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The Legacy of Justice Graham Hill


TAXATION INSTITUTE OF AUSTRALIA
SOUTH AUSTRALIAN DIVISION

2006 ANNUAL CONVENTION


THE LEGACY OF JUSTICE GRAHAM HILL

Ian V Gzell


In his too short career as a judge, the late Justice Graham Hill wrote well over 1,000 reported judgments. My former tipstaff, Darren Jenkins, has collated each of them. They cover the range of matters in which the Federal Court has jurisdiction: from immigration - that is a Federal Court judge’s lot - to trade practices, intellectual property, bankruptcy, customs and excise, corporations, administrative law, broadcasting, social security and industrial law. And that is not a complete list.

Justice Hill brought the scholarship that characterises all of his works to his judgment writing. His first case involved the question whether things taken from an oil platform after an accident under search warrants should be returned when it was established that the company could not have committed the alleged offences. In the course of his judgment his Honour commented: [1]
      “Ever since the great decisions of the eighteenth century Entick v Carrington (1765) 2 Wils KB 275; 95 ER 807; Wilkes (1763) 2 Wils KB 151; 95 ER 737; and Huckle v Money (1763) 2 Wils KB 205; 95 ER 768; and see too Home v Bentinck (1820) 2 Brod & B 130; 129 ER 907 the courts have stated in unequivocal terms the sanctity and inviolability of the home and person of a subject from executive interference without proper authority conferred by law. See as to United Kingdom position, Lord Denning in Ghani v Jones [1970] 1 QB 693 at 706-709 and also Crowley v Murphy (1981) 52 FLR 123 at 140 141, per Lockhart J. The only exception to this principle irrelevant to the present case was, as pointed out by Lockhart J in Crowley v Murphy, the issue of a warrant to search a person’s home for stolen goods.”

You will be pleased to hear that I do not intend to cover all of Hill J’s judgments. Nor do I intend to cover all his tax decisions. They are in excess of 200. I will take you to some of his judgments in my attempt to identify features of his contribution to the development of our tax laws. It was in this field that his Honour’s work led to his well-deserved recognition as Australia’s foremost tax judge. He was a tax titan as Professor Richard Vann has said. [2]

As you know, the last tax decision his Honour gave was HP Mercantile Pty Ltd v Commissioner of Taxation.[3] It involved the question whether input tax credits were available for advice with respect to the acquisition of a financial supply constituted by the acquisition of debts and on debt collecting services. The Court held that none of the charges gave rise to an input tax credit because the acquisition of the services related to making supplies that would be input taxed. [4] But the debt collection services were subject to a reduced input tax credit being a specified acquisition under the regulations. [5]

In ACP Publishing Pty Ltd v Commissioner of Taxation, [6] at [2]-[3] Hill J briefly described the characteristics of the Australian GST system. He went much further in HP Mercantile. An application for special leave to appeal to the High Court in HP Mercantile was filed on 5 August 2005. It has not yet been included in a business list. Whatever the outcome of that application, I venture to suggest that Hill J’s analysis will be regarded as the seminal analysis of our GST system. In the course of that analysis, [7] his Honour said:
      “The genus of a system of value added taxation, of which the GST is an example, is that while tax is generally payable at each stage of commercial dealings (supplies) with goods, services or other “things”, there is allowed to an entity which acquires those goods, services or other things as a result of a taxable supply made to it, a credit for the tax borne by that entity by reference to the output tax payable as a result of the taxable supply. That credit, known as an input tax credit, will be available, generally speaking, so long as the acquirer and the supply to it (assuming it was a “taxable supply”) satisfied certain conditions, the most important of which, for present purposes, is that the acquirer make the acquisition in the course of carrying on an enterprise and thus, not as a consumer. The system of input tax credits thus ensures that while GST is a multi-stage tax, there will ordinarily be no cascading of tax. It ensures also that the tax will be payable, by each supplier in a chain, only upon the value added by that supplier.”

Having referred to what he said in ACP Publishing, his Honour continued: [8]
      “In terms of GST theory, it is generally accepted that there are certain kinds of activities where the basic system of output tax on supplies and input tax credits on acquisitions will not lead to taxation on the value added by each supplier in the chain. The most important example is said to be financial transactions of financial institutions such as, but not confined to, banks, because they constantly borrow and lend and turn over money in a way that amounts, such as interest charged, will not represent the real value added by the financial institutions. Indeed, as the Explanatory Memorandum distributed with the Bill which, as amended, later became the GST Act (the EM) says in Ch 1 at [5.140]: “there is no readily agreed identifiable value for supplies consumed by customers of financial services”. In such a case, it is the margin or imputed margin that is the real economic subject of the supply. There are other examples where this may be the case, one of which is the leasing of, or other dealings with, residential property (not being new residential property).

