Lenzo v Commissioner of Taxation of the Commonwealth of Australia [2008] HCATrans 371 (12 November 2008)

Last Updated: 14 November 2008

[2008] HCATrans 371

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Perth No P14 of 2008

B e t w e e n -

GINO LENZO

Applicant

and

COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Respondent

Application for special leave to appeal

GUMMOW J
HAYNE J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

FROM ADELAIDE BY VIDEO LINK TO PERTH

ON WEDNESDAY, 12 NOVEMBER 2008, AT 4.01 PM

Copyright in the High Court of Australia

MR M.J. McCUSKER, QC: May it please the Court, I appear with my learned friend, MR D. ROMANO, for the applicant . (instructed by Wilson & Atkinson)

MR G.J. DAVIES, QC: If the Court pleases, I appear with my learned friend, MS L.B. PRICE, for the respondent. (instructed by Australian Government Solicitor)

GUMMOW J: Yes, Mr McCusker.

MR McCUSKER: Your Honours, this is an application for special leave to appeal against a decision of the Full Federal Court which had upheld an appeal by the Commissioner of Taxation against a decision of Justice French. Justice French’s decision set aside the Commissioner’s disallowance of the applicant’s objections to amended assessments made by the Commissioner in respect of three financial years 1998, 1999 and 2000. It is only in respect of 1998 that we are now concerned.

His Honour Justice French held that Part IVA did not apply essentially for two reasons. The first of those was that there was no tax benefit obtained by the taxpayer through the identified scheme in terms of section 177C(1)(b) of the Act. The second was that he considered that in any event, having regard for the eight factors listed in section 177D of the Act, he concluded that the dominant purpose of the taxpayer in entering into the scheme could not be said to be the obtaining of a tax benefit. The appeal, in our submission, raises two very important though short points concerning - - -

GUMMOW J: I understand why you explain to us how you succeeded at first instance. You have to explain to us why you failed on the appeal and what was wrong with that.

MR McCUSKER: Why we failed on the - - -

GUMMOW J: Yes. The intermediate appeal.

MR McCUSKER: We failed on the appeal, your Honour, because the court took the view that Justice French erred in holding that there was no tax benefit under section 177C and further erred in holding that the dominant purpose was not taxation benefit. If I could deal with section 177C, at page 41 of the application book, paragraph 119 Justice French referred to a relevant counterfactual in the case. He was dealing there with the question, of course, as to whether in terms of section 177C it could be said that the tax benefit was obtained by reason of it being a deduction allowed where that deduction would not have been allowable or might reasonably have been expected not to have been allowable if the scheme had not been entered into.

GUMMOW J: I see that, Mr McCusker. What do you say as to your opponent’s submission at page 126 of the book, paragraph 7 over to paragraphs 8 and 9 as to the reliance on the so-called counterfactual?

MR McCUSKER: Your Honour, I need to take you, I think, to the facts briefly. It is true that the applicant said that if he had not invested in the project, he would have invested the money in the superannuation fund. Justice French said that that was not a relevant counterfactual because the deduction which would thereby have been obtained, and there is no issue that it would have been obtained, would not have been that deduction, that is, the deduction obtained by investment in the project. So he then turned to consider against a background of the taxpayer’s clear evidence, which was accepted by the trial judge, that he had become very interested in the commercial production of sandalwood in the Ord River area.

He said at paragraph 119 on page 41 of the application book that he could have used his own funds to invest in the project or obtain a loan from the ANZ. Now, there was ample evidence to support that because in the following year – although in the first year he had borrowed money from Arwon Finance, a company which was advertised in the projects brochure as being available to make loans to suitable applicants on a full recourse basis, in the second year he did not continue to borrow money from Arwon Finance, but borrowed it from the ANZ Bank. It is not contended that that borrowing and the use of those funds was not an allowable deduction.

So it all centres on the crucial element of the scheme or schemes identified by the Commissioner in each case was a borrowing from Arwon Finance which was accompanied by a so-called “round robin” of which, although perhaps it is irrelevant, the taxpayer had no knowledge. He simply knew that he was borrowing money from Arwon Finance. But what the learned trial judge said was that if the scheme postulated by the Commissioner had not existed, then the deduction claims, he says at paragraph 119, would have been allowable or might reasonably be expected to have been allowable if the scheme had not been entered into or carried out. That is in terms of section 177C(1)(b). He reached that conclusion, your Honours, on the basis of the evidence that was before him and, in particular, I think, the evidence that the second year and following he had borrowed money from ANZ. This was an ongoing operation and the project continues to this day.

