Smith v. Federal Commissioner of Taxation.

Walsh J

High Court

Judgment date: Judgment handed down 25 August 1972.

Walsh J.: Three appeals by Mr. Ian Johnstone Smith (the taxpayer) against assessments of income tax have been heard together. In one appeal (No. 11 of 1971), the taxpayer challenged an assessment based on income for the year ended 30 June 1966. Only one of the grounds taken in the notice of objection to that assessment has been raised at the hearing of the appeal. That ground is that the respondent should not have included in the assessable income an amount of $6,046 as profit on the sale of land. In the same appeal an assessment based on income for the year ended 30 June 1968 was also challenged upon grounds of which the only one now in dispute is an objection to the inclusion in the assessable income of an item of $9,189 as profit on the sale of land. The second appeal (No. 17 of 1971) refers to the assessment of tax on income for the year ended 30 June 1969. It challenges the inclusion in that income of $24,622 as profit on the sale of land. In addition there is an objection to the disallowance of certain expenses claimed to have been incurred by the taxpayer in making a journey to South Africa, Rhodesia and Mozambique and in certain activities in those countries. In the third appeal (No. 18 of 1971), the question for decision is an objection to the inclusion in the assessable income for the year ended 30 June 1970 of the sum of $5,805 as profit on the sale of land. The profit figures stated have been taken from the notices of objection. It is not clear whether they are in accordance with all the calculations,

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including amended calculations, shown on the respondent's adjustment sheets and schedules. But no question has been argued as to the correctness of the figures.

The principal question is whether it has been shown that certain land which the taxpayer bought, part of which he sold subsequently at a profit, was not purchased by him for the purpose of profit-making by sale. Although counsel for the respondent put a submission that the second part of sec. 26(a) of the Income Tax Assessment Act (the Act) applied to make taxable the profits made on the resale of the land, he said later that he would not press that submission and it may be left out of account.

On 1 October 1959 the taxpayer entered into a contract to buy a property in Walker's Road, Mt. Eliza, not far from the city of Frankston. I shall refer to this property as the ``Dunbar land''. It was a property of about forty-nine acres. At that time Walker's Road, although it had been marked as a road on a subdivision made a very long time ago, had not been formed. There was only a track leading from Humphries Road to the end of the Dunbar land nearest to that road. It is a road running from the Nepean Highway, at a point between Frankston and Mt. Eliza, to Mooraduc Road, which is an alternative road to Dromana and other holiday resorts to the south. The agreement for sale was made upon the terms set out in a document signed on 1 October 1959. There is evidence that it was embodied afterwards in a formal contract dated 13 January 1960. The price was £7,500, payable as to £900 within ninety days and as to the balance at the rate of £1,000 a year with interest at six per cent per annum adjusted quarterly. The taxpayer bought the land through an estate agent named Knaggs. The property had been abandoned and the fencing on it was in a very bad state. A house which had stood on it had been destroyed by fire and replaced by a shack which had fallen into bad disrepair. There was on the land broken glass, coils of barbed wire, pieces of sheet iron and other ``rubbish'' of many kinds.

Reference will be made later to some steps taken by the taxpayer towards the improvement of the land and the obtaining for it of services and of better means of access. But at this point it should be stated that in February 1961 the taxpayer instructed surveyors to survey the land and to make a plan for the subdivision of part of it, fronting Walker's Road. By 19 April 1961 the surveyors had prepared a plan of a proposed subdivision, for submission to the Shire Engineer at Franston for advice whether it should meet with the approval of the council and of other statutory authorities. This plan provided for fifteen lots which had frontages, in most cases of 100 feet, to Walker's Road, with depths varying from 275 feet to 290 feet. The rest of the property was marked out on the plan as lots of which the dimensions were not shown, or as internal roads, with the inscription ``future developments''. According to the taxpayer, he received in June 1961 a letter and a plan from the surveyors. By this he was made aware that one of the boundary fences was not in the correct position. He went to see Mrs. Oldfield who owned the adjoining property beyond that fence, which had an area of about thirty-two acres with a frontage to Walker's Road. He said that he found that she intended to claim title by adverse possession to the land lying between what was the true boundary according to the documentary title and the line of the fence. That claim, if successful, would have deprived the taxpayer of a strip of land of an area of about two acres. He said that Mrs. Oldfield would not make any bargain about that claim but was willing to sell her land and he agreed to buy it from her. On 11 July 1961 she signed an agreement to sell it to him for £3,500, of which £500 was to be paid within three months and the balance within six months of the date of the issue of a Certificate of Title to the land. It appears that Mrs. Oldfield's land (the Oldfield land), as well as part of the Dunbar land, had not been brought under the provisions of the Transfer of Land Act. Afterwards, in August 1962, a formal contract was signed. Some considerable time later the contract was completed. Meanwhile, the surveyor employed by the taxpayer had made another plan of a subdivision on the Dunbar land. This plan was completed by November 1961 and was approved by the council in May

