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Bowerman v FC of T

Members:
G Lazanas SM

Tribunal:
Administrative Appeals Tribunal, Sydney

MEDIA NEUTRAL CITATION: [2023] AATA 3547

Decision date: 31 October 2023

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G Lazanas (Senior Member):

INTRODUCTION

1. The Applicant, Mrs Jenifer Ethel Bowerman, seeks review of the objection decision made by the Respondent, the Commissioner of Taxation, on 15 March 2022 in respect of the year ended 30 June 2020 (the Objection Decision ). The key issue in these proceedings is whether the loss on the sale of a property that Mrs Bowerman purchased to make a profit is deductible under s 8-1 of the Income Tax Assessment Act 1997 (Cth) ( ITAA 1997 ).

2. The factual matrix is somewhat unusual. Mrs Bowerman purchased a property, being a residential unit, with the intention of selling it for a profit but which she also lived in. This was in circumstances where Mrs Bowerman had earlier purchased another residential unit in the same development and in it was in that other unit that she always intended to reside and currently resides. However, due to the unfortunate timing relating to the onset of the COVID-19 lockdowns at the time that she needed to sell the residential unit, Mrs Bowerman instead made a loss on the sale of the property.

3. The Commissioner argued Mrs Bowerman was not entitled to claim the loss on the sale of the residential unit due to a number of reasons. These reasons changed over the course of the dispute. Relevantly, at the hearing the Commissioner submitted that the loss made by Mrs Bowerman was not deductible because it was of a private or domestic nature within the terms of the negative limb of s 8-1(2)(b) of the ITAA 1997, and/or because the loss was not incurred in the 2020 income year in which she sought to claim the deduction. As a further alternative position, the Commissioner argued Mrs Bowerman had not discharged her onus of proving that she fell within the relevant principles emerging from the High Court decision in
Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199 ( Myer Emporium ). That is, she did not have the requisite intention to make a profit on the sale of the property at the time she acquired it and, secondly, the property transaction was not a commercial transaction or the sort of thing a business person or person in trade does.

4. As will become clear from the analysis, there were a melting pot of substantive income tax and, to a lesser extent, tax administration, issues that were raised, many of which are very contentious. One of these concerns the application of the negative limb in s 8-1(2)(b) of the ITAA 1997. Another issue is the application of a public ruling that the Commissioner issued on the meaning of "incurred". As these are important issues, I have set out the competing views advanced by Mrs Bowerman and the Commissioner in some detail, in case I am wrong, and the matter progresses further.

5. For the reasons set out below, I have decided that the Objection Decision is to be set aside and substituted with a decision to allow Mrs Bowerman's objection in full.

THE ISSUES BEFORE THE TRIBUNAL

6. There are three issues for determination by the Tribunal. Mrs Bowerman needs all three issues to be decided in her favour for the Objection Decision to be set aside and substituted with a decision allowing her objection.

7. The first issue to be determined by the Tribunal is whether the loss on the sale of the residential unit that Mrs Bowerman contracted to purchase located at Dune Walk, Woolooware Bay (the Dune Walk Unit ) was incurred in gaining or producing her assessable income within the meaning of s 8-1(1)(a) of the ITAA 1997 (the First Issue ). The First Issue necessarily involves an analysis of whether Mrs Bowerman satisfied the first limb and the second limb of Myer Emporium. The first limb involves whether she had the requisite intention to make a profit on the sale of the Dune Walk Unit at the time she acquired it and, the second being whether the transactions involving the purchase and sale of the Dune Walk Unit were commercial transactions or the sort of thing a business person or person in trade does.

8. The second issue is whether the loss otherwise deductible under s 8-1(1)(a) of the ITAA 1997 in respect of the sale of the Dune Walk Unit would be prevented from being deducted due to it falling within the negative limb with respect to losses or outgoings of a private or domestic nature in s 8-1(2)(b) of the ITAA 1997 (the Second Issue ). This involves a

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discussion as to the ambit of s 8-1(2)(b) as well as the veracity of the Commissioner's contention that the loss on the sale of the Dune Walk Unit was "essentially" of a domestic nature because Mrs Bowerman lived in the residential unit for the entire period of her ownership.

9. The third issue is whether any loss otherwise deductible under s 8-1 of the ITAA 1997 in respect of the sale of the Dune Walk Unit was "incurred" within the meaning of that statutory provision, in the year ended 30 June 2020 (the Third Issue ). The Third Issue arises because the settlement of the sale of the Dune Walk Unit did not occur until 9 July 2020 (in the 2021 income year) while the Objection Decision relates to the income year ended 30 June 2020.

10. At this juncture, I note that the Commissioner had sought to argue the Second Issue first at the hearing, followed by the Third Issue and, finally, what is referred to above as the First Issue. The Commissioner started with the position that any loss is prevented from being deducted due to the "exception" for losses of a private or domestic nature in s 8-1(2)(b) of the ITAA 1997. The Commissioner argued that taking Mrs Bowerman's position at its highest, on the premise she otherwise satisfied the positive limb of s 8-1(1), any loss otherwise deductible would be prevented from being deducted by the exception or negative limb in s 8-1(2)(b). This was because the character of the loss was clearly of a domestic nature.

11. I propose to deal with the issues in the order set out in [7]-[9] above. This is how Mrs Bowerman approached the issues. More importantly, that sequence is also congruent with the way in which the issues arise for consideration under the statutory provisions in the ITAA 1997. It makes sense to analyse whether Mrs Bowerman was allowed to claim a deduction for the loss on the sale of the Dune Walk Unit under the positive limb in s 8-1(1) first, before analysing the application of s 8-1(2)(b) and, finally, the timing for claiming any deduction.

