Aitken v Commissioner of Taxation [2025] FCA 372

Commissioner of Taxation v Liang [2025] FCAFC 4

Federal Commissioner of Taxation v Dalco [1990] HCA 3; 168 CLR 614

Federal Commissioner of Taxation v Miley [2017] FCA 1396; 106 ATR 779

Federal Commissioner of Taxation v Resource Capital Fund III LP [2014] FCAFC 37; 225 FCR 290

Fountain v Alexander [1982] HCA 16; 150 CLR 615

HP Mercantile Pty Ltd v Commissioner of Taxation [2005] FCAFC 126; 143 FCR 553

Kilgour v Commissioner of Taxation [2024] FCA 687

Leichhardt Council v Roads and Traffic Authority (NSW) [2006] NSWCA 353; 149 LGERA 439

Mount Pritchard & District Community Club Ltd v Federal Commissioner of Taxation [2011] FCAFC 129; 196 FCR 549

Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355

R v JS [2007] NSWCCA 272; 230 FLR 276

Serbian Cultural Club 'St Sava' Inc v Road & Traffic Authority of New South Wales [2007] NSWLEC 673

Spencer v The Commonwealth [1907] HCA 82; 5 CLR 418

Technical Products Pty Ltd v State Government Insurance Office [1989] HCA 24; 167 CLR 45

Travelex Ltd v Commissioner of Taxation [2010] HCA 33; 241 CLR 510

Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2008] HCA 5; 233 CLR 259

1. The appeal be dismissed.
2. By 7 May 2025, or such further time as may be allowed, the parties confer and submit by email to the associate to Justice Bromwich agreed or competing procedural orders, or other orders, for the purpose of determining the question of costs.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

1. This is an appeal against an objection decision made by respondent, the Commissioner of Taxation, under s 14ZZ of the Taxation Administration Act 1953 (Cth) (TAA). The appeal is brought in the original jurisdiction of this Court by Mr Michael Aitken. The issues in the appeal concern the operation of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) on a forestry managed investment scheme (FMIS), known as the AgriWealth 2011 Softwood Timber Project, and in particular, the income tax consequences of Mr Aitken ceasing to participate in the Project.
2. The Commissioner disallowed an objection by Mr Aitken to an amended income tax assessment for the 2015-2016 financial year, although the penalty rate that had been imposed was substantially reduced and is not further challenged. The appeal is therefore confined to the disallowance of the objection to the amended assessment. The central issue concerns the determination of the market value, or reduction in the market value, of Mr Aitken's forestry interest in the Project in order to ascertain his assessable income for the purposes of his 2015-2016 income tax return.
3. In these reasons, unless the contrary is indicated, all references to legislative provisions are to those in the ITAA 1997, with the key provisions being in Div 394, introduced in 2007.

1. The legislative regime for Div 394 is set out in more detail below. The following is an introductory overview. The opening section of Div 394, s 391-1, describes the Division's structure and purpose:

This Division sets out rules about deductions for contributions to forestry managed investment schemes. It also sets out the tax treatment of proceeds from the sale of interests in such schemes, and of proceeds from harvesting trees under such schemes.

1. The stated objective of Div 394, set out in the chapeau to s 394-5, is to encourage the expansion of commercial plantation forestry in Australia through the establishment and tending of new plantations for felling. To achieve this objective, Div 394 permits investors to deduct amounts paid under an FMIS in the year of investment if certain conditions are met and allows the secondary market trading of forestry scheme interests with greater tax certainty for investors: s 394-5.
2. The essence of the statutory regime in Div 394 is that sums invested in an FMIS, ordinarily treated as capital amounts for income tax purposes, are instead dealt with on the revenue account and therefore able to be claimed as a deduction in the year of payment by an investor. It thereby created a deliberately generous statutory regime for early deductions from assessable income of most of an investment made in an FMIS.
3. Correspondingly, the Div 394 regime provides that when a participant's forestry interest comes to an end, or an alternative basis for assessment is otherwise triggered, the market value, or the decrease in market value, is to be treated as assessable income, necessarily also on the revenue account, rather than any amount actually received by the investor. It is important to note that, despite submissions to the contrary by Mr Aitken, there may be more than one such event in a given financial year, which may result in accumulated assessable income in that financial year, or in assessable income falling across more than one financial year.
4. The market value, or reduction in market value, brought to account in the revenue account in a given financial year, may be more, less or the same as a any amount actually received, because that is not per se included in the taxpayer's assessable income. This maintains symmetry in the tax treatment of forestry investment expenses and benefits, so that both deductions and a reasonable proxy for the real income value of the benefit that has been realised on one or more occasions are brought to account. This is achieved via deploying, only as an assessment mechanism, aspects of the capital gains tax (CGT) regime detailed below.
5. In the CGT regime, the concept of a CGT event, defined in a number of different ways for different circumstances, is used to ascertain when income tax liability arises for capital gains. The mechanism of that regime is used by Div 394 to arrive at assessable income, but in the revenue account, for a participant in an FMIS. In keeping with the virtually complete deductibility of the initial investment, the CGT concept of a cost base, which is subtracted from the value of an asset when it is sold or otherwise comes to an end in order to measure the capital gain, is excluded.
6. In June 2011, Mr Aitken invested $10,143,700 (including GST) to acquire 337 timberlots in the Project. A timberlot refers to an area of half a hectare of planted land, to which a forestry interest attaches to. Initial investors who participated in the Project, including Mr Aitken, were referred to as Growers under the Project documents. Under the Project, a forestry interest is comprised of a right in timber as well as a right in carbon sequestration and salinity rights and credits. For ease of expression, in these reasons I use the singular term forestry interest to refer to all of Mr Aitken's forestry interests (including both the timber and the carbon sequestration and salinity rights and credits components) arising from his 337 timberlots. I use the plural term forestry interests to refer to all of the forestry interests of all the Growers in the Project.
7. As part of the purchase price, Mr Aitken also acquired corresponding put options allowing him to sell the timberlots back to the forestry manager, AgriWealth Capital Limited (referred to in the documents, evidence and these reasons as the Manager), for $14,000 per timberlot, a total of $4,718,000. That is, for just under half of the initial investment amount. In these reasons, it is convenient to refer to Mr Aitken's 337 put options in the singular as the Put Option and to use the plural term Put Options to refer to the put options held by all the Growers.
8. Mr Aitken's upfront payments in respect of each timberlot were as follows:

1. Mr Aitken claimed the full deduction of $9,082,150 to which he was entitled in the 2010-2011 financial year. That deduction is not in issue in this appeal.
2. Four years later, on 1 July 2015, Mr Aitken exercised his Put Option and then, on the same day, novated the timber component of his forestry interest to the Manager, receiving $4,718,000 to his benefit. Those proceeds were directed to discharging the loans given to him by the Manager, rather than being paid to him. Relevantly, Mr Aitken ultimately contended that the market value of the timber component of his forestry interest at the time of its novation was the sum of approximately $300,000, such that only that sum should form part of his assessable income and be included in his 2015-2016 income tax return. After a correction was made to his initial return that is not presently material, he was assessed accordingly.
3. On 13 January 2021, after an audit, the Commissioner issued an amended assessment upon the basis of the sum of:

(a) the decrease in the market value of Mr Aitken's forestry interest as a result of the exercise of the Put Option; and

(b) the market value of Mr Aitken's forestry interest at the time of its novation,

which happened to be the same as the amount actually received to his credit of $4,718,000. Despite being the same as that amount, it was not based on it being the amount paid or received to Mr Aitken's credit per se, as, per s 394-25(3), any amount actually received is expressly not included as assessable income.

1. On 5 March 2021, Mr Aitken lodged an objection to that amended assessment. On 31 August 2023, the Commissioner disallowed the objection as to the income tax assessment, but allowed it as to penalties by 80%, taking the penalties imposed from 25% to 5%. On 27 October 2023, Mr Aitken commenced this proceeding.
2. The determinative issue on this appeal is whether Mr Aitken has discharged his onus of proving that the amended assessment was excessive. The manner in which the onus can be discharged depends on whether all material facts are known and whether the parties have agreed to "confine an appeal to a specific point of law or fact on which the amount of the assessment depends": Federal Commissioner of Taxation v Dalco [1990] HCA 3; 168 CLR 614 at 625 (Brennan J).
3. The reasons for judgment in Dalco are in the separate reasons of Brennan J and Toohey J, with whom Mason CJ, Deane and Dawson JJ agreed. Brennan J further explained in Dalco at 625:

If this were a case where all the material facts were known and the amount of taxable income depended on the legal complexion of those facts, the taxpayer would succeed upon establishing that the Commissioner erroneously included in the assessed taxable income an amount which, on those facts, ought not to have been included. But where, as here, the taxpayer has not proved that his actual taxable income is less than the amount assessed, the Court does not know all the material facts and it cannot find that the amount assessed is wrong. A taxpayer who shows on the facts that are known a mere error by the Commissioner in assessing the amount of the taxpayer's taxable income does not show that the objection should have been allowed or that the appeal against the assessment must be allowed.

1. Recently, Perram, Wheelahan and Hespe JJ in Commissioner of Taxation v Liang [2025] FCAFC 4, after quoting the above from Dalco, reinforced the point made by Brennan J and confirmed its currency, by observing at [34] that a distinction must be drawn between showing an error where all material facts are known and where they are not known.
2. In this proceeding, most of the material facts that are before the Court are not in dispute and the issues are largely confined to the market value, or reduction in market value, of Mr Aitken's forestry interest, as at 1 July 2015. But as will be seen, not all the material facts going to market value are before the Court, largely due to evidentiary silence about the circumstances surrounding the Novation Deed dated 1 July 2015, and the absence of any evidence of the value of the carbon sequestration and salinity rights and credits component of Mr Aitken's forestry interest retained by him. Therefore, Mr Aitken needs to establish an error by the Commissioner in the determination of the reduction in market value and/or subsequent market value, of his forestry interest in the Project, as referred to in s 394-25(2), on 1 July 2015. It is convenient to refer to this as the market value issue.
3. For the reasons that follow, I find against Mr Aitken on the market value issue, such that he has failed to discharge his onus of proving that the amended assessment was excessive. His appeal must therefore be dismissed.
4. There are a number of other issues that also require determination, but in the end are not of themselves determinative, including whether Product Ruling PR 2011/12, being a species of public ruling, was binding on the Commissioner in relation to Mr Aitken because of the nature and extent of his departures from its strict terms. For the reasons that follow, I conclude that PR 2011/12 was not binding on the Commissioner. However, I am satisfied that that whether or not the PR 2011/12 was binding, the result would have been the same.
5. The evidence was largely documentary, but there was also affidavit evidence from Mr Aitken and his evidence in cross-examination, as well as a report by the valuation expert he relied upon, Mr Halligan, who was also cross-examined. As an alternative to the primary position that valuation evidence was not required, the Commissioner also adduced expert valuation evidence from Mr Nguyen, who was also cross-examined.

1. The following chronology is in part drawn from a joint chronology provided by the parties, with some elaboration. This succinctly describes the sequence of the main events:

The Manager for the Project provided various documents to the Commissioner during the course of its application for a product ruling.

The Commissioner issued Product Ruling PR 2011/12 - Income tax: AgriWealth 2011 Softwood Timber Project.

The Manager issued an Information Memorandum about the Project to prospective investors, including Mr Aitken.

The Manager established the Project by executing a deed poll titled 'Tree Constitution'.

The following documents, all dated 29 June 2011, were executed by the Manager on behalf of each Grower, pursuant to a power of attorney:

· Forestry Management Agreement between the Manager and the Growers (later amended by a deed dated 30 June 2011 to add additional Growers)

· Put Option Deed (later amended by an Amending Deed - Put Option Deed dated 30 June 2011 to add additional Growers)

· Manager Loan Agreement - 15 Years - Principal and Interest

Mr Aitken submitted his application form to invest in 337 timberlots in the Project for a total application price of $10,143,700. A timberlot is defined in the Definitions and Interpretations Deed as an area of half a hectare of planted land.

The Manager sent a letter to Mr Aitken titled 'Tax invoice 2011-36 for Establishment Services'.

The Manager sent a letter to Mr Aitken informing him that he had invested in the Project and enclosing a tax invoice in relation to the establishment services fee.

There are two versions of this letter. One version was provided by Mr Aitken to the ATO during a statutory notice process and another version was annexed to Mr Aitken's affidavit in this proceeding. The differences are discussed at [158]ff in the course of determining whether PR 2011/12 is binding on the Commissioner.

Mr Aitken lodged a Return of Income for the income year ended 30 June 2011.

Mr Aitken and the Manager executed a loan agreement dated 9 September 2011, reflecting the renegotiation of the 15-year loan dated 29 June 2011 (see last dot point for 29 June 2011 above).

Mr Aitken lodged a further return of income for the income year ended 30 June 2011.

The Timberlot Agreement dated 29 November 2011 was executed. The agreement is in the form of a transfer of a forestry right in timber and a forestry right in carbon sequestration. This is further described in Annexure B to the Timberlot Agreement as the Grower (each investor) owning carbon sequestration and salinity rights and benefits (elsewhere benefits are referred to as credits).

The Manager executed a Deed of Novation dated 10 October 2011 on behalf of each Grower, pursuant to a power of attorney.

