Commissioner of Taxation (Western Australia) v Newman
29 CLR 484(Judgment by: Knox CJ)
Commissioner of Taxation (Western Australia)
v Newman
Judges:
Knox CJHiggins J
Starke J
Subject References:
Taxation and revenue
Income tax
Sale of business as going concern
Income of vendor
Assessment as to live-stock
Legislative References:
Land and Income Tax Assessment Act 1907 (WA) No 15 - ss 2, 16(1)(a)
Judgment date: 9 September 1921
Perth
Judgment by:
Knox CJ
This is an appeal against an order of the Full Court of Western Australia allowing an appeal against the decision of the Magistrate sitting as a Court of Review under the Land and Income Tax Assessment Act 1907. The relevant facts are stated in the special case as follows :
"1. The appellant (Robert Newman) is a pastoralist and for many years was the owner of Mount Sandiman Station and carried on the business of a pastoralist there.
2. On 15th October 1918 he sold the said station as a going concern including stock and plant for PD16,000.
3. The respondent (the Commissioner of Taxation) apportioned the said purchase price of PD16,000 as shown in the memorandum hereto annexed and marked 'A' showing the amount referable to the sale of stock to be PD6,770. The appellant admits this apportionment to be accurate."
The contentions of the parties respectively are stated in pars. 6 and 7 of the special case as follows:
"6. The respondent contends that the difference between the said sums of PD6,770 and PD3,050, viz., PD3,720, is income chargeable with income tax, and claims income tax thereon in addition to income tax on all profits earned in carrying on the business of the said station up to 15th October 1918.
7. The appellant contends that no portion of the said sum of PD16,000 is chargeable with income tax."
The question to be decided turns on the provisions of s. 16 (1) (a) of the Land and Income Tax Assessment Act 1907 (No. 15 of 1907). That section provides that income tax shall be levied in respect of the annual amount of all incomes exceeding PD200 per annum arising or accruing to any person wheresoever residing, from any profession, trade, employment, or vocation carried on in Western Australia; and s. 2 of the same Act defines income as including "profits, gains, rents, interest, salaries, wages, allowances, pensions, stipends, charges, and annuities." The question is whether any portion of this sum of PD16,000 is income liable to income tax within the scope of that Act.
The Act requires, in order to render the profits of the business or trade taxable as income, that those profits shall arise or accrue from a trade carried on in Western Australia. The facts stated in the special case show that for a considerable time the present respondent carried on a trade in Western Australia, but that on a certain date (in October 1918) he sold the whole of the land, stock and plant on which and with which that trade had been carried on, and there-upon ceased entirely to carry on that trade. The Commissioner contends that the money derived from that sale, or portion of it, that is to say, the portion representing the live-stock, was profit which arose in carrying on the trade. Dr. Stow admitted that there was no substantial difference, in that point at any rate, between the Act in force in Western Australia and that in force in Victoria. We were referred to the case of Commissioner of Taxes (Vict.) v Melbourne Trust Ltd , which ultimately went to the Privy Council, and from which I read an extract. The case is reported in the Commonwealth Law Reports [F1] , and the passage I read is at pp. 420-421. Their Lordships say there:"Holdings, then, that the shareholders of this company are shareholders in an ordinary venture, the only question that remains is whether the surpluses realized represent profits. Their Lordships think that the principle is correctly stated in the Scottish case, California Copper Syndicate v Harris [F2] :'It is quite a well settled principle in dealing with questions of assessment of income tax, that where the owner of an ordinary investment chooses to realize it, and obtains a greater price for it than he originally acquired it at, the enhanced price is not profit in the sense of Schedule D of the Income Tax Act of 1842 assessable to income tax.
But it is equally well established that enhanced values obtained from realization or conversion of securities may be so assessable, where what is done is not merely a realization or change of investment, but an act done in what is truly the carrying on, or carrying out, of a business.' " They then deal with the facts of that case, and say: "In the present case the whole object of the company was to hold and nurse the securities it held, and to sell them at a profit when convenient occasion presented itself"; and, that being so, they held in that case that the profit made on the realization of those securities was assessable as income.
Now, applying that statement to the facts stated in this special case, it is clear, in my opinion, that the transaction out of which the PD16,000 arose was entered into, not in the course of carrying on the business or for the purpose of carrying on the business, but for the purpose of putting an end to the business. That being so, I am of opinion that neither the PD16,000 nor any part of it comes within the provisions of s. 16 of the Act; and that the decision of the Full Court of Western Australia was correct.
This appeal should be dismissed.