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1962. It provided for a subdivision containing six lots (Lots 1 to 6) with frontages of 100 feet to Walker's Road and depths of about 290 feet. In December 1964 another subdivision plan was completed by the surveyor and it was approved by the council in January 1965. It showed ten lots (Lots 7 to 16) fronting Walker's Road and a residue of land behind them of about forty acres marked as ``Not surveyed''. Together with the six lots in the earlier plan, Lots 7 to 16 occupied the frontage to Walker's Road of the Dunbar land.

In October 1967 the surveyor completed a subdivision plan showing ten more lots (Lots 17-26) fronting Walker's Road on the Oldfield land and a residue of about twenty-six acres marked ``Not surveyed''.

Sales of lots fronting Walker's Road were made in the financial years ended on 30 June 1966 (three lots), 30 June 1968 (three lots), 30 June 1969 (five lots) and 30 June 1970 (one lot). One lot had been transferred by the taxpayer to his wife and her brother who financed the building of a house on it which was occupied by the taxpayer's wife. Following a property settlement in divorce proceedings, some more lots passed from the taxpayer's ownership. At the time relevant to these appeals some lots remained unsold. Three of the lots sold in the year which ended 30 June 1969 and the lot sold in the year which ended 30 June 1970 are on the Oldfield land. The other lots which have been sold are on the Dunbar land.

The foregoing is an account of the purchase and of the sale of the land with which the appeals are concerned. It is necessary now to consider what was the purpose of the taxpayer when he acquired the Dunbar land on 1 October 1959 and when he acquired the Oldfield land on 11 July 1961. I think it is right in each case to take as the relevant date the date of the initial agreement evidenced by writing, rather than that of the formal contract. The taxpayer claims that he bought the Dunbar land as the site for a house which he proposed to build for himself and his family, where there would be space for his children to ride horses and to live in a rural setting on land much of which was and would be left in its natural timbered state. He hoped to do a certain amount of farming, not as his means of livelihood, but as the fulfilment of a wish that he had long entertained to live on a farm. The taxpayer said in evidence that when he bought the Dunbar land he had no purpose of resale and he had not considered at all whether it had a potential subdivisional value. He was not interested in that question. He claims that when he bought the Oldfield land he did so in order to secure the Dunbar land from a claim based on adverse possession. His first approach to Mrs. Oldfield was not concerned with any proposal he wished to make for the purchase of the land, although when she offered to sell he considered that the land would be useful as an addition to the Dunbar land for grazing purposes. He was impressed also by its natural beauty.

I have endeavoured to give consideration to all the matters appearing in the evidence and discussed in argument, which were said to provide indications for or against the acceptance of the taxpayer's claims as to the purposes of his acquisition of the two parcels of land. But I shall refer to some aspects only of the evidence.

The taxpayer had some early acquaintance with life on the land. He did not settle down into any permanent occupation, but engaged at different times in various business ventures. A substantial part of his income was derived from property, consisting of a hotel and of an urban property which contained offices let to tenants. He was licensed as an estate agent for a period beginning in 1952. He had some experience in buying and selling properties. During a period following his purchase of the Dunbar land and, perhaps, for some time before that, he was trying to dispose of his hotel property. He says that for some three years before the purchase of the Dunbar land, he had been looking at properties in various places with the object of buying one which would become his home and which could be worked as a farm. He produced diaries beginning in 1956 and ending in 1961. Many of the entries in these diaries were discussed in the evidence and to some of them I shall refer later.

