No CrossRef data available.
We use cookies to distinguish you from other users and to provide you with a better experience on our websites. Close this message to accept cookies or find out how to manage your cookie settings.
We use cookies to distinguish you from other users and to provide you with a better experience on our websites. Close this message to accept cookies or find out how to manage your cookie settings.
Published online by Cambridge University Press: 24 January 2025
In maintaining the distinction between capital and income first instituted by legislation nearly two centuries ago, the courts have occasionally faced intractable problems where pragmatism has necessarily triumphed over analysis. Sir Owen Dixon's famous Sun Newspapers test for distinguishing between revenue and capital outgoings is one example, where in reality a number of unweighted considerations were suggested, with but vague illustrations for their application. The proper manner of apportioning outgoings, and the role of purpose and intention, are others. Yet a fourth, and the subject of this paper is the characterisation of receipts derived from the sale or loss of intangible rights.
1 Sun Newspapers Ltd v Federal Commissioner of Taxation (1938) 61 CLR 337, 363.
2 Merv Brown Pty Ltd v Federal Commissioner of Taxation (1984) ATC 4,394; (1985) ATC 4,080.
3 [1926] AC 205, 213-214.
4 Supra n2, 4,405.
5 Idem.
6 Below 333.
7 Eg Dividends; rents; interest. The so called “tree-fruit” metaphor is apposite to this type of receipt: Eisney v Macomber (1919) US 189, 206; The term “source” is obviously used in its secondary sense as meaning the activity or corpus which produces the income.
8 Providing the services have been rendered to the payer, or the taxpayer is in an employment relationship with the payer: turner v Clason (1888) 2 TC 422; Dixon v Federal Commissioner of Taxation (1952) 86 CLR 541, esp 554 per Dixon & Williams JJ. The point has been much confused subsequently, first by statutory language (eg Herbert v Quade [1902] 2 KB 631; Duncan's Executors v Farmer (1909) 5 TC 417); secondly by confusion with the relevant test for distinguishing “testimonial” payments from a person to whom services had been rendered etc (eg Cooper v Blakiston [1907] 2 KB 688; [1909] AC 106); and finally by failure to identify clearly the source of payment; (eg Seymour v Reed [1927] AC 554; Moorhouse v Dooland [1955] 1 Ch 284).
9 Eg ss 25A(l); 26AAA; 26(f), Cf Parsons, RW, “The Meaning of Income and the Structure of Income Tax Assessment Act” (1978) XIII Taxation in Australia 379.Google Scholar
10 Sun Newspapers v Federal Commissioner of Taxation (1938) 62 CLR 337, 362.
11 See eg London Australian Investment Co Ltd v Federal Commissioner of Taxation (1977) 138 CLR 106, 130 per Jacobs J, and 117 per Gibbs J; Rutlege v Inland Revenue Commisfioners (1929) 14 TC 490. The other controlling factor appears to be the necessity for “a pur- 1ose, intention or expectation of resale”; and as indicated by Jacobs J at 130 the two factors Jf frequency and intention are interrelated. The difficulty however in placing too great an mphasis on the latter is that the normal legal attitude in revenue law is not to regard intention is determinative of whether a sum is capital or income. Cf Re Duty on Estate of Incorporated Council of Law Reporting for England and Wales (1888) 22 QBD 279, 293 per Coleridge CJ; Griffiths v JP Harrison (Watford) Ltd. [1936] AC I.
12 [1926] AC 205, 213 per Cave LC.
13 See generally, United Kingdom Royal Commission on Taxation of Profits and Income, Cmd 9474, para 116; Fergusson v Federal Commissioner of Taxation (1979) 26 ALR 307; pinson, B, Pinson on Revenue Law (14th ed, 1981) 14-20Google Scholar; Whiteman, PG & Milne, DC, Whiteman rnd Wheatcroft on Income Tax (2nd ed, 1976) 246-265.Google Scholar
14 Cmd 9474, ibid; Whiteman & Milne, ibid 255.
15 Rutledge v Inland Revenue Commissioners (1929) 14 TC 490; Fairway Estates Pty Ltd v Federal Commissioner of Taxation (1970) 1 ATR 726; Clark v Follet (1973) 48 TC 677; John ston v Heath (1970) 46 TC 463; Western Gold Mines No Liability v Commissioner of Taxation for Western Australia (1938) 1 AITR 248, 250.