NB: This is the Novation Deed that was referred to in PR 2011/12, to be contrasted with the Novation Deed that was executed on 1 July 2015, which was not referred to in PR 2011/12.

The Commissioner amended Mr Aitken's Return of Income for the income year ended 30 June 2011 by reason of a correction.

The Novation Deed signed and dated 1 July 2015 had an effective commencement time of 12.01am.

The following events occurred on 1 July 2015, with the order of those events, or whether they all occurred at or about the same time, being unclear (although nothing turns on this). They had legal effect in the following sequence:

· Mr Aitken gave a Notice of Exercise of Put Option to the Manager, signed and effective from 1 July 2015. Pursuant to cl 3.1 of the Put Option Deed, the Manager would be required to purchase Mr Aitken's forestry interest in the Project, with completion to occur in five business days, had intervening events not occurred.

· The Manager sent a letter to Mr Aitken in response to his request to exercise his Put Option, asking him to sign and return a Notice and a Novation Deed.

· Mr Aitken and the Manager executed the Novation Deed dated 1 July 2015. This Novation Deed was not contemplated by PR 2011/12, and did not deal with all of Mr Aitken's forestry interest, in that it excluded his carbon sequestration and salinity rights and credits.

Mr Aitken lodged a Return of Income for the income year ended 30 June 2016, labelling the amount of $63,558 ($188.60 per timberlot) as a capital loss.

The Commissioner issued a Notice of Assessment (consistent with the return) for Mr Aitken for the year ended 30 June 2016.

Mr Walters (tax agent for Mr Aitken) emailed the ATO regarding an error in Mr Aitken's tax return and states that the amount of $63,558 should be treated as assessable income rather than a capital loss.

Following an audit of Mr Aitken's tax affairs, the Commissioner issued a Notice of Amended Assessment for the year ended 30 June 2016.

Mr Aitken lodged an objection to the amended assessment.

The Commissioner issued an objection decision, disallowing Mr Aitken's objection in relation to income tax and partly allowing his objection in relation to penalties.

Division 394 - Forestry managed investment schemes

1. Div 394 deals with investments in an FMIS and sets out rules around deductions for contributions and the tax treatment of benefits. Under s 394-10, a taxpayer who holds a "forestry interest" in a "forestry managed investment scheme" can claim a deduction for certain amounts paid under the scheme if the conditions in that provision are met.
2. The concepts of "forestry interest" in a "forestry managed investment scheme" are defined in s 394-15(1) and (3), as follows:

(1) A *scheme is a forestry managed investment scheme if the purpose of the scheme is for establishing and tending trees for felling in Australia.

(3) A forestry interest in a *forestry managed investment scheme is a right to benefits produced by the scheme (whether the right is actual, prospective or contingent and whether it is enforceable or not).

1. It is common ground that Mr Aitken's forestry interest excluded his interests in the Put Option and land trust units: see the list of upfront payments at [12] above.
2. The concept of a CGT event and its relevant operation is discussed in the next part of these reasons dealing with Div 104. Where a CGT event happens to a forestry interest of an initial participant in an FMIS such as Mr Aitken (other than in respect of thinning), s 394-25 specifies the amount that should be included in the taxpayer's assessable income. Section 394-25 provides:

(1) This section applies if:

(a) you hold a *forestry interest in a *forestry managed investment scheme as an *initial participant in the scheme; and

(b) at least one of these conditions is satisfied:

(i) you can deduct or have deducted an amount for an income year under section 394-10 in relation to the forestry interest;

(ii) the condition in subparagraph (i) would be satisfied if subsection 394-10(5) were disregarded; and

(c) a *CGT event happens in relation to the forestry interest, other than a CGT event that happens in respect of thinning.

(2) Your assessable income for the income year in which the *CGT event happens includes:

(a) if, as a result of the CGT event, you no longer hold the *forestry interest--the *market value of the forestry interest (worked out as at the time of the event); or

(b) otherwise--the decrease (if any) in the market value of the forestry interest as a result of the CGT event.

(3) Any amount that you actually receive because of the *CGT event is not included in your assessable income (nor is it *exempt income).

1. Mr Aitken seems to suggest that there can be only one such CGT event, apparently based at least in part on the use of the singular "event" in s 394-25(1)(c). However, as will be seen, neither the text of the legislation, nor the consistent explanatory memorandum accompanying the Bill that inserted it (extracted below, see especially [9.20]), nor logic, supports that conclusion. Moreover, s 23(b) of the Acts Interpretation Act 1901 (Cth) provides that in any Commonwealth Act, words in the singular include the plural (and words in the plural include the singular).
2. The amount derived by the application of s 394-25 is included in the taxpayer's assessable income on the revenue account (and not as a capital gain), if the conditions for the availability of the original deduction in s 394-10 have been met. The explanation for this symmetry is in the Explanatory Memorandum, Tax Laws Amendments (2007 Measures No. 3) Bill 2007 (Cth):

Chapter 8 Investments in forestry managed investment schemes

...

[8.14] This measure inserts a specific deduction into the ITAA 1997 to provide initial investors with a tax deduction equal to 100 per cent of their payments under the scheme, provided that there is a reasonable expectation at 30 June in the year in which an amount is first paid under the scheme that at least 70 per cent of that expenditure (using market value) qualifies as DFE. Secondary investors are also entitled to a tax deduction equal to 100 per cent of their on-going contributions under the scheme.

...

[8.33] To provide symmetry between the upfront revenue deduction and the proceeds of sale or harvest, where you are an initial participant in the scheme and can deduct or have deducted an amount under Division 394 (or could have done so if you had not disposed of your interest within four years), and a CGT event occurs in relation to your interest, the proceeds arising from the CGT event will be treated as assessable income on revenue account in the income year of receipt. [Schedule 8, item 2, section 394-25]

[8.34] This is achieved by requiring the assessable income of the investor to include the market value of the interest when a CGT event happens to your interest under the scheme. A CGT event will happen in relation to your interest if that interest is sold, is extinguished or ceases, or if the CGT event reduces the value of the interest. The market value that is included in your income is the value of the interest just before the event, or if you continue to hold your interest after the CGT event, the amount by which the market value of your interest is reduced. [Schedule 8, item 2, subsection 394-25(2)]

[8.35] Treating the initial investor's interest as capital would result in the initial investor obtaining a double benefit of a 100 per cent deduction (on revenue account) on acquiring the interest and the potential application of concessional CGT treatment, including the CGT discount for individuals and trusts and the application of capital losses to their proceeds on disposal.

...

Chapter 9 Disposals of interests in forestry managed investment schemes

...

Initial investor's sale or harvest proceeds treated as on revenue account

[9.20] To provide symmetry between the upfront revenue deduction and the proceeds of sale or harvest, where an initial participant in a scheme can deduct or has deducted an amount under section 394-10 (or could have done so if the investor had not disposed of the interests within four years), and a CGT event occurs in relation to the interests, the proceeds arising from the CGT event will be treated as assessable income on revenue account in the income year of receipt. [Schedule 8, item 2, section 394-25]

[9.21] This is achieved by requiring the assessable income of the investor to include the market value of the interests when a CGT event happens to the interests under the scheme. A CGT event will happen in relation to the interests if they are sold, bought back by the manager prior to harvest, or harvest proceeds are received, or if the CGT event reduces the value of the interests (eg, a sale of part of the interests or a partial harvest). The market value that is included in the initial investor's assessable income is the value of the interest just before the event, or if the investor continues to hold some of the interests after the CGT event, the amount by which the market value of the interests is reduced. [Schedule 8, item 2, subsection 394-25(2)]

[9.22] Treating the initial investor's interest as capital would result in the initial investor obtaining a double benefit of a 100 per cent deduction (on revenue account) on acquiring the interest and the potential application of concessional CGT treatment, including the CGT discount and the application of capital losses to their proceeds on disposal.

(Emphasis added except as to headings.)

1. There is nothing merely aspirational in the above passages of the Explanatory Memorandum, nor more generally: cf R v JS [2007] NSWCCA 272; 230 FLR 276 at [143]- [144] (Spigelman CJ). Read carefully and properly understood, the Explanatory Memorandum is consistent with and supports the plain meaning of the legislative text.
2. Section 15-46 provides that amounts deductible up-front by the investor should be included in the assessable income of the forestry manager in the year the amount is deductible. This reflects Parliament's intention to ensure that where there is a deduction by the investor, there is corresponding income for the forestry manager. This also reflects the structural background of Div 394 and the symmetry it aims to create between tax deductions upon investment and taxable benefits upon the occurrence of one or more CGT events in relation to a forestry interest, so that they are both dealt with on the revenue account.
3. The engagement and therefore application of s 394-25(1) is common ground between the parties as there is no dispute that:

(a) The Project was an FMIS: s 394-25(1)(a).

(b) Mr Aitken held a "forestry interest" in the Project: s 394-25(1)(a).

(c) Mr Aitken was an "initial participant" in the Project: s 394-25(1)(a).

(d) Mr Aitken could and did deduct an amount for the 2011 income year in relation to his forestry interest: s 394-25(1)(b).

(e) A CGT event (other than in relation to thinning) happened in the 2016 income year in relation to Mr Aitken's forestry interest: s 394-25(1)(c) - although the Commissioner contends that there was more than one such event, and Mr Aitken contends there was only one.

1. However, although the parties agree that s 394-25(1) applies, they have diverging views on why that is so, arising out of differing conceptions of the scope of s 394-25(1)(c). In particular, there is disagreement as to the breadth of the phrase "in relation to" in paragraph (c), which in turn affects the identification of the relevant CGT event (events plural on the Commissioner's case) and the consequences that flow from that.
2. The Commissioner contends that the phrase "in relation to" describes a degree of connection between a CGT event and the forestry interest, such that the exercise of the Put Option by Mr Aitken was a CGT event which happened in relation to his forestry interest, despite no CGT event occurring to the forestry interest itself by that exercise. In contrast, Mr Aitken submits that this phrase was simply used to link the two concepts in a way that made grammatical sense, such that the forestry interest itself must be the subject of the CGT event. On this approach, the admitted CGT event that occurred by the exercise of the Put Option was irrelevant. This distinction is discussed in more detail at [70] below.

1. Division 104 deals with what are known as CGT events, being events ordinarily resulting in capital gains or losses arising from dealings with what are described as CGT assets, defined in s 108-5(1) to be "any kind of property" or "a legal or equitable right that is not property". An option plainly enough falls within the latter part of the definition. This is confirmed by Note 1 to s 108-5(1), which expressly lists options as an example of a CGT asset. Mr Aitken does not contend otherwise.
2. A limited part of the concept of a CGT event is deployed in Div 394 to ascertain when, and how, the benefit side of an FMIS must be brought to account in the revenue account. Only two types of CGT events are relevant to this proceeding, defined and thereby known as:

(a) a CGT event A1 relating to the disposal of an asset: s 104-10(1) to (3); and/or

(b) a CGT event C2 relating to the ending of an intangible asset by various means: s 104-25(1) and (2).

1. Sections 104-10(1) to (3), dealing with a CGT event A1 provide:

Disposal of a CGT asset: CGT event A1

(1) CGT event A1 happens if you *dispose of a *CGT asset.

(2) You dispose of a *CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner.

Note: A change in the trustee of a trust does not constitute a change in the entity that is the trustee of the trust (see subsection 960‑100(2)). This means that CGT event A1 will not happen merely because of a change in the trustee.

(3) The time of the event is:

(a) when you enter into the contract for the *disposal; or

(b) if there is no contract - when the change of ownership occurs.

Example: In June 1999 you enter into a contract to sell land. The contract is settled in October 1999. You make a capital gain of $50,000.

The gain is made in the 1998‑99 income year (the year you entered into the contract) and not the 1999‑2000 income year (the year that settlement takes place).

Note 1: If the contract falls through before completion, this event does not happen because no change in ownership occurs.

Note 2: If the asset was compulsorily acquired from you: see subsection (6).

1. Sections 104-25(1) and (2), dealing with a CGT event C2 provide:

Cancellation, surrender and similar endings: CGT event C2

(1) CGT event C2 happens if your ownership of an intangible *CGT asset ends by the asset:

(a) being redeemed or cancelled; or

(b) being released, discharged or satisfied; or

(c) expiring; or

(d) being abandoned, surrendered or forfeited; or

(e) if the asset is an option - being exercised; or

(f) if the asset is a *convertible interest - being converted.

(a) when you enter into the contract that results in the asset ending; or

(b) if there is no contract - when the asset ends.

1. As discussed in more detail below, the outcome of the dispute arising from the different interpretations of the phrase "in relation to" in s 394-25(1)(c) determines which event or events are the relevant CGT event or events.
2. Mr Aitken contends that the only relevant transaction for the purpose of calculating his assessable income is the execution of the Novation Deed novating the timber component of his forestry interest (excluding the carbon sequestration and salinity rights and credits component of his forestry interest), as an event which happens directly to his forestry interest, such that it is either:

(a) a CGT event A1, via s 104-10(1), (2) and (3)(a); or

(b) a CGT event C2, via s 104-25(1)(b) and (2)(a).

