Taxation Law Case Study - Myer`S First and Second Strands
Taxation Law
Question:
What is the “first strand” of the decision in FC of T v The Myer Emporium Ltd 87 ATC 4363? Did the courts apply the first strand in any of the following cases: FC of T v Cooling 90 ATC 4472, Westfield Ltd v FC of T 91 ATC 4234, Henry Jones (IXL) Ltd v FC of T 91 ATC 4663 and SP Investments Pty Ltd v FC of T 93 ATC 4170? If the first strand did not apply in some of these cases but amounts were nevertheless assessable, on what basis was this so?
Answer:
Introduction to the Myer Case and its “STRANDS”:
In the case, “FC of T v The Myer Emporium Ltd 87 ATC 4363”, the taxpayer “The Myer Emporium”, worked out a financial arrangement during 6-9 March 1981. Under the arrangement, it lent $80 million to its subsidiary, Myer Finance Ltd, at an interest rate of 12.5% pa. It also assigned its right to the interest (not to the principal) to Citicorp Canberra Pty Ltd for a lump sum in the order of $45 million. The commissioner treated the lump sum of $45 million received as an income receipt, assessable under s 25(1) of ITAA 1936 (Cth). The commissioner also contended that the amount received constituted a profit assessable under the second limb of s 26(a) as a profit arising from a profit-making scheme.1 Both the Victorian Supreme Court and the Full Federal Court decided in favor to Myer despite the fact the taxpayer had argued contrary to the Tax Office!s argument that the lump sum was merely realizing a capital asset because it was a gain from an isolated transaction outside the ordinary course of its retail and property development business. However, the High Court conferred its decision that the $45 million received by the Myer was assessable under s 25(1) as an income receipt and also under the second limb of s 26(a) as a profit from a profit-making under-taking or scheme2. On the facts in Myer, the High Court held that: “It is the fact that Myer!s business at all times was that of retailing and property developer. The income made by
Question:
What is the “first strand” of the decision in FC of T v The Myer Emporium Ltd 87 ATC 4363? Did the courts apply the first strand in any of the following cases: FC of T v Cooling 90 ATC 4472, Westfield Ltd v FC of T 91 ATC 4234, Henry Jones (IXL) Ltd v FC of T 91 ATC 4663 and SP Investments Pty Ltd v FC of T 93 ATC 4170? If the first strand did not apply in some of these cases but amounts were nevertheless assessable, on what basis was this so?
Answer:
Introduction to the Myer Case and its “STRANDS”:
In the case, “FC of T v The Myer Emporium Ltd 87 ATC 4363”, the taxpayer “The Myer Emporium”, worked out a financial arrangement during 6-9 March 1981. Under the arrangement, it lent $80 million to its subsidiary, Myer Finance Ltd, at an interest rate of 12.5% pa. It also assigned its right to the interest (not to the principal) to Citicorp Canberra Pty Ltd for a lump sum in the order of $45 million. The commissioner treated the lump sum of $45 million received as an income receipt, assessable under s 25(1) of ITAA 1936 (Cth). The commissioner also contended that the amount received constituted a profit assessable under the second limb of s 26(a) as a profit arising from a profit-making scheme.1 Both the Victorian Supreme Court and the Full Federal Court decided in favor to Myer despite the fact the taxpayer had argued contrary to the Tax Office!s argument that the lump sum was merely realizing a capital asset because it was a gain from an isolated transaction outside the ordinary course of its retail and property development business. However, the High Court conferred its decision that the $45 million received by the Myer was assessable under s 25(1) as an income receipt and also under the second limb of s 26(a) as a profit from a profit-making under-taking or scheme2. On the facts in Myer, the High Court held that: “It is the fact that Myer!s business at all times was that of retailing and property developer. The income made by
Bibliography: Australian Tax Casebook, Stephen Barkoczy, CCH 2008. Australian Taxation Law, Woellener, Barkoczy, Murphy, Evans and Pinto, CCH 2010. www.ato.gov.au