Case: Federal Commissioner of Taxation v Australian Guarantee Corporation Ltd (1984) 2 FCR 483
Outcome: cited
The above is not the only evidence which throws light on the trustee's purpose in holding the property in the 1998 income year. It is this additional evidence that the respondent highlights in its submissions. In addition to the trustee's backdated "1995" minute, the Landsbury valuation and the financing correspondence of 6 and 27 November 1996, reliance is placed on the following. (a) On 16 November 1996 Mr Richardson sponsored an item in the Australian newspaper reporting the commencement of construction of the building as "the only new building specifically designed for the strata market ... in Sydney," undertaken in the course of his "turning his hand to strata subdivision of existing CBD office buildings". "[D]eveloping offices based on strata sales is a trend that has not emerged yet in Australia but is common in Hong Kong," and he "expects to begin marketing the 380 sq m floors in the new building next year." In cross-examination after attempting to minimise the import of his reference to strata designing the building, Mr Richardson accepted what this item clearly was designed to convey. (b) A press release approved by Mr Richardson on 16 December 1997 described the building as "built for its own niche market ... a specific sector where tenants want the individuality of their own floor". (c) On 10 May 1998 a Mr La Grouw of the Amstal Property Group Pty Ltd (a property marketing company) wrote to Mr Richardson setting out fee arrangements for sales or leases achieved of lots in the building. Mr Richardson struck out the portion concerning leasing, leaving the commission arrangements on sales intact, and initialled the letter. (d) On 12 May the selling agent, First Pacific Davies (NSW) Pty Ltd ("FPD") wrote to Mr La Grouw concerning an "information package for prospective purchasers" referring to the property as "strata office floors". (e) A glossy brochure advertising the property as being available "for sale or lease" was prepared and circulated in mid 1998 showing (despite Mr Richardson's denials in cross-examination) a Ms La Grouw as the agent for "sales". (f) In May 1998 the project manager convened a meeting to discuss an action plan for "implementation of coordination sales and leasing program". (g) In June 1988 a strata plan was prepared for lodgement with the Land Titles Office, although preliminary lodgement steps were not carried through to registration. (h) On 16 June 1998 Mr Richardson signed an exclusive agency agreement with FPD appointing it agent to achieve the sale of lots in the building. (i) The building was advertised in the print media in June 1998 "for sale or lease". (j) At mid-June 1998 the trustee's agent stated it was marketing the building for "sale or lease" and actively pursuing "strata sales prospects" in its "Half Yearly Update" prepared for the Trustee. (k) On 24 June FPD (with Mr Richardson's authority) wrote to a number of prospective purchasers offering inspection of the building which it described as a "Boutique Strata Office Building". (l) In the accounts of the trust estate for the year ended 30 June 1998 the property was shown as "land held for resale" at its market value, and distribution of $24,083,800 was made accordingly. (m) On 13 August 1998 Mr Bobb, the accountant, noted in a Hallinn Trust note that "Mr Richardson advised that the Bulletin Place property was not selling at a satisfactory rate. Accordingly the Hallinn Trust may need to retain the property for investment purposes. I advised the trust always has the right to convert any assets from trading stock to investment property". 73 It is unnecessary for me to make a finding as to Richardson Properties' particular purpose or purposes when acquiring the Bulletin Place Property and I decline to do so. I would only say that in the 1993 1995 period Mr Richardson intended to construct an office building on the composite Bulletin Place sites and I incline to the view that, consistent with other office developments in which Mr Richardson had been engaged (albeit through joint ventures), it was likely his then intent involved the multiple purposes (or "open" options) of sale and/or lease after construction because the options themselves were likely to be affected by the contingencies of interest rates, the economy and tenancy take up to use the trio to which Mr Richardson referred in his evidence. 74 Be that as it may, I am satisfied that from at least September 1996 when the Landsbury's valuation was sought, Mr Richardson (hence the trust) was committed to the strata subdivision of the property to be constructed with a view to strata sales. I reject Mr Richardson's explanation that the strata design in the valuation was adopted for the purposes of obtaining finance for the buildings construction insofar as he intended to convey that this was simply an expedient and reflected no change in his "investment" purpose. I consider his comments as reported in the Australian newspaper of 16 November 1996 about strata subdivision and his reasons for, experience in, and expectations of, it better reveal his contemporary purposes (being that of development, subdivision and sale). 75 Those purposes in turn were translated into the bases on which finance was sought from Westpac. Though the 6 November 1997 letter referred to the sale of only half of the building with the rest retained as a long term investment a statement of intent which could only have been made if great store was placed by Mr Richardson in the Landsbury valuation I am satisfied that sale of strata lots was Mr Richardson's dominant purpose. 76 I infer that the form of financing sought and the short repayment period for the Commercial Bills after drawdown (6 months) reflected his expectations of the marketability of the strata lots on completion of the building. As he said in concluding his 6 November 1996 application to Westpac formally seeking finance: "Given the current strong predictions of the market, it is an ideal time to commence this office building and bring it on the market early 1998. We will capitalise on the very high demand that should exist at that time." 127 It is, perhaps, unsurprising that in some number of decisions courts have assumed or have accepted that interest which accrues from day to day is so apportionable: see Federal Commissioner of Taxation v Australian Guarantee Corporation Ltd (1984) 2 FCR 483; Commissioner of Taxation v Mercantile Mutual Insurance (Workers' Compensation) Ltd [1999] FCA 351 ; (1999) 87 FCR 536 at 552; see also Texas Co (Australasia) Ltd v Federal Commissioner of Taxation [1940] HCA 9 ; (1940) 63 CLR 382 at 468 where the "recurrent expenditure" of interest to secure working capital was described as clearly deductible; see also in relation to recurrent expenditure, Commissioner of Taxation (NSW) v Ash [1938] HCA 68 ; (1938) 61 CLR 263 at 282.