Douglass v Federal Commissioner of Taxation
45 CLR 95(Judgment by: Starke J)
Between: Douglass
And: Federal Commissioner of Taxation
Judges:
Rich J
Starke JDixon J
Evatt J
McTiernan J
Subject References:
TAXATION AND REVENUE
INCOME TAX
DEDUCTIONS
Tax paid on profits
Shareholder entitled to rebate
Legislative References:
Income Tax Assessment Act 1922 (Cth) - s 16(b)(i); s 16(b)(iii); s 23
Judgment date: 11 May 1931
Melbourne (heard in Sydney)
Judgment by:
Starke J
The facts are fully set out in the special case stated pursuant to the powers contained in the Income Tax Assessment Act 1922-1927, and it is unnecessary to recapitulate them.
The question of law turns upon the proper construction of a proviso to s. 16 (b), which is in these words:
"Provided further that if the rate of tax is not less than the rate of tax paid or payable by the company, the taxpayer shall be entitled to a rebate in his assessment of the amount of tax paid by the company on that part of the said dividends, bonuses and profits . . . which is included in his taxable income."
Taxable income is the amount of income remaining after all deductions allowed by the Act have been made (s. 4). In the present case the whole amount of the dividends has been included in account in ascertaining the taxable income. They are "included in his taxable income," or else the amount of that income would be less. The Commissioner contends that the rebate under the proviso must be calculated upon the balance of dividends remaining after allowing a proportionate part of various deductions from income, which are permitted by the Income Tax Acts, but which have no relation whatever to the earning or receipt of the dividends in question.
The reason assigned is that if deductions be allowed from assessable income, then part only of the dividends can be included in the taxable income. A more sensible reason, however, for the use of the words "that part" may be found in the proviso to s. 16 (b) dealing with dividends arising from sources within and without Australia, and possibly also in that dealing with dividends arising from the sale of assets. (See s. 16 (b), first and third provisoes.) But it is in truth unnecessary to suggest a reason for the use of those words, because they cover all dividends on which tax has been paid by a company, and the only real question is: have such dividends been included in the taxable income of the taxpayer? In the present case they have been so included in account, and if that satisfies the proviso to s. 16 (b), as I think it does, then the question is solved and the taxpayer is entitled to the deduction he claims. This result has the merit of simplicity, and avoids the fractional calculations set up by the Commissioner.
The question stated should be answered as follows: The appellant is entitled to a rebate of 1s. in the PD1 on the sum of PD11,830.