McCarthy and Commissioner of Taxation (Taxation) - [2021] AATA 1511

McCarthy and Commissioner of Taxation (Taxation) [2021] AATA 1511 (28 May 2021)
Division:TAXATION AND COMMERCIAL DIVISION
File Number: 2020/1586
Re:Yvonne McCarthy
APPLICANT

AndCommissioner of Taxation
RESPONDENT

DECISION
Tribunal:Deputy President Boyle
Date:28 May 2021
Place:Perth

The Commissioner’s objection decision dated 24 January 2020 disallowing the Applicant’s objection dated 31 May 2019 to the Commissioner’s assessment of the Applicant’s tax liability for the year ended 30 June 2018 is affirmed.
...[SGD].............................................................
Deputy President Boyle
CATCHWORDS
TAXATION – income tax assessment objection – whether subdivision of the Property amounted to carrying out a business operation or commercial transaction – whether profits from the sale of subdivided lots are assessable as ordinary income under s 6-5 of ITAA-1997 – Myer Emporium principles applied – Applicant’s intention at time of purchase – property acquired in a business operation or commercial transaction – profits assessable as ordinary income under s 6-5 of ITAA – reviewable decision affirmed.
LEGISLATION
Administrative Appeals Tribunal Act 1975 (Cth) – ss 29, 37
Income Tax Assessment Act 1997 (Cth) – s 6-5, 8-1
Taxation Administration Act 1953 (Cth) – ss 14ZQ, 14ZS(1), 14ZY(2), 14ZZ(1), 14ZZC(1), 14ZZK
CASES
Californian Copper Syndicate v Harris (1904) 5 TC 159
Commissioner of Taxation of The Commonwealth of Australia v The Myer Emporium Limited (1987) 163 CLR 199
Federal Commissioner of Taxation v Cooling (1990) 22 FCR 42
Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404
Federal Commissioner of Taxation v Visy Industries USA Pty Ltd (2012) 205 FCR 317
Federal Commissioner of Taxation v Whitfords Beach Pty Ltd (1982) 150 CLR 355
Greig v Commissioner of Taxation (2020) 275 FCR 445
Jones v Dunkel (1959) 101 CLR 298
McCurry v Federal Commissioner of Taxation (1998) 39 ATR 121
Pascoe v Federal Commissioner of Taxation (1956) 30 ALJ 402
Price Street Professional Centre Pty Ltd v Commissioner of Taxation (2007) 45 AAR 196
Selleck v Commissioner of Taxation [1997] 799 FCA
Steinberg v Federal Commissioner of Taxation (1975) 134 CLR 640
Visy Packaging Holdings Pty Ltd v Commissioner of Taxation [2012] FCA 1195
Westfield Ltd v Commissioner of Taxation (1991) 28 FCR 333
SECONDARY MATERIALS
Administrative Appeals Tribunal, ‘General Practice Direction’ (28 February 2019) – para 4.31
Australian Taxation Office, ‘TR 92/3 Income tax: whether profits on isolated transactions are income’ (30 July 1992).
Australian Taxation Office, ‘MT 2006/1 – The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number’ (13 December 2006)
REASONS FOR DECISION
Deputy President Boyle
28 May 2021
THE APPLICATION

The Applicant seeks review of the decision of the Respondent (Commissioner) dated 24 January 2020[1] (Objection Decision) which disallowed the Applicant’s objection dated 31 May 2019[2] to the Commissioner’s assessment of the Applicant’s tax liability for the year ended 30 June 2018.
[1] R3, T2.
[2] R3, T9.1.
JURISDICTION
Section 14ZZ(1) of the Taxation Administration Act 1953 (Cth) (TAA) relevantly provides that:
(1) If the person is dissatisfied with the Commissioner's objection decision ... the person may:
(a)if the decision is a reviewable objection decision—either:
(i)apply to the Tribunal for review of the decision; …
…
Section 14ZY(2) of the TAA defines an “objection decision” as, amongst other things, a decision made by the Commissioner in respect of an objection lodged with the Commissioner. The Objection Decision is an “objection decision” as that term is defined in s 14ZY(2) of the TAA.
Section 14ZQ of the TAA defines a “reviewable objection decision” as one “that is not an ineligible income tax remission decision”. That latter term is defined in s 14ZS(1) of the TAA. The Objection Decision is not an “ineligible income tax remission decision” as that term is defined. The Objection Decision is, therefore, a “reviewable objection decision” for the purposes of s 14ZZ(1) of the TAA.
The Objection Decision was made on 24 January 2020 and the Applicant was notified of the Objection Decision on that date. The application to the Tribunal for the review of the Objection Decision was made on 17 March 2020 which is within the 60 days allowed for the making of such applications under s 29 of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act) as amended by s 14ZZC(1) of the TAA.
The Tribunal is satisfied that it has jurisdiction to hear the application.
BACKGROUND
On 27 August 2016, the Applicant and her husband purchased a residential property in Mullaloo, Western Australia (the Property) at auction for $675,000 plus stamp duty and associated costs.
The settlement of the sale of the Property occurred on 31 October 2016.[3]
[3] R3, T12.
On 3 November 2016 the Applicant and her husband were registered on the certificate of title as joint tenants of the Property.[4]
[4] R3, T13.
On or about 10 November 2016 the Applicant and her husband lodged an application for approval of a plan for the subdivision of the Property into two lots. The plan of the subdivision submitted for approval was dated 21 October 2016.[5]
[5] R3, T14.
At the time that the Applicant and her husband purchased the Property, there was a long-term tenant in residence. The tenant vacated the Property in May 2017 and the house was demolished in July 2017.
On 18 September 2017 the Applicant and her husband applied for new certificates of title for the subdivided lots.[6]
[6] R3, T18.
The two lots resulting from the subdivision of the Property were sold under contracts of sale dated 3 August 2017 (lot 11), for a sale price of $480,000,[7] and 2 January 2018 (lot 10) for a sale price of $490,000.[8] Lot 10 had been the subject of a contract for sale dated 4 August 2017 at a purchase price of $505,000.[9] It appears for some reason that that contract did not proceed.
[7] R3, T16.
[8] R3, T23.
[9] A6.
On 20 December 2018 the Applicant, through Ms Murray, a registered tax agent and public accountant, applied for a private ruling from the Commissioner on whether the profits derived by the Applicant from the sale of the lots resulting from the subdivision of the Property are assessable income under s 6-5 of the Income Tax Assessment Act 1997 (Cth) (ITAA-1997).[10]
[10] R3, T5.
