case_text: These cases were applied by von Doussa J (with whose reasons Jenkinson and Spender JJ agreed) in Gasparin v Commissioner of Taxation (1954) 50 FCR 73. That case concerned the question as to when income was derived from the sale of allotments of land. It was held that each allotment remained trading stock on hand until settlement. After referring to McDonald v Dennys Lascelles , Sunbird Plaza and Automatic Fire Sprinklers Pty Limited v Watson [1946] HCA 25 ; (1946) 72 CLR 435 at 463-464 (as to which case, see below), von Doussa J said at 77 that these cases reflected a general rule about unsettled contracts of sale. His Honours said that at the end of the year of income in question: ...there were no debts owing by the purchasers to the joint venturers. In each case the promise to pay the balance of the purchase price "at settlement" remained executory until settlement occurred at which time a conveyance was executed, accepted and delivered to the purchaser. Until these events there was no accrued liability on the part of the purchaser to pay the balance of the purchase price. [emphasis added] 48 Gasparin and the cases referred to therein are not determinative of the question as to what "incurred" means for the purposes of 8-1 of the 1997 Act. They do reveal, however, the use, in a cognate area, of the distinction between a promise in an executory contract, and the debt (that is the present obligation to pay the purchase money) accruing on settlement, whether payable then or after some agreed time if credit be given. In this context, it is important to note that von Doussa J, though dealing with the contract for the sale of land, referred to Automatic Fire Sprinklers [1946] HCA 25 ; 72 CLR 435. That case concerned a question of wrongful dismissal under wartime regulations. Nevertheless, despite this context, what was said by Dixon J at 463-464 remains important for understanding the relationship between the executory contract and the entitlement to the price of the property or services contracted for: In certain forms of executory contract where the promise of one party is to pay the other money in consideration of his transferring property, of his doing work, of his serving the former as his master, and, perhaps, of his providing other tangible things or definite services, the money to be paid is regarded as the price of or reward for the property or service when and so often as the transfer of the one or the performance of the other affords an executed consideration. In these contracts the promise to pay the price or reward is not construed as a simple obligation to pay a sum or sums at a future date supported solely by a consideration consisting in the corresponding promise to transfer the property, do the work, serve, or provide the things or services by the other party, so that a mere readiness and willingness on the one side of the latter to perform his part is enough to entitle him to the payments, notwithstanding that, whether owing to the fault of the former, or without fault on either side, the property is not transferred, the work is not done, the relation of master and servant ceases, or the things or services are not provided. The most familiar example is that of the sale of goods. There the common understanding of an agreement to sell is that it is the goods and not the promises to deliver that are to be paid for. The result is that, if the seller tenders goods in accordance with his contract but the buyer rejects them in breach of his contract, the seller cannot sue for the price; his remedy is for unliquidated damages for non-acceptance. ... 71 In Woolcombers the taxpayer, in the year of income, entered forward contracts for the purchase of wool that had been shorn or was yet to be shorn. The standard form contracts provided for property in the wool to pass from the woolgrower to the taxpayer upon payment, being 14 days after delivery. The contract provided expressly for the possibility of the grower needing to dispose of the sheep because of drought, flood or disease. In such circumstances, failing agreement as to how many sheep to sell, the matter of disposal would be the subject of arbitration. Thus, the promise to pay for wool to be delivered in the future was made in the year of income (1988). The wool was delivered and paid for in the following year of income. An indemnity as to delivery and quality was given by the grower. In the previous 12 years, all such forward contracts, with one exception, had been completed by the growers. The contracts were to meet contracts by way of on-sales for export entered by companies related to the taxpayer. (It is to be recalled, at this point, that the principle dealt with in Gasparin and Sunbird Plaza was not limited to contracts for the sale of land. The discussion by Dixon J in Automatic Fire Sprinklers 72 CLR at 463-464 made that clear.)


case_outcome: discussed

case_text: The circumstances in which outgoings or losses will be seen as incurred in any year of income have been discussed in numerous cases. Recently, Lindgren J in Merrill Lynch International (Australia) Limited v Commissioner of Taxation [2001] FCA 1127 ; (2001) 47 ATR 611 undertook a careful analysis of the course of authority from New Zealand Flax Investments Ltd v Federal Commissioner of Taxation [1938] HCA 60 ; (1938) 61 CLR 179 to Commissioner of Taxation v Mercantile Mutual Insurance (Workers' Compensation) Ltd [1999] FCA 351 ; (1999) 87 FCR 536. Since 2001, the Full Court of this Court and the High Court has each undertaken an analysis of the relevant authorities in CityLink Melbourne Limited v Commissioner of Taxation [2004] FCAFC 272 ; (2004) 141 FCR 69 and Commissioner of Taxation v CityLink Melbourne Limited [2006] HCA 35 ; (2006) 228 CLR 1. 55 In Ogilvy & Mather Pty Limited v Commissioner of Taxation (1990) 21 ATR 841 at 873-874 Hill J sought to summarise the principles from the authorities. This summary was adopted by the Full Court in CityLink 141 FCR at 79-80. It was as follows: • It is unsafe to attempt an exhaustive definition of a term such as "incurred": New Zealand Flax Investments Ltd at 297 per Dixon J; Hooker Rex Pty Ltd v Commissioner of Taxation (Cth) (1988) 19 ATR 1241 at 1249-1250; • In considering whether a loss or outgoing is incurred the Courts in Australia have adopted what is described as a "legal" or "jurisprudential approach" and not what may be described as a "commercial approach": Coles Myer Finance Ltd v Commissioner of Taxation (Cth) [1993] HCA 29 ; [(1993) 176 CLR 640] ; • An outgoing may be incurred notwithstanding that the amount is not paid in the year of income: Commissioner of Taxation (Cth) v James Flood Pty Ltd [1953] HCA 65 ; (1953) 88 CLR 492 at 507; • An outgoing may be incurred notwithstanding that at the end of the year of income it represents a present liability then due although payable in the future: Commissioner of Taxation (Cth) v Australian Guarantee Corporation Ltd ( 1984) [1984] FCA 240 ; 2 FCR 483. However, it will be important that the liability is "presently existing" during the year of income; • It will be necessary that the taxpayer has completely subjected itself to the loss or outgoing, that is to say definitively committed itself to it in the year of income : Merrill Lynch International (Australia) Ltd v Commissioner of Taxation (Cth) [2001] FCA 1127 ; (2001) 113 FCR 79 per Lindgren J. It will not be sufficient if the loss or outgoing is no more than pending, threatened or expected, no matter that it may be certain that the loss or outgoing will occur in the future: Flood at 5-7-508 ; Hooker Rex at 1249-1250; and • However, a loss or outgoing may be incurred in the year of income notwithstanding that the obligation to pay it is theoretically defeasible: Flood at 506-507; Coles Myer at 670 or, perhaps, even contingent: Coles Myer at 670 per Deane J, citing Commercial Union Assurance Co of Australia Ltd v Commissioner of Taxation (Cth) (1977) 32 FLR 32 at 42-43, but see, however, Flood at 507-508.


case_outcome: referred to

case_text: Before turning to the cases on incurred in relation to s 51(1) of the 1936 Act and s 8-1 of the 1997 Act, it is first necessary to analyse, with some more precision, the nature of the obligation to pay the purchase price. This is necessary because the legal character of the outgoing must be the subject of focus: Coles Myer Finance Limited v Commissioner of Taxation [1993] HCA 29 ; (1993) 176 CLR 640. 42 Special condition 11 of the contract, when read with relevant definitions and the Particulars of Sale, contains an express promise to pay the residue of the purchase price on the Settlement Date, that is, a day 14 days after the Stage 1 Completion Date. 55 In Ogilvy & Mather Pty Limited v Commissioner of Taxation (1990) 21 ATR 841 at 873-874 Hill J sought to summarise the principles from the authorities. This summary was adopted by the Full Court in CityLink 141 FCR at 79-80. It was as follows: • It is unsafe to attempt an exhaustive definition of a term such as "incurred": New Zealand Flax Investments Ltd at 297 per Dixon J; Hooker Rex Pty Ltd v Commissioner of Taxation (Cth) (1988) 19 ATR 1241 at 1249-1250; • In considering whether a loss or outgoing is incurred the Courts in Australia have adopted what is described as a "legal" or "jurisprudential approach" and not what may be described as a "commercial approach": Coles Myer Finance Ltd v Commissioner of Taxation (Cth) [1993] HCA 29 ; [(1993) 176 CLR 640] ; • An outgoing may be incurred notwithstanding that the amount is not paid in the year of income: Commissioner of Taxation (Cth) v James Flood Pty Ltd [1953] HCA 65 ; (1953) 88 CLR 492 at 507; • An outgoing may be incurred notwithstanding that at the end of the year of income it represents a present liability then due although payable in the future: Commissioner of Taxation (Cth) v Australian Guarantee Corporation Ltd ( 1984) [1984] FCA 240 ; 2 FCR 483. However, it will be important that the liability is "presently existing" during the year of income; • It will be necessary that the taxpayer has completely subjected itself to the loss or outgoing, that is to say definitively committed itself to it in the year of income : Merrill Lynch International (Australia) Ltd v Commissioner of Taxation (Cth) [2001] FCA 1127 ; (2001) 113 FCR 79 per Lindgren J. It will not be sufficient if the loss or outgoing is no more than pending, threatened or expected, no matter that it may be certain that the loss or outgoing will occur in the future: Flood at 5-7-508 ; Hooker Rex at 1249-1250; and • However, a loss or outgoing may be incurred in the year of income notwithstanding that the obligation to pay it is theoretically defeasible: Flood at 506-507; Coles Myer at 670 or, perhaps, even contingent: Coles Myer at 670 per Deane J, citing Commercial Union Assurance Co of Australia Ltd v Commissioner of Taxation (Cth) (1977) 32 FLR 32 at 42-43, but see, however, Flood at 507-508. 60 After this reference to Nilsen Development in [123], Crennan J at [124] referred to Deane J in Coles Myer [1993] HCA 29 ; 176 CLR 640 , quoting the following passage of Deane J's reasons at 176 CLR at 670: [T]he weight of authority supports the conclusion that, depending upon the circumstances, a liability to pay money can constitute, or give rise to, a "loss or outgoing" which is "incurred" within the meaning of that subsection notwithstanding that the money is not payable until a future time and that the obligation to pay it is theoretically defeasible or contingent in that it is subject to a condition which remains unfulfilled. (Footnotes omitted.) Crennan J continued at [125] Deane J considered that the critical question was whether the taxpayer was, as a practical matter, definitively committed or completely subjected to discharge of the liability in the future [1993] HCA 29 ; (1993) 176 CLR 640 at 670-671. His Honour recognised that on some facts it would be apparent that a condition giving rise to a theoretical contingency could be treated, for practical purposes, as certain to be satisfied [1993] HCA 29 ; (1993) 176 CLR 640 at 670-671. 72 At first instance, Lee J concluded that the obligation to pay the purchase price of all the wool on the forward contracts had been incurred in the year of income. The argument of the Commissioner was not that the estimate made of the sums meant that there was no incurrence. Rather, it was argued that the liability to pay had not "come home". Expert accounting evidence was led by both sides (something which did not occur here). The point of difference between the accountants was the truth and fairness of the accounts treating the payments as incurred or not. The expert called by the Commissioner relied heavily on the matching principle. Lee J put this evidence into context at 114 ALR at 653: Evidence from expert accountants does not supply the proper construction of s 51(1) of the Act but the evidence may assist the court to identify, and to understand the commercial significance of, the facts to which the subsection, duly construed, is to be applied: Commissioner of Taxes (SA) v Executor Trustee and Agency Co of South Australia Ltd (Carden's case) [1938] HCA 69 ; (1938) 63 CLR 108 per Dixon J at 153 4; QBE Insurance Group Ltd v Australian Securities Commission (1992) 110 ALR 301 ; 38 FCR 270 per Lockhart J at 289 ; Coles Myer Finance Ltd v FCT [1993] HCA 29 ; (1993) 112 ALR 322 ; 93 ATC 4 ,214 per Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ at 4,221. The construction of s 51(1) is a jurisprudential analysis and not a construction assisted by the application of commercial principles (see Coles Myer per Mason CJ, Brennan, Toohey, Gaudron JJ at ATC 4,221, per McHugh J at ATC 4,227-8) but commercial and accountancy practice may assist in ascertaining the true nature and incidence of the item claimed as a loss or outgoing under s 51(1): see FCT v James Flood Pty Ltd [1953] HCA 65 ; (1953) 88 CLR 492 at 506 7; Carden's case per Dixon J at 152 3. Furthermore, the manner of application of s 51(1) will depend upon the particular facts of each case. 76 The Full Court rejected the argument. In so doing, it referred to and relied on the two passages from Raymor 24 FCR at 97 and 101, cited earlier. This was to support the conclusion that the entry into the obligation to pay for future goods was sufficient for there to be an incurring of the liability to pay for them, even if the obligation was defeasible. Coles Myer [1993] HCA 29 ; 176 CLR 640 was then referred to. At 47 FCR at 573-575 the Full Court expressed its reasons fully for coming to the view that there was an accrued obligation or present liability imposed by definite contractual commitment. The Court said that it was not necessary for the taxpayer to have an interest in the wool, though it was recognised that equity would give protection to the taxpayer's interests. Stern v McArthur [1988] HCA 51 ; 165 CLR 489 was referred to. The Court rejected the argument of the Commissioner based on the requirement of delivery to create a present and accrued liability to pay. It agreed with Lee J's analysis. The Full Court did conclude, however, with the following passage at 47 FCR at 575: In our view, much will depend upon the particular circumstances of the case at hand. If the defeasibility takes the form of a contingency such as drought or a similar frustrating event which ordinarily would be implied as a matter of business efficacy, it is difficult to argue that by reason of the existence of this contingency, no liability to pay the price has accrued. 80 This was not a liability that accrued day to day. It was a once and for all contractual undertaking. As in Woolcombers 47 FCR at 575-576, there is here no complexity (as in New Zealand Flax [1938] HCA 60 ; 61 CLR 179) , no day-to-day accrual (as in Coles Myer [1993] HCA 29 ; 176 CLR 640) or other appropriate financial apportionment (as in Australian Guarantee [1984] FCA 240 ; 2 FCR 483). The question of referability is not dictated by any principle of matching. Given the approach of the Full Court in Woolcombers to the virtually identical question, I would conclude that the outgoing incurred was referable to the 1999 year of income. 81 A deduction is referable to the year in which the advantage it secures is enjoyed: Coles Myer 176 CLR at 665; and New Zealand Flax at 207-208. The advantage secured and enjoyed was the binding of the vendor to an unconditional contract (in the sense first discussed) creating contractual rights capable of protection by a court of equity conformable with their extent: Stern v McArthur. This occurred in the 1999 year of income.