I am satisfied that from time to time the

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taxpayer was making inquiries about properties which were for sale and inspecting some of them, during a considerable period before he bought the Dunbar land. They varied very much in size and in price, as well as in location. My consideration of the evidence has led me to think that his interest in these properties was not always that he was searching for a farm on which to live and to work. I think that the taxpayer was a man quite disposed to move from one venture to something new and that he did have some liking for the land. I am willing to accept the view that he may have had it in mind to try his hand as a farmer, although he had little knowledge or experience of farming. On the other hand, I think it is likely that in the course of the somewhat sporadic investigations of properties which he made in the period before he saw the agent Knaggs, about July 1959, the taxpayer was interested also in any opportunity that might present itself to make some money by buying and selling land. It may be, as the taxpayer said, that later he was looking at properties with the idea of arranging an exchange of his hotel for a farm, which would replace the hotel as a source of income, but it does not seem to be material to the issues raised by the appeals to determine whether that was so or not.

It is to be borne in mind that the taxpayer's case is not that his obtaining of the Dunbar land was the culmination of a search for a property upon which he wished to devote all his time and energy to the business of farming and to make his living from it. It is shown by the evidence that the Dunbar land was not suitable for that purpose and this the taxpayer does not dispute. Although he gave evidence about experiments in the growing of vegetables and about plans to have the land worked by a lessee or by a sharefarmer, he said also that the Dunbar land was in effect suitable only for grazing and its area ``was not enough to make a viable business''. What the taxpayer intended, according to his evidence, was to take up farming on the Dunbar land for the satisfaction that he expected to get from it and from having his family with him to enjoy the rural quietude and beauty of the land. He hoped to make some money too but that would be, so to speak, merely a fringe benefit. With that statement of his purpose is associated his insistence that no thought of the possibility of gain from the development of a subdivision for residential purposes entered his head at the time of the purchase and that up to some time in 1961, he did not contemplate any kind of subdivision. I proceed to refer to some of the circumstances that have caused me to decide that these claims should not be accepted.

It appears from the evidence that in spite of its lack of a formed access road and its lack of readily available water and power services, the Dunbar land was not only in an area zoned as a residential area but was quite close to land which Mr. Pepyat, with whom the taxpayer was in touch late in August 1959, subdivided. By the time the taxpayer met him, Pepyat had decided to subdivide. Although the surveyor's final plan was not completed until 23 November 1959, Pepyat's tentative plan of subdivision had been lodged with the council in May 1959. In 1960 the taxpayer himself bought a block of land in that subdivision. The surveyor was a Mr. Doubleday, who afterwards acted for the taxpayer in preparing his plans of subdivision. Mr. Doubleday was not called as a witness nor was the agent Mr. Knaggs. Another area of land close to the Dunbar land was assessed in 1957 as to its potentiality for subdivision by Mr. Morris, a local estate agent of long experience in the district, who wrote for his clients a long report about it. His evidence was that its potentiality was good and I am satisfied that this was so. I do not doubt that this was known to other estate agents who had knowledge of that district. It is difficult to believe that Knaggs had no thought of this or that he refrained from any mention of it when he introduced the taxpayer to the Dunbar land. Another fact affecting the prospects of that land, which must have been known in 1959 and 1960 to many residents and certainly to estate agents who had property for sale in that area, was that there was a proposal for the construction of a new railway line between Frankston and Mt. Eliza. Mr. Morris knew about it. In his diary under the date 14 June 1959, the taxpayer made a notation ``Railway Mt. Eliza''. In

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evidence he was not able to give any reason for that notation.

There are writings and oral statements made by the taxpayer, not long after his purchase of the Dunbar land, that are inconsistent with his claims of a continuing lack of realisation of the possibilities of subdivision and of sale and of a continuing lack of interest in those possibilities. I find the statements inconsistent with those claims, despite his attempts in evidence to explain them. On 4 January 1960 he told a bank manager, Mr. Meldrum, that he ``expected to do well'' from the Mt. Eliza land which he had recently purchased and that he had already been offered £2,500 gain on the purchase price. On 6 February 1960 he sought a loan from another bank and had an interview with its branch manager, Mr. Collens. He said he proposed to go with others or with a company into a venture in which houses would be erected in outer suburban areas and he would act as the agent for the sale of the houses. In a statement as to his assets written down by Collens and signed by the taxpayer, there is a reference to his lands (other than that over which the bank was to take security) ``as endorsed''. The properties listed on the back of the statement include the land at Mt. Eliza, there described as ``subdivisional'' and estimated by the taxpayer to be worth £15,000.

In the 1960 diary under the date of 4 May there is a notation -

``Survey (a) to bring 30 acres under act, (b) subdivision.''