16 This conclusion is not possible in the United Kingdom because there is no general case catching income from personal exertion, therefore such activity must be characterised as a bus iness. The relationship between income from personal exertion in its common usage and no s 6(1) sense, and the mere realisation of an asset, has not yet been considered.
17 See eg Inland Revenue Commissioners v Fraser (1942) 24 TC 498; 502-503; Rutledge' Inland Revenue Commissioners (1929) 14 TC 490; Edwards v Bairstow [1956] AC 14; cf Blocke v Federal Commissioner of Taxation (1923) 31 CLR 503, 508 per Issacs J.
18 In both Investment & Merchant Finance Co Ltd v Federal Commissioner of Taxatio, (1971) 125 CLR 249, and Federal Commissioner of Taxation v Whitfords Beach Pty Ltd (1982) 39 ALR 521 it was held thats 25 should be applied before 26(a) [now 25A(l)]. This would appea to reincorporate the learning on adventures in the nature of trade back into Australian revenu law.
19 See Generally, Ryan, KW, Manual of the Law of Income Tax in Australia (5th ed, 1980) 106-115Google Scholar; Barrett, RI, Principles of Income Tax (2nd ed, 1981) 77-82Google Scholar; AP Molloy, Income T. (1976) Chpt 6; Pinson, supra n13, 32-34; Whiteman & Milne, supra n13, 335-345.
20 Discussed below 330 et seq.
21 See eg Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47; Scott v Federal Commissioner of Taxation (1966) 10 AITR 367.
22 This crucial distinction between the abstract concept of a “right” in the air so to speak, and the “thing” to which the right relates, is often lost sight of. A right is always to have, to use, to do, something; or not to be interfered with in something. But to characterise “the right” 1s capital by reference to nomenclature is fallacious; many “rights” have no capital attributes whatsoever.
23 California Copper Syndicate (Limited & Reduced) v Harris (1904) 5 TC 159, 165-166;
24 Eg Gliksten v Green [1929] AC 381; and sees 26(j).
25 Eg King v British Columbia Fir & Cedar Lumber Co Ltd [1932] AC 441; and see s 26 (j).
26 (1926) 12 TC 927 at 953; and see Waterloo Main Colliery Co Ltd v Inland Revenue Commissioners (1947) TC 235; Ensign Shipping Co Ltd v Inland Revenue Commissioners (1928) 12 TC 1169.
27 Federal Commissioner of Taxation v Wade (1951) 84 CLR 105.
28 Eg John Smith & Son v Moore [1921] 2 AC 13, 19-20; Davies v Shell Co of China Ltd' (1951) 32 TC 133 but cf Commissioner of Taxes v Nchanga Consolidated Copper Mines [1964] AC 948, 962 per Lord Radcliffe.
29 Eg Van den Berghs Ltd v Clark (1935) AC 431; discussed below 317. But cf Sun News papers Ltd v Federal Commissioner of Taxation (1938) 41 CLR 337, 359 et seq per Dixon J.
30 Eg British Insulated & Helsby Cables Ltd v Atherton [1926] AC 205, 213 per Cave LC. Adopted Sun Newspapers Ltd v Federal Commissioner of Taxation (1938) 41 CLR 337, 355 per Latham CJ.
31 Eg Glenboig Union Fire Co Ltd v Inland Revenue Commissioners (1922) 22 TC 427,464; Inland Revenue Commissioners v Ramsey (1935) 20 TC 79; Commissioner of Taxes v E [1942] NZLR 115. Cf Egerton-Warburton v Federal Commissioner of Taxation (1934) 51 CLR 568.
32 Commissioner of Inland Revenue v Hogarth (1940) 23 TC 491. See also Orchard Wine & Supply Co v Loynes (1952) 33 TC 97; Lamport & Holt Line Ltd v Langwell (1958) 38 TC 193; United Steel Companies Ltd v Cullingtoh (No 1) (1939) 23 TC 71. Where the payment is expressed to be a sum equal to profits over a number of years it appears to be capital if it is not quantifiable until the period is completed: Ledgard's case ibid; but the distinction between this and sums equal to annual profits over a number of years which are income, appears to be a matter of fine distinction: Dott v Brown [1936] 1 All ER 543, 550. Where the payment is not expressed as a sum equal to profits, but rather a per centage of the profits themselves, it is to be regarded as income. Likewise where even though expressed as a sum equal to profits over a number of years the term is a long one. Ramsay's case ibid, but for the reference to the capital sum would have fallen into the last category; sed quaere the capital sum or part thereof not there being payable at the time of each return, it should have been disregarded as irrelevant. It is submitted that the distinction between Legard and Hogarth is too fine to be useful, and that as a matter of substance the courts should disregard the language of the parties and hold that any annual payments made without reference to a capital sum certain should be regarded as income.
