mdroth/huggingface-course_section-5_zst huggingface dataset:
Case: Macquarie Finance Ltd v Commissioner of Taxation [2005] FCAFC 205 ; (2005) 146 FCR 77
Outcome: applied
A distinct submission of the Deputy Commissioner is that the "excess interest" was of a capital nature and hence was expressly excluded from deductibility under s 51(1) and s 8- 1 . This submission appears to flow from the contention that the excess interest was not incidental and relevant to the derivation of any income of the company: (Respondent's Outline of Submissions pars 38-39). I have rejected the latter contention. I likewise reject the "capital nature" submission. Notwithstanding the financially disastrous position of Chapel Road given its circumstances and the terms of the loan, the interest outgoing was, and remained, "merely interest on a loan": cf Macquarie Finance Ltd v Commissioner of Taxation [2005] FCAFC 205 ; (2005) 146 FCR 77 at [111] ; see generally Steele v Federal Commissioner of Taxation above, at 466-472. 144 My conclusion is, then, that in the relevant income years Chapel Road's monthly losses in respect of interest were allowable deductions. 145 The first of the three loss transfers was recouped by R &amp; D Holdings in the 1997 income year. That transfer was governed by the provisions of s 80G of the 1936 Act . In light of my conclusion that the rental liability was an allowable deduction, and because the other relevant requirements of the 1936 Act on loss transfers have been satisfied, it is unnecessary to set out the provisions of s 80G. R &amp; D Holdings was entitled to recoup the losses in question.
Case: Federal Commissioner of Taxation v Murry [1998] HCA 42 ; (1998) 193 CLR 605
Outcome: applied
As to the requirement that there is in fact a "business" being carried on, it is sufficient for present purposes to note the following comments on what constitutes a "business" and the "carrying on of a business". In Federal Commissioner of Taxation v Murry [1998] HCA 42 ; (1998) 193 CLR 605 at [54] , the majority observed: "A business is not a thing or things. It is a course of conduct carried on for the purpose of profit and involves notions of continuity and repetition of actions."
Case: Evans v Federal Commissioner of Taxation (1989) 20 ATR 922
Outcome: applied
In Evans v Federal Commissioner of Taxation (1989) 20 ATR 922 at 939 Hill J commented: "The question of whether a particular activity constitutes a business is often a difficult one involving as it does questions of fact and degree. Although both parties referred me to comments made in decided cases, each of the cases depends upon its own facts and in the ultimate is unhelpful in the resolution of some other and different fact situation. There is no one factor that is decisive of whether a particular activity constitutes a business. As Jessel MR said in the famous dictum in Ericsen v Last (1881) 8 QBD 414 at p 416: 'There is not, I think, any principle of law which lays down what carrying on trade is. There are a multitude of things which together make up the carrying on of trade.' Profit motive (but see cf Inland Revenue Commissioners v Incorporated Council of Law Reporting (1888) 22 QBD 279), scale of activity, whether ordinary commercial principles are applied characteristic of the line of business in which the venture is carried on ( Inland Revenue Commissioners v Livingston (1927) 11 TC 538), repetition and a permanent character, continuity ( Hope v Bathurst City Council [1980] HCA 16 ; (1980) 144 CLR 1 at 9; Ferguson v Federal Commissioner of Taxation (1979) 79 ATC 4261, 4264), and system ( Newton v Pyke (1908) 25 TLR 127) are all indicia to be considered as a whole, although the absence of any one will not necessarily result in the conclusion that no business is carried on." 168 I am satisfied that, from the time of MMLIC's entry into possession, a business involving the management and rental of the Chapel Road land and building continued to be carried on until the land was sold. There was a course of conduct engaged in by MMLIC through JLW which involved continuity, repetition and system. The indicia of a business being carried on was there: cf Evans v Federal Commissioner of Taxation , at 939. But who was carrying on that business? 169 Speaking colloquially, it could well be said that at least from when MMLIC went into possession and appointed JLW as its agent to manage the Chapel Road property, MMLIC was continuing to carry on "Chapel Road's business", the moreso as it was the legal owner of the principal asset of the business. This, though, would be a mischaracterisation of what in fact was occurring. And it would treat a business as a "thing", not a "course of conduct carried on".