case_text: The circumstances in which outgoings or losses will be seen as incurred in any year of income have been discussed in numerous cases. Recently, Lindgren J in Merrill Lynch International (Australia) Limited v Commissioner of Taxation [2001] FCA 1127 ; (2001) 47 ATR 611 undertook a careful analysis of the course of authority from New Zealand Flax Investments Ltd v Federal Commissioner of Taxation [1938] HCA 60 ; (1938) 61 CLR 179 to Commissioner of Taxation v Mercantile Mutual Insurance (Workers' Compensation) Ltd [1999] FCA 351 ; (1999) 87 FCR 536. Since 2001, the Full Court of this Court and the High Court has each undertaken an analysis of the relevant authorities in CityLink Melbourne Limited v Commissioner of Taxation [2004] FCAFC 272 ; (2004) 141 FCR 69 and Commissioner of Taxation v CityLink Melbourne Limited [2006] HCA 35 ; (2006) 228 CLR 1. 59 In the High Court in CityLink [2006] HCA 35 ; 228 CLR 1 , Crennan J (with whose reasons Gleeson CJ, Gummow, Callinan and Heydon JJ agreed) referred at 38 [127], without disapproval, to the synthesis essayed by Hill J in Ogilvy & Mather. In her Honour's reasons (at [122]-[126]) some analysis of the jurisprudence was made upon which the respondent here relied. After referring in [122] to New Zealand Flax [1938] HCA 60 ; 61 CLR 179 and James Flood [1953] HCA 65 ; 88 CLR 492 and, in particular, to the notions of "definitely committed" and "completely subjected", her Honour referred to the reasons of Barwick CJ in Nilsen Development Laboratories Pty Limited v Federal Commissioner of Taxation [1981] HCA 6 ; (1981) 144 CLR 616. The reference to that decision is important in that the Chief Justice (with whose reasons Mason J agreed generally, and Aickin and Wilson JJ agreed (together with the reasons of Mason J)) said at 623 that the language of Dixon J in New Zealand Flax "need [ed] to be carefully perused and applied" and then went on to say the following: ...Granted that exhaustive definition of what may be denoted by the word "incurred" in s 51 (1) may not be possible, there can be no warrant for treating a liability which has not "come home" in the year of income, in the sense of a pecuniary obligation which has become due, as having been incurred in that year. Sir John Latham's language in Emu Bay Railway Co Ltd v Federal Commissioner of Taxation [1944] HCA 28 ; (1944) 71 CLR 596 at p 606 clearly enough indicates that to satisfy the word "incurred" in s 51 (1) the liability must be "presently incurred and due though not yet discharged". The "liability" of which Sir John speaks is of necessity a pecuniary liability and the word "presently" refers to the year of income in respect of which a deduction is claimed. It may not disqualify the liability as a deduction that, though due, it may be paid in a later year. That part of Sir Owen Dixon's statement in New Zealand Flax Investments Ltd v Federal Commissioner of Taxation (1938) 61 CLR, at p 207 which presently needs emphasis is that the word "incurred" in s 51 (1) "does not include a loss or expenditure which is no more than pending, threatened or expected": and I would for myself add "no matter how certain it is in the year of income that that loss or expenditure will occur in the future". The language of Crennan J in [123] can be seen to revivify this passage from Nilsen Developments [1981] HCA 6 ; 144 CLR 616 which did not form an express part of Hill J's synthesis in Ogilvy & Mather , though it was referred to in Raymor . It can be seen as a reiteration, perhaps, of the fourth proposition in Ogilvy & Mather supported by reference to Federal Commissioner of Taxation v Australian Guarantee Corporation Limited [1984] FCA 240 ; (1984) 2 FCR 483 , a case in which Nilsen Developments and Emu Bay Railway Co Ltd v Federal Commissioner of Taxation [1944] HCA 28 ; (1944) 71 CLR 596 were distinguished. Though Nilsen Developments was in respect of long service leave obligations in a specific statutory context, it is clear that the lack of a liability to make a payment until leave was taken or cessation of employment meant that there was no incurring of the outgoing. 65 That said, the words of Barwick CJ in Nilsen Development 144 CLR at 623-624 using the phrase of Latham CJ in Emu Bay Railway Co 71 CLR at 606, applied by Crennan J in CityLink [2006] HCA 35 ; 228 CLR 1 that the liability must be "presently incurred and due" in the context of the liability to pay the purchase moneys for the acquisition of land are a powerful basis to conclude that the outgoing (being the payment of the purchase moneys) has not been incurred at exchange and will not be incurred until settlement. To apply McDonald v Dennys Lascelles, Automatic Fire Sprinklers, Sunbird Plaza and Gasparin, a distinction could be made between the promise to pay the purchase price as part of an executory contract and the liability to pay the purchase price which accrues, and can be seen to be due, only at settlement. Thus, it could be said that the liability to pay the outgoing is not "incurred and due"; just as the income for the seller is not derived: Gasparin 50 FCR 73.


case_text: The circumstances in which outgoings or losses will be seen as incurred in any year of income have been discussed in numerous cases. Recently, Lindgren J in Merrill Lynch International (Australia) Limited v Commissioner of Taxation [2001] FCA 1127 ; (2001) 47 ATR 611 undertook a careful analysis of the course of authority from New Zealand Flax Investments Ltd v Federal Commissioner of Taxation [1938] HCA 60 ; (1938) 61 CLR 179 to Commissioner of Taxation v Mercantile Mutual Insurance (Workers' Compensation) Ltd [1999] FCA 351 ; (1999) 87 FCR 536. Since 2001, the Full Court of this Court and the High Court has each undertaken an analysis of the relevant authorities in CityLink Melbourne Limited v Commissioner of Taxation [2004] FCAFC 272 ; (2004) 141 FCR 69 and Commissioner of Taxation v CityLink Melbourne Limited [2006] HCA 35 ; (2006) 228 CLR 1.


