Private ruling: Temporary full expensing
Date of advice: 15 June 2023
Published: 7 August 2023
Ruling period: Income year ending 30 June XXXX | Income year ending 30 June XXXX | Income year ending 30 June XXXX

Ruling: Q1: Do each of the Taxpayers carry on a business of letting commercial properties for the purposes of Subdivision 40-BB of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A) in relation to the acquisitions of Eligible Assets? | A1: Yes. | Q2: If the answer to question 1 is yes, is each Taxpayer required to claim a deduction under Subdivision 40-BB of the IT(TP)A in relation to Eligible Assets acquired during the period between 6 October 2020 and 30 June 2023 where the Taxpayer does not make a choice under section 40-190 of the IT(TP)A? | A2: Yes, where the Eligible Assets, are first held, and first used or installed ready for use for a taxable purpose at or after 7.30 pm (AEDT) on 6 October 2020 and before 1 July 2023. | Q3: If the answer to question 2 is yes, is each Taxpayer eligible to claim a deduction in respect of Eligible Assets, acquired as part of each Taxpayers' respective acquisition of commercial properties acquired during the period between 6 October 2020 and 30 June 2023 under Subdivision 40-BB of the IT(TP)A? | A3: Yes. | Q4: If the answer to question 1 is yes, will any subsequent profit or gain from the disposal of a Taxpayer's property used to derive commercial rent be a capital gain pursuant to subsection 104-10(4) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A4: Yes - to the extent the relevant considerations lead to the conclusion that the sale of the property occurs outside of the ordinary course of the Taxpayer's (and where relevant, the broader Group business) and/or the property was not acquired with the intention of profit making by sale, but rather to hold as a long-term investment for the purpose of gaining income from commercial leasing and this intention did not change, the sale of the property will be considered a disposal of a capital asset that is subject to capital gains tax pursuant to subsection 104-10(4) of the ITAA 1997. | Q5: If the answer to question 4 is yes, will any subsequent profit or gain from the disposal of a Taxpayer's property used to derive commercial rent be assessable as ordinary income pursuant to section 6-5 of the ITAA 1997? | A5: No - to the extent the relevant consideration leads to the conclusion that the sale of the property occurs outside of the ordinary course of the Taxpayer's (and where relevant, the broader Group business) and/or the property was not acquired with the intention of profit making by sale, but rather to hold as a long-term investment for the purpose of gaining income from commercial leasing and this intention did not change, the sale of the property will be considered a disposal of a capital asset that is subject to capital gains tax pursuant to subsection 104-10(4) of the ITAA 1997 .

Relevant facts and circumstances: Unless specified otherwise: • The term 'Taxpayers' refers to the following collectively: XXXX • The term 'Eligible Assets' refers to second-hand assets that are depreciable under Division 40 of the ITAA 1997. The Group operates a number of managed investment trusts, including the respective Taxpayers, through which the public can invest. The trustee, manager and responsible entity (Trustee) for: • each of XX and XX, is XXXX; and • each of XX is XXXX. The officeholders of each Trustee consist of unrelated senior executives of the Group. The Group also includes a property services entity which provides various services to the members of the Group, including the Taxpayers. The Group also engages a property manager (PM) to assist with property management and leasing services. Each Taxpayer pays a range of fees to PM for its services, including an annual service fee. The Group and each respective Taxpayer, carry on an enterprise of leasing commercial properties. The portfolio of commercial properties managed by the Group include: • XX • XX • XX The Taxpayers are all managed investment trusts. The respective trust deeds of the Taxpayers effectively provide that the assets of the trust must be held by the Trustee on trust for its unitholders, with the beneficial interest in each trust being divided into units. None of the Taxpayers have any connected or affiliated entities (as defined in section 328-125 and 328-130 of the ITAA 1997). There is no unitholder that, on its own or together with any affiliates (as defined in section 328-130 of the ITAA 1997), own or have the right to acquire the ownership of interests in any Taxpayer that carry between them the right