On 27 March 2019, based on the information provided by the Applicant, the Commissioner notified the Applicant that she had made a private ruling, which stipulated that the Applicant’s profit from the sale of the lots resulting from the subdivision of the Property was assessable income under s 6-5 of the ITAA-1997, being an isolated transaction carried out for profit and commercial in nature.[11]
[11] R3, T8.
On 13 May 2019 and following the private ruling, the Applicant filed an income tax return for the financial year ended 30 June 2018 (2018 return) which included, among other income, $57,109 in profit derived from the transaction.[12]
[12] R3, T4.
On 20 May 2020 the Commissioner issued the assessment on the basis of the information contained in the 2018 return assessing the Applicant’s income as $120,659 and the tax payable on the assessable income as $32,166.83.[13]
[13] R3, T3.
On 28 May 2019 the Applicant lodged the objection which comprised:
(a)an objection dated 28 May 2019;[14] and
(b)correspondence from the Applicant’s representative (Ms Murray) dated 28 May 2019.[15]
[14] R3, T9.
[15] R3, T9.1.
On 24 January 2020 the Commissioner made the Objection Decision which disallowed in full the Applicant’s objection.[16] The Applicant was served with notice of the Objection Decision on that date.
[16] R3, T2.
On 17 March 2020 the Applicant lodged the application review of the Objection Decision with the Tribunal.
THE HEARING AND THE EVIDENCE
The application was heard on 31 March 2021. The Applicant was represented by Ms J Murray and the Commissioner was represented by Mr S Majteles. The Applicant was the only witness to give evidence at the hearing.
The following documents were admitted into evidence:
(a)Applicant’s Statement of Facts, Issues and Contentions (Applicant’s SFIC) dated 04/09/2020 (Exhibit A1);
(b)Article from the West Australian newspaper titled “Mullaloo sinkhole couple get $800,000”, dated 1 June 2016 (Exhibit A2);
(c)Landgate deposited plan 412223 (Exhibit A3);
(d)Email from Richard Lester dated 17 July 2017 (Exhibit A4);
(e)Letter from Westbury Management Services Pty Ltd dated 26 August 2020 (Exhibit A5);
(f)Letter from Davey Real Estate including contract of sale for Lot 10 and special conditions dated 7 August 2017 (Exhibit A6);
(g)Letter from Davey Real Estate including contract for sale for Lot 11 dated 27 July 2017 (Exhibit A7);
(h)REIWA bar chart of Perth house prices 1974–2019 filed with the Tribunal 4 September 2020 (Exhibit A8);
(i)Respondent’s submissions (Commissioner’s submissions) dated 16 October 2020 (Exhibit R1);
(j)Respondent’s Statement of Facts, Issues and Contentions (Commissioner’s SFIC) dated 18 September 2020 (Exhibit R2); and
(k)Section 37 T documents filed with the Tribunal 30 March 2021 (Exhibit R3).
THE ISSUES
The Applicant’s SFIC[17] identified the issues for determination by the Tribunal as being:
1.Was the transaction in question a transaction entered into in the course of carrying out a business or in carrying out a business operation or commercial transaction?
2.Are the profits from the transaction in question assessable as ordinary income under section 6-5 of the ITAA 1997?
[17] A1.
The Applicant’s SFIC contended that the profit from the sale of the Property did not satisfy the requirements of “paragraph 6(b) of TR 92/3, namely ‘the transaction was entered into, and the profit was made, in the course of carrying out a business operation or commercial transaction’” and therefore should not be assessed as ordinary income under s 6-5 of ITAA-1997.
Paragraph 28 of the Commissioner’s SFIC,[18] under the heading “Issue”, identified the issue for determination by the Tribunal as follows:
Has the applicant discharged her burden of proving that the assessment is excessive because it assessed income tax on an amount of taxable income that is greater than the actual amount of taxable income earned by the applicant for the 2018 year?
[18] R2.
Paragraphs 29–31 of the Commissioner’s SFIC, under the heading “Contentions” asserted that:
29.The applicant has not discharged her burden of proving that that the assessment is excessive.
30.The applicant has not positively proved that her taxable income is less than the taxable income as assessed in the assessment or that the amount of tax payable as assessed in the assessment exceeds the actual tax liability of the applicant.
31.The respondent joins issue with the applicant’s contentions under the heading “Contentions” in the applicant’s amended and undated statement of facts, issues and contentions and says further that even if the applicant could prove the facts contained in the applicant’s statement of facts, issues and contentions, such facts do not support the applicant’s contentions.
The Commissioner’s SFIC is unhelpful in identifying the issue or issues to be determined by the Tribunal or the Commissioner’s case in relation to those issues. In that regard, it does little more than state the uncontentious legal position in relation to the burden of proof under s 14ZZK of the TAA. The Commissioner’s SFIC did not comply with the requirements of such a document under the Tribunal’s General Practice Direction para 4.31 which requires that the:
… Statement of Issues, Facts and Contentions, … must set out clearly:
(a)the issues that remain in dispute;
(b)the essential facts that are relevant to those issues; and
(c)the contentions to be drawn from those facts, including any references to
relevant legislation and case law.
Any statement in reply should note what aspects are agreed, which are disputed and any alternative facts and/or contentions.
More helpfully, the Commissioner’s submissions filed on 16 October 2020, while not specifically identifying the issue or issues for determination, did at least engage with the central issue before the Tribunal, which is the determination of the appropriate tax treatment of the profit generated by the Applicant’s purchase, subdivision and sale of the Property, more particularly whether what are known as the “Myer Emporium principles” apply to that transaction. That is a reference to the principles set out by the High Court in The Commissioner of Taxation of The Commonwealth of Australia v The Myer Emporium Limited[19] (Myer Emporium).
[19] (1987) 163 CLR 199 (Myer Emporium).
As noted at [24] above, the Applicant’s SFIC identified the issue as being whether the requirements of TR 92/3 had been met so as to make the profit generated by the transaction ordinary income under s 6-5 of the ITAA-1997. That tax ruling titled “TR 92/3 Income tax: whether profits on isolated transactions are income”,[20] (TR 92/3) under the heading “What this Ruling is about”, describes itself as setting out “… our views as to the application of the decision of the Full Court of the High Court of Australia in FC of T v. The Myer Emporium Ltd …”. Accordingly, while the Applicant’s case was couched in terms of TR 92/3 and the Commissioner’s case referred to the principles emerging from Myer Emporium, the parties were, in effect, addressing the same point.
[20] Australian Taxation Office, ‘TR 92/3 Income tax: whether profits on isolated transactions are income’ (30 July 1992).
