Case: Avondale Motors (Parts) Pty Ltd v Federal Commissioner of Taxation (1971) 124 CLR 97
Outcome: applied
Whether Lilyvale carried on the same business from 1 January 2002 to 31 March 2003 as it did immediately before either 8 or 30 August 2002 requires careful consideration of Lilyvale's activities and responsibilities both before and after the critical date in August 2002. The question is one of fact; Avondale Motors (Parts) Pty Ltd v Federal Commissioner of Taxation (1971) 124 CLR 97 per Gibbs J at 104. There are two elements to the concept of a taxpayer "carrying on the same business" and both must be addressed. First, it is necessary to have a clear understanding of the concept of carrying on a business, taking into account the relevant statutory and commercial context. Then, having established that before the critical date the taxpayer is carrying on a business and the nature or characterisation of that business, it is necessary to ask if the taxpayer carried on the same business after the critical date. 60 In Avondale Gibbs J rejected a submission that the word "same" in the phrase "same business" meant "similar" or "analogous" rather than "identical". His Honour accepted that the meaning, as with any ambiguous phrase, depends on context and held that in the context of s 80E(1) of the Income Tax Assessment Act 1936-1968 (Cth), a predecessor of the provision presently under consideration, the meaning was that of "identity". Gibbs J, at 105, found support for his view in a consideration of the purpose of the legislation: This restriction is imposed to prevent persons from profiting by the acquisition of control of a company for the sole purpose of claiming its accrued losses as a tax deduction. However the restriction if imposed absolutely would lead to injustice in cases where a company, notwithstanding substantial changes in the ownership of its shares, continued to carry on the same business. No injustice would, in my opinion, result from a refusal to treat an accrued loss as a tax deduction where the company after the change carried on a different business, although one of a similar kind. Lilyvale therefore needs to show that the business it carried on after the share sale was identical to the business that it carried on in the relevant period before the share sale. 61 There was no issue as to the fact that Lilyvale was carrying on a business before the share sale. The parties do differ, however, as to their characterisation of that business. In submissions, Mr Slater QC, who appeared for Lilyvale, characterised its business, both before and after the sale, as carrying on "the business of hotelier or innkeeper at the premises in the Rocks". He submitted that in carrying on its business Lilyvale "provided accommodation for guests, provided restaurant facilities and meals for guests, and food and beverages in bars and so forth, convention facilities, parking facilities, laundry facilities and all the other things that a hotel provides to its customers or guests ... with three exceptions, it employed all the staff engaged in that enterprise". In contrast, the Commissioner submitted that Lilyvale's business consisted of the following: &#8226; the provision of the physical asset ie., the Hotel; &#8226; the maintenance of an operating bank account in the name of Lilyvale Hotel Pty Ltd in which [Enterprises Australia] deposited receipts and from which [Enterprises Australia] made payments of operating expenses, and from which Lilyvale transferred excess amounts from time to time; &#8226; the procurement of [Enterprises Australia], pursuant to the Management Agreement, to operate and manage the hotel but with a veto on capital expenditure; &#8226; the procurement of [ANA Enterprises] (later ANA Hotels), pursuant to the Licence Agreement, to allow [Enterprises Australia] to operate and manage the hotel using the trademarks associated with ANA and the ANA Hotels Systems Services.