mdroth/huggingface-course_section-5_zst huggingface dataset:
Case: Federal Commissioner of Taxation v Munro [1926] HCA 58 ; (1926) 38 CLR 153
Outcome: cited
There is a large body of authority to the effect that where borrowed money is laid out for the purposes of gaining assessable income this "furnishes the required connection between the interest paid upon it by the taxpayer and the income derived by [it] from its use": Ure v Federal Commissioner of Taxation (1981) 81 ATC 4100 at 4104; see generally Federal Commissioner of Taxation v Munro [1926] HCA 58 ; (1926) 38 CLR 153 at 170-171; Hart v Commissioner of Taxation [2002] FCAFC 222 ; (2002) 121 FCR 206 at [26] - [27] ; reversed by the High Court but not on this point: see [2004] HCA 26 ; (2004) 217 CLR 216. The interest paid is thus "incidental and relevant" to the gaining of that income for the purposes of s 51(1) and s 8-1: Ronpibon Tin NL and Tongkah Compound NL v Federal Commissioner of Taxation [1949] HCA 15 ; (1949) 78 CLR 47 at 56. I would note in passing that the "incidental and relevant" formula is commonly used to describe the necessary connection between the loss or outgoing incurred and the gaining or producing of assessable income, though it has been acknowledged that the formula does not constitute "an exclusive or exhaustive test" of the scope of s 51(1) requirement: Lunney v Commissioner of Taxation [1958] HCA 5 ; (1958) 100 CLR 478 at 497. Importantly, for present purposes, as was said by Gibbs CJ, Stephen, Mason and Wilson JJ in Commissioner of Taxation v Smith [1981] HCA 10 ; (1981) 147 CLR 578 at 586: "What is incidental and relevant ... falls to be determined not by reference to the certainty or likelihood of the outgoing resulting in the generation of income but to its nature and character, and generally to its connection with the operations which more directly gain or produce the assessable income."
Case: Hart v Commissioner of Taxation [2002] FCAFC 222 ; (2002) 121 FCR 206
Outcome: applied
There is a large body of authority to the effect that where borrowed money is laid out for the purposes of gaining assessable income this "furnishes the required connection between the interest paid upon it by the taxpayer and the income derived by [it] from its use": Ure v Federal Commissioner of Taxation (1981) 81 ATC 4100 at 4104; see generally Federal Commissioner of Taxation v Munro [1926] HCA 58 ; (1926) 38 CLR 153 at 170-171; Hart v Commissioner of Taxation [2002] FCAFC 222 ; (2002) 121 FCR 206 at [26] - [27] ; reversed by the High Court but not on this point: see [2004] HCA 26 ; (2004) 217 CLR 216. The interest paid is thus "incidental and relevant" to the gaining of that income for the purposes of s 51(1) and s 8-1: Ronpibon Tin NL and Tongkah Compound NL v Federal Commissioner of Taxation [1949] HCA 15 ; (1949) 78 CLR 47 at 56. I would note in passing that the "incidental and relevant" formula is commonly used to describe the necessary connection between the loss or outgoing incurred and the gaining or producing of assessable income, though it has been acknowledged that the formula does not constitute "an exclusive or exhaustive test" of the scope of s 51(1) requirement: Lunney v Commissioner of Taxation [1958] HCA 5 ; (1958) 100 CLR 478 at 497. Importantly, for present purposes, as was said by Gibbs CJ, Stephen, Mason and Wilson JJ in Commissioner of Taxation v Smith [1981] HCA 10 ; (1981) 147 CLR 578 at 586: "What is incidental and relevant ... falls to be determined not by reference to the certainty or likelihood of the outgoing resulting in the generation of income but to its nature and character, and generally to its connection with the operations which more directly gain or produce the assessable income."