The parties’ arguments and the thrust of the Applicant’s evidence at the hearing went to whether the application of the principles laid out by the High Court in Myer Emporium renders the profit generated by the transaction in question as ordinary income under s 6-5 of the ITAA-1997. That is the issue for the Tribunal to determine.
THE PARTIES’ CONTENTIONS
The Applicant
The core of the Applicant’s argument as set out in her SFIC, and as run at the hearing, is as follows:
Facts
(a)At the time of the purchase of the Property, a long-term tenant was in place and it was the intent of the Applicant and her husband to rent the Property long-term with the option to potentially sub-divide the block some years in the future, should they decide to do so.[21]
[21] A1, Facts/ para 3.
(b)The suburb of Mullaloo, where the Property is located, had issues of subsidence resulting in two home owners in the suburb receiving ex-gratia compensation payments of $800,000 each from the City of Joondalup. This was reported in the West Australian newspaper on 1 June 2016. When asked about the future subdivision potential of the block in August 2016, the selling agent for the Property advised the Applicant and her husband that the City of Joondalup had recently denied a subdivision application to a house in Mullaloo due to potential subsidence. He advised that due to these subsidence issues, there was no guarantee that future subdivision applications would be approved.[22]
[22] A1, Facts/ para 4.
(c)Because of that advice, “to keep their options open, [the Applicant and her husband] decided to apply for subdivision of the block on 9 November 2016”.[23]
[23] A1, Facts/ para 5.
(d)The tenants vacated the Property in mid May 2017 and the Property was bulldozed in July 2017.[24]
[24] A1, Facts/ para 6.
(e)The subdivision work was contracted out to R.G. Lester & Associates and the two lots resulting from the subdivision were sold on 4 August 2017 and 2 January 2018.[25]
(f)The Applicant and her husband did not seek any advice regarding the potential tax consequences of the transaction.[26]
(g)The Applicant is employed full time as a bookkeeper. She has no knowledge of land development and did not take any time off work to be involved in the subdivision process.[27]
Contentions
(h)The profit from the sale of the subdivided lots should be assessed under the capital gains tax provisions of the ITAA-1997 because the transaction cannot be considered to have been a business operation or commercial transaction, as it does not satisfy any of the ATO commercial transaction indicators set out in para 49 of TR 92/3 (see [44] below); and
(i)The Applicant refers to MT 2006/1[28] and the description of the meaning of an entity carrying on an enterprise.[29] The activity in question is as small a scale as one gets in land development, being one block subdivided into two blocks with no buildings erected and the land developed to the minimum required by the council. As a result, this transaction cannot be considered to be commercial in nature.
(j)The Applicant cites Californian Copper Syndicate v Harris[30] (cited with approval in Federal Commissioner of Taxation v Whitfords Beach Pty Ltd[31] (Whitfords Beach)) to support the proposition that “[w]hen the owner of an investment chooses to realize it, and obtains a greater price for it than he paid to acquire it, the enhanced price will not be income within ordinary usages and concepts, unless to use the words of the Lord Justice Clerk in Californian Copper … what is done is not merely a realisation or change of investment, but an act in what is truly the carrying on, or carrying out of a business.”[32]
(k)When the Applicant acquired the Property, it was with “a view to renting it out for the long term” with an option to subdivide at a time well into the future. The reason for subdividing the Property and selling the lots, was not to enter into a profit-making venture, but rather to maximise the potential of the asset and pay out the debt on the Property, as the plan to hold the Property long-term had proven to be financially unsustainable.
(l)Property prices in Mullaloo had dropped by 2.4 per cent between 2016 and 2017 and were predicted to fall further in 2018, which they did, by a further 10.77 per cent.
[25] A1, Facts/ paras 7–8.
[26] A1, Facts/ para 9.
[27] A1, Facts/ para 10.
[28] Australian Taxation Office, ‘MT 2006/1 – The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number’ (13 December 2006).
[29] A1, Contentions/ para 4.
[30] (1904) 5 TC 159.
[31] (1982) 150 CLR 355 (Whitfords Beach).
[32] A1, Contentions/ para 4.
Commissioner
The Commissioner’s submissions are as follows:
(a)It is well settled law that a profit or gain made by a taxpayer outside the ordinary course of carrying on a business, but which arises from a transaction entered into by that taxpayer with the intention or purpose of making a profit or gain, will constitute assessable income, even where the transaction is an isolated one, “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…”[33] This principle is sometimes referred to as the principle in Myer Emporium.[34]
[33] Myer Emporium at 209–210.
[34] Greig v Commissioner of Taxation (2020) 275 FCR 445 (Greig) at [4] per Kenny J.
(b)The words ‘business operations” and “commercial transaction” are plain enough.[35] In Myer Emporium the High Court stated:
[35] Grieg at [31] per Kenny J.
“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.”[36]
[36] Myer Emporium at 209–210.
(c)The concept of “business operations or commercial transaction” is not to be equated to concepts such as “an adventure in the nature of trade” or “profit-making undertaking” or “profit making scheme”, which expressions are not found in the pivotal passage from Myer Emporium and which expressions have a historical nexus with provisions no longer found in the legislation or in English statute.[37]
[37] Federal Commissioner of Taxation v Visy Industries USA Pty Ltd (2012) 205 FCR 317 (Visy) at 332–3 (Edmonds, Greenwood and Robertson JJ) citing Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404, 414; Greig at [230] per Steward J (Kenny J agreeing).
(d)If the transaction exhibits features which give it the character of a “business deal” or the taxpayer’s activities in acquiring the intended profit-making property are the kinds of things that a business person would do in seeking to make an intended profit, then the property will have been acquired in a “business operation or commercial transaction”.[38] Whilst, wagers, lotteries and hobbies would be excluded, it does not follow that a “private” transaction in the context of an investment is so excluded.[39]
[38] Citing Greig at [31] (Kenny J) and [228]–[242], particularly [242(4)] (Steward J).
[39] Citing Greig at [236] and [242(5)] per Steward J (Kenny J agreeing).
(e)In determining whether a transaction is a “business operation or commercial transaction” a court should have regard to not only the evidence of the taxpayer as to what was in their mind, but also to the surrounding facts and to the events that actually occurred.[40]
[40] Citing McCurry v Federal Commissioner of Taxation (1998) 39 ATR 121 (McCurry) at 127 (Davies J).
(f)The profit-making purpose should be present at the time of acquisition, though there may be circumstances where the profit-making purpose arises after acquisition through some transformation or change in the ownership or control of the taxpayer.[41]
[41] Citing Whitfords Beach at 370 (Gibbs CJ) and 384 (Mason J).
