Case N48

Judges:
KP Brady Ch
LC Voumard M
JE Stewart M

Court:
No. 2 Board of Review

Judgment date: 30 June 1981.

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K.P. Brady (Chairman); L.C. Voumard and J.E. Stewart (Members)

This reference arises out of an amended assessment that issued to the taxpayer as a result of adjustments made to the taxable income disclosed in his return of income for the year ended 30 June 1976. The adjustments included as assessable income the taxpayer's share of the net profit on the sale of a residence jointly owned by the taxpayer and his wife. The effect was to increase the taxpayer's income by $1,171 and, as a consequence, to reduce the sec. 82KB deduction in respect of housing loan interest by $172; that is, there was a total increase in taxable income of $1,343. Putting the $172 adjustment to one side as a mere consequence of the larger adjustment of $1,171, the latter arose because the Commissioner took the view that a profit on the sale by the taxpayer and his wife of the matrimonial home attracted the operation of sec. 26AAA of the Income Tax Assessment Act 1936. There was no dispute as to the amount of the taxpayer's share of the net profit. The taxpayer's objection was confined to the sec. 26AAA question, and did not cover the reduction in the housing loan interest deduction. We were informed by the Commissioner's representative, however, that if the Board's decision should reduce the amount of the sec. 26AAA profit, the increase in the housing loan interest deduction would be made as a consequence of the reduction in the amount of taxable income. The only matter for our decision therefore concerns the applicability or otherwise of sec. 26AAA to the taxpayer's share of the net profit on the sale of the residence. No question arose of it being assessable under any other provision of the Act.

2. By contract dated 26 November 1975, the taxpayer and his wife jointly contracted to purchase what became their sole residence, situate at 172 C Street, X town (``No. 172''). X town was a town in which the purchasers had lived and worked for some years. The reason for the purchase, which we accept, was that the family had outgrown their former residence, which had been sold. By contract dated 6 May 1976, the taxpayer and his wife undertook to sell the recently acquired No. 172. The reason, which we again accept, was that they had contracted to purchase a business across the road at 173 C Street (``No. 173''). They bought the stock, plant, fittings and goodwill of the business, and leased the premises on which it was carried on. For reasons given later, they also took a lease of 175 C Street (``No. 175''), which was a dwelling house, separated from No. 173 by a laneway some 10 feet wide. On the settlement of the sale of No. 172, the family took up residence in No. 175.

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ATC 241

3. Obviously, the dates of the two contracts being taken as the dates of purchase and sale respectively (sec. 26AAA(1)(g)), No. 172 was purchased and sold by the taxpayer and his wife within the arbitrary 12-month period laid down in sec. 26AAA(2), and at first sight the section would appear to apply. But during the period of about 12 months preceding the purchase of the business at No. 173, the taxpayer had been employed by an establishment located some 30 miles from X town; for the first six months as a storeman/clerk and later as a salesman, his territory then covering the whole State. His case therefore was that when he took over the conduct of the business at No. 173 and took up residence at No. 175, the sale of No. 172 took place as a result of a change in his place of employment or place of business, and that subsec. (5)(c)(i) of sec. 26AAA accordingly negatived the application of subsec. (2) of that section.

4. The reason the taxpayer and his wife needed to have control of No. 175 was simply that the premises on which the business was conducted (No. 173) lacked toilet facilities, and that No. 175 did provide such facilities, and that No. 175 did provide such facilities for the staff employed in the shop at No. 173. In other words, the taxpayer and his wife, who were to conduct the business in partnership, had to take the shop and the house together, and having gone that far their financial position did not permit them to retain No. 172 as well.

5. The relevant provisions of sec. 26AAA should now be set out:

Subsection (1)(g):

``(1) For the purposes of this section -

• ...
• (g) if land is sold to or purchased by a person in pursuance of a contract, the date on which the contract was made shall be deemed to have been the date on which the land was so sold or purchased.''

Subsection (2):

``(2) Where -

• (a) a taxpayer... purchases property after the commencement of this section;" (viz. 11 December 1973) "and
• (b) the taxpayer has... sold the property... before the expiration of the period of 12 months from the date on which he purchased the property,

then, subject to this section, the assessable income of the taxpayer includes any profit arising from the sale of the property.''

Subsection (5)(c)(i):

``(5) Sub-section (2) does not apply in relation to a sale by a taxpayer of property if -

• ...
• (c) the property consists of -
  • (i) an estate or interest in land on which is situated a dwelling... used by the taxpayer after the date on which he purchased the property as his sole or principal residence; or
  • (ii)...

and the sale took place as a result of a change in the place of employment or place of business of the taxpayer.''

