D Muller DP

Administrative Appeals Tribunal


Decision date: 6 December 2004

D Muller (Deputy President)

During the tax year ending 30 June 2002, Katherine Mary Plant, the Applicant taxpayer, was a partner with her husband, Lennard Allan Plant, in a

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firm trading as Goomeri Service Centre (GSC). In that tax year, GSC received a payment in the sum of $181,500 gross ($165,000 plus GST of $16,500) from the Commonwealth Government, pursuant to the Dairy Regional Assistance Program (DRAP).

2. The apparent aim of the DRAP was to provide funds to businesses in Australian country towns to facilitate the employment of former dairy workers who had lost their jobs, and to lessen the negative impact on the economy of country towns, due to the de- regulation of the dairy industry.

3. The Commissioner contends that the grant is assessable as a bounty or subsidy pursuant to section 15-10 of the Income Tax Assessment Act 1997 (ITAA97), which provides:


15-10 Your assessable income includes a bounty or subsidy that:

  • (a) you receive in relation to carrying on a business; and
  • (b) is not assessable as ordinary income under section 6-5.''

4. Mrs. Plant contends that the grant to GSC under the DRAP was not in relation to carrying on the business of GSC, but it was to create the infrastructure, the building and fitting out of a new workshop for the purpose of providing work for unemployed former dairy workers.

5. Mrs. Plant seeks a review of the Commissioner's decision that the grant is assessable as a bounty or subsidy.

6. Mrs. Plant was represented by her accountant, Ross Goodhew. The Commissioner was represented by Ms. Hopton.

7. The following material was placed before the Tribunal:

8. The material placed before the Tribunal by Katherine and Lennard Plant, relating to the factual background, was not contradicted by any other evidence, nor was it challenged, nor was it inherently improbable. The Tribunal accepts that material and finds as follows:

9. It is common ground between the parties that the grant was a capital receipt and was not ordinary income assessable under section 6-5 of the ITAA 97.

10. The Plants applied to the Commissioner for a Private Ruling on 4 August 2003.

11. A ``Notice of Private Ruling'' dated 24 September 2003, was sent to the Plants on that date. The ruling was that the grant received under the DRAP was assessable income under section 15-10 of the ITAA 1997.

12. On 30 September 2003, the Plants filed a notice of objection to the above Private Ruling.

13. On 19 November 2003, a decision was made to disallow the Plant's objection.

14. The question for determination is whether notwithstanding the DRAP grant to the Plants was not ordinary income assessable under section 6-5 of the ITAA 97, it was assessable income as a ``bounty or subsidy'' in relation to carrying on their business. This raises two questions:

15. The Tribunal was referred to a number of cases in which the terms ``bounty or subsidy'' and ``in relation to carrying on a business'' were analysed. An extensive distillation of the cases is contained in the judgment of Hill J in
First Provinicial Building Society Limited v FC of T 95 ATC 4145. The Full Federal Court was concerned with the interpretation of s. 26(g) of the ITAA 1936, which included in assessable income:

``any bounty or subsidy received in or in relation to the carrying on of a business (other than subsidy received under an agreement entered into under an Act relating to the search for petroleum), and such bounty or subsidy shall be deemed to be part of the proceeds of that business''

16. The judgment of Hill J contains the following passages (among others) [ATC at 4150-4155]:

``The word `subsidy' appears originally to have applied to taxes or tributes granted by Parliament to the King for the urgent need of the kingdom. The Oxford English Dictionary notes that in Tudor times the word was applied to a tax of 4 shillings in the pound on lands and 2 shillings 8 pence in the pound on movables.

However in modern usage, as Jowitt's Dictionary of English Law (Street & Maxwell 1977 2nd ed) observes the word `generally means financial assistance granted by the Crown'. This is the meaning which the word truly has in the present context.

The word, in the context of an agreement which provided that the Commonwealth would pay a `subsidy' to a company was said, by Windeyer J in
Placer Development Limited v Commonwealth of Australia (1969) 121 CLR 353, to derive from the Latin subsidium meaning `an aid or help'. His Honour said (at 373):

`The word is no longer used in its early legal sense of a grant to the Crown. It ordinarily means today not aid given to the Crown but aid provided by the

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Crown to foster or further some undertaking or industry. A subsidy was defined in America fifty years ago as ``a legislative grant of money in aid of a private enterprise deemed to promote the public welfare''. Shumaker and Longsdorf, Cyclopedic Law Dictionary. This I take to be, broadly speaking, the sense in which the word is currently used in Australia, as for example in the Nitrogenous Fertilizers Subsidy Act 1966 (Cth).'

See too Rocklea Spinning Mills Pty Limited v Anti-Dumping Authority (Moore J, 12 October 1994, unreported) at 21-22.

Ordinarily, a subsidy or bounty received by a taxpayer in relation to its business activities would constitute income in ordinary concepts....


