Case: Coles Myer Finance Limited v Commissioner of Taxation of the Commonwealth of Australia [1993] HCA 29 ; (1993) 176 CLR 640
Outcome: referred to
The distinction between fixed and circulating capital, which has been said to be "obscure": Mason J (as he then was) in Industrial Equity Ltd v Blackburn [1977] HCA 59 ; (1977) 137 CLR 567 at 576, and "debatable": Jenkins LJ in Reynolds and Gibson v Crompton (1950) 33 Tax Cas 288 at 303, was discussed by Lockhart J in QBE Insurance Group Limited v Australian Securities Commission (1992) 38 FCR 270 at 287-288 and by the Full Court in GRE Insurance Limited v Commissioner of Taxation of the Commonwealth of Australia (1992) 34 FCR 160 at 162-163. See also Commercial and General Acceptance Limited v Commissioner of Taxation of the Commonwealth of Australia [1977] HCA 47 ; (1976) 137 CLR 373 at 377 and 384 and Coles Myer Finance Limited v Commissioner of Taxation of the Commonwealth of Australia [1993] HCA 29 ; (1993) 176 CLR 640 at 663-664, 668-669 and 681-682. 82 I do not think that the accounting treatment undertaken by TAPL assists greatly. The booking of payments as an asset, amortised against the profit and loss account, can be seen, from the perspective of company accounting, as assisting the perception of profitability. However, this accounting treatment does not necessarily mean that the payments were an affair of capital. First, as a matter of principle, the accounting approach cannot be determinative of the issue: Commissioner of Taxation of the Commonwealth of Australia v James Flood Pty Limited [1953] HCA 65 ; (1953) 88 CLR 492; Arthur Murray (NSW) Pty Limited v Commissioner of Taxation of the Commonwealth of Australia [1965] HCA 58 ; (1965) 114 CLR 314 at 320; and Commissioner of Taxation v Citibank Limited (1993) 44 FCR 434 at 443-44. Secondly, there was no explanation in the evidence or submissions as to whether the accounting treatment might be equivocal about whether the payments reflected fixed or circulating capital. Thirdly, the questions whether or not the payments should be treated in the way they were to match outgoings to revenue (cf Coles Myer 176 CLR at 666), and how one could, or should, account for such a requirement, were not explored, either in the evidence or the submissions. In these circumstances, it is unnecessary, and probably unhelpful, to restructure any analysis around the concepts of fixed and circulating capital, or any like concept: cf. Parsons RW Income Taxation in Australia: Principles of Income, Deductibility and Tax Accounting (Law Book Co 1985) pp 155ff and passim. In this respect, I would simply cite and adopt the approach of Gibbs J (as he then was) in Commercial and General Acceptance Limited 137 CLR at 377: "I think the proper approach is to apply directly the tests suggested in [ Sun Newspapers [1938] HCA 72 ; 61 CLR 337 at 359-363], for the purpose of deciding whether the repayment was an expenditure referable to capital account or to revenue account, rather than to consider whether the moneys borrowed, when received, became circulating capital. The line of distinction between fixed and circulating capital is not precisely drawn, and it is of little advantage to try to answer one question by asking another to which the answer may be uncertain: cf John Smith &amp; Son v Moore [1921] 2 AC 13 at 19-20 per Viscount Haldane, and Crompton v Reynolds and Gibson [1952] 1 All ER 888 at 895 per Lord Reid."