to receive a percentage that is at least 40% of any distribution of income or capital by the Taxpayer. The overall commercial aim of the Taxpayers is to ensure profitability and consistent returns for investors. Each of the Taxpayers own multiple high value properties with multiple tenancies. Each Taxpayer recognises the respective properties in its Financial Statements as a non-current investment asset. Each Taxpayer continues to have an intention of holding their respective commercial properties for the purpose of letting to derive commercial rent up until the disposal of the commercial property. The aggregated turnover of each Taxpayer (other than X) during the 2021 and 2022 income years is less than $50 million and the aggregated turnover of each Taxpayer for the 2023 income year is likely be less than $50 million for the purposes of subparagraph 328-110(1)(b)(ii) of the ITAA 1997. The Taxpayers have respectively acquired (and expect to acquire further) Eligible Assets as part of the acquisition of commercial properties. The Taxpayers started to hold the Eligible Assets at or after 7.30 pm (AEDT) on 6 October 2020 and before 1 July 2023. The Taxpayers started to use the Eligible Assets, or had them installed ready for use, before 1 July 2023. The Eligible Assets are located in Australia for the principal purpose of the Taxpayer carrying on a business. Section 40-45 of the ITAA 1997 does not preclude Division 40 of the ITAA 1997 from applying in respect of these Eligible Assets. The Eligible Assets have not been allocated to a low-value pool or software development pool and no deduction can be claimed for the Eligible Assets under Subdivision 40-F of the ITAA 1997. No balancing adjustment has happened in relation to any of the Eligible Assets in any of the relevant income years. Each Taxpayer has not made a choice under section 40-190 of the IT(TP)A for subdivision 40-BB of the IT(TP)A to not apply to the Eligible Assets. Each Taxpayer has not chosen to use the simplified depreciation rules of Subdivision 328-D of the ITAA 1997.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 Division 40 | Income Tax Assessment Act 1997 Subdivision 40-E | Income Tax Assessment Act 1997 Subdivision 40-F | Income Tax Assessment Act 1997 section 40-45 | Income Tax Assessment Act 1997 section 40-190 | Income Tax Assessment Act 1997 Division 43 | Income Tax Assessment Act 1997 Division 104 | Income Tax Assessment Act 1997 section 104-10 | Income Tax Assessment Act 1997 subsection 104-10(4) | Income Tax Assessment Act 1997 section 118-20 | Income Tax Assessment Act 1997 section 995-1 | Income Tax (Transitional Provisions) Act 1997 Subdivision 40-BB | Income Tax (Transitional Provisions) Act 1997 section 40-150 | Income Tax (Transitional Provisions) Act 1997 subsection 40-150 (1) | Income Tax (Transitional Provisions) Act 1997 subsections 40-150(2) | Income Tax (Transitional Provisions) Act 1997 subsection 40-150(3) | Income Tax (Transitional Provisions) Act 1997 subsection 40-150(4) | Income Tax (Transitional Provisions) Act 1997 section 40-155 | Income Tax (Transitional Provisions) Act 1997 subsection 40-155(a) | Income Tax (Transitional Provisions) Act 1997 section 40-157 | Income Tax (Transitional Provisions) Act 1997 subsection 40-160(1) | Income Tax (Transitional Provisions) Act 1997 subsection 40-160(3) | Income Tax (Transitional Provisions) Act 1997 subsection 40-165 | Income Tax (Transitional Provisions) Act 1997 Subdivision 328-C | Income Tax (Transitional Provisions) Act 1997 Subdivision 328-D | Income Tax (Transitional Provisions) Act 1997 paragraph 40-165(7)(a) | Income Tax (Transitional Provisions) Act 1997 paragraph 328-110(1)(a) | Taxation Administration Act 1953 section 388-55

Reasons for decision: Summary: Applying the indicators of carrying on a business identified in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? to the facts, the activities of the Taxpayers demonstrate that they are each carrying on a business of leasing commercial rental properties. | Detailed Reasoning - Detailed reasoning: To be able to claim the temporary full expensing (TFE) of depreciating assets under Subdivision 40-BB of the IT(TP)A, pursuant to subsection 40-155 of the IT(TP)A, the relevant taxpayer must satisfy the definition of 'small business entity' in Subdivision 328-C of the ITAA 1997 for the income year, or satisfy it on the basis that each reference to $10 million in Subdivision 328-C of the ITAA 1997 (about aggregated turnover) was instead a reference to $5 billion. The definition of small business entity under paragraph 328-110(1)(a) of the ITAA 1997 requires the entity to 