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The Full Court of the Federal Court (Edmonds, McKerracher and Davies JJ) has, by majority, dismissed the taxpayer's appeal from the decision of Gordon J in SPI PowerNet Pty Ltd v FCT [2013] FCA 924.

Gordon J held that payments made by the taxpayer (SPI), the licensee of an electricity transmission business in Victoria, to the Victorian Treasurer totalling $177.5 million during the financial years 1998 to 2000 were not deductible under s 8-1(1) ITAA 1997. Gordon J did so on two alternative bases:

(1) The payments were not a cost of SPI deriving its income. The payments were payments out of SPI’s profits after the calculation of SPI’s taxable income. The payments did not satisfy either limb of s 8-1(1).

(2) While it was strictly unnecessary to consider, the payments were outgoings of capital or of a capital nature.

On appeal, Edmonds and McKerracher JJ disagreed with Gordon J's findings on the first basis, but agreed with her Honour's findings on the second basis, thus dismissing the taxpayer's appeal. In dissent, Davies J disagreed with both bases and would have allowed the taxpayer's appeal.

In relation to the second basis, Edmonds J said, at para 12:

"In my view, the [payments] were outgoings of capital or of a capital nature because they were part of the cost (to SPI) of acquiring the assets of the business, specifically, the Transmission Licence, unarguably a capital asset. Prior to Cliffs International Inc v Commissioner of Taxation...[1979] HCA 8; 1979) 142 CLR 140 there would have been no doubt about this proposition; for the reasons articulated below, it remains my position post-Cliffs International, at least on the facts of this case. Pre-Cliffs International, the position is perhaps best summed up by Fullagar J (with whom Kitto and Taylor JJ agreed) in Colonial Mutual Life Assurance Society Ltd v Federal Commissioner of Taxation [1953] HCA 68; (1953) 89 CLR 428 at 454:

'[I]t is incontestable here that the moneys are paid in order to acquire a capital asset. The documents make it quite clear that these payments constitute the price payable on a purchase of land, and that appears to me to be the end of the matter. It does not matter how they are calculated, or how they are payable, or when they are payable, or whether they may for a period cease to be payable. If they are paid as parts of the purchase price of an asset forming part of the fixed capital of the company, they are outgoings of capital or of a capital nature. It does not indeed seem to me to be possible to say that they are incurred in the relevant sense in gaining or producing assessable income or in carrying on a business—any more than payment of a lump sum would have been so incurred if the purchase price had been a lump sum payable on transfer. The questions which commonly arise in this type of case are (1) What is the money really paid for?—and (2) Is what it is really paid for, in truth and in substance, a capital asset?'"

SPI PowerNet Pty Ltd v FCT [2014] FCAFC 36 (7 April 2014).

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