case_text: In particular, reliance was placed on the judgments of Lee J at first instance and of the Full Court in the Woolcombers case : Woolcombers (WA) Pty Limited v Commissioner of Taxation [1993] HCA 69 ; 93 ATC 4 ,342 (Lee J) and Commissioner of Taxation v Woolcombers (WA) Pty Limited [1993] FCA 631 ; (1993) 47 FCR 561 (Full Court) and on the Full Court judgment in Commissioner of Taxation v Raymor (NSW) Pty Limited [1990] FCA 193 ; (1990) 24 FCR 90. 56 At about the time of this first instance judgment in Ogilvy & Mather 21 ATR 841 , the Full Court in Raymor 24 FCR at 97 (Davies, Gummow and Hill JJ) expressed the relevant principles as follows: A loss or outgoing to be deductible under s 51(1) must be incurred in the year of income. What is meant by the word "incurred" in this context has been the subject of considerable discussion in the cases. Central to that discussion is the classic statement of Dixon J in New Zealand Flax Investments Ltd v Commissioner of Taxation (Cth) [1938] HCA 60 ; (1938) 61 CLR 179 at 207, referred to with approval by the court in Commissioner of Taxation (Cth) v James Flood Pty Ltd [1953] HCA 65 ; (1953) 88 CLR 492 at 507. His Honour there said: "To come within that provision there must be a loss or outgoing actually incurred. `Incurred' does not mean only defrayed, discharged or borne, but rather it includes encountered, run into, or fallen upon. It is unsafe to attempt exhaustive definitions of a conception intended to have such a various or multifarious application. But it does not include a loss or expenditure which is no more than impending, threatened or expected." Some propositions are now well established. Outgoings may be incurred though the sum in question has not been paid or the liability discharged: New Zealand Flax Investments Ltd (supra) and James Flood Pty Ltd (supra). An outgoing may be incurred notwithstanding that it may be defeasible: Commonwealth Aluminium Corp Ltd v Commissioner of Taxation (Cth) (1977) 32 FLR 210 at 223-224, cited with approval in Commissioner of Taxation (Cth) v Australian Guarantee Corp Ltd [1984] FCA 240 ; (1984) 2 FCR 483 , per Toohey J (at 487); RACV Insurance Pty Ltd v Commissioner of Taxation (Cth) [1974] VR 1 and Commercial Union Assurance Co of Australia Ltd v Commissioner of Taxation (Cth) (1977) 32 FLR 32. An outgoing may be incurred notwithstanding that the amount of that outgoing is payable in the future. It is not necessary that the outgoing be one both due and owing at the time it is "encountered": James Flood Pty Ltd at 507; Commissioner of Taxation (Cth) v Australian Guarantee Corp Ltd (supra). However, "a liability which has not `come home' in the year of income, in the sense of a pecuniary obligation which has become due" will not have been incurred until the year of income in which there is a presently existing liability: Nilsen Development Laboratories Pty Ltd v Commissioner of Taxation (Cth) [1981] HCA 6 ; (1981) 144 CLR 616 , per Barwick CJ (at 623) and per Gibbs J (at 627). As the Australian Guarantee Corp case demonstrates, evidence of commercial and accountancy practice may be relevant in determining whether an outgoing is referable to the accounting period in which it is claimed although such evidence will not be a substitute for the words of s 51(1) itself: per Toohey J (at 492-493), per McGregor J (at 501-503); see also Hooker Rex Pty Ltd v Commissioner of Taxation (Cth) (1988) 79 ALR 181 at 189, 203. It may be noted that in the present case no evidence of this kind was adduced by the Commissioner. 57 By and large this expression of principle is consistent with Ogilvy & Mather, though the propositions in the sixth bullet point in Ogilvy & Mather can be seen to be somewhat more qualified than as expounded in Raymor . 59 In the High Court in CityLink [2006] HCA 35 ; 228 CLR 1 , Crennan J (with whose reasons Gleeson CJ, Gummow, Callinan and Heydon JJ agreed) referred at 38 [127], without disapproval, to the synthesis essayed by Hill J in Ogilvy & Mather. In her Honour's reasons (at [122]-[126]) some analysis of the jurisprudence was made upon which the respondent here relied. After referring in [122] to New Zealand Flax [1938] HCA 60 ; 61 CLR 179 and James Flood [1953] HCA 65 ; 88 CLR 492 and, in particular, to the notions of "definitely committed" and "completely subjected", her Honour referred to the reasons of Barwick CJ in Nilsen Development Laboratories Pty Limited v Federal Commissioner of Taxation [1981] HCA 6 ; (1981) 144 CLR 616. The reference to that decision is important in that the Chief Justice (with whose reasons Mason J agreed generally, and Aickin and Wilson JJ agreed (together with the reasons of Mason J)) said at 623 that the language of Dixon J in New Zealand Flax "need [ed] to be carefully perused and applied" and then went on to say the following: ...Granted that exhaustive definition of what may be denoted by the word "incurred" in s 51 (1) may not be possible, there can be no warrant for treating a liability which has not "come home" in the year of income, in the sense of a pecuniary obligation which has become due, as having been incurred in that year. Sir John Latham's language in Emu Bay Railway Co Ltd v Federal Commissioner of Taxation [1944] HCA 28 ; (1944) 71 CLR 596 at p 606 clearly enough indicates that to satisfy the word "incurred" in s 51 (1) the liability must be "presently incurred and due though not yet discharged". The "liability" of which Sir John speaks is of necessity a pecuniary liability and the word "presently" refers to the year of income in respect of which a deduction is claimed. It may not disqualify the liability as a deduction that, though due, it may be paid in a later year. That part of Sir Owen Dixon's statement in New Zealand Flax Investments Ltd v Federal Commissioner of Taxation (1938) 61 CLR, at p 207 which presently needs emphasis is that the word "incurred" in s 51 (1) "does not include a loss or expenditure which is no more than pending, threatened or expected": and I would for myself add "no matter how certain it is in the year of income that that loss or expenditure will occur in the future". The language of Crennan J in [123] can be seen to revivify this passage from Nilsen Developments [1981] HCA 6 ; 144 CLR 616 which did not form an express part of Hill J's synthesis in Ogilvy & Mather , though it was referred to in Raymor . It can be seen as a reiteration, perhaps, of the fourth proposition in Ogilvy & Mather supported by reference to Federal Commissioner of Taxation v Australian Guarantee Corporation Limited [1984] FCA 240 ; (1984) 2 FCR 483 , a case in which Nilsen Developments and Emu Bay Railway Co Ltd v Federal Commissioner of Taxation [1944] HCA 28 ; (1944) 71 CLR 596 were distinguished. Though Nilsen Developments was in respect of long service leave obligations in a specific statutory context, it is clear that the lack of a liability to make a payment until leave was taken or cessation of employment meant that there was no incurring of the outgoing. 66 This argument and conclusion must contend, however, with a number of authorities. The first is Raymor [1990] FCA 193 ; 24 FCR 90. The taxpayer sold and distributed plumbing goods, including copper tubing. It purchased most of its supplies of copper tubing from a company (MML) for resale. The managing director of the taxpayer agreed with an officer of MML in the last days of each of three years of income. Each agreement was concerned with the purchase of a significant amount of copper tubing with payment being made in advance of delivery. It was in effect a forward purchase agreement with a discounted price and rise and fall clause. The contract was entered and payment was made before the end of June, with delivery in the next financial year. 67 In Raymor, the Commissioner argued that where an outgoing was incurred for trading stock, the stock must be on hand at the end of the year of income. This mirrored when the income was derived from disposal of trading stock: J Rowe and Son 124 CLR 421. The Commissioner argued that the outgoings were properly to be regarded as characterised as having been incurred in the year of income not for trading stock or in the purchase of trading stock, but for the right to acquire trading stock on capital account. Having referred to the principles dealing with "incurred" (see above), the Court concluded that the outgoing was incurred in the year of income, saying at 97: It follows, therefore, that at the point of time at which the respondent bound itself as a party to each of the contracts, and so became committed to pay the amount shown in each contract to MML, it incurred the respective amount, notwithstanding that its obligation could be increased or reduced under the rise and fall provisions of the contract: cl 8. Payment thereafter was strictly irrelevant to the time at which the outgoing was incurred . It merely operated to discharge in the year of income the outgoing already incurred in that year. In this sense it is strictly incorrect to speak of the payment here in question as a prepayment. A presently existing obligation had arisen and had been discharged. [emphasis added] 76 The Full Court rejected the argument. In so doing, it referred to and relied on the two passages from Raymor 24 FCR at 97 and 101, cited earlier. This was to support the conclusion that the entry into the obligation to pay for future goods was sufficient for there to be an incurring of the liability to pay for them, even if the obligation was defeasible. Coles Myer [1993] HCA 29 ; 176 CLR 640 was then referred to. At 47 FCR at 573-575 the Full Court expressed its reasons fully for coming to the view that there was an accrued obligation or present liability imposed by definite contractual commitment. The Court said that it was not necessary for the taxpayer to have an interest in the wool, though it was recognised that equity would give protection to the taxpayer's interests. Stern v McArthur [1988] HCA 51 ; 165 CLR 489 was referred to. The Court rejected the argument of the Commissioner based on the requirement of delivery to create a present and accrued liability to pay. It agreed with Lee J's analysis. The Full Court did conclude, however, with the following passage at 47 FCR at 575: In our view, much will depend upon the particular circumstances of the case at hand. If the defeasibility takes the form of a contingency such as drought or a similar frustrating event which ordinarily would be implied as a matter of business efficacy, it is difficult to argue that by reason of the existence of this contingency, no liability to pay the price has accrued. 77 As I have said earlier, the application of the principles in Sunbird Plaza to the question of "incurred" has force, unconstrained by authority. So to conclude would lead to a certain harmony in timing between recognition of derivation of income and the incurring of an outgoing. It would give expression to the long-recognised underlying legal analysis in cases such as McDonald v Dennys Lascelles, Automatic Fire Sprinklers, and Sunbird Plaza . It would conform more clearly with the views of Barwick CJ in Nilsen Developments [1981] HCA 6 ; 144 CLR 616. Nevertheless as a single judge, I am clearly bound by Raymor and Woolcombers. The essence of the argument, as I apprehend it, that was put to the Full Court in Woolcombers , was put to me, though, perhaps, in a somewhat more developed form. Unless the last passage that I have quoted above entitles me to find differently, on the authority of both Raymor and Woolcombers , I should find that the obligation to pay the purchase price on settlement was incurred at the time of the exchange of contracts. 79 In my view, I am bound to apply the analysis found in Raymor and Woolcombers . Doing so by reference to the particular contract here, I conclude that the obligation to pay the residue was incurred in the 1999 year of income.


case_text: In particular, reliance was placed on the judgments of Lee J at first instance and of the Full Court in the Woolcombers case : Woolcombers (WA) Pty Limited v Commissioner of Taxation [1993] HCA 69 ; 93 ATC 4 ,342 (Lee J) and Commissioner of Taxation v Woolcombers (WA) Pty Limited [1993] FCA 631 ; (1993) 47 FCR 561 (Full Court) and on the Full Court judgment in Commissioner of Taxation v Raymor (NSW) Pty Limited [1990] FCA 193 ; (1990) 24 FCR 90.