'carry on a business' in the current year. Section 995-1 of the ITAA 1997 defines 'business' as 'including any profession, trade, employment, vocation or calling, but not occupation as an employee'. Whether the conduct of an entity amounts to carrying on a business depends on facts and circumstances. The indicators of whether an entity or persons are carrying on a business are well-established and outlined in Taxation Ruling TR 97/11 Income Tax: Am I carrying on a business of primary production? (TR 97/11). TR 97/11 provides guidance when determining if a taxpayer is in business for tax purposes. TR 97/11 states at paragraph 13 that the courts have determined that the following factors are considered important in determining the question of business activity: No one indicator is decisive. The indicators must be considered in combination and as a whole. Whether a 'business' is carried on depends on the overall or general impression gained from an examination of the facts ( Martin v Federal Commissioner of Taxation (1953) 90 CLR 470; 10 ATD 226; (1953) 5 AITR 548). The Taxpayers own and lease a number of properties. Each of the Taxpayers' activities are planned, organised and carried on in a business-like manner. There is significant size and scale. While much of the management of the activities of the Taxpayers are provided by other service providers for which fees are paid, this does not affect the overall business-like nature of the undertakings. Governance and management of the entities are consistent with the indicators of carrying on a business relating to commercial property holding and or leasing or other commercial property activities. Having regard to the nature of the activities of the Taxpayers and in the context of their operations, the definition of 'carrying on a business' for the purposes of subsection 40-155(a) of the IT(TP)A is met. | Summary: As the Taxpayers qualify for temporary full expensing (TFE), and they have not chosen for TFE not to apply, they are required to claim the deduction under Subdivision 40-BB of the IT(TP)A for the Eligible Assets, first held, and first used or installed ready for use for a taxable purpose at or after 7.30 pm (AEDT) on 6 October 2020 and before 1 July 2023. | Detailed Reasoning - Detailed reasoning: The temporary full expensing measure provides a temporary tax incentive to support new investment and deliver significant cash flow benefits by allowing eligible businesses to immediately deduct the full cost of eligible depreciating assets that are first held, and first used or installed ready for use for a taxable purpose at or after 7.30 pm (AEDT) on 6 October 2020 and before 1 July 2023. Subsection 40-150 (1) of the IT(TP)A provides that subject to certain exceptions: For the purposes of this Subdivision, you are covered by this section for a depreciating asset if, on or before 30 June 2023: a) you start to hold the asset; and b) you start to use the asset, or have it installed ready for use, for a taxable purpose. Subsections 40-150(2), 40-150(3) and 40-150(4) of the IT(TP)A set out the exceptions for assets to which Division 40 of the ITAA 1997 does not apply, assets not used or located in Australia, and assets which the decline in value is worked out under Subdivision 40-E or 40-F of the ITAA 1997. In broad terms, an asset is not subject to the exceptions where the following requirements are satisfied: • The asset is not covered under Division 43 of the ITAA 1997 for buildings and other capital works. Also, section 40-45 of the ITAA does not preclude Division 40 of the ITAA from applying in respect of the asset (subsection 40-150(2) of the IT(TP)A), • It is located in Australia and is used principally in Australia for the principal purpose of carrying on its business (subsection 40-150(3) of the IT(TP)A), and • It is not allocated to a low-value pool or software development pool under Subdivision 40-E of the ITAA 1997 or is it a primary production depreciation asset that can be deducted under Subdivision 40-F of the ITAA 1997 (subsection 40-150(4) of the IT(TP)A). Section 40-155 of the IT(TP)A provides: | Detailed Reasoning - Businesses with turnover under $5 billion: This section covers you for an income year if: a) you are a small business entity for the income year; or b) you would be a small business entity for the income year if: (i) each reference in Subdivision 328-C of the Income Tax Assessment Act 1997 (about what is a small business entity) to $10 million were instead a reference of $5 billion; and (ii) the reference in paragraph 328-110(5)(b) of that Act to a small business entity were instead a reference to