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Capital Gains Tax Cases on Sale of Property Assignment Help

Taxation Law Cases on Ordinary Incomes

Explanations of the respective outcomes reached by the courts in following cases, all involving the sales of land.

Californian Copper Syndicate (Limited) v. Harris (Surveyor of Taxes) (1904) 5 TC 159 ISSUE

Was the taxpayer assessable on the profits arising from the sale of the land?

This case considered the issue of the realisation of a capital asset and whether or not the profit from the sale of a property to be exploited for its minerals was assessable as ordinary income or capital in nature.

LAW

1. The Ruling provides guidance in determining whether profits from isolated transactions are income and therefore assessable under subsection 25(1) of the Income Tax Assessment Act 1936. In this Ruling, the term 'isolated transactions' refers to:

(a) Those transactions outside the ordinary course of business of a taxpayer carrying on a business; and
(b) Those transactions entered into by non-business taxpayers.

2. The Ruling does not consider the application of section 25A the capital gains and capital losses provisions (Part IIIA) or Division 6A of Part III.

Scottish Australian Mining Co ltd v FC of T (1950) 81 CLR 188 ISSUE

This case considered the issue of business income and whether or not the subdivision and sale of land that had been used as a mine by a mining company was assessable as ordinary income or was merely a realisation of a capital asset.

LAW

CGT

A capital gain or capital loss may be made if a CGT event happens to a CGT asset. Section 108-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) describes a CGT asset as any kind of property or a legal or equitable right that is not property.


Capital Gains Tax Cases on Sale of Property Assignment Help By Online Tutoring and Guided Sessions from assignmenthippo.com


Land is considered to be a CGT asset and its disposal will constitute CGT event A1. Section 104-10 of the ITAA 1997 states that CGT event A1 occurs if you dispose of a CGT asset. However, subsection 104-10(5) of the ITAA 1997 states that a capital gain or capital loss that is made is disregarded if the CGT asset is acquired prior to the 20 September 1985.

Subdivision does not constitute the disposal of land under section 104-10 of the ITAA 1997. Taxation Determination TD 97/3 states that the effect of registering new titles under the subdivision is, for the purposes of the CGT provisions, to divide the original land parcel into two or more assets. Additionally, subdivided blocks are taken to have been acquired by the owner of the original land parcel when the original land parcel was acquired.

As a general principle, if the sale of the land constitutes a business, or part of a business, then the proceeds will be assessable as ordinary income, under section 6-5 of the ITAA 1997. On the other hand, if the sale is a mere realisation of the land, the proceeds will be a capital amount.

FACTS & ARGUMENTS

The taxpayer realized considerable profits on the sale of the subdivided allotments.

The Commissioner assessed the taxpayer on the profit from the sale of the various lots. According to the Commissioner, the profit was assessable under either s 25(1) of the Income Tax Assessment Act 1936 (Cth) as income from carrying on a business of land development, or former s 26(a) as profit arising from the carrying on or carrying out of a profit-making undertaking or scheme. The taxpayer argued that it merely realised a capital asset in the most advantageous manner and had not carried on a business with the result that the profit was not assessable. The taxpayer contended that its activities did not cease to be a mere realisation simply because extensive work was done on the land in order to fetch the best price, and that its situation was indistinguishable from Scottish Australian Mining Co Ltd v FC of T (1950) 81 CLR 188 where a company which had given up its mining business was held not to be assessable on the profit arising from an extensive subdivision and sale of its land.

DECISION

The decision was long cited as the authority for the proposition that the mere realization of an asset in an enterprising way was on capital account.

The Commonwealth Law Reports show that the case took two days to hear, that judgment was pronounced six days later, and that the appeal was determined seven weeks after judgment at first instance. These dates give us some information about the way the case must have been conducted, as well as evoking nostalgia for times when court delays and extended hearings did not form such a part of the litigation process. Clearly there cannot have been a prolonged factual enquiry into the activities of the taxpayer or extensive disputes about the accounting or other issues involved in the case. That may well explain the fact that what must have been a substantial commercial exercise was treated as a mere realisation of a capital asset.