Now, what the Full Court said – and this appears starting at page 94 at paragraph 130, where it considered what the trial judge had said about the relevant counterfactuals to which I have taken you. It said:

The difficulty with both of these counterfactuals is that they apparently dispense with part of the scheme (as found by his Honour), yet leave the balance of the scheme intact.

In other words, what the Full Court was saying was that you must dispense with every element of the scheme and then hypothesise whether a deduction would have been available. Since, both at the trial level and in the Full court, the view was taken that some alternative investment, such as superannuation, which was clearly open to him, was not relevant for the purpose of a counterfactual under section 177C(1)(b), the end result of that was that a deduction would never be allowable, because if you dispense entirely with a scheme, that is, the project, then you cannot invest in the project without there being some part of a so-called scheme, even though the noxious parts, if I can call it that, that is, the loan and the round robin, have been taken out of the scheme. So it is no longer the scheme but some elements are left. At paragraph 131 this theme is continued where the court said in the second sentence:

In the absence of the scheme as a whole (the hypothesis mandated by s 177C(1)(b)) –

“as a whole” I stress:

there would have been no Project in which Mr Lenzo could have invested. Indeed, Mr Lenzo would not have completed the Application Form. Certainly, no moneys would have been payable by him pursuant to the Lease . . . Thus he could not have claimed allowable deductions –

The problem, in our submission, with that proposition is that the scheme as identified by the Commissioner and in turn by the trial judge is not the project. The scheme is an arrangement which contains various elements, including the loan agreement. But it is not to say that if that scheme with that element ceased to exist there would be no opportunity to invest in the project, and that is what his Honour the trial judge was saying.

He concluded, in terms of 177C(1)(b) that it could reasonably be expected that the taxpayer would have gone on and invested, in any event, in a project under the lease arrangement and would have had precisely the same deduction. It is for that reason that he concluded that there was no tax benefit. At page 95 of the application book, continuing the reasoning of the Court of Appeal, at paragraph 132 that contention was referred to in the last sentence:

This contention assumed, as Mr McCusker accepted, that in the absence of the scheme the Project would still have been available for investment by investors who did not need or want funding on the terms offered by Arwon.

There was no evidence that it was not available. It would not have been available if the scheme involving the loan had not existed. Indeed, the brochure, the prospectus, for the investment in this project simply made available to suitable applicants a loan with this Arwon Finance. It did not stipulate that investors in the project had to borrow money from Arwon Finance in order to invest in the project. Then at paragraph 133 it is stated:

There are several difficulties with this submission. First, his Honour made no express finding that, in the absence of the scheme, Mr Lenzo would have invested in the Project. Indeed in oral argument, Mr McCusker seemed to retreat from an earlier suggestion that such a finding was implicit –

I am not sure what was meant by that, but I certainly did not retreat from the proposition that his Honour had found in terms of 177C that there was no tax benefit. The finding of his Honour was premised clearly on the basis that the project – or it was reasonably likely that the project would have been available for investment and that Mr Lenzo, the taxpayer, would have invested with his own funds or funds borrowed from the bank.

GUMMOW J: Now, Mr McCusker, all this is extremely fact specific. Is it to provide content to your first ground of appeal at page 110?

MR McCUSKER: It is, your Honour, yes.

GUMMOW J: Is it misinterpretation or misapplication?

MR McCUSKER: It is a misapplication of 177C(1)(b) and the only reason I swayed into, as it were, the fact specific area was to explain that it is not correct to say that there was no finding by his Honour – whether it be expressed or implied makes no difference – that the project would have been available because he could not have made a finding under 177C(1). In fact, his finding at paragraph 119 clearly shows that his view was that absent the scheme, that is, absent the vital element of the scheme, the deduction would still have been obtained or there was a reasonable likelihood that it might reasonably expected to have been allowable.

HAYNE J: Does your contention depend upon persuading the court to a particular construction of 177C(1)(b)?

MR McCUSKER: It does, your Honour.

HAYNE J: What is that construction that you are urging?

