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Since the decision in Federal Commissioner of Taxation v. Myer Emporium Ltd.,(1) there has heen some concern as to how wide that decision should be taken in terms of the operation of s. 25(l) of the Income Tax Assessment Act. In particular, there has been some concern over that part of the judgment which stated:(2)
"(A) gain made otherwise than in the ordinary course of carrying on the business which nevertheless arises from a transaction entered into by the taxpayer with the intention or purpose of making a profit or gain may well constitute income...Generally speaking, however, it may be said that if the circumstances are such as to give rise to the inference that the taxpayer's intention or purpose in entering into the transaction was to make a profit or a gain, the profit or gain will be income, notwithstanding that the transaction was extraordinary, judged by reference to the ordinary course of the taxpayer's business."
There are precedents such as Australasian Catholic Assurance Co. Ltd. v. Federal Commissioner of Taxation(3) and more recently, Federal Commissioner of Taxation v. Employers Mutual Indemnity Association Ltd.(4) and Federal Commissioner of Taxation v. Equitable Life and General Insurance Co. Ltd.,(5) which indicate that capital profits may be assessable under s. 25(l) where the realisation of capital assets is a normal incident of day to day operations. For example, in London Australia Investment Co. Ltd. v. Federal Commissioner of Taxation(6) it was held that the sale of shares by the taxpayer was a normal part of the firm's business operations and, as such, the profits arising from the sale were assessable under s. 25(l). This view is certainly supported by the decision in Calfornian Copper Syndicate v. Harris, where it was stated:(7)
"(E)nhanced values obtained from realisation or conversion of securities may be so assessable, where what is done is not merely a realisation or change of investment, but an act done in what is truly the carrying on, or carrying out of a business."
The difficulty for the taxpayer arises in determining how far the High Court decision in relation to the Myer Emporium Ltd. extends. Where a taxpayer realises an asset not in the ordinary course of business, but nevertheless makes a profit on the...