High Court Rejects Tax Appeal for Land Sale Profit

OUTCOME: Refused

High Court of Australia [NAME], [NAME] and [NAME] JJ Commissioner of Taxation (Cth) v [COMPANY]. adv. vult.

[NAME], [NAME] and [NAME] JJ

Mr [NAME]:Your Honours, this case raises the question whether it is appropriate to place a limitation on what was said by this court in [NAME] and, if so, what limitations should be applied to the observations in that case.

Your Honours, the Full Federal Court, reversing Mr Justice Sheppard at first instance, was concerned not to give the observations in [NAME] too wide an interpretation lest the distinction, they said, between capital and revenue profits be eliminated. However, in our respectful submission, the [ADDRESS] went too far the other way and interpreted [NAME] in a more narrow manner than is appropriate.

[ADDRESS] seems to have held that profit from the sale of land will not be included in the assessable income unless it can be shown either that the taxpayer's business ordinarily involves the activity of buying and selling land or the land in question was purchased for the purpose of profit making by its sale, the sale being the very means — they added that word "very" to what Your Honour said in [NAME] of profit making envisaged at the time of acquisition.

Your Honours, the [ADDRESS] did not, in terms, pose for itself the question whether the sale of this land was the mere realisation of an ordinary investment. If it had put the question in that way it would, in our respectful submission, have been bound to answer the question in the negative and so to have included the amount in question in the assessable income. The result, in our respectful submission, is that on the proper application of [NAME] the profit here in question was assessable income.

It is necessary to take Your Honours very briefly to the facts. The business of the respondent is referred to in the application book, first, at p 3, 1 10:

"The principal evidence given in support of the applicant's case was given by [NAME] who is its Deputy Chairman. At the time of the transaction, and until November 1987, he was one of two joint managing directors of the applicant; Mr [APPELLANT] was the other. Mr [APPELLANT] said that the main activity of the applicant was the design, construction, letting and management of [NAME]. Additionally the applicant designed and sometimes built hotels and office buildings. The [NAME] were usually held for long term investment but sometimes the applicant was one of a number of joint venturers, sometimes lease back arrangements were involved and sometimes the applicant did not own any part of the [NAME] which it designed and built."

So it did it on the land of others. And then, if Your Honours go to p 30, Your Honours will see at the bottom of that page, about 123, there is a reference to a 1978 reconstruction in which the [NAME] that were held by the respondent were sold:

"After that date, save for the land the subject of the appeal, the appellant had never directly owned any land."

So it is clear that at all material times the business of the respondent included the management, construction and development of [NAME] on land which it did not itself own.

Your Honours, the subject land was a strategic parcel — it was so described by the witnesses — without which it was clear that at all material times development and construction of a shopping centre could not have taken place. And in the words of a director of the respondent, the land was bought in order to secure a strategic site to ensure [NAME]'s involvement in the proposed developing in the area. And, of course, it was sold for that same purpose.

Your Honours, there was no suggestion made that the land was bought as what might be called an ordinary investment. If Your Honours go to p 36 in the application book, 117, there is a reference in the judgment of [ADDRESS], with whom the others agreed in the Full Federal Court, to the learned trial judge's judgment:

"His Honour found that the appellant had never given up its intention of having a hand in the designing and construction of the centre, if that course were at all possible. His Honour said:

He (ie [NAME]) acquired the [NAME] land—

that is the land in question—

with the short term object of keeping a competitor out; but his ultimate goal was to play a significant part in the eventual development which he was sure would take place. The whole of his negotiations with the AMP were on that basis.

Then, at p 41, still in the judgment of [ADDRESS], about 1 8:

[NAME], in his evidence, agreed that as at the time of exercise of the option—

that was the option to acquire the subject land—

he did not know exactly how the development would take place, he knew only that it would. It was frankly acknowledged by Mr [NAME] that the [NAME]'s land was critical to any overall development of the whole site. It was a strategic land holding.

And at p 34, if Your Honours will go back to that, at 1 24:

Negotiations between the appellant and AMP continued over a long period of time. Early, the appellant made it plain that it would be prepared to sell the land it had acquired to AMP, but that the sale might depend upon arrangements being entered into between AMP and the appellant for the design and building of the centre.

Your Honour, it is our submission that in those circumstances it does not matter that buying and selling land was not a usual business activity of the respondent. Participation in shopping centre development was the usual business activity and the land was bought and sold in pursuance or furtherance of that usual business activity. In those circumstances, in our respectful submission, it is hard to find anything in [NAME] that would suggest that the profit on the sale of the land should be excluded from the assessable income.…

[NAME] [NAME],

[ADDRESS] of the Federal Court is the ultimate court of appeal in taxation matters subject only to the exceptional cases in which this court grants special leave to appeal. It follows that a question of fundamental principle must arise for decision in such a matter before this court will grant special leave.

Although the Commissioner contends that the decision of the [ADDRESS] of the Federal Court rests on a misinterpretation of the principle enunciated by this court in the [NAME] case, we consider that this case turns on its own facts and does not call for the grant of special leave to appeal. The application is therefore refused.

Mr [NAME]: Would the court make an order for costs?

[NAME],

You do not oppose that, Mr [NAME]?

Mr [NAME]: No, Your Honour.

[NAME] [NAME],

The application is refused with costs.