      By way of what may be seen as a compromise for the difficulties of applying the normal system of value added taxation to financial supplies and other difficult cases, value added taxation design has created a form of supply which is referred to in Australia as an input taxed supply but which, in international value added tax parlance, is referred to as an “exempt supply”. An input taxed or exempt supply (and financial supplies made by financial institutions will be the main example) will not, generally speaking, attract output tax, but the entity which makes financial supplies will, likewise, not obtain an input tax credit for the tax payable on acquisitions it makes in the course of its enterprise of making input taxed supplies. This is subject to a unique Australian invention that certain kinds of activities, being, generally speaking, those which might be outsourced by entities making financial supplies and are in aid of making such supplies will, albeit that those activities might be defined as financial supplies, attract a reduced input tax credit of 75% of the credit otherwise available. An example relevant to the present facts is debt collection activities – see reg 70-5.02 (Item 17) of the A New Tax System (Goods and Services Tax) Regulations 1999 (Cth) (the Regulations).”

That analysis compares favourably with that of Sir Owen Dixon in Deputy Federal Commissioner of Taxation (SA) v Ellis & Clark Ltd [9] in explaining that sales tax was a tax levied upon one only of the transactions that commonly take place in respect of goods before they reach the consumer after they are imported into or produced in Australia, thereby having no application, in that case, to resales of second hand goods.

Hill J’s explanation of the structure of our GST system in HP Mercantile is a powerful piece of jurisprudence, not only for its erudition, but also for its insightfulness and simplicity of expression. It was powerful enough to convince Allsop J (who with Stone J constituted the other members of the Full Court) to change his mind. His Honour said: [10]
      “Were it not for the matters with which his Honour deals concerning the statutory scheme and the purpose and context of the legislation, I would be inclined to the view that the acquisition of legal and management services in collecting the debts did not relate to making the relevant supply, being the acquisition of the book of debts. As a matter of textual meaning, it can be said that the acquisitions relate to the debts but not to the acquiring of the debts.”

The decision in HP Mercantile demonstrates the significance of context and purpose in the statutory construction process. It used to be thought that such matters were only called in aid when a literal reading of a text gave rise to an ambiguity. But that concept was rejected by the High Court in CIC Insurance Ltd v Bankstown Football Club Ltd. [11] The majority of the High Court said:
      “It is well settled that at common law, apart from any reliance upon s 15AB of the Acts Interpretation Act 1901(Cth), the court may have regard to reports of law reform bodies to ascertain the mischief which a statute is intended to cure…. Moreover, the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses “context” in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy…if the apparently plain words of a provision are read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation, they may wear a very different appearance. Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonably open and more closely conforms to the legislative intent.”

Hill J’s decision in HP Mercantile is, clearly, a fine example of the purposive approach to statutory interpretation. It examines context in the sense described by the High Court and looks to the object of the legislation. That approach pervades all his Honour’s judgments.

Davis v Federal Commissioner of Taxation [12] was his Honour’s first tax case. He decided that an assignment of a revenue stream under a sublease was ineffective because it could be brought to an end within seven years and the Income Tax Assessment Act 1936 (Cth), s 102B thus applied to treat the income as that of the assignor. His Honour went on to conclude, as well, that the then general anti-avoidance provision of s 260 applied.

The effect under either approach was that the ineffectively assigned income was to be included in the assessable income of Mrs Davis as a presently entitled beneficiary under the Income Tax Assessment Act 1936 (Cth), s 97. This brought his Honour to address the problem of a disparity between net income calculated under s 95, and income for trust law purposes. His Honour explained the proportionate approach: a calculation is made as to the share or proportion of the trust law income to which each beneficiary is presently entitled and that share or proportion of the net income calculated under the statute is included in assessable income. The alternative approach includes in assessable income only that part of net income represented by the proportionate part of trust law income, any excess of net income over trust law income being assessed to the trustee as accumulations under s 99 or s 99A. His Honour sought to adopt a purposive construction of the legislation but was defeated by lack of context. He said: [13]
      “It is quite clear that neither interpretation of s 97 produces a desirable result as a matter of tax policy and the scheme of Div 6 calls out for legislative clarification, especially since the insertion into the Act of provisions taxing capital gains as assessable income. On the proportionate view, a taxpayer may be assessed on amounts he neither did nor could receive; on the alternative view a taxpayer could be taxed on less than he received if the share of trust law income exceeded that part of the net income as is represented by trust law income, and the maximum rate of the tax under s 99A would be applicable to the balance. However, the proportionate view does seem to me, as a matter of language, to be the better construction of the section and, in the absence of any authority compelling me to adopt the alternative method, I propose to accept it.”

