Lidono Pty Ltd v Commissioner of Taxation

REASONS FOR JUDGMENT 1 It is regrettable that the decision of the Administrative Appeals Tribunal ("the Tribunal") under challenge in this proceeding must be set aside and the case remitted to the Tribunal. This necessity arises because the Tribunal's Reasons for Decision betray such internal inconsistency and ambiguity as to require speculation as to the actual basis for its decision adverse to the applicant Lidono Pty Ltd ("Lidono"). The Reasons do not satisfactorily reveal the reasoning process of the Tribunal. 2 The genesis of this application lies in the Tribunal's finding that the profits made by Lidono from the sale of land as two parcels to separate purchasers were profits arising from profit-making activities under s 25A of the Income Tax Assessment Act 1936 (Cth) ("the ITA Act") and were to be included in Lidono's assessable income for 1988. Before outlining the factual setting, it is appropriate first to note the provisions of s 25A(1). 3 That sub-section provides: "25A (1) The assessable income of a taxpayer shall include profit arising from the sale by the taxpayer of any property acquired by him for the purpose of profit-making by sale, or from the carrying on or carrying out of any profit-making undertaking or scheme." Background Circumstances 4 The facts that need to be referred to for the purposes of this application fall within a narrow compass. 5 (1) Mr Alex Brinkmeyer controlled a group of companies the principal business of which was land development. By 1984 the group's activities included developing land for sub-division in Queanbeyan. At that time the group's operations were being conducted from premises in Canberra. 6 (2) Prior to September 1984 Mr Brinkmeyer was informed of the availability of a number of contiguous lots of land in Queanbeyan. These are referred to in this matter as the "Wanniassa Street land". 7 (3) Mr Brinkmeyer gave evidence that he was at the time interested in acquiring land in Queanbeyan so as to establish an office there both because it would be prudent to be in that city for business reasons given his developmental activities and because his existing office was inadequate. 8 (4) On 4 September 1984 sales instructions were issued for the sale of the Wanniassa Street land to Mr and Mrs Brinkmeyer with a proposed settlement on 30 March 1985. That sale did not proceed. 9 (5) On 20 September 1984 a letter of understanding was signed between Amaroo Holdings (Australia) Pty Ltd ("Amaroo"), a company in the Brinkmeyer group, and Kentbrooke Pty Ltd ("Kentbrooke"). It provided that should Amaroo purchase certain of the lots of the Wanniassa Street land it would sell those lots to Kentbrooke, Kentbrooke agreeing to withdraw from further negotiations for those lots with the vendor. The balance of the land was to be used by Amaroo as the site for the group's corporate office. 10 (6) The arrangement between Amaroo and Kentbrooke fell away in late 1984 or early 1985. 11 (7) Lidono was incorporated in the Australian Capital Territory on 5 February 1985 and was acquired by Mr Brinkmeyer and a business associate on 27 February 1985. In April 1985 Lidono entered into a contract for the purchase of the Wanniassa Street land. Settlement occurred on 2 September 1985. 12 (8) On 20 June 1985 a further contract was entered into to acquire an additional lot ("Lot C") that would provide access to the land. 13 (9) The principal competitor of the group in Queanbeyan was the Woodger Corporation ("Woodger"). It was known by April 1985 that there was a possibility of Woodger being wound up. The Brinkmeyer group later took over Woodger's development land and its head office in Queanbeyan, this being finalised by 1 September 1986. This take-over eliminated any need for the group to develop an office in Queanbeyan. 14 (10) In October 1986 Lidono sold part of the Wanniassa Street land to McDonalds. The balance of the lots was sold in September 1987, these ultimately going via an intermediate purchaser to KFC.

The Tribunal's Reasons 15 The Reasons, after narrating the evidence and facts, went on under the heading "Findings" to make a number of findings of fact. These related primarily to the various intentions or purposes found to be entertained by Mr Brinkmeyer and his companies leading up to Lidono's purchase of the land. 16 The Tribunal found that (i) the initial intention for purchase was for Amaroo to acquire the site and to develop a corporate head office together with an investment in conjunction with Kentbrooke: Reasons, para 34; (ii) when the understanding with Kentbrooke fell away and it was decided Amaroo was not the appropriate vehicle to hold the land, "purchase by [Lidono] was arranged so that the subject land could be resold at a profit as the opportunity presented itself": Reasons, para 31; (iii) actions taken in relation to the land in December 1985 indicated "there was not any then existing intention to develop the subject land as an investment": Reasons, para 30, emphasis added; and (iv) the land was not initially purchased for resale to McDonalds and KFC: Reasons, para 32. 17 In para 38 of its Reasons the Tribunal crystallised its findings in this fashion: "38 The business of [Lidono] was to hold the land and develop the land presumably to its highest and best use. Although the original intention was to hold the land and develop corporate offices and a further development as a motel whereby part of the land would be sold to [Kentbrooke] that was no longer the case when [Lidono] purchased the land." 18 Having made the above findings the Tribunal, under the heading "WHETHER SALE WAS REALISATION OF A CAPITAL ASSET", went on to make a series of additional findings. 19 First, in para 47 it was indicated that: "I am satisfied and find that there was a twofold purpose in relation to the initial purchase of the land. An unascertained portion was to be used for construction of a corporate head office and an unascertained portion was to be developed (probably as a motel) as either a short-term or long-term investment. I can only speculate as to which. It seems to be open on the evidence that this developed portion may well have been intended to be sold as was indicated under the original arrangement between [Amaroo] and [Kentbrooke]." The last sentence of this paragraph makes plain (as does para 48 which I do not set out here) that the "initial purchase" referred to is the purchase by Lidono, not the projected purchase by Amaroo that did not eventuate. 20 This dual purpose finding is then carried forward, albeit in a mutating form, into the decisive paragraphs of the Reasons: "51 Consideration of the material before me has led to the conclusion that [Mr Brinkmeyer] as controlling mind of the company always had an intention to realise at least part of the land either by development and sale or by resubdivision and sale. As it transpired the land was resubdivided and amalgamated and the subject land sold as two parcels. This was an outcome not inconsistent with the original intention of [Mr Brinkmeyer]." Emphasis added. "52 Therefore, I find that the profits from the sale of the land as two parcels to each respective purchaser are from profit making activities under s 25A and are to be included in its assessable income for 1988. The intention of [Mr Brinkmeyer] as controlling mind of the applicant was to gain short term profit from the sale or development and then sale of at least part of the land. Opportunities however arose which maximised that use and gave rise to the sale of the whole of the subject land. This is consistent with the initial intention to develop and or sell the land (or part of it) to thus achieve the highest and best use giving rise to a profit on the eventual sale." Emphasis added. 21 Interspersed between the findings in para 47 and paras 50 and 51 were the additional findings that (i) some months after Lidono acquired the land it effectively committed itself "to the land development business although not as a participant in that business"; and (ii) later in 1985 land development became the company's business.

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