33 Cf Egerton-Warburton v Federal Commissioner of Taxation (1934) 51 CLR 568, 579.
34 Commissioners of Inland Revenue v Hogarth (1940) 23 TC 491. And see Jones v Inland evenue Commissions (1919) 7 TC 310. Cf s 262 concerning the assessability of periodic payents, which in an earlier form was unsuccessfully invoked in Californian Oil Products (In Liq) Ltd v Federal Commissoner of Taxation (1934) 52 CLR 28.
35 It is submitted that where the corpus remains relatively intact after use, then a sum received' for that use will also be revenue, whether in a lump sum or not. An example would be a nonexclusive licence: cf. Inland Revenue Commissioner v Longharns Green & Co. (1932) 17 T.C. 272. Where the use depletes the corpus, or substantially lessens its value, then the sum received1 may be either a royalty or a sale price. It will be a royalty if payment is quantified by reference to user: cf. McCauley v Federal Commissioner of Taxation (1955) 92 C.L.R. 630. Information, and non-patented information causes problems of characterisation however because it does not fit easily into a property analysis. The only qualification to the above analysis is that true annual' payments, that is recurrent payments quantified without reference to a lump sum, will turr what otherwise might be a capital receipt into revenue: see generally Murray v ICI Ltd [1967] 2 All ER 980.
36 Eg McCauley v Federal Commissioner of Taxation (1944) 69 CLR 235.
37 Ibid per Rich J; Moriaty v Evans Medical Supplies Ltd [1957] 3 All ER 718.
38 If there was an excess supply market, the taxpayer would find it difficult to prove tha sterilisation resulted in a loss of profits; for problems with collateral sales in excess supply markets see Re Vic Mills [1913] 1 Ch 465; cf Charter v Sullivan [1957] 2 QB 117. See also Waterloc Main Colliery Co Ltd v Inland Revenue Commissioners (1947) 29 TC 235; Ensign Shipping Co Ltd v Inland Revenue Commissioners (1928) 12 TC 1169.
39 Above 309. Where the capital asset is destroyed, the compensation may include a sum for profits Jost during the period of restoration: London & Thames Haven Oil Wharves Ltd v Attwooll [1967] 2 All ER 124.
40 (1934) 52 CLR 28, 41.
41 Below 329.
42 McLaurin v Federal Commissioner of Taxation (1961) 104 CLR 381, 391; Allsop v Federal Commissioner of Taxation (1965) 113 CLR 341. Watson v Samson Bros. (1959) 38 TC 346. As a matter of fairness it appears proper that if a dissection was to be made of a global sum credit should first be given against property lost, and then against loss of profits, otherwise the taxpayer is in a worse position than he would have been but for the event causing the loss; ie he is taxed on assumed realisation, but is not thereby adequately compensated for the expense of re-establishing the profit earning structure. But to the extent the taxpayer can claim full depreciation on the capital loss, the exact apportionment would be a matter of indifference to him: s 59. And see further: Lehmann, G, “The Common Law, Tax Law and Mathematical Culture” (1984) ALJ 649.Google Scholar Different considerations may apply where tangible assets do not require reconstruction before revenue activities recommence.
43 McLaurin v Federal Commissioner of Taxation, ibid.
44 Supra n37. The normal rule in assessing damages in contract law is that in an excess demand market damages are only minimal if the purchaser fails to complete because the vendor is limited in potential sales by the availability of products rather than purchasers. But in the' context of sterilisation or loss, the emphasis is different, because the product is not available' for sale to a collateral purchaser and the vendor has truly lost the opportunity of sale.
45 Discussed below 330.
46 Below 326.
47 It would not be unreasonable, as a matter of interpretation, to assume that the parties intended to compensate first for actual expenses incurred, before expectation loss (loss of profit). To offset against capital before actual incidental loss, where depreciation was available, might deprive the taxpayer of the full benefit of the receipt.
