Consideration of the issues
89 In these reasons, I have attempted to set out the particular facts and circumstances of the Trustee's activities in order to assess the proper context within which the question of whether the outgoing is in the nature of capital or on revenue account arises. In 1938, Dixon and Evatt JJ observed, in determining whether an item was a matter of capital or income, in Western Gold Mines NL v Commissioner of Taxation (W.A.) (1938) 59 CLR 729 at 740, that "it is necessary to make both a wide survey and an exact scrutiny of the taxpayer's activities" [emphasis added]. Their Honours also observed that they had become "only too familiar with the standard or criterion which the law provides for distinguishing between the two" and "it is a most unsatisfactory criterion, and a decision must often be made by reference to matters of degree and by reason of the weight given to particular circumstances affecting the activities of the taxpayer …". The question in issue in that case, put simply, was not the character of an outgoing but rather the character of a receipt in the form of an unrealised "excess" and whether it gave rise to a profit or was capital in nature. Nevertheless, the observations remain relevant in determining the character of an outgoing.
90 In 1965, Lord Pearce, delivering judgment for the Privy Council in BP Australia Ltd v Federal Commissioner of Taxation (1965) 112 CLR 386 at 399 ("BP Australia v FCT"), in determining whether expenditure was recurrent, said this:
Their Lordships agree with Owen J. in thinking that if regard was had to "the whole picture" the expenditure was recurrent. To find whether expenditure is of a recurrent nature one must take a broad view of the general operation under which the expenditure was incurred. Here it was made to meet a continuous demand in the trade. …
[emphasis added]
91 In 1979, Barwick CJ in Cliffs International Inc v Federal Commissioner of Taxation (1979) 142 CLR 140 at 148 ("Cliffs International") said, in relation to the question of whether the payments made in that case were capital payments, "[t]he proper conclusion in each case in this particular area of the law is peculiarly dependent upon the particular facts and circumstances of [the] case" [emphasis added].
92 Moreover, I am not assisted by observations that the outgoing in question in this case is either like or unlike payments made in an entirely different case. In this area of the law, there is little to be gained by defaulting to analogical references or analogical reasoning (Commissioner of Taxation v Citylink Melbourne Limited (2006) 228 CLR 1 at 43 [151], Crennan J; see also Commissioner of Taxation v Montgomery (1999) 198 CLR 639 at 661 [64], Gaudron, Gummow, Kirby and Hayne JJ), or the outcome of finely balanced evaluative judgments entirely dependent upon the calculus of factors determining that balance in other cases and other circumstances. The outgoing, in this case, either is in the nature of capital having regard to the calculus of factors relating to the taxpayer's activities, "exactly scrutinised", or it is not. That is not to say that the decision as to characterisation is either black or white; or binary/on or off. In some cases, it may be clear (there are "obvious cases" that "lie far from the boundary": BP Australia v FCT at 397) but such cases are unlikely to (or at least ought not to) find their way into the appellate structure of judicial decision-making.
93 Generally, an evaluative judgment must be made in the context of all of the circumstances of the taxpayer's activities taking account of the "whole picture" with an eye to understanding precisely what the outgoing is "calculated to effect from a practical and business point of view" (Dixon J, Hallstroms Pty Ltd v Federal Commissioner of Taxation (1946) 72 CLR 634 at 648 (Hallstroms") yet taking account of the legal nature of the obligation in question giving rise to the outgoing and the liability discharged by making the payment: Ausnet Transmission Group Pty Ltd v Commissioner of Taxation (2015) 255 CLR 439 at 474 [74] ("Ausnet"), Gageler J citing GP International Pipecoaters Pty Ltd v Commissioner of Taxation (1990) 170 CLR 124 at 137 ("GP International"). The inquiry includes "most importantly the commercial purpose of the taxpayer in having become subjected to any liability that is discharged by the making of [the] expenditure": Ausnet, Gageler J at [74]. In determining the questions in issue in this appeal, it is important to keep in mind all of these considerations at [89] to [93] of these reasons, especially the need for "exact scrutiny" of the Trustee's activities with a view to understanding the "whole picture" within which the expenditure was incurred.
94 That is not to say, plainly enough, that matters of general principle cannot be distilled from the authorities. Nor is it to suggest that reference to the facts of a particular case are of no value in illustrating a proper understanding of the principle. However, there is no utility in attempting to find in the facts of one case, an analogical answer to the question in issue on the actual facts of the particular case as to the contested character of an outgoing.
95 One important statement of principle is to be found in GP International at 137 (by the Court; Brennan, Dawson, Toohey, Gaudron and McHugh JJ), in these terms:
The character of expenditure is ordinarily determined by reference to the nature of the asset acquired or the liability discharged by making the expenditure, for the character of the advantage sought by making the expenditure is the chief, if not the critical, factor in determining the character of what is paid: Sun Newspapers Ltd and Associated Newspapers Ltd v Federal Commissioner of Taxation; Colonial Mutual Life Assurance Society Ltd v Federal Commissioner of Taxation; Cooper v Federal Commissioner of Taxation.
[citations omitted; emphasis added]
96 That proposition was affirmed in Commissioner of Taxation v Citylink Melbourne Limited (2006) 228 CLR 1 Crennan J at 43 [148], Gleeson CJ, Gummow J, Callinan J and Heydon J each separately agreeing, and also by the plurality in Ausnet in the discussion at [15] to [22].
97 The reference by the Court in GP International at 137 to Sun Newspapers is a reference to the well-known discussion by Sir Owen Dixon of the considerations which help to identify (and remain a "valuable guide" in identifying; BP Australia v FCT at 386) the distinction between expenditure on revenue account and on capital account: Sun Newspapers v Federal Commissioner of Taxation (1938) 61 CLR 337 at, particularly, 359 to 363. The distinction is often not always easy to draw. At the threshold, the distinction might well correspond with the distinction between the business entity, structure or organisation "set up" for earning profits, on the one hand, and the "process" by which an organisation so set up, "operates" or goes about deriving "regular returns" by means of "regular outlays", on the other hand: Dixon J at 359.
98 Sometimes, the business structure may be represented by no more than "intangible elements … constituting goodwill, that is, widespread general reputation, habitual patronage by clients or customers and an organised method of serving their needs" [emphasis added]: Dixon J at 360. The plurality in Ausnet at [21] found that "implicit" in this observation is the "uncontroversial proposition" that an intangible asset might, according to its nature and function in the conduct of the business, be properly characterised "as forming part of the structure of the business" and thus "the cost of its acquisition" is a capital cost.