1. The Commissioner contends that there are two relevant transactions:

(a) the exercise of the Put Option, which happens in relation to Mr Aitken's forestry interest, such that it is a CGT event C2 via s 104-25(1)(e) and (2)(b); and

(b) the execution of the Novation Deed, and thereby the novation of Mr Aitken's rights (and obligations) in relation to the Put Option Property (defined to exclude the carbon sequestration and salinity rights and credits component of his forestry interest) and the Forestry Management and Timberlot Agreements, which was a cancellation or discharge of those rights, such that it is also a CGT event C2 via s 104-25(1)(a) or (b) and (2)(a).

1. For completeness, the Commissioner also identified two other related aspects of this transaction:

(a) the sale contract which arose from the exercise of the Put Option would, if it had been completed, have resulted in a CGT event A1 in relation to Mr Aitken's forestry interest per s 104-10, but did not because that contract was not completed due to the execution of the Novation Deed; and

(b) the discharge of the sale contract which arose from the exercise of the Put Option was a CGT event C2 via s 104-25(1)(a) or (b), but was not one that was relevant to Mr Aitken's assessable income.

1. Mr Aitken's approach renders the exercise of the Put Option as irrelevant for income tax purposes. The Commissioner accepts that the execution of the Novation Deed remains relevant to the assessment of Mr Aitken's income tax liability arising from the novation of his forestry interest, as a separate CGT event affecting his assessable income, but arising in the same financial year. Indeed, the Commissioner points to the lack of detail about the circumstances surrounding the Novation Deed as a reason for Mr Aitken failing to discharge his onus, in keeping with Dalco.

Relevant passages from the Put Option Deed and the Novation Deed

1. It is convenient to set out relevant passages from two key documents in this proceeding, upon which reliance was placed, submissions were made and to some extent, adjudication required. The first document is the Put Option Deed and the second is the Novation Deed which had the effect of terminating the sale contract arising from the exercise of the Put Option by novating in favour of the Manager Mr Aitken's rights (and obligations) in relation to the timber component of his forestry interest.

1. As the chronology above indicates, in addition to acquiring 337 timberlots in the Project, Mr Aitken also acquired a corresponding Put Option in respect of each timberlot at a price of $343 (ex GST) per timberlot.
2. The Put Option was governed by the Put Option Deed, executed on 29 June 2011 and the Amending Deed - Put Option Deed, executed on 30 June 2011. The amendment replaced Schedule 1 to the original deed, which listed existing and new Growers and each of their timberlot holdings, but requires no further consideration.
3. Clause 2 of the Put Option Deed provides as follows:

2. Put Option

2.1 Grant of Put Option by the Manager

In consideration of the Put Option Fee (exclusive of GST) paid by the Grower to the Manager (the receipt and sufficiency of which the Manager acknowledges) the Manager grants to the Grower the option to require the Manager to purchase the whole (but not part) of the Put Option Property from the Grower for the Sale Consideration and on the terms of this document.

2.2 Exercise of Put Option by the Grower

Provided that the Grower is not at the time in material default under any Project Documents, the Grower may exercise the Put Option by notice in writing served on the Manager at any time during the Exercise Period.

2.3 Parties bound on service of notice

If the Grower gives to the Manager a notice under Clause 2.2, then the Manager shall be bound as purchaser and the Grower shall be bound as vendor of the whole of the right, title and interest of the Grower in the Put Option Property.

2.4 Sale Consideration

The Sale Consideration for the Put Option Property, subject to the exercise of the Put Option, for each Timberlot to which the Grower is entitled is set out in the Definitions and Interpretations Deed for the AgriWealth Timber Project.

2.5 Lapsing of Put Option

The Put Option lapses at, and cannot be exercised after, the end of the Exercise Period.

1. As cl 2.1 of the Put Option Deed makes clear, the Put Option gave Mr Aitken the right to require the Manager to purchase the whole (and, expressly, not part) of the Put Option Property for the "Sale Consideration" (a fixed price of $14,000 for each timberlot per the Definitions and Interpretations Deed). However, the "exercise period", being the period for the exercise of the Put Option, was limited to 50 weeks from 1 July 2015 to 16 June 2019, as defined at page 7 of the Definitions and Interpretations Deed.
2. Put Option Property is defined in the Definitions and Interpretations Deed to mean:

(a) All the rights and benefits of the Grower under the Project Documents as they relate to Trees, Harvest Proceeds, Carbon Sequestration Rights, Carbon Sequestration Benefits, Salinity Credits and Salinity Credit Benefits (but does not include any rights and benefits of a Unit Holder under the Project Documents as they relate to the Land Trust or the Plantation Land). > > (b) Each Forestry Right Interest held by the Grower or to which the Grower is entitled. > > (c) All Trees, Harvest Proceeds, Carbon Sequestration Rights, Carbon Sequestration Benefits, Salinity Credits and Salinity Credit Benefits owned by the Grower or to which the Grower is entitled.

3. The scope of the definition of the Put Option Property in the Definitions and Interpretations Deed is principally of note because the Novation Deed expressly provided that Mr Aitken retained a part of it, namely the carbon sequestration and salinity rights and credits mentioned in part of paragraph (c) of the definition above. This change varied the arrangement under the Put Option Deed as the Manager paid the same amount (i.e., $14,000 per timberlot) but did not acquire the excised part of the Put Option Property as originally defined.
4. The valuation conducted on behalf of Mr Aitken by his expert, Mr Halligan, deliberately excluded any attempt to value the carbon sequestration and salinity rights and credits that were excised from the forestry interest conveyed by the Novation Deed and therefore retained. When pressed during cross-examination, Mr Halligan stated that based on his initial impressions, the excised component would not have made a material difference to the valuation. During Mr Aitken's cross-examination, he referred to the excised component as having some value, perhaps in the future. Aside from these vague statements, there was no evidence of value as to why the Novation Deed was entered into or why the carbon sequestration and salinity rights and credits were excised and retained, as opposed to letting a sale contract be completed as the consequence of the exercise of the Put Option.
5. In closing submissions, Mr Aitken asked me to infer that the excised component was of little or no value, but I have no basis for doing that beyond there being no cost to him in retaining it. Beyond that, there is evidentiary silence. What matters is that there was a difference to the outcome that would have been arrived at, had the contract arising from the exercise of the Put Option been completed, instead of being effectively terminated by the execution of the Novation Deed. I cannot regard that difference as being material or immaterial, because there was no evidence upon which to reach either conclusion. Therefore, the actual market value of the excised carbon sequestration and salinity rights and credits component of Mr Aitken's forestry interest as at 1 July 2015 remains unknown. It is no part of this case to consider what happened to those rights.
6. Clause 3 of the Put Option Deed governs the subsequent disposal of the Put Option Property (defined to cover all of Mr Aitken's forestry interest) and sets an in-built completion date of five business days after the notice is served. Clause 3.1 provides as follows:

3. Completion / conditions of sale

3.1 Completion

Completion of the sale and purchase of the Put Option Property pursuant to Clause 2.3 shall take place 5 Business Days after the date that the Grower serves a notice on the Manager, advising that the Put Option has been exercised, on which date:

(a) the Put Option Property shall pass to the Manager free of Encumbrances; and

(b) the Grower must deliver to the Manager a transfer in registrable form of the Grower's Forestry Right Interests; and

(c) subject to paragraph (b) and clause 4 below, the Manager shall provide the Sale Consideration to the Grower by paying to the Grower in cleared funds so much of the Sale Consideration as is payable in cash after taking to account any amounts owing under a Manager Loan Agreement.

1. Clause 4.1 of the Put Option Deed provides a set off mechanism that allows the Sale Consideration to be put towards discharging Mr Aitken's outstanding loans with the Manager:

4. Set Off

4.1 The Grower authorises and directs the Manager to set off the amount of any payment to be made by the Manager to the Grower against any amounts payable and not paid by the Grower to the Manager.

1. Clause 8 sets out the procedure following completion when the Manager becomes the owner of the Put Option Property:

8. Procedure following completion

Following completion of the sale and purchase of the Put Option Property, the Manager will own the Put Option Property and notes that the following matters should take place in respect of the future management of the Put Option Property. [Clauses 8.1-8.5 then set out certain steps that the Manager must take in accordance with the Tree Constitution, Forestry Management Agreement and the Timberlot Agreement with respect to the Put Option Property.]

1. Mr Aitken and the Manager entered into a Novation Deed dated 1 July 2015. As noted in the chronology of key events, this was not a document contemplated by PR 2011/12, being different from the Novation Deed dated 10 October 2011 that was so contemplated.
2. The key clauses in the Novation Deed are as follows:

Background

1. The Grower and the Manager have agreed that the Grower will novate the Put Option Property to the Manager and that the Manager will perform and discharge the Grower's obligations and liabilities arising out of, or in connection with, the Put Option Property on the terms and conditions set out in this deed.

...

1 Definition and Interpretation

1.1 Definitions

...

Continuing Party means:

(a) with respect to the Forestry Management Agreement, the Manager; and

(b) with respect to the Timberlot Agreement, the Manager.

...

Effective Time means 12.01 am on the date of this deed.

...

Put Option Property has the meaning given to that term in the Definitions and Interpretations Deed excluding all the rights and benefits of the Grower under the Project Documents as they relate to Carbon Sequestration Rights, Carbon Sequestration Benefits, Salinity Credits and Salinity Credit Benefits and all Carbon Sequestration Rights, Carbon Sequestration Benefits, Salinity Credits and Salinity Credit Benefits owned by the Grower or to which the Grower is entitled.

...

2 Rights and obligations of the Manager

2.1 With effect from the Effective Time, the Manager:

(a) is entitled to all rights and benefits under or in respect of the Put Option Property and each Agreement which, but for this deed, the Grower would have been entitled to at and after the Effective Time;

(b) must perform all obligations and discharge all liabilities in respect of the Put Option Property under each Agreement which, but for this deed, the Grower would have been required to perform or discharge at and after the Effective Time; and

(c) is bound by and must comply with all other provisions in respect of the Put Option Property of each Agreement by which, but for this deed, the Grower would have been bound at and after the Effective Time,

as if the Manager had been the holder of the Put Option Property and a party to each Agreement instead of the Grower.

In return for the novation of the Put Option Property pursuant to clause 2, the Manager will, on the date of this deed, pay the Consideration to the Grower in a manner agreed by those parties.

1. The effect of the Novation Deed, stated to take effect a minute after midnight on 1 July 2015, and considered in context, was:

(a) the contract that was created by the exercise of the Put Option effectively ceased to exist, such that the completion date for that contract, being five business days after the execution of the Put Option, necessarily also ceased to exist;

(b) the consideration stipulated in the schedule to the Novation Deed was $14,000, the same as the "Sale Consideration" stipulated in the Put Option Deed;

(c) Mr Aitken retained carbon sequestration and salinity rights and credits that were part of the Put Option Property as originally defined in the Definitions and Interpretations Deed (see [50] above), without any diminution of the amount he would be paid by the Manager;

(d) the Manager became the owner of the rest of the Put Option Property as originally defined.

Evidence of Mr Aitken about the Put Option exercise and the Novation Deed execution

1. The evidence adduced by Mr Aitken on the Put Option exercise and the Novation Deed execution, beyond the production of those and other documents by his affidavit, was confined to the following account in that affidavit:

Exercise of my Put Option

[14] On 1 July 2015 I exercised the Put Option which I held to transfer my Forestry Right interest in the Project to Agriwealth Capital Limited. A copy of a document dated 1 July 2015, signed by me and provided to Agriwealth Capital Limited at that time is located at MA-1 page 692.

[15] On 1 July 2015 Agriwealth Capital Limited sent me a letter dated 1 July 2015, a copy of which is located at MA-1 page 693.

[16] On 1 July 2015 I executed a Novation Deed dated 1 July 2015 between myself and Agriwealth Capital Limited a copy of which is located at MA-1 pages 694 to 704.

[17] The money payable to me by Agriwealth Capital Limited, calculated at $14,000 per timberlot, in consequence of my exercise of the Put Option held by me over my Forestry Interests in the Project was applied in repayment of the 7 year Manager Loan which I had obtained from Agriwealth Capital Limited. A calculation of that loan is located at MA-1 page 496.

1. A number of points are worth noting about this evidence:

(a) Mr Aitken makes it clear that he did exercise the Put Option;

(b) that exercise of the Put Option was done by a notice in writing;

(c) the exercise of the Put Option took place prior to the execution of the Novation Deed, albeit a conclusion reached as a matter of logic as addressed at para (e) below, rather than from any precise evidence to this effect;

(d) the sale of his forestry interest (not referring to that interest in a way that acknowledges the carve out and retention of the carbon sequestration and salinity rights and credits component) was in consequence of the exercise of the Put Option, and although not stated, was effected by the execution of the Novation Deed, which effectively terminated the sale contract arising from the exercise of the Put Option;

(e) despite the lack of any time being given to these events, this evidence makes it clear that the exercise of the Put Option took place before the execution of the Novation Deed, which makes sense in any event because, had it been the other way around, the only subject matter for the Put Option to deal with would have been the carbon sequestration and salinity rights and credits component of Mr Aitken's forestry interest, which was excised from the operation of the Novation Deed;

(f) there is no explanation for the execution of the Novation Deed, with the only apparent reason being Mr Aitken's retention of the carbon sequestration and salinity rights and credits.

1. The competing arguments on the market value issue rely upon a series of divergent interpretations of the relevant legislative provisions reproduced above, as they pertain to the various CGT events identified. This characterisation process is best considered in a sequential way as a series of steps to be dealt with in turn.

