Tax and Power in the High Court: The Capital Cost of an Electricity Monopoly: Ausnet Transmission Group Pty Ltd v Federal Commissioner of Taxation

By Professor Miranda Stewart

Ausnet Case Page

State governments are keen to raise funds by privatising electricity networks, as has just been legislated in New South Wales, but a privatisation agenda can also cause an election loss, as shown in this year’s Queensland election. Electricity privatisation is controversial and the costs and benefits are hard to understand.

One of the less visible aspects of electricity privatisation is the tax treatment of the asset purchase for the private buyer. This year, one of the few High Court cases on income tax is about the privatisation of Victoria’s electricity transmission networks in the late 1990s. This is the case of AusNet Transmission Group Pty Ltd v Federal Commissioner of Taxation [2015] HCA 25.

AusNet is a listed electricity transmission company that, in its own words, is Victoria’s ‘largest energy delivery service’. According to its website, AusNet owns and operates $11 billion of electricity and gas distribution assets that connect to more than 1.3 million Victorian users in a network of ‘49 terminal stations, 13,000 towers and 6,500 kilometres of high-voltage powerlines’. It’s not surprising that when AusNet has a tax issue, it is similarly large.

AusNet loses case on tax deductibility

AusNet (at that time called SPI Powernet) paid more than $2.5 billion for electricity transmission assets that it purchased in 1997 from a Victorian State-owned company. The asset purchase was just one element in the massive exercise of electricity privatisation (for more, see the first instance decision). The purchase price included the physical assets and the electricity transmission licence which would permit AusNet to operate the network. The contract also required AusNet to pay charges under the Electricity Supply Act 1993 (Vic) of $177.5 million in the 1999, 2000 and 2001 tax years, as the new owner of the transmission licence.

AusNet sought to deduct these charges as current expenses under the general income tax deduction rule (s 8-1 of Income Tax Assessment Act 1997 (Cth)). The Commissioner denied the deduction, arguing that the charges were instead capital in nature. It took more than a decade for this argument, arising out of a complex tax audit, to make its way to the High Court, where AusNet lost.

Applying Australia’s 30 per cent company tax rate, the deduction of $177.5 million was worth about $53 million to AusNet. With interest expense on unpaid tax, AusNet owed a total of $91 million to the Tax Office, of which it had previously paid $30 million. AusNet lost the case in the High Court and announced its ‘disappointment’ to the market in an ASX release. Continue reading

News: Ken Parish on the tragedies surrounding Melbourne v R [1999] HCA 32

Legal academic Ken Parish has a post at Club Troppo marking the death of Roy Melbourne, the defendant in a 1999 High Court criminal appeal. The post is an especially poignant one, because Melbourne was convicted of murdering Parish’s mother-in-law, who was minding Parish’s daughter while they shopped for her seventh birthday present.

Parish’s post is a profound insight into the impact of High Court appeals (amongst other things) on people affected by tragedy. Parish recounts:

When the jury’s guilty verdict was delivered I was surprised to find myself sobbing uncontrollably, not through sorrow but relief that this part of our ordeal was over and we could get on with grieving and putting our lives back together. However I was wrong about that last part. Melbourne appealed unsuccessfully to the Court of Appeal and then again to the High Court. Special leave was granted but the substantive appeal failed, although only by a margin of 3:2. The legal ordeal lasted until August 1999.

And he also notes that the description of Melbourne’s crime by McHugh J (and also Callinan J) in the High Court appeal understated the horror of the event, including the fact that it took place in the presence of Parish’s daughter. These awful details stand in sharp contrast to the somewhat dry issue that was debated in the High Court: whether the jury should have been directed that Melbourne’s clean record for the 60-odd years prior to his crime (apart from a drink-driving conviction) was relevant to determining whether or not to believe his statements immediately after the killing, including not recalling the killing, believing that Parish’s mother-in-law was harassing him with late-night noises (actually a defective sprinkler system) and his medical history. A majority of the Court held that the direction was not needed, with Kirby J and Callinan J dissenting.

The most moving part of Parish’s post is his own response to Melbourne’s death, two weeks after he voluntarily returned to prison from parole:

This morning I received a phone call from a detective from the Major Crime Squad. Melbourne was found dead in his cell last night. The detective was careful in what he said, but it sounds like he committed suicide. After a few moments of shocked silence I thanked him and remarked that I almost felt sorry for him, though not quite. But I do feel sorry and so does Jenny Parish. What a dreadful tragedy from beginning to end, for everyone involved including a lonely embittered old man named Roy Melbourne. I’ve been sobbing again today, not out of relief this time but from grief for all that has been lost.

In a comment, Parish adds that Melbourne’s death reportedly followed his return from work release after a law and order controversy in the Northern Territory, which Parish had criticised in an earlier post.

News: Predictable special leave outcomes

Predicting which cases will get special leave to the High Court is generally difficult. Last month, two Victorian judges refused an injunction to preserve the subject-matter of a case that was the subject of a special leave application, stating that ‘we are not persuaded that the application for special leave enjoys sufficient prospects of success to warrant a stay’. The High Court granted special leave in that matter last Friday. But it is possible to make strong predictions during the hearing itself. For example, a clue came during the applicant’s argument that the case ‘is a matter of real importance’ when Keane J interrupted to say ‘I do not think you need to worry about how important it is.’ The applicant promptly stopped his argument, correctly predicting that special leave would be granted. This was confirmed when, at the conclusion of the respondent’s argument, French CJ said that ‘we need not trouble’ the applicant for a reply. An even clearer sign of success is when the High Court does not call on the applicant at all, for example in this matter in October.