99 Sometimes, there may be a great aggregation of assets deployed in the production of goods or services: Dixon J at 360.
100 But whatever the form, the source of the earnings is the "profit-yielding subject": Dixon J at 360.
101 Orthodoxy suggests that outgoings upon "establishing" or "enlarging" or indeed "replacing" the profit-yielding subject matter are "entirely different" in nature from the "continual flow" of working expenses supplied "out of the flow of revenue": Dixon J at 360. But, the "practical application" of such orthodoxy is difficult and the "basal difficulty" lies in the fact that the "extent, condition and efficiency" of the profit-yielding subject is "often" as much the product of the "course of operations" as it is of a "clear and definable outlay by way of establishment, replacement or enlargement" of the profit-yielding subject itself: Dixon J at 360. The distinction is "even harder to maintain" in relation to the "intangible elements" forming an important part of many profit-yielding subjects: Dixon J at 360. One illustration of that difficulty may be that in some cases goodwill may have been gradually established by continual advertising over a number of years growing the goodwill of the undertaking as the business proves to be successful. In such a case, the expenditure on advertising might be regarded as an ordinary business outgoing on account of revenue: Dixon J at 361.
102 One standard by which outgoings may be characterised as attributable to capital account or revenue account is whether the outlay is, on the one hand, "recurrent, repeated or continual" or whether it is "final" or made "once and for all".
103 Even greater emphasis has been given to the distinction which might be found in the "nature of the asset or advantage obtained by the outlay": Dixon J at 361. This distinction involves examining the "result or purpose" of the expenditure to determine whether it brings into existence or procures an asset or advantage of a "lasting character" which will "endure for the benefit of the organisation or system or profit-earning subject": Dixon J at 361. If so, the outlay will be distinguished from expenditure to be recouped by "circulating capital or working capital": Dixon J at 361.
104 However, the conception of "an asset or advantage for the enduring benefit of a trade" is one which should receive "elastic application": Dixon J at 361.
105 Moreover, the "idea of recurrence" and the "idea of endurance or continuance over a duration of time" both depend on "degree and comparison": Dixon J at 362.
106 As to recurrence, the "real test" is between expenditure made to meet a "continuous demand" as compared with expenditure which is made "once for all": Dixon J at 362, adopting the observations of Rowlatt J in Ounsworth v Vickers Ltd (1915) 3 K.B. at 273, explained his understanding of that notion in this way at 362:
By this I understand that the expenditure is to be considered of a revenue nature if its purpose brings it within the very wide class of things which in the aggregate form the constant demand which must be answered out of the returns of a trade or its circulating capital and that actual recurrence of the specific thing need not take place or be expected as likely. … Recurrence is not a test, it is no more than a consideration the weight of which depends upon the nature of the expenditure.
[emphasis added]
107 The lasting character of the advantage gained by the outlay is not necessarily a determining factor in the characterisation of the outgoing: Dixon J at 362. Rights and advantages of particular duration and nature may be the subject of recurrent payments which are referrable to capital expenditure or income expenditure "according to the true character of the consideration given", that is, whether on the one hand it is a capitalized sum payable by deferred instalments or, on the other hand, expenditure in the nature of higher payments or rental payments accruing at particular intervals, for the use of the thing: Dixon J at 363.
108 Ultimately, Dixon J synthesised these points of distinction in this way at 363:
There are, I think, three matters to be considered, (a) the character of the advantage sought, and in this its lasting qualities may play a part, (b) the manner in which it is to be used, relied upon or enjoyed, and in this and under the former head recurrence may play its part, and (c) the means adopted to obtain it; that is, by providing a periodical reward or outlay to cover its use or enjoyment for periods commensurate with the payment or by making a final provision or payment so as to secure future use or enjoyment.
109 The High Court delivered judgment in Sun Newspapers on 23 December 1938. On the same day, the Court also delivered judgment in The Commissioner of Taxes (South Australia) v Executor Trustee and Agency Co of South Australia Ltd (1938) 63 CLR 108. In that decision, Dixon J had some further things to say about the difficulty of determining whether a particular expenditure or outgoing falls to capital account or revenue account and the relationship such a distinction bears to commercial practice and principles of accountancy. At 152 to 154, Dixon J made these observations:
Income, profits and gains are conceptions of the world of affairs and particularly of business. They are conceptions which cover an almost infinite variety of activities. It may be said that every recurrent accrual of advantages capable of expression in terms of money is susceptible of inclusions under these conceptions.
… But in nearly every department of enterprise and employment the course of affairs and the practice of business have developed methods of estimating or computing in terms of money the result over an interval of time produced by the operations of business, by the work of individuals, or by the use of capital.
Familiar but striking examples of this necessary reliance upon commercial principles and general business understanding may be found in the case law dealing with expenditure laid out for the purpose of trade, with outgoings on account of capital, with capital profits, and with the question whether items should be taken into consideration for any given accounting period rather than for that which follows or perhaps for that which preceded. …
The tendency of judicial decision has been to place increasing reliance upon the conceptions of business and the principles and practices of commercial accountancy. …
But the process by which the principles and practices evolved in business or general affairs are drawn upon for the solution of questions presented to courts of law almost inevitably leads to a development in the law itself. For, under our system of precedent, a decision adopting or resorting to any given accounting principle or application of principle is almost bound to settle for the future the rule to be observed and the rule thus comes to look very like a proposition of law.
But in some matters, particularly in the attribution of expenditure between capital and income, the courts have found it impossible to formulate a principle as an induction from commercial practice and have left the matter almost as much as ever in the realm of fact or discretionary judgment. …
In Lothian Chemical Co Ltd v Rogers, Lord Clyde says this:
It is according to the legitimate principles of commercial practice to draw distinctions, and sharp distinctions, between capital and revenue expenditure, and it is no use criticising these, as it is easy to do, upon the ground that if you apply logic to them they become more or less indefensible. They are matters of practical convenience, but practical convenience which is undoubtedly embodied in the generally understood principles of commercial accounting.
110 I have examined many of the Accounting Standards adopted and published by the Accounting Standards Body to determine whether those standards deal with factors informing, from a professional standards point of view, approaches to the determination of whether an item of expenditure is in the nature of capital or on revenue account. The Standards do not address that matter directly. This probably reflects a view within the Standards Body that the question is best left to be determined according to the facts of the particular transactions giving rise to the expenditure and the view courts might take about that expenditure as an exercise of judicial power in the context of adversarial proceedings where all aspects of the relevant evidence is properly evaluated.
