The Full Federal Court has unanimously dismissed an appeal by husband and wife taxpayers and beneficiaries from the decision in August v FCT [2012] FCA 682 in which it was held that gains made on the sale of shopping centres and properties held by trusts where made on a revenue account and not a capital account because of the existence of a profit making intention on resale. On appeal the taxpayers unsuccessfully sought to introduce further evidence to support the claim that the gain was made on a capital account (namely, an Addendum to a deed between the parties to the ventures) and also to challenge the finding at first instance.
However, in dismissing the taxpayers’ appeal the Full Court first found that there were no grounds to allow the new evidence for a number of reasons including that the further evidence was inconclusive to the matter and there were concerns about the authenticity of the addendum, and in particular its date of execution. In relation to the issue of whether the Court at first instance had applied the correct legal principles, the Full Court found the Court had relied on the appropriate principle as set out in Westfield Limited v FCT (1991) 21 ATR 1398.
In doing so, the Full Court also rejected the taxpayers’ claims that the trial judge had misapplied the relevant test because there was never a scheme, business operation or commercial transaction in the case of the Melba shops and there was not a scheme, business operation or commercial transaction in place at the time of the sale of the Hume property. Instead, it found that it was open to the trial judge to find that, at the relevant time, there was the requisite scheme and intention that the shops be developed, tenanted and sold for a profit.
(August v FCT [2013] FCAFC 85, Full Federal Court, Siopis, Besanko and McKerracher JJ, 7 August 2013.)
[LTN 152, 8/8/13]