Victorian Gaming Machine Entitlements Not Deductible on Revenue Account

In Commissioner of Taxation of the Commonwealth of Australia v Sharpcan Pty Ltd [2019] HCA 36, the High Court of Australia unanimously decided in a short (25 pages) and direct decision that the purchase of Victorian Gaming Machine Entitlements (“GMEs”) was on capital account and therefore, not deductible on revenue account. Nor was the purchase price deductible under section 40-880 of the Income Tax Assessment Act 1997 (“the Act”) as the expenditure was not incurred to preserve, but not enhance, the value of goodwill and the value of GMEs was not solely attributable to the effect which they had on goodwill.

The deductibility of expenditure on GMEs has been debated by Tax Advisors for many years. Sharpcan Pty Ltd (“the Taxpayer”) was the sole beneficiary of the Daylesford Royal Hotel Trust (“the Trust”). The Taxpayer was successful at the Administrative Appeals Tribunal (“AAT”) in arguing that the expenditure of $600,300 on GMEs was deductible on revenue account. The Commissioner appealed to the full Federal Court but the Taxpayer was again successful. The Commissioner then appealed to the Hight Court of Australia and was ultimately successful in its argument that the expenditure on GMEs was not on revenue account nor deductible under the specific provisions of section 40-880 of the Act.

The Trust acquired, on 8 August 2005, the business of the Royal Hotel in Daylesford with the hotel premises being a venue approved for gaming under the Gaming Regulation Act. Tattersalls was the authorised gaming operator of 18 gaming machines at that time. Subsequently, the electronic gaming machine regime in Victoria was amended with new GMEs able to be acquired through a bidding process by the venue operator for a license period of 10 years. The Trust was successful in acquiring 18 new GMEs at a total price of $600,300 for a 10 year period. The purchase price was to be paid by instalments between May 2010 and August 2016.

The High Court, in its unanimous judgement, stated “There can be no question that the purchase price was incurred on capital account”. The High Court agreed with the dissenting judgement of Thawley J in the Full Federal Court, that the acquisition of the GMEs “….was not an expenditure which would need to be repeated over and over again as a necessity of trade…”.

The High Court reviewed many cases which have considered the question of whether expenditure is on capital account or revenue account. Again, the analysis shows that what may on the surface appear to be a simple distinction, is often blurred and difficult to draw.

The High Court noted:-

“Authority is clear that the test of whether an outgoing is incurred on revenue account or capital account primarily depends on what the outgoing is calculated to effect from a practical and business point of view. Identification of the advantage sought to be obtained ordinarily involves consideration of the manner in which it is to be used and whether the means of acquisition is a once-and-for-all outgoing for the acquisition of something of enduring advantage or a periodical outlay to cover the use and enjoyment of something for periods commensurate with the payments. Once identified, the advantage is to be characterised by reference to the distinction between the acquisition of the means of production and the use of them; between establishing or extending a business organisation and carrying on the business; between the implements employed in work and the regular performance of the work in which they are employed; and between an enterprise itself and the sustained effort of those engaged in it. Thus, an indicator that an outgoing is incurred on capital account is that what is secures is necessary for the structure of the business.”

Sharpcan in the alternative argued that the purchase price was incurred on revenue account because “the acquisition of the GMEs did not amount to the acquisition of “permanent rights””.

The High Court rejected the submissions on behalf of Sharpcan, but did not discuss whether a lesser term or repeating term would qualify as expenditure on revenue account.

The case was an interesting discussion of the longstanding difficulty in determining whether an item is on capital account or revenue account.


Date Published: 13 November 2019


The Promotion of Business is not Charitable in South Australia

The South Australian Supreme Court (Full Court) has handed down an interesting unanimous decision in South Australian Employers’ Chamber of Commerce and Industry Incorporated v Commissioner of State Taxation [2019] SASCFC 125  (16 October 2019).

The South Australian Employers’ Chamber of Commerce and Industry Incorporated (“the Chamber”) appealed a decision against a judge of the Supreme Court to the Full Court of the South Australian Supreme Court seeking recognition that the Chamber was exempt from payroll tax under the charitable exemption contained in section 48 of the Payroll Tax Act 2009 (SA). There are similar provisions in other State jurisdictions.

The Commissioner of State Taxation (“the Commissioner”) had originally disallowed the claim and was successful in the Supreme Court when the Chamber appealed against the objection. The Commissioner was again successful in the full Court in this decision that the Chamber was not charitable and was therefore not exempt from payroll tax.

In essence, the Chamber argued that its activities were undertaken “for the purpose of promoting trade and commerce in Australia which is a recognised charitable purpose”. Whereas, the Commissioner argued that the “activities were conducted for the purpose of benefitting members or alternatively business and employers in South Australia” which are “not recognised as charitable purposes”.