111 Many of the propositions described at [97] to [108] of these reasons based on the observations of Dixon J in Sun Newspapers were expressly affirmed in Ausnet by the plurality, French CJ, Kiefel and Bell JJ at [14] to [29].
112 The plurality emphasised at [14] and [15], the "evaluative judgment" required to be made in determining the character of the outgoing by weighing up: the form of the expenditure, its purpose and its effect; the benefit derived by the taxpayer from the expenditure; and the relationship the expenditure bears to the structure of the business as distinct from the conduct of the business. Not surprisingly, some of these factors might point in one direction while others point in a different direction: Ausnet at [15]; BP Australia v FCT, Lord Pearce, 112 CLR 386 at 397.
113 Although a "once and for all" payment might be a criterion, in a rough way, of whether the expenditure is on capital or revenue account, such a rough criterion cannot, obviously enough, be decisive in every case. An outgoing made with a view to (that is the purpose of) bringing into existence an asset or an advantage for the enduring benefit of a trade, is likely to be an outgoing on capital account but even then there might be special circumstances which suggest an "opposite conclusion": Ausnet at [15].
114 The circumstance that the outgoing is recurrent is not determinative of its character: Ausnet at [16].
115 In Henriksen v Grafton Hotel Ltd [1942] 2 K.B. 184 at 195 ("Henriksen"), Du Parcq LJ, in the Court of Appeal, found that recurrent payments of a charge, imposed as a condition upon the grant of a liquor licence, were in each case, when paid, part of a total amount paid "to acquire the right to trade for a period of years" and at the date when the period began, holding the right was "essential before trading could be begun". Thus, each payment when made was considered to be "part of a capital outlay". The plurality in Ausnet at [16] note that Lord Pearce in BP Australia v FCT (writing for the Privy Council) observed at 112 CLR 386 at 405 that Henriksen (which Lord Pearce described as "a special case") was concerned with a business which could not be carried on without a licence and thus, there was "an element of monopoly" involved which informed the decision that the outgoing in question was on capital account. The plurality at [16] affirmed the relevance of that consideration in a contemporary setting but characterise it as one which might be understood, in Australia, as a matter of "enhanced market power" where the requirement for a licence in order to carry on a trade or business for a period of years, not freely given to "all comers", constitutes "a barrier to entry for potential competitors into the relevant market": Ausnet at [16].
116 Thus, it seems, that if the circumstances of the payment engage the acquisition of something which would operate as a barrier to entry for potential competitors into the relevant market in which the taxpayer engages (thus enhancing the market power of the taxpayer), that circumstance weighs in the balance in determining whether the outgoing bears the character of a capital outgoing, consistent with the principle in Henriksen.
117 In Sun Newspapers, the contested payments also engaged "an element of monopoly" as, for Rich J, the purpose of the outgoing was to "buy out opposition and secure so far as possible a monopoly" (61 CLR 337 at 347) and for Latham CJ, the payments "did obtain a very real benefit or advantage for the companies, namely, the exclusion of what might have been serious competition" (61 CLR 337 at 355). The question of whether the payments engaged an element of monopoly did not loom large in the reasoning of Dixon J although that consideration falls more fundamentally within the first of Dixon J's three points of distinction set out at [108] of these reasons: that is, "the character of the advantage sought and in this its lasting qualities may play a part".
118 The Commissioner says that the considerations at [114] to [116] apply precisely to this case. The Commissioner says that the Trustee made an expenditure in an auction process to acquire GMEs conferring the right to carry on a gaming business which it could not carry on without having acquired the GMEs and which conferred upon it an element of monopoly in the sense described at [114] and [115] of these reasons.
119 Where the contested payment is made as part of the consideration for the acquisition of a business, that circumstance will normally be a "key factor" in the assessment of characterisation. The fact that a payment can be viewed as "part of the consideration for the acquisition of a business or capital asset weighs heavily in favour of its character as a capital outlay" [emphasis added]: Ausnet at [18].
120 Although, as a matter of principle, such a factor weighs heavily in the balance in deciding whether the outgoing is on capital account, the question to be asked in seeking to resolve the "basal difficulty" identified by Dixon J ([101] of these reasons), in the context of the applied facts giving rise to the outgoing is, was the payment made "for" the acquisition?: Ausnet at [18]. But even then there is difficulty.
121 In Cliffs International, Barwick CJ observed that even though the payments in issue in that case were plainly made in the performance of a promise given as part of the acquisition of what was "subject matter undoubtedly of a capital nature", the payments were not of a capital nature. The particular facts going to the activities of the taxpayer are not the point in issue here. The simple point is that an acquisition expenditure itself does not necessarily bear the characterisation as an outgoing in the nature of capital. Even though Barwick CJ took that view (and also Jacobs and Murphy JJ), Gibbs and Stephen JJ took a different view.
122 The plurality in Ausnet expressly recognise at [19] the basal difficulty identified by Dixon J that expenditure which might be regarded, ordinarily, as on capital account in one set of circumstances might be regarded as expenditure on revenue account in another set of circumstances. At [22], the plurality in Ausnet affirm the three elements of the synthesis of Dixon J set out at [108] of these reasons.
123 Obviously enough, in deciding whether an outgoing is on capital account or revenue account in the particular circumstances of the taxpayer's activities, much depends upon what the expenditure is "calculated to effect" from "a practical and business point of view, rather than upon the juristic classification of legal rights, if any, secured, employed or exhausted in the process": Hallstroms (1946) 72 CLR 634, Dixon J at 648.
124 In Hallstroms, Dixon J was in dissent. The plurality held that the expenditure in issue was on revenue account. However, at 646 and 647, his Honour re-asserted the principles he had identified in 1938 in Sun Newspapers guiding the identification of the distinction to be made. The contested expenditure concerned legal expenses incurred by Hallstroms in successfully opposing a petition by a market rival, Electrolux, for an extension of the term of the patent it held for refrigerators. Dixon J observed that the legal expenses take the quality of an outgoing of a capital nature or an outgoing on account of revenue "from the cause or the purpose of incurring the expenditure" [emphasis added] at 647. Had an extension been granted, it would have been unlawful for Hallstroms to pursue any part of its program of making and selling rival refrigerators embodying the invention and carrying into effect its reorganised productive capacity for manufacture and sale of the new refrigerators.