Whether a CGT event occurred by the exercise of the Put Option

1. Section 108-5 provides that a CGT asset is any kind of property, or a legal or equitable right that is not property. It follows that Mr Aitken's forestry interest and the Put Option were both capable of being CGT assets.
2. Division 104 deals with CGT events, grouped by categories using the letters A to L and associated numbers to produce CGT events A1 through to L8. As noted earlier in these reasons when considering what constitutes a CGT event, those that were potentially relevant to the income tax assessment process for Mr Aitken are:

(a) CGT event A1 dealing with the disposal of a CGT asset, addressed by Subdivision 104-A (s 104-10); and

(b) CGT event C2 dealing with the end of a CGT asset by surrender, cancellation or similar endings, addressed by part of Subdivision 104-C (s 104-25).

1. Section 104-25(1)(e) provides that a CGT event C2 happens if ownership of an intangible CGT asset ends by the asset, if it is an option, being exercised. The Put Option was exercised and Mr Aitken's ownership of it ended upon its exercise. Accordingly, the exercise of the Put Option was a CGT event C2. While this is not disputed, Mr Aitken contends that it is irrelevant because of his interpretation of the phrase "in relation to" in s 394-25(1)(c), considered below, which renders it inapplicable to the exercise of the Put Option. This aligns with his case that the only relevant CGT event was the execution of the Novation Deed on 1 July 2015.
2. Section 104-25(2) governs the time of a CGT event C2 as being:

(a) when a contract is entered into that results in the asset ending: s 104-25(2)(a); or

(b) if there is no such contract, when the asset itself ends: s 104-25(2)(b).

1. Mr Aitken's ownership of the Put Option, created by the Put Option Deed, ended once he exercised it by serving the Notice of Exercise of Put Option on the Manager on 1 July 2015. The time that the CGT event took place was at the point of exercise on 1 July 2015 because of the following clauses in the Put Option Deed:

(a) cl 2.2 provided that Mr Aitken could exercise the Put Option by serving a notice on the Manager during the exercise period (1 July 2015 to 16 June 2016), which he did on 1 July 2015;

(b) cl 2.3 provided that if notice was given under cl 2.1, then the Manager would be bound as purchaser, and Mr Aitken would be bound as vendor of the whole of the right, title and interest of the Grower in the Put Option Property, defined by reference to the Definitions and Interpretations Deed to encompass all of his forestry interest and associated benefits;

(c) cl 3.1 provided that completion of the sale and purchase of the Put Option Property pursuant to cl 2.3 would take place five business days after service of a notice on the Manager - at that time, the Put Option Property would pass to the Manager free from encumbrances, the Grower had to deliver a transfer in registrable form to the Manager, and certain payments had to be made by the Manager to the Grower.

1. Had the exercise of the Put Option resulting in the creation of a contract of sale continued to completion five business days later, that would have been a disposal of the forestry interest and therefore a CGT event A1. However, the resulting contract for sale did not proceed to completion, having been supplanted by the Novation Deed. The execution of the Novation Deed did not result in the Put Option ending, because that took place earlier, upon its exercise. There is no evidence of the exact time that this occurred, although nothing turns on this.
2. It follows that, as is common ground, the exercise of the Put Option was a CGT event C2, but whether that was relevant turns on the meaning of "in relation to" in s 394-25(1)(c), to which I now turn.

The scope of the phrase "in relation to" in s 394-25(1)(c)

1. Each CGT event which happens "in relation to" a forestry interest must be accounted for in the application of s 394-25. The parties agree that the execution of the Novation Deed constituted a CGT event which happened in relation to Mr Aitken's forestry interest and should therefore give rise to an amount under s 394-25(2)(a), since Mr Aitken no longer held the forestry interest identified in the Novation Deed. However, the Commissioner contends that the CGT event C2 brought about by the exercise of the Put Option is also a CGT event which happens in relation to Mr Aitken's forestry interest, falling within the terms of s 394-25(1)(c). On this argument, two amounts should be included in Mr Aitken's assessable income as a result of the CGT events - one under s 394-25(2)(b) for the exercise of the Put Option (since Mr Aitken still owned his forestry interest at this point), and one under s 394-25(2)(a) for the execution of the Novation Deed.
2. Mr Aitken contends that the exercise of the Put Option has no bearing on this case for two reasons. First, he contends that this CGT event does not fall within s 394-25(1)(c), because the phrase "in relation to" in that paragraph does not capture this event. If he is correct on this point, the CGT event C2 created by the exercise of the Put Option is not able to be the CGT event referred to in s 394-25(2) either, leaving only the Novation Deed to be the CGT event referred to in both s 394-25(1)(c) and in s 394-25(2). The Commissioner's argument is that "in relation to" is plainly broad enough to encompass the CGT event arising from the exercise of the Put Option, and that such an interpretation would be consistent with the text, context and purpose of not just s 394-25 itself, but the whole Div 394 regime.
3. Second, Mr Aitken's position on market value in any event is that the existence of the Put Option is irrelevant for the purposes of determining market value and should be disregarded in the valuation process. Put another way, he contends that the Put Option has no material bearing on market value. The Commissioner's argument is that the Put Option is highly relevant to the reality of the actual market value of the forestry interests in this FMIS, and that what is required is the determination of value both immediately before, and immediately after, the exercise of the Put Option, so as to determine the decrease in market value after that CGT event.
4. It is common ground that the Put Option was not itself a forestry interest as defined in s 394-15(3) because it did not of itself give any rights to benefits produced by the FMIS as required by that definition. There is also no disagreement that a CGT event directly impacting a forestry interest would be "in relation to" that interest so as to engage s 394-25(1)(c). However, Mr Aitken's case is that this phrase is not engaged at all by reason of the exercise of the Put Option. While it is agreed that the exercise of the Put Option is able to be characterised as a CGT event, being the first such event in time, Mr Aitken contends that it does not fall within the ambit of s 394-25(1)(c), such that the only CGT event to be considered when determining assessable income is the second-in-time CGT event of the execution of the Novation Deed. Mr Aitken's case starts to be in serious difficulty if the exercise of the Put Option falls within s 394-25(1)(c), because once it is, that must be followed through and applied to what has taken place as the first-in-time CGT event.
5. The Commissioner contends that:

(a) the phrase "in relation to" in s 394-25(1)(c) has the broad meaning reflected in the authorities discussed below, such that it extends not just to a CGT event directly affecting a forestry interest, but also to a CGT event that in some sufficiently proximate way is connected to the forestry interest;

(b) the necessary proximity is achieved by the exercise of the Put Option by which Mr Aitken brought into existence a contract for sale between him and the Manager for the purchase of his forestry interest;

(c) the exercise of the Put Option was therefore a CGT event that happened in relation to Mr Aitken's forestry interest, and s 394-25(1)(c) is thereby met.

1. The meaning of "in relation to" and like phrases is addressed in the following authorities referred to by both parties, and also the Explanatory Memorandum for the amending Act that inserted Div 394, which is relied upon by the Commissioner in support of his argument.
2. In Travelex Ltd v Commissioner of Taxation [2010] HCA 33; 241 CLR 510, the High Court considered the meaning of "in relation to" in the context of goods and services tax and supplies made in relation to rights attached to currency. At [25], French CJ and Hayne J stated:

It may readily be accepted that "in relation to" is a phrase that can be used in a variety of contexts, in which the degree of connection that must be shown between the two subject matters joined by the expression may differ. It may also be accepted that "the subject matter of the inquiry, the legislative history, and the facts of the case" are all matters that will bear upon the judgment of what relationship must be shown in order to conclude that there is a supply "in relation to" rights.

1. The phrase "relates to" was also considered by Hill J (with whom Stone J and Allsop J agreed with some additional reasons) in HP Mercantile Pty Ltd v Commissioner of Taxation [2005] FCAFC 126; 143 FCR 553 at [35]:

It was common ground that the words "relates to" are wide words signifying some connection between two subject matters. The connection or association signified by the words may be direct or indirect, substantial or real. It must be relevant and usually a remote connection would not suffice. The sufficiency of the connection or association will be a matter for judgment which will depend, among other things, upon the subject matter of the enquiry, the legislative history, and the facts of the case. Put simply, the degree of relationship implied by the necessity to find a relationship will depend upon the context in which the words are found.

1. Mr Aitken sought to rely on passages from Technical Products Pty Ltd v State Government Insurance Office [1989] HCA 24; 167 CLR 45, which considered the question of whether an employer's liability for a workplace injury was "in respect of" a motor vehicle for the purposes of motor insurance legislation. Discussing the wide ambit of the phrase, which is not materially different in scope from "in relation to", Brennan, Deane and Gaudron JJ remarked at 47:

The words "in respect of" have a very wide meaning. Indeed, they have a chameleon-like quality in that they commonly reflect the context in which they appear. The nexus between legal liability and motor vehicle which their use introduces in s. 3(1) is a broad one which is not susceptible of precise definition. That nexus will not, however, exist unless there be some discernible and rational link between the basis of legal liability and the particular motor vehicle.

1. Dawson J expressed similar sentiments, but cautioned against overly "tenuous" links at 51:

It is true that the words "in respect of" may have a wide meaning but it is not correct to say that they extend to any relationship, however tenuous: see Workers' Compensation Board (Q.) v. Technical Products Pty. Ltd. [(1988) [1988] HCA 49; 165 CLR 642 at 653-5]. The words take their colour from the context in which they are found.

1. In accordance with the authorities cited, the parties agree that the proper interpretive approach to the words "in relation to" should be informed by reference to the history, context and structure of the legislation. However, there is divergence as to how the text and structure of Div 104 and Div 394 should be interpreted to either narrow or widen the scope of the phrase.
2. In the context of Div 394, the Commissioner draws attention to the fact that s 394-25(2) does not in terms require that the CGT event happen directly to a forestry interest. Rather, the section is broad enough to encompass circumstances where a CGT event causes a decrease in the market value of the forestry interest: s 394-25(2)(b). This is further reflected in the Explanatory Memorandum referred to above, especially at [8.34]:

This is achieved by requiring the assessable income of the investor to include the market value of the interest when a CGT event happens to your interest under the scheme. A CGT event will happen in relation to your interest if that interest is sold, is extinguished or ceases, or if the CGT event reduces the value of the interest. The market value that is included in your income is the value of the interest just before the event, or if you continue to hold your interest after the CGT event, the amount by which the market value of your interest is reduced. [Schedule 8, item 2, subsection 394-25(2)]

(Emphasis added.)

1. The Commissioner's submissions are also consistent with [38] of PR 2011/12, considered in more detail below, which acknowledges that CGT events for the purposes of s 394-25(2) include events which do not dispose of the forestry interest but result in a reduction of its market value:

'CGT events' for these purposes include those relating to:

• Ÿ a clear-fell harvest of all or part of the trees grown under the Project;
• Ÿ the sale, or any other disposal of all or part of the 'forestry interest' held by the Grower; or
• Ÿ any other 'CGT event' that results in a reduction of the market value of the 'forestry interest' held by the Grower.

1. In contrast, Mr Aitken contends that the degree of connection required in s 394-25(1)(c) should be informed by the structure and logic of Div 104, in which each CGT event is described with reference to a particular CGT asset, being the source of the economic gain or loss which is recognised for tax purposes as a capital gain or loss. On this argument, any connection more tenuous than a direct connection is insufficient.
2. As a starting point, Mr Aitken's confined interpretation of "in relation to" is not supported by authority. In Fountain v Alexander [1982] HCA 16; 150 CLR 615, the High Court considered the exclusive jurisdiction of the Family Court of Australia in relation to a matrimonial cause, and in particular the definition of that phrase in s 4(1) of the Family Law Act 1975 (Cth), with a focus on paragraph (f) which deployed the phrase "in relation to". Mason J observed at 629:

Paragraph (f) is not specific in spelling out the relationship which is required to subsist between the proceedings which it includes, viz. "any other proceedings", and "concurrent, pending or completed proceedings" of a kind mentioned in the earlier paragraphs. But, "in relation to" being an expression of wide and general import, it should not be read down in the absence of some compelling reason for so doing. Certainly neither the content nor the context of the paragraph provide any justification for taking this course. It was suggested that the paragraph looks to subsequent proceedings which involve the working out of an order made in earlier proceedings. No doubt it does. None the less the vital question remains: Is there any solid ground for limiting the relationship? Putting to one side the question of validity shortly to be examined, I can think of none.

(Emphasis added.)

1. During oral submissions, Mr Aitken suggested that the CGT event must directly affect the forestry interest and that the phrase "in relation to" merely connects the CGT event to the forestry interest as a sort of generic term. He suggests that the phrase was indiscriminately used to join the two concepts.
2. It is readily apparent that the use of the CGT event trigger regime was intended to ensure that a CGT event which impacted upon a forestry interest in any of the ways set out in Div 104 would lead to there being assessable income in the financial year of that event, ordinarily via the CGT regime itself, but via the Div 394 regime for FMIS arrangements. There was no compelling reason advanced by Mr Aitken for it to be read in any other way. That would be against the entire tenor of Div 394, as well as being contrary to the wide scope of CGT events generally in their usual setting of triggering liability for CGT. The recognition of the Put Option exercise as a first-in-time CGT event does not preclude a second CGT event from also being relevant for the purposes of determining assessable income.
3. This conclusion becomes even clearer upon examining the text of s 394-25(1)(c) in which the phrase is used:

(c) a *CGT event happens in relation to the forestry interest, other than a CGT event that happens in respect of thinning.