That view is not accepted by all judges. In Richardson v Commissioner of Taxation, [14] Merkel J took the view that while the proportionate approach applies when trust income exceeds net income, in the reverse situation a quantum approach is to be adopted and the deficiency is income to which no beneficiary is presently entitled. Michael Blissenden has written an interesting paper, A Reflection on the contribution made by the late Justice Graham Hill in relation to the taxation of trust income under Division 6 of ITAA 1936 in which he discusses this issue and the reference to it in Richard Walter Pty Ltd v Federal Commissioner of Taxation, [15] Federal Commissioner of Taxation v Prestige Motors Pty Ltd, [16] Force Pty Ltd v Commissioner of Taxation [17] and Federal Commissioner of Taxation v Pilnara Pty Ltd. [18]

The issue has not been finally settled, although there is passing reference to the proportionate approach by the High Court in Commissioner of Taxation v Prestige Motors Pty Ltd: [19]
      “Where no beneficiary is presently entitled to part of the trust income, the trustee is to be assessed and is liable to pay tax in respect of a proportionate share of the net income corresponding to the share of the trust income to which no beneficiary is presently entitled.”

Hill J delivered 30 judgments under the sales tax legislation. His contribution to that jurisprudence, in itself, deserves accolade.

In Genex Corporation Pty Ltd v Commonwealth of Australia [20] his Honour discussed the manufacture of negatives developed from exposed photographic film as being an intermediate stage in the process of manufacturing prints. His Honour’s judgment was upheld by the High Court in The Commonwealth v Genex Corporation Pty Ltd.[21] In Tanu Pty Ltd v Federal Commissioner of Taxation [22] his Honour dealt with an allocation of a notional wholesale selling price to the negatives from which prints were developed. His Honour’s judgment was again upheld on appeal by a Full Court of the Federal Court, Tanu Pty Ltd v Federal Commissioner of Taxation. [23]

Then there was his Honour’s contribution to the meaning of the exemption for goods of a kind ordinarily used for household purposes in Diethelm Manufacturing Pty Ltd v Commissioner of Taxation. [24] The phrase “essential character” had been used in the past to categorise such goods. His Honour took the view [25] that the phrase “goods of a kind” entailed the determination of a relevant genus. His Honour returned to confirm this view in Commissioner of Taxation v Chubb Australia Ltd. [26]

His Honour also contributed to the development of the law on the reduced sales tax liability on containers for use in marketing take-away beverages or foodstuffs. In Pepsi Seven-Up Bottlers Perth Pty Ltd v Commissioner of Taxation [27] his Honour characterised a take-away beverage as one freshly prepared for immediate consumption.

The late Neil Forsyth QC appeared for the taxpayer. He called evidence of the need for soft drink dispensing in take-away establishments. I cross examined all his witnesses, but asked only one question: “Have you ever heard a customer ask for a take-away Pepsi?”

His Honour further contributed to the law on this topic in Federal Commissioner of Taxation v McDonald’s Australia Ltd.[28] In a joint judgment with the late Healy J, his Honour concluded that a “Big Mac” was properly described as a take-away foodstuff in ordinary language.