Not all subsidies need have the character of income. A subsidy to assist a taxpayer to start up a business may well have the character of capital. In
Seaham Harbour Dock Co v Crook (HM Inspector of Taxes) (1931) 16 TC 333, the House of Lords held that a grant made to a dock company by way of financial assistance in the extension of its dock did not constitute the 'annual profits or gains' of the taxpayer liable to tax under Case 1 of Schedule D of the Income Tax Act 1918 (UK). The payment to the taxpayer there considered was made under legislation permitting assistance to be given in carrying out approved schemes of useful work to relieve unemployment. Their Lordships were unanimous that no tax was exigible for the payment in question had nothing to do with the trade of the taxpayer. The case is cited by the High Court in its judgment in G.P. International Pipecoaters (supra), among other cases, as authority for the proposition that a gift or subsidy to `replenish or augment the payee's capital' was not income in ordinary concepts because it could not fairly be said to be `a product or incident of the payee's income- producing activity'.

Two questions arise for consideration in the present case. The first is whether s. 26(g) is limited to receipts of an income nature so that it adds nothing to s. 25(1). The second is whether the language of the paragraph is applicable on the facts of the present case.

The relationship between s.25(1) of the Act and each of the paragraphs of s. 26 has never been the subject of direct decision. Specifically it has never been decided whether the amounts referred to in each of the specific paragraphs of that section need be income in ordinary concepts or whether the various paragraphs or some of them extend the concepts of income in ordinary concepts referred to in s. 25.


In my view, the true position is that the Court must consider, when an issue is raised under para. (g), not whether the bounty or subsidy received is income in ordinary concepts, but whether the words of the paragraph are satisfied so that the receipt is made assessable income by virtue of the paragraph. It matters not that the bounty or subsidy in question may not be income in ordinary concepts.


There are two limbs to the first part of para. (g). The first includes in assessable income a bounty or subsidy received by the taxpayer in the carrying on of a business. In that context the word `in' means `in the course of' and requires a direct relationship to exist between the bounty, on the one hand, and the carrying on of the taxpayer's business, on the other. The second limb comprehends a bounty or subsidy received `in relation to' the carrying on of the taxpayer's business. These words no doubt are sufficiently wide to cover the first limb, but were obviously intended to extend it. Thus the relationship between the receipt of the bounty, on the one hand, and the carrying on of the business, on the other, may be less direct where the second limb is sought to be applied than where the first limb is applied.

Under either limb, the relationship must be to the `carrying on' of the business. These words may perhaps be understood in opposition to a relationship with the actual business itself. They would make it clear, for example, that a bounty received, merely in relation to the commencement of a business or the cessation of the business, would not be caught. The expression

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`carrying on of the business' looks, in my opinion, to the activities of that business which are directed towards the gaining or producing of assessable income, rather than merely to the business itself.


The words `in relation to' are words of wide import. They are capable of referring to any relationship between two subject matters, in the present case the receipt of the bounty or subsidy, on the one hand, and the carrying on of the business, on the other of
O'Grady v The Northern Queensland Company Limited (1989-1990) 169 CLR 356 at 364-365 per Brennan J and at 376 per McHugh J. As McHugh J (at 376) points out, the degree of connection will be `a matter of judgment on the facts of each case'. If the relationship were a merely remote one, para. (g) would have no operation. What is necessary, at the least, in the present context is that there be a real connection. But the existence of the alternative first limb of the paragraph makes it clear that the relationship need not be direct, it may also be indirect.''

17. The DRAP grant to the Plants clearly constituted financial assistance which was an aid or a help to them in the construction of their new workshop. It was a subsidy.

18. The new workshop formed part of the ongoing business of GSC. The Plants did not start up a new business entity when they built the new workshop. They continued their original business in the new premises.

19. The Plants did not create a separate business entity with the DRAP grant. They did not specifically apply the DRAP grant to a business entity devoted solely to employing redundant dairy farmers.

20. The DRAP grant was included in the total expenditure by GSC in the creation of the new workshop. The grant assisted in the creation of a bigger and more efficient workshop which it was hoped would improve the profitability of GSC and consequently improve the capacity of GSC to employ more workers, which in turn would boost the local economy.

21. The aims of the DRAP, the subsidy to GSC and the promotion of an expanded business and hopefully expanded profitability of the business of GSC were all inextricably linked.

22. In my view the subsidy provided by the DRAP to GSC was directly related to the carrying on of the Plant's business.

23. Alternatively, the grant was directly related to improving the local economy and indirectly related to the carrying on of the Plant's business.

24. In either case the provisions of section 15-10 have been satisfied because the grant was received by the Plants in relation to their carrying on the business of GSC.

25. Consequently, I find that the DRAP grant was correctly included in the assessable income of Katherine Mary Plant.

26. The objection decision is affirmed.


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