In his evidence in chief, when the taxpayer's attention was drawn to this entry, he said that he was not considering a subdivision at that time. He offered no explanation of the reference in the entry to subdivision. Later in his evidence he said that he did not know what was meant by the reference to subdivision. Later still he said that he recalled what the entry meant. The explanation then offered was to the effect that if you wished to get land brought under the Transfer of Land Act you would reduce the delay in dealing with your application if you had also submitted a plan of subdivision. This explanation was offered also as one of the reasons for his instruction in February 1961 to the surveyor to prepare a plan of subdivision. As an explanation of the entry of 4 May, the explanation is not convincing. In a space below the date 27 June in the 1960 diary there is a notation -

``(Memo:) Grants 5% of price to Trust A/C deposit increases to 1/3 when plan of sub. approved by all Govt. Authorities and Shire of Frankston.''

The taxpayer said that Grant offered to buy the land and gave those details of the offer. Later in his evidence he said that he had been approached by various people who were interested in buying the land, and this may have referred to one such approach, but he could not recall it. It seems possible that what was discussed or was to be discussed with Grant was a proposal concerning the terms upon which the lots might be sold to individual purchasers in anticipation of approval of a subdivision. But however that may be, it is plain that at this time the idea of a subdivision was under consideration.

It is clear that in 1961 the taxpayer decided to effect a subdivision of part of the Dunbar land into residential lots and that during the same year he formed the intention that some of those lots should be sold. He has claimed that when he gave the instructions in February 1961, in consequence of which the plan of April 1961 was produced, his intention was not to sell any of the land, but merely to obtain a plan of subdivision to serve other purposes which will be mentioned presently. As will appear, however, I do not accept that. But even if it were so, it is clear that he decided later in that year to seek approval for the subdivision containing six lots fronting Walker's Road, as shown in the surveyor's plan of November 1961, and that he intended then to sell some of the lots.

It does not necessarily follow from the fact that in 1961 the taxpayer decided to sell in subdivision part of the Dunbar land that when he bought it in 1959 he had a purpose of profit-making by sale. But his statement of what his purpose was must be rendered suspect by a departure from it occurring not very long after the purchase, unless there is credible evidence of changed circumstances

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to account for it. The taxpayer has put forward at different times various reasons for changing his plans and for carrying out a subdivision of the Dunbar land. To a Taxation Department officer, Mr. Ryan, he said that he did not manage to build a home at Mt. Eliza because his wife would not go there and because the credit squeeze late in 1960 forced him to abandon any ideas that he had had. He told Ryan also that there was a rumour going about that the Frankston council was considering taking over land in that area as a reserve and he was told that if he subdivided some of his land that would prevent the council from taking it for that purpose. It was this, coupled with the credit squeeze, that forced him to subdivide. In his evidence one reason given was that already mentioned, that is, that a plan of subdivision would help to expedite the bringing of land under the Transfer of Land Act. Another reason was that his efforts to obtain supplies of water and of electric power to the property would be aided by a subdivision. He said that the ``original thought'' about a subdivision arose only out of his concern to obtain title.

It is possible that if that had been his only purpose, it could have been achieved by submitting a plan of subdivision, without any intention of proceeding to sell any of the lots. But in another part of his evidence, he said that when he gave instructions in February 1961 for the drawing of a plan of subdivision, one thing that was in his mind was that this would make it easier to get power and water. He agreed that the mere existence on paper of a subdivision would not have been of any use for that purpose, for which the coming of residents to the area was essential and that in February 1961 he had it in mind that there would be some sales of the lots. At this time his idea was to sell four lots out of six lots keeping two adjoining lots for himself. It appears, I think, that for various reasons there were changes from time to time in the taxpayer's decisions as to the use to be made of his land, including its partial subdivision. There was, as has been stated, a long interval between the first and the subsequent approved subdivision plans. But it is the fact, as I find, that by February 1961 a decision was made to proceed to subdivide for sale part of the Dunbar land. That fact is important both in the evaluation of the taxpayer's evidence as to what was in his mind when he bought that land and in the consideration of the circumstances of his subsequent purchase of the Oldfield land. No reason which I can regard as acceptable and satisfactory has really been advanced to explain a change from an intention in October 1959 not to sell any of the Dunbar land to an intention in February 1961 to sell a part of it.

