CASE 34/96

Members:
P Burton SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 6 May 1996

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Pamela Burton (Senior Member)

This is an application to review decisions of the Commissioner of Taxation of 22 August 1994 disallowing the taxpayers' objections to amended assessments of taxation for the years ending 1989, 1990, and 1991. The applicants' appeals proceeded together, the relevant facts and matters and the issues in dispute being identical in respect of each of the Commissioner of Taxation's assessments. The decision of the Commissioner of Taxation was objected to by the applicants in respect of assessments relating to two properties which I will refer to as property 1 and property 2.

2. At the hearing the parties indicated that certain matters had been resolved and the only matters before the tribunal in dispute related to the capital gains taxation assessment in relation to property 1, and the respondent's decisions in relation to penalty interest on the assessed taxation amounts.

3. The tribunal had before it documents lodged pursuant to s. 37 of the Administrative Appeals Tribunal Act, 1975, (the T documents) and other documents tendered as exhibits on behalf of the respondent, namely:

• • a statement handed up with the agreement of the applicant setting out the agreed amounts of tax to be paid by the applicants consequent upon resolution of the issues relating to property 2, and the assessments of taxation still in dispute (Exhibit 1);
• • the original agreement for sale of property 1 (Exhibit 2);
• • two letters from the applicants' solicitors' file dated 20 September and 30 December 1985 (Exhibit 3);
• • a cutting from the Sydney Morning Herald issue of 20 September 1985 (Exhibit 4);
• • a letter dated 4 November 1995 (Exhibit 5);
• • the seller's solicitors' file (Exhibit 6);
• • the buyers' solicitors' file (Exhibit 7);
• • a copy of Taxation Ruling IT 2517 (Exhibit 8).

4. The applicants were represented by Mr Powrie and the respondent by Mr Erskine. Taxpayer (1) (the ``taxpayer'') gave oral evidence which was to be regarded as evidence in both the taxpayer and his wife's (Taxpayer (2)) case. Mr Kokic, an auditor with the Australian Taxation Office, was called to give evidence on behalf of the respondent.

5. The issue before the tribunal was whether or not the agreement to purchase property 1 came into existence prior to 20 September 1985. The announcement of a capital gains tax was made on the evening of the budget of 19 September 1985, and came into effect the following morning (see Exhibit 4). Subsection 160U(3) of the Income Tax Assessment Act 1936 (the Act) reads:

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``Where the asset was acquired or disposed of under a contract, the time of acquisition or disposal shall be taken to have been the time of the making of the contract.''

6. The applicants' contention is that the capital gain realised from the sale of property 1 is not liable to capital gains tax as the property was acquired under a contract entered into before 20 September 1985. The agreement for sale (Exhibit 2) is dated 13 September 1985 but the formal exchange of contracts took place on 31 October 1985. The applicants' case is that the agreement to buy had come into existence on 13 September 1985, that being the date the seller's solicitor forwarded the contract of sale to the taxpayers' solicitor. The written contract was the outcome of the taxpayer having some days earlier orally agreed with the seller Mrs R. (now deceased), to buy the property. Mr Powrie in opening contended that the interpretation of s. 160U(3) did not allow for the importation of real property concepts to determine the meaning of ``contract''. His contention was that s. 160U(3) was a stand alone provision clear and unambiguous in its ordinary English meaning. He contended that the date on the contract should be taken as the date from which the contract took effect.

7. The respondent contends that no effective agreement for sale was reached prior to the capital gains tax being introduced, and the agreement did not come into existence until the exchange of contracts took place. Mr Erskine for the respondent contended that the issue did not turn on the interpretation of s. 160U(3), but simply involved the determination of the factual issue as to whether or not a contract came into existence prior to 20 September 1985.

8. The purpose of Exhibit 1 was to indicate to the tribunal the way in which the taxation assessments were to be adjusted to reflect the agreement reached between the parties in relation to the taxation issues surrounding property 2, and to set out the specific amounts of the parts of the assessments in dispute, so that in giving its decision the tribunal would be in a position either to determine the final assessments, or to remit the matter to the Taxation Office for reassessment.