Case: National Australia Bank Ltd v Sproule (1989) 17 NSWLR 505
Outcome: cited
The powers so conferred by the mortgage and by the Real Property Act were for the benefit and protection of MMLIC. In entering into possession, appointing JLW as its agent and carrying on a rental business, MMLIC was not supplying services to Chapel Road. Rather it was exercising powers primarily for its own benefit, albeit with due regard to the interests of Chapel Road, and subject to its duty to account to Chapel Road: National Australia Bank Ltd v Sproule (1989) 17 NSWLR 505 at 510; on the duty to account see generally Fisher and Lightwood's Law of Mortgage 19.34 (2 nd Aust ed, 2006); see also on the accounting obligation Chaplin v Young (No 1) (1864) 33 Beav 330 at 336-337.
Case: Chaplin v Young (No 1) (1864) 33 Beav 330
Outcome: cited
The powers so conferred by the mortgage and by the Real Property Act were for the benefit and protection of MMLIC. In entering into possession, appointing JLW as its agent and carrying on a rental business, MMLIC was not supplying services to Chapel Road. Rather it was exercising powers primarily for its own benefit, albeit with due regard to the interests of Chapel Road, and subject to its duty to account to Chapel Road: National Australia Bank Ltd v Sproule (1989) 17 NSWLR 505 at 510; on the duty to account see generally Fisher and Lightwood's Law of Mortgage 19.34 (2 nd Aust ed, 2006); see also on the accounting obligation Chaplin v Young (No 1) (1864) 33 Beav 330 at 336-337.
Case: Tymray Pty Ltd v Mercantile Mutual Life Insurance Co Ltd (1993) NSW Conv R 55-700
Outcome: referred to
There are significant gaps in the material before me concerning the activities engaged in, and the relationships created by, JLW. Though no agency agreement was put in evidence, I am prepared to infer that JLW was, and acted throughout as the agent of MMLIC as mortgagee in possession. There is nothing to suggest that JLW acted as agent of Chapel Road as a receiver and manager. Having demanded and accepted rents from the existing tenants, it may well be that the relationship of landlord and tenant was thus created between it and those tenants by attornment: Tymray Pty Ltd v Mercantile Mutual Life Insurance Co Ltd (1993) NSW Conv R 55-700; but cf Sykes and Walker, The Law of Securities , 248 ff (5 th ed, 1993).
Case: Finn v London Bank of Australia (1898) 19 NSWR(L) 364
Outcome: cited
There is no direct evidence demonstrating that there were new lettings in the periods of present relevance although the case has been conducted on the assumption that there were. From at least JLW documentation from 1998, I am prepared to infer that new lettings were made on occasion. Consistent with JLW being the agent of MMLIC, I infer that MMLIC was constituted the landlord in such cases. I should add, given the express power to lease granted in the mortgage agreement, it is unnecessary to otherwise consider MMLIC's power to lease and the effect of the exercise of that power vis-&agrave;-vis Chapel Road: cf Finn v London Bank of Australia (1898) 19 NSWR(L) 364. 165 I am satisfied that at the time at which Chapel Road entered into the MMLIC refinancing loan it was then carrying on, and was intending to continue carrying on a business activity in respect of the ownership, leasing and operation of the Chapel Road property. That was, and was intended to remain, a commercially substantial operation having significant rental income and significant outgoings.
Case: Mercantile Credits Ltd v Atkins (No 1) (1985) 9 ACLR 757
Outcome: cited
The mortgage Chapel Road entered into was of property on which an existing business was being conducted a business moreover for which that property has been developed. Even in the absence of the express mortgagee's power to carry on a business on the mortgaged property, I would in the circumstances have been prepared to imply a mortgagee's power to carry on the business being conducted at Chapel Road: cf Mercantile Credits Ltd v Atkins (No 1) (1985) 9 ACLR 757 at 762. The conduct of the rental business was, in my view, integral to the loan and its business efficacy. 167 A business of the type conducted by Chapel Road at the time of the mortgage continued to be conducted after MMLIC went into possession in 1991. I would observe in passing that it is unnecessary in this proceedings to determine by whom that business was conducted in the interregnum period after the s 63(1) notices were given and prior to JLW's appointment as MMLIC's manager.