MR McCUSKER: That construction is that where there is some form of investment or arrangement, an element of which is said to be indicative of a tax avoidance purpose, that is, it is part of a scheme and a crucial element, that nevertheless, for the purpose of 177B(1), if it can be hypothesised in terms of that section, that investment in the same project, or perhaps you can put it larger, investment of the same kind would have been made even in the absence of a scheme, then that would mean that there was no tax benefit if the allowable deduction could still be obtained. Now, what the Full Court has done in contra distinction to that has said, no, you cannot have a counterfactual, that is, a hypothesis, which depends up on any element of the so-called scheme being maintained. Which would mean, for practical and legal purposes that 177C(1)(b) would be rendered otiose because there could be virtually no situation in which it could be said by a taxpayer that a deduction of the same nature could reasonably have been obtained without the scheme. So we say that the Full Court fell into error on a very short but important point by saying - - -

GUMMOW J: This expression “counterfactual”, if I can just interrupt, is that something that follows from the reading of the words in the paragraph of 177C(1) would not have been or might reasonably be expected that some hypothesis is being suggested, is it?

MR McCUSKER: It is, your Honour.

HAYNE J: Is not the relevant statutory counterfactual identified by the concluding words “if the scheme had not been entered into or carried out”? That is the only relevant counterfactual that is to be considered, is it not?

MR McCUSKER: Yes, your Honour, but one must place emphasis on the meaning of “the scheme”. The scheme is identified as one involving a borrowing of funds and a round robin attached to it. That is the scheme. So if that scheme had not been carried out, it does not follow that there would not have been an investment in the project obtaining precisely the same deduction as was obtained pursuant to the scheme.

CRENNAN J: This is a statutory construction issue about what that deduction means.

MR McCUSKER: That is right, your Honour. There are two – well at the moment three possible approaches. The first was to put forward the hypothesis based on evidence that Mr Lenzo would have instead – if this project had not been available – he would have instead invested in superannuation. But we have said, well, that is not relevant for the purpose of 177C(1)(b). The further one is well, if you take away the scheme as identified does that mean that you can still hypothesise that an investment of the same nature would have occurred and the same deduction been obtained, and that is the crucial issue for the purpose of statutory interpretation.

HAYNE J: Well, does this not involve entering the debate at the wrong point, Mr McCusker? Section 177D identifies schemes to which the part applies and you have got the eight factors. Those eight factors are to be considered in determining whether it would be concluded that somebody entered the scheme for the purpose of enabling the relevant taxpayer to obtain a tax benefit. Then you give content to obtaining a tax benefit by 177C(1)(b). Now, you are putting forward a case, are you not, where you say at the end of the day, well, this man might have borrowed money elsewhere to invest in sandalwood trees; is that right?

MR McCUSKER: That is right, or use his own funds, yes.

HAYNE J: Yes. But the requisite question, or the relevant point at which you begin, is 177D, is it not?

MR McCUSKER: It is, that is for the purpose of examining the factors which determine what the dominant purpose is.

HAYNE J: The dominant purpose is to obtain a tax benefit. You obtain a tax benefit relevantly if you fall within 177C(1)(b) and that requires you to consider what would have been the position if you had not entered the scheme? And if you had not entered the scheme you would not have got the deduction; it is as simple as that, is it not, Mr McCusker?

MR McCUSKER: Well, with respect, we say no, but obviously. Our submission is that unless there is a tax benefit then Part IVA does not apply. Could I come to the second point which we wish to raise?

GUMMOW J: Just looking at 177C(1) for a minute – do not worry about the time necessarily – (a), (b) and (c) all conclude with these words “if the scheme had not been entered into or carried out”. Is that not suggestive of what Justice Hayne was putting to you?

MR McCUSKER: Well, it may be arguable, your Honour, but on the other hand a tax benefit means a deduction that would not have been available and so in order to apply section 177D and the words there, dominant purpose tax benefit, you have got to determine whether it is a benefit, in our submission, that:

would not have been allowable, or might reasonably be expected not to have been allowable . . . if the scheme had not been entered into –

So I appreciate what Justice Hayne has said about looking first at 177D but one must give full force to 177C and to consider whether tax benefit in 177D exists, that is, is that a tax benefit or is it something that could have been obtained any way.

HAYNE J: Well, could have been obtained? Is it not a case where the taxpayer has to go into the box and say, “I would have invested in this project whatever happened and to do that I would have done it by borrowed funds. There just happened to be a tame financier that I chose to adopt because I thought they were good enough.