The Full Court affirmed the decision of the Supreme Court that the “interests of business” is much narrower and not synonymous with the term “trade and commerce”. Further, where an organisation carries on many diverse activities, they need to be considered in groupings and then holistically as to whether they constitute charitable purposes. “Business is only one of several groups that participate in trade and commerce”, and an “activity that promotes the interests of business may not necessarily advance trade and commerce”.

Accordingly, the Chamber did not qualify for exemption from payroll tax because it did not evidence charitable purposes.

The case considers a wide range of decisions across Australian Federal and State jurisdictions on the question of charitable purpose. In particular Chamber of Commerce and Industry of Western Australia (Inc) v Commissioner of State Revenue [2012] WASAT 146 (18 July 2012) was distinguished.

It is worth noting that whilst in recent years many organisations have sought to extend the reach of the meaning of charitable purpose, only a few have been successful. In our view, the presentation of the evidence and proper preparation is critical to establish charitable purpose. In Victoria, the case of Law Institute of Victoria v Commissioner of State Revenue [2015] VSC 604 also failed to establish that the Law Institute of Victoria was of a charitable purpose.


Date Published: 12 November 2019


Owners Corporation: Overreaction Equals Defamation

A request for advice, made us reflect on recent decisions for defamation such as Raynor v Murray [2019] NSWDC 189 (17 May 2019) (Raynor’s case) and Bolton v Stoltenberg [2018] NSWSC 1518 (15 October 2018) (Bolton’s case).

For a refresher, see our previous article on Bolton’s case titled “Like with caution: social media defamation”.

Raynor’s case also involved a successful action for defamation involving a residential apartment’s Body Corporate in the case.

Mr Raynor was the chair of the Body Corporate and lived in the apartment complex. Ms Murray was a tenant in the apartment complex who had circulated an unfavourable email about Mr Raynor to a number of owners of the apartment complex. Mr Raynor successfully sued for defamation and was awarded $120,000 ($90,000 in damages plus an additional $30,000 in aggravated damages).

As an aside, the decision considered many earlier cases including those successfully argued by actors Rebel Wilson and Geoffrey Rush.

From mole hills to mountains

The apartment complex had a bank of letter boxes outside the complex which were accessible from the street. Ms Murray left her mailbox unlocked “most if not all of the time after she moved in”. Mr Raynor, in his capacity as chair of the Body Corporate, sent an email to Ms Murray noting Ms Murray’s letterbox was unlocked. About 8 months later there were media reports of mail being stolen from letterboxes in the area. Mr Raynor again emailed Ms Murray about her letterbox being unlocked. Subsequently, the letterboxes at the apartment were broken into.

Mr Raynor emailed all residents requesting that they secure the letterboxes and attached a local newspaper article containing warnings and advice for local residents. Ms Murray replied to this email in derisive terms. Several weeks later, the mailboxes were broken into again, prompting Mr Raynor to forward a second email warning to all residents and asking them to keep their mailboxes locked. Subsequently, Mr Raynor sent an email to Ms Murray (after noting that her letterbox was open) asking whether it had been left unlocked or had been broken into?

This resulted in Ms Murray responding as noted in the judgement where she:-

“complained of being harassed by “many emails” from the plaintiff, of which “the latest topic” was the open letterbox, asked the plaintiff [Mr Raynor] directly if he had opened the box himself as part of his “months of campaigning to have all residents comply with your demands”, derided the “Mission Impossible” scenario that her unlocked mailbox played any contributing role to the break-ins and complained the plaintiff had “never asked why we keep the letterbox open”. The email concluded with the complaint that the plaintiff’s “consistent attempt to shame me publicly is cowardly” and that it was “offensive, harassing and menacing through the use of technology to menace me”. “

Mr Raynor took action in defamation with Ms Murray pleading the defences of justification (pursuant to section 25 Defamation Act 2005 NSW), the defence of honest opinion (pursuant to section 31 Defamation Act 2005 NSW), triviality (pursuant to section 33 Defamation Act 2005 NSW), and at common law qualified privilege. In a lengthy judgement the Court rejected all of these defences.


It is observed that many environments such as Body Corporates / Owners Corporations, neighbours generally, clubs and charitable institutions are resulting in an increasing trend to seek resolution of matters through the courts.

Given the number of cases that have appeared in courts across Australia including the many unreported cases, it is trite to say that more measured responses are required in our digital age. In the past perhaps the effort and time taken to write a letter acted as a “circuit breaker”. Whereas, the immediate gratification without proper reflection of the consequences of an email, tweet, or Instagram creates considerable potential difficulties.


Date Published: 14 October 2019


The impact of recent Royal Commissions on NFP governance

There have been many Royal Commissions in Australia’s history but some notably will have a significant impact on NFP governance which include:-

  • Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (2017-2019);
  • Royal Commission into Aged Care Quality and Safety (2018-continuing);
  • Royal Commission into Violence, Abuse, Neglect and Exploitation of People with Disability (2019-continuing).