And so the list goes on. In Pepsico Australia Ltd v Federal Commissioner of Taxation [29] his Honour grappled with the difficult question of a credit for tax borne on input goods that had a sufficient link with output goods that were not taxable. The taxpayer was registered for sales tax purposes. It manufactured and sold pizzas by retail. Food for human consumption was exempt from tax. [30] It claimed the credit on a dough-mixer. The legislation provided that the input goods had a sufficient link if they had been used in connection with the output goods in carrying out an activity that would have been covered by an exemption [R] Item if the person carrying out the activity had been registered at all relevant times. [31] An exemption [R] Item was one marked [R] in the list of exemption Items. [32] The taxpayer argued that the relevant exemption Item was of goods for use mainly in carrying out a manufacture-related activity carried out by the exemption user in the course of a business. [33] There was an exclusion from this Item of generally-excluded property. [34] Generally-excluded property included property for use mainly for or in connection with the preparation or preservation of food and drink for human consumption, if the preparation or preservation took place in a retail or catering establishment. [35] His Honour analysed the purpose and structure of the legislation and concluded that it was the activity and not the goods that had to fall within the exemption [R] Item. He concluded that the sufficient link requirement should be construed as referring to activities of the kind covered by the exemption [R] Item but not to those activities excluded from it. His Honour was also of the view that there was much to be said for the proposition that the sufficient link provision was limited in its application to persons who were unregistered, as the section proceeded on the basis that the person seeking the credit was not registered but hypothesised, for the purpose of the credit ground, that the person was registered. On that basis the exemption Items and the sufficient link provision produced a coherent result.

The judgment is another fine example of his Honour’s adoption of the purposive approach to statutory construction. And there are many more examples in the other judgments of his Honour on sales tax issues.

We all know that his Honour was the author of the seminal text, Stamp Duties New South Wales and Australian Capital Territory. [36] It became Hill, Duties Legislation. [37] What may not be so well known, is that his Honour’s keen interest in sales tax produced Hill and Economides, eds, Australian Sales Tax Law & Practice. [38] Chapters in the book were written by his Honour and members of the profession who practised in that area.

Hill J’s contribution to the interpretation of the capital gains tax provisions is well known. His Honour sat in the first cases to consider the deemed disposal provisions relating to a disposal of an asset that did not previously exist, in the Income Tax Assessment Act 1936 (Cth), s 160M(6) and the receipt of consideration for some affectation of an asset, in s 160M(7). The cases were, as we know, Commissioner of Taxation v Cooling [39] and Hepples v Commissioner of Taxation. [40] His Honour’s dissenting judgment in Hepples was upheld by the High Court in Hepples v Federal Commissioner of Taxation. [41]

The same bench of the late Lockhart J and Gummow and Hill JJ constituted the Full Court of the Federal Court in both cases. They were heard one after the other. Cooling was heard first. The first day of argument was confined to the question whether the lease incentive payment received by Mr Cooling was income according to ordinary concepts. Towards the end of the day, we started to address the potential operation of the “terrible twins”. At the beginning of the second day, Lockhart J said: “Mr Gzell, before we continue with the capital gains tax provisions, my brother Hill has a short question he wishes to ask you”. Hill J then spoke about income according to ordinary concepts. It got longer and longer and more and more complicated. I was standing on crutches having had a knee reconstruction following a skiing accident and could not write anything down as the judge continued with the question. When he finished I said: “I agree with what your Honour has said except for points (f) and (m). Everyone laughed including Hill J who asked me if I would please remind him what points (f) and (m) were.

I do not propose to speak further about his Honour’s contribution to the jurisprudence with respect to capital gains tax. An interesting article on the subject has been written by Matthew Wallace, Geoffrey Hart and Chris Evans, Wrestling with the “terrible twins” and other heroic endeavours: the contribution of Mr Justice Hill to jurisprudence in the area of Australia’s capital gains tax provisions.

There is another area of income tax law in which Hill J’s contribution to its development is monumental. It is referred to in an excellent paper by Edmonds J, The contribution of Justice Hill to the development of tax law in Australia, and in a paper by John Tretola of Adelaide University, The interpretation of taxation legislation by the courts – a reflection on the views of Justice Hill. The area is, of course, Part IVA.

When both were at the Bar, Gleeson CJ and Hill J were retained to advise the government on a replacement for s 260 of the Income Tax Assessment Act 1936 (Cth). Part IVA was the ultimate result.

Hill J had strong views about the proper construction of Part IVA. He expressed them first in Peabody v Commissioner of Taxation [42] where he stressed its lack of operation upon commercial transactions.

You will recall that in that case a company was inserted between the trustee of a discretionary trust for Mrs Peabody and the operating company of which the trustee was the majority shareholder. A bank subscribed for redeemable preference shares in the interposed company and it bought out the minority shareholder. The operating company paid a dividend to the interposed company and it paid the preference dividend to the bank. The minority shares were reclassified with little value. The trustee then sold its shares to a float vehicle acquiring 50% of its capital. The remaining 50% was sold to the market. The trustee lent the interposed company sufficient funds to redeem the bank’s shares and that debt was ultimately forgiven.