case_text: These comments were made in the context of derivation of income on an accruals basis, a different though obviously cognate subject matter from the notion of incurring in s 51(1) or s 8-1. In the context of Carden's Case (Commissioner of Taxes (SA) v Executor Trustee and Agency Co of South Australia Ltd [1938] HCA 69 ; (1938) 63 CLR 108) and J Rowe and Son Pty Limited v Commissioner of Taxation (Cth) (1971) 124 CLR 421 and in the absence of evidence about business or accounting practice, von Doussa J said (at 79) that stress should be placed on the prominence given in both Carden and Rowe to there being a debt in existence . von Doussa J rejected the approach of the Administrative Appeals Tribunal which had seen no distinction between a sale and delivery and giving time to pay by way of credit, on the one hand, and a contract such as the one there to buy land to be paid for at settlement on the other. von Doussa J said at 79-80: With respect to the Tribunal, I am unable to agree that there is no difference in the present case from a Department store sale of articles on 30 days terms. In that example there has been a delivery of the articles sold. The contract of sale is no longer executory. A debt has accrued due; the debtor has become subject to an obligation to pay a sum certain in money even though the debt may not be payable forthwith: cf Carden at 127. [emphasis added] Notions of loss of dispositive power over the goods were also important: see Gasparin 50 FCR at 81. 72 At first instance, Lee J concluded that the obligation to pay the purchase price of all the wool on the forward contracts had been incurred in the year of income. The argument of the Commissioner was not that the estimate made of the sums meant that there was no incurrence. Rather, it was argued that the liability to pay had not "come home". Expert accounting evidence was led by both sides (something which did not occur here). The point of difference between the accountants was the truth and fairness of the accounts treating the payments as incurred or not. The expert called by the Commissioner relied heavily on the matching principle. Lee J put this evidence into context at 114 ALR at 653: Evidence from expert accountants does not supply the proper construction of s 51(1) of the Act but the evidence may assist the court to identify, and to understand the commercial significance of, the facts to which the subsection, duly construed, is to be applied: Commissioner of Taxes (SA) v Executor Trustee and Agency Co of South Australia Ltd (Carden's case) [1938] HCA 69 ; (1938) 63 CLR 108 per Dixon J at 153 4; QBE Insurance Group Ltd v Australian Securities Commission (1992) 110 ALR 301 ; 38 FCR 270 per Lockhart J at 289 ; Coles Myer Finance Ltd v FCT [1993] HCA 29 ; (1993) 112 ALR 322 ; 93 ATC 4 ,214 per Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ at 4,221. The construction of s 51(1) is a jurisprudential analysis and not a construction assisted by the application of commercial principles (see Coles Myer per Mason CJ, Brennan, Toohey, Gaudron JJ at ATC 4,221, per McHugh J at ATC 4,227-8) but commercial and accountancy practice may assist in ascertaining the true nature and incidence of the item claimed as a loss or outgoing under s 51(1): see FCT v James Flood Pty Ltd [1953] HCA 65 ; (1953) 88 CLR 492 at 506 7; Carden's case per Dixon J at 152 3. Furthermore, the manner of application of s 51(1) will depend upon the particular facts of each case.


case_text: In the High Court in CityLink [2006] HCA 35 ; 228 CLR 1 , Crennan J (with whose reasons Gleeson CJ, Gummow, Callinan and Heydon JJ agreed) referred at 38 [127], without disapproval, to the synthesis essayed by Hill J in Ogilvy & Mather. In her Honour's reasons (at [122]-[126]) some analysis of the jurisprudence was made upon which the respondent here relied. After referring in [122] to New Zealand Flax [1938] HCA 60 ; 61 CLR 179 and James Flood [1953] HCA 65 ; 88 CLR 492 and, in particular, to the notions of "definitely committed" and "completely subjected", her Honour referred to the reasons of Barwick CJ in Nilsen Development Laboratories Pty Limited v Federal Commissioner of Taxation [1981] HCA 6 ; (1981) 144 CLR 616. The reference to that decision is important in that the Chief Justice (with whose reasons Mason J agreed generally, and Aickin and Wilson JJ agreed (together with the reasons of Mason J)) said at 623 that the language of Dixon J in New Zealand Flax "need [ed] to be carefully perused and applied" and then went on to say the following: ...Granted that exhaustive definition of what may be denoted by the word "incurred" in s 51 (1) may not be possible, there can be no warrant for treating a liability which has not "come home" in the year of income, in the sense of a pecuniary obligation which has become due, as having been incurred in that year. Sir John Latham's language in Emu Bay Railway Co Ltd v Federal Commissioner of Taxation [1944] HCA 28 ; (1944) 71 CLR 596 at p 606 clearly enough indicates that to satisfy the word "incurred" in s 51 (1) the liability must be "presently incurred and due though not yet discharged". The "liability" of which Sir John speaks is of necessity a pecuniary liability and the word "presently" refers to the year of income in respect of which a deduction is claimed. It may not disqualify the liability as a deduction that, though due, it may be paid in a later year. That part of Sir Owen Dixon's statement in New Zealand Flax Investments Ltd v Federal Commissioner of Taxation (1938) 61 CLR, at p 207 which presently needs emphasis is that the word "incurred" in s 51 (1) "does not include a loss or expenditure which is no more than pending, threatened or expected": and I would for myself add "no matter how certain it is in the year of income that that loss or expenditure will occur in the future". The language of Crennan J in [123] can be seen to revivify this passage from Nilsen Developments [1981] HCA 6 ; 144 CLR 616 which did not form an express part of Hill J's synthesis in Ogilvy & Mather , though it was referred to in Raymor . It can be seen as a reiteration, perhaps, of the fourth proposition in Ogilvy & Mather supported by reference to Federal Commissioner of Taxation v Australian Guarantee Corporation Limited [1984] FCA 240 ; (1984) 2 FCR 483 , a case in which Nilsen Developments and Emu Bay Railway Co Ltd v Federal Commissioner of Taxation [1944] HCA 28 ; (1944) 71 CLR 596 were distinguished. Though Nilsen Developments was in respect of long service leave obligations in a specific statutory context, it is clear that the lack of a liability to make a payment until leave was taken or cessation of employment meant that there was no incurring of the outgoing. 65 That said, the words of Barwick CJ in Nilsen Development 144 CLR at 623-624 using the phrase of Latham CJ in Emu Bay Railway Co 71 CLR at 606, applied by Crennan J in CityLink [2006] HCA 35 ; 228 CLR 1 that the liability must be "presently incurred and due" in the context of the liability to pay the purchase moneys for the acquisition of land are a powerful basis to conclude that the outgoing (being the payment of the purchase moneys) has not been incurred at exchange and will not be incurred until settlement. To apply McDonald v Dennys Lascelles, Automatic Fire Sprinklers, Sunbird Plaza and Gasparin, a distinction could be made between the promise to pay the purchase price as part of an executory contract and the liability to pay the purchase price which accrues, and can be seen to be due, only at settlement. Thus, it could be said that the liability to pay the outgoing is not "incurred and due"; just as the income for the seller is not derived: Gasparin 50 FCR 73.


case_text: In Ogilvy & Mather Pty Limited v Commissioner of Taxation (1990) 21 ATR 841 at 873-874 Hill J sought to summarise the principles from the authorities. This summary was adopted by the Full Court in CityLink 141 FCR at 79-80. It was as follows: • It is unsafe to attempt an exhaustive definition of a term such as "incurred": New Zealand Flax Investments Ltd at 297 per Dixon J; Hooker Rex Pty Ltd v Commissioner of Taxation (Cth) (1988) 19 ATR 1241 at 1249-1250; • In considering whether a loss or outgoing is incurred the Courts in Australia have adopted what is described as a "legal" or "jurisprudential approach" and not what may be described as a "commercial approach": Coles Myer Finance Ltd v Commissioner of Taxation (Cth) [1993] HCA 29 ; [(1993) 176 CLR 640] ; • An outgoing may be incurred notwithstanding that the amount is not paid in the year of income: Commissioner of Taxation (Cth) v James Flood Pty Ltd [1953] HCA 65 ; (1953) 88 CLR 492 at 507; • An outgoing may be incurred notwithstanding that at the end of the year of income it represents a present liability then due although payable in the future: Commissioner of Taxation (Cth) v Australian Guarantee Corporation Ltd ( 1984) [1984] FCA 240 ; 2 FCR 483. However, it will be important that the liability is "presently existing" during the year of income; • It will be necessary that the taxpayer has completely subjected itself to the loss or outgoing, that is to say definitively committed itself to it in the year of income : Merrill Lynch International (Australia) Ltd v Commissioner of Taxation (Cth) [2001] FCA 1127 ; (2001) 113 FCR 79 per Lindgren J. It will not be sufficient if the loss or outgoing is no more than pending, threatened or expected, no matter that it may be certain that the loss or outgoing will occur in the future: Flood at 5-7-508 ; Hooker Rex at 1249-1250; and • However, a loss or outgoing may be incurred in the year of income notwithstanding that the obligation to pay it is theoretically defeasible: Flood at 506-507; Coles Myer at 670 or, perhaps, even contingent: Coles Myer at 670 per Deane J, citing Commercial Union Assurance Co of Australia Ltd v Commissioner of Taxation (Cth) (1977) 32 FLR 32 at 42-43, but see, however, Flood at 507-508. 56 At about the time of this first instance judgment in Ogilvy & Mather 21 ATR 841 , the Full Court in Raymor 24 FCR at 97 (Davies, Gummow and Hill JJ) expressed the relevant principles as follows: A loss or outgoing to be deductible under s 51(1) must be incurred in the year of income. What is meant by the word "incurred" in this context has been the subject of considerable discussion in the cases. Central to that discussion is the classic statement of Dixon J in New Zealand Flax Investments Ltd v Commissioner of Taxation (Cth) [1938] HCA 60 ; (1938) 61 CLR 179 at 207, referred to with approval by the court in Commissioner of Taxation (Cth) v James Flood Pty Ltd [1953] HCA 65 ; (1953) 88 CLR 492 at 507. His Honour there said: "To come within that provision there must be a loss or outgoing actually incurred. `Incurred' does not mean only defrayed, discharged or borne, but rather it includes encountered, run into, or fallen upon. It is unsafe to attempt exhaustive definitions of a conception intended to have such a various or multifarious application. But it does not include a loss or expenditure which is no more than impending, threatened or expected." Some propositions are now well established. Outgoings may be incurred though the sum in question has not been paid or the liability discharged: New Zealand Flax Investments Ltd (supra) and James Flood Pty Ltd (supra). An outgoing may be incurred notwithstanding that it may be defeasible: Commonwealth Aluminium Corp Ltd v Commissioner of Taxation (Cth) (1977) 32 FLR 210 at 223-224, cited with approval in Commissioner of Taxation (Cth) v Australian Guarantee Corp Ltd [1984] FCA 240 ; (1984) 2 FCR 483 , per Toohey J (at 487); RACV Insurance Pty Ltd v Commissioner of Taxation (Cth) [1974] VR 1 and Commercial Union Assurance Co of Australia Ltd v Commissioner of Taxation (Cth) (1977) 32 FLR 32. An outgoing may be incurred notwithstanding that the amount of that outgoing is payable in the future. It is not necessary that the outgoing be one both due and owing at the time it is "encountered": James Flood Pty Ltd at 507; Commissioner of Taxation (Cth) v Australian Guarantee Corp Ltd (supra). However, "a liability which has not `come home' in the year of income, in the sense of a pecuniary obligation which has become due" will not have been incurred until the year of income in which there is a presently existing liability: Nilsen Development Laboratories Pty Ltd v Commissioner of Taxation (Cth) [1981] HCA 6 ; (1981) 144 CLR 616 , per Barwick CJ (at 623) and per Gibbs J (at 627). As the Australian Guarantee Corp case demonstrates, evidence of commercial and accountancy practice may be relevant in determining whether an outgoing is referable to the accounting period in which it is claimed although such evidence will not be a substitute for the words of s 51(1) itself: per Toohey J (at 492-493), per McGregor J (at 501-503); see also Hooker Rex Pty Ltd v Commissioner of Taxation (Cth) (1988) 79 ALR 181 at 189, 203. It may be noted that in the present case no evidence of this kind was adduced by the Commissioner. 59 In the High Court in CityLink [2006] HCA 35 ; 228 CLR 1 , Crennan J (with whose reasons Gleeson CJ, Gummow, Callinan and Heydon JJ agreed) referred at 38 [127], without disapproval, to the synthesis essayed by Hill J in Ogilvy & Mather. In her Honour's reasons (at [122]-[126]) some analysis of the jurisprudence was made upon which the respondent here relied. After referring in [122] to New Zealand Flax [1938] HCA 60 ; 61 CLR 179 and James Flood [1953] HCA 65 ; 88 CLR 492 and, in particular, to the notions of "definitely committed" and "completely subjected", her Honour referred to the reasons of Barwick CJ in Nilsen Development Laboratories Pty Limited v Federal Commissioner of Taxation [1981] HCA 6 ; (1981) 144 CLR 616. The reference to that decision is important in that the Chief Justice (with whose reasons Mason J agreed generally, and Aickin and Wilson JJ agreed (together with the reasons of Mason J)) said at 623 that the language of Dixon J in New Zealand Flax "need [ed] to be carefully perused and applied" and then went on to say the following: ...Granted that exhaustive definition of what may be denoted by the word "incurred" in s 51 (1) may not be possible, there can be no warrant for treating a liability which has not "come home" in the year of income, in the sense of a pecuniary obligation which has become due, as having been incurred in that year. Sir John Latham's language in Emu Bay Railway Co Ltd v Federal Commissioner of Taxation [1944] HCA 28 ; (1944) 71 CLR 596 at p 606 clearly enough indicates that to satisfy the word "incurred" in s 51 (1) the liability must be "presently incurred and due though not yet discharged". The "liability" of which Sir John speaks is of necessity a pecuniary liability and the word "presently" refers to the year of income in respect of which a deduction is claimed. It may not disqualify the liability as a deduction that, though due, it may be paid in a later year. That part of Sir Owen Dixon's statement in New Zealand Flax Investments Ltd v Federal Commissioner of Taxation (1938) 61 CLR, at p 207 which presently needs emphasis is that the word "incurred" in s 51 (1) "does not include a loss or expenditure which is no more than pending, threatened or expected": and I would for myself add "no matter how certain it is in the year of income that that loss or expenditure will occur in the future". The language of Crennan J in [123] can be seen to revivify this passage from Nilsen Developments [1981] HCA 6 ; 144 CLR 616 which did not form an express part of Hill J's synthesis in Ogilvy & Mather , though it was referred to in Raymor . It can be seen as a reiteration, perhaps, of the fourth proposition in Ogilvy & Mather supported by reference to Federal Commissioner of Taxation v Australian Guarantee Corporation Limited [1984] FCA 240 ; (1984) 2 FCR 483 , a case in which Nilsen Developments and Emu Bay Railway Co Ltd v Federal Commissioner of Taxation [1944] HCA 28 ; (1944) 71 CLR 596 were distinguished. Though Nilsen Developments was in respect of long service leave obligations in a specific statutory context, it is clear that the lack of a liability to make a payment until leave was taken or cessation of employment meant that there was no incurring of the outgoing. 80 This was not a liability that accrued day to day. It was a once and for all contractual undertaking. As in Woolcombers 47 FCR at 575-576, there is here no complexity (as in New Zealand Flax [1938] HCA 60 ; 61 CLR 179) , no day-to-day accrual (as in Coles Myer [1993] HCA 29 ; 176 CLR 640) or other appropriate financial apportionment (as in Australian Guarantee [1984] FCA 240 ; 2 FCR 483). The question of referability is not dictated by any principle of matching. Given the approach of the Full Court in Woolcombers to the virtually identical question, I would conclude that the outgoing incurred was referable to the 1999 year of income.


