Edited version of your written advice

Authorisation Number: 1013096800919

Date of advice: 29 September 2016

Ruling

Subject: Sale of property - capital or revenue?

Question 1

Will any profit realised from the sale of The Property be a gain from the disposal of a capital asset pursuant to subsection 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No. The gain from the disposal of The Property is assessable as ordinary income under section 6-5 of the ITAA 1997.

Question 2

If the profit is in the nature of a capital gain, will section 118-20 or section 118-25 of the ITAA 1997 apply to disregard the capital gain?

Answer

Not necessary to rule - see response to Question 1.

This ruling applies for the following period:

1 July 20YY to 30 June 20ZZ.

Relevant facts and circumstances

In 20VV, X together with Y formed a property development group. A number of residential property developments for sale were undertaken by the group during the 20AA to 20BB years. In addition to this a significant portfolio of commercial assets were acquired for rental yields. In 20CC X and Y agreed to terminate their business partnership.

As part of the partnership dissolution, both parties agreed to divest their joint assets over the next few years. X started looking for commercial assets that would help secure the future of her/his business through consistent long term cash flows.

As part of this process, X purchased, constructed and leased a number of commercial properties over the next few years.

One of the commercial asset X purchased after the partnership split was "The Property" which the subject of this private binding ruling application. The purchase of the land and the construction of "The Property" were undertaken by a joint venture between 2 trusts. X was the beneficiary of A1 Trust and Z (who also has experience in property development) was the beneficiary of the A2 Trust. Z's role in this instance was purely as a passive investor.

The A1 Trust purchased X% of the land on which "The Property" was to be constructed. A Joint Venture Agreement between the A1 Trust and the A2 Trust was subsequently executed.

In 20CC a government agency issued a "Request for Proposal" for the design, construction and lease of an office building. X was interested in responding to the "Request for Proposal" and investigated a number of locations to see if they were feasible and available for sale.

The A1 Trust purchased a property with the intention of jointly developing (with the A2 Trust) the land into a commercial building for the government agency. A Co-owner's Agreement documented the intention to submit a response to the government agency Expression of Interest for a new commercial building. If that bid was unsuccessful the agreement was to jointly develop the land into residential works.

In 20DD, further commercial feasibilities were prepared as part of the Request for Tender process. The A1 Trust submitted a letter of offer for the design, construction and lease of the new office building.

Discussions with the government agency broke down and the Co-owners Agreement required that the construction of residential apartments on the property be considered.

In 20EE a feasibility study was done on the proposed construction of residential apartments on the site.

In 20EE the A2 Trust acquired the remaining X% of the land upon which The Property was to be built. Shortly afterwards X was contacted by the government agency with a view to re-opening negotiations for the proposed building

In 20EE the government agency sent a letter to the joint venturers confirming that they consider the building proposal was suitable and therefore agreeing to proceed with the negotiations.

The Joint Venture Agreement detailed the joint intention of the parties (the A1 Trust and the A2 Trust) to carry out the development project. This project was a project to construct buildings on the land. It was not specified at this point whether this would be commercial or residential as it was unclear if the negotiations with the government agency would be successful.

In 20WW an Agreement to Design, Construct and Lease was executed between the government agency and the joint venturers. In 20WW planning approval was obtained for the construction of an office building. Practical completion of the building occurred in 20XX.

In 20YY an Investor Group contacted a real estate agent (with whom X has had a long association with) to express an interest in the purchase of "The Property"

The Investor Group was advised that "The Property" is "not on the market, nor for sale". However the Investor Group requests the expression of interest be passed on to the vendors in the event they would entertain a sale.

In 20YY the real estate agent met with X and informed her/him of the sale proposal for "The Property". At this meeting X advised that the property was not for sale and that there was no intention to sell.

Subsequently, X received a letter the real estate agent which refers to discussions that had taken place that week regarding another approach to purchase the property.

The real estate agent also notes that in the past the Investor Group had been willing to pay above market value and asked X to reconsider her/his current position subject to any offers made.

In 20YY the real estate agent contacted the potential buyer to discuss the offer made by the entity in 20YY. The real estate agent advised that X would be unwilling to accept the current purchase price offer but had agreed to consider a sale of "The Property" subject to an agreement on price and the timeline of purchase. The real estate agent advised the potential buyer that the vendor would be willing to proceed with the sale in the event that the purchase price be raised to $XXXXX.

Subsequently the Investor Group submitted revised letter of offer for the purchase of "The Property". A Heads of Agreement was then executed and in 20YY exchange and settlement occurred.

