Case P27

Judges: HP Stevens Ch
JR Harrowell M

BR Pape M

Court:
No. 1 Board of Review

Judgment date: 15 April 1982.

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B.R. Pape (Member)

In this reference the issue which falls to be decided is whether the Commissioner has correctly included a profit of $57,343 arising from the purchase and subsequent resale of gold and silver bullion in the assessable income derived by the taxpayer during the year ended 30 June 1980.

2. The taxpayer, at age 46, resigned from the Australian Regular Army on 28 November 1976 after some 22 years of service. He would have reached the normal retiring age of 47 years for the rank he held on 15 May 1977. Upon his resignation from the Army he was appointed to a position in the Commonwealth Public Service. He commenced in 1974 a Bachelor of Arts (Administration) Degree from a college of advanced education in preparation for his eventual retirement from the Army. This degree was completed in 1979.

3. Prior to his resignation from the Army the taxpayer in June 1976 had attended a resettlement seminar held in a capital city. At this seminar he said that ``there it was mentioned that apart from land the only thing that would hold against inflation was gold and bullion or precious objects of art and things like that''.

4. Consequent upon his resignation from the Army the taxpayer received the sum of $14,872.53 in respect of his entitlement to recreation leave and furlough. Of this amount $14,576.19 was received by him on 5 January 1977 and the balance of $296.34 being for an adjustment on 16 February 1977. This sum of $14,872.53 was deposited in a bank account pending a decision by the taxpayer as to how it was to be invested.

5. He also commuted part of his entitlement to a pension from the Defence Force Retirement Benefit Fund. From this source he invested some $29,000 in Australian Savings Bonds. In summary it appears that the taxpayer's major assets in June 1977 comprised:

                                               $          $

      Residence                              50,000

      Less mortgage                          10,000     40,000

                                             ------

      Australian Savings Bonds

        (being commutation of

        pension)                                        29,000

      Joint interest in Australian

        Savings Bonds of $40,000 held

        with the taxpayer's wife                        20,000

      Cash at bank - being proceeds

        of recreation and furlough

        pay $14,872.53 (rounded to

        nearest $'000)                                  15,000

                                                      --------

                                                      $104,000

                                                      --------
      

6. By a letter dated 8 June 1977 the taxpayer enquired of a company which dealt in precious metals of the investment opportunities available in such metals. He received a reply dated 14 June 1977 which stated ``that the average annual rate of appreciation for gold over the past 10 years was 30%. So far as silver was concerned usage had exceeded production by 100

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million ounces and they can see only one possible result, a price explosion''.

7. The taxpayer in his evidence said that he had purchased two small gold ingots of 1 oz for each of his children on 22 March 1976. As at this date the price of these gold ingots was $125 per oz.

8. The details of the gold and silver bullion which was purchased and sold by the taxpayer were as follows:

                          Gold                       Silver              Total



                   Qty     Price              Qty     Price

                    oz   $ per oz     $        oz   $ per oz     $         $

Purchases

29 July 1977      64.30   135.75   8728.92    1443    4.34    6273.17  15002.09

Brokerage 2.5%                      218.22                     156.83    375.05

                  -----   ------  --------    ----    ----    -------  --------

                  64.30   139.14   8947.14    1443    4.45    6430.00  15377.14

                  -----   ------  --------    ----    ----    -------  --------



Sales

18 January 1980  64.30    650.85  41849.78     717   38.99   27957.94  69807.72

Less

Cost of sales    64.30    139.14   8947.14     717    4.45    3200.00  12147.14

                                 ---------                   --------  --------

Gross profit                     $32902.64                  $24757.94  57660.58

                                 ---------                  ---------

Less other expenses                                                      316.90

                                                                      ---------

Net profit                                                            $57343.68

                                                                      ---------
      

9. It can be seen from the above figures that during the 2 ½ years which the taxpayer held the gold and silver bullion which was sold the price of gold rose from $135.75 per oz to $650.85 per oz and the price of silver rose from $4.34 per oz to $38.99 per oz. An increase of 380% in the case of the price of gold, and an increase of some 800% in the price of silver.