12. It is also noteworthy that the Second Issue was first ventilated by the Commissioner in his submissions filed with the Tribunal and given to Mrs Bowerman on 16 June 2023, some three weeks before the hearing which took place on 7 July 2023. That is, the Second Issue did not feature in the Commissioner's Objection Decision, nor was it foreshadowed in the Commissioner's Statement of Facts, Issues and Contentions filed on 27 September 2022. It was also not canvassed in the Commissioner's Amended Statement of Facts Issues and Contentions filed with the Tribunal and given to Mrs Bowerman on 19 April 2023.

13. I do not intend any of the above to be criticism of the Commissioner, and especially not of his counsel. On the contrary, I acknowledge the helpful assistance and good nature of both representatives. Of course, it also helped that Mrs Bowerman was represented by her son-in-law, Mr Michael Whyte, who happens to be a tax agent well versed in tax law and who addressed this issue in Mrs Bowerman's reply submissions dated 23 June 2023.

THE FACTUAL BACKGROUND AND THE EVIDENCE

14. The parties filed a Joint Tribunal Book which, besides their respective Statements of Facts, Issues and Contentions and, in addition, their Outlines of Submissions, comprised the following documents:

  • (a) Documents filed pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (Cth) ( T-Documents ) dated 30 May 2022
  • (b) Affidavit of Mrs Bowerman sworn on 30 October 2022
  • (c) Commissioner's List of Documents:
    • (i) CoreLogic Residential Property Data Report on [Matrimonial Home] generated on 2 March 2023
    • (ii) Property listing by Highland Property Agents of the [Matrimonial Home]
    • (iii) Letter from The Shire Conveyancer to Mrs Bowerman dated 22 December 2016
    • (iv) CoreLogic Residential Property Data Report on [the Dune Walk Property] generated on 2 March 2023
    • (v) Contract for the sale of the [Dune Walk Property] dated 20 April 2020
    • (vi) Letter from The Shire Conveyancer to Mrs Bowerman dated 5 May 2018

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    • (vii) Settlement adjustment sheet for the [Dune Walk Property] dated 7 May 2018
    • (viii) Mrs Bowerman's income tax return for the income year ended 30 June 2020, lodged on 18 September 2020

15. The following findings of fact are based on the evidence given by Mrs Bowerman and the T-Documents, as well as the other documents filed by the Commissioner referred to above and as specifically referenced below.

16. Mrs Bowerman gave written evidence in the form of an affidavit sworn 30 October 2022. She also attended in person and gave oral evidence and was cross-examined. She was the only witness. Mrs Bowerman impressed me as honest and forthright. I accept she was a credible witness.

17. No direct attack was made upon the credibility of Mrs Bowerman by the Commissioner. Rather, the Commissioner sought to paint a particular picture of Mrs Bowerman to enable inferences to be drawn from her age, and the manner of her transactions, as well as the terms of the documents. However, while the Commissioner invited the Tribunal to draw these inferences, they are not so compelling as to dispel Mrs Bowerman's testimony.

Mrs Bowerman's businesses and investments

18. Mrs Bowerman is 86 years old and a self-funded retiree. In about June 2015 her husband Mr Robert Bowerman passed away. Since then Mrs Bowerman has been managing her own investment portfolio made up of various shares, managed investment trust and rental property investments. Mrs Bowerman impressed me as being savvy and entrepreneurial.

19. From 1961 until the early to mid-1990's, Mr and Mrs Bowerman had been active in establishing and running successful businesses in the hairdressing industry. At one stage, they owned and operated five salons and employed approximately 60 staff. Their other business was running seminars educating hairdressers throughout the capital cities of Australia. After 34 years in the hairdressing industry, their seminar business was closed in the early 1990's when the late Mr Bowerman was no longer able to run the seminars due to health reasons, and their last salon was sold in 1995.

20. In about 1963, Mr and Mrs Bowerman also started investing in property and, in addition to deriving rental income, also derived capital gains from the long-term holding of properties. Mrs Bowerman stated in her affidavit and in oral evidence that over the years she had acquired and sold approximately 20 properties and never made a loss on any sale except for the Dune Walk Unit.

21. In or about 2002, Mr and Mrs Bowerman had decided as part of their retirement investment strategy to cease making more rental property investments and instead invested in ASX listed shares and managed fund investments, as well as some fixed income investments. They directed their attention to generating income returns from investments rather than seeking long term capital growth, although they still continued to own property investments.

The Matrimonial Home

22. In 1972, Mr and Mrs Bowerman acquired a house in Caringbah South in NSW (the Matrimonial Home ). Mr and Mrs Bowerman resided in the Matrimonial Home together with their children for approximately 43 years until Mr Bowerman's passing in June 2015. At that time, Mrs Bowerman was 77 years old. Mrs Bowerman continued to live in the Matrimonial Home for approximately another 3 years until early May 2018.

23. The Matrimonial Home was a waterfront property (approximately 809 square metres) with expansive views across Port Hacking River. Relevantly, it was described in a real estate agent's advertisement (provided as one of the Commissioner's documents) as a "Deep Waterfront Boathouse" and as having the following features:

  • - Light filled living and dining areas flow to outdoor entertaining
  • - West facing sun-drenched level grassed backyard perfect for entertaining
  • - Waterfront facilities include slipway with boatshed and inclinator access
  • - Two spacious living areas, updated kitchen, carpet throughout
  • - Three bedrooms with optional study, large main bathroom & separate toilet
  • - Covered double carport with off street parking, close to transport …

24.

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Mrs Bowerman acknowledged under cross-examination that the Matrimonial Home was "inconvenient" as there was a steep decline of 78 steps from the public road to the house, which was built on pylons over the water. She stated an inclinator had been installed in around 1990 after she had knee replacement surgery. She stated that the surgery was necessary because she had played netball until around the age of 52. She also stated that most of the time she used the inclinator, which was large enough for 3 people to stand in, to take her shopping bags to the house.