an entity covered by this section. Subsection 40-160(1) of the IT(TP)A provides that for the purposes of Division 40 of the ITAA 1997, the decline in value of a depreciating asset you hold for an income year (the current year) is the amount worked out under subsection 40-160(3) of the IT(TP)A if: a) you start to hold the asset at or after the 2020 budget time (i.e. at or after 7.30 pm (AEDT) on 6 October 2020 and before 1 July 2023); b) you start to use the asset, or have it installed ready for use, for a taxable purpose in the current year; c) you are covered by section 40-150 for the asset; d) you are covered for the current year by any of the following two subparagraphs: (i) section 40-155 (about businesses with turnover under $5 billion); (ii) section 40-157 (about corporate tax entities with income under $5 billion); e) no balancing adjustment event happens to the asset in the current year; and f) you have not made a choice under section 40-190 in relation to the current year Subsection 40-165 of the IT(TP)A sets out the exclusions that that apply in relation to entities covered by section 40-155, and subsection 40-165(1) provides: For the purposes of subsection 40-160(2), an exclusion applies to you and an asset for an income year if: a) where paragraph 40-160(2)(a) applies--section 40-155 would not cover you for the income year if the reference in that section to $5 billion were instead a reference to $50 million; and b) any of the exclusions in this section applies in relation to the asset. Relevantly, paragraph 40-165(7)(a) of the IT(TP)A sets out an exclusion in respect of second hand assets which applies if another entity held the asset when it was first used, or first installed ready for use, other than as trading stock or merely for the purposes of reasonable testing or trialling. However, the exclusion only applies to entities with an aggregate turnover of $50 million. In Law Companion Ruling LCR 2021/3 Temporary full expensing the Commissioner explains the choice not to apply temporary full expensing. If Subdivision 40-BB of the IT(TP)A applies to work out the decline in value of a depreciating asset, then no other provision of the IT(TP)A or the ITAA 1997 applies for that purpose. However, an entity may choose that the decline in value of an asset for an income year is not to be worked out under Subdivision 40-BB of the IT(TP)A. This choice in each case must be made in the approved form and cannot be revoked. It must be given to the ATO by the date of lodgment of the tax return for the income year to which the choice relates. However, in certain circumstances the ATO may defer the time for giving the choice (refer to section 388-55 in Schedule 1 to the Taxation Administration Act 1953) . The opt-out choice relates to the application of TFE in respect of an asset for a particular income year. If an entity chooses not to apply TFE under Subdivision 40-BB of the IT(TP)A for an income year, it is possible that TFE may again apply in a future income year in respect of the same asset. If the entity does not want TFE to apply in that future year in respect of the same asset, a further choice would need to be made for Subdivision 40-BB of the IT(TP)A not to apply for that year by the date of lodgment of the relevant tax return. If an entity chooses not to apply Subdivision 40-BB of the IT(TP)A in relation to an asset, the asset may be eligible for write-off under other provisions. For small business entities that choose to use the simplified depreciation rules of Subdivision 328-D of the ITAA 1997, and therefore apply full expensing under those rules rather than Subdivision 40-BB of the IT(TP)A, there is no choice to not apply full expensing. | Detailed Reasoning - Application to your circumstances: Each Taxpayer is carrying on a business (as discussed above). Given the aggregated turnover of each Taxpayer, the exclusion set out in section 40-165 of the IT(TP)A, relevantly in respect of second hand assets, does not apply. Accordingly, each Taxpayer is eligible to claim a deduction in respect of the Eligible Assets acquired as part of each Taxpayers' respective acquisition of commercial properties acquired during the period between 6 October 2020 and 30 June 2023 under Subdivision 40-BB of the IT(TP)A. As the Taxpayers qualify for TFE, and they have not chosen for TFE not to apply, they are required to claim the deduction under Subdivision 40-BB of the IT(TP)A in relation to all depreciating assets, including second hand assets, first held, and first used or installed ready for use for a taxable purpose at or after 7.30 pm (AEDT) on 6 October 2020 and before 1 July 