Case: Northern Engineering Pty Ltd v Federal Commissioner of Taxation (1979) 42 FLR 301
Outcome: applied
Similarly, in Northern Engineering Pty Ltd v Federal Commissioner of Taxation (1979) 42 FLR 301, Deane J considered that the decision in Theophile could not be applied in considering whether a taxpayer was carrying on business for so long as any debt owing to him remained uncollected. In that case Brennan J (as his Honour then was) said (at 304): 'When a company's business is closing down there comes a time when the activity of a trading or profit-making nature comes to an end. The business of the company is not carried on merely by managing or disposing of the company's assets otherwise than in a business. There was, as it seems to me, no element of business in the circumstances of the case here appearing in the movement of funds between the appellant and the other companies in the group. It was not shown that the movement of those funds was for the purpose of deriving any commercial benefit for the appellant and the mere existence of a debt owing by the holding company during the income year had no element of a business about it, nor was it in an relevant sense an incident of the trading business in which the appellant had been engaged.' I infer that Brennan J also saw no reason to apply Theophile . 44 It is submitted that none of those matters involved participation in the joint venture. The respondent relies upon the observations made by Brennan J in Northern Engineering to which I have previously referred. 45 I adopt those observations by Brennan J. Managing or disposing of remaining assets after active business operations have ceased will not necessarily constitute the continued conduct of the original business. Assets are often sold in the course of conducting a business, and such conduct does not necessarily imply that the former business has ceased. However, where those assets are essential to the conduct of the business and are not replaced, it is difficult to infer that the same business continues to be conducted. The line between, on the one hand, managing and selling assets whilst continuing to conduct the same business and, on the other, selling assets after cessation of business may not always be clear. However, in the present case, there can be little doubt that continuation of the business conducted prior to 25 March 1998 was dependent upon retention of the applicant's interest in the joint venture. Once that was sold, there was no business. 46 The negotiations and correspondence concerning the material contracts were incidents of the sale of the applicant's interest in the joint venture and not incidents of a continuing business. The continuing liability to the National Australia Bank should be similarly characterized. Similar comments apply to the finalization of the allocation of the purchase price, the agreement as to tax adjustments and finalization of the applicant's obligations in connection with the mining tenements. The preparation and lodgement of applications for tax concessions associated with research and development might well occur in the course of conducting a business. However when such actions occur after sale of the principal asset of the business, it may be otherwise. The better view is that in this case, these transactions were also incidents of the management or disposal of assets following the discontinuance of business, rather than incidents of the continued conduct of the business. The maintenance of records and preparation of accounts and tax returns should be similarly treated. 47 Whether these matters are taken separately or together, it is impossible to resist the inference that the applicant's business ceased when its interest in the joint venture was sold. Thereafter it sought to finalise obligations arising under the sale agreement, get in some assets (the tax concessions) and dispose of others. It also maintained its records. Although those actions arose out of its previous business undertaking, they did not constitute the continuation of the business of developing and exporting coal deposits at German Creek or anywhere else. 48 The appeal should be dismissed with costs. I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett. Associate: Dated: 28 August 2007 Counsel for the Applicant: Mr B Sullivan SC Mr M Richmond Solicitor for the Applicant: Minter Ellison Counsel for the Respondent: Mr K Dorney QC Mr S Lumb Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 23 and 24 April 2007 Date of Judgment: 28 August 2007 AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback URL: http://www.austlii.edu.au/au/cases/cth/FCA/2007/1324.html