Case: Visbord v Federal Commissioner of Taxation [1943] HCA 4 ; (1943) 68 CLR 354
Outcome: applied
Significantly MMLIC did not appoint a receiver and manager. If such had been the case, the receiver would have received the rents and managed the property as agent for the mortgagor: cf Conveyancing Act 1919 (NSW) s 115(2) ; see also Visbord v Federal Commissioner of Taxation [1943] HCA 4 ; (1943) 68 CLR 354; and would have been required to apply all money received by him in accordance with s 115(8) which includes (subcl (d)) "payment of the interest due and unpaid ... in respect of any principal money due under the mortgage": see generally Butt, Land Law , 18118 ff (5 th ed, 2006). 172 MMLIC was acting primarily for its own benefit. There was nothing fiduciary in the powers it was exercising. It was not acting as Chapel Road's agent: cf Ferguson v Federal Commissioner of Taxation (1979) 26 ALR 307 at 319; see also Federal Commissioner of Taxation v Walker (1984) 2 FCR 283. It was not providing services to Chapel Road: National Bank of Australia v Sproule , above, at 510. If MMLIC's primary purpose in carrying on the business was, in all probability, to preserve the value of the property pending its sale, it nonetheless was conferring an incidental benefit on Chapel Road. It did not have a free hand in dealing with the rents received by its agent. It was constrained by the mortgage itself and by its position as mortgagee in possession. In reality its position differed little, in my view, from that of a receiver under the Conveyancing Act at least in respect of the application of the rents received. The rental income had to be accounted for to Chapel Road. What this meant in practical terms was, first, that it was to be applied in payment of outgoings. The net income was then to be applied "on account of some liability under the mortgage": cf Visbord v Federal Commissioner of Taxation at 370; and in the circumstances this was Chapel Road's monthly rental liability: see Fisher and Lightwood's Law of Mortgage , at 19.33, 39.24 ff; In re Morley's Estate; Hollenden v Morley [1937] Ch 491 at 496. The rental income never being in surplus over what was required for interest, MMLIC was never, and never likely to be, in the position of having to elect whether to apply it in reduction of the principal sum as such or to hand it over to Chapel Road because it did not wish the capital to be repaid by "driblets": Nelson v Booth (1858) 3 De G &amp; J 119 at 122. Put shortly, though MMLIC received the rents, the manner of their application was preordained by the mortgage and its legal consequences.
Case: County of Gloucester Bank v Rudry Merthyr Steam &amp; House Coal Colliery Co (1895) 1 Ch 629
Outcome: applied
Rather MMLIC elected to go into possession itself and to receive the rents, to manage the property and to carry on the rental business itself, through its agent JLW. It can be inferred that it took this course for the purpose of preserving its security by enhancing the prospects of the building's sale as tenanted, i.e. as a "going concern". It is improbable in my view that having entered into possession, MMLIC would not have wished to carry on the business. It may well have been to its disadvantage in preserving its security if it had failed to do so: cf County of Gloucester Bank v Rudry Merthyr Steam &amp; House Coal Colliery Co (1895) 1 Ch 629 at 638.