However, the judicial terrain radically altered following the High Court’s decision in the Whitford’s Beach case in 1982 which at a very minimum limited the application of the Scottish Australian Mining case.

Federal Commissioner of Taxation v. Whitfords Beach Pty. Ltd., Full High Court 82 ATC 4031; (1982) 150 CLR 355; Full Federal Court 83 ATC 4277 ISSUE

Was the taxpayer assessable on the profits on the sale of the subdivided land under either section 25(1) or 26(a) or was the taxpayer merely realizing a capital asset?

This case considered the issue of business income and whether or not the subdivision and sale of land was ordinary income or was capital in nature.

LAW

1. The Ruling provides guidance in determining whether profits from isolated transactions are income and therefore assessable under subsection 25(1) of the Income Tax Assessment Act 1936. In this Ruling, the term 'isolated transactions' refers to:

(a) Those transactions outside the ordinary course of business of a taxpayer carrying on a business; and
(b) Those transactions entered into by non-business taxpayers.

2. The Ruling does not consider the application of section 25A the capital gains and capital losses provisions (Part IIIA) or Division 6A of Part III.

FACTS & ARGUMENTS

The taxpayer was a company formed in 1954 by a group of fishermen who originally owned all the shared in the taxpayer. The taxpayer acquired land next to shacks owned by the fishermen which provided them with access to the beach. On 20 December 1967, three development companies which intended to develop, subdivide and sell the land, purchased the fishermen’s shares in the taxpayer for $ 1.6 million. On the same day new articles of association were adopted by the taxpayer and two of the development companies were appointed to be its general managers. The taxpayer then changed the zoning of the land, developed it for residential subdivision and sold the lots for a considerable profits.

The Commissioner assessed the taxpayer on the profit from the sale of the various lots. According to the Commissioner, the profit was assessable under either section 25(1) of the Income Tax Assessment Act 1926 (Cth) as income from carrying on a business of land development, or formers 26(a) as profit arising from the carrying on or carrying out of profit-making undertaking or scheme.

The taxpayer argued that it merely realized capital asset in the most advantageous manner and had not carried on business with the result that the profit was not assessable. The taxpayer contended that its activities did not cease to be a mere realization simply because extensive work was done on the land in order to fetch the best price, and that its situation was indistinguishable from Scottish Australian Mining Co Ltd v FC of T (1950) 81 CLR 188 where a company which had given up its mining business was held not to be assessable on the profit arising from an extensive subdivision and sale of its land.

DECISION

Full High Court: Gibbs CJ, Mason, Murphy and Wilson JJ.

1. Per Gibbs CJ, Mason, Murphy and Wilson JJ :The taxpayer was assessable on the profit from the sale of the land under section 25(1) as it had gone beyond merely realizing a capital asset and its activities constituted the carrying on of a business of land development.

2. Per Gibbs CJ : It was necessary to determine the purpose of the taxpayer to determine whether it was carrying on a business. As he taxpayer was a company, its purpose was to be determined by the purpose of those controlling it, namely the three development companies which became the taxpayer’s shareholders or the two which became its general managers (it did not matter which). When the shares in the taxpayer were purchased by the development companies the taxpayer was “transformed from a company which held land for the domestic purposes of its shareholders to a company whose purpose was to engage in a commercial venture with a view to profit”. After the change in the control of the company, the company existed solely for the purpose of carrying on the business operations on which the new shareholders had decided to embark.

In the light of this, the extensive development and subdivision was more than the mere realisation of an existing asset. It constituted work done in the course of a business venture. Had the developers not over the company in 1967, however, the decision in Scottish Australian Mining would have applied.

3. Per Mason J: In deciding whether the taxpayer was carrying on the business of land development, it was material that the development companies would have been carrying on such a business had they purchased the land from the company and carried out the development and sale on their own account. However, at any rate, other factors, including the scale and magnitude of the subdivision, led to the conclusion that the taxpayer's activities involved more than a mere realisation of an asset.