In the diary for 1961 an entry appears in the space set apart for 12 January. The taxpayer has sworn that the entry was not made then, but was made at some later time in that year, which cannot now be fixed. I think that it is not necessary to make a finding as to the precise time when the entry was made. It is certain, I think, that even if not made on 12 January 1961 it was made at some time in 1961 and it is probable that it was made in the first half of that year. It consists of brief notes of the taxpayer's plan or of what he said was his ``dream''. He would ``achieve liquidity'' by selling a vehicle and by selling land, but would ``keep enough blocks as hedge against inflation''. He would build a home at Mt. Eliza, buy a boat and a large car and would travel for business and ``for alternate home''. The entry is significant in that it shows that at a time, either shortly before the taxpayer took his first active step towards subdivision or at a time not long after he had taken such a step, he was entertaining the idea that he would sell some of the land, not just for the purpose of aiding the getting of a better form of title to part of it or to encourage the provision of services or to guard against a resumption, but to raise money. This was at a time when apart from some unsuccessful efforts to grow vegetables made by a Mr. Jansen, no use had yet been made of the land for any kind of farming, although clearing and other work had been done on it and various inquiries made as to pursuits that might be undertaken on it, such as the keeping of bees.

As I have said the agreement to buy the Oldfield land was made on 11 July 1961. I have set out the taxpayer's version of what led up to it. I am not satisfied that his dominant purpose in buying it was to resolve

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the boundary problem. As early as December 1959 he had been sufficiently interested in it to note in his diary the postal address of the executors of the estate of James Oldfield below a reference to ``32 acres adjoining Dunbar''. Although the evidence shows that he did not pay more for the Oldfield land than it was worth but obtained it at a good price, it is not credible that he agreed to pay £3,500 for it merely for the sake of ``protecting'' the strip of Dunbar land the title to which was, according to him, in dispute. It is not claimed that together the two parcels of land would have been sufficient for the grazing of stock as a profitable business venture. I do not doubt that the taxpayer has a genuine love of natural beauty in the somewhat wild and rugged manifestation of it which this land presented. But I do not believe that, having already bought the Dunbar land of which a large part was uncleared, he bought the adjoining Oldfield land in order that he might gaze upon or wander through unspoilt bushland. Bearing in mind what I have already said about the entering in 1961 upon the making of a subdivision and about the reasons assigned for this, I am of opinion that the circumstances of the acquisition of the Oldfield land were such that it should be inferred that the taxpayer had in the forefront of his mind the prospect of a profitable resale in the future of part, at least, of the Oldfield land.

Some reliance was placed in the submissions made on behalf of the taxpayer on the fact that he expended time and money in improvements of the land, such as clearing, fencing and establishing dams. It was said that these activities indicated an intention to keep the land. Attention was drawn also to the arrangements made with Mr. Jansen, who tried different crops of vegetables to establish what would grow well on the Dunbar land. Jansen said the taxpayer proposed to him that he could run the property for a share of the profits. It was proposed that he should find out what would grow well on the land. He ploughed some of it and planted vegetables.

The crops failed for lack of water. A further effort was frustrated by an invasion of rabbits. The running of cattle on the land was discussed, as was its use for agistment of stock. The taxpayer levelled off and cleared an area on which he said he intended to build a house. When Jansen agreed to make the experiments in the growing of vegetables there was a proposal that there would be an agreement under which Jansen would have a lease for ten years. The area to be leased was never defined but Jansen's impression was that it would be of the cleared part of the Dunbar land (which had an area of about twenty acres), excluding that part of the cleared section on which the house would be built. The time when this discussion took place is not fixed, but it must have been not very long after the taxpayer bought the Dunbar land.

I accept Mr. Jansen as a truthful witness but in matters of detail his evidence cannot be regarded as reliable, because of the lapse of time since the events that he described. I believe that the taxpayer did consider several ways in which part of the Dunbar land could be put to use. I do not regard that fact or the activities which he undertook in improving the land as being inconsistent with a purpose to sell at least a considerable part of it at a profit. No doubt he must have expected that there would be a delay in carrying out a subdivision of it with any real prospect of making sales, as there would be a considerable lapse of time before the lots would be attractive to buyers, who would want an assurance that essential services were or would soon become available.