case_text: These cases were applied by von Doussa J (with whose reasons Jenkinson and Spender JJ agreed) in Gasparin v Commissioner of Taxation (1954) 50 FCR 73. That case concerned the question as to when income was derived from the sale of allotments of land. It was held that each allotment remained trading stock on hand until settlement. After referring to McDonald v Dennys Lascelles , Sunbird Plaza and Automatic Fire Sprinklers Pty Limited v Watson [1946] HCA 25 ; (1946) 72 CLR 435 at 463-464 (as to which case, see below), von Doussa J said at 77 that these cases reflected a general rule about unsettled contracts of sale. His Honours said that at the end of the year of income in question: ...there were no debts owing by the purchasers to the joint venturers. In each case the promise to pay the balance of the purchase price "at settlement" remained executory until settlement occurred at which time a conveyance was executed, accepted and delivered to the purchaser. Until these events there was no accrued liability on the part of the purchaser to pay the balance of the purchase price. [emphasis added] 47 These comments were made in the context of derivation of income on an accruals basis, a different though obviously cognate subject matter from the notion of incurring in s 51(1) or s 8-1. In the context of Carden's Case (Commissioner of Taxes (SA) v Executor Trustee and Agency Co of South Australia Ltd [1938] HCA 69 ; (1938) 63 CLR 108) and J Rowe and Son Pty Limited v Commissioner of Taxation (Cth) (1971) 124 CLR 421 and in the absence of evidence about business or accounting practice, von Doussa J said (at 79) that stress should be placed on the prominence given in both Carden and Rowe to there being a debt in existence . von Doussa J rejected the approach of the Administrative Appeals Tribunal which had seen no distinction between a sale and delivery and giving time to pay by way of credit, on the one hand, and a contract such as the one there to buy land to be paid for at settlement on the other. von Doussa J said at 79-80: With respect to the Tribunal, I am unable to agree that there is no difference in the present case from a Department store sale of articles on 30 days terms. In that example there has been a delivery of the articles sold. The contract of sale is no longer executory. A debt has accrued due; the debtor has become subject to an obligation to pay a sum certain in money even though the debt may not be payable forthwith: cf Carden at 127. [emphasis added] Notions of loss of dispositive power over the goods were also important: see Gasparin 50 FCR at 81. 48 Gasparin and the cases referred to therein are not determinative of the question as to what "incurred" means for the purposes of 8-1 of the 1997 Act. They do reveal, however, the use, in a cognate area, of the distinction between a promise in an executory contract, and the debt (that is the present obligation to pay the purchase money) accruing on settlement, whether payable then or after some agreed time if credit be given. In this context, it is important to note that von Doussa J, though dealing with the contract for the sale of land, referred to Automatic Fire Sprinklers [1946] HCA 25 ; 72 CLR 435. That case concerned a question of wrongful dismissal under wartime regulations. Nevertheless, despite this context, what was said by Dixon J at 463-464 remains important for understanding the relationship between the executory contract and the entitlement to the price of the property or services contracted for: In certain forms of executory contract where the promise of one party is to pay the other money in consideration of his transferring property, of his doing work, of his serving the former as his master, and, perhaps, of his providing other tangible things or definite services, the money to be paid is regarded as the price of or reward for the property or service when and so often as the transfer of the one or the performance of the other affords an executed consideration. In these contracts the promise to pay the price or reward is not construed as a simple obligation to pay a sum or sums at a future date supported solely by a consideration consisting in the corresponding promise to transfer the property, do the work, serve, or provide the things or services by the other party, so that a mere readiness and willingness on the one side of the latter to perform his part is enough to entitle him to the payments, notwithstanding that, whether owing to the fault of the former, or without fault on either side, the property is not transferred, the work is not done, the relation of master and servant ceases, or the things or services are not provided. The most familiar example is that of the sale of goods. There the common understanding of an agreement to sell is that it is the goods and not the promises to deliver that are to be paid for. The result is that, if the seller tenders goods in accordance with his contract but the buyer rejects them in breach of his contract, the seller cannot sue for the price; his remedy is for unliquidated damages for non-acceptance. ... 65 That said, the words of Barwick CJ in Nilsen Development 144 CLR at 623-624 using the phrase of Latham CJ in Emu Bay Railway Co 71 CLR at 606, applied by Crennan J in CityLink [2006] HCA 35 ; 228 CLR 1 that the liability must be "presently incurred and due" in the context of the liability to pay the purchase moneys for the acquisition of land are a powerful basis to conclude that the outgoing (being the payment of the purchase moneys) has not been incurred at exchange and will not be incurred until settlement. To apply McDonald v Dennys Lascelles, Automatic Fire Sprinklers, Sunbird Plaza and Gasparin, a distinction could be made between the promise to pay the purchase price as part of an executory contract and the liability to pay the purchase price which accrues, and can be seen to be due, only at settlement. Thus, it could be said that the liability to pay the outgoing is not "incurred and due"; just as the income for the seller is not derived: Gasparin 50 FCR 73. 71 In Woolcombers the taxpayer, in the year of income, entered forward contracts for the purchase of wool that had been shorn or was yet to be shorn. The standard form contracts provided for property in the wool to pass from the woolgrower to the taxpayer upon payment, being 14 days after delivery. The contract provided expressly for the possibility of the grower needing to dispose of the sheep because of drought, flood or disease. In such circumstances, failing agreement as to how many sheep to sell, the matter of disposal would be the subject of arbitration. Thus, the promise to pay for wool to be delivered in the future was made in the year of income (1988). The wool was delivered and paid for in the following year of income. An indemnity as to delivery and quality was given by the grower. In the previous 12 years, all such forward contracts, with one exception, had been completed by the growers. The contracts were to meet contracts by way of on-sales for export entered by companies related to the taxpayer. (It is to be recalled, at this point, that the principle dealt with in Gasparin and Sunbird Plaza was not limited to contracts for the sale of land. The discussion by Dixon J in Automatic Fire Sprinklers 72 CLR at 463-464 made that clear.)


case_outcome: cited

case_title: Ibrahim v Pham [2007] NSWCA 215

case_text: In due course, on 17 February 2006, a Judge of this Court (Goldberg J) made a declaration that the scheme was a managed investment scheme that was required to be registered under the Corporations Law and the Corporations Act 2001 (Cth), but was not registered. The Court ordered that the scheme be wound up pursuant to s 601EE(1) of the Corporations Act . The Court also ordered that an independent accountant's report be filed. The consequence of the failure to register the scheme was that a contract entered into by a person other than the offeror for the scheme to subscribe for an interest was voidable at the option of that person by notice in writing: s 601MB(1) of the Corporations Law (as at June 1999); Ibrahim v Pham [2007] NSWCA 215 ; Karl Suleman Enterprizes Pty Limited (in liq) v Babanour [2004] NSWCA 214 ; (2004) 49 ACSR 612 ; and Mier v FN Management Pty Limited [2006] 1 Qd R 339 at 345-346 [10].