MR McCUSKER: Well, in that regard, your Honour, what the trial judge said, having regard to the clear interest of the taxpayer which extended back as far as early 1997, in this kind of project, sandalwood, which was being projected and trialled up in the north by the Conservation and Land Management. Having regard to that the approaches he had made and the research he had done and the fact that he had his own funds which he used in the second year it was reasonable, his Honour said, to expect that it would have been an allowable deduction in the event, even if the loan had not been available.

You do not need, and, in my submission for the purpose of 177C(1)(b) to have direct evidence that that would have occurred. What the taxpayer said is, “If I could not have invested in a project” – which is what he wanted to do – “If I could not have invested in a project then I would have put the money into super” and he was thinking about that but finally decided to put the money into this investment.

GUMMOW J: You have a second point, have you not?

MR McCUSKER: I have, your Honour. It is a very short point.

GUMMOW J: Yes, all right.

MR McCUSKER: That is the question of “dominant purpose”. We are not asking the Court to deal with other than the specific question of where there is no identified error of law or principle on the part of the trial judge; we say the Court, on appeal, ought not, except in very rare circumstances, depart from or give its own analysis and give its own weight to what the trial judge has found to be appropriate. We deal with this in paragraph 11 of our submissions, your Honour. We refer to, first of all, what the Full Federal Court said as being an “holistic” approach, “a global or overall judgment provided that those factors have been considered”.

His Honour in this case, the trial judge, went through each of the factors. On appeal the Court of Appeal thought that he gave undue weight to some factors and insufficient weight to others, but that is really all it came down to, and, in our submission, that runs counter to what has been said in Calder as we have quoted at paragraph 11 so I will not read it through. Then we refer to a couple of the points which the Court of Appeal said at paragraphs 14 and following which we have dealt with in our submissions. He said at paragraph 14:

In the circumstances, it is appropriate to form my own view about the proper conclusion

15. That begs the question: What are the “circumstances” –

and the first one is, he said, at paragraph 15 that Justice French said:

the fact that “significant returns could reasonably have been expected, independently of tax benefits” “appears to have regarded (by French J) . . . as critical to, if not determinative –

On a fair reading of Justice French’s reasons he did not regard that as either critical to or determinative – much less determinative of the question. He dealt with each of the issues and gave each its appropriate weight.

He did not certainly say because the significant returns could reasonably be expected independently of tax benefits, therefore it cannot be a dominant purpose; nothing like that was said. A second difficulty identified by the Court of Appeal was the trial judge appears to have underestimated the tax benefits obtained or available to Mr Lenzo in connection with the scheme. Now, I can briefly explain that the answer to that is what the trial judge did was to take the totality of the tax benefits whereas the Court of Appeal looked simply at each one year by year, and it is certainly the case that the tax benefits in the first year did exceed – not by a huge amount – but did exceed the amount that was his cash outlay.

But in subsequent years, as Justice French pointed out, if you aggregate the two, the tax benefits did not exceed the cash outlay, and then there is the reference by the Court of Appeal to the round robin. The trial judge gave that its appropriate weight. At the end of the day the question that we seek to raise here is, is it appropriate, unless there is some identified and clear error of principle or approach or error of fact perhaps as well, is it appropriate for a Court of Appeal to substitute its own views as to the appropriate weight to be given to these eight factors as against the weight
given by the trial judge who is, of course, close to it and, we would submit, in a better position to make that judgment and assessment.

GUMMOW J: Thank you Mr McCusker. Yes, Mr Davies?

MR DAVIES: If your Honours please, I just wish to add one point to our written submissions in relation to tax benefit. The starting point with the question, and an issue arising about tax benefit, are the words of the legislation. The words of the legislation require that an analysis of the facts be undertaken to determine what would have happened or might reasonably be expected to have happened if the scheme had not been entered into or carried out. The Full Court stated that that reference to “scheme” in the section means the whole of the scheme. In our submission, that is an unexceptional conclusion and right on the legislation.

So the inquiry in the present case was to identify the scheme, which was identified to be the prospectus, the trustee, the lease and management agreement, the loan agreements and the indemnity agreement; and to determine what would or might reasonably be expected to have happened if those things had not been undertaken or entered into. It becomes then a matter to be determined on the evidence. The taxpayer’s evidence before the Court was that if he had not entered into the scheme he would have invested into a superannuation contribution.

