John v Commissioner of Taxation (Cth) [1989] HCA 5

High Court of Australia Mason C.J. Wilson, Brennan, Dawson, Toohey and Gaudron JJ. John v Commissioner of Taxation (Cth) [1989] HCA 5

ORDER Appeal dismissed with costs.

Cur. adv. vult.

The following written judgments were delivered:—

1989, Feb. 8 Mason C.J., Wilson, Dawson, Toohey and Gaudron JJ.

Mrs. John, the appellant taxpayer, is a member of a partnership, Malindi Trading Co. ("Malindi"), which was formed on 14 April 1977. From its formation Malindi bought and sold shares. One of its first transactions was the purchase, on 27 April 1977, of one half of the issued shares in six companies — Compinge (Holdings) Pty. Ltd., Compinge (N.S.W.) Pty. Ltd., Compinge (Sydney) Pty. Ltd., Compinge (North) Pty. Ltd., Compinge (Tamworth) Pty. Ltd. and Compinge Pty. Ltd. This appeal concerns the purchase and subsequent sale of shares in the first five-named companies ("the five Compinge companies").

The purchase price paid by Malindi for its shareholding in the five Compinge companies was as follows: Compinge (Holdings) Pty. Ltd. $1,062,739.87 Compinge (N.S.W.) Pty. Ltd. 295,990.87 Compinge (Sydney) Pty. Ltd. 271,330.54 Compinge (North) Pty. Ltd. 308,384.81 Compinge (Tamworth) Pty. Ltd. 467,837.03 $2,406,283.12

On 28 April 1977 each of the five Compinge companies declared dividends from profits arising on the revaluation or sale of assets not acquired for the purpose of resale at a profit. On the same day, each of the five companies issued bonus shares to its shareholders, crediting the dividends declared as payment for the shares issued.

On 29 April Malindi sold the shares originally purchased ("original shares") and the bonus shares to a single purchaser. The sale price was: Compinge (Holdings) Pty. Ltd. Original Shares 1,786.51 Bonus Shares 1,061,186.68 1,062,973.19 Compinge (N.S.W.) Pty. Ltd. Original Shares 1,148.17 Bonus Shares 295,075.73 296,223.90 Compinge (Sydney) Pty. Ltd. Original Shares 553.09 Bonus Shares 271,010.27 271,563.36 Compinge (North) Pty. Ltd. Original Shares 572.57 Bonus Shares 308,045.07 308,617.64 Compinge (Tamworth) Pty. Ltd. Original Shares 591.75 Bonus Shares 467,479.13 468,070.88 $2,407,448.97 Viewing the matter to this point, Malindi had, in respect of its shareholding in each of the five Compinge companies, made a profit in the sense that the price obtained on sale of its shareholding exceeded the expenditure incurred in its acquisition. In total that profit amounted to $1,165.85.