary concepts. His Honour also referred to observations made in Resch v Federal Commissioner of Taxation [1942] HCA 2 ; (1942) 66 CLR 198 ( Resch ) and South Australia v The Commonwealth [1992] HCA 7 ; (1992) 174 CLR 235 ( South Australia v Commonwealth ). In my view it is not to the point that s 26AAA was not introduced into the ITAA 1936 until 1973, and therefore did not form part of that Act when the UK Agreement was signed. Edmonds J referred to s 26AAA only as one of several illustrations of the inclusion of capital gains in assessable income. His Honour's adoption (at [44]) of the examples given in the submissions (noted at [38]) supported a proposition that rested on the reasons for judgment in Resch of Rich J at 210-211 and Dixon J (as Dixon J then was) at 224-225, and the reasons of the majority joint judgment in South Australia v Commonwealth at 251. (I refer to Resch at [94]-[97] below and to South Australia v Commonwealth s at [100] below). Edmonds J stated (at [45]) that Pt IIIA was introduced into the ITAA 1936 as part of the same legislative scheme and history as were referred to by Dixon J in Resch and by the majority in South Australia v Commonwealth . Perhaps the leading authority on the broad nature of the "income" which is the subject of the Commonwealth income tax is Resch . The question in Resch was whether the Income Tax Assessment Act 1922 (ITAA 1922) and the Income Tax Act 1930 infringed s 55 of the Constitution by reason of their dealing with more than one subject of taxation by bringing to charge profits of a capital nature as well as profits in the nature of income according to ordinary concepts. Section 16B of the ITAA 1922 deemed to be assessable income of a company's shareholders, amounts which the liquidators of the company received as the proceeds of the sale by them of the company's assets and which they paid to the shareholders. At 213, Starke J said (at 213): Income is as large a word as can be used to denote a person's receipts ( Re Huggins; Ex parte Huggins [(1882) 51 LJ Ch 935 at p938]); it signifies that which comes in. An "Act to impose a tax upon incomes" is not less general in scope; it must be liberally construed, and include everything which by reasonable understanding might fairly be regarded as income. In South Australia v Commonwealth at 251, Mason CJ, Deane, Toohey and Gaudron JJ, after referring to Dixon J's statement in Resch that the ITAA 1922 did not maintain the distinction between profits of a capital nature and profits in the nature of income in the true sense, observed as follows: "Income" is a generic term which, in the United States, has been regarded as wide enough to include capital gains for purposes of income tax .... Nonetheless, it is correct to say of [the ITAA 1936], as Starke J. said of the Income Tax Assessment Act 1922, that income tax "is not a tax upon everything that comes in whether as income receipt or a capital receipt" [ New Zealand Flax Investments Ltd v Federal Commissioner of Taxation [1938] HCA 60 ; (1938) 61 CLR 179 at 197].