1. The Commissioner made the compelling argument that Parliament could easily have omitted the words "in relation" in the phrase, to convey a more direct connection between the two concepts and limit the application of the section to circumstances where a CGT event happens to a forestry interest. The words "in relation" preceding "to" must have work to do in this context as "a court construing a statutory provision must strive to give meaning to every word of the provision": Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355 at [71] (McHugh, Gummow, Kirby and Hayne JJ). I am satisfied that there was an obvious, relevant and not remote connection between the exercise of the Put Option and Mr Aitken's forestry interest: HP Mercantile at 563.
2. Having regard to the context and structure of the legislation, the apparent deliberateness of the use of the phrase "in relation to" when simpler and more direct language could easily have been deployed if that was all that was intended, and fortified by the Explanatory Memorandum, I am unable to accept that this phrase, which has so authoritatively been given a wide meaning, should or even could be read down in the way that Mr Aitken contends. No cogent reason was advanced for limiting the reach of s 394-25 in this way.
3. The condition in s 394-25(1)(c) for s 394-25 to apply was met by Mr Aitken exercising the Put Option. This then informs the operation of s 394-25(2).

Whether a CGT event occurred by the entry into the Novation Deed

1. It is also not in dispute that the execution of the Novation Deed was a CGT event C2 by novating to the Manager Mr Aitken's rights and benefits to which he would otherwise have been entitled. But again, the stance of the parties as to the relevance of this event differed. The Commissioner does not dispute that the execution of the Novation Deed was also a CGT event, but contends that it is only relevant for present purposes because the market value of Mr Aitken's forestry interest at the time that he novated it also forms part of his assessable income. That is, the execution of the Novation Deed produced the second, but not only, contributor to assessable income. As noted above, Mr Aitken contends that the only relevant CGT event, and thus the only basis for determining assessable income based on market value, was the execution of the Novation Deed, by reason of his interpretation of the phrase "in relation to" in s 394-25(1)(c).

1. The next step is to consider the operation of s 394-25(2), which provides that assessable income for the year in which the CGT event occurs includes:

(a) if, as a result of that CGT event, Mr Aitken no longer held the forestry interest, the market value of that interest as at the time of that event, so that paragraph (a) applies; or

(b) any decrease in the market value of the forestry interest as a result of the CGT event, as otherwise provided by paragraph (b).

1. I accept the Commissioner's argument that s 394-25(2)(a) is not able to apply to the exercise of the Put Option because that did not end Mr Aitken's ownership of the forestry interest. As explained above, that is because the Novation Deed intervened before the sale contract created by the exercise of the Put Option could be completed on 8 July 2015 pursuant to cl 3.1 of the Put Option Deed. Therefore paragraph (b) applied.
2. The conclusion that s 394-25(2)(b) applied to the exercise of the Put Option did not preclude s 394-25(2)(a) from applying to Mr Aitken's novation of the timber component of his forestry interest by the execution of the Novation Deed. The first-in-time CGT event is not the only relevant event. To the contrary, Mr Aitken's novation of his rights and obligations in relation to the timber component of his forestry interest was highly relevant to his overall assessable income arising from his participation in the Project.
3. Given s 394-25(2)(b) requires any decrease in the market value of Mr Aitken's forestry interest as a result of the exercise of the Put Option CGT event to be brought to account as assessable income, it is necessary to ascertain the value of the forestry interest immediately prior to, and immediately after that exercise.
4. The Commissioner's next step is to say that the market interest of Mr Aitken's forestry interest prior to the exercise of the Put Option must take into account the effect of that option and the rights it bestows on not just Mr Aitken but upon all Growers and thereby holders of all of the forestry interests in this FMIS. To do otherwise would be to conduct the valuation exercise in a manner that is unrealistic and contrary to authority.
5. The Commissioner's final step is to say that the market value of Mr Aitken's forestry interest after the exercise of the Put Option necessarily has no regard to that option because it no longer exists. That may be done either with or without the effect of the Novation Deed being taken into account, because it ultimately does not matter at this stage whether Mr Aitken's forestry interest is still held, or has passed back to the Manager, provided s 394-25(2) has been engaged, in this case by paragraph (b). Given the contract created by the Put Option was replaced by the Novation Deed on the same day, 1 July 2015, there was nothing else to change the post-option-exercise market value. Indeed, it is unlikely that there would have been any difference if the relevant date for valuation purposes had remained as the sale completion date stipulated by cl 3.1 of the Put Option Deed, namely 5 business days (7 calendar days) later, on 8 July 2015.

1. Once s 394-25(2)(b) is engaged by Mr Aitken's exercise of the Put Option, there is a need to ascertain any resultant decrease in the market value of Mr Aitken's forestry interest. It is convenient first to turn to the relevant valuation principles established by the authorities relied upon by the parties before turning to the resolution of the competing arguments. In short, Mr Aitken seeks to discharge his onus to show that the amended assessment amount of $4,718,000 was excessive by adducing and relying on expert valuation evidence from Mr Halligan. The Commissioner defends that assessment sum by first principles relating to the role of the Put Option, by discrediting Mr Halligan's evidence, and, if need be, by relying upon the competing expert valuation evidence adduced from Mr Nguyen.

Principles pertaining to assessing market value

1. Spencer v The Commonwealth [1907] HCA 82; 5 CLR 418 is a case that dealt with principles of valuation in relation to the resumption of land by the Commonwealth. Despite that limited circumstance of resumption valuation, Spencer is a seminal decision on ordinary valuation principles of general application. In Spencer at 432, Griffith CJ found that

the test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, i.e., whether there was in fact on that day a willing buyer, but by inquiring 'What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?' ... any answer must be to some extent conjectural.

1. Barton J in Spencer at 435 made a comment indicating that valuation is a practical and contextual exercise, not merely an abstract one which resonates in this case despite the concept of the hypothetical buyer and seller:

I am unable to say that the bare market value of the land for workingmen's residences on a particular day would be a value constituting a real compensation for this taking. The Court must take into consideration all the circumstances ...

1. Isaacs J in Spencer at 440 said that the ultimate question was the value of the land at the time it was resumed, with all subsequent circumstances, including those rendering the land more or less valuable to be ignored as immaterial. At 441, his Honour identified the relevant value as that "which a hypothetical prudent purchaser would entertain, if he desired to purchase it for the most advantageous purpose for which it was adapted." To arrive at that value on the relevant date, his Honour said the Court had to:

... suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property.

1. Although not expressed as such, the requirement identified by Issacs J not to overlook any ordinary business consideration is the language of practical reality, a stance reflected more overtly in much later authority considered below. It is noteworthy that the phrase "ordinary business consideration", and most of the balance of the quote above was picked up in the next case to be considered, a relatively recent decision of the High Court.
2. The essence of the ordinary principles of valuation expressed by Issacs J in Spencer at 441 in the passage reproduced above were paraphrased, quoted and endorsed by Kiefel CJ, Bell, Nettle and Gordon JJ in Commissioner of State Revenue (WA) v Placer Dome Inc [2018] HCA 59; 265 CLR 585 at [17]- [18] (footnotes omitted):

Next, in determining the value of all land and all property to which a corporation is entitled, the "ordinary principles of valuation" are to be applied. There was no dispute that the "ordinary valuation principles" were those stated in Spencer: the value is the price which a hypothetical willing but not anxious seller could reasonably expect to obtain and a hypothetical willing but not anxious buyer could reasonably expect to pay after proper negotiations between them have concluded and without overlooking any ordinary business consideration.

And there was no dispute that those ordinary valuation principles required both the seller and the buyer to be taken to be "perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property"

(Emphasis added.)

1. In applying the Spencer principles to determine the market value of an asset, regard must be had to the realities of the market, including the likelihood that a particular buyer might be willing to pay more for the property than others because they are in a better position to exploit the particular attributes or potentialities of the asset. The fact that the realities of the market and the full extent of the asset's potential should be considered in valuation has been expressed in different ways in the authorities. For example, some cases use the language of the highest and best use to describe a factor to be taken into account in assessing the value of an asset: see e.g., Boland v Yates Property Corp Pty Ltd [1999] HCA 64; 167 ALR 575 at [274] (Callinan J).
2. In Federal Commissioner of Taxation v Miley [2017] FCA 1396; 106 ATR 779, Wigney J emphasised the importance of taking into account the realities of the market at [93]-[94]:

... there is another basis for concluding that the Tribunal erred in law in applying a discount for lack of control to the consideration actually received by Mr Miley. That error was to ignore or disregard the principles that should be applied in valuing an asset in respect of which there is a ready and willing buyer who, for some particular reason, may be willing to buy the property for more than other prospective purchasers.

Even if the valuation of an asset is to be approached on the basis of hypothetical buyers and sellers, it is necessary to have regard to the realities of the market: "although the sale is hypothetical, there is nothing hypothetical about the open market in which it is supposed to have taken place": Gray v Inland Revenue Commissioners [1994] STC 360; [1994] 38 EG 156; [1994] S.T.I. 208. If there is, or is likely to be, a particular buyer who is likely to be willing to pay more for the asset in question than others because they are in a better position to exploit the particular attributes or potentialities of the asset, that buyer should not be excluded in considering the relevant market or market value.

(Emphasis added.)

1. In Kilgour v Commissioner of Taxation [2024] FCA 687, Logan J endorsed Wigney J's comments in Miley and reaffirmed at [131] that Spencer does not require the exclusion of a particular buyer who is willing to pay more for the asset, quoting again from Issacs J:

The term used in the provisions of the ITAA 1997 with which these appeals are concerned is "market value". It may be accepted that the market concerned is a hypothetical one. But there is nothing in the text of the provisions concerned which dictates either expressly or by necessary implication that one must exclude from this hypothetical market a particular willing purchaser present in that market who sees value particular to that purchaser in acquiring the asset concerned. Nor is there support for the exclusion of such a purchaser to be found in Spencer. A purchaser "cognizant of all circumstances which may affect its value, either advantageously or prejudicially" might well be cognisant of an advantage peculiar to that purchaser and be willing to pay for that advantage.

1. In Serbian Cultural Club 'St Sava' Inc v Road & Traffic Authority of New South Wales [2007] NSWLEC 673, Jagot J considered the issue of market value in the context of compulsory acquisition legislation and observed at [111] that:

... as the RTA submitted, the assessment (while hypothetical) is not fictional. It cannot be carried out divorced from the reality of the market at the acquisition date.

1. In Serbian Cultural Club there was ample evidence that the club was struggling financially. Jagot J found at [114] that any suggestion that the club could have expanded or added to the building was unrealistic, and it was not for the RTA to disprove an assumption or assertion, unconnected with and unsupported by the reality of the market at the acquisition date.
2. As demonstrated by Serbian Cultural Club, market reality can reduce a market value that is otherwise rooted in abstract calculation. However, in different circumstances, the realities of the market can give rise to a higher market value than if those circumstances are ignored.
3. As an aspect of reality, valuation exercises must also consider the relevant statutory context in which they arise. In Leichhardt Council v Roads and Traffic Authority (NSW) [2006] NSWCA 353; 149 LGERA 439, Spigelman CJ (with whom Beazley, Bryson, Basten JJA and Campbell J agreed) cautioned against applying some abstract body of valuation principles and said at [35]-[36]:

Matters of valuation turn in large measure on the precise statutory scheme. These schemes differ from one area of discourse to another. It is always important to commence with the precise words of the statute. There appears to be a tendency to take a judgment about one statutory regime and classify its conclusion as a "valuation principle" which is applied to any process of valuation, no matter how different the statutory regime may be.

The need to determine the value of assets arises in many different legal contexts. It is the context which determines the relevant principles of valuation to be applied. An assumption that there is in existence some abstract body of "valuation principles" applicable in all contexts, irrespective of the statutory scheme or contractual provision, is liable to lead to error. Judgments in one context may prove instructive by way of analogy when dealing with another context. Nevertheless, statutory differences must be borne in mind. The ultimate task must always come back to the application of the principles in the particular context, relevantly in the present case, to a statutory formulation that is expressed to be exhaustive. (See S_ydney Harbour Foreshore Authority v Walker Corp Pty Ltd_ [2005] NSWCA 251; (2005) 63 NSWLR 407 at [23], [32].)

1. The approach articulated by Spigelman CJ in Leichardt Council was endorsed by the Full Federal Court in Federal Commissioner of Taxation v Resource Capital Fund III LP [2014] FCAFC 37; 225 FCR 290 at [47] (Middleton, Robertson and Davies JJ), quoting with evident approval most of the passages reproduced immediately above. The fundamental role of context, including legislative context, in considering all of the relevant circumstances like the approach taken in Leichardt Council was also reinforced in Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2008] HCA 5; 233 CLR 259 at [51].
2. Finally, in the context of a taxation appeal under s 14ZZ, the evidence relied upon by the taxpayer (e.g., valuation evidence) needs to address the correct statutory question. In Commissioner of Taxation v AusNet Transmission Group Pty Ltd [2015] FCAFC 60; 231 FCR 59, the Full Federal Court (Kenny J and Greenwood J, Edmonds J dissenting in part) agreed with finding of the primary judge in that case that the taxpayer's experts had failed to answer the precise question posed by the relevant legislative provision. Greenwood J observed at [188] (Kenny J agreeing at [38]):

... for the purposes of these proceedings the taxpayer has failed to prove its case and has failed to discharge the burden under s 14ZZO of showing that the assessment is excessive. That follows because the analytical exercise undertaken by the experts engaged the wrong question and thus the taxpayer has failed to show error on the part of the commissioner in making the determination and has thus failed to show that the assessment is excessive.

