Burnside v. Federal Commissioner of Taxation.

Judges: Barwick CJ
Mason J
Stephen J

Jacobs J
Aickin J

Court:
Full High Court

Judgment date: Judgment handed down 22 December 1977.

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Jacobs J.: I agree that the appeal should be allowed. There is little that I wish to add to the reasons for this conclusion which have been expressed by Mason J. and with which I agree.

In the circumstances of the present case I think that a conclusion that the shares in Samin Limited were not acquired by the taxpayer for the purpose of profit-making by sale leads to a conclusion that the profit made by the taxpayer on the sale of the shares was not a profit from the carrying on or carrying out of a profit-making undertaking or scheme. I lay emphasis upon the particular circumstances of the case because a purchase of shares in a number of companies with an intention of selling some of them at a profit when a favourable opportunity arose could in many circumstances be the carrying on or carrying out of a profit-making scheme.

In my opinion the conclusion of the primary judge was correct that the shares were not acquired for the purpose of profit-making by sale. At the time when application for the shares was made, the taxpayer envisaged that he might need to sell all or some of them but when he formed the intention to acquire the shares, which was in August 1969 some four or

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ATC 4597

five months earlier, he had no purpose of profit-making by sale nor did he definitely form such a purpose in the intervening months before he made formal application for the allotment of the shares to him. Likewise, any scheme of the taxpayer under the second limb of sec. 26(a) must in the circumstances of the present case be found to be a scheme which had been formulated at the time when the taxpayer formed an intention to take up the shares in Samin Limited which he had been told would be allocated to him. It is true that he could have resiled from his intention to take up the Samin shares at any time up until the time when he made formal application for the shares. But to regard this as the decisive factor in determining whether or not there was a profit-making scheme would be to construct or to impute a scheme not out of what actually happened but by having regard to what might have happened. The taxpayer decided in August 1969 to take up his allocation of Samin shares. At that time he had no intention of doing other than retaining the shares as a long term investment. By the time the taxpayer made formal application for the Samin shares he envisaged that he might need to sell those shares in order to pay liabilities which had arisen after August 1969. But his intention to take up the Samin shares had never varied between August 1969 and his application for the shares in December 1969. In these circumstances a profit-making scheme would require that the intention to take up the shares be accompanied by a purpose of profit-making. There cannot be found a profit-making scheme simply because, by the time for action pursuant to that continuing intention, a need should have arisen to envisage the necessity of selling the shares even though by the time of the action of taking up the shares there be a likelihood of sale at a higher price.