Raynbird, A.H. v Commissioner of Taxation of the Commonwealth of Australia

[1989] FCA 691

67 l

'JUDGMENT No. .. .....,.-.

IN THE FEDERAL COURT OF AUSTRALIA 1 I

QUEENSLAND DISTRICT REGISTRY	1	Q L ~	G63 of 1988
GENERAL DIVISION	1

BETWEEN: ARTHUR HENRY RAYNBIRD

Applicant

AND: COMMISSIONER OF TAXATION OF THE C013MONWEALTH

OF AUSTRALIA

Respondent

MINUTES OF ORDER

JUDGE MAKING ORDER:	PINCUS J.
DATE OF ORDER:	31 OCTOBER 1989
WHERE MADE:	BRISBANE
THE COURT ORDERS THAT:

1.    the appeal be dismissed;

2.   the appellant pay the respondent's costs of and incidental to the appeal, to be taxed.

NOTE :  Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.

1%

IN THE FEDERAL COURT OF AUSTRALIA	1
QUEENSLAND DISTRICT REGISTRY	1 QLD G63 of 1988
GENERAL DIVISION	)

BETWEEN: ARTHUR HENRY RAYNBIRD

Applicant

AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH

OF AUSTRALIA

Respondent

PINCUS J. 31 OCTOBER 1989

EX TEMPORE REASONS FOR JUDGMENT

This is an appeal to this Court by Arthur Henry Raynbird. He is dissatisfied with the assessment of his income tax for the year ended 30 June 1983. The factual issues are, in detail, somewhat complex, but in essence they are not. The circumstances are such that it seems desirable to give my judgment now, since I have a clear view.

The appellant's case is that in the year in question, that ended 30 June 1983, he received payments of capital from some eight people by way of payments of the purchase price of property. The respondent commissioner says that the sums in question were income. The appellant's case is that he received the sums under contracts of sale of land, which have been produced, and the dispute of fact is principally concerned with the circumstances in which, and dates upon which, those contracts wese made, especially \ the latter. The appellant says the contracts were all signed on 1 July 1981. The respondent's case is that the contracts were signed after 30 June 1983.

I propose to say something about that shortly, but it is necessary first to deal with some other categories of documents. I start with the documents because. the case seems to be one in which help is to be obtained from them; the events in question happened a few years ago, and the witnesses who have been called do not seem to have clear recollections of all the details, which is not surprising.

Apart form the contracts themselves, which I shall come to later, there are four categories of documents which appear to throw light upon the probabilities. The first category is the receipts for the payments which are in issue. Mr Raynbird, the taxpayer, gave some brief evidence as to contents of the receipts,

but they were not produced. They could have helped the taxpayer's

case if they were in a certain form; it was plainly unsatisfactory, when the matter depends so much upon credit,

merely to give oral evidence of their contents.

The second category of documentary evidence is the content of exhibits 2 and 3, which are cash receipt books for two years, that ended 30 June 1982 and that ended 30 June 1983. These books show a common pattern. As originally written up, the relevant payments were entered as "rent". As subsequently altered, the relevant payments were described as "house payments".

The reason that the two years are matprial, rather than only one, is that the appellant's case is that the contracts in question were made at the beginning of the first year, and that throughout those two years he received sums under contracts of sale of land from the eight purchasers who were making payments. One might have expected that throughout the two years the contemporaneous documents, which may be a good guide to the character of the payments, would show the payments as capital.

The books have been rather crudely altered, but it seems to me unlikely that the alterations were made with any intention of deceit. Nevertheless, they have been altered, and no explanation which could be described as satisfactory has been given of their initial state.

The third category of documents which is material appears to me to be the tax returns. The returns in question are those for the year ended 30 June 1982 and for the year ended 30 June 1983. The former return, it is common ground, treated the payments as income, and the latter seeks to treat them as capital. In the return for the year ended 30 June 1983 (the year in issue)

appellant - I do not quote the whole of it, but merely the part of	there was included an explanation of this circumstance by the
it which seems to me most relevant:-

"In June, 1981 I was approached by a tenant who asked if I would be interested in selling the house occupied by him at a price of $50,000. I gave this some thought and decided I would sell certain of the homes.

I then entered into an agreement with eight of the tenants to sell to each of them the home they were at that time renting on the terms land conditions that they keep on paying me the weekly amount which to the 1st July, 1981 was rent but from then on it was to be part of the deposit on the house.