48 And in particular whether they are “as insurance or indemnity”: Allsop v Federal Commissioner of Taxation (1965) 113 CLR 341; and see s.72(2). It is submitted that in the absence of statutory provisions, a refund is not exigible, regardless of whether the payment was deductible, because it would be out of sympathy with the principles that there is no “matching” ol deductions to income under the Act, and that the character of an outgoing does not affect its character when received: see Allsop, 350; HR Sinclair v Federal Commissioner of Taxation (1966) 114 CLR 537 should be regarded as per incuriam on this point.
49 (1930) 16 TC 67.
50 That is to regard the circumstances as fairly admitting of the possibility of capital loss. The analogy which Lord Sands found most compelling was that if the £3000 paid was said to be an abatement of the cost of repairs, “it would have been very difficult for the revenue to maintain that the £3000 was anything else but a capital savings”. It is submitted that this is a non-sequitur. If the ship had been damaged by accident, the measure of damages in tort for injury to a profit-earning chattel includes a sum for loss of profits which is taxable: Halsbury's Laws of England (3d) 35 para 1073; And see Inland Revenue Commissioners v West (1950) 31 TC 402; Liesboch Dredger v SS Edison [1933] AC 449; London & Thames Haven Oil Wharves Ltd v Attwood [1967] 2 All ER 124. If the abatement was for late repair the income question would not arise because a savings is not income: British Mexican Petroleum Co Ltd v Jackson (1932) 16 T.C. 570; Tennant v Smith [1892] AC 150. But see Crabb v Blue Star Line Ltd (1961) 39 TC 482.
51 (1920) 12-TC 427. cf Waterloo Main Colliery Co Ltd v Inland Revenue Commissioners (1947) 29 TC 35.
52 (1920) 12 T.C. 927.
53 Above 309.
54 Eg destruction or sterilisation of tangible or transferable intangible property used in the production of income; or capital loss eg to goodwill existing dehors the loss of non-transferable right. See below, 329.
55 (1920) 12 TC 427, 463.
56 Ibid 465.
57 S 36 ITAA 1936.
58 So that there is an abandonment, but no sale or disposition which would involve a property analysis. This dichotomy between direct and indirect gains has caused the High Court some difficulty on a number of occasions; see eg Hallstrom Pty Ltd v Federal Commissioner of Taxation (1946) 72 CLR 634; Dickerson v Federal Commissioner of Taxation (1958) 98 CLR 460, ment caused by the partial withdrawal of the promisor. Contrast, however, the sale or compulsory acquisition of a transmissible right. The transferee can enjoy this to the exclusion of all others, even if as in Glenboig he chooses merely to sterilise it.
59 Above 309.
60 See generally: Libling, DF, “The Concept of Property: Property in Intangibles” (1978) 94 LQR 103Google Scholar; Sackville, R & Neave, M, Property Law: Cases & Materials (3rd ed, 1981) 1-52Google Scholar. Industrial Property is a concept which can be distinguished but need not be discussed. The legal monopoly rights under a Patent, Registered Trademark, or Registered Design can not be destroyed or sterilised without legal justification. For goodwill below 326.
61 See eg Exchange Telegraph Co Ltd v Gregory & Co [1896] 1 QB 147, 152-153; The Exchange Telegraph Co Ltd v Howard (1906) 22 TLR 375; Exchange Telegraph Co v Central News Ltd [1897] 2 Ch 48, 53; Henderson v Radio Corporation Pty Ltd (1960) 60 SR (NSW) 576; Samuelson v Producers Distributing Co Ltd [1932] 1 Ch 201, 209; Federal Commissioner of Taxation v United Aircraft Corporation (1943) 68 CLR 525, 547-548.
62 In some cases the courts refuse to recognise the existence of a 'proprietary' right despite its marketability: see eg Victoria Park Racing and Recreation Grounds Co Ltd v Taylor (1937) 58 CLR 479; Federal Commissioner of Taxation v United Aircraft Corporation (1943) 68 CLR 525, 534 per Latham CJ (diss).
63 Supra n61; Vokes Ltd v Evans (1931) 49 RPC 140; and see Dr Barnado's Homes v Barnardo Amalgamated Industries Ltd (1949) 66 RPC 103; and British Legion v British Legion Club (Street) Ltd (1931) 48 RPC 555, both of which Libling Supra n60 argues are explicable on the investment of effort criteria, 114.