6. There was no real dispute between the taxpayer and the Commissioner on the salient facts. Thus, after purchasing No. 172 the taxpayer and his wife used it as their sole or principal residence, and they sold it within the 12-month period fixed by the section. The matter therefore turned entirely on subsec. (5), with the taxpayer asserting and the Commissioner denying that it was applicable. The Commissioner did so on two grounds, first that there had been no change in the taxpayer's place of employment or place of business, and second that, even if there had been, the sale did not take place as a result of such change.

7. The first ground on which the Commissioner's representative defended the assessment was this. The phrases ``place of employment'' and ``place of business'', he said, refer respectively to the place where a person works as an employee and the location where a person carries on a business. Then, relying on the fact that the definition of ``business'' in sec. 6 excludes ``occupation as an employee'', he submitted that, on taking over the business conducted at No. 173, the taxpayer's status had changed from that of an employee to that of a self-employed person; that this did not constitute a change in his place of employment (because he ceased to be an employee) or in his place of business (because he began for the first time to carry on a business). If this were correct, then not only had the taxpayer put it

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ATC 242

out of his power to take advantage of the exempting provisions of subsec. (5)(c), but the exemption could not be availed of save by taxpayers who, as well as satisfying the other requirements of the subsection, continued as employees or who continued as self-employed persons. It would not avail those who at the relevant time ceased to be employees and went into business on their own account and vice versa. This seems to us to be an anomalous result, which ought to be avoided if at all possible. This can be achieved if we regard the context of ``business'' in subsec. (5) as calling for some less technical meaning to be given to it. This is permitted by the opening words of sec. 6(1), by which the terms defined are to be given the assigned meaning ``unless the contrary intention appears''. In our opinion, this is a case where the contrary intention does appear, and the expressions ``place of employment'' and ``place of business'' in sec. 26AAA(5)(c) should be read as covering all cases where a taxpayer changes the location of his work (which could conveniently be called ``his workplace''), irrespective of whether in the process he changes his status from employee to self-employed or otherwise.

8. Having rejected the Commissioner's first argument, it becomes necessary to consider his next submission, namely, that the sale of No. 172 did not take place ``as a result of a change in the place of employment or place of business of the taxpayer''. It should be noted at once that sec. 26AAA(5)(c) uses the words ``as a result''; and that it does not further describe what is required. We were referred to a few cases dealing with workers' compensation where the question was whether, for example, death had resulted from a particular injury (see, for example,
The Commonwealth v. Butler (1958) 102 C.L.R. 465), and from which it is clear that there must be a causal connection between the two events. But accepting that, the question posed by subsec. (5) is simply, was the sale of No. 172 a result or did it follow from, or was it a consequence of what we have found to be the taxpayer's change of workplace.

9. The total position can be set out thus:

• (a) On learning that the owner of the business conducted at No. 173, and of the properties at No. 175 and No. 177, was minded to dispose of the business and the properties,
• (b) the taxpayer decided to acquire the business, to give up his job as a salesman and become self-employed
• (c) by acquiring, in partnership with his wife, the business conducted at No. 173, taking a lease of the property on which it was conducted and of the adjoining property at No. 175.
• (d) In consequence of these decisions, he and his wife moved into No. 175 as their residence and the taxpayer gave up his employment as a salesman with an employer located 30 miles away and became self-employed in X town.
• (e) The total arrangement was financed in part by selling No. 172, which he could not afford to keep up as a second house.

For all these reasons, No. 172 was sold. It can be seen that the change to self-employment and the change in workplace were some of the reasons underlying the sale of No. 172, and that to that extent the sale was a result of the change in the taxpayer's place of business or place of employment, even though the temporal sequence of events may not have placed the change ahead of the sale.

10. Although neither the taxpayer, who appeared in person, nor the Commissioner raised the point, we think that we should consider whether subsec. (5)(c) requires that the sale be a proximate result of the change in the taxpayer's workplace. Since the provision is an exempting one, we consider that the two relevant events should stand in a proximate relationship one to the other. But, on the facts of the case before us, we have concluded that this requirement is satisfied and that the sale can fairly be said to be a proximate result of the change in the taxpayer's place of business or place of employment. The circumstances therefore bring the taxpayer within the exemption provided by sec. 26AAA(5)(c), and his claim should succeed.

11. For the reasons given, we would allow the taxpayer's objection in full and further amend the amended assessment before the Board accordingly.

Claim allowed