Jedburgh Stock Co Pty Ltd v Commissioner of Taxation (Cth)

High Court of Australia Mason, J. Jedburgh Stock Co Pty Ltd v Commissioner of Taxation (Cth)

ORDER Order Appeals dismissed. Assessments confirmed. Appellant to pay the respondent's costs of the appeals. Usual order as to exhibits. Mason, J

: The taxpayer has appealed against its assessment to income tax for the years ended 1966 to 1970 inclusive, on the ground that the Commissioner was in error in including in its assessable income in each year the substantial profits which it derived from the sale of allotments forming part of a parcel of 78 acres of land which it acquired at Kenmore, seven and one-half miles to the west of Brisbane, in 1961. The Commissioner's case is that the land was acquired for the purpose of profit-making by sale and that the profits are therefore assessable income under the first part of s 26(a) of the Income Tax Assessment Act 1936, as amended. The issue is whether the taxpayer has succeeded in showing that the land was not acquired for the purpose of profit-making by sale.

The taxpayer's case rests largely on the oral evidence of Mr Stubbs, a solicitor, who is a director of, and a substantial shareholder in, the taxpayer. He says that the taxpayer was incorporated with a view to buying the land at Kenmore and developing it as a feed lot for fattening cattle.

In 1957 Mr Stubbs came from New Zealand to Brisbane where he practised as a solicitor. His wife's family had for the past 70 years a substantial interest in a very large grazing property known as "Jedburgh", having an area of 300,000 acres, situated on the Barcoo River in the south-western corner of Queensland near Jundah, some 150 miles from the South Australian border and 120 miles south-west of Longreach. In 1959 and in the years that followed, the property was owned by the Henderson family (Mrs Stubbs' family) and the Reid family in the proportions of nine to eight respectively. The grazing business was conducted by a company, Henderson & Reid Pty Ltd, the share capital in which was held by the two families in like proportions. Sheep and cattle were depastured on the property. Their numbers varied, as the rainfall in the region fluctuates considerably and the Barcoo River flows only in times of heavy rainfall. The area is one of very low rainfall, the average annual rainfall being in the vicinity of 12 inches. In the years 1958-1959, 1961, 1963-1966 the rainfall was well below average with the result that the carrying capacity of the property fell sharply. The carrying capacity of the property varied from 36,000 livestock in a very good season down to 4000 in 1972, a bad year. In the decade 1960-1970 wool prices decreased sharply. From 1960 onwards the operating company paid no dividend and incurred substantial liabilities for running expenses, as did the members of the two families in order to keep the grazing business on foot. Pressure has been exerted by the Bank to secure a substantial reduction in these liabilities. The families, discouraged by these events, are now contemplating a sale of "Jedburgh" and hope to defray their liabilities out of the proceeds of sale.