McCarthy and Commissioner of Taxation (Taxation)

The case of *McCarthy and Commissioner of Taxation* involved an applicant who sought to challenge an income tax assessment issued by the Commissioner. The dispute centred on whether profits derived from the sale of subdivided lots were assessable as ordinary income under section 6-5 of the *Income Tax Assessment Act 1997* (Cth). The matter was heard by Deputy President Boyle P of the Administrative Appeals Tribunal.

The primary legal issues before the Tribunal were whether the subdivision and sale of the property constituted a business operation or a commercial transaction, and consequently, whether the profits arising from these activities were assessable as ordinary income under section 6-5 of the ITAA-1997. The applicant contended that the transaction did not meet the criteria for being a business operation or commercial transaction, and therefore the profits should not be treated as ordinary income.

The Tribunal applied the principles established in *Myer Emporium*, which state that a profit or gain will constitute income if the property generating it was acquired in a business operation or commercial transaction for the purpose of profit-making. The Tribunal was satisfied that the applicant's purchase of the property, followed by its subdivision and the sale of the resulting lots, constituted a commercial transaction entered into with the intention of making a profit. Accordingly, the Tribunal found that the profits derived from the sale of the subdivided lots were properly treated as ordinary income under section 6-5 of the ITAA-1997.

The Tribunal affirmed the Commissioner's objection decision, which had disallowed the applicant's objection to the assessment of her tax liability for the financial year ended 30 June 2018.