125 In that context, Dixon J said this at 648:
The expenditure was directed to ensuring that there should be no renewal of the restriction. This appears to me to go to the character and organisation of the profit-earning business and not to be an incident in the operations by which it is carried on. I think that it is an affair of capital. …
What is an outgoing of capital and what is an outgoing on account of revenue depends on what the expenditure is calculated to effect from a practical and business point of view, rather than upon the juristic classification of the legal rights, if any, secured, employed or exhausted in the process. …
[emphasis added]
And this at 649:
What did matter [in making the expenditure] was that the company should be enabled to place its business on a fresh foundation, by turning over to the production of a refrigerator according to the invention, and thus compete with the proprietor of the expired or expiring patent. It was for that purpose that the expenditure was incurred.
… The legal expenses incurred in the final removal of this obstacle [the patent], or in preventing its continuance, ought not, therefore, to be regarded as an outgoing in the course of and as an incident to the carrying on of the profit-earning operations of the business, that is working the plant and organisation according to an existing form and arrangement. To adapt and add to some expressions used by the Chairman of the Board, it is concerned with the reform of or the more effective establishment of the organisation by which income will be produced (the profit-yielding subject) and not with the means whereby that organisation will be used for that purpose.
[emphasis added]
126 Although it is, of course, necessary to ascertain the character of the expenditure by identifying what the expenditure is "calculated to effect" from a "practical and business point of view" (or put another way, by taking into account "most importantly the commercial purpose of the taxpayer in having become subjected to any liability that is discharged by the making of the expenditure": Gageler J, Ausnet at [74], quoting BP Australia v FCT), rather than focusing upon a "juristic classification" of the legal rights (if any) secured, deployed or exhausted by making the outgoing, nevertheless, the content of the particular legal arrangements within which the outgoing is made must be properly understood: Federal Commissioner of Taxation v South Australian Battery Makers Pty Ltd (1978) 140 CLR 645 at 662, Stephen and Aickin JJ.
127 Indeed, such a consideration is regarded as "essential". Stephen and Aickin JJ put the matter this way at 662:
An examination of the legal rights obtained is essential to the characterisation of expenditure, notwithstanding that in some cases it may not alone be sufficient to complete the process …
…
We do not read Dixon J's judgment in Hallstroms' Case as intended to convey that practical business considerations are to be used to the exclusion of any analysis of legal rights.
128 In the present case under appeal, the Tribunal was constituted by Pagone J, a Deputy President of the Tribunal. The Tribunal concluded that the outgoing was on revenue account. At para 13, the Tribunal said this:
The outgoing for the gaming machine entitlements in the trustee's business is more like a fee paid for the regular conduct of a business than the acquisition of a permanent or enduring asset. The payment for a right which is required as a condition for trading will sometimes be capital in nature, but the payment for the right to trade will not always be an outgoing on capital account. In [Henriksen], a right to trade for three years was described as a capital asset, whereas the payment for an excise licence was regarded as part of the working expenses for the year.
[emphasis added]
129 At para 13, the Tribunal quotes an extensive extract from the reasons of Du Parcq LJ in Henriksen at 194-196. Having done so, the Tribunal then notes that the decision in Henriksen was referred to with approval by the plurality in Ausnet at [18] as an example of a payment on capital account (notwithstanding that the payment was recurrent), "because it reflected the monopoly value of what was acquired". The Tribunal then says this at para 13:
In the present case, in contrast [to the position in Henriksen], the amount of the outgoing reflected the economic value of the income stream expected from putting other assets to use to derive income from gaming. The gaming machine entitlements had no intrinsic economic value other than by reference to the income stream expected from [their] use with other assets to derive gaming income. The amounts paid for the gaming machine entitlements were amounts, like those considered in [BP Australia v FCT 112 CLR 386 at 398] "which had to come back penny by penny with every order during the period in order to reimburse and justify the particular outlay". The close connection between the amounts paid for the gaming machine entitlements and the income stream expected from the payments was in part reflected, as a practical business and commercial matter, in the amount which the purchaser had been willing to pay for the business when it had included commissions income from 18 gaming machines.
[emphasis added]
130 At para 13, the Tribunal also made these further observations:
It can also be assumed that any separate economic value of the gaming machine entitlements would diminish over time to "nil" as the period for which they were granted was consumed and decreased by the passage of time. The outgoings were, finally, unlike premiums for a lease which secures, albeit for a diminishing period, a right to occupy and enjoy premises: cf [authorities and references omitted]. The rights attaching to the gaming machine entitlements had nothing comparable to the rights to occupy and enjoy real estate.
[emphasis added]
131 At para 14, the Tribunal notes the Commissioner's contention that the outgoing was of capital or of a capital nature, because the outgoing had been incurred for the purpose of preserving and protecting the Trustee's business. As to that contention, the Tribunal said this:
It is true that the expenditure had an effect upon the income producing structure of the trustee's business, and it is true that a consequence of the outgoing was to have preserved the trustee's ability to derive income from gaming activities at the hotel, but it would not be accurate to characterise the outgoing as "for the purpose of preserving and protecting" the trustee's business. The outgoings were for the statutory entitlement to conduct gaming at its premises on gaming machines over time, and the amount of the bid reflected the expected income stream from the use of those other assets which the gaming machine entitlements permitted. An incident of acquiring the gaming machine entitlements by the outgoing may have been to have preserved the trustee's income earning structure, but the purpose of the outgoing was to obtain the right to conduct gaming to enable the trustee to derive the future income which was expected from the gaming.
[emphasis added]
132 For these reasons, the Tribunal concluded that the outgoing was on revenue account.
133 At [75] to [88] of these reasons, I identify the criticisms the Commissioner makes of the reasoning of the Tribunal and the contended errors inherent in that reasoning. Before examining those contended errors, it is necessary to contextualise a little further the observations of the Tribunal. At para 5, the Tribunal observes, as a matter of principle, that the distinction between revenue expenditure and capital expenditure may, in general terms, be understood as corresponding, in the context of a business, to the distinction between an outgoing that is consumed in the business and an outgoing which substitutes the money expended for (quoting the language reflected in British Insulated and Helsby Cables v Atherton [1926] AC 205, 213), "an asset or an advantage for the enduring benefit [of the business]". The Tribunal also, of course, had regard to the authority of the statements of principle in Sun Newspapers and Hallstroms.