Relevant legislative provisions

Income Tax Assessment Act 1997

Section 6-5

Part 3-1

Section 104-10

Section 118-20

Section 118-25

Reasons for decision

Profits or gains made from the disposal of real property

The profits or gains made from the disposal of real property can be assessed for income tax purposes in a number ways, such as:

• Ordinary income under section 6-5 of the ITAA 1997, resulting from:

• Carrying on a business; or

• An isolated or commercial transaction that was entered into with a profit-making intention; or

• Statutory income pursuant to the capital gains tax ('CGT') provisions in Part 3-1 and 3-3 of the ITAA 1997 (section 6-10 of the ITAA 1997).

Profits or gains made in the ordinary course of business

Taxation Ruling TR 92/3 sets out the Commissioner's view as to the application of the principles established in Federal Commissioner of Taxation v The Myer Emporium Ltd (1987) 163 CLR 199 ('Myer'). Paragraph 32 of TR 92/3 states that a profit or gain made in the ordinary course of a business includes:

• a profit or gain arising from a transaction which is itself a part of the ordinary business of a taxpayer (judged by reference to the transactions in which the taxpayer usually engages); and

• a profit or gain arising from a transaction which is an ordinary incident of the business activity of the taxpayer, although not a transaction entered into directly in its main business activity.

In determining whether profits or gains made from the disposal of real property are made in the ordinary course of business, one must establish if a taxpayer is carrying on a business and what the nature of the business is.

The definition of 'business' for income tax purposes is wide and includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee (subsection 995-1(1) of the ITAA 1997).

The principles in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production ('TR 97/11') provide guidance on whether a taxpayer is carrying on a business and can be applied in various contexts. Specifically, paragraph 13 of TR 97/11 provides a list of indicators that are relevant in determining whether a taxpayer is carrying on a business. In general, the indicators are:

• whether the activity has a significant commercial purpose or character;

• whether the taxpayer has more than just an intention to engage in business;

• whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity;

• whether there is repetition and regularity of the activity;

• whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business;

• whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit;

• the size, scale and permanency of the activity; and

• whether the activity is better described as a hobby, a form of recreation or a sporting activity.

No one indicator is decisive but rather different indicators must be considered in combination and as a whole. So the question of whether a business is being carried on is determined in an objective manner based on the weighing up of all the relevant facts and circumstances of each case.

In relation to property or land development, Taxation Determination 92/124: Income Tax: property development: in what circumstances is land treated as trading stock ('TD 92/124') recognises that repetitive buying and selling of property is not necessary to establish that a business of property acquisition, development and sale is being carried on. If a 'definite and continuous cycle of operations' has been initiated, a business of property development has commenced.

Once it is established that there is a business, it then follows that the profits made in the ordinary course of carrying on that business constitute income. This principle has been discussed in many court cases, generally in the context of distinguishing between income and capital receipts.

Californian Copper Syndicate (Limited & Reduced) v. Harris (1904) 5 T.C. 159 ('Californian Copper Syndicate') has been cited with authority in many Australian court cases as the leading case regarding these principles.(See for example, Westfield Limited v Commissioner of Taxation (1991) 28 FCR 333, Commissioner of Taxation (Cth) v Myer Emporium Ltd (1987) 163 CLR 199, London Australia Investment Company Limited v Federal Commissioner of Taxation 77 ATC 4398 and CMI Services Pty Ltd v Federal Commissioner of Taxation (1990) 90 ATC 4428). In Californian Copper Syndicate Lord Justice Clerk stated at 165-166 that:

It is quite a well-settled principle in dealing with questions of assessment to income-tax, that where the owner of an ordinary investment chooses to realise it, and obtains a greater price for it than that for which he originally acquired it, the enhanced price is not profit…But it is equally well established that enhanced values obtained from realisation or conversion of securities may be so assessable, where what is done is not merely a realisation or change of investment, but an act done in what is truly the carrying on, or carrying out, of a business.

