McCormack v. Federal Commissioner of Taxation.

Judges:
Wickham J

Court:
Supreme Court of Western Australia

Judgment date: Judgment handed down 22 April 1977.

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Wickham J.: These are two appeals brought under the provisions of sec. 196 of the Income Tax Assessment Act against decisions of the Board of Review disallowing objections by the taxpayer to the inclusion in her assessable income of profits made by her as a result of a sale of a dwelling house and land in Macey Street East Perth to the Metropolitan Region Planning Authority.

The property was acquired by the taxpayer on 3rd December 1963 for the sum of $4,000 and was sold to the Authority during the fiscal year 1970 for the sum of $260,000. The Commissioner assessed the taxpayer to tax upon the net proceeds received being one half in that year and the other half in the succeeding year of tax.

The Commissioner indicated that his reasons for disallowing the objections in the first instance were that the income was correctly included by virtue of sec. 25(1) or 26(a) of the Act. The profits were clearly not properly assessable under the former section and as the matter comes before me the only basis for supporting the assessment would be found in the first part of sec. 26(a).

Subject to some comments which I will make, the facts of the matter are set out in the reasons given by the members of the Board and I will not repeat them. In dealing with the

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submissions of Counsel for the appellant however, it will be necessary to refer to those reasons and for the purposes of brevity I will identify the relevant parts of the reasons of the Board Member, Mr. Dempsey by initial and the number of the paragraph and I will likewise identify the appropriate paragraphs of Mr. Thompson's reasons. The Chairman of the Board, Mr. Dubout did not deliver a decision owing to illness.

There are eleven grounds of appeal which need not be dealt with seriatim. Each is a particularised aspect of, or relates to the result of, what in the submission of the appellant was an incorrect approach by the Board to its task, with the result it is said in ground 1 of the appeal that the Board was wrong in law in ascribing to the evidence before it an inference that the appellant acquired the East Perth residence for the purpose of profit making by sale.

In my opinion the Board did not correctly approach its task. I am fairly certain from various passages in the reasons that the Board did approach the case on the basis that there was a presumption that the property was acquired for resale at a profit. This is understandable because the Board did not have the advantage of the decision of the Full Court of the High Court of Australia in
Gauci v. F.C. of T. 75 ATC 4257; (1975) 50 A.L.J.R. 358, but only the decision of Lavan J. in that case at first instance. In case my own approach should be wrong, and so that there should be no difficulty in indentifying any error, I take the law to be as stated by Barwick C.J. and Jacobs J. in that case as follows:

``There is no presumption that property is acquired for resale at a profit. No doubt sec. 190 of the Act requires the appellant to show that the assessment is excessive. But the relevant facts being known, if there is no material upon which it may properly be concluded that the property was acquired with the relevant purpose, the assessment is thereby shown to be excessive. As I have said there is no presumption of purpose to aid the assessment. In particular, sec. 190 does not raise any such presumption.

If, on the other hand, the acquired property is resold within what may fairly be described as a time proximate to its acquisition, the requisite purpose may be inferred. Thereafter, the taxpayer must overcome the prima facie inference there drawn. Unless he does so, sec. 190 will require the conformation of the assessment.''

The taxpayer said that she acquired the property as a family home and the Board seems to have thought that if she failed to satisfy the Board of that fact then the assessments must necessarily stand, D.32, D.43, T.9, T.18. There was a contest as to that fact but the resolution of it did not decide the case and, specifically, the failure to be satisfied as to that did not entail that the property was acquired for the purpose of profit making by sale. This was an important issue of fact but it was a subsidiary issue only and raised neither the primary nor the ultimate question. In deciding the case as if it did, the Board not only finished its enquiry before the end but started before the beginning. The primary question was whether there was evidence upon which it could properly be concluded that the property was acquired for the relevant purpose. The next question was whether there was any evidence pointing to the contrary, and the ultimate question was whether on all the evidence the taxpayer had shown that the assessments were excessive.

Before dealing with the result of what I respectfully believe to be a fundamental mistake made by the Board, I will comment on some subsidiary matters raised by the appellant.

In considering the question of the intention of the taxpayer, I agree that one member of the Board placed too much weight on the facts relating to preceding transactions in property by the taxpayer, D.12, D.13, D.14, D.15. In the circumstances of this case, these transactions as evidence of propensity or habit were negligible, and as ``similar fact'' evidence, it fell far short of establishing a line of conduct; compare
Martin v. Osborne (1936) 55 C.L.R. 367. I think the preferable view as to the value of this evidence is as stated at T. 13.