Purchase of the Foreshore Boulevard Unit

25. On 23 July 2015, a few weeks after Mr Bowerman's passing, Mrs Bowerman executed and exchanged an off the plan contract to purchase a unit in a complex at Woolooware Bay in NSW (the Foreshore Boulevard Unit ). The Foreshore Boulevard Unit is the residential unit that Mrs Bowerman purchased to live in, and currently lives in. The purchase price was $1,505,000.

26. The Foreshore Boulevard Unit is a three-bedroom apartment in a multi-stage development at Woolooware Bay. At the time of executing the contract for the purchase of the Foreshore Boulevard Unit, Mrs Bowerman expected she would ultimately live in that apartment as her home and the completion of its purchase was to be funded from the sale of the existing family home, namely, the Matrimonial Home.

27. Mrs Bowerman accepted under cross-examination that the Matrimonial Home was large, but she stated that when she decided to purchase the Foreshore Boulevard Unit, it was not because she was downsizing, as the Foreshore Boulevard Unit is also a three bedroom unit and similar in size to a house. Rather, she stated she purchased it for more convenient living. Mrs Bowerman stated that she knew she was getting older and had to "get into something more simple". She volunteered the example of having to put the garbage in the back of her car and drive up to the road to dispose of the garbage as one of the inconveniences with living at the Matrimonial Home.

28. Under clause 30.1 of the contract for the purchase of the Foreshore Boulevard Unit, "Sunset Date" was defined to mean "30 June 2019 or the date as extended pursuant to clause 61.1". That is, at the time Mrs Bowerman entered the contract to purchase the Foreshore Boulevard Unit, completion was not expected to occur until approximately four years later. Further, under clause 61.1(a) of the contract, the vendor could extend the Sunset Date by up to 12 months by giving Mrs Bowerman a copy of a certificate from the vendor's project manager stating that the construction of the building was delayed. As explained below at [29], this is something that did occur. Mrs Bowerman testified that she was nevertheless content to continue living in the Matrimonial Home until the Foreshore Boulevard Unit was built.

29. On 22 December 2016, Mrs Bowerman received a letter from her conveyancer which attached a letter from the vendor's solicitor in respect of the Foreshore Boulevard Unit. The attached letter certified that the "Sunset Date" had been extended by a year from 30 June 2019 to 30 June 2020 (the Extension Notification ).

30. Approximately a year later, in November 2017, Mrs Bowerman was advised by her real estate agent that she would be able to sell her Matrimonial Home for more than $2 million.

Purchase and sale of the Dune Walk Unit

31. On 28 November 2017, approximately a year after receiving the Extension Notification and after receiving the abovementioned advice from her real estate agent about the possible sale price of the Matrimonial Home, Mrs Bowerman executed a contract, as purchaser, to buy another unit in the same development at Woolooware Bay. The second unit that Mrs Bowerman contracted to purchase is located at Dune Walk (the Dune Walk Unit ) and is in a different stage of the same development as the Foreshore Boulevard Unit. It is the Dune Walk Unit that is the subject of the Objection Decision and these proceedings.

32. In her affidavit, Mrs Bowerman relevantly stated as follows in relation to her Dune Walk Unit purchase:

10. During the period from July 2015 through November 2017, I was kept updated on the progress of the Woolooware Bay development through my interaction with the property manager and onsite sales office. I became aware of the significant market

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interest in properties available for sale, including the development of a secondary market for the sale of existing 'off-the-plan' contracts on properties which were still to be constructed. I was impressed with the Woolooware Bay development and formed the view that it would be possible to make a profit on the acquisition and disposal of an apartment held for only a short period of time. Some of the key elements of the Woolooware Bay development which I believe supported this view was the location, the accelerated movement by downsizers such as myself from house to apartment living and the general economic demographics of the Sutherland Shire which would continue to support the growth in sales and prices for these apartments.

11. Based on my expectation as to the continued popularity of the Woolooware Bay development which I considered would translate into higher future sales prices for the limited number of apartments available, I decided in November 2017 to purchase an existing 'off-the-plan' contract for a two-bedroom apartment. Accordingly, I contacted the Woolooware Bay sales office to ascertain if there were any existing purchase contracts available for re-sale….

12. On 29 November 2017 I signed a re-sale contract for an existing 'off-the-plan' contract to acquire Dune Walk. Under the contract, the Stage 2 apartment in the Woolooware Bay development was to be completed by 1 August 2019 following a 12-month extension pursuant to clause 61.1 of the original contract. In a letter dated 13 December 2017 from my conveyancer, The Shire Conveyancer, it was noted that settlement of the purchase of Dune Walk was expected to occur in April/May 2018. However, this letter also cautioned that although unlikely there could be delays in settlement extending out as far as 1 August 2020. Settlement of the Dune Walk purchase occurred on 7 May 2018 and I moved into the apartment approximately a week later.

13. My motivation for entering into the re-sale contract on 29 November 2017 was to make a profit when I subsequently had to sell Dune Walk to provide the funds necessary to settle the acquisition of Foreshore Blvd (which occurred on 14 July 2020). Although I did intend to reside at Dune Walk when the apartment became available to me, my decision to acquire Dune Walk was not motivated by being able to reside in the apartment during my period of ownership. If I did not believe I would be able to make a profit on the acquisition and sale of Dune Walk, I would never have proceeded with the acquisition in the first place.