9. The calculations of the taxation assessments are not in dispute. That is, there is no challenge to the amount of the tax assessed, but only as to whether the assessed capital gains tax was payable at all in relation to the sale of the property. According to the figures set out in Exhibit 1, if the tribunal finds the capital gains tax is not payable in respect of property 1, the sum of $48,637 is to be deducted from the assessable income figures set out in that document in respect of both taxpayers for the financial year ending 30 June 1989. In that event penalty tax does not apply. If the tribunal finds that capital gains tax is payable the figures in Exhibit 1 are subject to the tribunal's decisions in relation to the penalty tax, if any is to be applied. In relation to the taxation assessments of the parties for the year ending 30 June 1990 the tribunal is requested by the parties to adjust the figures in Exhibit 1 to reflect the resolution of the dispute surrounding property 2 and make appropriate further adjustments depending on the outcome of the capital gains issue; the sum of $39,277 being the amount to be deducted from the taxable income figures set out in Exhibit 1 in respect of both taxpayers if the capital gains tax is not payable, and the assessed penalty tax to be adjusted to accord with the tribunal's decision in that regard. In relation to the assessments for the year ending 30 June 1991, the only matter which had been in dispute related to property 2. It is agreed that the tribunal need make no findings in respect of that assessment, but the parties ask the tribunal to make the required adjustments to reflect the agreement reached between the parties in relation to property 2.

10. The taxpayer gave evidence that he had known the seller Mrs R. from whom the applicants purchased property 1, since 1978. She and her husband had been customers of the garage owned and run by the taxpayer. Mrs R.'s husband had died, and her own health was failing when she placed the property on the market. The taxpayer believed this occurred some twelve to eighteen months prior to him making an offer to purchase the property. He was aware in September 1985 that the property had been on the market for about $250,000 with agents and no suitable offer had been made.

11. In evidence the taxpayer said that he had a conversation with Mrs R. a few days to a week before 13 September 1985 in which he made an offer to purchase the property for $200,000 which Mrs R. accepted. His evidence was that he had not been aware at that time of the possible tax changes in relation to capital gains. He and his wife wished to purchase the property as their residence. He was aware at the

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time, however, that the property comprised a residence and approximately 40 acres with a potential for subdivision.

12. According to the taxpayer he and Mrs R. agreed the contract was to take effect from 13 September 1985. His evidence for this was that Mrs R. said she would have the contracts to the taxpayers' solicitors by that date. He said that in the afternoon of the same day Mrs R. told him that she had rung her solicitors and that the contract would be sent to his solicitors on the 13th. The taxpayer said in evidence that shortly before 13 September he had rung his solicitor and told him that it had been agreed that the contract was to come into effect on the 13th, and that was something that the solicitor knew before the written contract was received from Mrs R.'s solicitors.

13. In cross-examination it was put to the taxpayer that there was no note of this conversation on his solicitor's file (Exhibit 7), or of any instructions given in relation to the date on which the contract was to take effect. It was further put to him that an examination of the seller's solicitors' file (Exhibit 6) revealed no note of any similar instructions having been given by Mrs R. In response to these matters the taxpayer said ``I can't speak for my solicitor'' and ``I can't speak for her (Mrs R.'s) solicitor... Mrs R. and I had made a contract''.

14. The covering letter from the seller's solicitors to the buyers' solicitors dated 13 September 1985 (T document 6) states in part:

``Kindly note that no legal liability shall attach to either party until such time as an exchange has been effected.''

The taxpayer had no explanation for the wording of this letter. The original of that letter is contained in Exhibit 7 (the buyers' solicitors' file), and displays a received date stamp of 18 September 1985. Relevant searches and enquiries were made and delays occurred as a consequence of the need to make further enquiries in relation to the access road to the property; the need to ascertain boundaries; to reach agreement in relation to furniture and fittings; and to negotiate the amount of deposit to be given on exchange of contracts. Some relevant correspondence as to these issues is contained in a letter dated 19 September (T document 6, p. 82) in which the buyers offered a 5% deposit; a letter dated 23 September (T document 6, p. 81) in which this offer was accepted; and in a letter dated 10 October 1985 (T document 6, p. 79) in which the taxpayers' solicitor pointed out to them the problems surrounding the matters as to which no agreement had been reached and in which he sought further instructions.