…

What is the line which separates the two classes of cases it may be difficult to define, and each case must be considered according to its facts, the question to be determined being, is the sum of the gain that has been made a mere enhancement of value by realising a security, or is it a gain made by an operation of business in carrying out a scheme for profit-making. [Emphasis added]

In London Australia Investment Company Limited v Federal Commissioner of Taxation 77 ATC 4398 ('London Australia'), Gibbs J, in discussing the above principles, stated:

Their Honours [in Colonial Mutual Life Assurance Society Ltd v Federal Commissioner of Taxation (1945) 73 CLR 604] went on to point out that not all of the proceeds of a business carried on by a taxpayer are income for the purposes of the [Income Tax Assessment] Act; they will be so only if they are income 'in accordance with the ordinary usages and concepts of mankind, except in so far as the Act states or indicates an intention that receipts which are not income in ordinary parlance are to be treated as income' (see at p. 615). However it is in my opinion established by this and many other cases in which Californian Copper Syndicate v. Harris has been applied that if the sale in question is a business operation, carried out in the course of the business of profit-making, the profit arising on the sale will be of an income character. To apply this criterion it is necessary 'to make both a wide survey and an exact scrutiny of the taxpayer's activities': Western Goldmines N.L. v. C. of T. (W.A.) (1938) 59 C.L.R. 729 at p. 740. [Emphasis added]

Gibbs J also noted that the test in Californian Copper Syndicate is applicable to any business.

Similarly, in Myer, the High Court stated that:

Although it is well settled that a profit or gain made in the ordinary course of carrying on a business constitutes income, it does not follow that a profit or gain made in a transaction entered into otherwise than in the ordinary course of carrying on the taxpayer's business is not income. Because a business is carried on with a view to profit, a gain made in the ordinary course of carrying on the business is invested with the profit-making purpose, thereby stamping the profit with the character of income. [Emphasis added]

The above cases were also referred to and discussed in CMI Services Pty Ltd v Federal Commissioner of Taxation (1990) 90 ATC 4428 ('CMI Services') and August v Federal Commissioner of Taxation [2012] FAC 682 ('August').

Dual purpose

There may be cases where a taxpayer purchases a property for more than one purpose. For example, to hold the property to obtain an income stream (i.e. leasing) and then sell the property at a later date (i.e. to realise the increase in the value of the property). Both of these purposes may fall within the ordinary course of the business of the taxpayer and hence any profits or gains made from the property (through leasing or its disposal) are assessable as ordinary income.

This was discussed in London Australia, where Jacobs J considered the question of whether profit from the acquisition and disposal of shares was income according to ordinary concepts or from the carrying out of a profit-making undertaking or scheme. He stated:

In the circumstances of the present case it is unnecessary to distinguish between these two questions. In each case the profit will only be income if it arose from the carrying on of a business undertaking. The identification and characterisation of the business carried on by the taxpayer is the essential task.

…

If the acquisition and disposal of property is part of a business of so doing, the position is significantly different. There must still be a purpose of resale because resale is part of the description of the relevant business, and, since business has in it the notion of profit making rather than loss making, there must no doubt be a purpose of resale at a profit. But the significant difference is that the purpose of resale need not be the sole purpose or the primary or dominant purpose, as is the case under the first limb of sec. 26(a). It need only be one of the purposes. And in this context the word "purpose" is hardly if at all distinguishable from intention or expectation. The dominant or primary purpose may be to obtain income from the items of property acquired but if there is a purpose or intention or expectation of selling at a profit if and when a suitable occasion arises then one condition of carrying on a business of buying and selling at a profit is satisfied. If a man makes a business of acquiring property with a dual purposes [sic] of enjoying it or its profits and of reselling it eventually at a higher price than he paid for it, then not only the income from the property but also the profit on resale will be income in the ordinary sense of the term, and within the second limb of sec. 26(a). [Emphasis added]

The case also demonstrates that it is not necessary for a taxpayer who carries on a business to acquire an asset with the purpose of selling the asset at a profit in the situation where the asset is acquired in the course of the taxpayer carrying on its business. The fact that the asset was acquired in the course of the taxpayer carrying on its business is enough that the profits or gains made from the sale of that asset are ordinary income (See, for example, CMI Services (1990) 90 ATC 4428 at 4435).

Profits or gains made from an isolated or commercial transaction with a profit making intention

In some instances a profit or gain made from an isolated or commercial transaction could constitute ordinary income if the taxpayer's purpose or intention in entering into the transaction was to make a profit, notwithstanding that the transaction was not part of its daily business activities.

