Cliffs International Inc. v. Federal Commissioner of Taxation.

Members: Barwick CJ
Gibbs J
Stephen J
Jacobs J

Murphy J

Tribunal:
High Court of Australia

Decision date: Judgment handed down 13 March 1979.

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Murphy J.: The question is whether outgoings (described as ``deferred payments'' made by the taxpayer pursuant to an agreement for acquisition of a capital asset) are outgoings incurred in gaining or producing assessable income or are necessarily incurred in carrying on a business for the purpose of gaining or producing such income and therefore allowable deductions, or instead whether they are outgoings of capital or of a capital nature and therefore non-allowable (see sec. 51(1) of the Income Tax Assessment Act 1936, as amended).

The question is to be decided from a practical and business point of view (see Mr. Justice Dixon in
Hallstroms Pty. Ltd. v. F.C. of T. (1946) 72 C.L.R. 634 at p. 648 ).

I am satisfied from a consideration of all the circumstances that the payments are not of capital or of a capital nature and that they are allowable deductions within sec. 51(1). The description given to the payments by the parties in their agreement is not decisive. The fact that payment of the outgoings was agreed as part of the consideration for the acquisition of a capital asset is not decisive. There is a strong analogy with an agreement to pay rent as part of the consideration for acquisition of a lease.

The acquisition of the asset did not depend upon the payment of any ``deferred payment''.

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ATC 4079

The ``deferred payments'' if any were made, would be for currently exercising the right to mine the ore in pursuance of the agreement. The amount of deferred payments was indeterminate; the rate of 15c per ton was certain but the amount to be paid in any year or during the life of the agreement was uncertain and depended on the exercise of the rights to mine.

The appeal should be allowed and the order of the Supreme Court of Western Australia restored.

ORDER:

Appeal allowed with costs.

Order of the Full Court of the Federal Court of Australia set aside and in lieu thereof order that the appeal to that Court be dismissed with costs.