More unusually, in two matters this month, a lawyer faced the prospect of arguing for a special leave result after the Court had already resolved the matter against his client. Continue reading

A Comment on Professor Finnis’s Praise of Australia’s High Court

In a recent lecture Judicial Power: Past, Present and Future, leading legal philosopher Professor John Finnis launched a strong critique of the Supreme Court of the United Kingdom, especially the famous decision of its predecessor, the House of Lords, in the Belmarsh case, that a provision permitting the detention of suspected terrorists was incompatible with Europe’s human rights convention. By contrast he was strongly supportive of the High Court, writing:

Australia, which has as a federal nation done entirely without constitutionally stated rights for 115 years, made the choice not to entrust this inappropriate kind of power to judges, but to trust themselves and the legislatures they elect. (Victoria and one small federal territory are the only exceptions and very novel ones.) Australia I would say has done easily as well as countries under judicially enforceable or even judicially declarable human rights, and has kept its legislative and judicial discourse authentic, largely uncluttered with this sort of make-believe and confusion of roles, responsibilities and competences.

Professor Finnis relied upon the High Court’s decision in Al-Kateb v Godwin [2004] HCA 37 (where Court upheld indefinite immigration detention in some circumstances) and reserved particular praise for Justice Heydon’s judgment in Momcilovic v The Queen [2011] HCA 34 (where he would have declared Victoria’s human rights law constitutionally invalid.)

Policy Exchange, which has published the lecture as part of its judicial power project, invited three leading constitutional scholars to comment. Adrienne Stone’s commentary — questioning his reliance on Al-Kateb and Momcilovic — is here: Continue reading

News: Six new administrative and criminal law cases

In sittings in Canberra and Sydney yesterday, the High Court granted special leave to appeal six decisions, consisting of two administrative law matters and four criminal law ones. As well, in the special leave hearing concerning R & M v IBAC, discussed here, French CJ continued the order Nettle J gave  suppressing the names of the two police officers who IBAC wants to publicly examine ‘until further order’, despite Nettle J’s earlier expressed ‘doubts as to whether publication of the name of either applicant at this stage of the proceeding would give rise to any real risk of prejudice to a fair trial, when and if they are ever charged with any offences arising out of the subject matter of the inquiry’.

The cases where the High Court will hear appeals (most likely early next year) are:

Continue reading

North Australian Aboriginal Justice Agency Ltd v Northern Territory

The High Court has decided a matter relating to the constitutionality of the Northern Territory’s new police arrest and detention powers, holding by majority that the powers are not invalid. Division 4AA of the Police Administration Act (NT), inserted into the Act in December 2014, empowers a police officer to arrest a person without a warrant where the office believes, on reasonable grounds, that the person has committed, was committing, or about to commit an ‘infringement notice offence’: 35 different offences fall under this definition, many of which are minor or public order type offences. A person can be held for four hours (or longer if the officer believes the person is intoxicated) after which time they may be released unconditionally, released with an issue of an infringement notice, Continue reading

News: Special leave to appeal revoked in Fernando v Commonwealth

Fernando v Commonwealth purportedly raised the issue of what measure of damages were appropriate for a case of wrongful immigration detention where the plaintiff could have been lawfully detained in any event. However, the High Court has now revoked special leave on the basis that the appellant’s argument did not adequately raise that question.

Continue reading

Minister for Immigration and Border Protection v WZARH

The High Court has dismissed an appeal from a decision of the Full Federal Court relating to procedural fairness and merits reviewer procedures and replacements in the assessment of protection visas. WZARH, a Sri Lankan Tamil, entered Australia by boat in November 2010 and was classed as an offshore entry person. Following an adverse refugee status determination, WZARH sought independent merits review of the decision. A recording and transcript of an interview Continue reading

R v Pham

The High Court has allowed an appeal against the decision of the Victorian Court of Appeal on manifestly excessive sentencing in the context of a drug importation offence. Pham pleaded guilty to importing a marketable quantity of heroin and was sentenced to eight years and six months with a non-parole period of six years. The Court of Appeal allowed Pham’s appeal against the sentence on the basis that the initial sentence was outside the range reasonable open to a Continue reading

McCloy Symposium: Scott Stephenson on the Complications and Consequences of Constitutional Comparison

By Dr Scott Stephenson

McCloy Case Page

In McCloy v New South Wales [2015] HCA 34 for the first time a majority of the High Court (French CJ, Kiefel, Bell and Keane JJ) endorsed proportionality analysis as the appropriate framework for determining whether a law violates the freedom of political communication, an implication derived from the Australian Constitution. In doing so, the majority turned to comparative materials, especially comparative constitutional scholarship, to explain and justify its decision. In this post, I consider the complications and consequences of the Court’s comparative engagement, examining the difficulties associated with drawing on the scholarship in this field before considering some implications of the Court’s move. I suggest that it gives greater prominence to two dimensions of constitutional adjudication that are typically not accorded priority, namely the value in providing legislatures with clarity about the limits of their powers and making value judgments explicit.

Complications: The necessary yet difficult task of comparatively engaging with proportionality

The decision to endorse proportionality analysis requires careful consideration of comparative case law and scholarship to ascertain what, precisely, proportionality analysis entails. While it may be, as the majority suggest, a ‘uniform analytical framework’ (at [74]), that framework does not have a uniform formulation or application. Some jurisdictions adopt a three-stage test, while others adopt a four-stage test (see [79] fn 100). In some jurisdictions, the majority of laws that fail proportionality analysis do so at the ‘necessity’ (least restrictive means) stage, while in others it is at the ‘adequate in its balance’ (proportionality in the strict sense) stage (Grimm, 2007). Continue reading