CMI Services Pty Limited v The Commissioner of Taxation of the Commonwealth of Australia

CMI Services Pty Limited sought special leave to appeal from a decision of the Full Court of the Federal Court. The dispute concerned whether profits derived by an investment company from the sale of properties were of an income or capital character. The applicant argued that the Full Court applied different principles to this case compared to another recent decision, *Federal Commissioner of Taxation v Equitable Life and General Insurance Co*, where the Commissioner was unsuccessful.

The legal issue before the High Court was whether the mere fact that a taxpayer purchases property for the purpose of acquiring rental income, and expects that the property might be resold at some point, results in any profit on resale being taxed as income according to ordinary concepts. This was framed by the Court as a question of whether a company acquiring multiple properties with the intention of renting them, but selling them from time to time in the course of that activity, thereby has the sale of properties as an aspect of its business.

The applicant contended that the taxpayer's intention was to hold each property indefinitely, provided it continued to yield a satisfactory rental return and did not present management issues. While the taxpayer's board reviewed the properties every six months, no decision to sell was based on these reviews or a particular policy; sales were driven by the specific circumstances of each property. Crucially, the taxpayer did not intend to resell any property at a profit, nor did it view its business as the acquisition and resale of properties for profit. The Court considered whether the size of the taxpayer's capital asset could determine the character of its returns, or if it shed light on the nature of the business activity.