Case: Ronpibon Tin NL and Tongkah Compound NL v Federal Commissioner of Taxation [1949] HCA 15 ; (1949) 78 CLR 47
Outcome: cited
There is a large body of authority to the effect that where borrowed money is laid out for the purposes of gaining assessable income this "furnishes the required connection between the interest paid upon it by the taxpayer and the income derived by [it] from its use": Ure v Federal Commissioner of Taxation (1981) 81 ATC 4100 at 4104; see generally Federal Commissioner of Taxation v Munro [1926] HCA 58 ; (1926) 38 CLR 153 at 170-171; Hart v Commissioner of Taxation [2002] FCAFC 222 ; (2002) 121 FCR 206 at [26] - [27] ; reversed by the High Court but not on this point: see [2004] HCA 26 ; (2004) 217 CLR 216. The interest paid is thus "incidental and relevant" to the gaining of that income for the purposes of s 51(1) and s 8-1: Ronpibon Tin NL and Tongkah Compound NL v Federal Commissioner of Taxation [1949] HCA 15 ; (1949) 78 CLR 47 at 56. I would note in passing that the "incidental and relevant" formula is commonly used to describe the necessary connection between the loss or outgoing incurred and the gaining or producing of assessable income, though it has been acknowledged that the formula does not constitute "an exclusive or exhaustive test" of the scope of s 51(1) requirement: Lunney v Commissioner of Taxation [1958] HCA 5 ; (1958) 100 CLR 478 at 497. Importantly, for present purposes, as was said by Gibbs CJ, Stephen, Mason and Wilson JJ in Commissioner of Taxation v Smith [1981] HCA 10 ; (1981) 147 CLR 578 at 586: "What is incidental and relevant ... falls to be determined not by reference to the certainty or likelihood of the outgoing resulting in the generation of income but to its nature and character, and generally to its connection with the operations which more directly gain or produce the assessable income."
Case: Lunney v Commissioner of Taxation [1958] HCA 5 ; (1958) 100 CLR 478
Outcome: cited
There is a large body of authority to the effect that where borrowed money is laid out for the purposes of gaining assessable income this "furnishes the required connection between the interest paid upon it by the taxpayer and the income derived by [it] from its use": Ure v Federal Commissioner of Taxation (1981) 81 ATC 4100 at 4104; see generally Federal Commissioner of Taxation v Munro [1926] HCA 58 ; (1926) 38 CLR 153 at 170-171; Hart v Commissioner of Taxation [2002] FCAFC 222 ; (2002) 121 FCR 206 at [26] - [27] ; reversed by the High Court but not on this point: see [2004] HCA 26 ; (2004) 217 CLR 216. The interest paid is thus "incidental and relevant" to the gaining of that income for the purposes of s 51(1) and s 8-1: Ronpibon Tin NL and Tongkah Compound NL v Federal Commissioner of Taxation [1949] HCA 15 ; (1949) 78 CLR 47 at 56. I would note in passing that the "incidental and relevant" formula is commonly used to describe the necessary connection between the loss or outgoing incurred and the gaining or producing of assessable income, though it has been acknowledged that the formula does not constitute "an exclusive or exhaustive test" of the scope of s 51(1) requirement: Lunney v Commissioner of Taxation [1958] HCA 5 ; (1958) 100 CLR 478 at 497. Importantly, for present purposes, as was said by Gibbs CJ, Stephen, Mason and Wilson JJ in Commissioner of Taxation v Smith [1981] HCA 10 ; (1981) 147 CLR 578 at 586: "What is incidental and relevant ... falls to be determined not by reference to the certainty or likelihood of the outgoing resulting in the generation of income but to its nature and character, and generally to its connection with the operations which more directly gain or produce the assessable income."
Case: Commissioner of Taxation v Smith [1981] HCA 10 ; (1981) 147 CLR 578
Outcome: applied
There is a large body of authority to the effect that where borrowed money is laid out for the purposes of gaining assessable income this "furnishes the required connection between the interest paid upon it by the taxpayer and the income derived by [it] from its use": Ure v Federal Commissioner of Taxation (1981) 81 ATC 4100 at 4104; see generally Federal Commissioner of Taxation v Munro [1926] HCA 58 ; (1926) 38 CLR 153 at 170-171; Hart v Commissioner of Taxation [2002] FCAFC 222 ; (2002) 121 FCR 206 at [26] - [27] ; reversed by the High Court but not on this point: see [2004] HCA 26 ; (2004) 217 CLR 216. The interest paid is thus "incidental and relevant" to the gaining of that income for the purposes of s 51(1) and s 8-1: Ronpibon Tin NL and Tongkah Compound NL v Federal Commissioner of Taxation [1949] HCA 15 ; (1949) 78 CLR 47 at 56. I would note in passing that the "incidental and relevant" formula is commonly used to describe the necessary connection between the loss or outgoing incurred and the gaining or producing of assessable income, though it has been acknowledged that the formula does not constitute "an exclusive or exhaustive test" of the scope of s 51(1) requirement: Lunney v Commissioner of Taxation [1958] HCA 5 ; (1958) 100 CLR 478 at 497. Importantly, for present purposes, as was said by Gibbs CJ, Stephen, Mason and Wilson JJ in Commissioner of Taxation v Smith [1981] HCA 10 ; (1981) 147 CLR 578 at 586: "What is incidental and relevant ... falls to be determined not by reference to the certainty or likelihood of the outgoing resulting in the generation of income but to its nature and character, and generally to its connection with the operations which more directly gain or produce the assessable income."
