Case: Commissioner of Taxation v Hart [2004] HCA 26 ; (2004) 217 CLR 216
Outcome: considered
Section 177D(b) requires the decision-maker to consider the eight matters referred to in the paragraph, and those matters alone, and to decide on the balance of probabilities if a certain conclusion would be drawn: Peabody v Commissioner of Taxation (1993) 40 FCR 531 (' Peabody ') at 541 per Hill J (Ryan and Cooper JJ concurring); Calder v Federal Commissioner of Taxation (2005) 61 ATR 267 (' Calder ') at 290 [91]. The conclusion to be drawn is, in this case, as to the relevant taxpayer's purpose and by reason of s 177A(5) that means his or her dominant purpose. A relevant taxpayer may have more than one purpose and one of his or her purposes may be to obtain commercial benefits. However, if, having regard to the matters in s 177D(b) , his or her dominant purpose is to obtain a tax benefit in connection with the scheme, then Part IVA applies even if one of the relevant taxpayer's other purposes is to obtain commercial benefits: Commissioner of Taxation v Spotless Services Ltd [1996] HCA 34 ; (1996) 186 CLR 404 (' Spotless ') at 415-416; Commissioner of Taxation v Hart [2004] HCA 26 ; (2004) 217 CLR 216 (' Hart ') at 227 [16] per Gleeson CJ and McHugh J; Commissioner of Taxation v Sleight [2004] FCAFC 94 ; (2004) 136 FCR 211 (' Sleight ') at 229-230 [67] and 238-239 [113] per Hill J (with whom Hely J agreed); Calder at 291 [92]) . The question is to be determined objectively in the sense that the question is not as to the relevant taxpayer's subjective intention and purpose: Spotless at 421-422, 424; Hart at 233 [37], 243 [65] per Gummow and Hayne JJ; Peabody at 542; Calder at 291-292 [96]. What these propositions mean in this case is that the applicant's subjective purpose in entering into the scheme, even if a commercial one, is not of itself relevant. Furthermore, a decision-maker may conclude, after having regard to the matters in s 177D(b) , that the applicant had a commercial purpose in entering into the scheme but that will not assist him if it is otherwise concluded that his dominant purpose in entering into the scheme was to obtain a tax benefit in connection with the scheme. 99 In this context, the applicant referred to the decision of the High Court in Hart in which Gummow and Hayne JJ said (at 240 [53]): 'The bare fact that a taxpayer pays less tax, if one form of transaction rather than another is made, does not demonstrate that Pt IVA applies. Simply to show that a taxpayer has obtained a tax benefit does not show that Pt IVA applies. With these considerations in mind, it is sometimes said that it is necessary to read Pt IVA in a way that will not bring "ordinary" transactions to tax. It is obvious that the content of such a proposition turns entirely upon what is meant by "ordinary".' 100 The applicant's criticism of the Tribunal member's reasoning is misconceived. The Tribunal member was addressing one of the eight matters in s 177D(b) and the conclusion he drew that, but for Part IVA, the applicant would enjoy tax benefits by way of the income tax deductibility of the expenses was undoubtedly correct. He said that that supported the conclusion that the applicant's prevailing purpose was to obtain tax benefits in connection with the scheme, but he did not say that it was decisive. There is no error in that approach. 101 The Tribunal member found that the project was commercially viable, had been successful and that there was no reason to doubt that it would be successful to its conclusion. The income received by the applicant from the project to the date of the hearing before the Tribunal had exceeded $31,000 and was within 2.5 per cent of prospectus forecasts after seven years. The Tribunal member found that if the project continued to perform according to prospectus forecasts, the applicant will make a substantial profit from his business.