case_text: These comments were made in the context of derivation of income on an accruals basis, a different though obviously cognate subject matter from the notion of incurring in s 51(1) or s 8-1. In the context of Carden's Case (Commissioner of Taxes (SA) v Executor Trustee and Agency Co of South Australia Ltd [1938] HCA 69 ; (1938) 63 CLR 108) and J Rowe and Son Pty Limited v Commissioner of Taxation (Cth) (1971) 124 CLR 421 and in the absence of evidence about business or accounting practice, von Doussa J said (at 79) that stress should be placed on the prominence given in both Carden and Rowe to there being a debt in existence . von Doussa J rejected the approach of the Administrative Appeals Tribunal which had seen no distinction between a sale and delivery and giving time to pay by way of credit, on the one hand, and a contract such as the one there to buy land to be paid for at settlement on the other. von Doussa J said at 79-80: With respect to the Tribunal, I am unable to agree that there is no difference in the present case from a Department store sale of articles on 30 days terms. In that example there has been a delivery of the articles sold. The contract of sale is no longer executory. A debt has accrued due; the debtor has become subject to an obligation to pay a sum certain in money even though the debt may not be payable forthwith: cf Carden at 127. [emphasis added] Notions of loss of dispositive power over the goods were also important: see Gasparin 50 FCR at 81. 67 In Raymor, the Commissioner argued that where an outgoing was incurred for trading stock, the stock must be on hand at the end of the year of income. This mirrored when the income was derived from disposal of trading stock: J Rowe and Son 124 CLR 421. The Commissioner argued that the outgoings were properly to be regarded as characterised as having been incurred in the year of income not for trading stock or in the purchase of trading stock, but for the right to acquire trading stock on capital account. Having referred to the principles dealing with "incurred" (see above), the Court concluded that the outgoing was incurred in the year of income, saying at 97: It follows, therefore, that at the point of time at which the respondent bound itself as a party to each of the contracts, and so became committed to pay the amount shown in each contract to MML, it incurred the respective amount, notwithstanding that its obligation could be increased or reduced under the rise and fall provisions of the contract: cl 8. Payment thereafter was strictly irrelevant to the time at which the outgoing was incurred . It merely operated to discharge in the year of income the outgoing already incurred in that year. In this sense it is strictly incorrect to speak of the payment here in question as a prepayment. A presently existing obligation had arisen and had been discharged. [emphasis added]


case_title: Karl Suleman Enterprizes Pty Limited (in liq) v Babanour [2004] NSWCA 214 ; (2004) 49 ACSR 612


case_text: The proper identification of this promise and its relationship to the payment of the purchase price is to be found in a number of cases of the highest authority. In McDonald v Dennys Lascelles Ltd [1933] HCA 25 ; (1933) 48 CLR 457 at 475-476, Dixon J (as he then was) quoted Sir John Salmond in Ruddenklau v Charlesworth [1925] NZLR 161 at 164-165 in expressing the relevant principle: If the purchaser refuses to complete the executory contract to buy the land, the vendor is not entitled to sue for the purchase money as a debt . He is entitled to sue for specific performance or for damages for the loss of his bargain. [emphasis added] Sir John Salmond continued: It is only when the contract has been completed by the execution and acceptance of a conveyance that unpaid purchase money may become a debt and can be recovered accordingly. [emphasis added] This general rule could be rebutted by clear intention in the contract for the payment of the purchase price, or part of it, on a fixed day, other than the day for completion. 44 That the obligation, subject to a revealed contrary intention, to pay the purchase price accrues fully only on settlement was reiterated in Sunbird Plaza Pty Limited v Maloney [1988] HCA 11 ; (1988) 166 CLR 245. In that case, the vendors sought recovery against guarantors of a contract for the sale of land in respect of which an order for specific performance had been made consequent upon repudiation by the purchaser. The proper construction of the guarantee was held not to support a conclusion that the guarantors were liable. Mason CJ (with whom Deane, Dawson and Toohey JJ agreed) said the following at 253-254: The general rule, stated by Dixon J in McDonald v Dennys Lascelles Ltd [1933] HCA 25 ; (1933) 48 CLR 457 , at p 476, is that a vendor of land cannot sue for the price before the contract is completed by conveyance, unless the price is expressed to be payable on a fixed day, not being the day fixed for completion. Here the balance of the purchase price was payable "upon settlement". Settlement has not taken place and there has been no conveyance of the property sold. Once this is accepted, the appellant is faced with a daunting task in making good the submission that the respondent guarantors are liable under their joint and several guarantee to pay the balance of the purchase price and interest thereon, notwithstanding the absence of an accrued liability on the part of the purchaser to make the payment . [emphasis added] In the same case, Gaudron J (with whose reasons in this respect Mason CJ (and so also the other members of the Court) agreed) at 267-268 also referred to McDonald v Dennys Lascelles [1933] HCA 25 ; 48 CLR 457. 45 Thus, whilst there is a promise in an executory contract to pay the balance of the purchase price on settlement, there is no "debt" ( McDonald v Dennys Lascelles ) and no "accrued liability on the part of the purchaser to make the payment" (see Mason CJ in Sunbird Plaza 166 CLR at 254), until completion. This is not to deny, however, that the purchaser's interests will be protected in equity consistent with the nature and extent of the terms of the contract of sale: Stern v McArthur [1988] HCA 51 ; (1988) 165 CLR 489 at 522-23, and that the promise can be otherwise seen as unqualified. 46 These cases were applied by von Doussa J (with whose reasons Jenkinson and Spender JJ agreed) in Gasparin v Commissioner of Taxation (1954) 50 FCR 73. That case concerned the question as to when income was derived from the sale of allotments of land. It was held that each allotment remained trading stock on hand until settlement. After referring to McDonald v Dennys Lascelles , Sunbird Plaza and Automatic Fire Sprinklers Pty Limited v Watson [1946] HCA 25 ; (1946) 72 CLR 435 at 463-464 (as to which case, see below), von Doussa J said at 77 that these cases reflected a general rule about unsettled contracts of sale. His Honours said that at the end of the year of income in question: ...there were no debts owing by the purchasers to the joint venturers. In each case the promise to pay the balance of the purchase price "at settlement" remained executory until settlement occurred at which time a conveyance was executed, accepted and delivered to the purchaser. Until these events there was no accrued liability on the part of the purchaser to pay the balance of the purchase price. [emphasis added]


case_title: Merrill Lynch International (Australia) Limited v Commissioner of Taxation [2001] FCA 1127 ; (2001) 47 ATR 611


case_title: Mier v FN Management Pty Limited [2006] 1 Qd R 339


case_text: The circumstances in which outgoings or losses will be seen as incurred in any year of income have been discussed in numerous cases. Recently, Lindgren J in Merrill Lynch International (Australia) Limited v Commissioner of Taxation [2001] FCA 1127 ; (2001) 47 ATR 611 undertook a careful analysis of the course of authority from New Zealand Flax Investments Ltd v Federal Commissioner of Taxation [1938] HCA 60 ; (1938) 61 CLR 179 to Commissioner of Taxation v Mercantile Mutual Insurance (Workers' Compensation) Ltd [1999] FCA 351 ; (1999) 87 FCR 536. Since 2001, the Full Court of this Court and the High Court has each undertaken an analysis of the relevant authorities in CityLink Melbourne Limited v Commissioner of Taxation [2004] FCAFC 272 ; (2004) 141 FCR 69 and Commissioner of Taxation v CityLink Melbourne Limited [2006] HCA 35 ; (2006) 228 CLR 1. 56 At about the time of this first instance judgment in Ogilvy & Mather 21 ATR 841 , the Full Court in Raymor 24 FCR at 97 (Davies, Gummow and Hill JJ) expressed the relevant principles as follows: A loss or outgoing to be deductible under s 51(1) must be incurred in the year of income. What is meant by the word "incurred" in this context has been the subject of considerable discussion in the cases. Central to that discussion is the classic statement of Dixon J in New Zealand Flax Investments Ltd v Commissioner of Taxation (Cth) [1938] HCA 60 ; (1938) 61 CLR 179 at 207, referred to with approval by the court in Commissioner of Taxation (Cth) v James Flood Pty Ltd [1953] HCA 65 ; (1953) 88 CLR 492 at 507. His Honour there said: "To come within that provision there must be a loss or outgoing actually incurred. `Incurred' does not mean only defrayed, discharged or borne, but rather it includes encountered, run into, or fallen upon. It is unsafe to attempt exhaustive definitions of a conception intended to have such a various or multifarious application. But it does not include a loss or expenditure which is no more than impending, threatened or expected." Some propositions are now well established. Outgoings may be incurred though the sum in question has not been paid or the liability discharged: New Zealand Flax Investments Ltd (supra) and James Flood Pty Ltd (supra). An outgoing may be incurred notwithstanding that it may be defeasible: Commonwealth Aluminium Corp Ltd v Commissioner of Taxation (Cth) (1977) 32 FLR 210 at 223-224, cited with approval in Commissioner of Taxation (Cth) v Australian Guarantee Corp Ltd [1984] FCA 240 ; (1984) 2 FCR 483 , per Toohey J (at 487); RACV Insurance Pty Ltd v Commissioner of Taxation (Cth) [1974] VR 1 and Commercial Union Assurance Co of Australia Ltd v Commissioner of Taxation (Cth) (1977) 32 FLR 32. An outgoing may be incurred notwithstanding that the amount of that outgoing is payable in the future. It is not necessary that the outgoing be one both due and owing at the time it is "encountered": James Flood Pty Ltd at 507; Commissioner of Taxation (Cth) v Australian Guarantee Corp Ltd (supra). However, "a liability which has not `come home' in the year of income, in the sense of a pecuniary obligation which has become due" will not have been incurred until the year of income in which there is a presently existing liability: Nilsen Development Laboratories Pty Ltd v Commissioner of Taxation (Cth) [1981] HCA 6 ; (1981) 144 CLR 616 , per Barwick CJ (at 623) and per Gibbs J (at 627). As the Australian Guarantee Corp case demonstrates, evidence of commercial and accountancy practice may be relevant in determining whether an outgoing is referable to the accounting period in which it is claimed although such evidence will not be a substitute for the words of s 51(1) itself: per Toohey J (at 492-493), per McGregor J (at 501-503); see also Hooker Rex Pty Ltd v Commissioner of Taxation (Cth) (1988) 79 ALR 181 at 189, 203. It may be noted that in the present case no evidence of this kind was adduced by the Commissioner. 59 In the High Court in CityLink [2006] HCA 35 ; 228 CLR 1 , Crennan J (with whose reasons Gleeson CJ, Gummow, Callinan and Heydon JJ agreed) referred at 38 [127], without disapproval, to the synthesis essayed by Hill J in Ogilvy & Mather. In her Honour's reasons (at [122]-[126]) some analysis of the jurisprudence was made upon which the respondent here relied. After referring in [122] to New Zealand Flax [1938] HCA 60 ; 61 CLR 179 and James Flood [1953] HCA 65 ; 88 CLR 492 and, in particular, to the notions of "definitely committed" and "completely subjected", her Honour referred to the reasons of Barwick CJ in Nilsen Development Laboratories Pty Limited v Federal Commissioner of Taxation [1981] HCA 6 ; (1981) 144 CLR 616. The reference to that decision is important in that the Chief Justice (with whose reasons Mason J agreed generally, and Aickin and Wilson JJ agreed (together with the reasons of Mason J)) said at 623 that the language of Dixon J in New Zealand Flax "need [ed] to be carefully perused and applied" and then went on to say the following: ...Granted that exhaustive definition of what may be denoted by the word "incurred" in s 51 (1) may not be possible, there can be no warrant for treating a liability which has not "come home" in the year of income, in the sense of a pecuniary obligation which has become due, as having been incurred in that year. Sir John Latham's language in Emu Bay Railway Co Ltd v Federal Commissioner of Taxation [1944] HCA 28 ; (1944) 71 CLR 596 at p 606 clearly enough indicates that to satisfy the word "incurred" in s 51 (1) the liability must be "presently incurred and due though not yet discharged". The "liability" of which Sir John speaks is of necessity a pecuniary liability and the word "presently" refers to the year of income in respect of which a deduction is claimed. It may not disqualify the liability as a deduction that, though due, it may be paid in a later year. That part of Sir Owen Dixon's statement in New Zealand Flax Investments Ltd v Federal Commissioner of Taxation (1938) 61 CLR, at p 207 which presently needs emphasis is that the word "incurred" in s 51 (1) "does not include a loss or expenditure which is no more than pending, threatened or expected": and I would for myself add "no matter how certain it is in the year of income that that loss or expenditure will occur in the future". The language of Crennan J in [123] can be seen to revivify this passage from Nilsen Developments [1981] HCA 6 ; 144 CLR 616 which did not form an express part of Hill J's synthesis in Ogilvy & Mather , though it was referred to in Raymor . It can be seen as a reiteration, perhaps, of the fourth proposition in Ogilvy & Mather supported by reference to Federal Commissioner of Taxation v Australian Guarantee Corporation Limited [1984] FCA 240 ; (1984) 2 FCR 483 , a case in which Nilsen Developments and Emu Bay Railway Co Ltd v Federal Commissioner of Taxation [1944] HCA 28 ; (1944) 71 CLR 596 were distinguished. Though Nilsen Developments was in respect of long service leave obligations in a specific statutory context, it is clear that the lack of a liability to make a payment until leave was taken or cessation of employment meant that there was no incurring of the outgoing. 80 This was not a liability that accrued day to day. It was a once and for all contractual undertaking. As in Woolcombers 47 FCR at 575-576, there is here no complexity (as in New Zealand Flax [1938] HCA 60 ; 61 CLR 179) , no day-to-day accrual (as in Coles Myer [1993] HCA 29 ; 176 CLR 640) or other appropriate financial apportionment (as in Australian Guarantee [1984] FCA 240 ; 2 FCR 483). The question of referability is not dictated by any principle of matching. Given the approach of the Full Court in Woolcombers to the virtually identical question, I would conclude that the outgoing incurred was referable to the 1999 year of income. 81 A deduction is referable to the year in which the advantage it secures is enjoyed: Coles Myer 176 CLR at 665; and New Zealand Flax at 207-208. The advantage secured and enjoyed was the binding of the vendor to an unconditional contract (in the sense first discussed) creating contractual rights capable of protection by a court of equity conformable with their extent: Stern v McArthur. This occurred in the 1999 year of income.


