Case L31

Judges:
HP Stevens Ch
CF Fairleigh QC
JR Harrowell M

Court:
No. 1 Board of Review

Judgment date: 24 May 1979.

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H.P. Stevens (Chairman); C.F. Fairleigh Q.C. and J.R. Harrowell (Members): The Commissioner adjusted the income as returned for the year ended 30 June 1973 by the taxpayers (a carpenter/building contractor and his wife) by the inclusion as assessable income of the net proceeds of sale of a parcel of land jointly held and sold by them in that year. Notices of assessment issued accordingly whereby the taxable income in each instance was increased by $16,681. As their objections thereto were disallowed the Commissioner's decisions thereon have been referred to a Board for review. The references have been heard together, though, of course, there is not a consolidation and separate formal decisions will issue.

2. By a series of events connected with the administration of the estate of a deceased relative the male taxpayer acquired from his mother in 1960 two adjoining allotments of land (in one title) with a frontage to a lake and, by his means of transport, about five hours travelling time from his home. He built a week-end cottage on the land. For various reasons which are not material to the issue the ownership of those allotments was of little benefit to the taxpayers and to some extent it was burdensome.

3. The taxpayers early in 1967 placed an advertisment in a Sydney daily newspaper offering the allotments for sale and there was no response. Later in the year that property was advertised for exchange and offers were received, such as a European sports car, an island off the Queensland coast and the only offer which was attractive to the taxpayers was an undeveloped parcel of residential land in an outer Sydney suburban area, the subject land.

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ATC 163

4. The vendors of the subject land had recently sold their residence which was on a parcel adjoining the subject land and wanted to dispose of the subject land also. As they were pensioners an exchange for lakeside land, with the opportunity of fishing as a pastime, attracted them.

5. The subject land has the shape of a truncated triangle with the truncation giving about 40 feet frontage to the road. It is a large parcel as suburban allotments go, but a bowl shaped depression towards the centre takes the drainage from adjoining blocks and the subject land has only one site suitable for a residence.

6. The subject land had been used as an orchard by the vendors and it appealed to the taxpayers as a possible alternative to their (still current) residence of a two bedroom fibro cottage as accommodation for themselves and their four young daughters.

7. At all relevant times the taxpayers had some financial difficulties arising to a great extent from their desire to provide private (i.e., church) school education for their daughters. Therefore they much preferred a simple exchange of their lakeside allotments rather than have to pay a cash adjustment. The vendors of the subject land were willing to have an exchange without a cash adjustment. Thereupon after inspections the agreement was reached that there be an exchange of properties and the parties settled on $3,300 as the value of each property and transfers were signed in or about December 1967.

8. The land transactions of the taxpayers to this point of time had been the purchase in 1952 of the land on which their residence (the fibro cottage) is erected, and the purchase (by transfer signed in November 1964) of a Sydney suburban residential vacant parcel of land which was capable by reason of its size of yielding four allotments, or so they believed at the time.

9. The taxpayers have deposed, and there is no reason to reject their evidence, that when they acquired the subject land they had no definite idea what they would do with it but they looked on it as being free from the burdens which arose with the lakeside allotments and they had some hopes that one day it would be the site of a new residence, with an attractive bushland setting, for themselves and their children.

10. The taxpayers rejected the suggestion that they bought the subject land with a view to resale at a profit, and indeed they made no effort to sell it and the resale at $40,000 (by transfer signed in December 1972) was the result of an unsolicited and unexpected offer; and the land as it happens is still in the same undeveloped state, though now unsightly with rubbish dumped on it.

11. It is apparent that a sale of the subject land was one of the options open to the taxpayers but they did not have the purpose of buying with a view to profit-making by sale and it would be pure conjecture to suggest that they would find an inflationary trend in land values would be more advantageous for the subject land rather than for the lakeside allotments.

12. In view of the above findings relating to the subject land the subsequent land transactions of the taxpayers have no worthwhile evidentiary weight for a resolution of the present issue. The only preceding land transaction (mentioned in para. 8 hereof) which requires some discussion is the parcel of land which was expected to realize four allotments. The taxpayers' evidence is accepted that their purpose was to secure an allotment for each of their four daughters by a hopefully simple and inexpensive survey; that their purpose was frustrated by the council permitting only three allotments and by the council requiring extensive expensive drainage; that the outcome was that after some three years of wrangling with the council and an outlay far beyond their expectations the allotments were sold with transfers to the purchasers in July and August 1968 and in April 1969 respectively. The net proceeds of sale were brought to account by them as assessable income.

13. The acceptance of the oral testimony of the taxpayers (and of his mother as to the circumstances of his acquisition of the lakeside allotments) when weighed with the relevant objective evidence leads to a conclusion in favour of the taxpayers.

14. We uphold the objections and the assessments are to be amended accordingly in each instance.

Claims allowed