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INTRODUCTION
Perhaps the most celebrated tax decision delivered in the 1980s was that of the Full High Court in The Myer Emporium Ltd v FCT[1] in which the concept of what constitutes "income" for the purposes of s 25(1) of the Income Tax Assessment Act 1936 (Cth) (the Act) was considered. The leading interpretations of the principles enunciated in Myer are found in a trilogy of Full Federal Court decisions delivered by Hill J in Westfield Ltd v FCT,[2] Henry Jones (IXL) Ltd v FCT[3] and SP Investments Pty Ltd (As Trustee of the LM Brennan Trust) v FCT.[4] The purpose of this article is to examine the way in which Hill J has interpreted the principles of the Myer decision in these three cases.[5]
MYER EMPORIUM
In Myer, the taxpayer was the parent company of the Myer group of companies which carried on business primarily in the fields of retail trading and property development. As part of a wider plan to reorganise the Myer group, the taxpayer entered into the following interrelated transactions.
On 6 March 1981, the taxpayer lent $80 million to its shelf company subsidiary (Myer Finance Ltd). The loan agreement required Myer Finance to repay the principal on, but not prior to, 30 June 1988 and to pay interest at the commercial rate of 12.5 per cent per annum on the principal owing on the dates set out in the loan agreement. The total interest payable over the period of the loan amounted to $72 million. On the date the loan was made, the taxpayer received an initial payment of interest from Myer Finance of $82,192.
Three days after the loan agreement was made the taxpayer assigned to an unrelated finance company, Citicorp, "the moneys due or to become due as the interest payments and interest thereon" under the loan agreement in return for a lump sum consideration of $45.37 million paid on the same day.
Both the loan and the assignment formed an integral part of the Myer group reorganisation. In other words, if Citicorp had not agreed in advance to pay for the assigned interest, the taxpayer would not have made the loan to Myer Finance.
The Commissioner assessed the taxpayer under s 25(1) of the Act on...