“I do not agree with the proposition …. that sale of land which has been subdivided is necessarily no more than the realization of an asset merely because it is an enterprising way of realizing the asset to the best advantage. That may be so in the case where an area of land is merely divided into several allotments. But it is not so in a case such as the present here the planned allotments. But it is not so in a case as the present where the planned subdivision takes place on a massive scale, involving the laying-out construction of roads, the provision of parkland, services and other improvements. All this amounts to development to say that is mere realization of an asset .” (ATC p 4047; CLR p 385)

4. Per Wilson J: After 20 December 1967, the taxpayer’s “purpose was the business of developing, subdividing and selling land, a business in which the subject land was ventured as the capital of the business”. Whether the profit of that business was assessable under section 25(1) depended on whether what happened to the land in the course of conducting that business went beyond a mere realization. The circumstances as a whole indicated that this was the case.These circumstances included the fact that a great deal had to be done to the land in order that it be sold in residential subdivision and that its character had to undergo significant change.

5. Per Murphy J : The profit from the sale of the land was assessable under the second limb of section 26(a) as profit arising from the carrying on or out of a profit-making undertaking or scheme.

6. Per Gibbs CJ and mason J : The second limb of section 26(a) only operates where section 25(1) does not include profits in gross income. As section 25(1) in this case operated to include profits in the taxpayer’s gross income, section 26(a) had no application.

7. Although section 25(1) refers to “gross income”, the amount to be included in the taxpayer’s assessable income under that section was the “profit” from the land sales determined in accordance with general accounting principles. More specifically, the profit was to be calculated by subtracting, inter alia, from the gross proceeds of sale the value of the relevant land at the date it was “ventured in” the taxpayer’s land development business.

Full Federal Court: Bowen CJ, Morling and Fitzgerald JJ.

Per Bowen CJ, Morling and Fitzgerald JJ : All the land was ventured in the taxpayer’s land development business on 20 December 1967 as this was the date that business began. Although the development was to occur in stages over a number of years, there was from 20 December 1967 a persistent intention to develop all the land and a continuous course of conduct directed to that intention. The conclusion was inescapable that the taxpayer’s business of developing, subdividing and selling the land commenced as soon as the intention to take steps for that purpose in relation to the entire land was formed.

Statham & Anor v FC of T 89 ATC 4070 ISSUE

Did the net proceeds received from the sale of the subdivided lots constitute assessable income under either section 25(1) or 26(a) ?

LAW

Assessable income - Sales of subdivided land originally acquired and used for farming - whether proceeds derived from carrying on of a business or represented the mere realization of a capital asset.

FACTS & ARGUMENTS

The taxpayers were the trustees of the estate of Charles Aderman (the deceased), who died in 1980. The deceased acquired a large farm in 1970: so that he might raise his family in a rural environment” and “engage in some desultory farming”.

In 1976, the deceased sold a half share in about 30 hectares of his property to his brother-in-law and sister’s company, Bickerton Holdings Pty Ltd (Bickerton). Later that year, the deceased and Bickerton entered into a partnership for the purpose of raising cattle on the property. This purpose was, however, not achieved for a variety of reasons, including a deterioration of the deceased’s health and the depressed state of the cattle market.

In 1970, the co-owners decided to subdivide and sell the property. Subdivision was carried out by the Council with the co-owners providing a bond to the Council by way of a bank guarantee. The Council undertook all the necessary subdivision work, including the establishment of roads and sewerage and electrical works,. The subdivided lots were sold and marketed through local estate agents between 1980 and 1986.

The Commissioner included the net proceeds of the sale of the subdivided lots in the assessable income of the taxpayers as trustees of the estate under either section 25(1) or 26(a). The Commissioner contended that although the land was originally acquired for domestic purposes it had been committed to the business of land subdivision and development or alternatively, that the deceased had been engaged in a profit-making undertaking or scheme in respect of the land.

