McCormack v Commissioner of Taxation

McCormack v Commissioner of Taxation - [1979] HCA 18 - HCA 1979 case summary — Zoe

[36]

Before the Board of Review evidence was given by the appellant that she had bought the property as a home for herself and her family. Supporting evidence was given by a number of witnesses, including the appellant's husband, her daughter and a Mrs. Schwind, who was a tenant of the house for about three years from early in December 1963. Mrs. Schwind gave evidence that she had sold her house through the agency of the husband of the appellant, and was allowed to rent the house at Macey Street until a new house, which she was building, was completed. She said that the appellant had told her (apparently about the time when the letting was made) that she intended to effect some repairs to the house and live there. The Board of Review did not accept the evidence of the appellant. However, it is now common ground that the members of the Board fell into error which affected their conclusion on the issue of credibility. They thought that at the time when the property was bought the appellant was aware that the land had recently been re-zoned for high-rise development and that it was intended to be resumed for purposes connected with the construction of a new bridge and road system, and that those things made it potentially much more valuable. The facts were as follows. At the time when the land was acquired, it was permissible to use it for the construction of residential flats, but not for high-rise flats. That position, it appears, did not change until August 1968 when the Council of the City of Perth applied to the zone in which the land was situated a new set of by-laws ("the Clarke Gazzard code") which had been adopted in 1966. It was those events, long after the acquisition of the property, which had what was described in evidence as a dramatic effect on land values in the area. In the meantime, in about October 1963, there was gazetted a scheme dated 31st July 1963 and prepared by the Metropolitan Region Planning Authority; under that scheme the land in question became reserved land, and no development could be commenced or carried out on it without consent. The scheme itself would not appear to have enhanced the value of the land subject to it, although there was some evidence that the knowledge that the land would be required for the road works did have that effect. Both the appellant and her husband swore that they were unaware, at the time of the acqusition, of the proposed road development or of any re-zoning. Clearly the members of the Board were wrong in thinking that the appellant had knowledge of the re-zoning, and of the effect which that might have on property values.

[41]

A further appeal was taken to the Full Court of the Federal Court. That appeal was dismissed [9] . Bowen C.J. and Brennan J. held that on the whole of the evidence the probabilities were against the truth of the appellant's evidence as to the intention to use the Macey Street property as a family home, and concluded that the appellant purchased the property for the purpose of profit-making by sale. They adopted the full and careful analysis of the evidence made by Deane J., the third member of the Full Court. Deane J. found that there was evidence that supported a finding that the purpose of the acquisition was profit-making by sale, and evidence which supported a contrary finding. In the event he was unable to accept either the appellant or her husband as a reliable or completely truthful witness. He said that the evidence of Mrs. Schwind that, around the time of the purchase, the appellant indicated to her that the property was being purchased as a future family home was the most telling piece of evidence in the appellant's favour. However, he concluded that in the circumstances it was not to be expected that the appellant or her husband would acknowledge that the property was purchased for the purpose of profit-making by sale, and that the explanation of any mention of the property being acquired for a family home (if mention there was) was to be found "in the circumstances in which the purchase was made rather than by reference to the real purpose motivating the purchase". The appellant and her husband were estate agents and the property was purchased from a very elderly lady who had placed it in the hands of the appellant's husband for sale. On the evidence the findings were open that the property was purchased at an undervalue and in circumstances in which the appellant's husband was guilty of a serious breach of his duty as agent. Deane J. apparently considered that the remark made to Mrs. Schwind was designed to conceal a breach of duty which the appellant's husband had committed and to which the appellant was a party. Having rejected the appellant's evidence, Deane J. concluded, on an assessment of all the evidence, that the property was purchased for the purpose of profit-making by sale. The Federal Court accordingly dismissed the appeal.