134 Importantly, the Tribunal said this at para 6:
The trustee of the trust in this case acquired the gaming machine entitlements in consequence of a change to the statutory regime in Victoria governing gaming operations and in the context of the trustee having a pre-existing business in which gaming revenues formed a significant part of its income. On 8 August 2005 the trustee had acquired a business trading as a hotel for a price of $1,025,000 pursuant to an agreement with Tattersalls Gaming Pty Ltd ("Tattersalls"). The trustee became the venue operator of the hotel pursuant to the agreement with Tattersalls in respect of a venue approved for gaming under the provisions then regulating gaming. Tattersalls was the gaming operator under that regime in respect of the venue, and between 8 August 2005 and 15 August 2012 Tattersalls owned and operated 18 gaming machines at the hotel pursuant to its agreement with the trustee and its entitlements as gaming operator under the relevant state legislation. Income from gaming was paid by Tattersalls to the trustee as commissions in respect of the gaming undertaken at the premises. The profit and loss statement of the trustee for the year ended 30 June 2006, for example, included income of the trust from accommodation, gaming commissions, rebates, and gross profits from trading as a hotel which included sales of meals and alcohol.
[emphasis added]
135 Having regard to the Tribunal's reasons overall and particularly the observations at para 6, I respectfully disagree with the Commissioner's proposition that the Tribunal either did not properly understand the distinction between the pre-August 2012 regime and the new post-16 August 2012 regime, or proceeded in error upon a conflation of the two regimes in undertaking the analysis of the question of whether the expenditure was on revenue account or capital account.
136 It seems to me to be clear that the Tribunal properly understood the role of the Trustee as a venue operator of approved premises and the role of Tattersalls as a gaming operator which owned and operated 18 gaming machines at the hotel pursuant to the relevant statutory arrangements (and its agreement with the Trustee) under the old regime, on the one hand, and the changes earlier described to the legal regime under the new arrangements, on the other hand. It can be seen in para 6 of the Tribunal's reasons that the Tribunal described the income of the Trustee under the old regime, at least as to gaming income, as "commissions". It seems to me perfectly clear that the Tribunal understood the juristic classification of the differences between the two regimes.
137 I accept that the new regime brought into existence a statutory "thing" called a gaming machine entitlement. I accept that it arose as a statutory creature under the Act as amended and I accept that it bears the character of an intangible asset created pursuant to statute. Plainly enough, the allocation of a GME, conferred upon the person acquiring it a statutory authority necessary to lawfully "conduct gaming" by means of gaming machines at a relevant venue subject to the applicable regulatory requirements. I accept that in the absence of such a GME, a statutory prohibition arose upon a person conducting gaming. I also accept that the GME conferred authority, subject to the Act, upon the person holding the GME to conduct gaming as described for a period of 10 years subject to either forfeiture according to the Act or an extension of the term for up to two years according to the Act.
138 I also accept that the GMEs are capable of being bought and sold although the limitations inherent in that notion must be properly understood. They can only be transferred to another venue operator. There is no secondary market as such for GMEs as an intangible asset or bundle of rights under the statute. The GMEs, as the Commissioner concedes, only have value (or use) to a venue operator capable of conducting gaming according to all of the elements of the regulatory regime established under the Act, as amended, for that purpose.
139 These features of a GME are "factors" which "point" in the direction of a capital outgoing: see, the plurality at [15], Ausnet. The expenditure on the GMEs as a consequence of the auction process seems to have affinity with expenditures related to the business structure "set up" for earning profits as opposed to an expenditure related to the "process" by which an organisation so set up "operates" or goes about deriving regular returns by means of regular outlays: see [97] of these reasons.
140 However, there are other factors which also point in a different direction.
141 The Commissioner says that the Tribunal's notion that the expenditure reflected the "economic value of the income stream" expected from putting assets to use to derive income from gaming is misconceived, on the facts. The Commissioner also says that the Tribunal's notion that the gaming machine entitlements had "no intrinsic economic value" other than by reference to the income stream expected from their use with other assets to derive gaming income, is also misconceived, on the facts.
142 I respectfully disagree with these contentions of the Commissioner.
143 It is true that the amount of the outgoing as determined by the auction process at $600,300.00 does not represent something in the nature of a valuation or crystallisation of an amount which bears a relationship to the precise dollar value of the present or future cash flows generated in the business of the hotel undertaking. In that sense, there is no discounted cash flow valuation or determination of the "amount" to be paid for the GMEs by reference to the orthodoxy of attributing a precise present day value to future earnings. There is no attempt to take into account, objectively viewed, specific rates of return which bear some relationship with the carrying value of assets or even the depreciated optimized replacement cost of assets of the business in setting the amount of the outgoing.
144 Nevertheless, the evidence is perfectly plain that the Trustee was conducting a going concern on 9 May 2010 (approaching the auction on 10 May 2010) and had been conducting that going concern for some years in a way which involved generating sustainable revenue and profit from an integrated hotel business undertaking which involved the sale of food and beverages in the restaurant; the sale of food and beverages in the café; the sale of alcohol at the various bars; income derived from gaming activities (as commissions); and income derived from wagering.
145 The evidence is that Mr Canny, for the Trustee, took professional advice about the incremental thresholds at which the Trustee could afford, in a forward-looking way, to bid (and pay) to acquire 18 GMEs. The commercial reality confronting the Trustee was that the expenditure on the cost of acquiring the GMEs would have to be paid for out of the proceeds of the business undertaking of the Royal Hotel over time. That might express itself in the form of funding the outgoing of $600,300.00 by debt funding with the attendant cost of funds (loan fees, recurrent management fees, interest costs etc). In that event, repayment of the debt and recoupment of the costs of funds would need to be paid out of the cash flows of the hotel undertaking. Alternatively (and as things transpired), the obligation to pay the outgoing might be discharged over time by a sequence of quarterly payments to the State of Victoria (Treasury) either with or without interest costs. As things transpired, the outgoing was paid by paying the State an amount of $60,030.00 in approximately May 2010 and by making further quarterly payments of $30,015.00 across the period from 16 August 2012 to 31 August 2016 with no interest charges payable to the State of Victoria. However, even under those arrangements, meeting the quarterly instalments had to be financed out of the proceeds of the business undertaking of the hotel.
146 The realisation that the cost of the GMEs would need to be funded out of the cash flows of the business meant that in order for the Trustee to continue its going concern at the Royal Hotel deriving income from gaming activities (recognising that in the new environment the legal foundation for that activity would be as a venue operator "conducting" gaming), the Trustee had to form a view (and did so through Mr Canny) about the relationship or relativity between the cost of the GMEs and the capacity of the business undertaking to fund the acquisition out of future revenue (cash flows), while maintaining an acceptable rate of return in the business. That assessment had to take account of the profitability of the undertaking overall. The relationship was not one just between the cash flows derived from gaming activities but one between the cost of the GMEs and the cash flows generated from the entire business undertaking having regard to the influence gaming activities had upon contributions to revenue in other parts of the integrated hotel business. The Trustee was, after all, "running a Pub" not operating a "gaming parlour".
