Case: G.P. International Pipecoaters Pty Ltd v Federal Commissioner of Taxation [1990] HCA 25 ; (1990) 170 CLR 124 
Outcome: considered
In determining whether an amount paid or payable to the taxpayer has the character of income, it is necessary: (a) to have regard to the quality of the amount in the hands of the taxpayer and not to the character of the expenditure to the payer : Federal Commissioner of Taxation v McNeil [2007] HCA 5 ; (2007) 229 CLR 656 at [20] and [55]; G.P. International Pipecoaters Pty Ltd v Federal Commissioner of Taxation [1990] HCA 25 ; (1990) 170 CLR 124 at 136; (b) to have regard to the whole of the surrounding circumstances or factual matrix, and not just to the contract under which the amount is paid or payable: Federal Coke Co Pty Ltd v Federal Commissioner of Taxation (1977) 34 FLR 375 at 385; Federal Commissioner of Taxation v Cooling (1990) 22 FCR 42 at 53; (c) as an elaboration of the previous paragraph, to consider the substance rather than the form of the transaction, particularly where an amount is paid as part of a wider, composite transaction: Dickenson v Federal Commissioner of Taxation [1958] HCA 62 ; (1958) 98 CLR 460 at 482, 491; Reuter v Federal Commissioner of Taxation 93 ATC 5030 at 5036 5037; Federal Commissioner of Taxation v Broken Hill Pty Co Ltd (2000) 45 ATR 507 at [50]; Macquarie Finance Ltd v Federal Commissioner of Taxation (2004) 57 ATR 115 at [61], [64] per Hill J, on appeal [2005] FCAFC 205 ; (2005) 146 FCR 77 at [109] [111] per French J, [169] [170] and [187] per Hely J, and [251] [253] per Gyles J; Customs &amp; Excise Commissioners v Diners Club Ltd [1989] 1 WLR 1196 at 1207; see also Barclays Mercantile Business Finance Ltd v Mawson [2005] 1 AC 684; and (d) to disregard the labels used by the parties: Federal Commissioner of Taxation v Krakos Investments Pty Ltd (1995) 61 FCR 489 at 495; Vincent v Federal Commissioner of Taxation (2002) 124 FCR 350 at [64] [72]. 91 Nor did the use to which the bills of exchange were put by BARM affect the derivation by it of income represented by the management fees: see G.P. International Pipecoaters . 101 The High Court noted in G.P. International Pipecoaters at 136 137: 'The question in this appeal is the character of the establishment costs as receipts in the hands of the taxpayer 'Whether or not a particular receipt is income depends upon its quality in the hands of the recipient': Scott v Federal Commissioner of Taxation [1966] HCA 48 ; [(1996) 117 CLR 514] , per Windeyer J. The relevant question is not the character of the expenditure by SECWA A receipt may be income in the hands of a payee whether or not it is expenditure of a capital nature by the payer. Nor is the relevant question the nature of the expenditure made by the taxpayer in the construction of the plant. A taxpayer may apply income in the acquisition of a capital asset or, conversely, apply a capital receipt to discharge a liability of a non-capital nature. As Cozens-Hardy MR observed in Hudson's Bay Co v Stevens: '... if the money is otherwise liable to income tax it cannot escape taxation by reason of its being applied to a capital purpose'. And thus a receipt may be income although the recipient is bound to apply it for the purpose of discharging a capital liability: Mersey Docks v Lucas [(1883) 8 App Cas 891, at 904, 909-910; Commissioners of Inland Revenue v Corporation of London (as Conservators of Epping Forest) [(1953) 34 TC 293, at 329]. The Commissioner and the taxpayer both treated the cost of constructing the plant as capital expenditure, but the question is not whether that was an expenditure of capital nor whether the plant was used for the purpose of producing assessable income so that depreciation of the plant was deductible under s 54 of the Act. The relevant question is whether the receipt of the establishment costs was income in the taxpayer's hands. It is necessary to keep that question steadily in mind and not to confuse the character of the receipt with the nature of the asset acquired by application of the moneys received. The appellant's argument was, in substance, that the plant was a capital asset, that the moneys expended in its construction were an expenditure of a capital nature by the taxpayer and that, as those moneys were received for the purpose of expenditure on the construction of the plant, their receipt was a receipt of capital. The first two steps may be accepted but the final step assumes that, when money is received for the purpose of its being expended by the recipient, the. character of the receipt is necessarily determined by the character of its proposed expenditure by the recipient. That assumption is erroneous and, even if the establishment costs were received for the purpose of expenditure on the construction of the plant, it does not necessarily follow that their receipt was a receipt of capital. Before turning to the character of the receipt, it is desirable first to consider the means by which the character of expenditure may be determined.' (emphasis added) 102 The taxation consequences of the loans to PGF must be addressed independently of the taxation consequences of the provision of management services. The loans to PGF were transactions that: (a) had to be evaluated separately as coming within the capital gains regimes under the ITAA 1936 and the ITAA 1997: and (b) represented a use of the consideration received from Participants in respect of management fees, by way of investment for income earning purposes; (c) had the result that BARM incurred capital losses to the extent that there existed limited recourse provisions which had the consequences that loans to PGF were not repaid in full.