33. The purchase price for the Dune Walk Unit by Mrs Bowerman was $1,200,000. As noted in the above extract from Mrs Bowerman's affidavit, the Dune Walk Unit was also an off the plan apartment in the Woolooware Bay development. However, unlike the Foreshore Boulevard Unit which she purchased from the developer, Mrs Bowerman purchased the two-bedroom Dune Walk Unit, from individual vendors who on-sold it off the plan to Mrs Bowerman before the unit was completed and occupied.

34. It emerged during the hearing from independent information provided by the Commissioner as to the property sale history of the Dune Walk Unit that the vendors who sold the Dune Walk Unit to Mrs Bowerman had made a sizable gain from their purchase and sale of the Dune Walk Unit. Specifically, the vendors had acquired it off the plan from the developer for $823,460 on 31 March 2014 and sold it to Mrs Bowerman for $1,200,000 on 28 November 2017 (representing a return of approximately 45% to the vendors over the period of 3 years 7 months).

35. The Dune Walk Unit was in stage two of the Woolooware Bay development, and it was expected to complete before the Foreshore Boulevard Unit which was in stage three. Mrs Bowerman's contract for the purchase of the Dune Walk Unit relevantly provided as follows:

10. The purchaser acknowledges that the Sunset Date in the Head Agreement has been extended to the 1stAugust, 2019…

…

61.1 Completion will take place on the later of:

  • (a) 14 days after the date on which Vendor notifies the Purchaser in writing that the

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    Strata Plan has been registered with the Department of Lands;
  • (b) 14 days after the date on which the Vendor provides the Purchaser with an Occupation Certificate; and
  • (c) 35 days from the date of this contract.

36. Therefore, at the time of Mrs Bowerman exchanging the contract for the purchase of the Dune Walk Unit (29 November 2017), settlement of the purchase of the Dune Walk Unit was expected to be completed by 1 August 2019. However, following exchange, in a letter from her conveyancer dated 13 December 2017, Mrs Bowerman was advised, as follows:

Sunset Date

As you are purchasing off the plan, the Contract states the vendor has until 1stAugust 2019 to register the strata plan. There is also a clause allowing a further 12 month period for delays due to inclement weather, council issues etc. This means that you could possibly be bound to the vendor/ contract until as late as 1stAugust 2020. Although we do not have anything in writing and cannot confirm we do however expect settlement to be April/ May 2018.

37. Under cross-examination, Mrs Bowerman stated that she purchased the Dune Walk Unit with the expectation of making a profit on the sale. She denied buying it purely or solely to move into it while the Foreshore Boulevard Unit was being constructed. Mrs Bowerman acknowledged, however, that at the time of executing the contract for the purchase of the Dune Walk Unit, her intention was to live in the Dune Walk Unit when it became available to her for a limited period during the construction of the Foreshore Boulevard Unit. She stated she did not wish to lease the Dune Walk Unit as, in her experience, tenants would not look after it, but she would move into it and look after it herself.

38. Mrs Bowerman also stated under cross-examination that she did not research buying any other property as "this one looked really good", and she was aware that the Woolooware Bay development was selling very well and would be progressing to stages five and six. Mrs Bowerman further acknowledged that, at the time of buying the Dune Walk unit, she knew she would have to sell it to fund the completion of the Foreshore Boulevard Unit in which she planned to ultimately reside. She would also have to sell the Matrimonial Home to fund the completion of the purchase of the Dune Walk Unit. However, Mrs Bowerman did not need to sell the Matrimonial Home before exchanging on the purchase of the Dune Walk Unit, in respect of which she paid a 5 per cent deposit.

39. On 21 December 2017, Mrs Bowerman's real estate agent listed the Matrimonial Home for sale.

40. On 8 February 2018, Mrs Bowerman executed and exchanged a contract, as vendor, for the sale of the Matrimonial Home for the sum of $2,230,000. The signed first page of the contract specified that the "date for completion" would be "12 weeks", although Mrs Bowerman accepted that it had been originally prepared by the conveyancer with a "6 months" settlement period. In this regard, Mrs Bowerman acknowledged that the "6 months" printed on the front page had been crossed out and replaced by "12 weeks" settlement. The change in completion date for the sale of the Matrimonial Home was intended to roughly coincide with the revised expected completion date for her purchase of the Dune Walk Unit (see [35] above).

41. The settlement of the sale of the Matrimonial Home occurred on 3 May 2018, being twelve weeks after exchange.

42. On 7 May 2018, four days after settlement of the sale of the Matrimonial Home, settlement of Mrs Bowerman's purchase of the Dune Walk Unit occurred.

43. On or about 14 May 2018, Mrs Bowerman moved into the Dune Walk Unit. Mrs Bowerman lived in the Dune Walk Unit for approximately 26 months until early July 2020.

44. Mrs Bowerman explained under cross-examination that the Dune Walk Unit is approximately a couple of minutes walking distance from the Foreshore Boulevard Unit and was situated down the road from the Matrimonial Home. Mrs Bowerman confirmed that her daily life did not change much when she moved into the Dune Walk Unit as, for example, she frequented the same shopping centre as beforehand. However, she acknowledged that it was a more convenient

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way of living than the Matrimonial Home as she no longer need to climb 78 steps or use the inclinator. When it was put to her, Mrs Bowerman accepted that moving into the Dune Walk Unit made her life easier. Mrs Bowerman reiterated, however, that she would not have bought the Dune Walk Unit if she had thought she would not make money on it. Mrs Bowerman stated she would have done other things.

45. In or around April 2020, Mrs Bowerman's real estate agent listed the Dune Walk Unit for sale. Unfortunately for Mrs Bowerman, the timing coincided with the first lockdown restrictions in NSW in response to the COVID-19 pandemic and this was a particularly difficult time to sell property. According to Mrs Bowerman, the selling agent found it difficult to show the property to interested purchasers due to COVID-19 restrictions. Also, due to the initial uncertainty caused by the COVID-19 pandemic, there was reduced demand in the market for property at the time. It was not in dispute between the parties that Sydney property prices fell by 2.9 per cent between April and September 2020 and that property prices later rose in the subsequent quarter. This was corroborated by information provided by the Commissioner to the Tribunal at the hearing (see [14] above).