Competing arguments on the application of valuation principles, and their resolution

1. The Commissioner submits that in determining the market value of Mr Aitken's forestry interest, the valuer should take into account the fact that Mr Aitken, among other Growers, holds a Put Option in respect of each timberlot, because the fully informed hypothetical parties referred to in the Spencer test would be aware of this fact. Accordingly, the Commissioner contends that the valuation evidence from Mr Halligan relied upon by Mr Aitken was not supported by the reality of the market as it did not account for the existence and exercise of the Put Option.
2. The Commissioner submits that the highest and best use of Mr Aitken's forestry interest was to dispose them for $14,000 per timberlot through his exercise of the Put Option and the completion of the resultant contract. As a result, the Commissioner contends that the market value of the forestry interest in each timberlot immediately before his exercise of the Put Option should be $14,000. Because that amount is stipulated in the Put Option Deed, on the Commissioner's primary case, no expert valuation evidence is required, noting once again that Mr Aitken had the onus of establishing that the impugned amended assessment was excessive. On a precautionary basis, the Commissioner adduced evidence in support of an alternative case, should his primary case not succeed. If that point is not reached, consideration of that expert evidence is not required.
3. The reality underpinning the Commissioner's submissions is the fact that the Put Option cannot be separated from Mr Aitken's forestry interest, having regard to the terms of the Put Option Deed. Under cls 2.1 and 2.3 of the Put Option Deed, the Manager was required to purchase the whole (not part) of the Put Option Property, with the Manager "bound as purchaser" and Mr Aitken "bound as vendor" to deliver "the whole of the right, title and interest ... in the Put Option Property". Upon purchase, the Put Option Property was required to pass to the Manager free of any encumbrances, and Mr Aitken was required to deliver a registrable transfer of his forestry interest: cl 3.1.
4. As a matter of practicality, none of the Growers - that is to say, none of the investors in the Project - could hold a Put Option without the corresponding forestry interest as they would then be unable to deliver the registerable transfer. Therefore, the value of the Put Option derives from each and every Grower's ability to deliver the forestry interests and is valueless otherwise.
5. In oral submissions, Mr Aitken characterised the relevant issue as whether, as a matter of principle, the existence of a put option over specific property creates a floor value for the market value of that property. Mr Aitken argues that a specific contract such as a put option should be disregarded unless there is some unique situation which requires it to be taken into account, which in his submission does not exist in these circumstances. This argument was cast in general terms, divorced from the actual circumstances at hand. As such, it was wholly misconceived.
6. In any event, there was a unique situation: every Grower who participated in the Project held Put Options in respect of their forestry interests, exercisable at any time between 1 July 2015 and 16 June 2016. The complete field of all prospective sellers of all the forestry interests in the Project had the benefit of Put Options on the same terms as Mr Aitken. They all had the same means of compelling the payment of a purchase price of $14,000 per timberlot within the exercise period.
7. Accordingly, the existence of the Put Option forms part of the factual matrix that reflects the realities of the market for the forestry interests held by all of the Growers in the Project. In the period during which the Put Option could be exercised, it could not be said that a hypothetical seller in the position of the Growers, who is perfectly acquainted with the asset and cognisant of all circumstances which might affect its value, would reasonably expect to obtain a value lower than $14,000, much less $896, as Mr Aitken principally contends.
8. In those circumstances, Mr Halligan's market valuation of Mr Aitken's forestry interest in isolation was conducted without regard to reality. He did not take account of the fact that the hypothetical sale was occurring in a market where every single potential vendor of forestry interests in the Project had the benefit of the same Put Option and the same right to be paid the same strike price. Not a single Grower had to accept anything less than that strike price, and no rational vendor in that position would have done so.
9. It follows that I am unable to accept Mr Halligan's evidence as to market value to the effect that it even could, let alone would, be an amount which would not be accepted by any relevant hypothetical sellers in the relevant circumstances, all of whom were Growers with the benefit of the same Put Option. Put more bluntly, to engage with the valuation principles summarised above, no sane Grower was going to accept anything less than the price obtainable by the exercise of the Put Option.
10. Therefore, contrary to Mr Aitken's submission, I do not find accepting Mr Nguyen's evidence, had that been necessary, to be the same as accepting the general proposition that any put option for a fixed strike price over a particular asset creates a floor for the market value of that asset. It is clear enough from what has already been said on this topic that this was not a case about put options at large, and does not determine anything of general application in that regard. The questions put in cross-examination to Mr Nguyen were rightly resisted by him. This case is not about put options or their impact in the abstract.
11. Finally, the Commissioner contends that the Court should disregard Mr Halligan's evidence for similar reasons to those given by Greenwood J in AusNet Transmission Group, extracted above. On the Commissioner's view, it was necessary to value the forestry interest before the exercise of the Put Option to work out the decrease in market value, as required by s 394-25(2)(b). As such, the Commissioner alleges that Mr Halligan ignored the relevant statutory provision and answered the wrong statutory question. This argument is compelling and was not convincingly met by Mr Aitken. Mr Halligan's evidence, insofar as it excludes the effect of the Put Option, cannot be accepted.
12. Regardless of whether Mr Nguyen's evidence is accepted, the appeal will fail if Mr Halligan's evidence is rejected since the onus is on Mr Aitken to show that the amended assessment was excessive.

Assessable income arising from the exercise of the Put Option and execution of the Novation Deed

1. The above analysis makes it clear that Mr Aitken's assessable income for the 2015-2016 financial year was affected by two separate CGT events, consistent with the Commissioner's case, and inconsistent with Mr Aitken's case. Those two CGT events could have happened years apart, but on these facts they happened on the same day, 1 July 2015.
2. The first CGT event was the exercise of the Put Option, giving rise to assessable income equal to the decrease in the market value of Mr Aitken's forestry interest: s 394-25(2)(b).
3. The second CGT event was Mr Aitken's novation of the rights (and obligations) over the timber component of his forestry interest, but not those over the carbon sequestration and salinity rights and credits component, giving rise to assessable income equal to the market value of that part of the forestry interest he no longer held any rights over as a result of the CGT event: s 394-25(2)(a).
4. Mr Aitken deliberately retained the carbon sequestration and salinity rights and credits component of his forestry interest in the Project. There is no evidence before the Court about the retention, disposal or other treatment of that component, nor, as noted elsewhere in these reasons, their market value at the time his timber forestry interest was novated on 1 July 2015.

Mr Aitken's assessable income arising from the exercise of the Put Option

1. Immediately prior to the exercise of the Put Option, the value of Mr Aitken's forestry interest was $14,000 per timberlot, because the highest and best use by all the Growers, covering all the timberlots in the Project at that time, was the exercise of each of their respective Put Options. Absent the Put Option, nothing like that price was achievable for any of the timberlots in the Project. After the exercise of the Put Option by Mr Aiken, the market value was the highest and best use obtainable, absent the Put Option, ascertained by ordinary valuation assessment. That is, it is the market value of the forestry interest in each timberlot, unaffected by the (by then exhausted) Put Option.
2. At the point of the exercise of the Put Option, Mr Aiken retained his entire forestry interest, but a contract was formed for the sale of that entire interest to be completed five working days later. For the purposes of s 394-25(2)(b), his assessable income arising from the Project at that point in time was the difference between the market value immediately prior to the exercise of the Put Option, and the market value immediately after the exercise of the Put Option. That is, Mr Aitken's assessable income arising from the Project at that time is the decrease in the market value of his forestry interest as a result of the exercise of the Put Option.
3. For the reasons already given, the market value of Mr Aiken's entire forestry interest immediately prior to the exercise of the Put Option was the highest price obtainable by all of the Growers for all of the timberlots in the Project, namely the price able to be extracted from the Manager of $14,000 per timberlot. The reduction in that market value is the difference between $14,000 per timberlot, and the market price able to be obtained after the exercise of the Put Option. It is convenient to refer to that latter market value as $X per timberlot, for reasons that will become apparent.
4. It follows that Mr Aitken's assessable income arising from the Put Option CGT event was $14,000 minus $X per timberlot.

Mr Aitken's assessable income arising from the execution of the Novation Deed

1. That then leaves the further assessable income arising from the execution of the Novation Deed. In the abstract, a choice had to be made between the market value calculated by Mr Halligan and by Mr Nguyen. However, as already foreshadowed, which is the correct valuation does not matter. As above, it is convenient to refer to that market value as $X per timberlot, given it is the same value as the market value of the forestry interest after the exercise of the Put Option (putting aside the excise of the carbon sequestration and salinity rights and credits).

Mr Aitken's assessable income arising from the combination of the two CGT events

1. The amount to be included in Mr Aitken's assessable income for the 2015-2016 financial year arising from his involvement in the Project is the sum of both CGT events. While the evidence as to the market value of the forestry interest after the exercise of the Put Option differed between Mr Halligan and Mr Nguyen, there is no need to ascertain which valuation is to be preferred, because it makes no difference to the final calculation. That is because whatever is subtracted to arrive at the decrease in the market value of the forestry interest - which I have referred to as $X - to arrive at the assessable income resulting from the Put Option CGT event, that exact same amount must be added back as the immediate subsequent assessable income arising from the Novation Deed CGT event. That is, Mr Aitken's assessable income arising from the CGT events taking place on 1 July 2015, considered per timberlot (and thus to be multiplied by 337) was:

(a) CGT event C2 from exercise of the Put Option: $14,000 minus $X;

(b) CGT event C2 from the cancellation or discharge of Mr Aitken's forestry interest: $X;

(c) Total assessable income per timberlot: $14,000, minus $X, plus $X = $14,000.

1. The total assessable income can therefore be calculated as $14,000 per timberlot multiplied by 337 timberlots, being $4,718,000, the sum assessed by the Commissioner, for which Mr Aitken's objection was disallowed.
2. There was a possible difference between the market value of Mr Aitken's forestry interest following the exercise of the Put Option and the market value of the forestry interest included in his assessable income for the purpose of the Novation Deed CGT event (i.e., the two amounts proxied by 'X'). This would have been the difference between the market value of Mr Aitken's entire forestry interest affected by the exercise of the Put Option, and the market value of only the timber component of his forestry interest (excising the market value of the carbon sequestration and salinity rights and benefits component) affected by the Novation Deed CGT event, but that valuation exercise was not attempted by Mr Aitken. His senior counsel asked that the market value of the carbon sequestration and salinity rights and benefits component as at 1 July 2015 be treated as minimal to the point of being ignored, but the only safe course is to find that it was unknown and unproven.
3. It follows that not only did Mr Aitken fail to establish that the amended assessment sum of $4,718,000 was excessive, but that the available evidence strongly indicates that this sum was correct.

Whether Product Ruling PR 2011/12 was rendered non-binding on the Commissioner

1. A further issue arising out of the proceeding is whether PR 2011/12, issued on 11 May 2011, applies to Mr Aitken, having regard to the nature and extent of any departures from its terms. As it transpires, the conclusion reached on this issue does not affect the outcome, because the resolution of the market value issue involves the same considerations irrespective of whether or not PR 2011/12 applies. Despite this, the question of whether PR 2011/12 is binding on the Commissioner has been raised and should be addressed, not least because there are a number of other appeal cases in my docket concerning objection decisions arising out of the Project which may be affected by the conclusion I reach, with lawyers in common for both sides in this and all the other appeals.
2. Three further observations need to be recorded on this issue:

(a) First, I understand that this appeal was selected jointly by the lawyers on the two sides to be heard first among this set of appeals allocated to my docket, apparently because it was thought to be in some way a representative proceeding, or at least a convenient way of addressing issues common to all of the appeals. This aspiration may not be realised, or realised in full, if PR 2011/12 is not binding on the Commissioner in relation to Mr Aitken.

(b) Second, the Commissioner has asserted that he only became aware of non-compliance with the scheme described in PR 2011/12, on at least one of the two bases relied upon, upon receipt of Mr Aitken's written submissions in chief. That basis for lack of awareness was not disputed, and gave rise to a successful contested application by the Commissioner for leave to amend his appeal statement, to specifically raise this as a pleaded issue, rather than more generally.

(c) Third, the Commissioner assessed Mr Aitken upon the basis that he was bound to apply PR 2011/12, whereas this Court is not so bound, but rather is required to construe Div 394 in the context of the proven facts. I note that the dispute mainly concerns what should be made of the evidence, rather than factual adjudication, with there not being much, if any, competing evidence.

1. The Commissioner contends that PR 2011/12 was not binding on him in relation to Mr Aitken because, while it originally did at least ostensibly apply to him, Mr Aitken departed from the terms of PR 2011/12 in two material aspects, constituting a change in both the scheme and a departure from its terms in the way it was carried out. Mr Aitken disputes that characterisation.
2. Below I set out:

(a) limits on the binding nature of public rulings generally and of PR 2011/12, so as to explain the basis for concluding that substantial adherence to the terms of PR 2011/12 by Mr Aitken was required in order for it to be binding upon the Commissioner in relation to him;

(b) the relevant key features of PR 2011/12; and

(c) the two ways in which Mr Aitken is alleged to have departed from the terms of PR2011/12, including the competing arguments and the conclusion reached about each.

