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Published online by Cambridge University Press: 24 January 2025
Section 260 is a general anti-avoidance provision found in the Income Tax Assessment Act 1936. Together with sections 25(1) and 51(1), it is one of the most important sections of the Act. To the “tax planner” section 260 spells anathema: to the Revenue it is an invaluable aid to prevent tax avoidance and preserve tax equity. Judges have tended to differ in their attitudes towards section 260. This article examines the treatment of the section in the hands of the judiciary, its interpretation and misinterpretation. In addition, the article seeks to highlight a significant point, namely, that the alternative to a general anti-avoidance provision is anti-avoidance legislation of a specific nature which would add tremendous complexity to an already complex Act. The plea therefore is that the judiciary should re-assess the situation they have helped bring about before it is too late, and that judicial common sense be substituted for the growing complexity of the Income Tax Assessment Act.
1 (1964) 111 C.L.R. 443,445.
2 The courts have accepted the use of the word “arrangement” as a compendious reference to the phrase “contract, agreement or arrangement”.
3 (1958) 98 C.L.R. 1.
4 Id. 7.
5 Id. 8.
6 Ibid.
7 (1957) 96 C.L.R. 577, 630.
8 Id. 646-647.
9 Id. 655-656.
10 Inland Revenue Commissioners v. Duke of Westminster [1936) A.C. 1, 19.
11 29 C.L.R. 464.
12 Id. 466.
13 (1914) 17 C.L.R. 665.
14 Id. 671.
15 29 C.L.R. 464, 476.
16 Id. 472.
17 Id. 473 (italics added).
18 (1932) 48 C.L.R. 56.
19 Id. 77.
20 (1957) 100 C.L.R. 66.
21 (1957) 100 C.L.R. 95.
22 (1957) 100 C.L.R. 66, 86.
23 Ibid.
24 Id. 87.
25 Id. 92-94.
26 (1957) 100 C.L.R. 95.
27 Id. 114. See also Stephen, J. in Mullens v. Federal Commissioner of Taxation (1976) 76 A.T.C. 4288, 4303-4304Google Scholar.
28 Id. 115.
29 The Commissioner had, prior to Newton's case, successfully invoked s. 260 in the following cases: Jaques v. Federal Commissioner of Taxation (1924) 34 C.L.R. 328; Clarke v. Federal Commissioner of Taxation (1932) 48 C.L.R. 56; Bell v. Federal Commissioner of Taxation (1953) 87 C.L.R. 548. The Commissioner had failed in Deputy Federal Commissioner of Taxation v. Purcell (1921) 29 C.L.R. 464; War Assets Pty Ltd v. Federal Commissioner of Taxation (1954) 91 C.L.R. 53; W. P. Keighery Pty Ltd v. Federal Commissioner of Taxation (1957) 100 C.L.R. 66; Federal Commissioner of Taxation v. Sidney Williams (Holdings) Ltd (1957) 100 C.L.R. 95.
30 (1958) 98 C.L.R. 1, 8.
31 Id. 8-9.
32 Id. 9-10.
33 Id. 10.
34 Id. 8-9.
35 (1971) 127 C.L.R. 62; 71 A.T.C. 4068.
36 (1972) 128 C.L.R. 602.
37 Supra n. 35.
38 [1971] A.C. 739; (1970) 1 A.T.R. 835.
39 Supra n. 3.
40 [1971] A.C. 739, 751; (1970) 1 A.T.R. 835, 841.
41 Id. 746; 837.
42 Cross, , Precedent in the English Law (1st ed. 1961) 181Google Scholar.
43 (1971) 125 C.L.R. 647; 71 A.T.C. 4202.
44 (1975) 75 A.T.C. 6001; Lord Diplock, Lord Morris, Viscount Dilhorne, Lord Kilbrandon and Lord Salmon.
45 Id. 6006.
46 (1976) 76 A.T.C. 6001.
47 Id. 6009 (italics added).
48 (1977) 77 A.T.C. 4076; 7 A.T.R. 166.
49 (1976) 76 A.T.C. 4019.
50 (1977) 77 A.T.C. 4076; 7 A.T.R. 166.
51 Id. 4081; 170.
52 (1958) 98 C.L.R. 1, 7.
53 (1977) 77 A.T.C. 4076, 4079; 7 A.T.R. 166, 168 (italics added).
54 (1976) 76 A.T.C. 4288.
55 (1924) 34 C.L.R. 328, see text at n. 69, infra.
56 (1976) 76 A.T.C. 4288, 4292.
57 Id. 4294-4295.
58 Id. 4297.
59 Id. 4303.
60 (1957) 96 C.L.R. 577, 656; this statement was subsequently affirmed by the Privy Council in Newton's case (1958) 98 C.L.R. 1, 10.
61 (1958) 98 C.L.R. 1, 7-8.
62 Lord Donovan in Peate v. Federal Commissioner of Taxation (1966) 116 C.L.R. 38, 48.
63 (1932) 48 C.L.R. 56.
64 Id. 77.
65 (1964) 111 C.L.R. 430.
66 (1966) 116 C.L.R. 38.
67 (1976) 76 A.T.C. 4068.
68 See also Rowdell Pty Ltd v. Federal Commissioner of Taxation (1963) 111 C.L.R. 106.
69 (1924) 34 C.L.R. 328.
70 (1932) 48 C.L.R. 56.
71 (1962) 108 C.L.R. 336.
72 (1971) 71 A.T.C. 4202.
73 (1957) 96 C.L.R. 577, 656-657.
74 (1961) 108 C.L.R. 258.
75 (1961) 108 C.L.R. 303.
76 (1972) 128 C.L.R. 602.
77 (1961) 108 C.L.R. 258.
78 Id. 283.
79 (1972) 128 C.L.R. 602.
80 Id. 621.
81 (1953) 87 C.L.R. 548.
82 (1976) 76 A.T.C. 4019 (New South Wales Supreme Court); (1977) 77 A.T.C. 4076 (Full High Court).
83 For another instance where s. 260 was held not to apply see Hennessey v. Federal Commissioner of Taxation (1975) 75 A.T.C. 4007.
84 [1971] A.C. 739; (1970) 1 A.T.R. 835.
85 Id. 749; 840.
86 Land and Income Tax Act 1954, s. 108(2) (as amended by Land and Income Tax Amendment Act (No. 2) 1974). Now Income Tax Act 1976, s. 99.
87 Income Tax Act 1962, s. 103(1).
88 (1976) 76 A.T.C. 4288. Also Cecil Bros Pty Ltd v. Federal Commissioner of Taxation (1964) 111 C.L.R. 430 where the Court (Dixon C.J., Kitto, Taylor and Windeyer JJ.) held (reversing the decision of Owen J.) that s. 260 did not apply to deny a deduction on an outgoing made by the taxpayer. Menzies J. held s. 260 to apply, but held that it had no effect.
89 See generally, Sappideen, , “The Control of the Commissioner's Discretionary Power under the Income Tax Assessment Act 1936-1974” (1977) 13 University of Western Australia Law Review 135Google Scholar.
90 Admittedly, this would be a matter of degree. But this would not require the tax avoidance purpose to exceed in importance all other purposes.