10. In arriving at his decision to acquire the gold and silver bullion, the taxpayer considered a number of alternative forms of investment. These included:

• (a) rural property. This was rejected on the grounds that he would not have sufficient time to manage it because of his work and study commitments.
• (b) housing for the purpose of earning rental income. This too was rejected on the grounds of the difficulties encountered in evicting unsuitable tenants and the cost of maintenance.
• (c) bonds. This again was rejected on the basis that a rate of 9% was too low. He told the Board:

``... I would not get the equivalent long service leave which I thought I have probably justly earned at age 55 and after 30 odd years' service. So I wanted something that would hold its value against inflation and maybe slightly above it...''

11. At p. 17 of the transcript the taxpayer in answer to the following question by Mr. Tosi said:

``Q. Why did you decide to buy gold and silver after looking at all these avenues of investment?

A. I was led to believe that it would hold its value against inflation, that it was a fairly readily realisable asset and it is just another form of money really. That was my feeling about it. In bars and ingots it is fairly simple to store, it requires no maintenance except for you make sure you have it covered by insurance and once you sort of put it in and you renew your insurance each year there are no worries.''

He also told the Board that prior to making the purchases on 29 July 1977 he had

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compared the price of gold at the time at which he had purchased the ingots for his children and noted that they had increased marginally (i.e. from $125 per oz on 22 March 1976 to $135.75 per oz on 29 July 1977). Pt. IV of the Banking Act 1959 which inter alia restricted the buying and selling of gold to persons authorized by the Reserve Bank ceased operation on 30 January 1976.

12. The taxpayer appears to have had the gold bullion and silver bullion stored in two banks in the city in which he resided. Each bank held 1 ingot of gold bullion and 1 bar of silver bullion (see folio 16 of exhibit A). Folio 30 of exhibit A disclosed that the taxpayer effected the following insurance cover on the bullion:

      12.8.1977 - 12.8.1978  --  $15,620

      12.8.1978 - 12.8.1979  --  $18,000

      12.8.1979 - 23.1.1980  --  $22,000
      

13. During the period which the taxpayer held the gold and silver bullion he considered the possibility of acquiring a rural property on three occasions, once in October 1978 and again in late 1979. Subsequently he decided during a visit to his brother-in-law's property in another State (the State in which he had attended the resettlement seminar in June 1976) to bid at an auction for a property which adjoined his brother-in-law's. This decision appears to have been made over the Christmas-New Year period (December 1979-January 1980).

14. Upon return home, the taxpayer sold the gold bullion and 1 bar of the silver bullion on 17 and 18 January 1980. His evidence was that these assets were sold so as to enable him to purchase the farming property at auction. He later attended the auction but the property did not reach the vendor's reserve price. Whilst he attempted to negotiate with the vendor after the auction, he was unable to enter into a contract for the purchase of the property.

15. In my opinion the issue to be determined in this reference is whether the purchase of gold and silver bullion as a hedge against inflation falls within the provisions of sec. 26(a) of the Act.

16. I accept completely the taxpayer's motives for the purchase of the gold and silver bullion. The impression I gained from the taxpayer's evidence is that he was a conservative investor and that the safety of his investments was paramount. This applied not only to their monetary value but also to their physical security, e.g. two banks for storage of the bullion.

17. Section 26(a) of the Act provides as follows:

``The assessable income of a taxpayer shall include -

• ... profit arising from the sale by the taxpayer of any property acquired by him for the purpose of profit-making by sale, or from the carrying on or carrying out of any profit-making undertaking or scheme;''

If the profit arising from the sale of the bullion falls to be included in the taxpayer's assessable income I am of the opinion that it can only do so if it satisfies the requirements of either the first or second limb of sec. 26(a) of the Act.

18. To prove that the assessment is excessive by the amount of $57,343 the taxpayer must demonstrate on the balance of probabilities that he purchased the bullion for some purpose other than one for resale at a profit - see Gibbs J. (as he then was) in
McCormack v. F.C. of T. 79 ATC 4111 at p. 4121 :

``The taxpayer bears the burden of proving that the assessment was excessive. To discharge that burden in a case such as the present he must prove affirmatively, on the balance of probabilities, that the property was not acquired for the purpose of profit-making by sale.''

