The Foundations of the Wade Case: Concrete or clay?

Abstract

This paper argues that the Australian Taxation Office (ATO) practice of issuing opinions and taxation rulings for the guidance of taxation practitioners compiling and submitting taxation returns does not always result in greater clarity or certainty in the application of taxation laws. To illustrate that argument the paper addresses the example wherein the ATO considers all animals used in a business of primary production as trading stock. However, the word all is not contained in s 995 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997); but rather, the ATO view is based on its interpretation of the findings in the appeal case of Federal Commissioner of Taxation v Wade (‘Wade Case’). However, it has been previously argued that dairy cattle, and stud stock held for breeding purposes, should be treated as capital assets and not trading stock. Those publications examined the Wade Case but contained a number of assumptions made due to a lack of substantiable evidence. Subsequent investigation of the High Court appeal books and other documentary evidence focussing on initial Commonwealth Taxation Board of Review decision that preceded the Commissioner of Taxation’s appeal to the High Court is examined in this paper. The paper analyses those documents and investigates background not reported in Court authorised publications. It compares them with previous publications to reveal a deeper insight of the case and addresses the assumptions made in those publications. It argues that the Wade Case focussed on the assessable nature of monies received as compensation for loss of assets. That Wade’s loss was dairy cattle is somewhat irrelevant to the findings of the case. The paper finds that, prior to 1936, animals used as breeding stock were of capital nature for taxation purposes. However, the legislation was repealed in 1936 which rendered all animals used in a business of primary production to be classified as trading stock. Therefore, it concludes that while ATO view is correct, the basis supporting the view is not.