(g)The relevant purpose must include the purpose of profit-making by the very means by which the profit was in fact made. Such a purpose can be found where the means is but one alternative contemplated by the taxpayer.[42]
[42] Citing Steinberg v Federal Commissioner of Taxation (1975) 134 CLR 640 at 670 (per Mason J), at 699-700 (per Gibbs J) and at 704–5 (per Stephen J); Westfield Ltd v Commissioner of Taxation (1991) 28 FCR 333 (Westfield) at 343–5.
(h)It is not necessary that the intention or purpose of the profit-making by sale be the sole or dominant purpose of the taxpayer, however, it should be a “not insignificant” aspect of the taxpayer’s purpose.[43]
[43] Citing Federal Commissioner of Taxation v Cooling (1990) 22 FCR 42 at 57 (Cooling); Selleck v Commissioner of Taxation [1997] 799 FCA (20 August 1997); Price Street Professional Centre Pty Ltd v Commissioner of Taxation (2007) 45 AAR 196 (Price); at [27]).
(i)It is not necessary for a taxpayer to have planned every step of the profit-making purpose – the mode of achieving the profit can lack specificity of detail and it will be sufficient if it is found that a taxpayer had only a general plan or expectation or intention formed.[44]
[44] Citing Westfield at 344; Visy Packaging Holdings Pty Ltd v Commissioner of Taxation [2012] FCA 1195; (2012) 91 ATR 841 at [234] (Middleton J).
(j)It is the taxpayer’s intention or purpose determined objectively, not the subjective intention which is relevant.[45] The surrounding circumstances must be considered in ascertaining the true intention of the taxpayer and in characterising the receipts in the hands of the taxpayer.[46]
[45] Citing Cooling at 50 (per Hill J, Lockhart and Gummow JJ agreeing); Greig at [242(3)].
[46] Price at [34].
(k)There is no requirement that the transaction and resulting profit was of a certain scale, or involved a large sum of money, or was complex, or involved individuals not corporations, in order to be considered a “commercial transaction”, and for the profit to be deemed to be income.
(l)The facts, when considered objectively and in context, lead to a clear inference that the acquisition of the Property by the Applicant was a commercial transaction entered into with the intention or purpose of generating a profit or gain through the subdivision and sale of the Property. This inference arises from the following:
(i)the enquiries as to the subdivision potential of the Property made by the Applicant and her husband of the real estate agent at, or prior to, the time of purchase of the Property;
(ii)the amount borrowed ($750,000) was in excess of the purchase price giving rise to the inference that the additional funds were to pay for the subdivision of the Property, thus there was always an intention to subdivide the Property;
(iii)the Applicant had retained R.G. Lester & Associates to do the subdivisional work even before the Property had settled. This is inconsistent with an intention or purpose that the Property be retained in the medium to long-term;
(iv)the Applicant lodged a subdivision application only 10 days after settlement of the purchase of the Property;
(v)the Property was subdivided and contracts for the sale and purchase of both individual lots were executed around 10 months after the Applicant had acquired the Property; and
(vi)a profit or gain as contemplated was made.
(m)The acquisition, subdivision and sale have the hallmarks of a commercial transaction or business deal.
(n)The Applicant’s “contentions” that she intended, at the time of the purchase of the Property, to rent the Property “for the long-term” with the “option to sub-divide at a time well into the future” but that “it became apparent to them some nine months after the purchase that they could not afford to hold the Property long term as planned” are not supported by any evidence and are not consistent with the facts.
(o)Even if the above facts as asserted by the Applicant are proven, one of the alternatives, at the time of the purchase of the Property, was the subdivision and sale of the Property.
CONSIDERATION

The judgments of the Full Court of the Federal Court in Greigv Commissioner of Taxation[47] (Grieg) (Kenny, Derrington and Steward JJ; Derrington J dissenting) provide thorough examinations of the Myer Emporium principles. In that case the taxpayer, Mr Greig, was arguing that the loss that he had made on the sale of Nexus shares and costs incurred by him in trying to preserve the value of those shares by taking legal proceedings to contest a deed of company arrangement, were deductable under s 8-1 of ITAA-1997. The taxpayer argued,[48] that they were deductable because:
(a)They were incurred as a “business operation or commercial transaction” entered into for the purpose of making a profit, thereby coming within the principle recognised in Myer Emporium at 209–210:
... 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 ... the fact that a profit or gain is made as the result of an isolated venture or a “one-off” transaction [does not] preclude it from being properly characterized as income: Federal Commissioner of Taxation v. Whitfords Beach Pty. Ltd.. The authorities establish that a profit 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.
(Footnote omitted.)
(b)In the alternative, those amounts were deductible because they were losses or outgoings “necessarily incurred in carrying on a business” of dealing in Nexus shares.
[47] (2020) 275 FCR 445.
[48] Grieg at [188] per Steward J.
At [189] Steward J summarised the Commissioner’s argument as being:
The Commissioner contends that Mr Greig ’s acquisition of Nexus shares did not have the “characteristics of a business operation or commercial transaction, but were instead redolent of private investments on capital account” and therefore did not engage the principle enunciated in Myer Emporium. Further, the Commissioner denies that Mr Greig was carrying on a business of dealing in Nexus shares. As already mentioned, he also contends that both the share loss and the legal expenses were outgoings of capital, or of a capital nature (s 8‑1(2)(a)). He does not rely on s 8-1(2)(b).
At [227] Steward J noted that:
The proposition that a gain will constitute income if the property generating that gain was acquired in a “business operation or commercial transaction” for the purpose of profit-making by the means giving rise to the profit is well established: Myer Emporium at 209-210. Previous authorities, however, have tended to focus on the existence of the required profit-making purpose rather than upon the need for there to be a “business operation or commercial transaction”.