19. In
Admin Exploration Pty. Ltd. (in liq.) v. F.C. of T. 72 ATC 4253 . Mason J. said at pp. 4259-4260:

``In this case it is accepted that the first part of sec. 26(a) is not satisfied if the taxpayer shows that the acquisition of the property was not actuated by the sole or dominant purpose of profit-making by sale (see
Evans v. D.F.C. of T. for South Australia (1936) 55 C.L.R. 80 at p. 99 , per Rich, Dixon and Evatt JJ.). That profit-making by sale was not the sole or dominant purpose for acquisition in a given case may be demonstrated by showing that the dominant purpose actuating the acquisition was another and

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inconsistent purpose, as for example, retention as an investment. So also the taxpayer may show that, although profit-making by sale was a purpose, or a consideration, which actuated the acquisition, it was not the dominant purpose, either because another and inconsistent purpose actuated the acquisition in an equal degree or because before and at the time of acquisition the taxpayer held no firm view as to what he would do with the property and the prospect of its sale at a profit was recognised as no more than a possibility to be later considered in common with other possibilities which at or before the time of acquisition appeared no less remote.

But any discussion of the application of the provision must take account of the burden of proof thrown upon the taxpayer by sec. 190(b). It is for him to show that the assessment is excessive by satisfying the Court that his purpose in acquiring the property was not to make a profit by selling it. As Windeyer J. pointed out in
Buckland v. F.C. of T. (1960) 34 A.L.J.R. 60 at p. 62 , the taxpayer may fail to displace the first part of sec. 26(a) if the evidence, although disclosing that the taxpayer before acquisition was undecided as to the use to which he would put the property, enables the Court to draw the inference that it was nevertheless bought for the dominant purpose of making a profit by sale.

In applying the first part of sec. 26(a) the Court is usually concerned with the sale of property, initially bought for a pecuniary consideration. In these cases, in general, the purpose for which the property is bought is associated with the use to which the property is intended to be put. But it does not follow that a purpose of acquisition, dissociated from the use to which the property might be put, is irrelevant to the inquiry which the Court is required to make by the first part of sec. 26(a). A profit made on sale may escape that provision because the dominant purpose of the taxpayer in acquiring the property was dissociated from the use to which it was intended to be put (see
F.C. of T. v. McClelland 69 ATC 4001 at p. 4005; (1968) 118 C.L.R. 353 , per Kitto J.).''

20. The evidence of the taxpayer is clear that his sole reason for acquiring the bullion was to hold it as a hedge against inflation. This in my opinion was his motive in acquiring the bullion. Gibbs J. referred to the difference between motive and purpose in the interpretation of sec. 26(a) firstly insofar as the second limb is concerned in
XCO Pty. Ltd. v. F.C. of T. 71 ATC 4152 at p. 4156 and again in respect of the first limb in
Loxton v. F.C. of T. 73 ATC 4001 where at p. 4006 he said:

``... but under the first limb also if the acquisition was actuated by the dominant purpose of profit-making by sale it is immaterial what motive the taxpayer had to seek to make the profit.''

The purpose of the taxpayer is the dominant purpose which he held at the time he acquired the property - see
Pascoe v. F.C. of T. (1956) 30 A.L.J.R. 402 . ``The word `purpose' means not motive but the effect which it is sought to achieve - the end in view'' - see Denning L.J.,
Newton v. F.C. of T. (1958) A.C. 450 at p. 465 , albeit that this definition was made in the context of the interpretation of sec. 260 of the Act.

21. Mr. Tosi, the chartered accountant, who appeared on behalf of the taxpayer, submitted the word ``investment'' and ``hedge against inflation'' are interchangeable terms. I reject this submission. In my opinion the word ``investment'', to paraphrase the words of Mason J., ``has about it a chameleon-like hue readily adapting itself to its surroundings, different though they may be'' - see
F.C. of T. v. Whitfords Beach Pty. Ltd. 82 ATC 4031 at p. 4044 . It seems to me that when a person acquires property, whether it be real or personal, as an investment he seeks to derive some benefit from the holding of such property. This benefit can either be quantitative or qualitative. So far as the benefit is a quantitative one, it is to be measured by the profit to be gained. Such a profit includes inter alia rent, interest, dividends or an increase in the price of the property itself depending upon the type of property acquired. In the context in which the taxpayer uses the word ``investment'', in my

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opinion it is characterised by the profit to be gained from an increase in the price of gold or silver. It appears to me that the taxpayer acquired the bullion solely for its price appreciation potential. The very nature of the property acquired excluded any other form of return other than a profit gained by an increase in the price of these two commodities.

