Myer Emporium case PDF

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Ravin Rama

33373415

Federal Commissioner of Taxation v Myer Emporium Ltd (No 1) [1986] HCA 13; 160 CLR 220; 64 ALR 325 1) Synopsis This case raise issues as to the boundaries of the ordinary usage meaning of income.' The ordinary usage meaning of income is the meaning of income as developed by the Courts but which may be excluded, limited or modified by the specific provisions defining income under the Income Tax Assessment Act, 1936 ("I.T.A.A."). The Courts in developing the ordinary usage meaning of income as the basis for an income tax have borrowed the trust law meaning of income receipts which distinguishes capital receipts from income receipts. As a result of this distinction the Courts have allowed capital receipts to escape income taxation.

1.1 Facts    

Myer Emporium lent $ to Myer Finance. Finance paid interest (of $72m) at a commercial interest rate. Instead of paying $72m to Emporium, Finance paid initial interest of $82,000 and Emporium assigned the right to the remaining interest to Citicorp. In return, Citicorp paid a one-off upfront fee of $45.37m.

1.2 Issue • •

Was the $45.37m paid to Myer by Citicorp income? Taxpayer argued the ordinary course of business was retail trading and therefore this payment fell outside the scope.

2) Judgement The $45.37m was income under s25(1) ITAA36 / 6-5 ITAA97:  

Although not in the ordinary course of Myer’s business it was a commercial transaction entered into with a profit making intention. And therefore in the course of Myer’s business (even if not in the ordinary course).

3) Why he made that decision- 2 strengths. 3.1 Even extraordinary transactions can generate assessable income: If the taxpayer’s intention or purpose in entering into the transaction was to make a profit or gain, the profit or gain will be income, notwithstanding that the transaction was extraordinary LAWS5144 | Combined notes 65 FCT v Myer Emporium (relevant principle from Myer). 1

Ravin Rama

33373415

Taxation Ruling TR 92/3: not the view of the Commissioner that all receipts of a business are income. FCT v Cainero: Myer was not reversing the established principle that the mere realisation of a capital asset does not produce assessable income, nor was it introducing some new concept of income. Traknew Holdings v FCT: once it is established that the assets not derived in the ordinary course of business were not acquired for the purpose of resale at a profit, amounts will not be ordinary income unless the taxpayer does “something more than merely realising the profit inherent in the capital asset” (illustrated in Westfield). 3.2 The conversion of a lump sum takes on the character of the income stream it replaces 

Exceptions:

• The principle does not apply to annuities because an annuity is “the produce of the very agreement which produces it... It will normally be capital in the hands of the vendor as the price received for the sale of a capital asset” (Harry Jones (IXL) v FCT). • Where an income stream (not being an annuity) is sourced solely in contact and there is no underlying property. • Taxation Ruling TR 92/3: does not apply where the right to income transferred is unrelated to any other property or where the taxpayer transferring the right to income has never owned the underlying property.

Note that now: TR 92/03 – provides guidance as to whether profits from isolated transactions are assessable (transactions with a profit-making purpose). Lease incentives – application of the Myer principle Extras This Ruling, to the extent that it is capable of being a 'public ruling' in terms of Part IVAAA of the Taxation Administration Act 1953, is a public ruling for the purposes of that Part. Taxation Ruling TR 92/1 explains when a Ruling is a public ruling and how it is binding on the Commissioner.

What this Ruling is about 2

Ravin Rama

33373415

1. This Ruling provides guidance in determining whether profits from isolated transactions are income and therefore assessable under subsection 25(1) of the Income Tax Assessment Act 1936. In this Ruling, the term 'isolated transactions' refers to: (a) Those transactions outside the ordinary course of business of a taxpayer carrying on a business; and (b) Those transactions entered into by non-business taxpayers.

First, the High Court held that a gain made otherwise than in the ordinary course of business which nevertheless arises from a transaction entered into by the taxpayer with the purpose of making a profit will generally speaking be income. This may be interpreted as a radical extension to the ordinary usage meaning of income from business in the sense that the ordinary usage meaning of income from business now occupies much of the territory once believed to be occupied by the concept of a capital receipt.

Second, the High Court held that consideration received on the assignment of the right to interest is income. This may be interpreted as extending the ordinary usage meaning of income arising as a compensation receipt by adopting a substance approach to the characterisation of a compensation receipt. As a result any receipt received in respect of an assignment of what would have been income to the assignor, but for the assignment, may be income in the hands of the assignor.

http://www.austlii.edu.au/au/journals/SydLawRw/1988/9.pdf https://law.unimelb.edu.au/__data/assets/pdf_file/0007/1585987/2006-Young1.pdf https://www.ato.gov.au/law/view/document?DocID=TXR/TR923/NAT/ATO/00001 https://jade.io/article/67259

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