The Court held that where a taxpayer changes their intention from holding land for personal use to selling it in parcels, the profits are assessable as business income and may be apportioned across instalments using ordinary business accounting methods rather than deferred until full capital recoupment.
Later decisions that cite Perrott v Deputy Federal Commissioner of Taxation (NSW)
Perrott Appellant; and The Deputy Federal Commissioner of Taxation (N.S.W.) Respondent.
H C of A
On appeal from the Supreme Court of New South Wales.
1 May 1925
Knox C.J., Isaacs, Higgins and Starke JJ.
Watt K.C. (with him A. L. Campbell), for the appellant.
Lamb K.C. and Bowie Wilson, for the respondent, were not called on.
Knox C.J.
With reference to the first point argued by Mr. Watt, that is to say, whether these proceeds represented a change of investment, I think that the only reasonable conclusion on the evidence before the learned Judge was that at which he arrived, and therefore there is no fault to be found with his decision on that score. With regard to the second ground, as to the time at which these profits became available to be taxed as income, I think the learned Judge was right on that also, because the profits are chargeable with tax as being income consisting of proceeds of a business. It seems to me that once you get profits brought under that head you have to look at business principles and make up the account in the ordinary business way. Upon the evidence I am satisfied that the learned Judge was manifestly right in upholding the assessment. I therefore think that the appeal should be dismissed.
Isaacs J.
I am of the same opinion. Without any disrespect to Mr. Watt I think the case is quite unarguable.
Higgins J.
I am of the same opinion. The fact that a man is a grazier does not prevent him from entering into the business of land-jobbing, if he wish to do so; and if originally the appellant intended to live on part of this property and to work it, he changed that intention. This transaction was not a change of investment; and the profit here in question is profit made from the business of land-jobbing.
Starke J.
I agree. The first question argued was simply one of fact which the learned Judge below rightly found, in my opinion, against the appellant. The second question argued before us was based upon the decision in St. Lucia Usines and Estates Co. v. Colonial Treasurer of St. Lucia[1]. It was urged that no income had "come in" to the appellant in respect of the years for which he had been assessed. But, to take the year ending on 30th June 1920, the appellant received instalments from the sale of land amounting to the sum of £35,384. That sum had actually "come in." But according to Mr. Watt, no part of that sum could be treated as income until the appellant recouped himself the whole of his capital outlay on the land. The appellant or his accountant allocated £9,248 of that sum to profits or income—it was afterwards reduced to £8,741—and stated the basis of his apportionment in a document (Ex. K). The method is based upon sensible business considerations and the Commissioner and the learned Judge were entitled, in my opinion, to act upon that method as a basis of assessment.
Appeal dismissed with costs.
Solicitors for the appellant, Clayton Utz & Co.
Solicitor for the respondent, Gordon H. Castle, Crown Solicitor for the Commonwealth.
[1] (1924) A.C. 508.