Case: Federal Commissioner of Taxation v Walker (1984) 2 FCR 283
Outcome: cited
MMLIC was acting primarily for its own benefit. There was nothing fiduciary in the powers it was exercising. It was not acting as Chapel Road's agent: cf Ferguson v Federal Commissioner of Taxation (1979) 26 ALR 307 at 319; see also Federal Commissioner of Taxation v Walker (1984) 2 FCR 283. It was not providing services to Chapel Road: National Bank of Australia v Sproule , above, at 510. If MMLIC's primary purpose in carrying on the business was, in all probability, to preserve the value of the property pending its sale, it nonetheless was conferring an incidental benefit on Chapel Road. It did not have a free hand in dealing with the rents received by its agent. It was constrained by the mortgage itself and by its position as mortgagee in possession. In reality its position differed little, in my view, from that of a receiver under the Conveyancing Act at least in respect of the application of the rents received. The rental income had to be accounted for to Chapel Road. What this meant in practical terms was, first, that it was to be applied in payment of outgoings. The net income was then to be applied "on account of some liability under the mortgage": cf Visbord v Federal Commissioner of Taxation at 370; and in the circumstances this was Chapel Road's monthly rental liability: see Fisher and Lightwood's Law of Mortgage , at 19.33, 39.24 ff; In re Morley's Estate; Hollenden v Morley [1937] Ch 491 at 496. The rental income never being in surplus over what was required for interest, MMLIC was never, and never likely to be, in the position of having to elect whether to apply it in reduction of the principal sum as such or to hand it over to Chapel Road because it did not wish the capital to be repaid by "driblets": Nelson v Booth (1858) 3 De G &amp; J 119 at 122. Put shortly, though MMLIC received the rents, the manner of their application was preordained by the mortgage and its legal consequences.
Case: In re Morley's Estate; Hollenden v Morley [1937] Ch 491
Outcome: cited
MMLIC was acting primarily for its own benefit. There was nothing fiduciary in the powers it was exercising. It was not acting as Chapel Road's agent: cf Ferguson v Federal Commissioner of Taxation (1979) 26 ALR 307 at 319; see also Federal Commissioner of Taxation v Walker (1984) 2 FCR 283. It was not providing services to Chapel Road: National Bank of Australia v Sproule , above, at 510. If MMLIC's primary purpose in carrying on the business was, in all probability, to preserve the value of the property pending its sale, it nonetheless was conferring an incidental benefit on Chapel Road. It did not have a free hand in dealing with the rents received by its agent. It was constrained by the mortgage itself and by its position as mortgagee in possession. In reality its position differed little, in my view, from that of a receiver under the Conveyancing Act at least in respect of the application of the rents received. The rental income had to be accounted for to Chapel Road. What this meant in practical terms was, first, that it was to be applied in payment of outgoings. The net income was then to be applied "on account of some liability under the mortgage": cf Visbord v Federal Commissioner of Taxation at 370; and in the circumstances this was Chapel Road's monthly rental liability: see Fisher and Lightwood's Law of Mortgage , at 19.33, 39.24 ff; In re Morley's Estate; Hollenden v Morley [1937] Ch 491 at 496. The rental income never being in surplus over what was required for interest, MMLIC was never, and never likely to be, in the position of having to elect whether to apply it in reduction of the principal sum as such or to hand it over to Chapel Road because it did not wish the capital to be repaid by "driblets": Nelson v Booth (1858) 3 De G &amp; J 119 at 122. Put shortly, though MMLIC received the rents, the manner of their application was preordained by the mortgage and its legal consequences.
Case: Nelson v Booth (1858) 3 De G &amp; J 119
Outcome: cited
MMLIC was acting primarily for its own benefit. There was nothing fiduciary in the powers it was exercising. It was not acting as Chapel Road's agent: cf Ferguson v Federal Commissioner of Taxation (1979) 26 ALR 307 at 319; see also Federal Commissioner of Taxation v Walker (1984) 2 FCR 283. It was not providing services to Chapel Road: National Bank of Australia v Sproule , above, at 510. If MMLIC's primary purpose in carrying on the business was, in all probability, to preserve the value of the property pending its sale, it nonetheless was conferring an incidental benefit on Chapel Road. It did not have a free hand in dealing with the rents received by its agent. It was constrained by the mortgage itself and by its position as mortgagee in possession. In reality its position differed little, in my view, from that of a receiver under the Conveyancing Act at least in respect of the application of the rents received. The rental income had to be accounted for to Chapel Road. What this meant in practical terms was, first, that it was to be applied in payment of outgoings. The net income was then to be applied "on account of some liability under the mortgage": cf Visbord v Federal Commissioner of Taxation at 370; and in the circumstances this was Chapel Road's monthly rental liability: see Fisher and Lightwood's Law of Mortgage , at 19.33, 39.24 ff; In re Morley's Estate; Hollenden v Morley [1937] Ch 491 at 496. The rental income never being in surplus over what was required for interest, MMLIC was never, and never likely to be, in the position of having to elect whether to apply it in reduction of the principal sum as such or to hand it over to Chapel Road because it did not wish the capital to be repaid by "driblets": Nelson v Booth (1858) 3 De G &amp; J 119 at 122. Put shortly, though MMLIC received the rents, the manner of their application was preordained by the mortgage and its legal consequences.
