Coles Myer Finance Ltd. v. Federal Commissioner of Taxation, 93 A.T.C. 4214 (H.C.)

The taxpayer, a finance subsidiary, raised money through bankers acceptances (or "accommodation bills") and promissory notes having terms of no more than 180 days. In reversing a finding of the full court of the Federal Court that no portion of the discounts were deductible in the taxation year in which the money was raised because the liability was not "incurred" in such year as required by s. 51(1) of the Income Tax Assessment Act 1936-1984, the Court found that upon the acceptance of the bankers acceptances, the drawer (the taxpayer) undertook a continuing liability to pay the amount of the bill to the acceptor notwithstanding that a holder for value of the bankers acceptances was entitled to hold the acceptor (the bank) primarily liable on the bill. As for the making of a promissory note, "the obligation to pay at a future time created by such a note is clearly a present liability, there being no necessity for presentment of the note for the maker to be liable to pay out the note at maturity" (p. 4,219).

Discounts on short-term bankers acceptances and promissory notes drawn or issued by the taxpayer in order to raise money for use in its business as the finance arm of a group of companies were deductible on a straight-line basis over the terms of the bills or notes, rather than in full in the year in which the money was raised. Given that "as between the drawer and the holder of a note or bill, the burden of the liability incurred by the drawer increases with the passage of time between the discounting of the note or bill and its maturity" (p. 4,222), this method accorded with the principle that "it is proper to set against the taxpayer's gross income or profits for ... [a] period the net losses or outgoings referable to that period" (p. 4,222).