News Australia – Federal Court of Australia finds that interest was “derived” on an accrual basis on a loan where it was a business asset and there was no collection uncertainty
Australia, whose statute still has a general inclusion of income “derived directly or indirectly from [a] source…during the income year,” has provided some of the jurisprudence on the meaning of “derived.” In the Carsden’s case in the Australia High Court, Dixon J expressed the view that the receipts basis of accounting would alone truly reflect the income of a medical practice if “there [was] but little certainty about the payment of fees.”
The Federal Court of Australia found that the accrual basis of taxation was instead appropriate for recognizing interest income on a large loan made by a subsidiary to its parent given inter alia that although it “did not carry on a business of investment or of lending money… its income earning activities included the lending of money to, amongst others, its parent on commercial terms for reward,” and “there was no suggestion on the evidence that payment of the accrued interest income from its parent was uncertain.”
Neal Armstrong. Summary of News Australia Holdings Pty Ltd v Commissioner of Taxation  FCA 645 under s. 12(1)(c).