22. When the taxpayer made his decision to acquire the gold and silver bullion, he implicitly recognized that there was an opportunity cost in holding part of his assets in this form. Whilst the evidence adduced does not permit this cost to be quantified it is helpful for the purpose of seeking a comparison that he rejected an investment in Government Bonds because the interest rate of 9$ p.a. was too low. The evidence is clear that the taxpayer acquired the bullion because he formed the opinion that its annual price rise would be a little above the rate of inflation (being the rise in the general price level) which he thought was in 1975/1976 and early 1977 as ranging between 15% p.a. to 17% p.a. He accepted the risk that the appreciation in the price of gold and silver would be at this rate for the ensuing eight years. Such an appreciation in the price of gold and silver would at the very least compensate him for any income forgone by not investing in Government Bonds at 9% p.a.

23. I would therefore find as a fact that the dominant purpose of the taxpayer in acquiring the gold and silver bullion was for the purpose of profit-making. In my view the evidence adduced by the taxpayer only goes to his motive in acquiring the bullion and not to his purpose. To this extent there is no evidence, as to the purpose (other than profit-making) for which the taxpayer acquired the property - see McCormack v. F.C. of T. 79 ATC 4111. Notwithstanding this finding the taxpayer may be entitled to succeed under the first limb of sec. 26(a) if the evidence shows that it was not his intention at the time of acquisition to realise the profit by way of sale.

24. This proposition was discussed by McInerney J. in
F.C. of T. v. Firstenberg 76 ATC 4141 where at pp. 4157-4158 he said:

``If the true facts were that the taxpayer bought this land simply to convert his money - which almost invariably depreciates in value if left uninvested - into an asset which would appreciate in value with changes in the value of money, I do not think that that in itself would be enough to bring the acquisition of the property within the ambit of sec. 26(a). To invest money in acquiring an asset which will appreciate in value in the manner corresponding at least with the movements in the value of money does not necessarily carry the consequence that the asset was acquired with the view to resale or, to quote the words of the Act `for the purpose of profit-making by sale' or as part of any `profit-making undertaking or scheme'. If no more is established than that the taxpayer wanted to secure the then value of his money so as to have that asset available as part of his estate at any given time, the case would not, in my view, fall within sec. 26(a). To buy property as a hedge against inflation must, of course, have the consequences that money could be raised on the security of the asset by mortgaging it. It would also carry the consequence that the assets so acquired would form a valuable part of the purchaser's estate to be disposed of by his will or to be divided among his next of kin on intestacy.''

Thus in my view it is clear that if the taxpayer's motive in acquiring property is as a hedge against inflation then this of itself does not bring it within the provisions of the first limb of sec. 26(a) of the Act. In my view the purpose is to make a profit so as to counteract the decline in the purchasing power of money employed in purchasing the property. The crux of the issue to my mind is whether at the time of acquisition the taxpayer had the intention of realising this profit by resale of the property.

25. The ratio decidendi of the decision of McInerney J. in Firstenberg's case (supra) was expressed by his Honour, where at pp. 4158-4159 he said:

``In the present case, the Board of Review concluded that the stated purposes of acquiring that the land as a `hedge against inflation' could not be achieved unless there was a resale of the land. I do not think that necessarily follows, for the taxpayer could obtain his `hedge against

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inflation' by the simple process of retaining the land. He had his money in the form of property which would not unlikely depreciate in value even if it were not returning any income. The question whether the taxpayer would sell or retain the land might, in the end, depend on whether the value of the land proved to be great enough to compensate for the lack of income. In any event, even assuming that the purpose of having a hedge against inflation could not be achieved without a resale of the land, it certainly would not follow that such resale would be by the taxpayer. It might equally be by some person claiming under his will or his intestacy and the profit on resale is assessable only if the property was acquired by the taxpayer for the purpose of profit-making by sale by him: it is not enough if some other person has made the profit upon the resale.

It will not be enough if the taxpayer's devisees or next of kin hereafter effect a resale at a figure which, when compared with the original purchase price, shows a profit. The profit would in that case not have enured to the taxpayer. The profit which enures to the devisee or next of kin is a profit on a property which was not acquired by the devisee or next of kin `for the purpose of profit-making by sale'. (See
Williams v. F.C. of T. 72 ATC 4188 ; 127 C.L.R. 226 . See also McClelland v. F.C. of T. 69 ATC 4001; (1968) 118 C.L.R. 353; 70 ATC 4115; 120 C.L.R. 487, and
Steinberg v. F.C. of T. 75 ATC 4221 at p. 4232 per Gibbs J.)''

