Thomson v Deputy Federal Commissioner of Taxation

The High Court of Australia heard an appeal from the Supreme Court of Western Australia concerning an income tax assessment. The appellant, Elizabeth Viola Thomson, had sold the growing timber on her Crown grazing lease to a timber company for £1,800, of which £1,400 was attributed to her. The Deputy Federal Commissioner of Taxation assessed this amount as income from property. The Supreme Court had previously dismissed the appellant's appeal, finding the proceeds of the timber sale to be assessable income.

The central legal issue before the High Court was whether the proceeds from the sale of the growing timber on the appellant's grazing lease constituted assessable income or the realisation of a capital asset. The Commissioner contended that the transaction was either a sale of a leasehold interest taxable as royalty or bonus under section 16(d) of the *Income Tax Assessment Act 1922-1927*, or a sale of a chattel, which, given the land was acquired for income derivation, would also be assessable income. The appellant argued that the sale represented the realisation of a portion of her capital, not income, as there was no trade or sale of an annual crop.

The High Court reasoned that the timber was part of the capital asset the appellant acquired when she took up the land. It distinguished the timber from an annual crop or a recurring profit, noting that the growth of timber did not constitute a periodic recurrence of profit. The Court concluded that the transaction was the conversion of part of the appellant's capital into money and therefore not income. Consequently, the appeal was allowed, the Supreme Court's order was discharged, and the assessment was varied by striking out the £1,440. The respondent was ordered to pay the costs of both appeals.