46. On 20 April 2020, Mrs Bowerman executed and exchanged a contract, as vendor, for the sale of the Dune Walk Unit for the sum of $1,015,000. Mrs Bowerman accepted she was compelled to sell at that time because she needed the funds to settle her purchase of the Foreshore Boulevard Unit and, but for that circumstance, she would not have agreed to sell the Dune Walk Unit at a loss.

47. Clause 47 of the contract for sale of the Dune Walk Unit, which was headed 'Settlement Date' stated, as follows:

Completion of the contract will be the earlier of:

  • 1. 84thday from the date of this contract;
  • 2. Twenty-One (21) days after the date the vendor's representative notifies the purchaser's representative that the vendor wishes to settle…

48. Mrs Bowerman agreed that the above clause provided flexibility to her as the vendor, in order to allow alignment with the completion of the purchase by her of the Foreshore Boulevard Unit, as appropriate.

49. On 27 May 2020, Mrs Bowerman received a letter from her conveyancer in relation to the sale of the Dune Walk Unit stating, as follows:

We confirm the contracts were exchanged on 20 April 2020 and the cooling off period has now expired. The Contract is binding upon both you and the purchaser and settlement is due to take place on or before 13 July 2020 - see clause 47 allows you to bring it forward if required.

50. On 9 July 2020, settlement of the sale by Mrs Bowerman of the Dune Walk Unit occurred.

51. On 14 July 2020, settlement of Mrs Bowerman's purchase of the Foreshore Boulevard Unit took place. Mrs Bowerman subsequently moved into the Foreshore Boulevard Unit and continues to live in it. The acquisition of the Foreshore Boulevard Unit was funded from the proceeds from the sale of the Matrimonial Home and the proceeds from the sale of the Dune Walk Unit.

THE PROCEDURAL BACKGROUND

52. The procedural background to the tax dispute can be briefly stated.

53. On 18 September 2020, Mrs Bowerman lodged her income tax return for the year ended 30 June 2020. Her tax return included interest income, dividends and rental income from properties.

54. On 25 September 2020, the Commissioner issued a Notice of Assessment to Mrs Bowerman in respect of the year ended 30 June 2020.

55. On 28 September 2021, Mrs Bowerman objected to the abovementioned assessment and claimed that she had an allowable deduction for the loss on the sale of the Dune Walk Unit (the Objection ). Relevantly, Mrs Bowerman asserted, as follows:

3. The Deduction of $265,936 was incurred by the Taxpayer in relation to the sale of a property - … Dune Walk, Woolooware, NSW, 2230 ( Dune Walk ) - which was acquired as a short term investment on 7 May 2018 (settlement date) and sold on 20 April 2020 (contract date) for a loss (refer

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to paragraph [7] below for details of the loss). The decision in Federal Commissioner of
Taxation v Myer Emporium Ltd [1987] HCA 18; 163 CLR 199; (1987)18 ATR 693; 87 ATC 4363 confirms that ordinary income can arise from an isolated transaction entered into otherwise than in the course of carrying on a business so long as the taxpayer entered into the transaction with the purpose of making a relevant profit or gain from the transaction. Further, in Visy Packaging Holdings Pty
Ltd v Federal Commissioner of Taxation [2012] FCA 1195; (2012) 91 ATR 810 at 845 [185], Middleton J said: "Similarly, if the intention or purpose was to make a profit or gain but a loss was ultimately in fact sustained, then a deduction in the amount of that loss would be permitted." In view of the intention of the Taxpayer at the time of acquisition of Dune Walk and the relevant court decisions in Myer Emporium and Visy Packaging, it is considered the Deduction represents a loss or outgoing incurred by the Taxpayer in the course of undertaking a transaction intended to gain or produce assessable income. It is considered the facts as outlined in this Notice of Objection confirm that the transaction was entered into to derive a profit which would have been regarded as ordinary income in accordance with the Myer Emporium decision and therefore assessable under subsection 6-5(1) of the Act.

4. The intention at the time of acquiring Dune Walk was to make a profit upon its subsequent sale within 2 to 3 years' time. The Taxpayer also occupied Dune Walk as her residence during the ownership period. This investment was funded as to 100% from the proceeds received from the sale of the Taxpayer's [Matrimonial Home] on 3 May 2018. Dune Walk was considered to be an asset acquired on revenue account as it was always intended to be sold to provide the necessary funds to complete the acquisition of … Foreshore Boulevard, Woolooware, 2230 ( Foreshore Blvd ). Unfortunately the subsequent sale of Dune Walk ultimately resulted in a loss rather than the intended profit or gain that was being anticipated at the time of acquisition.

5. On 23 July 2015 the Taxpayer entered into an "off-the-plan" contract to acquire Foreshore Blvd. It was intended upon completion of construction that Foreshore Blvd would become the Taxpayer's residence. Following completion of construction, the settlement of the contract to purchase Foreshore Blvd took place on 15 July 2020, and a substantial portion of the settlement payment (being a payment of approximately $1,385,000) was sourced from the funds received on 9 July 2020 from the sale of Dune Walk (being approximately $963,000). The total acquisition cost of Foreshore Blvd was $1,602,415 and the funds from the sale of Dune Walk, as well as surplus funds available from the previous sale in May 2018 of [the Matrimonial Home], were used to fund this acquisition.