This was discussed in Myer, where the full bench of the High Court stated that:

But a gain made otherwise than in the ordinary course of carrying on the business which nevertheless arises from a transaction entered into by the taxpayer with the intention or purpose of making a profit or gain may well constitute income. Whether it does depends very much on the circumstances of the case. Generally speaking, however, it may be said that if the circumstances are such as to give rise to the inference that the taxpayer's intention or purpose in entering into the transaction was to make a profit or gain, the profit or gain will be income, notwithstanding that the transaction was extraordinary judged by reference to the ordinary course of the taxpayer's business. Nor does the fact that a profit or gain is made as the result of an isolated venture or a "one-off" transaction preclude it from being properly characterized as income (F.C. of T. v. Whitfords Beach Pty. Ltd. 82 ATC 4031 at pp. 4036-4037, 4042; (1982) 150 C.L.R. 355 at pp. 366-367, 376). The authorities establish that a profit or gain so made will constitute income if the property generating the profit or gain was acquired in a business operation or commercial transaction for the purpose of profit-making by the means giving rise to the profit. [Emphasis added]

And further:

The important proposition to be derived from [Californian Copper Syndicate] and [Ducker v. Rees Roturbo Development Syndicate Ltd (1928) A.C. 132] is that a receipt may constitute income, if it arises from an isolated business operation or commercial transaction entered into otherwise than in the ordinary course of the carrying on of the taxpayer's business, so long as the taxpayer entered into the transaction with the intention or purpose of making a relevant profit or gain from the transaction.

And further:

The proposition that a mere realization or change of investment is not income requires some elaboration. First, the emphasis is on the adjective "mere" (Whitfords Beach, at ATC pp. 4046-4047; C.L.R. p. 383). Secondly, profits made on a realization or change of investments may constitute income if the investments were initially acquired as part of a business with the intention or purpose that they be realized subsequently in order to capture the profit arising from their expected increase in value - see the discussion by Gibbs J. in London Australia, at ATC pp. 4403-4404; C.L.R. pp. 116-118. It is one thing if the decision to sell an asset is taken after its acquisition, there having been no intention or purpose at the time of acquisition of acquiring for the purpose of profit-making by sale. Then, if the asset be not a revenue asset on other grounds, the profit made is capital because it proceeds from a mere realization. But it is quite another thing if the decision to sell is taken by way of implementation of an intention or purpose, existing at the time of acquisition, of profit-making by sale, at least in the context of carrying on a business or carrying out a business operation or commercial transaction.

In contrast, in Westfield Ltd v FC of T 91 ATC 4234 ('Westfield'), the company was in the business of designing, constructing, letting and managing shopping centres. The company acquired land in the early 1970s and further land via an option which it subsequently sold and realised at a substantial gain. The Full Federal Court held that the disposal of land was on capital account as the necessary intention or purpose of making a profit on the sale of the land was absent. This was because the main aim of the company was to secure contracts to design, develop and operate/manage a shopping centre on the land.

The disposal of the land was incidental to these purposes. The fact that the transaction was commercial or a business transaction was, of itself, insufficient.

The Full Federal Court in reaching its decision considered the judgement in Myer and stated that Myer 'emphasises that where a transaction occurs outside the scope of ordinary business activities, it will be necessary to find, not merely that the transaction is "commercial" but also that there was, at the time it was entered into, the intention or purposes of making a relevant profit'.

Other aspects of the judgement in Westfield discussed when profits from transactions outside the ordinary course of business of an entity constituted ordinary income:

Once it is clear that the activity of buying and selling, which generated the profit, was not an activity in the ordinary course of business, or, for that matter, an ordinary incident of some other business activity, the profit in question will only form part of the assessable income of the appellant, by virtue of its being income in accordance with the ordinary concepts of mankind, if the appellant had a purpose of profit-making at the time of acquisition.

And further…

While a profit-making scheme may lack specificity of detail, the mode of achieving that profit must be one contemplated by the taxpayer as at least one of the alternatives by which the profit could be realised. Such was the case in [Steinberg v Federal Commissioner of Taxation (1972-5) 134 CLR 640]. But, even if that goes too far, it is difficult to conceive of a case where a taxpayer would be said to have made a profit from the carrying on, or carrying out, of a profit-making scheme, where, in the case of a scheme involving the acquisition and resale of land, there was, at the time of acquisition, no purpose of resale of land, but only the possibility (present, one may observe, in the case of every acquisition of land) that the land may be resold. The same may be said to be the case where s. 25(1) of the Act is involved. As the court observed in Myer, in the passage already set out, the property, which generates the gain, must be acquired in an operation of business or commercial transaction:

"... for the purpose of profit-making by the means giving rise to the profit." [Emphasis added]

The relevant intention or purpose of the taxpayer (of making a profit or gain) is the taxpayer's intention or purpose discerned from an objective consideration of the facts and circumstances of the case. Generally, in cases where a person's subjective purpose or intention is a relevant issue, the person's evidence as to their subjective purpose or intention can be considered but it must be tested closely, and received with the greatest caution.

