Case: CityLink Melbourne Limited v Commissioner of Taxation [2004] FCAFC 272 ; (2004) 141 FCR 69
Outcome: discussed
The circumstances in which outgoings or losses will be seen as incurred in any year of income have been discussed in numerous cases. Recently, Lindgren J in Merrill Lynch International (Australia) Limited v Commissioner of Taxation [2001] FCA 1127 ; (2001) 47 ATR 611 undertook a careful analysis of the course of authority from New Zealand Flax Investments Ltd v Federal Commissioner of Taxation [1938] HCA 60 ; (1938) 61 CLR 179 to Commissioner of Taxation v Mercantile Mutual Insurance (Workers' Compensation) Ltd [1999] FCA 351 ; (1999) 87 FCR 536. Since 2001, the Full Court of this Court and the High Court has each undertaken an analysis of the relevant authorities in CityLink Melbourne Limited v Commissioner of Taxation [2004] FCAFC 272 ; (2004) 141 FCR 69 and Commissioner of Taxation v CityLink Melbourne Limited [2006] HCA 35 ; (2006) 228 CLR 1. 55 In Ogilvy &amp; Mather Pty Limited v Commissioner of Taxation (1990) 21 ATR 841 at 873-874 Hill J sought to summarise the principles from the authorities. This summary was adopted by the Full Court in CityLink 141 FCR at 79-80. It was as follows: &#8226; It is unsafe to attempt an exhaustive definition of a term such as "incurred": New Zealand Flax Investments Ltd at 297 per Dixon J; Hooker Rex Pty Ltd v Commissioner of Taxation (Cth) (1988) 19 ATR 1241 at 1249-1250; &#8226; In considering whether a loss or outgoing is incurred the Courts in Australia have adopted what is described as a "legal" or "jurisprudential approach" and not what may be described as a "commercial approach": Coles Myer Finance Ltd v Commissioner of Taxation (Cth) [1993] HCA 29 ; [(1993) 176 CLR 640] ; &#8226; An outgoing may be incurred notwithstanding that the amount is not paid in the year of income: Commissioner of Taxation (Cth) v James Flood Pty Ltd [1953] HCA 65 ; (1953) 88 CLR 492 at 507; &#8226; An outgoing may be incurred notwithstanding that at the end of the year of income it represents a present liability then due although payable in the future: Commissioner of Taxation (Cth) v Australian Guarantee Corporation Ltd ( 1984) [1984] FCA 240 ; 2 FCR 483. However, it will be important that the liability is "presently existing" during the year of income; &#8226; It will be necessary that the taxpayer has completely subjected itself to the loss or outgoing, that is to say definitively committed itself to it in the year of income : Merrill Lynch International (Australia) Ltd v Commissioner of Taxation (Cth) [2001] FCA 1127 ; (2001) 113 FCR 79 per Lindgren J. It will not be sufficient if the loss or outgoing is no more than pending, threatened or expected, no matter that it may be certain that the loss or outgoing will occur in the future: Flood at 5-7-508 ; Hooker Rex at 1249-1250; and &#8226; However, a loss or outgoing may be incurred in the year of income notwithstanding that the obligation to pay it is theoretically defeasible: Flood at 506-507; Coles Myer at 670 or, perhaps, even contingent: Coles Myer at 670 per Deane J, citing Commercial Union Assurance Co of Australia Ltd v Commissioner of Taxation (Cth) (1977) 32 FLR 32 at 42-43, but see, however, Flood at 507-508.