Capital and revenue : recent Australian developments and the taxation of lease incentives in New Zealand

The purpose of this thesis is twofold. The first purpose is to discuss the expansion of the concepts of income and business and the corresponding erosion of the concept of capital in Australia as a result of recent decisions of the Australian courts. The second purpose is the examination of the potential impact these Australian decisions may have in New Zealand on a specific area of taxation, the treatment for tax purposes of lease incentives. The thesis is divided into three major parts. The first discusses generally the distinction between the concepts of income and capital It reviews tests enunciated in various decisions on the assessability of profits and gains and deductibility of expenditure and outgoings. This discussion builds a foundation for the second and third parts of the thesis. In the second part of the thesis I discuss a number of the recent Australian decisions on the assessability of profits and gains and one decision on the deductibility of outgoings. The case of F. C. of T. v. The Myer Emporium Ltd. is perhaps the most important recent Australian decision on the nature of income and capital in the business context. In Australia it has led to a reappraisal by commentators of the traditional income - capital distinction. The other major Australian decision for the purpose of this paper is F. C. of T. v. Cooling. which decided that a payment made to a firm of solicitors as an inducement to enter into the lease of premises was assessable to the partners of the law firm. In the third and final section of the thesis, I consider the approach the New Zealand Inland Revenue, Taxation Review Authority and Courts may take in the light of the recent Australian decisions, in deciding whether cash and non-cash incentives provided to lessees are assessable. In my view the answer will probably depend on the form which the incentive takes. The goods and services tax implications of any such incentive are not covered in this thesis. To date the principles enunciated in the Australian cases do not appear to have crossed the Tasman Sea. However the New Zealand authorities will soon have to address the issues which have been raised. The New Zealand Inland Revenue Department are currently reviewing the whole area of lease incentives. No doubt they are looking at the Australian decisions, in particular Cooling, with a view to their application in New Zealand