15. The taxpayer said in evidence that as to what inclusions were to pass with the sale didn't matter to him, though he said it might have mattered to his wife. So far as he was concerned he said that he would have proceeded with the contract at the agreed price even if curtains and carpets were not included. In relation to the access problem, he said in evidence that he would have proceeded even if there was no provision for access from the property to the highway. It was put to him in cross-examination that a survey certificate had not been obtained prior to 13 September and that the taxpayer by letter dated 16 October 1985 (T document 6, p. 78) instructed his solicitor to endeavour to obtain one before exchange of contracts. In evidence the taxpayer explained that he had given his solicitor instructions to exchange if ``he saw no problem'', and he assumed that his solicitor would refer back to him if a problem did emerge, in which event, the taxpayer asserted in evidence, he would nevertheless have instructed his solicitor to proceed with the contract.

16. The taxpayer agreed that he had bought and sold several properties before this and was familiar with the usual searches and enquiries that were to be made, and the delays which occur prior to exchange of contract. In relation to this purchase he asserted that he was familiar with the property and knew the seller well and had no reason to place any conditions upon proceeding with the purchase after an agreement had been reached as to price. He said he would have proceeded with the purchase in view of the price agreed, whether or not it transpired that he might be put to further expense in obtaining adequate access, or in purchasing fittings and so forth.

17. The deposit was paid and the buyers' part of the contract was forwarded under cover of a letter dated 18 October 1985 from their solicitors to the seller's solicitors stating ``... you are to date the original contract the same date of the 13th September 1985'' (Exhibit 6). The seller's solicitor returned the original contract signed by the seller under cover of letter dated 31 October 1985. The contract was dated 13 September 1985. The taxpayers lived

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on the property until it was subdivided and sold. One portion of land was sold in November 1988 for $195,000 and the land and residence was sold in March 1990 for $405,000.

18. An examination of Exhibits 6 and 7 reveals no note or evidence of any instructions being given to either the seller's or the buyers' solicitors that contracts were to be exchanged by 13 September 1985, or that the agreement was to take effect from that date. Both solicitors are currently in practice. Neither was called to give evidence. There was no evidence that any arrangement had been made with the taxpayers' solicitor prior to 13 September 1985 for them to attend the office to sign the contract to facilitate an exchange that day. I draw no inferences from the fact that Taxpayer (2) (who was present at the hearing) gave no evidence. It was clear from the Taxpayer (1)'s evidence that he was the person responsible for the purchase of the property.

19. The taxpayer was adamant that he had reached an agreement with Mrs R. that he and his wife would purchase the property for the agreed price and that contracts would be available on 13 September 1985. The applicants did purchase the property for the agreed price and the contract was forwarded to their solicitors with a covering letter of that date. However, there is no contemporaneous document or note on the files of either the seller's or the buyers' solicitors' files to support the taxpayer's assertion that an agreement was reached between him and the seller that the contract was to come into effect on the contract being reduced to writing on 13 September 1985. It is very difficult to reconstruct what two people (one of whom is deceased) said and thought over ten years ago. Where there is a discrepancy between the taxpayer's evidence and the contemporaneous records I prefer to rely on the objective evidence of the contemporaneous records. The taxpayer's evidence was vague and imprecise. His explanations for the discrepancies between his evidence and the documentation was unsatisfactory, in that on being confronted with a document which contradicted his evidence that an agreement had been made, he simply reiterated his understanding or his intentions at the time.

20. It is apparent that prior to 20 September 1985 the date of 13 September had no real significance. It was not the date upon which the taxpayer said he made the agreement with Mrs R., which was some days earlier. The contract was not signed or exchanged on that day and nor was the date inserted on that day. The buyers had no plan to see their solicitor or to sign the contract that day, the contract not having been received until 18 September 1985. The only relevance of 13 September 1985 is that it was the date on which, according to the taxpayer, the seller agreed to have her part of the contract available to the buyers' solicitors. It was in fact the date of the covering letter enclosing the contract, and 13 September 1985 was the date the parties subsequently agreed (in October 1985) to insert as being the date of the contract, or the date from which it was to be regarded as having effect. Further, the buyers were advised by their solicitors by letter dated 4 November 1985 that as of 31 October 1985 (the date contracts were exchanged) the risk over the property was theirs. The buyers took out insurance to protect the property to be effective from 31 October 1985, not 13 September 1985.

21. It is well accepted that an intention to create legal relations is essential to the formation of any contract under our law. On behalf of the taxpayers it was argued that the oral agreement came into effect on being reduced to writing by the seller on 13 September 1985. Whatever transpired in conversation between the seller and the buyer prior to 13 September 1985, the seller's understanding of the agreement is evidenced by the covering letter of 13 September 1985 enclosing the contract, which expressly provided that the contract was not to give rise to any legal liability prior to an exchange of contracts with the buyers. Further, the contract contained details of terms and conditions neither agreed nor discussed in conversation beforehand.