That was in the days before the introduction of the capital gains tax provisions, but profits on sale of property acquired within 12 months of sale were taxable. [43] It was also before equity financing was outlawed. [44]

Having analysed the problem on the basis that if the scheme chosen by the Commissioner included the acquisition of the shares, financing the acquisition and the ultimate floatation of a public company, it was hard to see how an impugned dominant purpose could arise, his Honour concluded: [45]
      “Part IVA would seldom, if ever, operate to permit the Commissioner to make a determination, carrying with it as it does an automatic penalty upon a taxpayer assessed, where the overall transaction is in every way commercial, although containing some element which has been selected to reduce the tax payable. Part IVA is no more applicable to such a case than was its predecessor, s 260.”

In Hart v Commissioner of Taxation [46] Hill J, with whom Healy and Conti JJ agreed, concluded that Part IVA did not apply to a split loan scheme under which a loan was divided into two components, one to discharge a mortgage on a home to become an investment vehicle and the other to purchase a new home. Repayments were attributed to the new home purchase, allowing it to be paid off in a relatively short time, while interest on the investment house was capitalised.

Hill J concluded that the dominant purpose of the scheme that included the borrowing of the funds to finance and refinance two pieces of land was the obtaining of the funds for those purposes. His Honour was of the view that the scheme was directed to a commercial end, the borrowing of money for use in financing and refinancing two pieces of land, and fell outside the ambit of Part IVA.

We know that the decision was reversed on appeal, Federal Commissioner Taxation v Hart. [47] Whether one had regard to the narrow or wide scheme identified by the Commissioner, the High Court took the view that the dominant purpose was to obtain a tax benefit, being the allowable deduction for the capitalised interest on the investment portion of the loan.

One would not call Hill J timid in expressing his opposition to views with which he did not agree. His criticism of the decision of the High Court in Hart in Macquarie Finance Ltd v Commissioner of Taxation [48] is trenchant.

That case involved a capital raising of $400 million by stapled securities comprising notes issued by Macquarie Finance with a face value of $200 million and preference shares issued by Macquarie Bank fully paid to $200 million. The shareholders were not entitled to dividends except in specified circumstances. The notes bore interest at a margin above a base rate. The notes and shares were subscribed by Deutsche Bank and ultimately sold to the market. The initial plan was to issue unpaid shares but APRA required Macquarie Bank to maintain a specified level of Tier 1 and Tier 2 capital. As a result, Deutsche subscribed $200 million for the shares. Under a procurement agreement, Macquarie Bank was to reimburse Deutsche $200 million as consideration for Deutsche giving a notice requiring, in certain events, that the trustee for the note holders pay principal and interest under the notes to Macquarie Bank and not to the note holders. Macquarie Finance lent the proceeds of the issue to a related company, Macquarie Leasing, at interest equal to the note rate plus a margin. Macquarie Finance received interest of approximately $28 million from Macquarie Leasing and paid, and claimed a deduction for, approximately $27 million interest on the notes. The Commissioner denied the deduction.

Hill J found that the $27 million was not deductible as the payment was of a capital nature. His Honour thought it important not to ignore the composite nature of the stapled security, for to do so would give undue weight to form over substance. His Honour concluded that the payment was not, in a practical business sense, the consideration for the note holders being kept out of the funds advanced by Deutsche and used to subscribe for the notes. That was because the notes were not redeemable at the option of the note holders and they might never obtain repayment of the face value of the notes. His Honour took the view that the $27 million was not the cost of acquiring or maintaining a loan of ephemeral character but was the cost of a capital raising, being a permanent injection of capital. It was significant to his Honour that no dividend was payable on the preference shares so long as interest was being paid on the notes. The note holders were not creditors of Macquarie Finance and had no right to sue for interest or principal in arrears. And the payments on the notes were dependent upon Macquarie Bank having distributable profits.

In case he was incorrect in his view that the $27 million was not interest, Hill J went on to consider the potential operation of Part IVA, and it was there that his criticism of the High Court in Hart arose.

I call it a criticism because, while his Honour couched his language in terms of an inquiry as to the meaning of Part IVA as perceived by the High Court, his opposition to the views expressed in Hart are clearly stated.