Limits on the binding nature of public rulings generally and of PR 2011/12

1. Part 5-5 of Schedule 1 of the TAA sets out the rules that apply to taxation rulings. PR 2011/12 is a species of public ruling in line with s 358-5 in Schedule 1 of the TAA, as it expresses the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to a class of entities in relation to a particular scheme.
2. A public ruling is binding on the Commissioner in relation to a taxpayer if the ruling applies to the taxpayer and if the taxpayer relies on the ruling by acting (or omitting to act) in accordance with the ruling: s 357-60(1) of Schedule 1 of the TAA. In a similar vein, a taxpayer may stop relying on a ruling by acting (or omitting to act) in a way that is not in accordance with the ruling: s 357-65(1) of Schedule 1 of the TAA.
3. Under a heading and text warning that PR 2011/12 gives no guarantee of commercial success arising from investing in the scheme covered by it, the following warning is also stated, with bold emphasis in the original:

This Product Ruling provides certainty for potential participants by confirming that the tax benefits set out in the Ruling part of this document are available, provided that the scheme is carried out in accordance with the information we have been given, and have described below in the Scheme part of this document. If the scheme is not carried out as described, participants lose the protection of this Product Ruling.

1. A similar point is also reflected in the warnings and conditions set out at [9]-[10] and [12]-[13] of PR 2011/12:

[9] The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 42 to 97 of this Ruling.

[10] If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then:

• Ÿ this Product Ruling has no binding effect on the Commissioner because the scheme entered into is not the scheme on which the Commissioner has ruled; and
• Ÿ this Product Ruling may be withdrawn or modified.

...

[12] This Product Ruling applies prospectively from 11 May 2011, the date it is published. It therefore applies only to the specified class of entities that enter into the scheme from 11 May 2011 until 30 June 2011 being the closing date for entry into the scheme. This Product Ruling provides advice on the availability of tax benefits to the specified class of entities for all income years up to the income year in which the scheme is terminated in accordance with the Constitution.

[13] However the Product Ruling only applies to the extent that there is no change in the scheme or in the entity's involvement in the scheme.

(Emphasis added.)

1. That approach towards the question of whether a public ruling is binding on the Commissioner is also expressly reflected in Taxation Ruling TR 2006/10, last updated on 19 February 2018, which outlines the system of public rulings in place following legislative refinements of the income tax self-assessment regime that has long been in place in Australia. In particular, TR 2006/10 relevantly provides as follows (footnotes omitted):

The status and binding effect of public rulings

[30] A public ruling binds the Commissioner if the public ruling applies to the entity and the entity relies on it. An entity relies on a public ruling by acting (or omitting to act) in accordance with the public ruling. An example of demonstrating reliance by omitting to act is omitting to lodge a tax return in the circumstances in which a public ruling states that a return need not be lodged.

...

[36] As mentioned in paragraph 30 of this Ruling, a public ruling will bind the Commissioner if an entity acts or omits to act in accordance with the public ruling. The effect of a public ruling binding the Commissioner is that the Commissioner will not apply the provision in a way that is inconsistent with the public ruling. Therefore if, for example, a ruling sets out the circumstances which would ordinarily lead to the exercise of the Commissioner's discretion in relation to a relevant provision, the Commissioner will exercise the discretion in a way that is consistent with the ruling (including by giving appropriate weight to the factors listed in the ruling as being relevant or significant). However, the ruling itself would not constitute the exercise of the discretion, because that requires a separate act by the Commissioner having regard to all the facts and circumstances of the particular case. A public ruling which applies in relation to a particular scheme will not bind the Commissioner if the scheme is not implemented in the way set out in the public ruling.

(Emphasis added.)

1. In Mount Pritchard & District Community Club Ltd v Federal Commissioner of Taxation [2011] FCAFC 129; 196 FCR 549, the Full Court (Edmonds, Middleton and Jagot JJ) observed in relation to private rulings, but equally apposite to public rulings:

[59] A private ruling is not intended to bind the Commissioner where the factual position in a particular income year differs from that on which the ruling was based.

[60] Both under s 170BB of the 1936 Tax Act and s 357-60 of Sch 1 to the TAA, a private ruling can only bind the Commissioner in respect of the arrangement ruled upon, or where the taxpayer relies upon the ruling by acting in accordance with it. If, in a subsequent period after the private ruling the taxpayer enters into different arrangements, or does not act in accordance with the ruling because of changed circumstances, then the Ruling does not bind the Commissioner. The taxpayer still obtains the protection afforded by the private ruling regime, but only to the extent the taxpayer implements the scheme or arrangements the subject of the ruling. This is not only consistent with the text of the legislation, but also with the Explanatory Memorandum which accompanied the Tax Laws Amendment (Improvements to Self Assessment) Act (No 2) 2005 (Cth). In the Explanatory Memorandum, it was explained that if the scheme was not implemented in the way set out in a ruling, such ruling would not bind the Commissioner.

(Emphasis added.)

1. The class of entities who could not rely on PR 2011/12 were described as follows at [7]:

The class of entities who can rely on this Product Ruling does not include:

• Ÿ Entities who are accepted into this Project before the date of this Ruling or after 30 June 2011;
• Ÿ Entities who participate in the scheme through offers made other than through the Information; Memorandum, or who enter into an undisclosed arrangement with the promoter or a promoter associate, or an independent adviser that is interdependent with scheme obligations and/or scheme benefits (which may include tax benefits or harvest returns) in any way;
• Ÿ Entities whose Application Price, including all loan monies, is not paid in full to AgriWealth Capital Limited by 30 June 2011, either by the Grower, and/or on the Grower's behalf by a lending institution; or
• Ÿ Entities who enter into finance arrangements with AgriWealth Capital Limited other than those finance arrangements described at paragraphs 88 to 97 of this Ruling.

1. The importance of compliance with the financial arrangements set out is reiterated throughout PR 2011/12. For example, [33] provides:

A Grower in the Project can claim deductions for interest incurred on a loan to fund their investment in the Project (paragraph 8-1(1)(a)). This Ruling only applies to loans between a Grower and the Manager and only applies to the loans described in paragraphs 88 to 97 of this Ruling. Growers who enter into any other finance arrangements with the Manager, including arrangements to prepay interest, are not covered by any part of this Ruling (see paragraph 7).

(Emphasis added.)

1. The relevant components of the finance arrangements set out in PR 2011/12 are as follows:

[89] Only the finance arrangements set out below are covered by this Product Ruling. A Grower cannot rely on this Product Ruling if they enter into any finance arrangement with the Manager that materially differs from that set out in the documentation provided with the application for this Product Ruling (see paragraph 7). A Grower who enters into a finance arrangement with an independent lender external to the Project may request a private ruling on the deductibility or otherwise of interest incurred under finance arrangements not covered by this Product Ruling.

(Emphasis added.)

...

Loan Options

[95] 1 year loan with terms and conditions as follows:

• Ÿ applies to up to 100% of the Application Price;
• Ÿ the loan is full recourse;
• Ÿ interest free repayments of 12 equal monthly instalments commencing on 31 July 2011 and end on 30 June 2012;
• Ÿ no loan application fee applies; and
• Ÿ Growers may make early repayment of instalments without incurring additional fees.

[96] 15 year loan with terms and conditions as follows:

• Ÿ applies to up to 100% of the Application Price;
• Ÿ the loan is full recourse;
• Ÿ interest will be charged monthly in arrears on the outstanding balances, calculated daily, at the Specified Interest Rate of 12%. However, where monthly repayments are made on or before the due date and on or before the Reset Date (being 1 July 2015), the interest rate will be reduced to the Initial Interest Rate of 5%;
• Ÿ loan repayments of 180 equal monthly instalments of principal and interest commencing on 31 July 2011;
• Ÿ no loan application fee applies; and
• Ÿ Growers may make early repayments without incurring additional fees.

1. The scheme described in PR 2011/12 makes no provision for the replacement of, or variations to, the loan arrangements, although the emphasised portion of [89] reproduced above does have a materiality threshold for any difference between a different finance arrangement and the documents furnished in support of obtaining that ruling. As addressed below, the first departure from the terms of PR 2011/12 that the Commissioner relies upon is the entry into different finance arrangements to the two listed at [95] and [96].
2. The text of PR 2011/12 otherwise discusses the scope of the Project and the operation of the Put Options at [18] and [76]:

[18] The AgriWealth 2011 Softwood Timber Project is a 'forestry managed investment scheme' as defined in subsection 394-15(1). Its purpose is the establishment and tending of Radiata pine trees for felling in Australia. However, the Put Option, the associated Put Option Fee and investment in Units in the associated Land Trust do not form part of the scheme to which subsection 394-15(1) applies.

...

[76] Growers will be granted a Put Option by the Manager in respect of their Timberlot(s) (the Put Option Property). Growers must pay $343 per Timberlot to the Manager on or before 30 June 2011 as consideration for this right. The Put Option (if exercised) will require the Manager to purchase the Put Option Property for the Sale Consideration of $14,000 per Timberlot between 1 July 2015 and 16 June 2016. Clause 4.1 of the Put Option Deed allows the Manager to set off any amount payable and not paid by the Grower to the Manager against the Sale Consideration. The Manager has secured a Guarantee from AgriWealth in respect of the consideration payable by the Manager should the Put Option be exercised by a Grower.

1. Other key parts of the scope of the scheme that is covered by PR 2011/12 are as follows, with the bold emphasis being in the original:

[42] The scheme that is the subject of this Ruling is specified below. This scheme incorporates the following:

• Ÿ Application for a Product Ruling as constituted by documents provided on 23 December 2010 and 12 January 2011 and additional correspondence and emails dated 9 February 2011, 9 March 2011, 6 April 2011;
• Ÿ Information Memorandum of the AgriWealth 2011Softwood Timber Project, received on 9 February 2011;
• Ÿ Tree Constitution of the AgriWealth 2011 Softwood Timber Project, received on 9 February 2011;
• Ÿ Forestry Management Agreement of the AgriWealth 2011 Softwood Timber Project between AgriWealth Capital Limited (Manager) (ACL) and the Grower, received on 9 February 2011;
• Ÿ AgriWealth Management Agreement of the AgriWealth 2011 Softwood Timber Project between the Manager and AgriWealth Pty Limited (AgriWealth), received on 9 February 2011;
• Ÿ Forestry Management Contract of the AgriWealth 2011 Softwood Timber Project between AgriWealth and the Independent Forestry Contractors received on 23 December 2010 and 9 February 2011;
• Ÿ Timberlot Agreement of the AgriWealth 2011 Softwood Timber Project between the Grantor, the Manager and the Grower, received on 23 December 2010;
• Ÿ Put Option Deed of the AgriWealth 2011 Softwood Timber Project between the Manager and the Grower, received on 23 December 2010;
• Ÿ Guarantee (in relation to Put Option Deed) of the AgriWealth 2011 Softwood Timber Project between AgriWealth and the Grower, received on 23 December 2010;
• Ÿ Roading Harvest and Haulage Trust of the AgriWealth 2011 Softwood Timber Project between the Settlor and the Trustee, received on 12 January 2011;
• Ÿ Deed of Novation of the AgriWealth 2011 Softwood Timber Project between AgriWealth and the Trustee of the Roading Harvest and Haulage Trust and Growers (Continuing parties), received on 23 December 2010;
• Ÿ Loan Agreements in relation to the AgriWealth 2011 Softwood Timber Project between the Manager, the Grower and the Guarantor, received on 23 December 2010; and
• Ÿ Deed of Definitions and Interpretations of the AgriWealth 2011 Softwood Timber Project, received on 9 February 2011

[45] The documents highlighted [in bold in the original] are those that a Grower may enter into. For the purposes of describing the scheme to which this Ruling applies, there are no other agreements, whether formal or informal, and whether or not legally enforceable, which a Grower, or any associate of a Grower, will be a party to, which are a part of the scheme. The effect of these agreements is summarised as follows.

1. The second departure from the terms of PR 2011/12 that the Commissioner relies upon is the entry into the Novation Deed dated 1 July 2015 which novated only part of the original Put Option Property to the Manager. The Commissioner submits that this was a change to the terms of the scheme outlined at [42] and [45].

The first departure from PR 2011/12 relied upon by the Commissioner

1. The first departure from PR 2011/12 that the Commissioner relies upon concerns Mr Aitken's finance arrangements. The Commissioner submits that Mr Aitken's departures from the finance arrangements described at [88]-[97] of PR 2011/12 (of which [89], [95] and [96] are reproduced above), caused him to be excluded from the class of entities who can rely upon the product ruling.
2. It is important to note that PR 2011/12 at [89] reproduced above, cross-referencing to [7] (relevantly the last dot point of [7] emphasised above), provides that only those finance arrangements set out below (relevantly those in [95] and [96]) are covered by that ruling, and that Mr Aitken (as a Grower) cannot rely upon the ruling if he enters into any finance arrangement with the Manager that "materially differs" from those set out in the documentation provided with the ruling application.
3. The substance of Mr Aitken's argument is to accept that there was a different finance arrangement to that set out at PR 2011/12 [95] and [96], but to argue that the difference was not material. It is convenient to reproduce portions of correspondence from the Manager to Mr Aitken which sets out the substance of the arrangements that had been proposed, before turning to differences between either of those letters and what ultimately transpired, including by reference to Mr Aitken's evidence in cross-examination.
4. There are two versions of a letter dated 4 July 2011 containing information about the proposed finance arrangements. It is convenient to set out portions of those letters as the first step, as follows:

(a) A single page letter dated 4 July 2011 that set out loan arrangements, provided by Mr Aitken in response to statutory notices to produce dated 24 June 2014:

In relation to funding you into the project we have given you two (2) loans.