It is not necessary that the intention or purpose of profit-making be the sole or dominant intention or purpose for entering into the transaction. It is sufficient if profit-making is a significant purpose. In transactions or operations that involve the sale of property, it is usually, but not always, necessary that the taxpayer has the purpose of profit-making at the time of acquisition.

The Commissioner considers that for a transaction to be characterised as a business operation or a commercial transaction, it is sufficient if the transaction is business or commercial in character. In general, a transaction has the character of a business operation or commercial transaction if the transaction or operation would constitute the carrying on of a business in its own right.

Application to your circumstances

In determining whether a receipt is on revenue or capital account, the authorities establish that it is necessary to conduct "a wide survey and an exact scrutiny of the taxpayer's activities": Commissioner of Taxation v Stone (2005) 222 CLR 289 at [19]; Federal Commissioner of Taxation v Montgomery (1999) 198 CLR 639 at 663 [69]; both citing Western Gold Mines NL v Commissioner of Taxation (WA) (1938) 59 CLR 729 at 740 per Dixon and Evatt JJ.

There is also authority that when determining whether a receipt has the character of income there will be occasions when it is appropriate to take into account the activities of the broader group of which the taxpayer is a part: Grollo Nominees Pty Ltd v Commissioner of Taxation (1997) 73 FCR 452 at 514-515 ('Grollo Nominees') and GRE Insurance Ltd v Federal Commissioner of Taxation (1992) 34 FCR 160 at 164-165;('GRE Insurance') and, if the taxpayer is a trustee, the nature of the trust and the content of the trustee's duties: Commissioner of Taxation v Radnor Pty Ltd (1991) 91 ATC 4689 at 4700 ('Radnor').

In this case the natural persons who can be said to control the Trusts are X and Z (the 'controlling minds'). Z has operated businesses which have focussed on the construction and development of residential accommodation. However in this case Z was "purely an equity investor and left all decision making to X"

X also has considerable expertise in the construction and development of residential and commercial properties through his involvement in a property development group which has had considerable experience in the development and sale of residential and commercial properties.

Although the development, construction, leasing and subsequent sale of The Property might be regarded as an isolated transaction when only considering the special purpose joint venture, the activity also needs to be considered in a wider context. It is evident from the facts that X has a long history of property development which includes both residential and commercial developments, notwithstanding that each project may be 'owned' by a different entity which is controlled by X and his associates.

The use of different entities for each project was discussed in Grollo Nominees Pty Ltd v Commissioner of Taxation (1997) 97 ATC 4585 (ATC at p 4589):

'At different times the business was carried on through various companies within the group. It was common practice for a new company or trust structure to be the owner of each new project. On occasions a development was carried on by a Grollo company with a joint venturer.

…

Grollo Australia, at least up to the stage of this project, had not been engaged in the building industry in the sense of having carried out other building projects as had Grofam. But it would not be correct to treat its activities in isolation of those of the remainder of the Group. It was part of a group which was regularly carrying out building projects, whether for the Grollo's themselves or for other persons. It is true that the project in question was very large and was probably the largest project which the Group had on hand during the years of construction which began in 1981. But it was, nevertheless, one more project.' [Emphasis added]

As in Grollo Nominees X has used a number of entities to carry out the development and construction of commercial and residential properties.

Since 20VV the property development group, whose controlling minds were X and Y, have undertaken a number of commercial and residential property developments. X and Y held joint ownership interests in the commercial buildings. Income was derived from these building by leasing them to tenants on a long term basis. When X and Y agreed to terminate their business partnership both parties agreed to dispose of properties they held jointly.

As a consequence X started looking for commercial assets to "independently secure the future of his business through consistent long term cash flows". As part of this process of securing long term rental yields X acquired property and constructed a commercial building - The Property. Entities associate with X also hold a number of properties described as "investment properties" which are held for the purpose of deriving rental income.

As with the other investment properties there was no intention to sell The Property when it was constructed. According to the facts the property was not intended to be sold. This intention was conveyed to a property consultant and real estate agent, with whom X has had a long term business relationship. Nevertheless the property was disposed of in the 20YY year in what are described as "exceptional circumstances".

Notwithstanding X's instructions to the real estate agent that the property was not to be sold, it would appear that the agent was actively marketing the property.

We take the view that there were no "exceptional circumstances" in relation to the sale of the building. X was happy to entertain offers and made an astute business decision to sell when the 'price was right' (despite his protestations that the building was not for sale). What has occurred is that X developed and constructed the building with a view to obtaining an income stream and has then sold it realise a gain in the value of the property.