22. Mr Powrie, for the taxpayers referred the tribunal to a discussion of ``subject to contract'' cases by the Hon. Sir Anthony Mason and S.J. Gageler in Chapter 1, ``The Contract'' in Essays on Contract, edited by P.D. Finn and published by the Law Book Company Limited, 1987. In particular the tribunal was referred to the authors' approval at p. 14 of the observations of Walsh J. in
Godecke v Kirwan (1973) 129 CLR 629 at 638 that there was no objection to the validity of a contract that left some matter to be determined by one of the parties, provided that the power to determine

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was not inconsistent with the express terms agreed upon by the parties. However, in the taxpayers' case, matters were outstanding upon which agreement of both parties was required, namely, the amount of the deposit, the furniture and fittings to be included and matters relating to the access to the property.

23. Mr Powrie also cited
Oceanic Sun Line Special Shipping Company Inc v Fay (1988) 165 CLR 197 at 225 where Brennan J. said:

``The question whether a contract has been made depends on whether there has been a consensus ad idem and the terms of the contract, if made, are the subject of that consensus.''

It was found in that case that consensus had been reached in relation to the purchase of a ticket when the purchaser had received an ``exchange order'' when he paid for the ticket. One of the terms of that agreement was that the ``exchange order'' would be exchanged for a ticket when he boarded the vessel. The court found that the conditions on the ticket did not form part of the contract. They had not formed part of the agreement reached and were not enforceable. That situation is very different from the one before this tribunal where the terms and conditions in the written document were an essential part of the contract to be agreed between the parties, and where one party did not intend to enter into a legally binding contract until agreement on the terms and conditions contained in the written document was reached.

24. On behalf of the taxpayers Mr Powrie argued that the tax office in failing to accept that the contract came into existence on the date stated on it, was an attempt to rewrite a term of it, or reconstruct the contract in circumstances where there was no dispute between the parties to the contract as to its date of effect. I reject that argument. The fact that there was no dispute between the seller and the buyers as to the contract being dated 13 September 1985 is not relevant to the matters in dispute between the parties before this tribunal. It is undisputed that the buyers signed the contract and forwarded it to the seller on 18 October 1985. In those circumstances it cannot be said that the Commissioner of Taxation is imposing his own analysis of the contract on it. On the contrary, the submission put on behalf of the taxpayers that an agreement as to the date upon which the contract was to take effect is evidence of the fact that it came into existence on that date, is urging the tribunal to accept that the parties bare assertion of a fact is evidence of the fact. The documentation surrounding the contract shows that an agreement was reached on 31 October 1985 when the exchange took place, irrespective of any agreement the parties reached to declare retrospectively that it came into existence at an earlier date. In those circumstances, the onus must rest with the taxpayers who assert otherwise to establish that the contract came into existence at some earlier time. In my opinion the taxpayers have failed to provide evidence that any agreement was made prior to 20 September 1985, the evidence being entirely to the contrary.

25. The respondent's counsel did not argue with the applicants' proposition that the regime of taxing assets is often at odds with real property concepts. The respondent does not need to rely upon the importation of real property concepts in the interpretation of ``contract'' in s. 160U(3) to bring property 1 within the capital gains tax provisions. The relevant authorities support an interpretation of the phrase ``the time of the making of the contract'' as meaning the time when a legally binding and enforceable contract comes into existence. Mr Erskine on behalf of the respondent referred the tribunal to the Administrative Appeals Tribunal decision Case 13/95,
95 ATC 183 at p. 187 where Deputy President McMahon said:

``... `contract' should be read to mean `an enforceable contract', that is to say a contract enforceable in accordance with the proper law of the contract. The section requires that the asset be acquired `under a contract'. If the contract were unenforceable, it would not be the type of contract contemplated by the section...''

Further, in the case of
Allen v Carbone (1975) 132 CLR 528 the High Court found that an informal agreement relating to a real property transaction had amounted to a limited consensus, but that the parties contemplated that they would not be bound until a formal contract was signed by them and exchanged by their solicitors. In those circumstances the court held that a binding contract had not come into existence.

26. It is clear that consensus between the parties must be reached before a contract comes into existence. In relation to property contracts,

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that usually does not come about until the formal exchange of contracts takes place, because complex terms and conditions are generally incorporated in those contracts, as was the case in the contract relating to the sale and purchase of property 1.

