Case B41

Judges: FE Dubout Ch

G Thompson M
N Dempsey M

Court:
No. 3 Board of Review

Judgment date: 10 July 1970.

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G. Thompson (Member): This reference involves a claim by the taxpayer of an allowable deduction under sec. 52 of the Income Tax Assessment Act 1936-1967 in respect of a loss incurred during the year ended 30 June 1967 upon the sale of certain property or from the carrying on or carrying out of an undertaking or scheme, the profit from which would have been included in his assessable income. The taxpayer, at the hearing, abandoned his additional claim for a deduction under sec. 51 of the Act.

2. My colleague, Mr. Dempsey, has set forth the facts of this reference clearly and in detail. I find it unnecessary to recapitulate the facts, but desire only to emphasise one or two aspects of the matter in order to show in brief how I have arrived at my decision.

3. Section 52 of the Act is complementary to sec. 26(a) in that whereas sec. 26(a) provides for the inclusion in the assessable income of profit arising from the sale by the taxpayer of any property acquired by him for the purpose of profit-making by sale or from the carrying on or carrying out of any profit-making undertaking or scheme, sec. 52 provides for the allowance of a deduction for any loss incurred by the taxpayer in the year of income upon the sale of any property or from the carrying on or carrying out of any undertaking or scheme, the profit, if any, from which would have been included in his assessable income.

4. The crucial matter is, then, to ascertain the state of mind of the taxpayer at the time he acquired the land, and the dwelling-house which he sold for demolition at a loss. If it is shown that the taxpayer had more than one intention, his dominant intention is that to which the Board must pay attention. On this subject my colleague, Mr. Dempsey, has cited from Western Gold Mines (N.L.) v. C. of T. (W.A.) (1938) 59 C.L.R. 729 and from
Pascoe v. F.C. of T. (1956) 11 A.T.D. 108 . I do not desire to multiply references on the subject of the principles to be applied when considering the applicability of sec. 52 to the case. This Board has recently had occasion to decide a case under that section, and a review of the principles and an analysis of some of the relevant decided cases is to be found in Case A70,
69 ATC 389 .

5. It seems to me that in the latter part of the year 1966 and early in 1967 the taxpayer, who was engaged in the coal industry, became concerned about the future of that industry, due to certain economic and industrial events. He was apprehensive about his economic future in that industry and sought an alternative means of income for the future. He came to a coastal resort where he took the advice of real estate agents and purchased the subject land and older type dwelling-house thereon. This land was conveniently and strategically situated from the point of view of building

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flats. It was close to a centre of business with the usual facilities close at hand. It was also situated in a relatively populous area.

6. It was submitted by counsel for the taxpayer that it was his intention to sell this house for removal at a profit, and subsequently counsel felt constrained to submit that taxpayer, as part of his overall profit-making scheme, built flats which he presumably would sell at a profit.

7. I am convinced on the evidence that taxpayer's dominant motive was to select suitable land upon which he could build a block of flats from which he could earn an alternative income by way of rent. It was necessary for him to remove the existing structure to enable the construction of his flats to proceed. Doubtless taxpayer had some hope of selling the dwelling-house for removal, and maybe hoped not to lose thereby. But he had not made any specific inquiries about prices for removal of structures, and when he consulted an expert, he was told that the house would have to be demolished. He accordingly felt compelled to have the house demolished, and in return was paid the sum of $30.

8. In my opinion, then, the taxpayer's dominant intention was to build flats for investment upon the land which he bought. In these circumstances he cannot bring himself within the language of sec. 52 of the Act, and consequently his claim of loss is not allowable.

9. I would, therefore, disallow the taxpayer's objection and confirm the Commissioner's assessment.