Case: American Leaf Blending Co Sdn. Bhd v Director-General of Inland Revenue [1979] AC 677
Outcome: cited
It is a question of fact whether or not, throughout the relevant test period, Chapel Road carried on a business at all let alone "the same business" as it may claim to have carried on immediately before the test time. In my view, it did not carry on a business at all in the relevant periods on the Chapel Road site. MMLIC did. Chapel Road had no access to business assets. I would add that while it could, in a sense, be said that Chapel Road's assets were being put to gainful use: cf American Leaf Blending Co Sdn. Bhd v Director-General of Inland Revenue [1979] AC 677 at 684; it was not Chapel Road that was doing this. It was MMLIC. 174 Accordingly I am satisfied that the same business test of s 165- 210 of the 1997 Act was not satisfied and, in consequence, that neither the losses claimed to be transferred in both the 1998 and 1999 income years were deductible to R &amp; D Holdings. 175 There is a seeming anomaly in this conclusion, especially given my earlier finding that the monthly interest liabilities were allowable deductions giving rise, in the circumstances, to significant tax losses. However, the conclusion itself, when considered in light of the "same business" test for loss transfer purposes, is the inexorable consequence of MMLIC having entered into possession as a mortgagee with all that that entailed.
Case: Walstern Pty Ltd v Commissioner of Taxation [2003] FCA 1428 ; (2003) 138 FCR 1
Outcome: applied
The above subsection was analysed in some detail by Hill J for the purposes of s 226K in Walstern Pty Ltd v Commissioner of Taxation [2003] FCA 1428 ; (2003) 138 FCR 1 at [105] ff. I will not reiterate what was said there other than to note that his Honour indicated that an argument could not be as likely as not correct if there was a failure on the part of the taxpayer to exercise reasonable care in making it, although reasonable care alone would not result in an argument being, objectively, "about as likely as not correct". I agree with this view. I would add that encompassed in what constitutes reasonable care in this context is the need for the taxpayer, or its advisers who are reasonably relied upon, positively to advert to the applicability of the law in question to the taxpayer's circumstances and actually to form a reasoned view on the matter. 183 The material before the court is slight which deals with the bases on which the taxpayer considered it could recoup in the 1998 and 1999 income years the tax losses purportedly assigned to it by Chapel Road. There is some evidence that Mr Richardson took advice from his own tax agents on the matter and that advice was taken from an external adviser. Though the advice related to whether Chapel Road's losses could be transferred to R &amp; D Holdings, the focus of that advice was on the question whether, because of its interest liability, Chapel Road had allowable deductions. It seems to have been assumed for the most part that if there were allowable deductions generating tax losses, these were transferable. 184 The only evidence put forward to indicate advice was given on the question of satisfying the conditions for a transfer of tax losses was contained in a facsimile from Mr Bobb, R &amp; D Holdings' accountant, to Mr Richardson in April 1996 prior to Mudipo's sale of its interest in R &amp; D Holdings. Mr Bobb noted that that sale would breach s 80A of the 1936 Act ("continuity of beneficial ownership"). He went on to indicate that R &amp; D Holdings would, nonetheless, continue to satisfy the "same business" test. And he then observed: "Compliance with section 80E must also apply to 410 Chapel Road Pty Ltd, after the transfer of shares from MPL to AJR in R&amp;D. We believe section 80E will not be breached by 410 Chapel Road Pty Ltd after the share transfer in R&amp;D. Therefore, we expect domestic revenue losses incurred by 410 Chapel Pty Ltd will still be capable of being transferred to R&amp;D."