There was no evidence before the Court that if the taxpayer had not entered into some of the agreements that constituted the scheme – that is the loan agreements – he would nonetheless have continued to have invested in the scheme through some other mechanism such as entering into the lease and management agreement and borrowing from ANZ or using his own funds. There was no evidence at all about that. If the taxpayer’s evidence was to be accepted as to what he would have done in the absence of investing into the scheme, it necessarily follows that there was a tax benefit gained by entered into this scheme. That is because by entering into this scheme he obtained a deduction for payments or prepayments made under the lease and management agreement and for interest and for indemnity fees. Had he not entered into those agreements but entered into the superannuation – made an investment into the superannuation fund, those deductions would not have been available.

His Honour Justice French accepted the conclusion that had that been the relevant counterfactual then there would have been a tax benefit, and his Honour makes that finding in paragraph 118. It is in paragraphs 116 and 117 that his Honour refers to the submission that was put by the taxpayer about what would have happened had there not been an investment in the project – that is, an investment into the superannuation fund. Paragraph 117 records the matters upon which the taxpayer relied to make good that submission. His Honour deals with the submission not by rejecting the evidence but by saying that had that occurred, then there would have been a tax benefit because the type of deduction that one gets for superannuation contribution is not the deduction that has been talked about under section 177C(1) on the facts of the present case, because on the facts of the present case the relevant deductions were deductions for lease and management fees, interest and indemnity fees.

GUMMOW J: I am not sure I quite understand this phrase “relevant counterfactual” at paragraph 119. Why is it the relevant counterfactual?

MR DAVIES: Well, your Honour, the relevant counterfactual is a phrase that has been picked up from this Court’s decision in Hart’s Case where I think that expression may have been used in the judgments. That is where his Honour seems to have picked it up from because it does not appear in the legislation. In our submission, what his Honour has failed to realise is that if the taxpayer’s evidence is to be accepted in relation to the superannuation contribution it necessarily means there was a tax benefit. Might I take your Honours to what this Court said - - -

GUMMOW J: Are we to have counterfactual – “we” being Justice Hayne and I – to have counterfactual visited upon us from Hart?

MR DAVIES: Well, your Honour, it looks like it. What we do say, your Honour, is that one start - - -

GUMMOW J: Maybe our colleagues, maybe our former colleagues, paragraphs 9 and 18, and Hart, I do not think it is – anyhow, go on, we are taking up your time. I do not want to be damned by a side wind.

MR DAVIES: Could I go on, your Honours? In applying section 177C, it is a matter of applying the test to the facts, or to the evidence. This Court, in Peabody, indicated the nature of the inquiry to be undertaken. The relevant passage is set out on page 92 of the application book, by Justice Sackville, in paragraph 122, where the High Court, at page 384, said:

‘[a] reasonable expectation requires more than a possibility. It involves a prediction as to events which would have taken place if the relevant scheme had not been entered into or carried out and the prediction must be sufficiently reliable for it to be regarded as reasonable.’

So it is a predication test – reasonable, it has to be based on evidence. And if one goes back to paragraph 116 through to 119 of the learned primary judge’s judgment, one notes that the evidence points one way, and that is that, but for the scheme, there would have been a superannuation contribution, therefore, there was a tax benefit. The alternatives that his Honour has described as “relevant counterfactuals”, set out in paragraph 19, are described to be what could have happened. There is no reference to the evidence about what those findings are based on.

Might I say two things about them? The first is that neither of the alternatives that his Honour refers to are alternatives that have similar features to what actually happened and that is because both of the alternatives would have involved the taxpayer in outlaying a great deal more money upfront and exposing himself to a great deal more risk, both in the short term and in the long term, than what occurred because, by entering into the agreements that he entered into, for an outlay of $500 he was able to obtain a deduction for $20,000 where his liabilities to make payments in the future were capped at $7,000 the following October, and then thereafter the balance of the loan would be repaid out of the proceeds of the harvest and if there were insufficient proceeds of the harvest he would be protected by the indemnity provided through the indemnity agreement. Now, those terms were not terms that were available to him either through the ANZ or if he funded the thing out of his own pocket. So, your Honours, in our submission, it is a factual inquiry where, as appears from paragraphs 116 to 119, the learned primary judge appears not to have applied the correct test. The Full Court on the other hand dealt with it, in our submission, in a way that involves no error of principle or any error at law. Your Honours will see beginning at paragraph 128 that Justice Sackville states what the test is and that is:

the Court must consider, in the absence of the scheme, what activity the taxpayer would have undertaken. The taxpayer can satisfy the onus of showing that he or she has not obtained a tax benefit in connection with a scheme if –

and then he sets out two scenarios under which that can be satisfied on the onus. Then your Honours will see at paragraph 131 what, in our submission, is an unexceptional and self-evident finding, and that is that:

all three versions of the scheme accepted by the primary judge comprise the –

relevant agreements. Then –

In the absence of the scheme as a whole . . . there would have been no Project in which Mr Lenzo could have invested.