64 See Libling, ibid 114-119; Morris v Ashbee (1868) LR 7 Eq 34; Hamilton, “Property According to Locke” (1932) 41 Yale LJ 864. In addition the 'right' generated must not be a “social good”; that is a benefit inherently capable of joint consumption: see eg Huntley & Palmer v The Reading Biscuit Co Ltd (1893) 10 RPC 277. But cf Sports and General Press Agency Ltd v “Our Dogs” Publishing Co Ltd [1917] 2 KB 125; Victoria Park Racing and Recreation Grounds Co Ltd v Taylor & Others (1937) 58 CLR 479.
65 Eg Seager v Copydex Ltd [1967] 1 WLR 923; Duchess of Argyll v Duke of Argyll [1967] Ch 302; Prince Albert v Strange (1849) I H & T I.
66 JV (Crows Nest) Pty Ltd v Commissioner of Stamp Duties (NSW) [1985] ATC 4198; cf Federal Commissioner of Taxation v United Aircraft Corporation (1943) 68 CLR 525.
67 See eg Tennant v Smith [1892] AC 150, 154 per Lord Halsbury LC; Cape Brandy Syndicate v IRC [1921] 1 KB 64, 71; cf Coultness Iron Co v Black (1881) 6 App Cas 315.
68 For a discussion of goodwill, below 326.
69 (1935) 19 TC 390; cf the decision in Inland Revenue Commissioners v Northfleet Coal and Ballast Co Ltd (1927) 12 TC 1102 which accords more with the analysis suggested by the writer; see also Greyhound Racing Association (Liverpool) Ltd v Cooper (1936) 20 TC 373; Shadholf v Salmon Estate (Kingsbury) Ltd (1943) 25 TC 52; Renfrew Town Council v Inland Revenue Commissioners (1934) 19 TC 13.
70 Ibid 431--432.
71 Robinson v Harman (1848) 1 Ex 850.
72 [1926] AC 205.
73 [1984] ATC 4,394, 4,402.
74 [1921] 2 AC 13.
75 (1927) 12 TC 955.
76 Ibid 964.
77 Ibid 968-969.
78 Ibid 972, per Lord Hanworth MR; 944 per Sargant LJ; 975 per Lawrence LJ.
79 Cf ibid 974.
80 [1938] SC 238. See also Elson v James G Johnston Ltd (1965) 42 TC 544; Anglo-french Exploration Co Ltd v Clayson [1956] 1 All ER
81 Eg ibid 246; 248. It is submitted the better basis of decision would have been that, the contracts being neither tangible nor transmissible, a proprietary analysis was completely inapposite: above 000.
82 [1956] 1 WLR 312.
83 (1951) 33 TC 57. See also Bush, Beach and Gent Ltd v Read (1939) 22 TC 519; Blackburn v Close Brothers Ltd (1960) 39 TC 164. In Fleming Lord President Cooper suggested that the fact that the cancellation left him free to devote his energies to replacing the contract tended towards an income characterisation. It is submitted that this point is rather neutral. The problem is discussed more fully below 324 et seq.
84 [1945] SC 271.
85 [1965] 1 WLR 873.
86 (1935) 19 TC 390. See also John Mills Production Ltd v Matthias (1967) 44 TC 441. Cf comments in Strick v Regent Oil Co Ltd [1966] AC 295, 318-319; 344-345.
87 (1915) 19 CLR 568.
88 (1966) 115 CLR 512.
89 Supra n86, 580.
90 Supra n87, 517; cf Commissioner of Taxes v Nchanga Consolidated Copper Mines Ltd [1964] AC 948, 959 per Lord Radcliffe.
91 See eg Sun Newspapers Ltd v Federal Commissioner of Taxation (1938) 61 CLR 337, 362.
92 (1958) 98 CLR 460. Cf Thompson v Magnesium Elektron Ltd (1944) 26 TC l; Hibbell v Commissioners of Inland Revenue.
93 [1952] 1 Ch 311.
94 Supra n92, 474 per Dixon CJ; 482 per Webb J; 487 per Williams J; 490 per Kitto J. Per contra 477 per McTiernan J.
95 Below 330 Cf. Evans v Wheatley (1958) 38 TC 216; Strick v Regent Oil Co Ltd [1966] AC 29, 325 per Lord Reid.
96 Above 315.
97 Supra n92, 477 per McTiernan J.
98 Ibid 469 per Taylor J; 487 per Webb J.
99 Ibid 477-478 per McTiernan J; 487 per Webb J.
100 Ibid 492.
101 Ibid 475.
102 Ibid 474.
103 Ibid 483.
104 Schedule D, Case II; s 108. Cf an employee who receives a sum purportedly as a restricted covenant, but where in order to be assessable the character must be much more of a remuneraive one: Beak v Robson [1943] AC 352. The type of analysis applied in the text to Higgs v livier could equally be applied to Murray v ICI Ltd (1967) 2 All ER 980; and Vaughan-Neil V Inland Revenue Commissioners (1979) 3 All ER 481.
