Tagget v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Federal Court of Australia (NSD 165 of 2010)
Judgment date: 8 September 2010
Date published: 22 December 2010
Decision outcome: Favourable

Summary of decision:
The issue in this case is whether or not the taxpayer should be assessed on the value of land transferred to him at the time of transfer, or the value of the land at an earlier time when the taxpayer acquired a conditional right to have the land transferred to him.

Overview of facts:
In November 1998 the taxpayer entered into a deed with Hillpalm Pty Ltd (Hillpalm). | Clause 2 of that deed provided that Hillpalm may appoint the taxpayer to perform certain services relating to the development of Stage 5 of the Tanglewood development (Stage 5). This appointment was, by that clause, required to be formalised by entering into an agreement. | The deed required Hillpalm to subdivide and transfer proposed lot 157 to the taxpayer for nominal consideration of $10 (clause 3.1), upon Hillpalm realising $3.2 million in gross sale proceeds from the Stage 5 development (clause 3.2). Or should that, for any reason beyond the control of Hillpalm, not occur, the taxpayer was to be paid the value of the land (to be determined by a valuer appointed by the President of the Institute of Valuers) (clause 3.3). | This deed was executed in November 1998. The taxpayer did perform services for Hillpalm, but not in the sense described by clause 2. | A dispute arose between Hillpalm and the applicant. Ultimately, the taxpayer commenced litigation in District Court of Lismore seeking $750,000 for alleged breaches of the deed. That dispute was resolved by deed of release in March 2004. | Pursuant to that deed of release, the property was transferred to the taxpayer by transfer dated 20 September 2005 (which was registered 18 October 2005). | Issues decided by the court | • In relation to the point of derivation, the Court found that the parcel of land transferred to the taxpayer was ordinary income derived in the year ended 30 June 2006, because, as the taxpayer accounted on a cash receipts basis, the income was derived when received. • In relation to the amount to be assessment to the taxpayer, the land was said to be "consideration" within the meaning of s21(1) of the Income Tax Assessment Act 1936 , and to have been "paid or given" in the year ended 30 June 2006. It followed, therefore, that the money value of the land was $1.2 million (the value of the land itself when transferred), not $450,000, being the value of the land at the time the taxpayer entered into the deed. • In deciding the above, the Court was of the view that the taxpayer's case was not analogous to Abbott v Philbin . | • In relation to the point of derivation, the Court found that the parcel of land transferred to the taxpayer was ordinary income derived in the year ended 30 June 2006, because, as the taxpayer accounted on a cash receipts basis, the income was derived when received. • In relation to the amount to be assessment to the taxpayer, the land was said to be "consideration" within the meaning of s21(1) of the Income Tax Assessment Act 1936 , and to have been "paid or given" in the year ended 30 June 2006. It followed, therefore, that the money value of the land was $1.2 million (the value of the land itself when transferred), not $450,000, being the value of the land at the time the taxpayer entered into the deed. • In deciding the above, the Court was of the view that the taxpayer's case was not analogous to Abbott v Philbin .

Issues decided:
• In relation to the point of derivation, the Court found that the parcel of land transferred to the taxpayer was ordinary income derived in the year ended 30 June 2006, because, as the taxpayer accounted on a cash receipts basis, the income was derived when received. • In relation to the amount to be assessment to the taxpayer, the land was said to be "consideration" within the meaning of s21(1) of the Income Tax Assessment Act 1936 , and to have been "paid or given" in the year ended 30 June 2006. It followed, therefore, that the money value of the land was $1.2 million (the value of the land itself when transferred), not $450,000, being the value of the land at the time the taxpayer entered into the deed. • In deciding the above, the Court was of the view that the taxpayer's case was not analogous to Abbott v Philbin . • In relation to the point of derivation, the Court found that the parcel of land transferred to the taxpayer was ordinary income derived in the year ended 30 June 2006, because, as the taxpayer accounted on a cash receipts basis, the income was derived when received. • In relation to the amount to be assessment to the taxpayer, the land was said to be "consideration" within the meaning of s21(1) of the Income Tax Assessment Act 1936 , and to have been "paid or given" in the year ended 30 June 2006. It followed, therefore, that the money value of the land was $1.2 million (the value of the land itself when transferred), not $450,000, being the value of the land at the time the taxpayer entered into the deed. • In deciding the above, the Court was of the view that the taxpayer's case was not analogous to Abbott v Philbin .

ATO view of decision:
This case was decided on its facts, and it is not considered that the decision will have any broader implications.

Administrative treatment:
Implications on current Public Rulings & Determinations | None

Legislative references: Income Tax Assessment Act 1936 21 21A Income Tax Assessment Act 1997 6-5 Income Tax Act 1952 (UK)
Case references: Abbott v Philbin [1961] AC 352 [1960] 2 All ER 763 Commissioner of Taxes (SA) v Executor Trustee and Agency Co of South Australia Ltd [1938] HCA 69 (1938) 63 CLR 108 Barratt v Commissioner of Taxation [1992] FCA 271 (1992) 36 FCR 222 23 ATR 339 92 ATC 4275 Donaldson v Federal Commissioner of Taxation (1974) 3 ALR 516 4 ATR 530 74 ATC 4192 Federal Commissioner of Taxation v Dunn (1989) 85 ALR 244 20 ATR 356 89 ATC 4141 Federal Commissioner of Taxation v McArdle (1988) 19 ATR 1901 89 ATC 4051
Subject references: Taxation Income tax whether land transferred to the taxpayer constituted ordinary income whether the land should be valued as at the date the taxpayer acquired a conditional right to the land or as at the date of the actual transfer.