case_text: At about the time of this first instance judgment in Ogilvy & Mather 21 ATR 841 , the Full Court in Raymor 24 FCR at 97 (Davies, Gummow and Hill JJ) expressed the relevant principles as follows: A loss or outgoing to be deductible under s 51(1) must be incurred in the year of income. What is meant by the word "incurred" in this context has been the subject of considerable discussion in the cases. Central to that discussion is the classic statement of Dixon J in New Zealand Flax Investments Ltd v Commissioner of Taxation (Cth) [1938] HCA 60 ; (1938) 61 CLR 179 at 207, referred to with approval by the court in Commissioner of Taxation (Cth) v James Flood Pty Ltd [1953] HCA 65 ; (1953) 88 CLR 492 at 507. His Honour there said: "To come within that provision there must be a loss or outgoing actually incurred. `Incurred' does not mean only defrayed, discharged or borne, but rather it includes encountered, run into, or fallen upon. It is unsafe to attempt exhaustive definitions of a conception intended to have such a various or multifarious application. But it does not include a loss or expenditure which is no more than impending, threatened or expected." Some propositions are now well established. Outgoings may be incurred though the sum in question has not been paid or the liability discharged: New Zealand Flax Investments Ltd (supra) and James Flood Pty Ltd (supra). An outgoing may be incurred notwithstanding that it may be defeasible: Commonwealth Aluminium Corp Ltd v Commissioner of Taxation (Cth) (1977) 32 FLR 210 at 223-224, cited with approval in Commissioner of Taxation (Cth) v Australian Guarantee Corp Ltd [1984] FCA 240 ; (1984) 2 FCR 483 , per Toohey J (at 487); RACV Insurance Pty Ltd v Commissioner of Taxation (Cth) [1974] VR 1 and Commercial Union Assurance Co of Australia Ltd v Commissioner of Taxation (Cth) (1977) 32 FLR 32. An outgoing may be incurred notwithstanding that the amount of that outgoing is payable in the future. It is not necessary that the outgoing be one both due and owing at the time it is "encountered": James Flood Pty Ltd at 507; Commissioner of Taxation (Cth) v Australian Guarantee Corp Ltd (supra). However, "a liability which has not `come home' in the year of income, in the sense of a pecuniary obligation which has become due" will not have been incurred until the year of income in which there is a presently existing liability: Nilsen Development Laboratories Pty Ltd v Commissioner of Taxation (Cth) [1981] HCA 6 ; (1981) 144 CLR 616 , per Barwick CJ (at 623) and per Gibbs J (at 627). As the Australian Guarantee Corp case demonstrates, evidence of commercial and accountancy practice may be relevant in determining whether an outgoing is referable to the accounting period in which it is claimed although such evidence will not be a substitute for the words of s 51(1) itself: per Toohey J (at 492-493), per McGregor J (at 501-503); see also Hooker Rex Pty Ltd v Commissioner of Taxation (Cth) (1988) 79 ALR 181 at 189, 203. It may be noted that in the present case no evidence of this kind was adduced by the Commissioner. 59 In the High Court in CityLink [2006] HCA 35 ; 228 CLR 1 , Crennan J (with whose reasons Gleeson CJ, Gummow, Callinan and Heydon JJ agreed) referred at 38 [127], without disapproval, to the synthesis essayed by Hill J in Ogilvy & Mather. In her Honour's reasons (at [122]-[126]) some analysis of the jurisprudence was made upon which the respondent here relied. After referring in [122] to New Zealand Flax [1938] HCA 60 ; 61 CLR 179 and James Flood [1953] HCA 65 ; 88 CLR 492 and, in particular, to the notions of "definitely committed" and "completely subjected", her Honour referred to the reasons of Barwick CJ in Nilsen Development Laboratories Pty Limited v Federal Commissioner of Taxation [1981] HCA 6 ; (1981) 144 CLR 616. The reference to that decision is important in that the Chief Justice (with whose reasons Mason J agreed generally, and Aickin and Wilson JJ agreed (together with the reasons of Mason J)) said at 623 that the language of Dixon J in New Zealand Flax "need [ed] to be carefully perused and applied" and then went on to say the following: ...Granted that exhaustive definition of what may be denoted by the word "incurred" in s 51 (1) may not be possible, there can be no warrant for treating a liability which has not "come home" in the year of income, in the sense of a pecuniary obligation which has become due, as having been incurred in that year. Sir John Latham's language in Emu Bay Railway Co Ltd v Federal Commissioner of Taxation [1944] HCA 28 ; (1944) 71 CLR 596 at p 606 clearly enough indicates that to satisfy the word "incurred" in s 51 (1) the liability must be "presently incurred and due though not yet discharged". The "liability" of which Sir John speaks is of necessity a pecuniary liability and the word "presently" refers to the year of income in respect of which a deduction is claimed. It may not disqualify the liability as a deduction that, though due, it may be paid in a later year. That part of Sir Owen Dixon's statement in New Zealand Flax Investments Ltd v Federal Commissioner of Taxation (1938) 61 CLR, at p 207 which presently needs emphasis is that the word "incurred" in s 51 (1) "does not include a loss or expenditure which is no more than pending, threatened or expected": and I would for myself add "no matter how certain it is in the year of income that that loss or expenditure will occur in the future". The language of Crennan J in [123] can be seen to revivify this passage from Nilsen Developments [1981] HCA 6 ; 144 CLR 616 which did not form an express part of Hill J's synthesis in Ogilvy & Mather , though it was referred to in Raymor . It can be seen as a reiteration, perhaps, of the fourth proposition in Ogilvy & Mather supported by reference to Federal Commissioner of Taxation v Australian Guarantee Corporation Limited [1984] FCA 240 ; (1984) 2 FCR 483 , a case in which Nilsen Developments and Emu Bay Railway Co Ltd v Federal Commissioner of Taxation [1944] HCA 28 ; (1944) 71 CLR 596 were distinguished. Though Nilsen Developments was in respect of long service leave obligations in a specific statutory context, it is clear that the lack of a liability to make a payment until leave was taken or cessation of employment meant that there was no incurring of the outgoing. 60 After this reference to Nilsen Development in [123], Crennan J at [124] referred to Deane J in Coles Myer [1993] HCA 29 ; 176 CLR 640 , quoting the following passage of Deane J's reasons at 176 CLR at 670: [T]he weight of authority supports the conclusion that, depending upon the circumstances, a liability to pay money can constitute, or give rise to, a "loss or outgoing" which is "incurred" within the meaning of that subsection notwithstanding that the money is not payable until a future time and that the obligation to pay it is theoretically defeasible or contingent in that it is subject to a condition which remains unfulfilled. (Footnotes omitted.) Crennan J continued at [125] Deane J considered that the critical question was whether the taxpayer was, as a practical matter, definitively committed or completely subjected to discharge of the liability in the future [1993] HCA 29 ; (1993) 176 CLR 640 at 670-671. His Honour recognised that on some facts it would be apparent that a condition giving rise to a theoretical contingency could be treated, for practical purposes, as certain to be satisfied [1993] HCA 29 ; (1993) 176 CLR 640 at 670-671. 65 That said, the words of Barwick CJ in Nilsen Development 144 CLR at 623-624 using the phrase of Latham CJ in Emu Bay Railway Co 71 CLR at 606, applied by Crennan J in CityLink [2006] HCA 35 ; 228 CLR 1 that the liability must be "presently incurred and due" in the context of the liability to pay the purchase moneys for the acquisition of land are a powerful basis to conclude that the outgoing (being the payment of the purchase moneys) has not been incurred at exchange and will not be incurred until settlement. To apply McDonald v Dennys Lascelles, Automatic Fire Sprinklers, Sunbird Plaza and Gasparin, a distinction could be made between the promise to pay the purchase price as part of an executory contract and the liability to pay the purchase price which accrues, and can be seen to be due, only at settlement. Thus, it could be said that the liability to pay the outgoing is not "incurred and due"; just as the income for the seller is not derived: Gasparin 50 FCR 73. 77 As I have said earlier, the application of the principles in Sunbird Plaza to the question of "incurred" has force, unconstrained by authority. So to conclude would lead to a certain harmony in timing between recognition of derivation of income and the incurring of an outgoing. It would give expression to the long-recognised underlying legal analysis in cases such as McDonald v Dennys Lascelles, Automatic Fire Sprinklers, and Sunbird Plaza . It would conform more clearly with the views of Barwick CJ in Nilsen Developments [1981] HCA 6 ; 144 CLR 616. Nevertheless as a single judge, I am clearly bound by Raymor and Woolcombers. The essence of the argument, as I apprehend it, that was put to the Full Court in Woolcombers , was put to me, though, perhaps, in a somewhat more developed form. Unless the last passage that I have quoted above entitles me to find differently, on the authority of both Raymor and Woolcombers , I should find that the obligation to pay the purchase price on settlement was incurred at the time of the exchange of contracts.