26. However the facts of this case lead me to infer that because the taxpayer knew that the bullion was a ``fairly readily realisable asset'' (see para. 11) he intended at the time of acquisition to resell it some time in the future to realise a profit. Moreover his evidence concerning the uses to which he would put the bullion when he reached age 55, some eight years after the date of purchase, contemplated that he may undertake a trip around Australia. In this respect he said in answer to the following question (at p. 27 of the transcript):

``Q. You cannot pay for the round Australia trip with gold or silver?

A. I realised it had to be sold eventually.''

Therefore I am of the view that this reference can be distinguished from the facts of Firstenberg's case on the grounds that the taxpayer at the time of acquisition intended to resell the bullion when he reached the age of 55 or sometime thereafter. Whereas in Firstenberg's case McInerney J. appears to have held that at the time of acquisition the sale of the land was only a possibility and in his view this was not sufficient to bring the profit within the section.

27. I might add that I accept the taxpayer's evidence as to the reasons for the sale of the bullion on 18 January 1980. Nevertheless whilst in doing so I am not unmindful that as at this date the total market value of his holdings of gold and silver bullion appeared to be $98,115 when some few months earlier he had insured this property for the sum of $21,000. If the insured value correctly represented the market value of the bullion at the date the insurance was effected I would find it difficult to resist the conclusion that the real reason for the sale at this time was a dramatic increase in the price of gold and silver bullion. This is perhaps emphasised by the very conservative way in which the taxpayer made his other investments. In any event in my view nothing turns on the reason for sale in January 1980.

28. It also appears that McInerney J. took the view that the question of whether the taxpayer would sell or retain the land might, in the end, depend on whether the value of the land proved to be great enough to compensate for the lack of income. Thus it seems to me that his Honour was predicating that it was not required of the taxpayer to show at the time of acquisition that he did not intend to resell the property. It seems that he was permitted to ``wait and see'' whether he would sell the property. In support of his reasons his Honour relied upon the decision of the Full High Court in
Gauci & ors. v. F.C. of T. 75 ATC 4257 . He also sought support for his views from the observations of Barwick C.J. in Steinberg v. F.C. of T. 75 ATC 4221 at p. 4227:

``Because the Act by sec. 190 places the onus upon the appellant taxpayer of showing that the Commissioner's

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assessment is excessive, there are expressions to be found in cases decided upon the first limb of sec. 26(a) to the effect that there is a presumption which the taxpayer must overcome by the evidence accepted by the Court on this appeal. But, in my opinion, there is no presumption that property is acquired for profit-making by resale. The presence of sec. 26(a) in the Act does not mean that property cannot be acquired as an investment, as a hedge against the loss of value in the currency; or that the only investment advantage of the acquired property which is outside the reach of sec. 26(a) is the income it will produce. The retention of property in the hope or expectation that its value will increase is a justifiable form of investment. That the increased value may only be realised by sale does not deny that the purpose of its acquisition was investment or establish that the purpose of its acquisition was to use it as a subject of trade by reselling it at a profit. No doubt in borderline cases the distinction may tend to become blurred but it is none the less a valid distinction and capable of resolution by the Court.

When the facts relating to the acquisition of the property are evidenced before the Court, the question is whether on those facts the necessary inference of purpose can be drawn. The evidencing of the facts and the inability to draw that inference from them, in my opinion, satisfies in this case the onus existing on the taxpayer. If... those facts, including those the Commissioner establishes, do not warrant the inference of the requisite purpose, assessment based on the first limb of sec. 26(a) cannot be supported.''

29. The subsequent decision of the Full High Court in McCormack v. F.C. of T. 79 ATC 4111 has reversed the decision in Gauci (supra) on the question of the onus of proof in sec. 26(a) cases. Consequently I am of the opinion that as the decision of McInerney J. was reached by applying the law as enunciated in Gauci, it may have little future application in respect of whether property can be acquired as a ``hedge against inflation'' and escape the provisions of sec. 26(a) of the Act. In McCormack (supra) Gibbs J. (as he then was) said at pp. 4121-4122:

``In Gauci v. F.C. of T. Barwick C.J. said, 75 ATC at p. 4260; 135 C.L.R., at p. 87:

• `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.