Our Principal Director Victor Hamit joined with two other experienced governance practitioners, Beth McConnell of Beth McConnell Consulting and Sabine Phillips of Gadens Lawyers to deliver the key note address to the Better Boards 2019 conference held at the Brisbane Convention Centre.

The topic for the keynote address was “The Implications of the Royal Commission and Regulator Activity on NFP Governance”.

The keynote addresses were very well received by the capacity audience. Click here for access to the Better Boards website for copies of all presentations.

Victor, Beth and Sabine then formed a panel to address questions posted by the delegates through a conference app. There were over 140 questions submitted for this half hour session with remarkable subsequent appreciative feedback. Generally, the feedback was that whilst the session was too short, it provided an “honest, open and off the cuff tips and comments” from a very engaged audience.

The panel forum provided experienced advice and solutions to many governance questions that were posed.

Some aspects of the Hayne Royal Commission focussed on culture and remuneration. There were a number of queries on whether to remunerate board members or not.

Victor Hamit suggested that, depending on the size of the NFP, its capacity to pay, and the responsibilities of the directors, it was not unreasonable to remunerate, if only to remove the argument “but we are just volunteers”. The remuneration is generally not at commercial rates because it reflects a level of community service provided by many Directors.

Unfortunately, “but we are just volunteers” is often used as an excuse by some who do not apply reasonable skill and attention to the matters at hand. Do you have board members who:-

  • Do not read the Board Papers prior to the meeting?
  • Ramble off point, onto matters that are not relevant?
  • Regularly miss meetings because they are travelling?
  • Then on return, need to go over “old ground” because they missed meetings and didn’t read the previous minutes?

These are board members who are risks to themselves and to the organisation and should resign.

The Better Boards Conference is considered the premier NFP conference in Australasia as it attracts excellent speakers with quality papers covering the broad NFP landscape. We recommend checking out the Better Boards website and browse through those presentations which may be of interest.


Date Published: 30 September 2019

Article written by Cherie Vetesi




It’s a Scam!! And the Scams are getting more sophisticated!

In an unusual couple of weeks we have been approached by a number of clients about potential scams to which they have been subjected.

Coincidentally, the Australian Taxation Office (“ATO”), on 10 April 2019, issued a daily update for Tax Professionals warning of:-

“A recent spate of robocall scams are spoofing genuine ATO phone numbers to display on caller IDs. We [ATO] will never call you threatening immediate payment or arrest for a tax debt.”

For more information on how to spot a scam or what to do if you receive one, go to the ATO website here.

Email spoofing is the creation of email messages with a forged email sender address. The intention being to mislead the recipient into believing the email address is legitimately from a known or trusted source.

Another example of spoofing recently was an email “sent” from the client’s own email address to himself. The email claimed that the client’s website, contacts and email had been hacked. The hacker claimed it had taken control of the client’s computer and computer camera. The hacker claimed that it had incriminating video and other evidence that the client had watched internet porn and unless the client paid the equivalent of $US1,000 in bitcoin to a nominated account within 48 hours, the “incriminating material” would be distributed to all contacts in the client’s email and Facebook accounts.

The client was suspicious because he did not watch internet porn on his computer (nor any other device!), nor did he have a Facebook account. The client immediately contacted his IT manager and was told it was a prolific scam and to both ignore it and contact his website and email service provider to adjust his Sender Policy Framework (“SPF”) and Domain Keys Identified Emails (“DKIM”) settings. Whilst this action cannot guarantee full protection, it will improve the website and email defences.

There are community blogs which identify common scams. But also check the following sample sites:-

By way of example, the ATO reported for the single month of January 2019:-

  • 23,237 phone scam reports were officially made;
  • $497,216 was reported as being paid to scammers. Payments via Google Play, iTunes and Bitcoin amounted to 83% of the total amounts paid.

In addition, Telstra’s 2019 Security Report claims that 51% of respondents who have been victims of Ransomware have paid to unlock files. The report claims 77% of Australian businesses that paid the ransom were successful in retrieving their data.

For those subject to the Notifiable Data Breach regime under the Privacy Act 1988 (Cwth), the Office of the Australian Information Commissioner (“OAIC”) issues quarterly reports. In the quarterly report of October to December 2018, the major areas of notification were caused by human error or malicious or criminal attacks or a combination of both. The top 4 sectors that reported notifiable data breaches were identical to those in the previous quarter which in order were:-

  1. Health service providers;
  2. Finance;
  3. Legal, Accounting and Management Services; and
  4. Education

This short Article provides an insight into the proliferation and increasing sophistication of scams, but also the scale of money involved. It is trite, yet important to emphasise not only ongoing updating of technological defences but ongoing training and preparation for your human resources.


Date Published: 26 April 2019