Manager 1 Year Loan

The first loan we have given you is a Manager 1 Year Interest Free loan of $2,643,765. You have indicated that you will repay $1,633,765 on or before 30 September 2011 with the balance of $1,011,000 being repayable in 12 equal instalments of $84,250 commencing 31 July 2011 and ending 30 June 2012.

Manager 15 Year Loan

The second loan is a Manager 15 Year Loan of $4,044,000. This loan is repayable in monthly instalments of $39,145.92 unless paid out earlier.

(b) A two-page letter dated 4 July 2011 that set out loan arrangements somewhat differently, being a letter that was annexed to Mr Aitken's affidavit in this appeal proceeding:

In relation to funding you into the project you will recall we have given you two (2) loans (ignoring the short-term loan of $1,632,765).

Manager 1 Year Loan

The first loan we have given you is a Manager 1 Year Interest Free loan of $1,011,000 (being $3,000 per timberlot x 337). This loan is repayable in 12 equal instalments of $84,250 commencing 31 July 2011 and ending 30 June 2012. However, from below you will see that we have already credited you the July 2011 monthly repayment accordingly, your first repayment will be due 31 August 2011 ending 30 June 2012.

Please complete the attached Periodic Payment Authority so that the monthly repayment amount of $84,250 can be automatically debited to your nominated bank account.

Manager 15 Year Loan

The second loan is a Manager 15 Year Loan. This loan is currently $4,044,000 (being $12,000 per timberlot x 337). I would like to discuss with you the proposal mentioned previously wherein you repay this loan (after maturity of your term deposits) rather than utilising the Antares loan. AgriWealth would then advance to you under the terms of the limited recourse loan (see attached) the amount you repaid. Upon exercise of the Put Options the limited recourse loan would be repaid in full.

Additional funding

You will recall we lent you an additional amount of $1,632,765. This amount was determined as follows:

Less Manager 1 year Interest Free Loan - 337 timberlots @$3,000

Less Manager 15 Year P&I Loan - 337 timberlots @$12,000

In order to clear this loan we require you to:

1. Issue to Ag*Trade Pty Limited (Paul Jones) a tax invoice for rebate of the referral fees for $1,578,435 (namely, ($4,000 + $275)* 337 + ($820 * 168))

2. Sign the enclosed Direction Authority to Ag*Trade Pty Limited instructing them to pay the amount of $1,578,435 to AgriWealth Capital Limited in offset against the loan to you of $1,632,765

3. Sign the attached Unit Transfer Form for sale of 169 land trust units for $138,580

4. Sign the enclosed Direction Authority to AgriWealth Capital Limited instructing us to offset the amount of $138,580 against the loan to you of $1,632,765 with the balance of $84,250 being credited against your first monthly repayment due in relation to the Manager 15 Year Loan

Reconciliation of short-term loan

Add 31 July 2011 loan repayment on Manager 1 Year Loan

1. Only the single page letter was apparently known by the Commissioner by reason of the statutory notice process, and the two-page letter only became known to the Commissioner as a result of it being annexed to Mr Aitken's affidavit dated 5 April 2024. Mr Aitken did not explain in evidence or submissions why there were two letters bearing the same date and addressing the same subject matter in ways that were plainly inconsistent with one another. Mr Aitken's affidavit at [13(l)] blandly lists the two-page letter without any reference to the existence of the one-page letter on the same topic with the same date, as though that shorter letter did not exist. But more fundamentally, even the longer letter did not reflect what ultimately transpired in terms of Mr Aitken's finance arrangements.
2. Mr Aitken was cross-examined on the two-page letter, which, in common with the one-page letter and [96] of PR 2011/12, refers to a 15-year loan. He was also cross-examined on the seven-year loan agreement referred to in his affidavit and annexed thereto. What had happened is that Mr Aitken had entered into a 15-year loan agreement dated 29 June 2011 (with an amending deed dated 30 June 2011) in terms akin to those referred to in PR 2011/12 at [96], but then replaced that by entering into a seven-year loan agreement with different terms dated 9 September 2011, with a backdated start date of 1 July 2011.
3. Mr Aitken's cross-examination exposed differences between the finance arrangement contemplated by [96] of PR 2011/12, the proposals in the two separate letters each dated 4 July 2011 which were broadly consistent with PR 2011/12, and the terms agreed to by Mr Aitken in the seven-year loan agreement. Mr Aitken's evidence in cross-examination as to the difference between the features of the 15-year and seven-year loan agreements can be summarised as follows, in that he:

(a) agreed that the loan with a duration of 15 years with equal monthly payments was quite different from the seven-year loan with an initial period of four-years during which interest was capitalised;

(b) agreed that the interest rate for the 15-year loan (in PR 2011/12 at [96], 12%, reduced to 5% if payments were made on time), was quite different to the interest rate in the seven-year loan (3.86% for the initial four-year period; 14.99% for the balance of the seven year term);

(c) agreed that when entering into the short-term loan (referred to in the two-page letter) and the seven-year loan, he knew they were not finance arrangements that were part of the PR 2011/12;

(d) did not agree that the difference between the 15-year loan and the seven-year loan was substantial, describing it as "slightly different";

(e) agreed that the interest rate of 5% reduced to 3.86% (for the first four years) was substantially different;

(f) agreed that making principal and interest payments as opposed to having the loan capitalised and paid at the end of the term would make a difference, but did not agree that it was substantially different;

(g) denied that he did not disclose the short-term loan or the seven-year loan because he knew they were outside the finance arrangements under PR 2011/12;

(h) denied that he was concerned that PR 2011/12 would not be applied to him if the Commissioner knew about those arrangements, or that he had not disclosed those loans previously because he was concerned about the application of PR 2011/12.

1. Mr Aitken was not re-examined. The Commissioner relies upon those differences and maintains that they are material.
2. While the Commissioner does not accept that the short-term loan was part of the one-year loan contemplated by [95] of PR 2011/12, I am not so troubled by that as differences created by a split of the same amount into two amounts are not, to my mind, so obviously material. I would not be inclined to deny that PR 2011/12 was necessarily binding on the Commissioner upon that basis alone. But I do not need to determine that conclusively on its own, because of the more troubling differences associated with the replacement of the 15-year loan with the seven-year loan being both accepted and downplayed by Mr Aitken in cross-examination.
3. As foreshadowed above, Mr Aitken contends that the difference between what was contemplated, and indeed required, by PR 2011/12 at [96] and the seven-year loan was not material. However, rather than demonstrating that the differences were not somehow material, he describes the 15-year loan that he entered into as the "initial financing", replaced by the seven-year loan that he negotiated. The high-water mark of his argument seemed to be that because the initial financing was in accordance with PR 2011/12, the later rearrangement of that financing negotiated several months later did not offend or exclude that ruling. However, despite Mr Aitken asserting that a renegotiation is "conceptually different" to an initial departure, I note that the refinancing was backdated to 1 July 2011. This meant that financing compliant with PR 2011/12 never took effect and was instead replaced by terms which were "quite different", as correctly accepted by Mr Aitken in cross-examination. For this reason, I am unable to accept that the terms of a ruling can so easily and readily be set to nought. That would defeat the whole purpose of having a ruling in the first place. Upon the basis of that change alone, I am satisfied that PR 2011/12 was not binding on the Commissioner.

The second departure from PR 2011/12 relied upon by the Commissioner

1. The second departure from PR 2011/12, being the departure that was relied upon by the Commissioner for the application for leave to amend his appeal statement, is the Novation Deed between Mr Aitken and the Manager, which novated the rights (and obligations) over the greater part of the originally defined Put Option Property to the Manager, but not all of them, with effect from 12:01am on 1 July 2015. The Commissioner submits that the Novation Deed represented a material change to the scheme as identified in [42] and [45] of PR 2011/12 reproduced above, such that it is not binding on him in relation to Mr Aitken.
2. There is no threshold of materiality in relation to these changes. The question is whether the change from utilising the contract created by the exercise of the Put Option to compel the sale of all of the Put Option Property to the execution of the Novation Deed was a departure from the relevant terms of PR 2011/12 set out above.
3. What took place differed from what was spelt out by PR 2011/12 in two respects:

(a) Mr Aitken entered into the Novation Deed dated 1 July 2015 (the date of the exercise of the Put Option), stated to operate from 12:01 am that day. From that time, the Manager assumed all rights, benefits and obligations under the relevant agreements in respect of the Put Option Property (as defined in the Novation Deed).

(b) The definition of Put Option Property under the Novation Deed was not the same as the definition of Put Option Property under the Put Option Deed. In the novation, Mr Aitken retained the carbon sequestration and salinity rights and credits, which were described in PR 2011/12 and a component of the original definition of Put Option Property under the Put Option Deed.

1. The substance of the Commissioner's argument is that, while Mr Aitken exercised the Put Option, which had the effect of creating a contract for the sale of the originally defined Put Option Property back to the Manager in return for the payment of the sale consideration of $14,000 per timberlot, that was never carried through to completion as expressly contemplated by the arrangements and documents set out in PR 2011/12. Put another way, the Commissioner argues that it is the very fact of entry into different documents that were not among those listed in PR 2011/12 that disentitled Mr Aitken to rely upon it.
2. Having regard to these differences, the Commissioner specifically submits that:

(a) entry into the Novation Deed represented a change in the scheme or in Mr Aitken's involvement in the scheme, having regard both to PR 2011/12 at [13] and to s 358-5 of Schedule 1 to the TAA;

(b) this demonstrates that Mr Aitken stopped relying on PR 2011/12 by acting in a way that was not in accordance with it, having regard to PR 2011/12 at [9], [42] and [45] and to s 357-60 of Schedule 1 to the TAA.

1. Mr Aitken relies upon the phrase "which are a part of the scheme" in [45] of PR 2011/12. On his argument, documents that are not listed in [42] are not part of the scheme to which PR 2011/12 applies. The existence of any such document, on this argument, cannot cause the ruling to not apply to documents that do form part of the scheme. This argument cannot be accepted as it allows any additional and different document to be used, even if it materially impacts the execution of the scheme.
2. As to the excision of the carbon sequestration and salinity rights and credits from what was novated to the Manager, Mr Aitken's argument is that these interests were not worth anything, and were treated as such, so that they would not give rise to any CGT consequences, implicitly at the time of the execution of the Novation Deed. If they later had some value, that would be caught when Mr Aitken disposed the retained carbon sequestration and salinity rights and credits component of his forestry interest, or when some other CGT event triggering a basis for assessment occurred. However, this ignores the impact that the excision may have had on the market value of the rest of the forestry interest that were the subject of a CGT event.
3. I am unable to accept Mr Aitken's argument and instead prefer and accept the Commissioner's submissions. The fact of entry into the Novation Deed as the means of selling Mr Aitken's forestry interest back to the Manager, instead of by way of both the exercise of the Put Option, and completion of the contract created by that exercise, was a sufficient departure from the terms of PR 2011/12 to render it no longer binding on the Commissioner. The ruling system aims to provide certainty for the taxpayer, but relies on the premise that the taxpayer will not abuse the system and will seek to obtain rulings on anticipated arrangements that they intend to carry out. The alternative of effectively requiring the Commissioner to burrow through that change and carry out a detailed analysis of the effects of the change would defeat the whole purpose of issuing a public ruling, in the form of a product ruling, in the first place, for which documents had been submitted and assessed. The Novation Deed was not able to be subjected to that process as part of the product ruling process.
4. Even if I was wrong about that conclusion, the change in the scope of the Put Option Property transferred by the Novation Deed, and the retention of some of that property contrary to the terms of the Put Option Deed approved by PR 2011/12 puts it beyond doubt that Mr Aitken was not, by his conduct, relying on the ruling. This conclusion becomes even clearer in the absence of any explanation for the carve out beyond the inference able to be drawn from Mr Aitken wishing to retain the carbon sequestration and salinity rights and credits, and there being no evidence of the market value of those rights at that time. This was a clear departure from the terms of PR 2011/12 and would have been material as well if that had needed to be established.

1. PR 2011/12 was not binding on the Commissioner in relation to Mr Aitken.

1. For the foregoing reasons, Mr Aitken has not established that the Commissioner's amended assessment was excessive by reason of including $4,718,000 as the sum of the reduction of market value of his forestry interest as a result of the exercise of the Put Option, and the market value of his forestry interest resulting from the execution of the Novation Deed, both on 1 July 2015. The appeal must therefore be dismissed.
2. I will hear the parties separately on the question of costs, as requested by Mr Aitken at the trial, without opposition by the Commissioner. To that end, the parties will be directed to confer and submit agreed or competing procedural orders for the determination of costs, including whether that should be determined on the papers by reference to short written submissions and any evidence, or whether a further hearing is required.

I certify that the preceding one hundred and seventy-six (176) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Bromwich.