147 It is true that there is no direct relativity, dollar for dollar, between the amount paid for the GMEs and a particular discount applied to future cash flows evident in an orthodox discounted cash flow sense which might be used to determine a "value" to be paid for the acquisition of the GMEs. There is no express ratio of cost to earnings. However, there is no doubt that the thinking which informed Mr Canny's assessment (for the Trustee) of the amount the Royal Hotel business or could afford to pay for the GMEs was determined, having regard to the bidding schedule, on the basis of the maximum amount which might be paid yet which would leave the business in a position where it achieved a reasonable rate of return on assets having regard to revenues and costs. In that sense, there is no doubt that the amount of the expenditure bore a very real relationship with the income generated by the business of the hotel and the profits the hotel business would generate in a forward-looking way on the assumption that the cost of the GMEs might fall within the upper limits of the payment scale set out in the bidding schedule: see the discussion as to that matter at [59] to [61] of these reasons and Mr Canny's assessment of the amount the Trustee could afford to pay in the bidding process; see the increments in the bidding schedule set out at [61] of these reasons.
148 That is why the Tribunal at para 13 used the phrase "close connection" to describe the relationship between the amounts paid for the GMEs and the income stream expected from having made the payments, viewed from a practical business and commercial standpoint.
149 The Tribunal was entirely right to do so.
150 If the character of the expenditure is to be examined in a way which takes account of what the expenditure is calculated to effect from a practical and business point of view (yet taking proper account of the relevant legal rights and obligations), Mr Canny's evidence before the Tribunal tells the Tribunal (and the Court) in very plain terms the practical and business point of view considerations which informed both the making of the expenditure on the day (10 May 2010) and its quantification on the day through the bidding process.
151 To proceed on the basis that there is no relevant relationship between the threshold of earnings and the expenditure is, in my respectful view, to displace a proper understanding of the business imperatives confronting the Trustee. It is true, as things transpired, fortuitously for the Trustee and its business at the Royal Hotel, that it was not necessary for the Trustee to bid up to the financial caps which had been set for the bidding process for the acquisition of 18 GMEs corresponding to the 18 gaming machines onsite. That did not mean that the relationship between revenues in the business and the cost of the GMEs suddenly evaporated as a commercial question. It just means that the Trustee did not have to pay as much as it thought it might have to pay in order to acquire 18 GMEs and retain a reasonable rate of return on assets in the business.
152 A recognition that there is, in the scrutinized activities of this particular taxpayer, a relationship between the threshold of earnings and the expenditure made and its quantification, does not mean, however, that the outgoing is necessarily on revenue account.
153 Other factors need to be considered.
154 As an aspect of the notion that the amount of the outgoing reflected something in the nature of the economic value of the income stream expected from putting the relevant assets to use to derive income, the Tribunal placed emphasis upon the method of recoupment of the outgoing and took the view that the amount to be paid for the GMEs was an expenditure which had to "come back" to the Trustee cent by cent in the course of the trading operations of the Royal Hotel during the period of the entitlements. The Tribunal's view that there subsisted a "close connection" between the amount paid for the GMEs and the income stream expected from having made the payments, led the Tribunal to a conclusion that the outgoing was an amount "like those" considered by Lord Pearce writing for the Privy Council in BP Australia v FCT 112 CLR 386 at 398 "which had to come back penny by penny with every order during the period in order to reimburse and justify the particular outlay".
155 Since the Tribunal regarded the outgoing in question as analogous to the recoupment of the outgoing in BP Australia v FCT, it is necessary to reflect a little on the circumstances of that case.
156 In BP Australia v FCT, the following considerations had a role to play in determining the character of the outgoing.
157 Prior to the arrangements which led to BP Australia ("BP") incurring the expenditure the subject of the contest, sales of petrol by BP service stations represented a "substantial part" of BP's total sales and thus its revenues. In 1951, put simply, various brands of petrol were sold in competition with each other at each individual service station. In that regime, particular producers owned their own tanks and pumps at each service station with those facilities let to the retailer at a nominal figure. In August 1951, Shell sought to achieve efficiencies in the costs of distribution by implementing a new regime called a "solo site service station plan" on the footing that it would supply petrol to service stations which had agreed to deal exclusively with it. At that time, BP had 4,000 retailers selling its petrol. Immediately after Shell's announcement, 437 of those retailers requested BP to remove its pumps and by December of that year, BP had lost 1,012 sites. Thus, steps had to be taken by BP to arrest the "alarming situation" and make "provision for the future".
158 BP took steps to encourage retailers to deal solely with it and by December of that year it had gained 326 sites to partly offset the 1,012 sites it had lost. However, other producers (rivals) began offering direct financial inducements to retailers to join their particular solo site plans. BP responded by offering lump sum payments to retailers who would tie themselves to BP for not less than three years and, in some circumstances, depending upon the payments, the tie would be for a period of not less than five years. The financial payments began as £100 for every thousand gallons per month (estimated) with a maximum of £1000 for a three year tie. That sum might be increased to £150 for every thousand gallons provided the tie was extended to five years.
159 By June 1952, BP had lost 1,964 sites but had obtained off-setting trade ties at 791 sites. During the financial year in question, BP expended £270,569 in payments to retailers under written agreements providing for the tie. Lord Pearce at 112 CLR 386 at 391 observes that Taylor J, in the High Court, had concluded that the amounts paid by BP were lump sums for the purpose of securing a trade tie and thus the payments were capital outgoings. Lord Pearce also observes at 112 CLR 386 at 391 that on appeal, McTiernan J agreed entirely with the reasoning of Taylor J; Windeyer J affirmed the judgment of Taylor J and observed that BP had obtained, for a substantial period and with a prospect of renewal thereafter, something that was to become part of the "structure, organisation or framework" within which and by means of which BP carried on its business undertaking; and Lord Pearce notes that Owen J concluded that the advantage gained by BP ultimately determined the character of the outgoing as a capital outgoing. Lord Pearce also observes that Dixon CJ and Kitto J dissented, holding that the outgoing was on revenue account. The Privy Council also so held.