Then Justice Sackville deals with some particular matters relating to the evidence and to the findings of fact that were errors in the learned primary judge’s conclusion and they are set out in paragraphs 133 to 135. In our
submission, your Honours, the application for special leave in relation to tax benefit does not give rise to any matter of principle and is an application that raises issues of fact and evidence. As to the second point, your Honour, the special leave question was phrased in terms of there being in circumstances where there is no identifiable error of law or principle, what is the relevant role of the Full Court?

In our submission, that is not a question that arises in this case because the Full Court found specifically that there were identifiable errors in the learned primary judge’s decision, and we set out those errors and the references to them in paragraph 20 of our written submission on page 130. Your Honours will see that there are three. The first is that the Court found that the learned primary judge had adopted:

a false dichotomy between a “rational commercial decision” and a dominant purpose of enabling a taxpayer to obtain a tax benefit –

The second was that the learned primary judge had underestimated –

the tax benefits that were obtained by the applicant.

The third was that the finding by the learned primary judge that the round robin and the timing of the entry into the scheme were an incident of significant commercial purposes was incorrect. If the Court please.

GUMMOW J: Yes, Mr McCusker, anything in reply?

MR McCUSKER: Yes, your Honour, just briefly. My learned friend opened in relation to 177C by saying that Mr Lenzo’s evidence was that had he not invested in the scheme or entered into it, he would have entered into superannuation. That is not the evidence that he in fact gave and paragraph 116 of the judgment of Justice French makes it clear. What he said was that had he not invested in the plantation project, then he would have put the money in superannuation, but his evidence was that he was considering which way to jump and finally decided on the plantation project.

As to the evidence of his ability to do so, there is ample evidence of that and the singular evidence that he borrowed money from the bank in the second year. My learned friend says that for an outlay of $5,000 he got a much larger tax deduction, forgetting, I think, that there was not just the outlay of cash, there was also a borrowing, a commitment, to Arwon Finance and just as much of a commitment as there was later a commitment to the ANZ Bank. It cannot be said that there was no outlay in the true sense simply because part of the moneys were borrowed.

As to the identifiable errors that my learned friend has referred to, and I think I have already dealt with those, we say that on analysis – and we have set this out in our submissions – there were no errors on the part of the primary judge. He did not give undue weight to the commerciality of the project nor did he make any error in terms of fact. May it please your Honour.

GUMMOW J: Thank you, Mr McCusker. We will take a short adjournment.

AT 4.42 PM SHORT ADJOURNMENT

UPON RESUMING AT 4.55 PM:

GUMMOW J: Section 177C of the Income Tax Assessment Act 1936 provides that a reference in Part IVA of the Act to the obtaining by a taxpayer of a tax benefit in connection with a scheme shall be read as a reference to an amount, a deduction, a capital loss or a foreign income tax offset of a kind identified in that section. In each case the section requires an examination of whether the amount, deduction, loss or offset would not have been or might reasonably not be expected to have been allowable or incurred “if the scheme had not been entered into or carried out”. Reference to this condition as a “counterfactual” may sometimes be a convenient shorthand expression, but it must not obscure the proper application of the legislative provision.

In the present case there is applicable the statement by Chief Justice Gleeson and Justice McHugh in Federal Commissioner of Taxation v Hart [2004] HCA 26; (2003) 217 CLR 216 at 225:

Here, the borrowing was an indispensable part of that which produced the tax benefit. A description of the scheme that did not include the borrowing would make no sense.

The actual decision of the Full Court concerning the application of section 177C in this case is not attended by sufficient doubt to warrant a grant of special leave. There are insufficient prospects of success on the other grounds sought to be argued. Accordingly, special leave to appeal is refused with costs. The Court - - -

MR DAVIES: Your Honour, can I just publicly say I was wrong about the reference to counterfactual and in Hart’s Case. The expression your Honours used was “alternative postulate”. I am presently unable to say where “counterfactual” originates from.

GUMMOW J: It is not bearing very well at the moment.

The Court will now adjourn to 9.30 am tomorrow for the balance of the special leave list.

AT 4.57 PM THE MATTER WAS CONCLUDED