Case: Steele v Deputy Commissioner of Taxation [1999] HCA 7 ; (1999) 197 CLR 459
Outcome: applied
It is appropriate to add that the advantage secured by incurring an interest liability on money borrowed and laid out for the purpose of gaining income, is "the use of borrowed money [for that purpose] during the term of the loan": Steele v Deputy Commissioner of Taxation [1999] HCA 7 ; (1999) 197 CLR 459 at [29] .
Case: Federal Commissioner of Taxation v James Flood Pty Ltd [1953] HCA 65 ; (1953) 88 CLR 492
Outcome: applied
When, for s 51(1) or s 8-1 purposes, an interest liability has been "incurred" on a loan the monies of which have been laid out for the purpose of gaining income, it will be characterised as a "loss" or "outgoing" not only if the liability has been discharged by payment but also if it has been capitalised, even if this results for the future in interest being payable on interest: see Hart v Commissioner of Taxation , above, at [23] ff. As was said in Federal Commissioner of Taxation v James Flood Pty Ltd [1953] HCA 65 ; (1953) 88 CLR 492 at 506: "The word 'outgoing' might suggest that there must be an actual disbursement. But partly because such an interpretation would produce very strange and anomalous results, and partly because of the use of the word 'incurred', the provision has been interpreted to cover outgoings to which the taxpayer is definitively committed in the year of income although there has been no actual disbursement." 120 Commonly, the more problematic question is when has a loss or outgoing been incurred or, to relate the question to s 51(1) and s 8-1, to what year of income is the loss or outgoing referable? 126 Alternatively, it could be said that the mortgage agreement so structured the interest liability that the taxpayer only "completely subjected itself to" the outgoings or losses in respect of interest month by month: Federal Commissioner of Taxation v James Flood Pty Ltd , above, at 506. Each monthly liability was "payable for its period": Commissioner of Taxation (Cth) v Citylink Melbourne Ltd [2006] HCA 35 at [146] .
Case: City Link Melbourne Ltd v Commissioner of Taxation (Cth) [2004] FCAFC 272 ; (2004) 141 FCR 69
Outcome: cited
There is a large and in some respects not easily reconcilable body of case law on these questions: for a recent statement of some of the principles that are well settled, see City Link Melbourne Ltd v Commissioner of Taxation (Cth) [2004] FCAFC 272 ; (2004) 141 FCR 69 at [27] - [29] ; and, on appeal, Commissioner of Taxation (Cth) v Citylink Melbourne [2006] HCA 35 at [122] ff. It is unnecessary for present purposes for me to enter in significant detail upon the case law much of which is directed towards losses and outgoings in "commercial" activities having characters and purposes far removed from the present.
Case: Commissioner of Taxation (Cth) v Citylink Melbourne [2006] HCA 35
Outcome: cited
There is a large and in some respects not easily reconcilable body of case law on these questions: for a recent statement of some of the principles that are well settled, see City Link Melbourne Ltd v Commissioner of Taxation (Cth) [2004] FCAFC 272 ; (2004) 141 FCR 69 at [27] - [29] ; and, on appeal, Commissioner of Taxation (Cth) v Citylink Melbourne [2006] HCA 35 at [122] ff. It is unnecessary for present purposes for me to enter in significant detail upon the case law much of which is directed towards losses and outgoings in "commercial" activities having characters and purposes far removed from the present. 126 Alternatively, it could be said that the mortgage agreement so structured the interest liability that the taxpayer only "completely subjected itself to" the outgoings or losses in respect of interest month by month: Federal Commissioner of Taxation v James Flood Pty Ltd , above, at 506. Each monthly liability was "payable for its period": Commissioner of Taxation (Cth) v Citylink Melbourne Ltd [2006] HCA 35 at [146] .