Steward J observed at [228] that “[t]he “commercial dealing” requirement, it would appear, is a test derived from English revenue law”. His Honour then observed at [230] that:
In this appeal, Senior Counsel for the Commissioner submitted that the acquisition and sale of the Nexus shares did not take place on revenue account because what happened was not an adventure in the nature of trade. This was said to be an expression of the test that the transaction must constitute a “business operation or commercial transaction”. That proposition suffers, with respect, from an immediate difficulty. In Federal Commissioner of Taxation v Visy Industries USA Pty Ltd [2012] FCAFC 106; (2012) 205 FCR 317, Edmonds, Greenwood and Robertson JJ observed that an important element of the reasoning of the primary judge in that case (Gordon J) was her Honour’s rejection of the Commissioner’s contention that the transaction in question “was not a commercial transaction or was not an adventure in the nature of trade”. The expression “adventure in the nature of trade” was found by the Court not to be relevant to the concept in Australia of income according to ordinary concepts. Their Honours said at [52]:
Finally, by way of general observation, we have to say that we do not find terms such as “profit-making undertaking”, “profit-making scheme” or “adventure in the nature of trade” to be helpful in a case such as this where the taxpayer is carrying on a business and the transaction is entered into in the course of that business albeit not in the ordinary course. As the High Court has warned in a different context, the statute is to be construed and applied according to its terms, not under the influence of “muffled echoes of old arguments” concerning other legislation: Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404 at 414 in the plurality judgment. Terms such as “profit-making undertaking”, “profit-making scheme” and “adventure in the nature of trade” have an historical nexus with provisions no longer to be found in the statute. They certainly find no expression in the pivotal passage from the High Court’s judgment in Federal Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199 at 209, 210 which lies at the heart of this case:
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. 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: Federal Commissioner of Taxation v. Whitfords Beach Pty. Ltd. The authorities establish that a profit 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.
(Emphasis omitted.)
At [234] his Honour commented that the “business deal” test was inserted in a number of judicial considerations “… to prevent mere realisations of capital from being taxed by s 26(a)”. At [235] Steward J quoted Mason J in Whitfords Beach wherein his Honour found at 378–379:
Unfortunately there is an element of ambiguity in the expressions “business deal” and “operation of business” as there is in the adjectives “business”, “commercial” and “trading” which have about them a chameleon-like hue, readily adapting themselves to their surroundings, different though they may be.
…
Not all that was said in McClelland can now be accepted. The majority judgment fails to differentiate between the United Kingdom and the Australian systems of arriving at taxable incomes and employs expressions derived from the United Kingdom income tax legislation which have no place in our legislation. And there is the possibility that it insufficiently acknowledges that the operation of the second limb of s. 26(a) may extend to some gains of a capital nature according to general revenue law.
I do not doubt that the majority was right to exclude from the second limb of s. 26(a) successful wagers and lottery windfalls. Perhaps the exclusion of private investments originally made as a hedge against inflation was more open to question but there is now a strong body of authority to support its exclusion.
Steward J observed (at [235]) that the last sentence in the above quoted passage:
… is perhaps an indication that the requirement that a transaction be a “business deal” or “commercial transaction” involves only a low threshold. It certainly works to exclude gains made from wagers and lotteries from being taxed by s 26(a), however Mason J. doubted whether it also excluded the type of private investment referred to in McClelland. In that respect, the authorities appear to contrast a profit-making scheme from an investment. An investment connotes something to be held over time, which might then be sold “long afterwards”, to use the language of McClelland.
His Honour formulated a number of propositions based on his analysis of the cases. The following propositions, appearing at [242], are relevant to the present case:
…
(2) secondly, the Commissioner submitted that prima facie shares are held on capital account. That proposition is, with respect, mistaken. Whether shares are held by a taxpayer on capital account or on revenue account will depend on each occasion on the applicable facts. There is no prima facie position; there are no different or special rules for individuals or particular classes of assets;
…
(4) fourthly, expressing, as Parsons did, the applicable test as being that the transaction must be the sort of thing a business person or person in trade does, effectively ensures that windfall gains, and gains from lotteries and hobbies, are not caught by the ordinary concept of income. In my view, this is an adequate expression of the content of the test;
(5) fifthly, the Court here was urged to accept that a “private” transaction is not one which has the characteristics of a “business deal”. There was a debate about what is and is not “private”. The proposition is rejected. Many truly private transactions may not be capable of being a “business deal” because they are not business-like. The usual example might be a gain encountered in the pursuit of a hobby. However, just because a transaction has been undertaken “privately”, it does not follow that any gain thereby made is necessarily an affair of capital: cf Federal Commissioner of Taxation v Anstis (2010) 241 CLR 443 at [38] per French CJ, Gummow, Kiefel and Bell JJ. The concept of a “private” transaction, referred to briefly in Whitfords Beach and in McClelland in the context of an “investment”, is not referred to in Myer Emporium or Montgomery. Parsons also does not relevantly refer to it; it does not form part of his eight propositions concerning what is income. Nor is there an equivalent exclusion in s 6-5 of the 1997 Act akin to that found in s 8-1(2)(b) concerning a loss or outgoing of a “private or domestic nature”. In that respect, I observe that s 8‑1(2) would appear to assume that expenditure of a capital nature (addressed in s 8-1(2)(a)) is distinct from expenditure of a private nature (s 8‑1(2)(b)). Private expenditure, it would appear, is not subsumed within expenditure of a capital nature for the purposes of s 8-1. The Commissioner here otherwise made no attempt to rely upon s 8‑1(2)(b).
In McCurry v Commissioner of Taxation[49] (McCurry) Davies J found:
The case put by counsel for the taxpayers was that, at the time of purchase of the Addison Avenue property, they intended to construct townhouses thereon but they had not made up their mind whether they would sell the units or would rent them. I accept that, when they purchased the property, Bradley and Brett McCurry had in mind as a possibility that, for a time at least, they would rent out the townhouses when completed. Thus, there is in evidence the following note from the Manager of the Commonwealth Bank at Warilla of 7 February 1987:
The applicants [the taxpayers] stated they have received numerous enquiries from people wishing to rent the accommodation provided. However they have not yet decided if they will proceed with rental or sell.
However, I draw the conclusion that, of the two actuating factors which they had in mind, profit-making by sale or receiving rental income, the possibility of reselling the developed property at a profit was the dominant factor. In a case such as this, where the Court must examine the purpose of a transaction, the Court is entitled to have regard not only to the evidence which the taxpayers give of what they had in mind but also to the surrounding facts and to the events which actually occurred. Those events, by hindsight, can throw light upon the considerations which the taxpayer had at the time when the dealing was initiated. That which a person does is a guide to that which he had in mind to do. There are three particular facts from which I draw an inference that the predominant factor influencing the taxpayers in their project was that of making a profit. The first is that most of the moneys were borrowed moneys. As Isaacs ACJ said in FCT v Clarke at CLR 251: "To transform capital, you must at least have capital to begin with".
The project did not represent an investment of surplus funds and it was likely that, at some stage, the property would have to be sold to repay to the Bank the moneys borrowed. Secondly, the units were first put on the market shortly prior to their completion, the intention being to realise the profit which had been foreseen. And the units were put back on the market only 12 months later and were sold. Thirdly, no step whatever was taken to secure tenants for the property and no inquiry as to letting the units was made. Bradley McCurry conceded that no inquiries were made to ascertain the amount that could reasonably be expected to be received from renting out the units. He conceded also that unit 1 always remained unoccupied and was never rented out.[50]
[49] (1998) 98 ATC 4487.
