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Barkoczy, Stephen --- "Editorial" [1999] JlATax 11; (1999) 2(3) Journal of Australian Taxation 120

Editorial

Associate Professor Stephen Barkoczy

The end of the last full financial year of the 20th century will be remembered by many tax practitioners for the fact that it witnessed the historic passing of the GST Bills before the Senate. The settling of the final GST blueprint followed protracted debate and political manoeuvring between the Government and the Democrats and entrenches the cornerstone of the Government's plans for "A New Tax System".

The GST debate has to some extent overshadowed the other important area of tax reform, being business tax reform. In this respect, we eagerly await the final paper to be delivered by the Review of Business Taxation and speculate on what recommendations will be made and, more importantly, what recommendations will be adopted by the Government.

In my previous editorial, I made reference to the spate of important decisions handed down this year concerning the general deduction provision. Another case that should now be added to this list is the Full Federal Court decision in FC of T v Brown 99 ATC 4600. The Full Court held that interest incurred on a loan used to purchase a delicatessen business was deductible after the business had been sold. Lee, Nicholson and Merkel JJ upheld Carr J's decision at first instance (98 ATC 4695). Their Honours held that the occasion of the outgoing was to be found in the loan used to purchase the business and that the cessation of business did not operate to break the nexus between the carrying on of the business and the incurring of the interest liability. It is submitted that the outcome in the case is both desirable and also a correct application of the principles expressed in AGC (Advances) Ltd v FC of T 75 ATC 4057 and Placer Pacific Management Pty Ltd v FC of T 95 ATC 4459. This case is well worth reading for its anlaysis of general principles and, in particular, its consideration of the recent Full High Court decision in Steele v FC of T 99 ATC 4242.

This issue of the Journal contains a number of highly topical articles. Mark Laurie, Liam Collins and John Murton examine the intricacies of the proposed "45 day holding period rule". They point out that the provisions (which are proposed to be backdated to 1997) are complex and difficult to apply. Regrettably, this seems to be the standard recipe for anti-avoidance legislation nowadays. Having had cause to recently examine the proposed provisions myself in practice, I can certainly sympathise with the authors' frustrations.

Tim Neilson, in his article, builds on a recent article published in the Journal by Paul Abbey. In particular, Tim Neilson considers the "tainting rules" brought about by the recent changes to the Corporations Law and consequential changes to the tax laws. He considers that a redemption of redeemable preference shares from profits will not give rise to a tainting of the share capital of the company redeeming those shares notwithstanding a contrary view expressed in a recent ASIC Practice Note.

The common law principles relating to the income/capital distinction are considered by Michael Flynn in his article in this issue of the Journal. The author considers many of the leading cases on this topic and places them in a conceptual framework.

Finally, in his second article in the Journal, Dr Justin Dabner compares the Australian and Canadian principles relating to the deductibility of interest. The author considers a number of well known cases on this topic including FC of T v Munro [1926] HCA 58; (1926) 38 CLR 153 and FC of T v Roberts and Smith 92 ATC 4380 as well as the recent decisions in Brown and Steele (mentioned above).

June 1999

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