2023. | Summary: The sale of property would be considered the disposal of a capital asset and the resulting gain will be subject to capital gain tax pursuant to subsection 104-10(4) of the ITAA 1997, where the disposal is not an ordinary incident of (i.e. it is incidental to) each Taxpayer's purpose of carrying on a commercial leasing business, or where there was no intention or purpose of making a profit or gain by sale at the time of acquisition and this intention did not change (and it would be concluded that this was not an isolated or commercial transaction entered into with a profit making intention). Whether this is the case will depend on the facts and circumstances surrounding each disposal of property. | Detailed Reasoning - Detailed reasoning: The profits or gains made from the disposal of real property can be assessed for income tax purposes in a number of ways, including: • as ordinary income under section 6-5 of the ITAA 1997, resulting from: o carrying on a business; or o an isolated or commercial transaction that was entered into with a profit-making intention; or • as 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) | Detailed Reasoning - Profits or gains made in the ordinary course of business: Taxation Ruling TR 92/3 - Income tax: whether profits on isolated transactions are income (TR 92/3) sets out the Commissioner's view on 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. 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) 91 ATC 4234 ( Westfield ), 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 ( London Australia ) 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. In 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. 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. | Detailed Reasoning - Isolated 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 aprofit 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. 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. TR 92/3 also provides that profits from an isolated transaction will be income when: • the intention or purpose in entering into the transaction was to make a profit or gain, and • the transaction was entered into, and the profit was made, in the course of carrying on a business or in carrying out a business operation or commercial transaction. Even where the requisite intention may not exist on entering into the transaction, the High Court held in Whitfords Beach Pty Ltd v Federal Commissioner of Taxation (1983) 14 ATR 247 ( Whitfords ) there can be a change of intention. In Whitfords there was a change of intention at the time a company holding a large parcel of land originally acquired for long-term investment, adopted a new set of articles that changed the intended usage of the land. In Rosgoe Pty Ltd v Commissioner of Taxation (2015) FCA 1231, Logan J reinforced that the intent at acquisition and later, on sale of the property should be considered separately and the transactions as distinct activities: When, later, the property was sold, the profit here arose not from the purchase but from the sale and because the sale was not part of the profit-making scheme the profit did not arise 'from the carrying on or carrying out' of that scheme. The intention and purpose need to be carefully considered in each and every case. In Westfield , Hill J said at 4241: What was said in Myer has been applied in a number of cases in this court since. Among them are Moana Sand Pty Limited v Federal Commissioner of Taxation (1988) 88 ATC 4897, and Federal Commissioner of Taxation v Cooling (1990) 22 FCR 42. It does not, however, follow from the judgment in Myer , or for that matter, from the judgments in any later cases, that every profit made by a Taxpayer in the course of his business activity will be of an income nature. To so express the proposition is to express it too widely, and to eliminate the distinction between an income and a capital profit. 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. | Detailed Reasoning - Capital gain from the disposal: For CGT to apply there needs to be a CGT event that happens to a CGT asset. A CGT asset is defined in section 108-5 of the ITAA 1997. Division 104 of the ITAA 1997 sets out the CGT events that can happen to a CGT asset and section 104-10 provides that CGT event A1 occurs on the disposal of an asset. As a consequence of CGT event A1, subsection 104-10(4) of the ITAA 1997 provides that you make a capital gain if the capital proceeds from the disposal are more than the assets cost base or conversely you make a capital loss if the capital proceeds are less than the assets reduced cost base. The disposal of a capital asset will be subject to the CGT provisions. Where the sale is on capital account to which the CGT rules will generally apply. These proceeds are not ordinary income. In 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 at 4241 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 at 4243: 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 at 4243: 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." 