[50] McCurry at 126–7.
Davies J concluded at 127 (line 40):
In my opinion, the taxpayers entered into a profit-making undertaking or scheme which was a business or commercial dealing in the sense I have described when they acquired the property at Addison Avenue. Their venture was a trading venture and from this venture they made the profit which had been anticipated. Perhaps strictly, as the purpose of the venture was the purpose of the taxpayers, I should say that I am not satisfied the profit-making, by development and sale of the units, was not their predominating objective.
The circumstances in the present case are similar to those in McCurry. The only potentially material difference is the finding that the predominant objective of the transaction was the making of a profit through the purchase, development and sale of the units over the possible generation of income through renting the units. While in that case his Honour stated that he was not satisfied that profit by development and sale of the units was not “the predominating objective”, that comment cannot be taken to be a rule that there has to be a singular or clear, overriding intention at the time of purchase of the property. Other cases have made it clear that that is not the case. In Federal Commissioner of Taxation v Cooling[51] (Cooling) Hill J (with whom Lockhart and Gummow JJ agreed) found at 57:
In my view the transaction entered into by the firm was a commercial transaction; it formed part of the business activity of the firm and a not insignificant purpose of it was the obtaining of a commercial profit by way of the incentive payment.
[51] (1990) 22 FCR 42.
In that case the “not insignificant purpose” was sufficient to give the transaction the requisite commercial character. Similarly, Collier J in PriceStreet Professional Centre Pty Ltd v Commissioner of Taxation[52] (Price) at [27] found:
In determining whether a sale receipt is generated as a profit component of a profit-making scheme, and therefore income in accordance with ordinary usages, it is only necessary that the intention or purpose of profit-making by sale was one aspect of a profit-making scheme in existence at the time of the acquisition of the asset (or, as was the case in FCT v Whitford’s Beach Pty Ltd, coming into existence during the course of the taxpayer’s ownership of the asset and remaining in existence at the time of the sale): Westfield 28 (at 343-344). It is not necessary that the intention or purpose of profit-making by sale be the sole or dominant purpose of the taxpayer entering into the profit-making scheme: Cooling (at 56-57); cf Myer Emporium where the motivating purpose of the transaction was for Myer to obtain working capital to enable it to diversify; and Moana Sand Pty Ltd v Federal Commissioner of Taxation where the dominant purpose of the taxpayer in acquiring the land was not resale of the land at a profit. However the Full Court of the Federal Court in a number of cases has indicated that the purpose of profit-making must be a "not insignificant" aspect of the taxpayer’s activities: Cooling (at 57); Selleck v Federal Commissioner of Taxation (1997) 78 FCR 102.
[52] (2007) 45 AAR 196.
The Applicant argues that the transaction “cannot be considered to have been a business operation or commercial transaction, as it does not satisfy any of the ATO commercial transaction indicators set out in paragraph 49 of TR 92/3” (see [31(h)] above). Paragraph 49 of TR 92/3 is as follows:
In very general terms, a transaction or operation has the character of a business operation or commercial transaction if the transaction or operation would constitute the carrying on of a business except that it does not occur as part of repetitious or recurring transactions or operations. Some factors which may be relevant in considering whether an isolated transaction amounts to a business operation or commercial transaction are the following…
TR 92/3 then goes on to review a number of cases in which various factual scenarios were considered and determinations made on whether the loss or profit was of a revenue or capital nature, that is, whether in each case the profit or loss was taxable as income or claimable as a tax deduction. As the opening words make clear, however, what is set out in TR 92/3 can only be read “in very general terms”. What the cases do make clear is that each case must be decided on its facts (see Steward J’s proposition (2) in Greig quoted at [39] above).
The Applicant argues that the purchase of the Property and its subsequent subdivision and sale at a profit lacked the requisite commercial character because, amongst other things, the Applicant and her husband “did not seek tax advice regarding the affordability of their plan to rent the property long term”,[53] and that “[i]n summary, the taxpayer entered into the purchase of a rental property without thinking through the financial consequences of holding the property long term and did not seek any advice.”[54]
[53] Applicant’s SFIC, Contentions/ para 5(b).
[54] Applicant’s SFIC, Contentions/ para 6.
At the hearing Ms Murray further explained this aspect of the Applicant’s argument as follows:
And having gone through all of those factors with my client, there wasn’t one that they satisfied to prove that it was a commercial transaction, which leads me to wonder how it could be commercial just by a flavour, when the eight guidelines that are set down, not one of them has been satisfied.
In fact, from my perspective, the purchase of the property was decidedly non-commercial. It was a very poorly thought through decision. There was no tax advice obtained either prior to the purchase of the property or prior to the decision to subdivide the property. It was undertaken in a very non-businesslike manner, and as such cannot be considered to be commercial in nature. When the property was originally acquired, the intention of the taxpayers was to hold it long term as an investment property. For the reasons that I outlined in points 1 to 11, the taxpayers decided to cut their losses and dispose of the property in the most enterprising manner, and in the manner that would give them the best possible return for their investment.[55]
[55] transcript at 8.

The Tribunal makes two observations about the above argument. The first is that “… the applicable test” is “… that the transaction must be the sort of thing a business person or person in trade does” (Steward J’s proposition (4) from Greig; see [39] above). The test is not whether the transaction was carried out in an efficient or business-like manner, the test is whether the transaction is of the sort that a person in business would undertake. In this case, is the purchase and subdivision of a block and the sale of the resulting lots the sort of transaction that a person in business would undertake? Clearly the answer is yes. How well that transaction was conceived and carried out is not to the point.
The second observation that the Tribunal makes in relation to the argument as put by Ms Murray on behalf of the Applicant, is that the Tribunal does not accept that, at the time of the purchase of the Property, subdivision and sale of the Property for a profit was a “not insignificant purpose” in the transaction, to use the language of Hill J in Cooling (see [42] above). While the Applicant argues that it was her and her husband’s intention to hold the Property as a rental investment to generate income, she conceded under cross-examination that she did not know what rent the tenant, who had been renting the Property for 10 years, was paying.[56] Her evidence was that she and her husband thought that they might be able to get $500 a week once the house on the Property was renovated, but conceded that she was not a property expert and that she and her husband had not sought any advice on what rental income they might be able to achieve. She also conceded that, notwithstanding that she was responsible for the finances, she had made no calculation of how they would service the $750,000 loan through rental income received from the Property.[57] She further conceded that she and her husband had not made any calculation or even assessment of the cost of undertaking renovations to the Property. Her evidence in that regard was:
COUNSEL: Do you have any idea, you’re the person that runs the finances, did you have any idea of how much it cost?