[52]

(1927) 40 C.L.R. 246, at p. 251. In McAndrew v. Federal Commissioner of Taxation [15] Kitto J. referred to "the general policy, so clearly evinced in Pt IV of the Act (comprising ss. 161 to 177) and s. 190 (b), of making all assessments unchallengeable except in so far as the taxpayer may displace them on appeal". There is no reason why that policy should have been excluded in relation to appeals brought to the Supreme Courts from boards of review, and it would be most anomalous if on such an appeal the taxpayer did not bear the burden of proving the assessment excessive, when on a reference to a board, and on an appeal direct to the Supreme Court, and on any further appeal brought from the Supreme Court, the taxpayer does bear that burden. Moreover, if s. 190 (b) applies only to references or appeals of the kind mentioned in s. 187, the same must be true of s. 190 (a), yet it is well recognized that the provisions of that paragraph, which limit the taxpayer to the grounds stated in his objection, apply not only on a reference or appeal under s. 187, but on a further appeal, whether brought under s. 196 (1) or s. 200: see Archer Brothers Pty. Ltd. v. Federal Commissioner of Taxation [16] and cases there cited. For these reasons, with the greatest respect, I consider that on the proper construction of the Act the provisions of s. 190 (b) were applicable on the present appeals to the Supreme Court and to the Federal Court, because those courts were required to apply the same rule as that which applied in the Board of Review. However, even if s. 190 (b) did not apply, the result would be the same. On the appeal to the Supreme Court, the appellant sought to show that the assessments made by the Commissioner and confirmed by the Board of Review were excessive, and on ordinary principles she bore the burden of proving the facts necessary to make out her case: see McAndrew v. Federal Commissioner of Taxation [17] ; Krew v. Federal Commissioner of Taxation [18] .
1. (1952) 86 C.L.R. 183, at p. 201.
2. (1927) 40 C.L.R. 246, at p. 251.
3. (1956) 98 C.L.R. 263, at p. 277.
4. (1953) 90 C.L.R. 140, at pp. 148-149.
5. (1956) 98 C.L.R., at pp. 271, 273, 280.
6. (1971) 45 A.L.J.R. 324, at p. 326.

[53]

In a case arising under s. 26 (a) the taxpayer is usually the person best able to give evidence as to the purpose for which the property in question was bought. Although evidence given by a taxpayer as to the purpose with which he acquired property must, for obvious reasons, "be tested most closely, and received with the greatest caution" (Pascoe v. Federal Commissioner of Taxation [19] citing Cox v. Smail [20] ), I completely agree with Barwick C.J. in Gauci v. Federal Commissioner of Taxation [21] , that it would be wrong for a judge to regard the evidence of a taxpayer as prima facie unacceptable. The taxpayer's evidence must of course be considered on its merits, in the light of the circumstances of the case, without any prepossession, favourable or unfavourable. If the taxpayer gives evidence that the property in question was not acquired by him for the purpose of profit-making by sale, and that evidence is accepted, he of course succeeds. In some cases the taxpayer may establish that the case does not fall within s. 26 (a), even though he does not give evidence or does give evidence but is disbelieved. Of course the fact that the taxpayer did not give evidence, if unexplained, could be taken into account in deciding what inferences should be drawn from the evidence (Jones v. Dunkel [22] ). And the fact that the taxpayer was disbelieved could, in appropriate circumstances, itself give rise to an inference adverse to the taxpayer's case (Steinberg v. Federal Commissioner of Taxation [23] ). Nevertheless, if the proper inference to be drawn from the evidence is that the taxpayer bought the property for a purpose other than that of profit-making by sale, the appeal will succeed. An obvious example would be a case in which it clearly appeared that a taxpayer purchased a house and for many years thereafter occupied it as his own home. In those circumstances the natural inference, in the absence of evidence to the contrary, would be that the taxpayer had bought the house for the purpose of dwelling in it, and the fact that the taxpayer was not an honest witness would hardly matter. However, if the taxpayer's evidence of the purpose with which he acquired the property is not accepted, and it does not appear from the other evidence on the balance of probabilities that he did not acquire the property for the purpose of profit-making by sale, he will fail to discharge his onus of proof. When I speak of purpose I mean, of course, the main or dominant purpose actuating the acquisition.

