August v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Federal Court of Australia (NSD 1109 of 2012)
Judgment date: 7 August 2013
Date published: 16 February 2015

Summary of decision:
Outlines the ATO's response to this case which was concerned with whether the profit from the sale of properties was income according to ordinary concepts or income of a capital nature.

Overview of facts:
In 1995, Helen and Peter August established various companies and trusts including Toorak Management Pty Ltd (Toorak) and Toorak Unit Trust. Toorak was the sole trustee of the Toorak Unit Trust. Each taxpayer held 50% of the issued units in the trust. Helen and Peter August were the sole directors and shareholders of Toorak. | Directional Developments Pty Ltd (Directional Developments) was a company in which Mr August had an interest as a shareholder. He was also a director of the company. | Toorak, as trustee for Toorak Unit Trust, acquired a number of properties between late 1997 and the middle of 2000 (the Melba Properties). The properties were developed and ultimately sold for a profit in early 2007. | Directional Developments acquired a lease of land (the Hume Property)in late 2001. The property was sold in late 2005 for a profit. | The issue at first instance was whether the profits on the sale of the Melba Properties and the sale of the Hume Property was income according to ordinary concepts or income of a capital nature. The trial judge found in favour of the Commissioner. | Issues Decided by the Court | In their reasons for decision, the Full Court considered the three issues raised by the applicants and on each issue found for the Commissioner. | Firstly, in respect of the applicant's application to adduce three further expert's reports to address the authenticity of a document which had been relied on by the taxpayers and rejected by the trial judge, the Full Court dismissed their application. Their Honours found that the trial did not miscarry in relation to the document and that it was not appropriate for the Court to determine the issue of the authenticity of the document [115]. | Secondly, the Full Court rejected the applicants argument that the trial judge erred in law in that he applied the incorrect test for determining what was income according to ordinary concepts. | Thirdly, the Full Court rejected each of the applicants' submissions on the findings of fact.

Issues decided:
In their reasons for decision, the Full Court considered the three issues raised by the applicants and on each issue found for the Commissioner. Firstly, in respect of the applicant's application to adduce three further expert's reports to address the authenticity of a document which had been relied on by the taxpayers and rejected by the trial judge, the Full Court dismissed their application. Their Honours found that the trial did not miscarry in relation to the document and that it was not appropriate for the Court to determine the issue of the authenticity of the document [115]. Secondly, the Full Court rejected the applicants argument that the trial judge erred in law in that he applied the incorrect test for determining what was income according to ordinary concepts. Thirdly, the Full Court rejected each of the applicants' submissions on the findings of fact.

ATO view of decision:
The Full Court applied settled principles of law to the facts in this case. The decision has no wider ramifications.

Administrative treatment:
Implications for impacted ATO precedential documents (Public Rulings, Determinations, ATO IDs) | None | Implications for impacted Law Administration Practice Statements | None

Legislative references: Evidence Act 1995 140 Federal Court of Australia Act 1976 24 27 28 Federal Court Rules O 18 r 2 Income Tax Assessment Act 1936 26(a) 95 97(1) 175A Income Tax Assessment Act 1997 6-5 Taxation Administration Act 1953 (Cth) 14ZZ 14ZZO
Case references: Commissioner of Taxation (Cth) v Myer Emporium Ltd [1987] HCA 18 (1987) 163 CLR 199 87 ATC 4363 (1987) 18 ATR 693 Council of the City of Greater Wollongong v Cowan [1955] HCA 16 (1955) 93 CLR 435 Kratzmann v Federal Commissioner of Taxation (Cth) (1970) 44 ALJR 293 (1970) 1 ATR 827 70 ATC 4043 McCormack v The Commissioner of Taxation of the Commonwealth of Australia [1979] HCA 18 (1979) 143 CLR 284 (1979) 9 ATR 619 79 ATC 4111 Orr v Holmes and Another [1948] HCA 16 (1948) 76 CLR 632 The Commissioner of Taxation of the Commonwealth of Australia v Whitfords Beach Proprietary Limited [1982] HCA 8 (1982) 150 CLR 355 (1982) 12 ATR 692 82 ATC 4031 Westfield Limited v Commissioner of Taxation (1991) 28 FCR 333 91 ATC 4234 (1991) 21 ATR 1398