The taxpayer contends that it was his intention to hold the property for the purposes of long term rental income which is evidenced by the finance application with a Bank which requested a 'take-out' facility on completion of the building. We do not accept this contention. 'Take-out' loans are a common feature in the construction industry, used to replace short term construction loans, and are not of themselves an indication that a property will be held on long term basis.

The treatment of "dual purpose" assets is discussed in London Australia Investment Co. In that case the company's business was the acquisition of shares in Australian companies which are "well managed and financially sound and offer good prospects for long term investment". It was the hope of the company that these investments would yield dividends of four per cent or better. Where the expected returns were not achieved the shares would be sold and the profits reinvested in higher yielding securities. Another important consideration was the "growth potential" of the shares. Any profits or losses on the sale of the shares were treated as being on capital account by the company. The Commissioner of Taxation contended that the profits from the sale were assessable under either section 26(a) or section 25(1) of the ITAA 1936. The Supreme Court of NSW (Helsham J) found that the profits arose as part of the taxpayer's normal business and hence were assessable income in terms of section 26(a) or alternatively were assessable under section 25(1) of the ITAA 1936 and were not on capital account [Emphasis added]. This finding was not disturbed on appeal to the High Court.

A similar conclusion was reached in CMI Services Pty Ltd, where the company was incorporated to serve as a property investment company. Over a period of nineteen years the company acquired 27 properties, however at the time of the hearing of the case the taxpayer had sold 16 properties but still retained 10. The properties had been purchased with the intention that they would be held for as long as they continued to provide a satisfactory rental return. In the 1984 year the company sold 2 properties and realised a profit which was treated by the Commissioner of Taxation as ordinary income. The Full Federal Court found that the purchases and sales of the properties were part of a pattern which involved the expectation and intention at the time of purchase that the properties in question would be re-sold, in the ordinary course of the taxpayer's business, if their prospective yields, in relation to current market values, made it prudent to do so. The profits which were realised on the sale of the properties were profits of the business and income within ordinary usage and concepts and so fell within section 25 of the ITAA 1936.

The comments of Lockhart J in Crow v. FCT (1988) ATC 4620; 19 ATR 1565 are also pertinent to these arrangements:

"Whether or not a business is carried on by a taxpayer is, of course, a question of fact; but the reported cases are of assistance in pointing to certain factors which can provide a useful guide. Continuity and repetition of transactions pointing to a systematic course of conduct are important factors: Martin v FCT (1953) 90 CLR 470; 5 AITR 548. There is a greater scope for the characterisation of a series of acts as being within the scope of carrying on a business where the acts are motivated by the desire for or expectation of profit, although a particular commercial transaction may form part of a business in the absence of the attainment or expectation of profit in that transaction: Investment and Merchant Finance Corp Ltd v FCT (1971) 125 CLR 249, per Barwick CJ at 255; (1971) 2 ATR 361 at 363. A series of repeated transactions of the same kind is often an incident of carrying on a business: FCT v St Hubert's Island Pty Ltd (in liq) (1978) 138 CLR 210 per Jacobs J at 237; 8 ATR 452 at 468. Where a realisation of property is motivated by factors other than those normally to be expected in a business context, the court will be less ready to find that the realisation had the nature of a business transaction. However, where the taxpayer asserts that an asset was purchased for his own use and enjoyment with no purpose of resale, and that resale occurred because of the receipt of an offer to purchase which was too tempting to refuse, "the fact that there was a quick resale naturally leads one to scrutinise the evidence that it was not envisaged from the first very carefully": Turner v Last (Inspector of Taxes) (1965) 42 TC 517, per Cross J at 522-3."[emphasis added]

Conclusion

X and entities associated with him have had a long history of development construction and sale of residential and commercial properties. When the indicia of a business, which are discussed in TR 97/11 (see above), are applied to the activities, it must be concluded that a business has been carried on and that the development and sale of properties is not an isolated event. The disposal of the property is an ordinary incident of X's dealings in investment properties. Income from the sale of long-term leased properties is as much a relevant consideration as the income stream derived from those properties.

As shown in London Australia Investment Co and CMI Services Pty Ltd, profits from the disposal of assets, which may originally be acquired and held for investment purposes, may be on revenue account when the totality of the taxpayer's activities are considered.

Accordingly, the gain from the disposal of The Property is a normal incident of X's business activities and is therefore on revenue account.