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. This 'wide survey' is particularly important where the sale of the asset is by a taxpayer conducting a business. Jacobs J noted in London Australia at 127: The identification and characterization of the business carried on by the taxpayer is the essential task. Under the principle in Grollo Nominees Pty Ltd v Commissioner of Taxation (1997) 73 FCR 452 at 514-515 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. Section 118-20 of the ITAA 1997 operates as the anti-overlap provision to reduce any capital gain by the amount which has been otherwise assessed as ordinary income under section 6-5 of the ITAA 1997. | Detailed Reasoning - Profits or gains made in the ordinary course of business: Each Taxpayer is part of the wider business of the Group. As discussed above, the nature and scale of the activities, together with the other indicators of business set out in TR 97/11, support the conclusion that each Taxpayer is carrying on a business. Scope of the business The sale of property for profit is likely to be considered outside the ordinary course of the Taxpayer's (and, where relevant, the Group's) business, where: • a wide survey and an exact scrutiny of each Taxpayer's business (and where relevant, the Group's business) activities indicate it has a portfolio of commercial buildings it has held for significant periods of time - and the sale of property is not an ordinary incident of the business. • the activities of each Taxpayer is the acquisition of commercial properties to hold as capital assets for the purpose of deriving rental income; and • the relevant factors indicate the scope of the Taxpayer's (and, where relevant, the Group's) activities relate to the acquisition of property to hold for the long-term leasing - that the sale of property is not an ordinary incident of the Taxpayer's (and, where relevant, the Group's) business. | Detailed Reasoning - Profit making intention: The profit on the sale of property would not be considered to be income according to ordinary usage. where an objective consideration of the facts and circumstances of the case indicate an intention of acquiring property to hold as a long-term investment for the purpose of gaining income from commercial leasing, rather than the intention of profit making by sale property. The following factors are likely to indicate the Taxpayer's intention to hold the property long-term: • Where there is an intention to acquire property for sale at a profit, the property has been held as trading stock - the manner in which the property is recorded in the financial accounts (as a current or non-current investment asset). • Long terms lease arrangements in place. • Whether the property is used as collateral with respect to other properties in the Taxpayer's property portfolio -being property held for the long term. • The number of properties sold. | Detailed Reasoning - Conclusion: Where the relevant considerations lead to the conclusion that the sale of the property occurs outside of the ordinary course of the Taxpayer's (and where relevant, the broader Group business) and/or the property was not acquired with the intention of profit making by sale, but rather to hold as a long-term investment for the purpose of gaining income from commercial leasing, the sale of the property and this intention did not change, the sale would be considered a disposal of a capital asset that is subject to capital gains tax pursuant to subsection 104-10(4) of the ITAA 1997. In these circumstances, the gain from the disposal of the asset by the Taxpayer will not be ordinary income and therefore will not be included in their assessable income under section 6-5 of the ITAA 1997. As such section 118-20 of the ITAA 1997 will not operate to disregard the capital gain.

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 regularity and repetition of the activity | whether the activity is of the same kind and carried on in a similar manner to that of ordinary trade in that line of business | whether the activity is planned, organised and carried on in a businesslike manner such that it is described as 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 sporting activity.