105 Because a “rights” analysis is artificial where the contract can not be performed vicariusly (and can not therefore be sold); and any “right to work” has no basis of valuation apart rom profits expected from it: above 000; cf Commissioner of Taxes (Vic) v Phillips (1936) 55 LR 144, 156.
106 (1934) 52 CLR 28.
107 Ibid 47 per Gavan Duffy CJ & Dixon J; 49 per Starke J; 51 per Evatt & McTiernan JJ.
108 (1924) 9 TC 48, 61.
109 Supra nl06, 47, 51.
110 Cf discussion in Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47 on this possibility, and see the Court of Appeal decision in Hunter v Dewhurst (1932) 16 TC 605, 626 et seq.
111 Eg Cooper v Blakiston [1909] AC 106; Dixon v Federal Commissioner of Taxation (1952)1 86 CLR 541; Louisson v Commissioner of Taxation [1942] NZLR 30.
112 Eg Duncan's Executors v Farmer (1909) 5 TC 417; Chibbitt v Joseph Robinson & Sons (1924) 9 TC 48; Stedeford v Beloe [1952] AC 388.
113 (1932) 16 TC 605, 625.
114 That is to say it is not capable of a “rights analysis”, cf supra n116. And see Phillips v Commissioner of Taxes (Vic) (1936) 55 CLR 144, 156:
“... a contract of services is valuable only because of the income it will bring during the residue of the term. It is not a piece of marketable property.”
115 (1935) 35 SR (NSW) 215.
116 (1936) 55 CLR 144. But see Bennett v Federal Commissioner of Taxation 450.
117 Only Lord MacMillan directly posed the question “for the substitution of what rights was he payment paid?” Lords MacMillan and Dunedin also approach the cases on the basis of Whether, as a matter of substance, the sum might be for services rendered, even though it was 'or loss of office. Lords Atkin and Thankerton did not on the facts think it was a loss of office Case at all. It is more difficult to explain the basis of Lord Warrington of Clyde's judgment.
118 [1969] SCR 719.
119 [1945] SC 271.
120 Van den Bergh v Clark [1935] AC 431.
121 Glenboig Union Fireclay Co Ltd v Inland Revenue Commissioners (1922) 12 TC 427.
122 Above 316.
123 Eg Phillips v Commissioner of Taxes (Vic) (1936) CLR 144; Hunter v Dewhlfrst (1932) 16 TC 605 per Rowlatt J. app'd Court of Appeal at 626.
124 (1958) 98 CLR 460.
125 Eg Parsons-Steiner v MNR [1962] Ex CR 174.
126 Cf below 329. The money would not compensate the agent for loss of goodwill (capital), since if the contract is not marketable the goodwill really belongs to the principal, a conclusion reinforced by the right of the principal to terminate by exercise of an existing right.
127 Although the agent may have no right to sell the agency, so that again the goodwill might Je seen as really belonging to the principal, the element of bargaining tends to give the agent right which the principal regards as valuable, and which the agent can withhold.
128 Although the agency may not be capable of vicarious performance, the agent has gener- 1ted something of value dehors the contract, namely goodwill, which may be used to produce ncome, but also where the principal bargains for it, is capable of transfer; even if only to one, Person (namely the principal).
129 Above 314.
130 Since it will exist even if the contract was not created or cancelled, and the principal in to sense seeks to recover its use from the agent. He merely seeks to terminate the agent's right to it. The fact that the principal may then licence someone else to enter the market in a profitale way is a character of the market, not of the release of the first agent. Therefore a property nalysis is not possible.
131 Above 326.
132 Supra nl30.
133 Above 324.
134 Eg Gospel v Purchase [1952] AC 280; Carson v Cheyney's Executors [1959] AC 412. See: now ss 143-151 Income and Corporation Taxes Act 1970 (UK)
135 Emphasis added. The limited operation of s 6 “income from personal exertion” was discussed in Scott v C of T (NSW) (1935) SR (NSW) 215, 220; Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540, 564 per Fullager; and 555 per Dixon J.