6. A chronology of events detailed at [3] through [5] above is as follows:

  • • 23 July 2015 Contract to acquire Foreshore Blvd exchanged and deposit paid.
  • • 3 May 2018 Sale of [Matrimonial Home] completed and funds received.
  • • 7 May 2018 Purchase of Dune Walk completed and settlement amount paid.
  • • 20 April 2020 Contract to sell Dune Walk exchanged and deposit received.
  • • 9 July 2020 Sale of Dune Walk completed and funds received.
  • • 15 July 2020 Purchase of Foreshore Blvd completed and settlement amount paid.

It is considered the loss on the disposal of Dune Walk was incurred for income tax purposes upon the contracts for sale being exchanged on 20 April 2020. Accordingly, the Deduction arises in the Year of Income. Further, the chronology of events support the position that Dune Walk was acquired with the intention of re-sale at a profit in the short term as it was never intended to be a long term property holding. It was always intended for this asset position to be liquidated to provide funds for settlement of the acquisition of Foreshore Blvd under the contract entered into on 23 July 2015 (i.e. approximately 3 years prior the acquisition of Dune Walk).

7. The amount of the loss incurred on the sale of Dune Walk is calculated as follows:

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  $
Purchase Price (1,209,711.12)
Stamp Duty (51,510.00)
Conveyancing Costs (2,244.00)
LRS NSW (Registration of Title) (416.40)
Sale Price 1,015,000.00
Agents Commission (15,000.00)
Conveyancing Costs (1,940.00)
Settlement Fee (114.07)
Loss on Sale $265,935.59

8 … Further, it is noted that none of the exclusions in subsection 8-1(2) are satisfied such that the Deduction would not be available under subsection 8-1(1). As regards paragraph 8-1(2)(b) addressing "a loss or outgoing of a private or domestic nature", the reasoning in the joint judgement of Mason CJ, Wilson, Dawson and Gaudron JJ in
John v Federal Commissioner of Taxation [1989] HCA 5; … supports the position that a loss or outgoing incurred in the acquisition of an asset for re-sale at a profit cannot be considered to be a loss or outgoing of a private or domestic nature.

The Commissioner's Objection Decision

56. On 15 March 2022, the Commissioner made the Objection Decision and disallowed Mrs Bowerman's Objection in full. The Commissioner reasoned that the sale of the Dune Walk Unit was a mere realisation of a capital asset and that the loss made by Mrs Bowerman in the amount of $265,935.59 (he did not dispute the amount) was capital in nature. In addition, the Commissioner reasoned that as per s 118-100 of the ITAA 1997, Mrs Bowerman could ignore any capital gain or capital loss she made from a capital gains tax event that happens to a dwelling that is her main residence and, therefore, Mrs Bowerman was not entitled to carry forward the loss from the sale of the Dune Walk Unit under the capital gains tax provisions either.

57. On 1 May 2022, Mrs Bowerman filed an application for review in the Tribunal in respect of the Objection Decision.

58. The hearing took place in person at the Tribunal on 7 July 2023.

THE RELEVANT STATUTORY PROVISIONS AND PRINCIPLES

59. The relevant key statutory provisions are brief. Section 8-1 of the ITAA 1997 is headed 'General deductions' and relevantly provides, as follows:

  • (1) You can deduct from your assessable income any loss or outgoing to the extent that:
    • (a) it is incurred in gaining or producing your assessable income; or
    • (b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income …
  • (2) However, you cannot deduct a loss or outgoing under this section to the extent that:
    • (a) it is a loss or outgoing of capital, or of a capital nature; or
    • (b) it is a loss or outgoing of a private or domestic nature; or
    • (c) it is incurred in relation to gaining or producing your *exempt income or your *non-assessable non-exempt income; or
    • (d) a provision of this Act prevents you from deducting it.

    (emphasis added)

60. As will become clear, paragraphs 8-1(1)(a) and 8-1(2)(b) are key to the determination of the issues.

61. I now deal with the issues in the order stated above.

FIRST ISSUE - WAS LOSS INCURRED IN GAINING OR PRODUCING ASSESSABLE INCOME?

62. The starting point is the leading decision of the High Court in Myer Emporium and, specifically, the following extract (at 209-210) which is the basis for the Myer Emporium principle:

Although it is well settled that a profit or gain made in the ordinary course of carrying on a business constitutes income, it does not follow that a profit or gain made in a transaction entered into otherwise than in the ordinary course of carrying on the taxpayer's business is not income. Because a business is carried on with a

ATC 11614

view to profit, a gain made in the ordinary course of carrying on the business is invested with the profit-making purpose, thereby stamping the profit with the character of income. But a gain made otherwise than in the ordinary course of carrying on the business which nevertheless arises from a transaction entered into by the taxpayer with the intention or purpose of making a profit or gain may well constitute income. Whether it does depends very much on the circumstances of the case. Generally speaking, however, it may be said that if the circumstances are such as to give rise to the inference that the taxpayer's intention or purpose in entering into the transaction was to make a profit or gain, the profit or gain will be income, notwithstanding that the transaction was extraordinary judged by reference to the ordinary course of the taxpayer's business. Nor does the fact that a profit or gain is made as the result of an isolated venture or a 'one-off' transaction preclude it from being properly characterized as income: Federal Commissioner of Taxation v. Whitfords Beach Pty. Ltd. The authorities establish that a profit or gain so made will constitute income if the property generating the profit or gain was acquired in a business operation or commercial transaction for the purpose of profit-making by the means giving rise to the profit. (footnotes omitted)

63. Broadly, Myer Emporium stands for the proposition that a profit from an isolated transaction involving the sale of property will form part of a taxpayer's assessable income when two limbs are satisfied. First, where the taxpayer acquired the property for the purpose of profit-making (the First Limb ). Secondly, where the acquisition and sale of the property took place in the context of a business operation or commercial transaction (the Second Limb ).

