The Ironic Australian Legacy of Eisner v. Macomber
Australian Tax Forum, Vol. 7, No. 2, pp. 191-206, 1990
14 Pages Posted: 27 Aug 2010
Date Written: April 1, 1990
Abstract
No metaphor is dearer to the hearts of Australian tax scholars and practitioners than the fruit and tree depiction of income and capital. An important characterisation in early economic theory, the agricultural allegory was imported into Australian income tax law not long after the adoption of the first federal legislation from the 1920 decision of the U.S. Supreme Court in Eisner v. Macomber. Australian tax lawyers cite Eisner v. Macomber and its fruit and tree analogy as judicial endorsement of the distinction between income and capital and the immunity from income taxation of gains associated with the latter. However, the case states quite explicitly that both income and capital gains constitute 'income' for 'income tax' purposes. To find support in the judgment for a contrary proposition is possible only if the Supreme Court's ruling is carefully dissected and the extracted parts quoted out of context. This article explains how Australian tax lawyers, judges and scholars have used the case as support for a conclusion opposite to that set out in the judgment. The peculiar Australian legacy of Eisner v. Macomber serves as a useful reminder of the narrow and parochial origins of Australian tax jurisprudence and the slowness of its evolution.
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