With the greatest respect I cannot agree with this statement, which seems to me inconsistent with earlier decisions of the Court such as George v. F.C. of T. and McAndrew v. F.C. of T . The taxpayer bears the burden of proving that the assessment was excessive. To discharge that burden in a case such as the present he must prove affirmatively, on the balance of probabilities, that the property was not acquired for the purpose of profit-making by sale. The burden may be discharged by drawing inferences from the evidence. In some cases in which all the relevant facts are known, and there is no material upon which it might properly be concluded that the property was acquired for the relevant purpose, the inference may properly be drawn that the property was not acquired for the relevant purpose. But it is not enough, even when all the facts are known, that there is no material upon which it may be concluded that the property was acquired for the purpose mentioned in sec. 26(a). If a taxpayer can succeed, simply because there is no evidence from which it can be concluded that the relevant purpose existed, that must mean that the burden of proving the existence of that purpose lies on the Commissioner. That in my respectful opinion would be to invert the onus of proof . The taxpayer will succeed if the proper inference from the evidence is that the property was not acquired for the relevant purpose, but if there is no evidence as to the purpose for which the

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taxpayer acquired the property the appeal must fail.

I would respectfully agree with the statement of Mason J. in his dissenting judgment in Gauci v. F.C. of T., 75 ATC at p. 4261; 135 C.L.R. at pp. 89-90:

• `The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with sec. 190(b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail.... The crux of the matter is that when in a sec. 26(a) case an appellant seeks to overcome the onus created by sec. 190(b) by adducing evidence as to his intentions with a view to establishing the purpose of the acquisition was not a sec. 26(a) purpose and that evidence is not accepted, he has not discharged the onus which he bears. At best, from the appellant's viewpoint, the evidence stands in a situation in which it is equivocal, neither establishing a sec. 26(a) purpose nor denying the existence of such a purpose. At worst, the judge may, in the circumstances, be able to infer the existence of a sec. 26(a) purpose. In either event the appellant fails to discharge the onus and the appeal fails.''

(The emphasis is mine.)

30. Thus in my opinion the reasoning of McInerney J. who held that the Board of Review was unwarranted in drawing a conclusion from the evidence that the taxpayer had the requisite sec. 26(a) purpose would now appear to have been overruled. If the taxpayer's evidence was solely that it was only a possibility that he may eventually sell the property to make a profit, then on the authority of McCormack's case he has not affirmatively discharged the onus of proof. In my view the taxpayer must affirmatively prove on the balance of probabilities that he did not acquire the property for the purpose of profit-making by sale . The mere possibility of sale by itself does not in my view enable the requisite intention to be displaced.

31. In this reference I find on the evidence that the taxpayer acquired the gold and silver bullion for the purpose of profit-making and that this was to be realised by resale. Moreover I would find that there was no evidence from which it could be inferred that the taxpayer intended to deal with the bullion other than by way of resale. For this reason also the taxpayer has in my view failed to discharge the onus of proof required by sec. 190(b) of the Act.

32. As I have held that the profit falls to be included in the assessable income under the first limb of sec. 26(a) it is unnecessary to consider whether it would also be included under the second limb. Nevertheless it would seem that the above profit may be so included. In F.C. of T. v. Whitfords Beach Pty. Ltd. 82 ATC 4031 at p. 4045 Mason J. said:

``There will be cases in which property will be acquired for the purpose of profit-making otherwise than by sale. Then so long as the acquisition is an element in a profit-making undertaking or scheme the resultant profit will be caught by the second limb, even though the undertaking or scheme lacks the repetitive or recurrent characteristics that are regarded as the hallmark of business activity.''

The above obiter dicta of Mason J. appears to have been based upon his Honour's view of the decision of the Judicial Committee in McClelland v. F.C. of T. 70 ATC 4115; (1970) 120 C.L.R. 487, where at p. 4044 he had said:

``In some contexts `business deal' and `operation of business' may signify a transaction entered into by a person in the course of carrying on a business; in other contexts they denote a transaction which is business or commercial in character. Although the majority in McClelland thought that sec. 26(a) was mainly, if not wholly declaratory, of the existing concept of income, they did not by their references to `business deal' and `operation of business', necessarily mean a transaction entered into in the course of carrying on a business.''

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33. It seems that the use of the phrase ``hedge against inflation'' to denote the purpose of acquisition conceals the true purpose of acquisition. I think it is sophistry to say that whilst the intention was to sell the purpose was not to make a profit but merely an amount which would counter a decline in the purchasing power of money.

34. Accordingly I would uphold the Commissioner's decision and confirm the assessment.

Claim disallowed