The taxpayers contended that the land had not been committed to a business of land subdivision and development nor had the deceased been engaged in a profit-making undertaking or scheme. Rather, it was contended, the land was merely being realised in the most advantageous means available, which was by sale in subdivided lots, and that accordingly the net proceeds arising from the sale of the land should not be assessable.

DECISION

Full Federal Court : Woodward, Lockhart and Hartigan JJ.

1. The net proceeds received from the sale of the subdivided lots did not constitute assessable income under either section 25(1) or 26(a).

2. Just because the co-owners decided not to persist with farming, but instead sold the land by subdivision, did not mean that the profit became taxable.

3. On the facts, what had occurred was “the mere realization, by the most advantageous means, of the asset which the owners had on their hands when they abandoned the intention of farming the subject property”. The manner in which the subdivided lots were sold indicated that the taxpayers were engaged neither in a business nor in a profit-making undertaking or scheme.

Per Woodward, Lockhart and Hartigan JJ:
“It is well established by the reported cases… that the mere realization of an asset at a profit does not necessarily render the profit taxable. The profit must arise from the carrying on of a business or a profit-making undertaking or scheme. The mere magnitude of the realization does not convert it into such a business, undertaking or scheme; but the scale of the realization activities is a relevant matter to be taken into account in determining the nature of the realization, ie in determining whether the facts establish a mere realization of a capital asset or a business or profit-making undertaking or scheme.” (ATC p 4075)

Casimaty v FC of T 97 ATC 5135 ISSUE

Was the profit from the subdivision and sale of parts of the property assessable under either s 25(1) or 25A?

LAW

Assessable income - Sales of subdivided land originally acquired and used for farming - whether proceeds derived from carrying on of a business or represented the mere realization of a capital asset.

FACTS & ARGUMENTS

In 1955, the taxpayer acquired a 998 acre farming property known as “Action View” from his father. In 1956, he purchased an adjoining 40 acre property on which he erected a homestead. The taxpayer conducted various farming and fencing business with his wife and son on Action View over the ensuring years. During this period he tried to make these businesses viable, however he encountered significant difficulties because of drought, growing debt and ill health. By the 1970s, it had become apparent to the taxpayer that the property could not sustain the interest payments necessary to sustain the existing mortgages over the land and he saw no alternative but to sell off portions of the land from time to time to reduce his debt burden. Between 1975 and 1993 a series of eight subdivisions required the taxpayer to construct roads and provide water and sewerage facilities to the relevant blocks and to fence the boundaries.

The Commissioner assessed the taxpayer on the profits derived from the sales of the subdivided blocks under the Income Tax Assessment Act 1936 (Cth). The Commissioner contended that the profits were assessable under either s 25(1) (on the basis that they constituted income derived from the carrying on of a business of subdividing and selling land) or under s 25A (on the basis that they were derived from carrying out a profit-making undertaking or scheme).

The taxpayer argued that the subdivision and sale of parts of the property represented the realization of a capital asset rather than the conduct of a business or a profit-making undertaking or scheme.

DECISION

Federal Court: Ryan J.

1. The profit from the subdivision and sale of parts of the property was not assessable under either s 25(1) or 25A.

2. The profit was not derived from the conduct of s business of subdividing and selling land or from the carrying out of a profit-making undertaking or scheme. The profit was derived from part of the mere realization of a capital asset of the taxpayer.

“.. I have been led to resolve the question of fact in this case in favor of the taxpayer. In coming to that conclusion, I have been influenced primarily by the indisputable fact that he acquired and continued to hold “Action View” for use as a residence and the conduct of the business of a primary producer. Apart from the activities necessarily undertaken to obtain approval from time to time for subdivision of parts of the property, there is nothing to suggest a change in the purpose or object with which ‘Action View’ was held.

