Case: Brookton Co-operative Society Ltd v Commissioner of Taxation [1981] HCA 28 ; (1981) 147 CLR 441
Outcome: discussed
Prior to the introduction of those provisions, there was a well established distinction between final and interim dividends. A declaration of a final dividend by the shareholders gave rise to an immediate debt owed by the company to the shareholders, whereas a resolution by the directors to pay an interim dividend did not do so: Potel v Inland Revenue Commissioners [1971] 2 All ER 504 at 511 512; Industrial Equity Limited v Blackburn [1977] HCA 59 ; (1977) 137 CLR 567 at 572; Marra Developments Ltd v BW Rofe Pty Ltd [1977] 2 NSWLR 616 at 625; Brookton Co-operative Society Limited v Commissioner of Taxation [1981] HCA 28 ; (1981) 147 CLR 441 at 455. Thus, a declaration of a final dividend could not be revoked and the company's indebtedness to its shareholders eliminated, if profits ceased to be available to fund the dividend between the time of the declaration and the time fixed for payment. A decision of the directors to pay an interim dividend, on the other hand, could always be revoked down to the time fixed for payment. 66 The Commissioner submits that for the purposes of identifying the appropriate basis of accounting, the authorities show or suggest that a holding company is classified as a trading company. He cites Carapark Holdings Ltd v Commissioner of Taxation [1967] HCA 5 ; (1966) 115 CLR 653 ( Carapark ) at 663 664; Esquire Nominees Limited v Federal Commissioner of Taxation [1972] HCA 32 ; (1973) 129 CLR 177 ( Esquire Nominees ) at 212 per Barwick CJ, 221 per Menzies J; Brookton Co-operative Society Limited v Commissioner of Taxation [1981] HCA 28 ; (1981) 147 CLR 441 ( Brookton ) at 469 per Aickin J; and Broken Hill Pty Co Ltd v Federal Commissioner of Taxation (1999) 99 ATC 5193 ( BHP v FCT ) at [48] per Kenny J. 139 The Commissioner also refers to a passage in the judgment of Aickin J in Brookton [1981] HCA 28 ; 147 CLR 441. His Honour stated (at 469) that in the case of a company that had no activity other than the receipt of dividends from shares that it had purchased, it would ordinarily be regarded as carrying on a business, even if it did not actively manage its portfolio of investments, whereas an individual in the same circumstances would not necessarily be regarded as carrying on such a business. Aickin J cited Esquire Nominees [1972] HCA 32 ; 129 CLR 177 at 212 per Barwick CJ and 221 per Menzies J. Again, the statement is relevant only to the question whether ABB Zurich carried on a business. I accept that it did. 140 Finally, the Commissioner relies on BHP v FCT 99 ATC 5193, in which Kenny J said (at [48]) that the taxpayer company carried on businesses which included holding shares in, and managing, its subsidiaries. Her Honour stated, citing Esquire Nominees [1972] HCA 32 ; 129 CLR 177 and Brookton [1981] HCA 28 ; 147 CLR 441, that the holding of shares in subsidiaries can of itself constitute the carrying of a business for the purposes of s 51(1) of the Act. 167 Cases on the statutory definition of "paid" similarly suggest that the word "paid", even standing alone, refers to the making over of a benefit that is accepted in discharge of the dividend debt. Brookton [1981] HCA 28 ; 147 CLR 441 concerned s 44(1)(a) of the Act (set out at [6] above). It will be recalled that s 44(1) referred to dividends paid to a shareholder. Mason J said (at 456) that the purpose of the extended definition of "paid" in s 6 is to guard against the possibility, perhaps remote , that the word "paid" might be so narrowly construed that dividends credited or distributed to shareholders in circumstances where they can no longer be revoked or rescinded by the company would not constitute assessable income in the hands of shareholders. (Emphasis added.) Once declared, the present dividend could not be revoked. I do not construe the word "paid" in art 82(1) of ABB Australia's articles of association (see [51] above) or understand the general law notion of payment so narrowly that the effectuation of the dividend declared in favour of ABB Zurich by payment could take no form other than the transfer of money to it.