These weekly deposit payments were to continue to the 30th June, 1984 when the balance of the deposit is to be found and the sale contract will then be completed.

I did not inform my accountant of these
arrangements when he prepared my income tax return for the year ended 30th June, 1982 but only when he obtained the information for my 1983 return, consequently, these deposits were treated as llrent"

in my 1982 return when they should have appeared in my Balance Sheet as "Part Deposits on Houses". Similar payments were received during the year ended 30th June, 1983 and I have set out below the amounts received during the two (2) income tax

years. l'

The version of events then given depends upon my accepting that the appellant did not appreciate, when he gave his accountant his books for the year ended 30 June 1982, that there was a possibility of claiming that the payments which were to go towards defrayment of the purchase price were not taxable. I have had the opportunity of observing the appellant in the box. He is an elderly gentleman, but quite unimpaired in intellect. He seems to me to be an intelligent man who has been, as Mr Keane Q.C.,

senior counsel for the respondent, points out, successful in

point which I have mentioned.	business, and it would be surprising if he did not appreciate the
He elaborated upon his attitude by saying that he understood that the possibility of treating the payments as other than income could arise only when the conveyance was made; that is, he would have me accept that his view of the law was that if he sold the piece of land on terms, and the terms contemplated that the conveyance would be received when the 41111 purchase price was paid, the instalments must have been treated as income until the conveyance was made.
I think it unlikely that the appellant, who seems a shrewd and competent person, would have thought so. It is even more unlikely that he would have forwarded the books to his accountant, knowing that they were in this respect all wrong - wrong from start to finish - without saying anything about it. Therefore, I am obliged to say that the explanation given for the state of the 1982 return is not convincing and goes against the appellant's case.
The fourth category of evidence as to documents which I shall mention, and that, briefly, is that, as I am informed, it is common ground that the contracts were not forwarded by the appellant's accountant, M McDonald, to the respondent until 4 July 1984. This is not a particularly significant point, but it does assume some slight importance when added to the other evidence that Mr McDonald was, putting it simply, uninformed. His evidence was not (as was argued) that he necessarily received the documents for the appellant in September or October 1983. He said, in effect (as I understood him) that he ordinarily called
upon his client about that time of year, and I gathered from his evidence that he assumed that that had happened on this occasion. He did not really know when he got the documents. We do know, however, that the tax return for the 1982/83 year was lodged in February 1984.
It was argued on behalf of the appellknt that it seemed likely, in view of the information which is in the tax return, that Mr McDonald had the details of the contracts by February 1984, and I agree that that is so; that is, I find that it is the case, contrary to some evidence called on behalf of the respondent, that all the relevant documents were signed by February 1984.
The next category of evidence I will mention (which although not documentary, seems to me quite useful) is the evidence which was given about the rates. In the contracts which the appellant relies on, one finds two basic forms. There is a short form exemplified by exhibit E to the first affidavit of the appellant, and the longer form exemplified by exhibit D. Each of the longer forms includes a clause, although the numbers are not all the same, requiring the purchaser to pay the rates from the date of possession, and the evidence is that each purchaser was in possession at the date of the contract.
The fact is that the purchaser did not pay the rates and, of course, one possible explanation for that is that the
have been advanced, and I will mention what they are. One is in contracts were not signed in 1981. Two other explanations for it
document 77, which is an admission of facts pursuant to 0.18 r.2 sub-r.2 in which the appellant says that he:

". . . paid such rates under the honest belief that he

was entitled to claim them as a tax deduction and that until such time as the formal conveyances were completed and notice given to the local authority he remained liable for the rates."

When asked about the point in ~ourf, the appellant's

evidence was inconsistent with that. He said, in effect, that he pressed purchasers for the rates and they said they did not have the money. He illustrated this by asserting that he said to them, 'Could you give me some money for rates?" I find this disrepancy strange, and it goes against the appellant's credit.

The last category of evidence, the critical one, is the evidence concerning the date of execution of the contracts themselves. There are as I have said eight contracts in issue. Four of the purchasers have been called, and their evidence, generally speaking, was against the appellant's case. Two of them, who were not called, gave evidence the other way.

Of the purchaser-witnesses called, according to the address by Mr Hack who represented (capably, if I may say so) the interests of the appellant, two who were more credible than the others were Messrs Nelson and Clark. I agree with that contention. M Hack also contended, in effect, that I should ignore the evidence of Miss Otto, one of the other two called, and regard it as of no weight. It is true that Miss Otto gave an

answer which was favourable to the appellant's case, but in my

opinion the burden of her evidence was the other way. She was not a particularly impressive witness, but did not seem to me likely to have got matters so far wrong as the appellant's case would have me believe. I did not receive any assistance from Mr Fletcherfs evidence.