In this respect, the present is to be contrasted with those cases in which particular circumstances provided an occasion for imputing to the landholder a change of purpose. In Whitfords Beach [82 ATC 4031; (1982) 150 CLR 335] these circumstances were the passing of control of the landholding company from the owners of the fishing shacks to the three development companies. In Official Receiver v Federal Commissioner of Taxation (Fox’s Case)[(1956) 96 CLR 370] the critical circumstance was that control of the land passed to the Official Receiver who sought the instructions of the creditors as to whether its extensive development to increase the return to the creditors.

It is also significant that, although the taxpayer had previously always carried on his business activities of farming and fencing in partnership with his wife and his son respectively, he made no attempt to bring ‘Action View’ into account as a partnership asset. Nor did he seek to claim as a business expense the interest on moneys borrowed to defray the subdivisional costs.

A related consideration is the fact that the development and subdivision of ‘Action View’ was undertaken piecemeal in response to the exigencies of increasing debt and deteriorating health.

Nor did the taxpayer undertaken any works on, or development of, the land beyond what was necessary to secure the approval by the municipal authorities of the successive plans of subdivision and enhance the presentation of individual allotments for sale as vacant blocks. Had he constructed dwelling houses, internal fencing or other improvements, it would have been easier to impute to him an intention to carry on a business of land development and improvement. Similarly, had he set up his own sales organization or advertised or conducted sales himself instead of entrusting those activities entirely to his traditional agents, Roberts Ltd, the inference would have been more strongly available that he had gone into the business of selling farmlets or rural residential allotments. That inference was drawn by the Tribunal in Stevenson’s Case [91 ATC 4476; (1991) 29 FCR 282] where the taxpayer, at least from stage 2 of his development, personally dealt with prospective purchasers as well as ‘multi-listing’ the blocks with a variety of agents.

Accordingly, I find that the sales from 1977 of lots on the second and subsequent subdivisions occurred as part of the mere realization of a capital asset of the taxpayer. The proceeds from those sales did not amount to income upon the application of the ordinary principles embodied in s 25(1) of the Act.

Moreover, it follows from my conclusion that ‘Action View’ had been acquired by the taxpayer for the purpose of primary production that no ‘profit’ from those sales is assessable in accordance with the first limb of s 25A(1). Nor does the second limb of that sub-section have any application because the sales did not occur in the course of carrying on or carrying out any profit-making undertaking or scheme… The taxpayer, as I have found, never conducted a business of a land developer or vendor to which any part of ‘Action View’ was devoted.”

Moana Sand Pty Ltd v FC of F 88 ATC 4897 ISSUE

For the year of income ending 30 June 1980, did s 25(1) or 26(a) apply to include in the taxpayer’s assessable income the amount received by the taxpayer in the year ($ 370,000) less relevant costs as a profit arising from the sale of the land?

LAW

1. The Ruling provides guidance in determining whether profits from isolated transactions are income and therefore assessable under subsection 25(1) of the Income Tax Assessment Act 1936. In this Ruling, the term 'isolated transactions' refers to:

(a) Those transactions outside the ordinary course of business of a taxpayer carrying on a business; and
(b) Those transactions entered into by non-business taxpayers.

2. The Ruling does not consider the application of section 25A the capital gains and capital losses provisions (Part IIIA) or Division 6A of Part III.

FACTS & ARGUMENTS

The company was incorporated on 30 March 1955. Its memorandum of association contained only one object which was to acquire, purchase and take over certain lands for the purpose of carrying on the business of working and/or selling the sand thereon “and to do all things necessary for carrying out the above...”.

On 30 June 1958 the company entered into an agreement to buy the land from the family syndicate for the sum of £2,000 of which £400 was to be paid by way of deposit and the balance by yearly instalments of £400, the last being payable on 30 June 1962. The contract empowered the company, notwithstanding that the contract had not been completed, to “sell, dispose or otherwise get rid of the surplus sand which is now upon certain portions of the said lands...”