27. The buyer and the seller in this case may have expressed their intention in the conversation referred to by the taxpayer to bring about the agreement of sale on or about 13 September 1985. However delays occurred which prevented that intention from being realised, and the contract was not exchanged until 31 October 1985. I find no evidence that there was consensus reached between the buyers and seller prior to 20 September 1985 that the agreement to purchase the property was to have been effective as of 13 September 1985. I find that the contract did not come into existence until 31 October 1985, the exchange of contracts taking place once agreement on its essential terms and conditions had been reached. I therefore find that the assessed capital gains tax is payable by both taxpayers in respect of property 1.

Penalty

28. The respondent called Mr Kokic who was the person at the Taxation Office responsible for examining the taxpayers' files and for making recommendations to the Commissioner in relation to the assessments and penalties to be imposed. He recommended a penalty interest of 45% to reflect the blameworthiness of the taxpayers' conduct which he saw as deliberate tax evasion. He regarded the ``backdating'' of the contract as an action taken to hide the true date of the acquisition of the property from the Commissioner, to avoid tax that might be payable at some later date. He said that had he formed the view that it was reasonably arguable that an agreement to purchase the property had come into existence before 20 September 1985, then the culpability component of the penalty would not be imposed, leaving the per annum component to be paid at the prescribed rate.

29. Mr Powrie for the taxpayers submitted that the culpability component of the penalty was unlawfully imposed, the Commissioner only having power to impose it if the anti- avoidance provisions of Part IVA of the Act were used. That was not the situation here. The respondent did not purport to impose a penalty under those provisions. As I understand it Mr Kokic indicated the additional tax was imposed under the former s. 222 being a penalty for failure to keep or furnish documents or information. However, the Commissioner also has power to impose the penalty under the former s. 223 for false or misleading statements relating to the acquisition and disposal of property 1 by the taxpayers.

30. The disposal of the asset took place prior to the Taxation Laws Amendment (Self Assessment) Act 1992. The provisions of that Act replace the ``false or misleading'' criteria for liability to penalty additional tax contained in the former s. 223, with graduated rates of penalty additional tax for specific kinds of behaviour. Pursuant to the former s. 222 and s. 223(1) of the Act that were in force at the time the taxpayers made their returns for tax years 1989 and 1990, the respondent is empowered to impose a penalty tax of a flat 200%. The former relevant sections read:

``222(1) Where a taxpayer refuses or fails to furnish, when and as required under or pursuant to this Act or the regulations to do so, a return, or any information, relating to a year of income, being a return relating to or information relating to, or to the affairs of, the taxpayer, the taxpayer is liable to pay, by way of penalty, additional tax equal to double the amount of tax payable by the taxpayer in respect of the year of income.

...

223(1) Where-

• (a) a taxpayer-
  • (i) makes a statement to a taxation officer, or to a person other than a taxation officer for a purpose in connection with the operation of this Act or the regulations, that is false or misleading in a material particular; or
  • (ii) omits from a statement made to a taxation officer, or to a person other than a taxation officer for a purpose in connection with the operation of this Act or the regulations, any matter or thing without which the statement is misleading in a material particular; and
• (b) the tax properly payable by the taxpayer exceeds the tax that would have been payable by the taxpayer if it were assessed on the basis that the statement were not false or misleading, as the case may be,

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the taxpayer is liable to pay, by way of penalty, additional tax equal to double the amount of the excess.''

However, s. 227(3) confers on the Commissioner the discretion to remit additional tax imposed.

Section 227 provides:

``(1) The Commissioner shall make an assessment of the additional tax payable by a person under a provision of this Part.

(2) Nothing in this Act shall be taken to preclude notice of an assessment made in respect of a person under subsection (1) from being incorporated in notice of any other assessment made in respect of the person under this Act.

(3) The Commissioner may, in the Commissioner's discretion, remit the whole or any part of the additional tax payable by a person under a provision of this Part, but for the purposes of the application of subsection 33(1) of the Acts Interpretation Act 1901 to the power of remission conferred by this subsection, nothing in this Act shall be taken to preclude the exercise of the power at a time before an assessment is made under subsection (1) of the additional tax.''