APPLICANT: I just - I might’ve said to him, “How much are these renovations going to cost?” and he might’ve said, “About 50 grand.”[58]
[56] transcript at 21.
[57] transcript at 23.
[58] transcript at 24.
Consistent with this, the tax assessment objection lodged by the Applicant[59] stated that:
The taxpayers did not seek any advice as to whether they could in fact afford to rent out the house on their combined income prior to purchasing the property.
[59] R3, T9.1/94.
The Applicant was also cross-examined on what action she and her husband took to renovate the Property to enhance its rental return after they purchased it:
COUNSEL:                What steps did you take so that you could renovate this   property as soon as you acquired it, the income that you    needed to service for it?
APPLICANT:              Well, my husband would’ve got some kitchen quotes
COUNSEL:                Did your husband get any kitchen quotes?
APPLICANT:              I think he did, I’ll have to…
COUNSEL:                The first time that it’s been suggested that you had intended   to renovate the property is now in the witness box, you’ve    never said that in any of the objection that has been lodged   in the information that was provided to the Commissioner of   Taxation for the purposes of a private binding ruling?
APPLICANT:              I thought we were asked why did we borrow more than the   purchase price and we said because we were going to do   some renovations.[60]
[60] transcript 25–6.
While the Applicant claims that it was her and her husband’s intention to hold onto the Property as a rental investment with the potential at some time in the future to subdivide and sell, the Applicant cannot point to any calculation, enquiry or action on her or her husband’s part which would support that as being their intention. On the contrary, her own evidence was that she did not even know how much the Property was being rented for, made no enquiries to ascertain what rental value the Property might achieve and made no calculation as to whether the rent received could service the $750,000 loan. In effect no evidence was presented by the Applicant of any steps taken by her and her husband which would indicate an intention to hold the Property as a rental investment. The Applicant did not produce the lease agreement that was apparently in place with the supposed long-term tenant, nor was there any evidence of any efforts being made to secure other tenants or any other action by the Applicant and her husband consistent with an intention to hold the Property as a long-term rental investment.
As was noted by Davies J in McCurry (see [40] above):
In a case such as this, where the Court must examine the purpose of a transaction, the Court is entitled to have regard not only to the evidence which the taxpayers give of what they had in mind but also to the surrounding facts and to the events which actually occurred. Those events, by hindsight, can throw light upon the considerations which the taxpayer had at the time when the dealing was initiated.[61]
[61] McCurry at 127.
The actions that the Applicant and her husband did take are, in the Tribunal’s view, equally if not more consistent with an intention to subdivide and sell the Property. Even before they purchased the Property the Applicant and her husband were alive to the potential for the subdivision of the Property. The Applicant’s evidence in this critical regard was confused:
TRIBUNAL:                I have a question, and it may give rise to cross examination   or re-examination. Prior to your going along to the auction   and putting a bid in, had you discussed with your husband at   all the possibility of subdividing the block?
APPLICANT:              Not at that stage, no.
TRIBUNAL:                I think your evidence was that on the day of the auction you   asked the auctioneer I assume, or the agent, I don’t know    whether the agent did the auction or whether it was an   auctioneer, but you asked about whether or not the block   could be subdivided?
APPLICANT:              It was the agent volunteered the information to us and said,   “It could be a potential duplex block.”
TRIBUNAL:                And you were not aware of that, were you, prior to you putting   in your bid in the auction?
APPLICANT:              No.[62]
[62] transcript at 37.
…
COUNSEL:                At the time that you bought the property at auction I   understood your evidence to be that you had wanted to rent   it out long-term but that you might have subdivided down the   track?
APPLICANT:              M’mm.
COUNSEL:                Is that correct?
APPLICANT:              We didn’t know if it would be approved for subdivision.
COUNSEL:                You didn’t know it would be approved but at the time that you   bought the property one of the ideas, to use a neutral term,   that you had in relation to the property was to subdivide it   down the track if you could?
APPLICANT:              M’mm.
COUNSEL:                Is that correct?
APPLICANT:              Yes.
COUNSEL:                At the time that you actually bought the property at auction   did you have any basis to believe that there was the possibility   of the block being subdivided?
APPLICANT:              Only because the agent told us that – it might not have been   the auction, it might’ve been the inspection, because we did   walk through before and then we went on the auction day.   And he might’ve said at the initial inspection that it could be   subdividable in the future.
TRIBUNAL:                Sorry, that was the home open?
APPLICANT:              Yes.
…
TRIBUNAL:                It was prior to the auction date?
APPLICANT:              Yes.
…
COUNSEL:                So you did know at the time of the auction that there was the   possibility of the land being subdivided?
APPLICANT:              Yes, but then he proceeded to tell us about the ones that had   been rejected, a couple of properties in the area, because of    subsidence.
COUNSEL:                I’ve just got one further question; you say it was your plan to   subdivide and maybe live in it – sorry, plan to rent it out long-  term, maybe subdivide, maybe give one to your daughter or   whatever; so when you say your plan, do you mean your and   your husband’s plan?
APPLICANT:              Yes.
COUNSEL:                Does that mean that you and your husband had a discussion   about this before you bought it or did you just both    independently have this view?
APPLICANT:              It would’ve been his idea because he’s the ideas person, I’m   not.
COUNSEL:                You didn’t have a plan for this property, your husband did and   you went along with it, is that what you’re saying?
APPLICANT:              I mean we talk about things, we don’t go into things without   agreeing on it, but he may have wanted to subdivide it later   on. He would’ve come up with the idea, if he found out that it   was subdividable.
…
TRIBUNAL:                Just before I ask whether there’s any re-examination I just   want to get clear for myself what your evidence is. So, your    evidence is at the time you went to the auction you and or   your husband had been advised that there was a possibility   for the block to be subdivisible, it could be subdivided, is that   correct?
APPLICANT:              Yes.
TRIBUNAL:                And at the time you then attended the auction and were   successful, in your mind’s eye one of the potential future    circumstances could be that the block would be subdivided or   could be subdivided, and whether that meant that you were   going to live in one and sell the other, or give one to your   daughter?
APPLICANT:              M’mm.[63]
[63] transcript at 38–40.
