LAW315/LLB341/LLB3341

PROBLEM QUESTION/S
WEEK 1


QUESTION
Think about the following imaginary situations and explain what the consequences
would be, depending on whether a literal or a purposive approach to interpretation
is taken.

SITUATION 1
Terry Plate is an investor who spends a significant sum of money on acquiring shares
in a Taxi Co-operative operating in the Gold Coast tourist area under the logo ‘GTC
Cabs’. His investment consists of shares in the co-op; a Ford Falcon motorcar; a Taxi
meter. The rules of the co-op mean that he has the right to derive economic benefit
from a particular taxi registration plate which is then rented out to taxi drivers who
pay for its use on each shift. Ideally, the car will be occupied and running 24 hours a
day so that the co-op member has a flow of revenue (at a flat rental basis which
varies according to the time of the week — but not according to revenue from taxi
passengers). The drivers who rent the plate, car and meter make a profit if their
rental payment and fuel costs are less than the fares they collect from passengers on
a shift. Terry makes a profit if the rents he receives through the co-op from drivers
exceed the costs of depreciation and repairs on the car and meter and other
administrative charges imposed by the co-op. Terry has no say in where the taxi goes
to pick up and drop off passengers — that is up to the driver/s.

One day Terry decides to retire and sell his shares in the co-op, the taxi, and the
meter. He makes a capital gain on the sale of the shares to a new co-op member. An
(imaginary) Income Tax Act permits deduction from the capital gain of an amount
equivalent to 50% of the taxable gain for ‘small business owners’. Terry Plate claims
this capital gain discount in his tax return but when it is audited the ATO disallows it
because Terry is not a ‘small business owner’ but a mere passive investor. The
Explanatory Memorandum that accompanied the Bill introducing the special small
business discount indicates that it was intended that the 50% discount would permit
taxpayers engaged in small business to be taxed on less capital gain, and the Second
Reading Speech in Parliament at the time of its introduction suggests that this
concession is to compensate small business operators for the fact that they do not
have the same opportunities to amass superannuation benefits as employees do.

What result would a purposive reading of the provision achieve? What result would
a literal reading achieve?


SITUATION 2
An (imaginary) New South Wales Stamp Duty Act imposes stamp duty on any
‘business property’ that changes ownership within New South Wales. The definition
of ‘business property’ includes ‘any intangible property in New South Wales’. At the
time of the imposition of the duty the (imaginary) Second Reading Speech of the
New South Wales State Treasurer who introduced the definition of ‘business
property’ stated: ‘This measure is intended to ensure this state shares in the value of
business assets changing hands in this jurisdiction.’

A taxpayer company that has its head office in Sydney has sold its business to
another taxpayer. The assets sold include the rights to a patent to manufacture
surfboards. The boards are manufactured in South Australia (where costs are lowest)
and sold in Queensland and the Margaret River (Western Australia) where they are
most popular.

The New South Wales Office of State Revenue demands that the taxpayer pay duty
on the transfer of the patent calculated on the basis of the value of the patent in the
contract of sale.

The taxpayer argues that although contracted for sale in New South Wales there is
no New South Wales property arising from the patent because: all activities relating
to the patent take place outside NSW; and patents are registered under federal law,
not state law.

What result would a purposive reading achieve? What result would a literal reading
of the provision achieve?