The taxpayer ‘acquired the land with the twofold purpose of working and selling surplus sand [on it] and thereafter holding the land until some time in the future when it became appropriate to sell it at a profit.’ Many years later, a Coastal Protection Board expressed interest in preserving the land and, after some negotiations, the Board resumed the land for $500 000.97 The Commissioner included the $500 000, less the cost of the land and certain expenses, in the taxpayer’s assessable income. The Full Federal Court held that the net profit constituted income on ordinary concepts.

The taxpayer argued that no part of the amount which it received was assessable under either s 25(1) or 25(a). The taxpayer argued that it did not acquire the land and that therefore the decision in FC of T v The Myer Emporum Ltd had no application. The taxpayer also argued that the resumption of land by Coast protection Board was not undertaken in the carrying out, was the factor which brought the taxpayer’s scheme to an end.

DECISION

Full Federal Court: Sheppard, Wilcox and lee JJ.

1. For the year of income ending 30 june 1980, both s 25(1) and 26(a) applied to include in the taxpayer’s assessable income the amount received by the taxpayer in that year ($ 370,000) less relevant costs as a profit arising the sale of the land.

2. Although the amount received by the taxpayer was received as a result of a single and, in a sense, isolated transaction, the relevant profit was income according to ordinary concepts in accordance with the High Court decision in FC of T v The Emporium Ltd 87 ATC 4363 and therefore constituted assessable income under s 25(1)

3. In this case the taxpayer acquired the land to work and sell the sand on the land and also to subsequently sell it at a profit. The profit arising from the resumption of land by the Coast Protection Board was still an assessable profit notwithstanding that the taxpayer had not originally intended to dispose of the land in this particular way but rather to sell the land when it became “ripe for subdivision”. The sale of the land by the taxpayer was the fulfillment of the taxpayer’s ultimate purpose in relation to the land which was to make a profit, as opposed to what brought the scheme to an end.

4. The profit was also assessable under the second limb of s 26(a) as it arose as a result of the carrying on or carrying out of a profit-making undertaking or scheme. It is not necessary that profit making be the taxpayer’s dominant purpose for the second limb of s 26(a) to apply.

Crow v. Federal Commissioner of Taxation 88 ATC 4620 ISSUE

The question is whether subsec. 25(1) or sec. 26(a) of the Income Tax Assessment Act 1936 (the Act) operates to include in the assessable income of the taxpayer profit derived by him from the sale of land near Hobart.

LAW

Assessable income - Sales of subdivided land originally acquired and used for farming - whether proceeds derived from carrying on of a business or represented the mere realization of a capital asset.

FACTS & ARGUMENTS

In this case, a farmer borrowed large sums of money to purchase five blocks of land over a period of 10 years. The land was used for some time for farming, grazing and growing crops, but eventually it was subdivided. Beginning two years after the purchase, and over a number of years, the taxpayer eventually sold 51 blocks making an overall net profit of $388,288. The Federal Court held that the taxpayer was assessable on the profit as he was carrying on a business of land development. Although the court acknowledged that there was some time at the beginning where the land was used as a farm, it was found that there was evidence the taxpayer knew at the outset, because of the size of the debts entered into, that some of the land would need to be sold. “In this case the purchase of the various properties and the subsequent subdivision and sale of parcels of land involved transactions which were repetitive and systematic and had the characteristics of a continuing business of land development.

The taxpayer borrowed heavily to purchase five large blocks of land and then farm on it and sell some portion of the land—the taxpayer was assessable on the profit as he was carrying on a business of land development. The intention was to use the land for at least some time as a farm, but he knew that he was financially committed to his creditors and would have to sell some portion of the land to repay his debts.

DECISION

The decision in Scottish Australian Mining Company Ltd v FC of T was distinguished on the basis that in the Scottish Australian Mining case the property was used as a mine for a much longer period of time than the farming business in the current case.

McCurry & Anor v FC of T 98 ATC 4487 ISSUE

Was the profit from the sale of the land assessable under s 25(1)?