I think that the Board did misunderstand the significance of the zoning of the property and of the impact of the Metropolitan Regional Town Planning Scheme (gazetted in October 1963) at the time when the property was acquired, D.18, T.14, T.15. At the date of acquisition the property was classified for building purposes by the local authority so as to allow residential flats and single dwellings. Owing to the plot ratios, high rise flats were not permitted. This was not a rezoning, it was

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a first zoning and was restrictive. Under the Metropolitan Region Scheme the land was reserved for proposed public works. The effect of the scheme was not generally known at the time and it was very difficult to find out the status of any particular piece of land. The effect of reservation broadly was that development was prohibited without consent and it was only if that was withheld, or if there was a sale, that a claim could be made for compensation. In respect to zoning the position changed dramatically in 1966 when the local authority adopted what is called the Clark Gazzard Scale which adoption so changed the permissible plot ratios that high rise flats became permissible. There is no doubt that it was this which played a very big part in the spectacular rise in value of this property. At T.15 the taxpayer was fixed with knowledge of the ``planned rezoning and road development'' at the time of the acquisition of the property. There was no planned rezoning at this time nor at all, and if that expression refers to the Clark Gazzard Scale then the conclusion is not supported by evidence. The significance of this misunderstanding is that it played a part in the conclusion reached by the Board that the property had been acquired for the purpose of profit making by sale. Such a conclusion is not, I think, supported by these particular matters.

The Board also seems to have taken the view that because the taxpayer's husband was an estate agent in a small way and helped in the transaction, that any purpose he had was that of the taxpayer, D.34, T.10. I respectfully think this to be a view which is unsupportable. Certainly it is not his purpose which is relevant but her purpose.

Although counsel for the appellant did not expressly rely on it, I am myself very uneasy about the use by the Board of the word ``impute'' when considering what conclusion should be drawn about the taxpayer's intention, D.25, D.41, T.17. In a case such as the present when what is sought is a finding of fact as to the presence of another fact, namely purpose, it seems to me that the expression ``impute'' is not helpful and might be dangerous. It is all too easy for that manner of expressing it to lead to a decision based on presumption as distinct from belief. Compare
Briginshaw v. Briginshaw (1938) 60 C.L.R. 336 per Dixon J. at 361.

Believing as I do that in the light of more recent authority, the approach of the Board was incorrect and that in some respects its mode of reasoning unsatisfactory, there remains a problem as to what I should do. Were I sitting as an appellate Court in the true sense I would think it proper to send the case back for rehearing, but I am also sitting as a Court of original jurisdiction, additional witnesses have been called and I may rehear (and indeed I have reheard) the case myself. I have all the material and additional material before me, except that I lack the advantage of having seen and heard the taxpayer and some other witnesses before the Board. It may be that there is no power to remit the matter to the Board but, in any event, convenience seems to dictate that I should determine the matter myself and thus lay the foundation for the exercise of a true appellate function in others if any party so wishes.

Embarking on this task I do not find, upon a consideration of the transcript, any sufficient reason to depart from the Board's decision not to accept the evidence of the taxpayer as to her purpose in acquiring the property. The written word does not cause me to believe that her dominant purpose was to acquire the property as a family home; whether I would have believed that, if I had seen and heard her. I do not know but the Board did see and hear her and, although certain aspects of the approach of the Board to her evidence seem to me to be unsatisfactory, I am not in a position to say either that the Board was wrong or that left to myself I accept her evidence as to her dominant purpose.

In this state of affairs the position is the same as if she had not given evidence in the material respects at all. No contrary inference is thereby opened. The question now is whether leaving aside the evidence of the taxpayer there was any material upon which it could properly be concluded that the property was acquired with the relevant purpose. If there is, then there being no satisfactory evidence to the contrary, the taxpayer has not overcome the prima facie inference, and by virtue of the provisions of sec. 190 the assessments must be confirmed.

The taxpayer started negotiations for the sale of the property to the Authority in October 1967. In the circumstances of this case I would not myself have concluded that the starting negotiations and the ultimate sale of the property to the Authority opened by

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itself an inference that it was acquired for the purpose of resale at a profit. Assuming the acceptance of the evidence of the taxpayer that she opened the negotiations because of the rising incidence of rates and because of the fact that she had only just discovered that the property was to be resumed then this sale has many of the incidents of a forced-sale and in that respect is analogous to a resumption.

On the other hand there is another consideration which together with the negotiations does in my opinion provide material upon which it could properly be concluded that the property was acquired for the purpose of resale at a profit. Whatever may be said as to the views of the Board as to the taxpayer's knowledge and state of mind when she acquired the property I think that there is ample evidence in a general way and rising from the publicity about the Metropolitan Region Scheme and its effects, (D.19) to open the inference that at the time the property was in an area where the future values would be volatile and much more likely to rise than fall. While the detail of the scheme might not have been known to individuals, I think it open to infer as a probability that the taxpayer was aware of the potential of the property as a profit making venture by way of resale. As no other purpose was established, then I think that this, together with the fact of its ultimate resale, does provide evidence upon which the conclusion as to purpose could be drawn. It is not necessary that it must be drawn or even should be drawn. It is sufficient that there be evidence from which the conclusion may be properly drawn. Although views may differ on a question of ``sufficient evidence'' my opinion is that there was in this case sufficient evidence to form a basis for the assessments. This being the case and there being no sufficient acceptable evidence to the contrary, sec. 190 requires the confirmation of the assessments.

The appeals are dismissed.