I do not doubt that at the time of his purchase of the Dunbar land and for a considerable time afterwards the taxpayer had the intention of building a house on that land. In my opinion, it is not of great importance to decide whether or not he intended the house to be on the place away from the road described by Jansen, but I think it is probable that he did have that site in mind in the period to which Jansen's evidence relates. Whether at that place or at a place with a frontage to Walker's Road, the reserving of a site for his own house would not have interfered with the making of a subdivision or with sales of lots along that frontage. Nor would the agricultural use of a

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substantial part of the cleared area have done so. Such uses of part of the land could have been made concurrently with the use of part of it for residential allotments, just as at a later time, when sales were being made of allotments, the land was being used, also, for the agistment of cattle and in connection with dealing in cattle.

There was no need to make any inflexible decisions on all matters relating to its future use, at the time of the purchase of the Dunbar land. As for the suggested lease to Jansen, this was no more than a suggestion. There was no firm agreement and no fixing of the terms of the lease or of the area to be covered by it. It seems to me that if the taxpayer had built a house on the site described by Jansen and had leased the rest of the cleared land, he would have hampered the fulfilment of the plans which he claims to have had to live with his children in a home where they would be surrounded by broad spaces, on which they could ride horses and find recreation in other ways. It would have been necessary, if these plans were not to be frustrated, to exclude from the leased area not only the site of the house and its curtilage but also ways of access to the road and ways of passage through the crops of the lessee to the timbered land beyond the cleared area. But whether or not a lease to Jansen was seriously contemplated, the proposal that there might be such a lease does not demonstrate that the taxpayer did not have a purpose of selling some of the Dunbar land.

It has been submitted that the difference between what the taxpayer intended and what actually occurred is to be explained in large measure by his relationship with his wife and by her insistence upon the provision of satisfactory facilities in a new home before she would live in it. But it does not appear from the evidence that her attitudes changed during the relevant period or that the taxpayer would not have been aware, before he bought the Dunbar land, of what her attitudes were or of what she would be willing to do.

So far as the Oldfield land is concerned, I conclude, as I have already stated, that when it was bought the taxpayer had the purpose of profit-making by the sale of at least a portion of that land.