Messrs Clark and Nelson, however, were, I thought,

impressive witnesses. I do not believe that either of them has a

very clear recollection of the precise date o$ execution of his contract, but I find it extremely difficult to accept that they could be years out, as is suggested, or that they have deliberately attempted to mislead me.

The evidence of the appellant on this point principally
appears from his first affidavit, which was filed on 24 August

1988. The appellant commences by saying that Mr Hodge approached

him towards mid 1981 with a proposal to purchase the house in
which he was a tenant.

! '

Paragraph 16 goes on: 

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"His proposal appealed to me particularly since I considered a price of $50,000.00 to be very attractive. It occurred to me that my other tenants also might be interested in purchasing the properties they rented for a price of that order. I made adaptions to the then REIQ standard form of contract and drafted special conditions for a sale to the Hodges. Now produced and shown to me marked "A" is a copy of the said contract. I presented it to the Hodges for their consideration. At the same time I prepared similar contract documents for several of my other rented properties and presented them t o the tenants concerned for their consideration. The difference between these contracts and the Hodge contract was that the

former provided for payment of the deposit over	three years, rather than four years, before
transfer."
Paragraph 18 says:

"One of the tenants, a Mr. Clark, told me that he was interested in purchasing but was reluctant to sign a contract. He told me that he had been involved in a sale of a house on terms whereby the owner and the purchaser had an agreement by which the vendor agreed to accept as deposit all moneys paid for a specified period after the date of the agreement so long as the purchaser agreed to sign the former contract once the specifidd period had come to an end."

The affidavit goes on to explain the dealings with Mr

Clark. Paragraph 19 says:

"I accepted Mr. Clark's reasons. I did not seek

legal advice on the matter. I held discussions with the tenants to whom I had presented the REIQ form contracts and all of those who were interested in purchasing, except the Hodges and the Fletchers, preferred to sign an agreement rather than a formal contract. I drafted a form of agreement as a substitute for the REIQ form of contract in respect of the properties occupied by the Clarks, the Carnes , the Blackwells, Miss Ot to, the Nelsons and the Knipes. By the 1st July 1981 I had prepared

REIQ contracts in respect of the Hodge and Fletcher

transactions and written agreements in respect of the other six transactons. On the 1st July 1981 I signed the contracts, exhibits "A" and "B" hereto and I was present when they were signed by the Hodges and the Fletchers respectively. On the same day I signed the following agreements which are now produced and shown to me marked respectively".

The appellant then sets out the other six. Now, this is all very improbable. The evidence is that there were different categories of people. There was Mr Hodge, who approached the appellant. There were others who were approached by the

appellant, and these fell into two groups: some were prepared to

sign what might be described as the ordinary form of contract, and others were not. One might have expected that concluding one agreement might take more time than concluding another. Remarkably, all the deals happened (it is alleged) to be consummated on the same day, on 1 July 1981, which it will have been noticed was the first day of the fiscal year. I do not

believe that evidence. It is unlikely and unconvincingly told.

It is my opinion that the evidence Q£ Mr Raynbird and his son-in-law Mr Burton on this point is untrue. I do not wish to say too much about that; it seems undesirable to use the position I have to blacken the character of these gentlemen, but I do not accept what they tell me.

The essence of the matter, then, is that in my opinion the contracts in question were backdated, as is the respondent's case; I do not believe that they were signed on 1 July 1981. It remains to be added that Mr Hack contended, rather faintly I thought, that even if they were executed after the end of the relevant financial yar, that is, after 30 June 1983 (as I find) nevertheless by some process the receipts could be turned from income into capital retrospectively.

He argued, taking an example, that it might be possible that if a payer and payee had mistakenly treated payments as income, they could later correct the matter, and that may well be so. He said that people can capitalise interest, and that undoubtedly is so. There is no authority (or, so far as I know, principle of law) which could possibly achieve the result that	payments of rental can, years after being made, be agreed to be	treated as payment of purchase price, in such a way as to relieve
the recipient of the obligation to include them in his assessable income.

The result is that the appeal will be dismissed with

costs.

: ceriify fbat this and the preceding

pa-es ara a trua copy of thp reasons for

judgment hcrein of

Mr. Justice Pincus

'bsociate