160 For Dixon CJ, BP was engaged in a "continuous process of business expenditure" which "involved the cost of selling in whatever way might from time to time seem suitable", its product to the public. The changes that BP had to confront in the conduct of its business seemed "to be of a more or less enduring character". Dixon CJ observed that the fact that the changes involved the securing of pumps which remained on the premises for use in the sale of BP's petrol and that that petrol alone was to be sold had, by the majority (and also Taylor J), "been taken to mean that a resultant advantage possibly covering a long period of years was really purchased by the expenditure". Dixon CJ then said this ((1964) 110 CLR 387 at 410):
As I have followed the history of the matter it seems clear that in all the unexpected incidents of marketing throughout these years the company was engaged in an endeavour to obtain a definite market among the public by one means or another and was doing so in the course of conducting its business of disposing of petrol which it was able to acquire or import. I do not think it was acquiring a capital asset or doing any more than so conducting its business on revenue account as to increase it and make as certain as it could that its business was continuing and also would continue, if possible, to expand. For my part, I cannot think that all the course adopted changed the character of the transactions of the company from those of a continual attempt to establish its product in a consumers' market and to meet all the obstacles which arose in a long and rather troubled period to obtaining a reputation for its product. There appears to me to be no specific expenditure in increasing its plant, machinery or other element in the profit-earning instrument under its control.
[emphasis added]
161 Kitto J at 110 CLR 387 at 412 notes the Commissioner's proposition that by making the payments in question, BP secured for itself, as a "pre-requisite" to continuing to sell petrol to service stations, "a share of the trade thus newly divided [according to the new horizontal "solo site" arrangement]". The Commissioner contended that BP's payments "bought customers" and the analogy of a purchase of goodwill was sufficient to demonstrate, it was said, that the expenditure was of a capital nature.
162 As to that, Kitto J said this (at 412-413):
In the first place, while it is true that for each payment made to an operator [BP] obtained an immunity from competition for a period in respect of that operator's service station, the transaction differed in an important respect from one in which a trader takes from a potential competitor an agreement in restraint of trade. The effect of a binding promise not to compete is to create for the promisee a more favourable situation in which to carry on his business for the future; it makes an improvement in the conditions in which he may proceed to carry on his profit-making activities. In other words, the elimination of the competitor is anterior to, and not part of, the trading in which the benefit of it will be felt; and accordingly, in the ordinary case at least, the cost of it is a cost of adding a protective element to the structure of the promisee's business. Forming no part of his trading expenses, but being, in effect, the purchase price of a capital asset, it is a capital charge.
At 412-413:
But a promise by a service station operator not to deal with oil companies other than [BP] or its allies was only the negative side of the substantial positive advantage which it was the purpose and practical effect of the agreement to produce, namely the advantage of a practical certainty that the whole of the custom of the service station, for motor spirit, would be given to [BP] or its allies for the agreed period; and what [BP] really paid its money for was that positive advantage. The purpose was not to create a situation in which to set about selling motor spirit; it was to secure the particular sales which would be necessary for the satisfaction of the service station's requirements of the period. The payment … was part and parcel of the business of effecting sales.
[emphasis added]
163 At 415, Kitto J said this:
In the view I take of the case, the advantage was not the acquisition of a new market, not a new framework within which to carry on trade for the future, not an extension of the appellant's selling organisation to include a regiment of resellers. It was not such an exclusion of competition as adds to goodwill a negative right and thus increases the value of goodwill. It consisted simply of the practical assurance of receiving bundles of orders for motor spirit, the circumstances being such that for the foreseeable future it would be only by getting similar bundles of orders that such a trade as [BP's] could be carried on.
164 Lord Pearce had particular regard to these observations of Dixon CJ and Kitto J and went on to make the remarks to which the Tribunal refers, in these proceedings, as described at [154] of these reasons.
165 Lord Pearce at 112 CLR 386 at 397 and 398 notes that the need or occasion for the payments of the lump sums came from the fact that marketing in the petrol trade in 1951 "changed its nature suddenly" and for sound commercial reasons. The "change" was in accordance with "modern tendencies" in commerce. The trading in petrol had become "a long term trade". The trade under the changes had become diverted "into separate specialised and individual channels" and henceforth the customer gave his "whole loyalty or none at all". The producer, in accordance with the "new market", needed to have its own tied retailers if it was to compete with rivals. Since orders were flowing from tied retailers, and would in the future be only obtainable from tied retailers, BP had to obtain ties with retailers. To obtain ties, it had to pay out sums for a period of years, the amount of which was dependent upon the estimated value of the retailer as a customer and the length of the period. The payments were "a necessity of the trade".
166 Lord Pearce then added this at 398:
The test of whether these sums were payable out of fixed or circulating capital … tends in the present case in favour of regarding these payments as revenue expenditure. Fixed capital is prima facie that on which you look to get a return by your trading operations. Circulating capital is that which comes back in your trading operations. The sums in question were sums which had to come back penny by penny with every order during the period in order to reimburse and justify the particular outlay.
[emphasis added]
167 Lord Pearce regarded the lump sum payment as an "item" in the cost per gallon of the petrol and took the view that it was doubtful that the cost could be regarded as part of "overheads" because it sat at the "forefront" of the wholesaler's selling costs. Lord Pearce said this at 398: "Prima facie therefore the lump sums were circulating capital which is turned over and in the process of being turned over yields a profit or loss; they were part of the constant demand which must be answered out of the returns of the trade".
168 All of these considerations at [165] to [167] of these reasons, against the background of the remarks of Dixon CJ and Kitto J, were influential in the conclusion that the lump sum expenditure on the ties, over the term of each tie, was on revenue account and not expenditure in the nature of capital.
169 In the period from, in effect, 2005 to 9 May 2010 (the day of the auction when final bidding for the GMEs took place), the Trustee had been conducting a going concern deriving income from gaming activities (as so-called "commissions" from Tattersalls within the legal arrangements already mentioned). Although those particular arrangements would continue until 15 August 2012, Mr Canny, for the Trustee, had to confront the "alarming situation" of the change to the "new arrangements" much in the same way that BP had to take steps to make expenditures to make "provision for the future" so as to "secure future earnings" by obtaining ties for each relevant term in return for lump sum payments. Mr Canny, for the Trustee, wanted to secure earnings from gaming activities in the hotel business (as a venue operator conducting gaming in the new regime) and sustain the overall going concern with the contribution gaming made to trading in other aspects of the hotel business. Thus, he, for the Trustee, had no "commercial" choice other than to bid for, and win the bidding for, the acquisition of the GMEs.
170 Mr Canny could, of course, have elected not to bid at all and thus the Commissioner is right to say that Mr Canny "voluntarily" "chose" to bid and "chose" to acquire the GMEs. No-one was forcing his hand. That conception, with respect, is only true in an abstracted sense which fails to recognise the commercial imperative confronting Mr Canny as the guiding mind of the Trustee in trying to secure into the future the revenues of a going concern made up of the components earlier described, in the face of the impending new regime.