Case: New Zealand Flax Investments Ltd v Federal Commissioner of Taxation [1938] HCA 60 ; (1938) 61 CLR 179
Outcome: applied
It is useful by way of introduction to begin with Dixon J's well worn statement on s 51(1) in New Zealand Flax Investments Ltd v Federal Commissioner of Taxation [1938] HCA 60 ; (1938) 61 CLR 179 at 207: "To come within [the] provision there must be a loss or outgoing actually incurred. 'Incurred' does not mean only defrayed, discharged, or borne, but rather it includes encountered, run into or fallen upon. It is unsafe to attempt exhaustive definitions of a conception intended to have such a various or multifarious application. But it does not include a loss or expenditure which is no more than impending, threatened, or expected." 123 Putting to one side the circumstances arising subsequent to the entry into the MMLIC loan (to which the respondent attributes decisive significance in negativing any connection between the excess interest and the gaining of assessable income), the terms of the interest liability assumed in the mortgage itself illuminate how the liability to pay interest should be characterised for s 51(1) purposes. 124 The mortgage contemplated that interest would be paid for the two year term of borrowing at either of two interest rates (depending on whether payments that were due were paid punctually or at all) unless the mortgage was terminated earlier by either the mortgagee or the mortgagor (by repaying the principal, etc in accordance with cl 7 of Annexure A to the mortgage). It could properly be said that at the time of entry into the mortgage, Chapel Road assumed a defeasible liability to pay the interest. But to say that all of the loss or outgoing attributable to the interest liability was then "incurred" for s 51(1) purposes would be to disregard how the mortgage itself contrived and structured the interest liability. It was (i) to be calculated on the daily balances of the principal sum or on such sum that remained outstanding; (ii) to be computed from the date on which the first advance was made; (iii) to be calculated and charged to the mortgagor on the last day of each month at the higher rate of interest, but be payable at the lower rate if the mortgagor made (inter alia) all payments due under the mortgage; and (iv) to be paid on the last day of each month; and (v) to be added to the principal on the last day of each month and bear interest thereafter.
Case: Nilsen Development Laboratories v Federal Commissioner of Taxation [1981] HCA 6 ; (1981) 144 CLR 616
Outcome: cited
The above regime contemplated that, for each month of the mortgage and at the end of each month, interest would be capitalised or paid (i.e. an actual loss or outgoing would occur), in respect of that month. Each periodic liability whether capitalised or paid represented the cost of the money borrowed for the preceding month. Given that these losses or outgoings would occur monthly across the life of the loan i.e. the interest liability would come home monthly: Nilsen Development Laboratories v Federal Commissioner of Taxation [1981] HCA 6 ; (1981) 144 CLR 616 at 623 the parties themselves created a means of allocating (or apportioning) losses or outgoings to the relevant years of income over the life of the loan. It could be said that they have in substance done for themselves what in Coles Myer Finance Ltd v Federal Commissioner of Taxation [1993] HCA 29 ; (1993) 176 CLR 640 was considered required to be done by way of apportionment over successive income years for s 51(1) purposes in the circumstances of that case: see esp 665-666.
Case: Coles Myer Finance Ltd v Federal Commissioner of Taxation [1993] HCA 29 ; (1993) 176 CLR 640
Outcome: referred to
The above regime contemplated that, for each month of the mortgage and at the end of each month, interest would be capitalised or paid (i.e. an actual loss or outgoing would occur), in respect of that month. Each periodic liability whether capitalised or paid represented the cost of the money borrowed for the preceding month. Given that these losses or outgoings would occur monthly across the life of the loan i.e. the interest liability would come home monthly: Nilsen Development Laboratories v Federal Commissioner of Taxation [1981] HCA 6 ; (1981) 144 CLR 616 at 623 the parties themselves created a means of allocating (or apportioning) losses or outgoings to the relevant years of income over the life of the loan. It could be said that they have in substance done for themselves what in Coles Myer Finance Ltd v Federal Commissioner of Taxation [1993] HCA 29 ; (1993) 176 CLR 640 was considered required to be done by way of apportionment over successive income years for s 51(1) purposes in the circumstances of that case: see esp 665-666.
Case: Commissioner of Taxation v Mercantile Mutual Insurance (Workers' Compensation) Ltd [1999] FCA 351 ; (1999) 87 FCR 536
Outcome: cited
It is, perhaps, unsurprising that in some number of decisions courts have assumed or have accepted that interest which accrues from day to day is so apportionable: see Federal Commissioner of Taxation v Australian Guarantee Corporation Ltd (1984) 2 FCR 483; Commissioner of Taxation v Mercantile Mutual Insurance (Workers' Compensation) Ltd [1999] FCA 351 ; (1999) 87 FCR 536 at 552; see also Texas Co (Australasia) Ltd v Federal Commissioner of Taxation [1940] HCA 9 ; (1940) 63 CLR 382 at 468 where the "recurrent expenditure" of interest to secure working capital was described as clearly deductible; see also in relation to recurrent expenditure, Commissioner of Taxation (NSW) v Ash [1938] HCA 68 ; (1938) 61 CLR 263 at 282.
