Case: Federal Commissioner of Taxation v Hart [2004] HCA 26 ; (2004) 217 CLR 216
Outcome: applied
As Gummow and Hayne JJ said in Federal Commissioner of Taxation v Hart [2004] HCA 26 ; (2004) 217 CLR 216 at [43] : "This definition [of scheme] is very broad. It encompasses not only a series of steps which together can be said to constitute a 'scheme' or a 'plan' but also (by its reference to action in the singular) the taking of but one step." 126 The Commissioner is under no obligation to show a series of steps to prove a scheme. However, if (as here) he elects to rely upon multiple actions, there must be a connection between those actions because otherwise they do not constitute "a scheme, plan or course of action": Commissioner of Taxation (Cth) v Peabody [1994] HCA 43 ; (1994) 181 CLR 359 at 382-384 and Hart at [43] and [55]. A series of disjointed or unconnected steps could not amount to a scheme. That is because the existence of a scheme and its identification for the purposes of s 177A is a question of fact to be determined by the evidence: it is not a question of abstracting bits from what actually happened. 132 As Gummow and Hayne JJ said in Hart at [52]: "There is no doubt that 'tax laws affect the shape of nearly every business transaction' ( Frank Lyon Co v United States (1978) 435 US 561 at 580, cited in Spotless [1996] HCA 34 ; (1996) 186 CLR 404 at 416). But as was said in the joint reasons in Spotless (at 416) "A particular course of action may be, to use a phrase found in the Full Court judgments, both 'tax driven' and bear the character of a rational commercial decision. The presence of the latter characteristic does not determine the answer to the question whether, within the meaning of Pt IVA , a person entered into or carried out a 'scheme' for the 'dominant purpose' of enabling the taxpayer to obtain a 'tax benefit' . (Emphasis added.)" Always the question must be whether the terms of the Act apply to the facts and circumstances of the particular case." 134 In addition, even if one or more of the schemes was capable of being a scheme for the purposes of Part IVA , Star City did not obtain a tax benefit in relation to it. The Commissioner contended that in determining the answer to that question, it was necessary to construe and apply Pt IVA according to its terms: Federal Commissioner of Taxation v Spotless Services Ltd [1996] HCA 34 ; (1996) 186 CLR 404 at 414 and Federal Commissioner of Taxation v Hart [2004] HCA 26 ; (2004) 217 CLR 216 at [51] . So much may be accepted. 135 The process of identifying a 'tax benefit' is prescribed by s 177C. It requires an assessment of what might reasonably be expected to have happened if the scheme had not been entered into or carried out. This process has been described as the identification of the 'alternative postulate': Hart at [66] and Macquarie Finance Ltd v Commissioner of Taxation [2005] FCAFC 205 ; (2005) 146 FCR 77 at [204] . This is an objective assessment: Calder v Commissioner of Taxation (2005) 226 ALR 643 at [95]; Macquarie at [212]; Pridecraft Pty Ltd v Federal Commissioner of Taxation (2004) 213 ALR 450 at [64]-[65]. 148 Section 177D(b) is not directed at attributing a purpose to "the scheme": Hart at [63]. The test of purpose is objective. Actual subjective purposes are irrelevant: Hart at [65]. And if there is more than one purpose, the question is whether the taxation benefit purpose was the " ruling, prevailing or most influential purpose" : Spotless at 416. 149 Moreover, as Gummow and Hayne JJ said in Hart at [53]: "The bare fact that a taxpayer pays less tax, if one form of transaction rather than another is made, does not demonstrate that Pt IVA applies. Simply to show that a taxpayer has obtained a tax benefit does not show that Pt IVA applies." 150 The fact that the Consortium's advisers referred to taxation considerations including the non-deductibility of the "Second Specified Payment Amount" and the deductibility of the Prepayment is not surprising. It would be surprising, if not negligent of them, if they did not. And the terms in which they referred to these issues does not assist the Commissioner. As Gummow and Hayne JJ said, 'tax laws affect the shape of nearly every business transaction'. 151 It goes without saying that any rational economic actor will endeavour to minimise the tax consequences of a business transaction. For that reason, it must be shown not just that a tax benefit was received, but also that the "dominant purpose" of the transaction was to obtain the tax benefit. In this case, an objective consideration of the Bid Process and Transaction Documents reveals no such dominant purpose on the part of Star City. 152 The Commissioner's arguments in favour of the application of Pt IVA assume a degree of unilateral freedom on the part of the Star City Consortium to frame the arrangement in terms of its choice which the history of the Bid Process denies: see Annexure at [1] to [60]. Throughout the negotiations, there were two considerations that remained consistent: the Casino would operate on leased land owned by the State and rent would be paid for use of those Premises. 153 Thus, from the outset, the transaction comprised a number of necessary and essential components including the Casino Licence, the Construction Lease and the Freehold Lease. Components made necessary and essential by, inter alia, the Casino Control Act and by the fact that the Premises were vested in the Crown. It is also important to re-emphasize that for the State parties (the CCA and the Treasury), commercial considerations required payment of as much money as could be obtained as soon as it could be obtained.