64. The decision in
Visy Packaging Holdings Pty Ltd v Commissioner of Taxation (2012) 91 ATR 810 ( Visy ) is also relevant. Justice Middleton made the following observations about Myer Emporium at [185]-[188]:

[185] The principle of law which is at the centre of this case is clear: if the intention or purpose of the relevant entity in entering into a transaction or upon acquiring an asset was to make a profit or gain, that profit or gain will be income, even if the transaction was extraordinary by reference to the ordinary course of that entity's business… Similarly, if the intention or purpose was to make a profit or gain but a loss was ultimately in fact sustained, then a deduction in the amount of that loss would be permitted.

[186] It is not necessary that the sole or dominant purpose of entering into the relevant transaction is to make a gain or profit. It is enough if a "not insignificant purpose" of the relevant transaction was to obtain a profit or gain.

[187] Accordingly, in these proceedings, if the intention or purpose of acquiring the relevant shares (in the context in which that occurred), was to make a profit or gain, then the losses ultimately incurred are deductible. If that intention or purpose did not exist, then in the circumstances of these proceedings the losses incurred would be of a capital nature for the purpose of s 8-1 of the ITAA 1997, and no losses could be deducted as sought by the taxpayers.

[188] As previously noted, the court's principal task is to identify and characterise the relevant transactions, and determine whether each of Visy Industries Australia, Visy Packaging Holdings and Visypak Operations had the requisite purpose or intention for the losses to be deductible.

65. Mrs Bowerman relied on the application of Myer Emporium and Visy for the proposition that the loss she incurred on the sale of the Dune Walk Unit was deductible as she incurred it "in gaining or producing assessable income". As a result, it is necessary to examine whether Mrs Bowerman satisfied both the First Limb and the Second Limb of Myer Emporium.

Myer Emporium: First Limb

66. The Commissioner submitted as follows with respect to Mrs Bowerman's factual circumstances in his Amended Statement of Facts, Issues and Contentions at [34]:

  • … the Dune Walk [property] served as [Mrs Bowerman's] main residence for the entire ownership period. From this, it is reasonable to infer that the dominant

    ATC 11615

    purpose of acquiring the Dune Walk [property] was so that [Mrs Bowerman] could reside in it. The desire to make a profit or gain on the sale of a taxpayer's residence, albeit common, is merely incidental and insignificant to the primary purpose, that is - to reside in the property.

67. The Commissioner added that Mrs Bowerman's "subjective profit-making intent, in itself, is insufficient to establish the requisite intent" and thus Mrs Bowerman has not discharged her onus under s 14ZZK(b) of the Taxation Administration Act 1953 (Cth) ( TAA ) of proving that the First Limb in Myer Emporium had been satisfied.

68. Specifically, the Commissioner argued that having regard to a wide survey and an exact scrutiny of Mrs Bowerman's activities during the five year period between 30 June 2015 (when Mr Bowerman passed away) and 9 July 2020 (when Mrs Bowerman settled on the sale of the Dune Walk Unit), the Tribunal could not be satisfied that Mrs Bowerman had the requisite intention to profit from the acquisition and re-sale of the Dune Walk Unit. The Commissioner further argued that Mrs Bowerman's reliance on a remark of Barwick CJ in
Steinberg v Commissioner of Taxation (1973) 134 CLR 640 at 687 referring to "the acquisition of property by the taxpayer with the purpose of its resale at a profit" (emphasis added) connotes an exclusive profit-making purpose, which does not describe Mrs Bowerman's situation, as it was only one of her purposes. The Commissioner urged me to find, having regard to the objective evidence, that Mrs Bowerman's intention at the time of the acquisition of the Dune Walk Unit was to live in it until the Foreshore Boulevard Unit was constructed and it was, therefore, acquired on capital account.

69. I do not agree with the Commissioner's contentions. In my view, the objective evidence points to Mrs Bowerman having the requisite profit-making intention at the time that she purchased the Dune Walk Unit and her intention to live in it was a subsidiary purpose.

70. First, I place considerable weight on the incontrovertible fact that, even before purchasing the Dune Walk Unit on 29 November 2017, Mrs Bowerman already intended to re-sell the Dune Walk Unit for a profit instead of holding on to it for long-term investment. This is evident from her evidence that she needed to sell the Dune Walk Unit to have the funds to settle on the purchase of the Foreshore Boulevard Unit, which she had previously contracted to purchase, and which she intended to be, and now is, her home. The re-sale of the Dune Walk Unit was not a mere possibility. It was in fact specifically contemplated by Mrs Bowerman at the time of purchasing it (cf
Westfield Ltd v Commissioner of Taxation (1991) 28 FCR 333 at [42] per Hill J, with whom Lockhart and Gummow JJ agreed).

71. Secondly, Mrs Bowerman's profit-making intention was well founded in circumstances where, as she explained, she kept up to date with information from the sales and marketing agent about the Woolooware Bay development. She was aware that the units in the development were selling well, and the development had expanded to stages five and six. The sale price history information for the Dune Walk Unit bears testament to Mrs Bowerman's understanding of the appreciation in value of the off the plan units in the development. The vendors who sold the Dune Walk Unit to Mrs Bowerman had made a significant profit from their off the plan purchase and re-sale lending credence to Mrs Bowerman's own profit-making plan (see [34] above). It can be accepted that but for the COVID-19 pandemic lockdown restrictions, Mrs Bowerman would probably have sold the Dune Walk Unit at a profit. Mrs Bowerman's evidence was that she only sold the Dune Walk Unit at a loss as she was not prepared to wait and hold on to it until she made a profit, because there was no end in sight to COVID-19 and the lockdowns. She needed to sell the Dune Walk Unit in order to complete the settlement of the Foreshore Boulevard Unit.

