Burnside v. Federal Commissioner of Taxation.

Members:
Barwick CJ
Mason J
Stephen J
Jacobs J
Aickin J

Tribunal:
Full High Court

Decision date: Judgment handed down 22 December 1977.

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Barwick C.J.: In an appeal by the appellant against the disallowance by the respondent of his objections to his assessment to tax upon the proceeds of sales of shares in a public company, the Supreme Court of South Australia ( Hogarth J.) held that the shares had not been acquired by the appellant for profitmaking by resale. The circumstances of the acquisition and disposal of the shares are set out in the reasons for judgment prepared in this matter by my brother Mason. Having considered those circumstances, I am of opinion that the learned primary judge was not in error so to find. I agree with the reasons which my brother Mason gives for his opinion in the same sense.

However, the primary judge found that, notwithstanding his finding as to the absence of the purpose of profit-making by sale of the shares, the gain arising from their disposal was a profit arising from the carrying on or carrying out of a profit-making undertaking or scheme. In my opinion, his Honour was in error in so finding. I agree generally with the reasons given by my brother Mason for so concluding.

Where nothing more appears than that an asset acquired, but not for the purposes of profit-making by sale, has been sold at a price in excess of the price at which it was acquired, there can in my opinion be no basis for holding that that gain is a profit arising from a profit-making undertaking or scheme. The circumstances lack not only the elements of an undertaking or scheme but the profit-making purpose of any undertaking or scheme which is essential to satisfy what is generally referred to as the second limb of sec. 26(a).

In this case there were no further relevant circumstances. All that could be said, and indeed in the reasons of the Supreme Court is said, is that at some time subsequent to taking the decision to acquire the shares, the appellant realised that his circumstances might require him to realise the shares: and he decided that, if necessary, he would do so. The details of those circumstances which justify this statement are to be found in my brother Mason's reasons. In
Steinberg v. F.C. of T. 75 ATC 4221 ; (1975) 50 A.L.J.R. 43 , I indicated my view as to a way in which a profit satisfying the second limb of sec. 26(a) might be made by the use of acquired property in a profit-making scheme. The need for the use of the acquired property in the profit-making scheme is there emphasised. In this case, nothing of the kind was shown to exist: indeed, it is illustrative of the consequences of not being specific in considering whether or not the essential elements of a relevant

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ATC 4591

undertaking or scheme exists. As I have said, no more appeared than a readiness to dispose of the shares to satisfy demands upon the appellant by his other financial transactions in contemplation when that willingness to realise the shares was formed.

I agree with my brother Mason's conclusion that the Supreme Court was in error in holding that the gain made by the appellant by the sale of the shares was a profit arising from a profit-making undertaking or scheme.

In my opinion, the appeal should be allowed.