11 Nov 09 High Court refuses special leave to appeal in St George Bank
The High Court (French CJ and Heydon J) has refused the taxpayer (St George Bank) special leave to appeal from the decision of the Full Federal Court in St George Bank Ltd v FCT  FCAFC 62.
In 1997 the taxpayer merged by way of a scheme of arrangement with Advance Bank Australia Ltd. As a consequence of that merger the taxpayer needed to augment its capital base, in order to comply with the Reserve Bank of Australia's requirement that all banks in Australia maintain certain minimum ratios of capital to risk-weighted assets. In June 1997, a Delaware incorporated subsidiary of the taxpayer (LLC) raised, in the capital markets of the United States, the sum of US$350 million. Upon raising the funds, LLC then on-lent them to the taxpayer in return for a debenture. The debenture required the payment of interest. In the years of income 1999 to 2003 the taxpayer paid LLC interest.
In the Full Federal Court, Emmett, Stone and Perram JJ held that interest paid by the taxpayer to LLC, pursuant to its obligations under the debenture, was not deductible, being an outgoing of capital or of a capital nature for the purposes of s 8-1(2)(a) of ITAA 1997.
In refusing special leave, French CJ said: "The debate in the end is one of characterisation in the application of longstanding principle. In our opinion, it does not warrant the grant of special leave".
For a copy of the transcript of the special leave application, go here