Of the joint judgment of the Gleeson CJ and McHugh J, for example, Hill J said this: [49]
      “On one view, it may be said that their Honours in the circumstances of the case regarded the conclusion as to purpose to be a conclusion required to be drawn in regard to the form of the borrowing, tested, of course, by reference to the eight relevant matters set out in s 177D(b) one of which includes form itself. That view presents some difficulty. Alternatively, it may be said their Honours adopted a definition of the scheme as not being all the steps taken but what may be described as the wealth optimiser features of the loan package. On the other hand that is not what their Honours said they were doing. Rather, it seems to me that the proper analysis of the judgment is that while the scheme could be defined as being all the steps taken by the parties the conclusion as to purpose had to be addressed by reference to the particular scheme, that is to say all the steps which included the wealth optimiser features. In their Honour’s (sic) view the only conclusion that could be drawn as to the purpose of the Harts entering into the particular scheme having those particular features was the tax conclusion.”

Of the reasons for judgement of Gummow and Hayne JJ, for example, [50] his Honour said:
      “After discussing the definition of scheme Gummow and Hayne JJ proceeded to discuss the principle first enunciated in Spotless that there was no real dichotomy between what might be described as a “rational commercial decision” and the obtaining of a tax benefit. They noted, as was obvious, that the loan in Hart was structured so as to obtain the most desirable taxation result. Their Honours at this point in the judgment discard as irrelevant the fact that the taxpayers in Hart wished to obtain finance to purchase a new residence and to refinance the mortgage over their existing residence to enable it to be obtained for use as an investment property. Their Honours make the point, as an apparent explanation why these matters were irrelevant, that s 177D(b) did not permit or require consideration to be given to subjective motives. That is clearly correct, with respect, but leaves open the question why the objective circumstances including the manner in which the scheme was entered into would not have led to the same conclusion anyway. If the facts had been that the taxpayers first were introduced to the borrowing transaction before they had considered the acquisition of a new residence and using the existing residence for income producing purposes, the point made by their Honours would have been more easily understood. My understanding of the facts in Hart does not suggest this to be the case.”
Hill J quoted what Callinan J had said about the lack of evidence to show that the purchase of the investment property was a good investment, and his statement that while a decision to make an investment and to change residence was irreproachable, the means adopted to achieve those results should, objectively, be concluded to be a scheme for the dominant purpose of enabling the Harts to obtain a tax benefit. Hill J then commented: [51]
      “It may be accepted that in Hart there was no evidence as to the quality of the investment decision which the taxpayers took. With respect, it is difficult to see why the quality of the investment in the new residence and use of the old residence as an investment property would matter. In any event this was not a matter adverted to in other judgments of the High Court and may be here put to one side. What is, however, significant is that like Gleeson CJ and McHugh J his Honour in his consideration of purpose directed attention ultimately to the form of the scheme.”

Hill J concluded that if he was wrong with respect to the non-deductibility of the interest, Part IVA applied. But he arrived at this conclusion reluctantly. He said: [52]
      “It follows, therefore, that if, contrary to my view, the “interest” payable on the notes was an allowable deduction to MFL in the year of income, then that deduction constituted a tax benefit which MFL obtained from a scheme to which the provisions of Pt IVA applied and in respect of which the Commissioner was entitled to make a determination under s 177F disallowing to MFL the deduction. I might add that I reach this conclusion with some reluctance. I doubt if the legislature would have regarded the present “scheme” as involving the application of Pt IVA when the Part was enacted in 1981. However, it seems to me that the approach of the High Court in Hart requires me to reach the conclusion I have.”

His Honour’s decision that the $27 million was not deductible interest was upheld by a majority of a Full Court of the Federal Court in Macquarie Finance Ltd v Commissioner of Taxation [53] comprising French and Gyles JJ. With respect to the operation of Part IVA, however, Healy J with whom French J agreed took the view that Part IVA did not apply because a reasonable person would conclude, having regard to the factors in s 177D(b), that the dominant purpose of the parties engaged in the issue of the stapled securities was not to obtain a tax benefit, but rather to obtain for the Macquarie Bank group all of the commercial advantages associated with debt financing whilst at the same time qualifying as Tier 1 capital for capital adequacy purposes.

An application for special leave to appeal to the High Court was rejected by Gleeson CJ and Heydon J on 10 February 2006 [54] on the basis that the characterisation of the relevant outgoing by Hill J and by the majority of the Full Court of the Federal Court involved the application of settled principles to the complex and unusual circumstances of a particular case, such that the case did not raise an issue suitable to the grant of special leave to appeal. No mention was made of Hill J’s interpretation of the High Court judgment in Hart.

It remains to be seen, therefore, how the High Court will react to Hill J’s analysis in Macquarie Finance when special leave to appeal to it is granted in some other Part IVA case. Whether the High Court ultimately upholds his Honour’s views or not, he has exposed issues with respect to the interpretation of the legislation that call for further comment by our highest appellate court.

