Federal Commissioner of Taxation v Myer Emporium Ltd

Case Summary

FCT v Myer Emporium Ltd is a landmark High Court decision that established the principle that a profit made from an isolated transaction can be ordinary income if the transaction was entered into with the intention or purpose of making a profit. The case is foundational to the income/capital distinction in Australian tax law.

Facts

Myer lent $80 million to a subsidiary. Three days later it assigned the right to future interest to a finance company for $45.37 million. The Commissioner assessed that lump sum; the High Court upheld the assessment. ATO TR 92/3, paragraphs 22–25, summarises the arrangement and decision.

Legal Issue

The central legal issue was whether the profit from the assignment of the right to receive interest was ordinary income under section 25(1) of the ITAA 1936 (the predecessor to section 6-5 of the ITAA 1997), or whether it was a capital receipt.

Decision

The High Court's joint judgment treated the lump sum as assessable income. The decision is relevant to commercial profit-making transactions and the conversion of a right to future income into a lump sum; its reasoning must be applied to the particular facts.

Court Reasoning

Mason ACJ, Wilson, Brennan, Deane and Dawson JJ delivered a joint judgment. An isolated transaction is not automatically capital: the transaction's commercial character and profit-making purpose matter. The assignment of future interest also required considering the character of the income right converted into the lump sum.

Tax Implications

The Myer Emporium decision has profound implications for Australian tax law:

1. It established that isolated transactions can produce ordinary income if entered into with a profit-making purpose; 2. It clarified that the income/capital distinction depends on the character of the transaction, not merely its frequency; 3. It reinforced that 'income according to ordinary concepts' is a broad and flexible concept informed by commercial reality;