Warriewood Valley Pty Limited As Trustee of the Jill Trust v the Commissioner of Taxation [1993] FCA 396;

Warriewood Valley Pty Limited As Trustee of the Jill Trust v the Commissioner of Taxation [1993] FCA 396; - FCA 1993 case summary — Zoe

[19]

10. I turn to the purchase of the taxpayer's property. In August or September 1977 Mr Henry Roth was in St Vincent's Hospital recovering from an operation when he was visited by Mr Baffsky and Mr Brender. Mr Henry Roth gave evidence which I shall summarize. Mr Baffsky said to him that he and Mr Brender wished to talk to him about certain land in the Warriewood Valley which was available for purchase having an area of approximately 45 acres; that the owners of the land were suffering financial difficulties and that both Mr Baffsky and Mr Brender considered the land to be a good investment. Mr Baffsky said to him that the land was currently zoned for agricultural purposes but that he (Mr Baffsky) thought it would be rezoned in the future and the land could then be developed as an industrial or commercial estate. Mr Baffsky asked Mr Roth whether he would be interested in participating in a joint venture to purchase the land as a minority shareholder with Mr Baffsky and Mr Brender. After discussion, following some misgivings by Mr Roth, Mr Roth gave evidence that he agreed to participate in the joint venture on the basis that Mr Baffsky would contribute 49% of the purchase price of the land, Mr Brender would contribute 20% and that Mr Roth would contribute 31%. It was agreed also that Mr Roth would lend monies to Mr Baffsky to enable him to make his 49% contribution on the basis of an interest bearing loan and that each party would have equity in the joint venture in proportion to his contribution to the purchase price of the property. Mr Baffsky would arrange a suitable entity to purchase the land. Mr Roth said that Mr Baffsky said to him that he could repay the loan "within a few months, a year at the latest". Mr Roth gave evidence that he intended that the land would be developed once it was rezoned: it would be subdivided, premises constructed on the subdivided lots and the premises then leased to tenants. The type of development would depend on the type of use in respect of which the land was rezoned. For example, if the land or part of it was rezoned for industrial use, then industrial premises would be constructed and leased to tenants. Alternatively, if the land or part of it was rezoned for commercial use, commercial premises would be constructed and leased to tenants. But on no account did he intend that the land would be sold, although the prospect of sale is always a possibility with any purchase of land. The property was to be a long term investment. Mr Roth said that during the course of the discussion at St Vincent's Hospital there was no mention of the future sale of the land, nor was this subject discussed at any time before the purchase of the land. He said that during the course of the visit to the hospital, Mr Baffsky said to him there were poplar trees growing on the land and that they may be able to earn sufficient money from the sale of the trees to pay for council rates and other outgoings before the land was rezoned and developed; the land was used for agricultural purposes and hence was exempt from land tax. Mr Roth said in evidence that whilst his primary intention was to develop the land after rezoning, the possibility of selling the trees would provide a cashflow pending rezoning and development of the land and an additional incentive to the purchase.

[101]

"After acquisition the person who had supervised

the poplar trees for the vendor was engaged by

the taxpayer and continued to maintain the

trees. Several hundred new trees were also

planted. However shortly after the purchase of

the land and before the trees had reached full

maturity the market for matches made from the

wood of poplar trees effectively collapsed.

This was as a result of the advent of matches

made from cardboard and disposable cigarette

lighters. The price of poplar tree wood fell

sharply and did not recover during the time of

the taxpayer's ownership of the property. The

harvesting of the trees growing upon the

property no longer became a commercial

proposition and effectively the poplar tree

growing activities came to a halt.

Due to the failure of the poplar tree growing

the taxpayer, through Mr Roth, proceeded to

examine whether there were alternative uses to

which the land could be put. Its examination of

the alternative was not a success. Discussions

with Wahroonga (sic) Shire Council became

complex and protracted. There were

modifications made to a water way in the area

'Mullet Creek Weir' which had the consequence of

inundating the property with water.

As a result some of the property became a part

of what is now known as 'The Warriewood Wet

Lands'. There were various questions regarding

the conservation of this area and it became a

political question.

The taxpayer became frustrated with its

inability after more than five years of

discussions to obtain some form of rezoning to

permit the land to be used in some profitable

way. During this period it was required to bear

substantial charges for shire and water rates as

well as interest and other expenses associated

with holding the land.

In 1983 the taxpayer was approached by the

Promotion of Sydney Anglican Diocesan Schools

which made an offer to purchase part of the land

owned by the taxpayer. The land had not been

marketed for sale by the taxpayer. The taxpayer

subsequently accepted the offer and sold the

property. Its immediately motive in selling was

to recoup some of its outgoings in respect to

the acquisition and holding of the land."

...

... the taxpayer acquired the land with the

intention:

(1) To grow and farm poplar trees and to

derive income from that activity; and

(2) If that activity failed to examine what

alternative uses the land could be put to.

There is nothing in the history of the

acquisition and sale of the land or in Mr.

Roth's previous activity that would indicate

that the land was acquired with the dominant

purpose of being resold at a profit."

At a glance

Court

Decision date

Before

Source

Judgment (109 paragraphs)

Warriewood Valley Pty Limited As Trustee of the Jill Trust v the Commissioner of Taxation [1993] FCA 396; (1993) 26 Atr 270 (1993) 93 Atc 4653 (20 August 1993)

Parties

Legislation Cited (1)

Cases Cited (6)