Case: Texas Co (Australasia) Ltd v Federal Commissioner of Taxation [1940] HCA 9 ; (1940) 63 CLR 382
Outcome: cited
It is, perhaps, unsurprising that in some number of decisions courts have assumed or have accepted that interest which accrues from day to day is so apportionable: see Federal Commissioner of Taxation v Australian Guarantee Corporation Ltd (1984) 2 FCR 483; Commissioner of Taxation v Mercantile Mutual Insurance (Workers' Compensation) Ltd [1999] FCA 351 ; (1999) 87 FCR 536 at 552; see also Texas Co (Australasia) Ltd v Federal Commissioner of Taxation [1940] HCA 9 ; (1940) 63 CLR 382 at 468 where the "recurrent expenditure" of interest to secure working capital was described as clearly deductible; see also in relation to recurrent expenditure, Commissioner of Taxation (NSW) v Ash [1938] HCA 68 ; (1938) 61 CLR 263 at 282.
Case: Commissioner of Taxation (NSW) v Ash [1938] HCA 68 ; (1938) 61 CLR 263
Outcome: cited
It is, perhaps, unsurprising that in some number of decisions courts have assumed or have accepted that interest which accrues from day to day is so apportionable: see Federal Commissioner of Taxation v Australian Guarantee Corporation Ltd (1984) 2 FCR 483; Commissioner of Taxation v Mercantile Mutual Insurance (Workers' Compensation) Ltd [1999] FCA 351 ; (1999) 87 FCR 536 at 552; see also Texas Co (Australasia) Ltd v Federal Commissioner of Taxation [1940] HCA 9 ; (1940) 63 CLR 382 at 468 where the "recurrent expenditure" of interest to secure working capital was described as clearly deductible; see also in relation to recurrent expenditure, Commissioner of Taxation (NSW) v Ash [1938] HCA 68 ; (1938) 61 CLR 263 at 282.
Case: Commissioner of Taxation (NSW) v Manufacturer's Mutual Insurance Ltd (1931) 31 SR (NSW) 575
Outcome: discussed
The Deputy Commissioner's contention that there was no loss or outgoing is founded in part on the alleged "implicit assumption" in the cases that the deductibility of an outgoing in the year in which the obligation accrued is that it will in due course be met, i.e. that payment in the future is a certainty. This seeks to transform what may be a well-founded factual assumption in a given case as to what will happen in the future, into a legal prerequisite of deductibility. This, in my view, is how the respondent seeks to extract support from the comment of Ferguson J in Commissioner of Taxation (NSW) v Manufacturers' Mutual Insurance Ltd (1931) 31 SR (NSW) 575 at 585 relating to the deductibility of the calculated value of claims unmatured in the financial year in question, that "it is just as certain that some money will have to be paid". His Honour there was not concerned with, and was not addressing, whether the certainty of actual payment was a legal prerequisite to deductibility.
Case: Oates v Federal Commissioner of Taxation (1990) 27 FCR 289
Outcome: cited
There is no such prerequisite. It is not an express requirement of s 51(1) or s 8- 1 . To insist upon it would introduce an unacceptable measure of uncertainty into these sections. It would require that the deductibility of losses could often turn on a fallible prophesy as to future events. And this would be so notwithstanding that deductions commonly have been allowable in respect of debts which were never later paid because of the onset of bankruptcy or liquidation: cf Oates v Federal Commissioner of Taxation (1990) 27 FCR 289 at 295. 142 The circumstances of this case, doubtless, provide an extreme example of inability to discharge a liability. But this does not assist the Deputy Commissioner. The articulation of the point at which an otherwise allowable deduction of a loss is to be transformed into a loss which is not allowable for the reasons relied upon by the Deputy Commissioner is obviously beset with no little difficulty. If it is to be the law that there is to be such a point, it is in my view the function of the legislature to identify it. It is not a matter for a court to add such a further and difficult implication and process of speculation into s 51(1) and s 8- 1 .