case_title: Ogilvy & Mather Pty Limited v Federal Commissioner of Taxation (1990) 21 ATR 841

case_text: In Ogilvy & Mather Pty Limited v Commissioner of Taxation (1990) 21 ATR 841 at 873-874 Hill J sought to summarise the principles from the authorities. This summary was adopted by the Full Court in CityLink 141 FCR at 79-80. It was as follows: • It is unsafe to attempt an exhaustive definition of a term such as "incurred": New Zealand Flax Investments Ltd at 297 per Dixon J; Hooker Rex Pty Ltd v Commissioner of Taxation (Cth) (1988) 19 ATR 1241 at 1249-1250; • In considering whether a loss or outgoing is incurred the Courts in Australia have adopted what is described as a "legal" or "jurisprudential approach" and not what may be described as a "commercial approach": Coles Myer Finance Ltd v Commissioner of Taxation (Cth) [1993] HCA 29 ; [(1993) 176 CLR 640] ; • An outgoing may be incurred notwithstanding that the amount is not paid in the year of income: Commissioner of Taxation (Cth) v James Flood Pty Ltd [1953] HCA 65 ; (1953) 88 CLR 492 at 507; • An outgoing may be incurred notwithstanding that at the end of the year of income it represents a present liability then due although payable in the future: Commissioner of Taxation (Cth) v Australian Guarantee Corporation Ltd ( 1984) [1984] FCA 240 ; 2 FCR 483. However, it will be important that the liability is "presently existing" during the year of income; • It will be necessary that the taxpayer has completely subjected itself to the loss or outgoing, that is to say definitively committed itself to it in the year of income : Merrill Lynch International (Australia) Ltd v Commissioner of Taxation (Cth) [2001] FCA 1127 ; (2001) 113 FCR 79 per Lindgren J. It will not be sufficient if the loss or outgoing is no more than pending, threatened or expected, no matter that it may be certain that the loss or outgoing will occur in the future: Flood at 5-7-508 ; Hooker Rex at 1249-1250; and • However, a loss or outgoing may be incurred in the year of income notwithstanding that the obligation to pay it is theoretically defeasible: Flood at 506-507; Coles Myer at 670 or, perhaps, even contingent: Coles Myer at 670 per Deane J, citing Commercial Union Assurance Co of Australia Ltd v Commissioner of Taxation (Cth) (1977) 32 FLR 32 at 42-43, but see, however, Flood at 507-508. 56 At about the time of this first instance judgment in Ogilvy & Mather 21 ATR 841 , the Full Court in Raymor 24 FCR at 97 (Davies, Gummow and Hill JJ) expressed the relevant principles as follows: A loss or outgoing to be deductible under s 51(1) must be incurred in the year of income. What is meant by the word "incurred" in this context has been the subject of considerable discussion in the cases. Central to that discussion is the classic statement of Dixon J in New Zealand Flax Investments Ltd v Commissioner of Taxation (Cth) [1938] HCA 60 ; (1938) 61 CLR 179 at 207, referred to with approval by the court in Commissioner of Taxation (Cth) v James Flood Pty Ltd [1953] HCA 65 ; (1953) 88 CLR 492 at 507. His Honour there said: "To come within that provision there must be a loss or outgoing actually incurred. `Incurred' does not mean only defrayed, discharged or borne, but rather it includes encountered, run into, or fallen upon. It is unsafe to attempt exhaustive definitions of a conception intended to have such a various or multifarious application. But it does not include a loss or expenditure which is no more than impending, threatened or expected." Some propositions are now well established. Outgoings may be incurred though the sum in question has not been paid or the liability discharged: New Zealand Flax Investments Ltd (supra) and James Flood Pty Ltd (supra). An outgoing may be incurred notwithstanding that it may be defeasible: Commonwealth Aluminium Corp Ltd v Commissioner of Taxation (Cth) (1977) 32 FLR 210 at 223-224, cited with approval in Commissioner of Taxation (Cth) v Australian Guarantee Corp Ltd [1984] FCA 240 ; (1984) 2 FCR 483 , per Toohey J (at 487); RACV Insurance Pty Ltd v Commissioner of Taxation (Cth) [1974] VR 1 and Commercial Union Assurance Co of Australia Ltd v Commissioner of Taxation (Cth) (1977) 32 FLR 32. An outgoing may be incurred notwithstanding that the amount of that outgoing is payable in the future. It is not necessary that the outgoing be one both due and owing at the time it is "encountered": James Flood Pty Ltd at 507; Commissioner of Taxation (Cth) v Australian Guarantee Corp Ltd (supra). However, "a liability which has not `come home' in the year of income, in the sense of a pecuniary obligation which has become due" will not have been incurred until the year of income in which there is a presently existing liability: Nilsen Development Laboratories Pty Ltd v Commissioner of Taxation (Cth) [1981] HCA 6 ; (1981) 144 CLR 616 , per Barwick CJ (at 623) and per Gibbs J (at 627). As the Australian Guarantee Corp case demonstrates, evidence of commercial and accountancy practice may be relevant in determining whether an outgoing is referable to the accounting period in which it is claimed although such evidence will not be a substitute for the words of s 51(1) itself: per Toohey J (at 492-493), per McGregor J (at 501-503); see also Hooker Rex Pty Ltd v Commissioner of Taxation (Cth) (1988) 79 ALR 181 at 189, 203. It may be noted that in the present case no evidence of this kind was adduced by the Commissioner. 57 By and large this expression of principle is consistent with Ogilvy & Mather, though the propositions in the sixth bullet point in Ogilvy & Mather can be seen to be somewhat more qualified than as expounded in Raymor . 59 In the High Court in CityLink [2006] HCA 35 ; 228 CLR 1 , Crennan J (with whose reasons Gleeson CJ, Gummow, Callinan and Heydon JJ agreed) referred at 38 [127], without disapproval, to the synthesis essayed by Hill J in Ogilvy & Mather. In her Honour's reasons (at [122]-[126]) some analysis of the jurisprudence was made upon which the respondent here relied. After referring in [122] to New Zealand Flax [1938] HCA 60 ; 61 CLR 179 and James Flood [1953] HCA 65 ; 88 CLR 492 and, in particular, to the notions of "definitely committed" and "completely subjected", her Honour referred to the reasons of Barwick CJ in Nilsen Development Laboratories Pty Limited v Federal Commissioner of Taxation [1981] HCA 6 ; (1981) 144 CLR 616. The reference to that decision is important in that the Chief Justice (with whose reasons Mason J agreed generally, and Aickin and Wilson JJ agreed (together with the reasons of Mason J)) said at 623 that the language of Dixon J in New Zealand Flax "need [ed] to be carefully perused and applied" and then went on to say the following: ...Granted that exhaustive definition of what may be denoted by the word "incurred" in s 51 (1) may not be possible, there can be no warrant for treating a liability which has not "come home" in the year of income, in the sense of a pecuniary obligation which has become due, as having been incurred in that year. Sir John Latham's language in Emu Bay Railway Co Ltd v Federal Commissioner of Taxation [1944] HCA 28 ; (1944) 71 CLR 596 at p 606 clearly enough indicates that to satisfy the word "incurred" in s 51 (1) the liability must be "presently incurred and due though not yet discharged". The "liability" of which Sir John speaks is of necessity a pecuniary liability and the word "presently" refers to the year of income in respect of which a deduction is claimed. It may not disqualify the liability as a deduction that, though due, it may be paid in a later year. That part of Sir Owen Dixon's statement in New Zealand Flax Investments Ltd v Federal Commissioner of Taxation (1938) 61 CLR, at p 207 which presently needs emphasis is that the word "incurred" in s 51 (1) "does not include a loss or expenditure which is no more than pending, threatened or expected": and I would for myself add "no matter how certain it is in the year of income that that loss or expenditure will occur in the future". The language of Crennan J in [123] can be seen to revivify this passage from Nilsen Developments [1981] HCA 6 ; 144 CLR 616 which did not form an express part of Hill J's synthesis in Ogilvy & Mather , though it was referred to in Raymor . It can be seen as a reiteration, perhaps, of the fourth proposition in Ogilvy & Mather supported by reference to Federal Commissioner of Taxation v Australian Guarantee Corporation Limited [1984] FCA 240 ; (1984) 2 FCR 483 , a case in which Nilsen Developments and Emu Bay Railway Co Ltd v Federal Commissioner of Taxation [1944] HCA 28 ; (1944) 71 CLR 596 were distinguished. Though Nilsen Developments was in respect of long service leave obligations in a specific statutory context, it is clear that the lack of a liability to make a payment until leave was taken or cessation of employment meant that there was no incurring of the outgoing.


case_text: The above said, there was nothing qualified or inchoate about the promise in special condition 11 of the contract. There was no condition precedent to the coming into existence of the promise there stated. It was, from exchange of contracts, a legal obligation intended to have effect; but it is to be construed (as its words make plain) as an obligation to pay a certain time after tender of the transfer on settlement. After the contract was made, it was a promise that was part of an executory contract, but, of course, it could not be withdrawn. The point of the above authorities is that until delivery (here, of the transfer) there is no accrued obligation to pay, no debt. What exists beforehand is a promise to pay, but in one sense dependent or conditional upon delivery. Delivery can, perhaps, be seen as the condition precedent to performance (cf Perri v Coolangatta Investments Pty Limited [1982] HCA 29 ; (1982) 149 CLR 537). The use, however, of the words "conditional" or "unconditional" in this context is apt to cause confusion. A better way of expressing the analysis from the above cases is that the mutual promises (here, to build and transfer, on the one hand, and to pay, on the other) are unconditional, but dependent, and calling for concurrent performance. Neither promise was conditional on a contingency; they were mutually dependent: see generally Carter JW and Harland DJ, Contract Law in Australia (4 th ed, Butterworths, 2002) at [742], [1807] and [1808]. 51 It is necessary to seek to place this analysis into the context of the words of s 8-1 and their surrounding jurisprudence. 52 Section 8-1(1) of the 1997 Act is, relevantly, in the following terms: You can deduct from your assessable income any loss or outgoing to the extent that: (a) it is incurred in gaining or producing your assessable income; or (b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. [emphasis added]


case_text: The proper identification of this promise and its relationship to the payment of the purchase price is to be found in a number of cases of the highest authority. In McDonald v Dennys Lascelles Ltd [1933] HCA 25 ; (1933) 48 CLR 457 at 475-476, Dixon J (as he then was) quoted Sir John Salmond in Ruddenklau v Charlesworth [1925] NZLR 161 at 164-165 in expressing the relevant principle: If the purchaser refuses to complete the executory contract to buy the land, the vendor is not entitled to sue for the purchase money as a debt . He is entitled to sue for specific performance or for damages for the loss of his bargain. [emphasis added] Sir John Salmond continued: It is only when the contract has been completed by the execution and acceptance of a conveyance that unpaid purchase money may become a debt and can be recovered accordingly. [emphasis added] This general rule could be rebutted by clear intention in the contract for the payment of the purchase price, or part of it, on a fixed day, other than the day for completion.