Taxation Ruling IT 2517 contains guidelines for the exercise of the Commissioner's power to remit additional tax imposed under the former s. 223 which apply to cases considered by the Tax Office on or after 15 February 1989. The respondent applied a culpability component of 45% as indicated in the ruling for ``Deliberate evasion (without aggravating factors)''.

31. I agree with the respondent's contention that it can not reasonably be argued that there was an agreement in existence for the acquisition of property 1 prior to 20 September 1985. A study of the documentation relating to the acquisition of that property does not leave the matter open to a reasonable argument to that effect. Further, the taxpayers have not asserted, and nor was it the case, that they genuinely misunderstood the requirements of the legislation which might warrant a zero culpability component of the penalty additional tax under the guidelines. Conversely I am unable to conclude that the taxpayers' action in inserting the pre 20 September 1985 date in the contract was a deliberate attempt to evade the tax that should attract the most severe penalty indicated in the guideline. The letters accompanying the contracts being exchanged carried the correct date and the sequence of events was in no way disguised. Rather, I find the taxpayers' misbehaviour was their completion of their taxation returns with a reckless carelessness in relation to the proceeds of the sale of property 1. It is their failure to disclose the relevant facts and circumstances surrounding the acquisition of the property that, in my opinion, warrants the imposition of an appropriate culpability component of the penalty tax.

32. There are mitigating circumstances surrounding the acquisition of the property which should be taken into account. The taxpayers made a genuine decision to purchase the property prior to the tax law changes. The taxpayers seemed to have been unaware of the express condition contained in the seller's solicitors' letter of 13 September 1985 as to when the contract was to come into effect. The taxpayers' solicitors and the seller's solicitors appear to have agreed that the buyers had formed the intention to acquire the property before the tax changes, and that this could legitimately be reflected in the documentation. To this extent the taxpayers had the tacit approval of their and the seller's solicitors. While I assume the dating of the contract was done with the new capital gains tax legislation in mind, the taxpayers seemed to believe that they had validly avoided the property becoming the subject of capital gains tax.

33. While the taxpayers may have believed they had a good case for arguing that the agreement came into existence prior to 20 September 1985, on the property being sold the facts and circumstances surrounding its acquisition should have been made known to the tax office. In circumstances where the taxpayers had arranged for the contract to be back dated to evidence their view that the property had been acquired pre capital gains tax, and where they were aware of the implications of the introduction of the capital gains tax the taxpayers should have taken care to ensure that they were correct in their view. They should have obtained the documentation and made it available to the tax office together with any other relevant evidence to the Commissioner to support the argument they wished to advance, if after perusing the documentation they wished to pursue their claim in relation to the date of acquisition. They

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could have asked for a ruling in relation to the matter. It apparently suited the taxpayers to rely upon the falsely dated contract for corroboration of their belief that the agreement to purchase the property occurred prior to the imposition of the tax.

34. I find that there were mitigating circumstances surrounding the taxpayers' back dating of the contract at the time they acquired the property. In relation to their tax return after the sale of the property I find that their behaviour was recklessly careless but short of deliberate evasion. In all the circumstances a reduction in the assessable penalty of 45% to 15% is warranted in addition to the per annum rate as set out in Exhibit 1.

35. The tribunal has been provided with figures and details of the agreement reached in relation to property 2. However, the agreement appears to relate to taxpayer 1 only, and mentions tax years of 1990 and 1992. I understand agreement was also reached in relation to property 2 in respect of tax year 1991. In these circumstances I find it necessary to remit the matter to the Commissioner for recalculation in accordance with directions I make which will include the taking into account of any agreement reached in relation to matters concerning property 2 for the assessments of both taxpayers.

36. The tribunal therefore sets aside the decisions under review and remits the matters to the Commissioner of Taxation for reassessment in accordance with the following directions, namely that:

• (a) in relation to the tax year 1989 a capital gain of $48,637 in relation to property 1 be included in each of the taxpayer's taxable income and the assessed 45% culpability component of the penalty tax be reduced to 15% in addition to the per annum amount as set out in Exhibit 1;
• (b) in relation to the tax year 1990 a capital gain of $39,277 in relation to property 1 be included in each of the taxpayer's taxable income and the assessed 45% culpability component of the penalty tax be reduced to 15% in addition to the per annum amount as set out in Exhibit 1;
• (c) in relation to property 2, the amount of $2,663 be included in each of the taxpayer's taxable income for the tax year 1990, and any further adjustments be made to give effect to the terms of the agreement reached between the parties dated 6 March 1996.