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?
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 the transaction, particularly from the assignment, were novel in the sense that it was the first time that Myer had entered into such an arrangement. But this fact does not take them out of the course of the carrying on of Myer!s profit-making business.”3 The High Court decision in Myer is, however, made up of two further strands: 1. The first strand of the Myer reasoning is that even “extraordinary transactions” can generate assessable income. Even, it is not of a type that taxpayer engaged in regularly in the course of its business operations. 2. The second strand of the Myer reasoning concerns the conversion of an income stream into a lump sum. (“Income conversions”).4
The “First Strand” of the Myer decision and its application to other cases: Myer had argued that the proceeds of the loan assignment were not part of its business within the Californian Cooper principle. But the High Court rejected this argument and held that the amount of proceeds were assessable under both
P. 716, Australian Tax Casebook, Stephen Barkoczy, CCH 2008. FC of T v The Myer Emporium Ltd 87 ATC 4363. 3 FC of T v The Myer Emporium Ltd 87 ATC 4363 4 P. 289, Australian Taxation Law, Woellener, Barkoczy, Murphy, Evans and Pinto, CCH 2010.
s 25(1) as an income receipt and also under second limb of s 26(a) as a profit from a profit-making scheme. From the first strand of the Myer doctrine, it is established that income from “extraordinary” transactions could be assessable in the way that the taxpayer made the income with the intention to make a profit and it was carried out even though it was out of ordinary course of their business. Regarding the first strand in the Myer case, to conclude the decision, the High Court had said that: “…. if the circumstances are such as to give to the inference that 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...