The Tribunal is mindful of Fullagar J’s following comments in Pascoe v Federal Commissioner of Taxation[64] (Pascoe) at 403 cited by Steward J in Greig at [214]:
Where a person’s purpose or object or other state of mind in relation to a given transaction is in issue, the statements of that person in the witness box provide, in a sense, the “best” evidence, but, for obvious reasons, they must, as Cussen, J., observed in Cox v. Smail ((1912) V.L.R. 274, at p. 283), “be tested most closely, and received with the greatest caution”.
[64] (1956) 30 ALJ 402.
It is with that in mind that this Tribunal receives the Applicant’s evidence as to her intentions at the time of her and her husband purchasing the Property in August 2016. The Applicant’s husband did not give evidence. While the Tribunal is not prepared to draw an adverse inference from the Applicant’s failure to call her husband, who would obviously be able to give evidence about his and the Applicant’s intentions for the Property at the time of its purchase, under the principle in Jones v Dunkel,[65] we are left with only the Applicant’s somewhat vague evidence concerning her intentions in relation to the Property at the time of purchase.
[65] (1959) 101 CLR 298.
There are contemporaneous actions by the Applicant and her husband which cause the Tribunal to treat the Applicant’s evidence as to their intentions for the Property with a degree of scepticism or, to use Fullagar J’s language in Pascoe, with the greatest caution. As the Court observed in Price at [34]:
A bare claim that this was the intention of the taxpayer is insufficient to manifest that intention in the absence of evidence of that intention, for example, by steps to progress those options. The surrounding circumstances must be taken into account in ascertaining the true intention of the taxpayer, and also characterising the receipts in the hands of the taxpayer.
The Applicant’s “bare claim” that her and her husband’s intention was to hold the Property as a rental investment must be assessed in light of their actions immediately after the auction, and even before settlement of the sale of the Property, to start the subdivision process, the process that was taken through to its conclusion by the subdivision and sale of the subdivided lots. There is no evidence of there being any reconsideration or review as to that being the course to be followed. The Applicant’s evidence was, at best, vague as to when instructions were given to R.G. Lester & Associates to commence work on the subdivision application. It is clear, however, that that work must have commenced very shortly after the auction as the subdivision plan was fully surveyed, drawn and settled by 21 October 2016, ten days before the settlement of the purchase of the Property occurred.[66] The Tribunal finds that the instructions to R.G. Lester & Associates must have been given very shortly after the auction in August 2016.
[66] R3, T14.
This was clearly at a time well before the Applicant claims that it became apparent that she and her husband were not going to be able to service the $750,000 loan through rental income. Even the Applicant’s evidence on when that became apparent was confused. Her initial evidence at the hearing was that was within three months of purchasing the Property.[67] It was pointed out to the Applicant that the objection[68] said that that occurred after six months of renting the Property and that the Applicant’s SFIC, prepared by Ms Murray on the Applicant’s instructions, claimed that it became apparent some nine months after purchasing the Property.[69] The Applicant’s final position at the hearing was that it became apparent that they could not service the loan from the rental income received from the Property nine months after purchase.
[67] transcript at 27.
[68] R3, T9/94.
[69] transcript at 30.
Whatever the actual timing of any realisation that they could not afford to keep the Property as a rental investment property, it is clear that at the time of the purchase of the Property it was firmly part of the Applicant’s considerations that an option for the Property was to subdivide. Within a matter of weeks of the purchase, the Applicant and her husband were actioning that option which, it appears, without pause for reconsideration, was carried through to the demolition of the residence, subdivision and sale of the subdivided lots. The Applicant conceded that she did not get any advice as to whether it was commercially advantageous to subdivide the Property and sell the lots.[70] It appears, at least on the case presented by the Applicant, remembering that the Applicant carries the burden of proof under s 14ZZK of the TAA (see [27] above]) that there was no pause in the process of purchasing, demolishing the residence, subdividing and selling the Property.
[70] transcript at 35.
The Applicant produced a copy of an article which appeared in the West Australian newspaper on 1 June 2016[71] relating to a couple who had received an ex-gratia payment of $800,000 for damage to their residence caused by subsidence. This article was put forward in support of the assertion in para 4 of the Applicant’s SFIC that the selling agent had advised that because of subsidence issues “… there was no guarantee that future subdivision applications would be approved”. The Applicant’s evidence at the hearing was that this supposed uncertainty as to future subdivision approvals was the reason why the Applicant and her husband applied for subdivision so soon after purchasing the Property.[72] The Tribunal does not accept that. There is no logical link between other land in the suburb having suffered subsidence (according to the article over a 20-year period) and subdivisions not being approved. There is nothing in the article from the West Australian newspaper to suggest any such link and there is no legal reason for any such link to be made. Again, as with the failure to call the Applicant’s husband, the Applicant did not call the estate agent to give evidence, which may have been able to clarify this link.
[71] A2.
[72] transcript at 20.
The issue for determination by the Tribunal is whether, at the time of the purchase of the Property, the Applicant had a potential profit by subdivision and sale as a purpose for the purchase. As noted above, such a purpose does not have to be the sole or even the predominant purpose, it just has to be a not insignificant purpose. Even on the Applicant’s own case, it would be hard for her to argue that the possible subdivision and sale of the Property was not a live option in the Applicant and her husband’s consideration at the time of the purchase. No specific timeline for that option had been set and almost immediately after the purchase of the Property, in fact before the sale had even settled, the Applicant was taking positive steps to bring that option to fruition, which, in effect, continued without pause to the final realisation of that option, being the sale of the subdivided lots at a profit.
The Tribunal finds the Myer Emporium principles, summarised in Myer Emporium at 209–210 as “a profit 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” (see [33(a)] above) apply in the present case. The profit generated by the purchase and subdivision of the Property and the sale of the subdivided lots is properly treated as ordinary income under s 6-5 of the ITAA-1997.
DECISION
The Commissioner’s objection decision dated 24 January 2020 disallowing the Applicant’s objection dated 31 May 2019 to the Commissioner’s assessment of the Applicant’s tax liability for the year ended 30 June 2018 is affirmed.

I certify that the preceding 64 (sixty-four) paragraphs are a true copy of the reasons for the decision herein of Deputy President Boyle

...[SGD].....................................................................
Associate
Dated: 28 May 2021

Date of hearing: 31 March 2021

Advocate for the Applicant: Ms J Murray

Solicitors for the Respondent: Australian Taxation Office

Counsel for the Respondent: Mr S Majteles

Date of hearing:	31 March 2021
Advocate for the Applicant:	Ms J Murray
Solicitors for the Respondent:	Australian Taxation Office
Counsel for the Respondent:	Mr S Majteles