[56]

There is no presumption that property is acquired for resale at a profit. No doubt s. 190 of the Act requires the appellant to show that the assessment is excessive. But the relevant facts being known, if there is no material upon which it may properly be concluded that the property was acquired with the relevant purpose, the assessment is thereby shown to be excessive. As I have said, there is no presumption of purpose to aid the assessment. In particular, s. 190 does not raise any such presumption. With the greatest respect I cannot agree with this statement, which seems to me inconsistent with earlier decisions of the Court such as George v. Federal Commissioner of Taxation [25] and McAndrew v. Federal Commissioner of Taxation [26] . The taxpayer bears the burden of proving that the assessment was excessive. To discharge that burden in a case such as the present he must prove affirmatively, on the balance of probabilities, that the property was not acquired for the purpose of profit-making by sale. The burden may be discharged by drawing inferences from the evidence. In some cases in which all the relevant facts are known, and there is no material upon which it might properly be concluded that the property was acquired for the relevant purpose, the inference may properly be drawn that the property was not acquired for the relevant purpose. But it is not enough, even when all the facts are known, that there is no material upon which it may be concluded that the property was acquired for the purpose mentioned in s. 26 (a). If a taxpayer can succeed, simply because there is no evidence from which it can be concluded that the relevant purpose existed, that must mean that the burden of proving the existence of that purpose lies on the Commissioner. That in my respectful opinion would be to invert the onus of proof. The taxpayer will succeed if the proper inference from the evidence is that the property was not acquired for the relevant purpose, but if there is no evidence as to the purpose for which the taxpayer acquired the property the appeal must fail. 1. (1975) 135 C.L.R., at p. 87. 2. (1952) 86 C.L.R. 183. 3. (1956) 98 C.L.R. 263.

[61]

The failure to call the appellant as a witness before Wickham J. was due to the decision of her counsel. It was not due to an error on the part of the learned judge. In these circumstances there is much to be said for the view that the appeal should be dismissed. It is of great importance in the conduct of litigation that a litigant should be bound, on appeal, by the manner in which he, or his counsel, has conducted the proceedings at first instance. However, in the end it seems to me that it would be unjust to dismiss the present appeal, not only because there has been no opportunity properly to assess the credibility of the appellant, but also because inadequate weight was placed both in the Board of Review and in the Supreme Court on the evidence of Mrs. Schwind. When Mrs. Schwind gave evidence before the Board she was not cross-examined to suggest that the evidence which she gave as to the appellant's statements was false. Although the Board paid little attention to her evidence, they had no reason to regard her as anything but a truthful witness. Equally, Wickham J. would not have been justified in refusing to regard her evidence on this point as unacceptable. In fact the learned judge did not mention her evidence, whose importance does not appear to have been fully appreciated before the case reached the Federal Court. Deane J. appears to have accepted that the appellant did tell Mrs. Schwind that it was her intention to live in the house, but he explained the appellant's statement as a concoction designed to disguise the truth which he considered was discreditable to the appellant. Evidence of statements made by the appellant, at or about the time of the purchase, of the purpose for which she acquired the property, was admissible as evidence of her state of mind: Elsey v. Federal Commissioner of Taxation [33] ; and see Phipson on Evidence, 12th ed. (1976), pars. 219-221. It was of course necessary for the judge charged with the duty of deciding the facts to decide not only whether the statements were made but also whether, if made, they were a genuine expression of the appellant's state of mind or the result of a deliberate decision to conceal her true purpose. The explanation suggested by Deane J. was never put to the appellant in cross-examination before the Board, or raised for consideration in the Supreme Court at a time when it might still have been possible to adduce further evidence on the point. It would seem to me unjust to depreciate the value of Mrs. Schwind's evidence for reasons which the appellant had no opportunity to refute. In the very exceptional circumstances of the case I consider that it is necessary to order a new trial where the evidence of the appellant and of Mrs. Schwind, and of course the other witnesses, can be assessed by a judge who will have the opportunity to see and hear them. On a re-trial the judge, in my opinion, will not be bound by the opinions as to the facts of the case expressed in the Federal Court and in this Court.

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