Hill J got it wrong slightly more often than he got it right according to the High Court. I have appended a list of his decisions that were considered by the High Court, prepared for me by my current tipstaff, Sophie Hunt.

There were 14 of his judgments considered by the High Court. The appeal from the Full Court decision in City Link Melbourne v Commissioner of Taxation [55] was reserved on 1 February 2006.

Hill J was affirmed, or a decision of his on a Full Court was affirmed, 6 times: Hepples v Federal Commissioner of Taxation, [56] Genex Corporation Pty Ltd v Commonwealth, [57] Peabody v Federal Commissioner of Taxation, [58] Federal Commissioner of Taxation v Energy Resources of Australia Ltd, [59] Commissioner of Taxation v Payne, [60] and Stone v Commissioner of Taxation.[61]

On the other hand, he was reversed, or a reversal of his decision by a Full Court was upheld, 7 times: David Securities Pty Ltd v Commonwealth Bank of Australia, [62] Australia & New Zealand Savings Bank Ltd v Federal Commissioner of Taxation, [63] Prestige Motors Pty Ltd v Federal Commissioner of Taxation, [64] CPH Property Pty Ltd v Commissioner of Taxation, [65] Kiwi Brands Pty Ltd v Commissioner of Taxation, [66] Hart v Commissioner of Taxation,[67] and Commissioner of Taxation v Linter Textiles Australia Ltd (in liq).[68]

In contrast, I think my decisions have met with the disfavour of the High Court at the rate of 100%.

Justice Graham Hill’s exceptional level of scholarship is evident throughout his judgments. They are part of his legacy to his fellow judges, to members of the profession, and to academics involved in the taxation field. They will be referred to often in the years to come for I doubt that any one else will emerge with the gifts he possessed to take his place and divert our attention away from the enormous contribution he made to taxation law jurisprudence in this country.

1 May 2006
List of Hill J’s Taxation Cases in the HCA

Chronological List

Case and DateHill J’s Result in Intermediate Court Hill J’s Result in High Court
1. David Securities Pty Ltd v Commonwealth Bank of Australia 11/05/89 FCA Unreported

First Instance 		David Securities Pty Ltd v Commonwealth Bank of Australia (1990) 23 FCR 1

Affirmed 		David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353

Reversed

(Full Court Reversed)
2. Hepples v Federal Commissioner of Taxation
(1990) 22 FCR 1 - 28/06/90

Full Court Dissent 		Hepples v Federal Commissioner of Taxation (1992) 173 CLR 492

Affirmed

(Full Court Reversed)
3. Genex Corporation Pty Ltd v Commonwealth (1991) 30 FCR 193 - 11/07/91

Full Court 		Commonwealth v Genex Corporation Pty Ltd (1992) 176 CLR 277

Affirmed
4. Peabody v Federal Commissioner of Taxation (1993) 40 FCR 531 - 08/03/93

Full Court 		Federal Commissioner of Taxation v Peabody (1994) 181 CLR 359

Affirmed
5. Australia & New Zealand Savings Bank Ltd v Federal Commissioner of Taxation (1993) 42 FCR 535 - 10/06/93

Full Court		Federal Commissioner of Taxation v Australia & New Zealand Savings Bank Ltd (1994) 181 CLR 466

Reversed
6. Prestige Motors Pty Ltd v Federal Commissioner of Taxation (1993) 47 FCR 138 - 03/12/93

Full Court 		Federal Commissioner of Taxation v Prestige Motors Pty Ltd (1994) 181 CLR 1


Reversed
7. Federal Commissioner of Taxation v Energy Resources of Australia Ltd (1994) 54 FCR 25 - 30/11/94

Full Court 		Commissioner of Taxation v Energy Resources of Australia Ltd (1996) 185 CLR 66

Affirmed
8. CPH Property Pty Ltd v Commissioner of Taxation (1998) 88 FCR 21 - 13/10/98

First Instance
Commissioner of Taxation v Consolidated Press Holdings Ltd (1999) FCR 524

Reversed 		Commissioner of Taxation v Consolidated Press Holdings Ltd (2001) 207 CLR 235

Reversed

(Full Court Affirmed)
9. Kiwi Brands Pty Ltd v Commissioner of Taxation (1998) 90 FCR 64 - 11/12/98