Chapman (N.T.) v. F.C. of T. (1968) 117 C.L.R. 167, at p. 170, Menzies J. quoted from the reasons for the decision of the Board of Review some passages which included a statement made by one of the members of the Board in these terms -

```These being the facts and the motive for or purpose of the acquisition lying in the use to which they intended to put the property after acquisition, it cannot be said that Mr. and Mrs. Chapman had a single dominant purpose in relation to the whole property. They did not simply acquire the property for their home and farm. They acquired the property because they wished to establish their home and a small farm on part of it and wished to subdivide, develop and resell another part of it. That latter part was, in my opinion, acquired for the purpose of resale'.''

His Honour went on to decide that it was possible to treat what was one acquisition, as having been made with one purpose as to part, and another purpose as to the remainder, of what was acquired. I agree with respect with that view. In the present case I am of opinion that it is probable that the taxpayer when he acquired the Dunbar land did have the purpose of building a home on part of it and of living there and a purpose of keeping some of that land to provide living space for himself and his family, hoping that the land would provide also some financial return from one or more of several uses to which it might be found possible to put it. But I am not at all satisfied that those were his purposes in relation to the whole of the Dunbar land or that he did not have the purpose of selling any of it in subdivision. I think it is probable that when he acquired the Oldfield land his dominant purpose was a subsequent sale of lots in subdivision, although it may well be that he contemplated that because of its natural features, including a deep gully, some of it would not be suitable for that purpose and would be left in its natural state and that it might be turned to some advantageous use in conjunction with so much of the Dunbar land as might be retained.

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In Chapman's case the respective areas acquired for different purposes were clearly defined. In the present case no such definite line can be drawn. But it is clear that both in the Dunbar land and in the Oldfield land the portions with frontages to Walker's Road would be preferred to any other portions for the purpose of subdivision into residential lots for sale. The only sales with which these appeals are concerned are sales of lots with frontages to Walker's Road. If it be accepted that it is probable that the taxpayer had a purpose of retaining for himself part of the Dunbar land and perhaps part of the Oldfield land also, it is not necessary in my opinion, in order to decide these appeals, to fix precisely the boundaries of the land to which that purpose applied. It is enough to say that the land which has been subdivided and sold was not within those boundaries.

There has been no submission that, because of the problem to which Menzies J. referred in Chapman's case (1968) 117 C.L.R., at p. 171, of finding a basis for fixing the cost of what has been sold, or because of any other reason, the respondent was in error in his calculation of the profits made by the appellant.

For the reasons I have stated I am of opinion that the taxpayer has failed to establish that the respondent was in error in including in the assessable income of the relevant tax years profits made upon the sales of parts of the Dunbar land and of the Oldfield land.

In his appeal against the assessment of tax for the year ended 30 June 1969 the taxpayer has objected to the disallowance of a deduction of $1,678 being part of the expenses incurred by him in travelling to and from and in South Africa, Rhodesia and Mozambique. The income tax return for that year contained a statement, under a heading ``Australian Firearms'', of overseas travelling expenses in which two purposes of the trip were specified. The first was to compete with an Australian team in a sporting event held at Pretoria from 23 March 1969 to 7 April 1969 and the second was to promote the export of target patches. The expenses claimed in relation to the promotion of export sales were then set out. They were made up of one-half ($404) of the return fares from Australia and of accommodation, travelling and other expenses incurred in connection with business promotion ($1,274). With the return there was also included a profit and loss statement for Australian Firearms. That was a name under which the taxpayer had been engaged in selling target patches. The statement showed sales amounting to $1,135 and outgoings in which the principal item was the $1,678 overseas travelling expenses, as shown in the statement already mentioned. The result was, of course, a net loss for the year in that venture. Similar statements had been included in the returns in previous years, in which the takings were fairly small and travelling expenses were substantial.

When the taxpayer was asked for further information about his claim this was given on his behalf in a letter which is included in the Commissioner's file. According to this letter the trip had three business objects in addition to its sporting purpose. These were: (1) to expand markets for target patches; (2) to explore the latest trends in methods of construction of fibreglass boats; and (3) to make arrangements for the purchase from countries in Africa of gemstones and artifacts for sale in the Australian market. Details were given of the places to which the taxpayer travelled and of people upon whom he called in furtherance of his business activities. In evidence the taxpayer verified the statement in the letter and gave some additional evidence about his movements in the African countries.

Having considered the evidence I am not satisfied that the taxpayer was entitled to any deduction for any expenses incurred in investigations of the possibilities of importing gemstones and artifacts or of the ``trends'' in the construction of fibreglass boats. I think that any expenses attributable to those activities would be quite small. It seems plain that the taxpayer was engaged mainly in visiting as a tourist places having a special attraction for sight-seers. But whatever was the amount of expenditure that could be said to have been incurred in order to investigate fibreglass boat construction or gemstones and artifacts it was not, in my

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opinion, a loss or outgoing falling within the scope of sec. 51(1) of the Act. He was not carrying on any business to which such expenditure was related and no effort was made to set up such a business. Nor was there any relationship, in my opinion, between such expenditure and the gaining or producing of any assessable income. The inclusion of a reference to these activities in the letter appears to me to have been an after-thought and, in my opinion, the evidence did not make good the attempt to justify a claim on that basis.

I am satisfied that the taxpayer devoted some time and effort to an endeavour to promote the sale of target patches and that his travels to and in the African countries can properly be attributed in part to the furtherance of that object. This was a business in which he was engaged, although without much success. The fact that his efforts in Africa proved fruitless does not necessarily prevent sec. 51(1) from applying to outgoings incurred in making those efforts. I think that it should be found that the costs of those travels were outgoings which were to some extent incurred in a manner which brought that provision into operation.

The evidence does not make it possible to determine by any precise calculation what was the extent to which the outgoings were so incurred. But I think that the evidence enables me to make an estimate of the amount which may be reasonably allowed. I estimate the amount of the allowable deduction at $829, made up of $404 being half the overseas fares and $425 being about one-third of the $1,274 said to have been expended in the African countries after the sporting event had been held. The assessment should be varied accordingly.

The item upon which the appellant has been partially successful was small in amount as compared with the major item in dispute in the appeal No. 17 of 1971. A very small part of the time occupied by the hearing was devoted to it. I am of opinion that the appellant should bear the major part of the respondent's costs of this appeal and I will order that he should pay four-fifths of those costs.

In accordance with the conclusions that I have stated I make the following orders:

No. 11 of 1971

Appeal dismissed with costs.

No. 17 of 1971

Order that the assessment No. 1964102 issued on 30 April 1971 be varied upon the basis that the assessable income is reduced by $829 and that the assessment be remitted to the respondent to give effect to that variation. Order that subject to that variation the appeal be dismissed. Order the appellant to pay four-fifths of the costs of the respondent of the appeal.

No. 18 of 1971

Appeal dismissed with costs.

I make the usual order as to the exhibits.

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