136 Emphasis added. the provision is limited in scope by the words 'bounty or subsidy', and appears to be merely declaratory in that it does not bring to tax amounts which are not otherwise exigible under ordinary concepts. For a full discussion of the relevant authorities: CCHI Federal Tax Reporter 14-150.
137 This must follow from the assessability of income in the hands of an assignee, who, like the discontinued business entity, have not earned the income in the year of receipt.
138 (1922) 12 TC 427 (HC) 465-466.
139 s 27A(l) “eligible termination payment” (d)-(j); CCH The New 1984 Retirement Tax (1984) 55-57; and sees 27A(l) “eligible termination payment” (a)(ii).
140 Ibid; 27H (2) - (3). The latter provisions do not adopt “unused” in relation to the undeducted purchase price: see s 27A(l) “undeducted purchase price”, “unused undeducte<i purchase price”. The purchase price may be fully discounted on redemption under s 27H (2) - (3). If it is not, and the payment is caught bys 27A(l) “eligible termination payment” (d) (j), the purchase price will be discounted by those provisions.
141 The capital purchase sum is extinguished by the purchase of the annuity eg Scoble v Secre tary of State for India [1903] 1 KB 504.
142 le it puts him in the position he would have been in had the contract been performed, and more particularly protects the profit he would otherwise have made: Robinson v Harman (1848) 1 Ex 850, 855.
143 Eg Californian Oil Products Ltd v Federal Commissioner of Taxation (1934) 52 CLR 28, 41; Glenboig Union Fireclay Co Ltd v Inland Revenue Commissioners (1922) 12 TC 427; Burmah SS Co v Inland Revenue Commissioners (1930) 16 TC 67; Short Bros Ltd v Inland Revenue Commissioner (1927) 12 TC 955. Cf CCH Federal Tax Reporter para 11-860.
144 Eg Commissioner of Taxes (Vic) v Phillips (1936) 55 CLR 144, 156.
145 Eg Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540.
146 British Transport Commission v Gauley (1955) 3 All ER 796; Cullen v Trappell [1980] ATC 4185, Gill v Australian Wheat Board [1981] ATC 4217. The analysis which would be consistent with principle would be that damages for Joss of earnings (but not for eg pain and suffering) be regarded as paid as compensation for Joss of income and assessable. This would remove the problem of taking taxation into account in assessing personal injury damages; however the courts have preferred another approach. For a different view in a non-injury case see Pennant Hills Restaurants Pty Ltd v Barrell Insurances Pty Ltd [1981] ATC 4152.
147 Above 308.
148 Supra nn 31-32.
149 Since the sale price of an asset may be a sum quantified with reference to some anticipated scale; eg a sum equal to 50% of profits for the first year: Inland Revenue Commissioners v Ledgard [1937] 2 All ER 492; although a different result would occur if the payments were true annual sums, or expressed without reference to a capital sum: eg 25% of profits for 3 years.
150 If they are tangible they need not be also transmissible to have a property character:
151 Above 315.
152 Above 310.
153 Above 316. If no loss has been sustained the payment will represent a windfall to the taxpayer. Whether it is assessable depends on whether there is a principle making receipts in the ordinary course of business exigible.
154 Where there is an identifiable element of interest involved this will clearly be assessable: Vertey v Inland Revenue Commissioners (1961) 3 All ER 978; Riches v Westminster Bank Ltd (1947) 1 All ER 469; the decisions in Inland Revenue Commissioner v Ballatine (1924) 8 TC 595; Simpson v Executors of Bonner Maurice (1929) 14 TC 580 may be explicable on the basis that the courts were merely awarding a capital sum valued at the date of judgment, and the reference to interest modum aestimationis merely assists in arrriving at that valuation.
155 the solution will be more obvious where the payment is only for lost profits, or for the loss of trading stock.
156 The Commissioner clearly will not be bound where the parties adopt incorrect nomenclature: Inland Revenue Commissioners v Thomas Nelson & Sons (1938) 22 TC 175; Federal Commissioner of Taxation v McPhail (1968) 1 I7 CLR 111; but the reverse does not always apply; see eg Commissioner of Taxes (Vic) v The Melbourne Trust Ltd [1914] AC 1001, lOll; Lomax v Peter Dixon & Son Ltd (1943) 25 TC 353, 367 per Lord Green MR (I).
157 (1955) 348 US 426; cf Murray v Goodhews [1976] 2 All ER 296.