FACTS & ARGUMENTS

In 1986, the taxpayers, who were brothers, used their own funds together with a loan from a bank to purchase land on which an old house stood. The taxpayers removed the house and took out an additional bank loan to enable them to construct three townhouses on the land. The units were completed in min-1987. Prior to completion, the units were advertised for sale, but no sale eventuated.

The taxpayer and other members of their family subsequently moved into units 2 and 3. In mid-1988, the units were advertised for sale again. They were eventually sold in December 1988 resulting in a net profit of $ 75,811 to each of the taxpayers. When they purchased the property, the taxpayers had in mind the possibility that, for a time at least, they would rent out the townhouses. However, at no time was any attempt made to do this.

The Commissioner assessed the taxpayers under s 25(1) of the Income Tax Assessment Act 1936 (Cth) on the profit from the sale of the land on the basis that it was derived from a profit-making undertaking or scheme.

The taxpayers denied that they had engaged in any profit-making venture, arguing that the units were sold because of financial difficulties. They also argued, in the alternative, that if they had undertaken a profit-making venture, that venture had been abandoned and the profit was derived otherwise than in accordance with the scheme.

LAW

Assessable income to include certain profits

(1A) This section does not apply in respect of the sale of property acquired on or after 20 September 1985.

(1B) This section does not apply to a profit arising in the 1997-98 year of income or a later year of income from the carrying on or carrying out of a profit-making undertaking or scheme, even if the undertaking or scheme was entered into, or began to be carried on or carried out, before the 1997-98 year of income.

(2) The assessable income of a taxpayer shall include profit arising from the sale by the taxpayer of any property acquired by the taxpayer for the purpose of profit-making by sale, or from the carrying on or carrying out of any profit-making undertaking or scheme.

(3) Subsection (2) does not apply in relation to the sale by a taxpayer of property where the Commissioner, having regard to:

(a) the extent to which the assets of the company, partnership or trust estate, as the case may be, referred to in paragraph (2)(a), immediately before the time of sale, consisted of the property referred to in subparagraph (2)(b)(i) or the interest referred to in subparagraph (2)(b)(ii), as the case may be;

(b) the nature and extent, immediately before the time of sale, of the taxpayer's control of the company, partnership or trust estate, as the case may be, referred to in paragraph (2)(a) including, in the case of a company, the nature and extent of the taxpayer's shareholding in the company;

(c) the circumstances surrounding any other sale, whether or not by the taxpayer, of shares in the company, or an interest in the partnership or trust estate, as the case may be, referred to in paragraph (2)(a), being a sale at a time when the property of that company, partnership or trust estate included the property referred to in subparagraph (2)(b)(i) or the interest referred to in subparagraph (2)(b)(ii), as the case may be; and

(d) such other matters as the Commissioner considers relevant;

considers that it is not appropriate that that subsection should apply in relation to the sale of the property by the taxpayer.

(4) Where, after 23 August 1983, property was or is acquired by a taxpayer as a result of a transfer in the prescribed manner by a person who acquired the property for the purpose of profit-making by sale, the taxpayer shall, for the purposes of the application of this Act (including any other application of this subsection and any application of any other provision of this section), be deemed to have acquired the property for the purpose of profit-making by sale.

DECISION

Federal Court: Davies J.

1. The profit from the sale of the land was assessable under s 25(1). The taxpayers entered into a profit-making undertaking or scheme which was a business or commercial dealing. Their venture was a trading venture and from this venture they made the profit which had been anticipated.

“If a property is acquired in the course of a business or commercial dealing with a view to obtaining a profit from its development and sale, that venture is not regarded as an investment and the profit derived therefrom is income for the purpose of sec 25(1). Here, the taxpayers entered into a commercial dealing.”

“In a case, such as the present where the taxpayers were not carrying on a business, the profit to be assessable must have been derived from a transaction that can be described as a commercial dealing. A profit-making undertaking or scheme is such dealing.”

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