Full Court 		Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520

Reversed
10. Commissioner of Taxation v Payne (1999) 90 FCR 435 - 30/03/99


Full Court Dissent 		Commissioner of Taxation v Payne (2001) 202 CLR 93

Affirmed

(Full Court Reversed)
11. Hart v Commissioner of Taxation (2002) 121 FCR 206 - 26/07/02

Full Court 		Federal Commissioner of Taxation v Hart (2004) 217 CLR 216

Reversed
12. Stone v Commissioner of Taxation (2002) 196 ALR 221 - 29/11/02

First Instance		Stone v Commissioner of Taxation (2003) 130 FCR 299

Reversed in Part 		Commissioner of Taxation v Stone (2005) 79 ALJR 956

Affirmed

(Full Court Reversed)
13. Commissioner of Taxation v Linter Textiles Australia Ltd (in liq) (2003) 129 FCR 42 - 14/04/03


Full Court		Federal Commissioner of Taxation v Linter Textiles Australia Ltd (in liq) (2005) 220 CLR 592

Reversed
14. City Link Melbourne v Commissioner of Taxation (2004) 141 FCR 69 - 12/10/04

Full Court 		Commissioner of Taxation v Citylink Melbourne Ltd

Judgment Reserved 01/02/06

END NOTES
  1. Esso Australia Ltd v Curran (1989) 39 A Crim R 157 at 162
  2. The Australian Financial Review, Friday 26 August 2005
  3. (2005) 143 FCR 553
  4. A New Tax System (Goods and Services Tax) Act 1999 (Cth), s 11-15(2)(a)
  5. A New Tax System (Goods and Services Tax) Regulations 1999 (Cth), reg 70-5.02 (Item 17)
  6. (2005) 142 FCR 533 at [2]-[3]
  7. at [13]
  8. at [16]-[17]
  9. (1934) 52 CLR 85 at 89
  10. at [88]
  11. (1995-1997) 187 CLR 384 at 408
  12. (1989) 86 ALR 195
  13. at 230-231
  14. (1997) 80 FCR 58
  15. 95 ATC 4440
  16. (1998) 82 FCR 195
  17. (1998) 84 FCR 70
  18. (1999) 96 FCR 82
  19. (1994) 181 CLR 1 at 11
  20. (1991) 30 FCR 193
  21. (1992) 176 CLR 277
  22. (1998) 154 ALR 102
  23. (1999) 160 ALR 227
  24. (1993) 44 FCR 450
  25. at 471
  26. (1995) 56 FCR 557 at 568 ff
  27. (1995) 62 FCR 289
  28. 99 ATC 5293
  29. (1997) 147 ALR 497
  30. Sales Tax (Exemptions and Classifications) Act 1992 (Cth), Sch 1, Item 68(1)(a)
  31. Sales Tax Assessment Act 1992 (Cth), s 52(b)
  32. Sales Tax (Exemptions and Classifications) Act 1992 (Cth), Sch 1
  33. Item 18(1)(a)
  34. Item 18(3)(a)
  35. Sales Tax (Exemptions and Classifications) Act 1992 (Cth), s 12(3)(a)(i)
  36. LBC Information Services, Sydney, 1996
  37. Lawbook Co, Sydney, 2001
  38. CCH Australia Ltd, Sydney, 1991
  39. (1990) 22 FCR 42
  40. (1990) 22 FCR 1
  41. (1991-1992) 173 CLR 492
  42. (1993) 40 FCR 531
  43. Income Tax Assessment Act 1936 (Cth), s 26AAA
  44. Income Tax Assessment Act 1936 (Cth), s 46D
  45. at 548-549
  46. (2002) 121 FCR 206
  47. (2004) 217 CLR 216
  48. (2004) 210 ALR 508
  49. at [97]
  50. at [100]
  51. at [106]
  52. at [120]
  53. (2005) 146 FCR 77
  54. [2006] HCA Trans 043
  55. (2004) 141 FCR 69
  56. (1990) 22FCR 1
  57. (1991) 30 FCR 193
  58. (1993) 40 FCR 531
  59. (1994) 54 FCR 25
  60. (1999) 90 FCR 435
  61. (2002) 1196 ALR 221
  62. FCA, unreported, 11 May 1989
  63. (1993) 42 FCR 535
  64. (1993) 47 FCR 138
  65. (1998) 88 FCR 21
  66. (1998) 90 FCR 64
  67. (2002) 121 FCR 206
  68. (2003) 129 FCR 42

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