158 Eg Short Bros Ltd v Inland Revenue Commissioners (1927) 12 TC 955; Dickerson v Federal Commissioner of Taxation (1958) 98 CLR 460; HR Sinclair v Federal Commissioner of Taxation (1966) 114 CLR 537.
159 Eg Dickerson v Federal Commissioner of Taxation (1958) 98 CLR 460; and see Federal, Coke Co Ltd v Federal Commissioner of Taxation (1977) 15 ALR 449.
160 See eg Federal Commissioner of Taxation v Merv Brown Pty Ltd [1985] ATC 4,080, 4,086 per Lockhart J; Pickford v Quirke (1927) 13 TC 251.
161 Eg Austrotel Corporation Pty Ltd v Federal Commissioner of Taxation [1976] ATC 4,245, per Stephen J.
162 Eg Gliksten v Green [1929] AC 381; King v British Columbia Fir & Cedar Lumber Co Ltd [1932] AC 441.
163 Schedule D, Cases, I & II; Schedule E.
164 Eg Federal Commissioner of Taxation v Merv Brown Pty Ltd [1985] ATC 4080.
165 Whether in a lump sum, or in instalments quantified by reference to a lump sum. Where the payment is not so quantified, it is fairly open to characterisation as revenue on the basis of recurrance (eg Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540), or as an annual sum (eg Egerton-Warburton v Federal Commissioner of Taxation (1934) 51 CLR 568.)
166 It is a well recognised rule that is the character of the receipt in the hands of the recipient, not the motive of the payer which is determinative. A gratuity for services rendered is intended as a gift, but assessable nonetheless. There is however a line of English authority which suggests that voluntary payments made to subsidise trading operations may be assessable: PretoriaPetersbury Rly Co v Elwood (1908) 6 TC 508; Charles Brown & Co v Inland Revenue Commissioners (1930) 12 TC 1256. Some of these are discussed in CCH Federal Tax Reporter para 11-840.
167 Thus negating any inference that the taxpayer had “sterilised” part of his profit earning time, although it is difficult to see how this argument could be efficacious.
168 Eg Austrotel Corporation Pty Ltd v Federal Commissioner of Taxation (1976) ATC 4245.
169 Eg Higgs v Olivier [1952] 1 Ch 311, on the hypothesis that Olivier “held out” for a sum which went further than compensating him for any Joss; and therefore was not income according to an application of the compensation principle.
170 Cf Europa Oil (NZ) Ltd v Commissioner of Inland Revenue (No 1) [1970] ATC 6012; Case 56 [1985] ATC 117; and see further Commissioner of Inland Revenue v Dunlop's Wanganui Ltd (1970) NZLR 1125.
171 Europa Oil (NZ) Ltd v Commissioner of Inland Revenue (No. 2) [1976] ATC 6010; Federral Commissioner of Taxation v South Australian Battery Makers Pty Ltd (1978) ATC 4412; but cf Phillips v Federal Commissioner of Taxation [1978] ATC 4361.
172 Eg Commissioner of Inland Revenue v City Motor Services Ltd (1969) NZLR 1010; Commissioners of Inland Revenue v Coia (1959) 38 TC 334; McLaren v Needham (1960) 39 TC 37; Saunders v Dixon (1962) 40 TC 329.
173 See eg Barclays Bank Ltd v Quitclose Investments Ltd [1968] 3 All ER 651.
174 Supra n166. However the courts have often been influenced by this factor: see eg Maney & Sons De Luxe Service Station Ltd v Commissioner of Inland Revenue [1969] NZLR 116. And see the English authorities discussed by Whiterman & Milne Supra n13 343-345; CCH Federal Tax Reporter para 11-810.
175 Eg Federal Commissioner of Taxation v Walker [1985] ATC 4,179.
176 But in more extreme cases,. a taxpayer can both use an item as part of his income producing structure, but nonetheless be in the business of selling such items: see eg J Bolson & Son Ltd v Farrelly [1953] 1 Lloyd's Rep 258. Cf Crole v Lloyd (1950) 31 TC 338.
177 [1985] ATC 4080, 4085. Bowen CJ adopts this argument, but turns it around to find there was a fundamental effect on the business. Lockhart J however appears not to rely on it. It is submitted that such a test may be useful as an exclusionary test of income, providing it is not considered to be an exhaustive test. Some receipts may be capital, despite the fact they do not affect the structure of the business. How for example would one characterise the sale of an obsolete office typewriter?