Bonfam Pty Ltd v Commissioner of Taxation [1988] FCA 388

JUDGMENT to 3887 SB

CATCHWORDS Income Tax - Ascertainment of assessable income ~- Distinction between income and capital - Sales of property acquired for re-sale and profit-making schemes - Land - Profit arising from

carrying out of profit-making scheme.

Income Tax Assessment Act 1936 - s.26(a), Divisions 5 and 6 of Part III

BONFAM PTY. LTD. (AS TRUSTEE FOR THE M.J. RISHWORTH FAMILY TRUST) v. THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

VG369 of 1987

Jenkinson J. Melbourne 22 July, 1988

IN THE FEDERAL COURT OF AUSTRALIA )

VICTORIA DISTRICT REGISTRY ) No. VG369 of 1987 GENERAL DIVISION )

IN THE MATTER of the Income Tax Assessment Act 1936

and

IN THE MATTER of an appeal thereunder against an assessment of income tax for the year ended 30 June 1982

BETWEEN: BONFAM PTY. LTD. (AS TRUSTEE FOR THE M.J. RISHWORTH FAMILY

TRUST)

Applicant

AND: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF

AUSTRALIA Respondent CORAM: Jenkinson J. PLACE: Melbourne Fy DATE: 22 July, 1988

REASONS FOR JUDGMENT

Michael John Rashworth's wife died 1n April 1977. Bya deed dated 1 June 1978 a discretionary trust was constituted of a settled fund, then $100, of which Bonfam Pty. Ltd. was trustee and of which defined classes of persons related in blood or by marriage or adoption to Mr. Rishworth were to be beneficiaries.

The trust, known as the M.J. Rishworth Family Trust, was

2.

constituted on advice tendered to Mr. Rishworth by his accountant that a family trust should be constituted "for the sole purpose", according to the accountant's affidavit, upon which he was not cross-examined, "of securing long term investments, which would return an income so as to maintain and educate" Mr. Rishworth's two children, who were then aged respectively 9 and 12 years. Bonfam Pty. Ltd. was at all material times "associated with" the accountant's company, Bongiorno & Partners Pty. Ltd. Who its directors at any time were does not appear. Mr. Rishworth deposed that while Bonfam Pty. Ltd. was trustee of the M.J. Rishworth Pamily Trust he "was duly authorised to act on its behalf as its agent", but that he was at no time a director. Counsel for the parties to the appeal treated - and desired that I should treat - Mr. Rishworth's mind as at all material times the controlling mind of Bonfam Pty. Ltd. in relation to the matters with which this appeal is concerned. Ina return of income in respect of the year of income ended 30 June 1982 Bonfam Pty. Ltd. disclosed its receipt, as trustee of the M.J. Rishworth Family Trust, of an amount of $124,488, described in the return as "a capital receipt" and as having been included in the return as such in "accordance with" a return of partnership income which is identified. This latter return, in respect of the same year of income, concerns what is described therein as a "joint venture" of Antow Pty. Ltd. and Bonfam Pty. Ltd. It discloses a receipt by those two companies of $345,000 as what is called "Contract Dealings Surplus", deduction from that amount of certain "Expenses" aggregating $96,023, and shows each company to have received