171 Mr Canny plainly thought, as the evidence demonstrates, that he had no choice other than to calculate the maximum cost the business could financially absorb (while retaining a reasonable rate of return on assets) in the bidding process and to bid, if necessary, to the level of the caps (18 GMEs at $81,515.00 each at a total cost of $1,467,270.00) and, in the worst case scenario, to bid for 15 GMEs at $100,000.00 each at a total cost of $1,500,000.00.
172 After that, Mr Canny was not prepared to bid for GMEs at all. At that point, there would be no commercial point trying to preserve gaming activities on the site of the Royal Hotel into the future regime.
173 As things turned out, Mr Canny (through the incremental bidding instructions given to Mrs Canny) had to pay less to preserve those revenues than Mr Canny thought would be necessary.
174 As mentioned earlier, analogues are rarely helpful in this area of the law. However, to the extent that the Tribunal called in aid of its reasoning the circumstances relating to BP's activities as described in Lord Pearce's analysis in BP Australia v FCT and the principles reflected in Lord Pearce's reasoning, it may be worth simply noting that the sudden and alarming change in the trading circumstances for the sale of petrol led BP to incur lump sum outgoings to secure ties of three to five years to, in turn, secure future sales and future cash flows by addressing , over the longer term, the changes in the legal structure of solo ties for the sale of product. The payments were not "one-off" payments but they were capped.
175 More relevantly, the Tribunal placed emphasis upon the commercial practicalities of the recoupment and likened recoupment confronting the Trustee to the recoupment confronting BP. The Tribunal said that the cost incurred by the Trustee would have to be recouped out of earnings over the term. The outgoing was an expense made to secure future earnings which had to be financially absorbed out of earnings.
176 The Tribunal was right to conclude that the cost of securing future earnings for the going concern of the hotel business would need to be recouped out of, in effect, every day's trading across all facets of the integrated business and especially out of gaming revenues.
177 The Trustee would continue to derive earnings of about 25% of every dollar of net distributable earnings from gaming until 16 August 2012. From then on, the revenue distribution would alter according to the payments as to tax (State Treasury), monitoring (Intralot) and payments to PVS, with the balance of net distributable earnings from gaming flowing to the Trustee.
178 In either regime, the cost of securing the earnings had to be either paid out of or recouped out of daily earnings.
179 To say that the outgoing had to come back to the Trustee "penny by penny with every order [every day's trading over the term]" might be unnecessarily colourful but it is essentially true from a practical business perspective of the operator of a going concern confronting a need to make a largely unplanned for payment to the Victorian State Treasury to acquire 18 GMEs to enable the operator to continue to derive revenue from gaming activities onsite at the hotel (albeit an activity of a different legal character) conducted in relation to the same 18 machines.
180 One other aspect of the activities of the Trustee should be mentioned.
181 In my respectful opinion, I disagree with the proposition that the Trustee was not deriving gaming income from customers or patrons of the hotel.
182 It is true, as a matter of law, or juristic classification to use the language of Sir Owen Dixon, that the source of the Trustee's earnings from gaming activities in the period prior to 16 August 2012 was the payment of the so-called "commissions" by Tattersalls. The Trustee was not "conducting" gaming. However, from a commercial point of view, can there be any serious doubt that the basis upon which the Trustee derived earnings from gaming was the daily passage of customers or patrons through the front door of the Royal Hotel? The attractive force and reputation of the business and its various component parts caused people to attend the hotel and spend money. The Trustee calculated its earnings from gaming as a percentage of the net distributable revenue. It received a percentage of every dollar so distributed although in truth those amounts, so determined, were properly characterised as payments by Tattersalls for the provision of the relevant service under the agreement.
183 For my part, I would be most reluctant to conclude as a matter of substance, that Mr Canny, acting for the Trustee, was not conducting activities which can rationally and reasonably be characterised as deriving gaming income from customers of the hotel. The contrary proposition seems very odd indeed to me if the underlying activity is to be viewed and assessed as a matter of substance rather than form, perhaps juristic form.
184 Although I accept that there are factors which suggest that the outgoing is in the nature of capital, in my view, the other factors I have mentioned lead me to conclude that the outgoing is on revenue account. All of the factors at [140] to [183] need to be taken together in reaching that conclusion. However, there are three particular considerations to be kept in mind.
185 The first is that the outgoing is an outgoing incurred in relation to a business properly understood as an integrated hotel business characterised by the various trading activities earlier described, including gaming, conducted by the Trustee. It seems to me that the Commissioner has, quite artificially, looked through and beyond the integrated undertaking of the hotel business and excised from it that part of it which relates to gaming. The Commissioner must take the Trustee's business as he finds it. The business is not the business of conducting gaming at a gaming parlour. The business involves conducting an integrated hotel undertaking and it is artificial to excise gaming from the integrated activities and then determine the character of the outgoing by reference, in effect, to only that activity. Approaching the characterisation question in that way fails to come to grips with the true activities of the Trustee which must be properly scrutinised, and failing to do so distorts the analysis.
186 The second important consideration is that on 10 May 2010 when the Trustee went into the auction and incurred the obligation to pay $600,300.00 for the 18 GMEs, the horizon the Trustee had to commercially look to was 16 August 2012, not the 10 year term of the GMEs. If the Trustee did not bid for, and win the bidding for, 18 GMEs on that day, it would not have any income from gaming from 16 August 2012. Moreover, on the financial statistics discussed earlier, if the Trustee did not bid for, and win the bidding for, the 18 GMEs, the business of the integrated hotel undertaking would have been significantly at risk. Even if an assumption is made, favourably to the Commissioner, that every dollar of revenue derived in every other aspect of the hotel business had remained the same without gaming activities onsite, the loss of profit contribution from gaming would have imperilled the total undertaking. The following table sets out the net profit from gaming activities, the net profit of the business overall and the position, on the face of the financial data, which would have prevailed absent the net profit contribution from gaming, for the financial years ending 30 June 2010, 30 June 2011 and 30 June 2012 (as an indication of the extent to which the business depended upon revenue and profit from gaming activities).
Topic 30 June 2010 30 June 2011 30 June 2012
Net profit from gaming activities $288,226.00 $277,048.00 $231,809.00
Net profit overall $68,989.00 $154,949.00 $146,587.00
Net profit overall without the net profit contribution from gaming activities -$219,237.00 -$122,099.00 -$85,222.00