72. Thirdly, I accept Mrs Bowerman's evidence that she was aware she would temporarily have funds available from the proposed sale of the Matrimonial Home to invest on a short term basis (up to 3 years) before the Foreshore Boulevard Unit was ready to settle as the latter was still under construction, but that she also didn't have to sell her Matrimonial Home to

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move elsewhere in the intervening period. When she decided to purchase the Dune Walk Unit, she expected it would complete earlier than the Foreshore Boulevard Unit (see [36] above). Mrs Bowerman acknowledged that she would live in the Dune Walk Unit when it became available and maintain the condition of the property for resale until she was able to move into the Foreshore Boulevard Unit.

73. Fourthly, I also agree with Mrs Bowerman's submission that the profit-making intention under the First Limb is not required to be the sole or dominant purpose of entering into the transaction. The requirement is satisfied if just one of the purposes included the requisite profit-making intention. In this regard, see, in particular, Visy at [185] per Middleton J (extracted at [64] above);
Federal Commissioner of Taxation v Cooling (1990) 22 FCR 42 at 57;
Moana Sand Pty Ltd v Federal Commissioner of Taxation (1988) 19 ATR 1853 at 1860; Selleck v Commissioner of Taxation (1997) 36 ATR 558 at 578 and
Price Street Professional Centre Pty Ltd v Commissioner of Taxation (2007) 45 AAR 196 at [27]).

Myer Emporium: Second Limb

74. The Second Limb of Myer Emporium requires that "the property generating the profit or gain was acquired in a business operation or commercial transaction" (as set out in the extract from Myer Emporium at [62] above). Until the recent Full Federal Court decision in
Greig v Commissioner of Taxation (2020) 275 FCR 445 ( Greig ), there was some uncertainty as to the application of the Second Limb.

75. Mrs Bowerman submitted that some assistance in determining what the High Court meant by the Second Limb can perhaps be gleaned from the statement of Mason J (as he then was) in
Federal Commissioner of Taxation v Whitfords Beach Pty Ltd (1982) 39 ALR 521 ( Whitfords Beach ) (at 538) agreeing with approval the statement of Barwick CJ in
Steinberg v Federal Commissioner of Taxation (1975) 134 CLR 640 at 687 that "the acquisition of property by the taxpayer with the purposes of its resale at a profit … is in truth a commercial dealing".

76. In Greig, the Full Court of the Federal Court explained that the Second Limb of Myer Emporium regarding the business operation of commercial transaction refers to the sort of thing a business person or person in trade does. The main issue in Greig was whether the taxpayer had acquired shares in an ASX-listed company as part of a business operation or commercial transaction. A majority of the Full Court (Kenny and Steward JJ, Derrington J dissenting) held that the taxpayer did acquire them in commercial transactions. In concluding in favour of the taxpayer, the plurality overturned Thawley J who, at first instance, had held the taxpayer's acquisitions went no further than a private investment in listed shares. Consequently, as a result of the Full Court's decision, the taxpayer was allowed to claim deductions under s 8-1(1)(a) of the ITAA 1997 for the losses and outgoings made by him relating to the compulsory transfer of the shares.

77. In Greig, Steward J (as he then was) traced the history of the test to English revenue law, stating at [228]:

The "commercial dealing" requirement, it would appear, is a test derived from English revenue law. According to Parsons' Income Taxation in Australia: Principles of Income, Deductibility and Tax Accounting (The Law Book Company Limited, 1985), it was introduced into domestic law by the Privy Council in
McClelland v F C of T (1970) 120 CLR 487 in the context of former s 26(a) of the Income Tax and Social Services Contribution Assessment Act 1936-1963 (Cth) (the "1936 Act"). In that case, the appellant had inherited land with her brother. She wished to keep the land, but the brother did not. He wanted to sell his half as soon as possible. She needed to sell off part of the land to buy the brother out. She did this and made a profit. The profit was assessed by the Commissioner pursuant to former s 26(a) of the 1936 Act…

78. In
McClelland v Federal Commissioner of Taxation (1970) 120 CLR 487 which was referred to in Greig, as noted above, the Privy Council held that none of the profit of the appellant came within the terms of s 26(a), nor was any of the profit income according to ordinary concepts. The Privy Council held (at 495) that a single transaction of acquisition and re-sale would only produce assessable income

ATC 11617

rather than a capital accretion if the undertaking or scheme "exhibit[s] features which give it the character of a business deal". Their Lordships held that the sale by the appellant of part of the land to enable her to buy her brother's interest and to retain the inheritance as far as possible in the form of land was not such an undertaking or scheme. Their Lordships relevantly observed at 495:

Like Barwick C.J. and Windeyer J. their Lordships cannot think that this is the kind of undertaking or scheme caught by s. 26(a). It is true that the appellant set about selling sufficient land in an enterprising way. But in argument the Solicitor-General on behalf of the respondent rightly admitted that this was inconclusive. What he strongly relied upon was the prior purchase of the brother's interest and its inclusion in the sale. Their Lordships take the view that the facts bring out clearly that this was simply a means to an end, i.e. the retention of the more valuable land.

79. At [235] in Greig, Steward J quoted several statements of Mason J in Whitfords Beach (at 378-379), and then concluded with the following observation:

The last sentence in the passage quoted above is perhaps an indication that the requirement that a transaction be a "business deal" or "commercial transaction" involves only a low threshold. It certainly works to exclude gains made from wagers and lotteries from being taxed by s 26(a), however Mason J. doubted whether it also excluded the type of private investment referred to in McClelland. In that respect, the authorities appear to contrast a profit-making scheme from an investment. An investment connotes something to be held over time, which might then be sold "long afterwards", to use the language of McClelland.

80. Further, Steward J reasoned at [241]-[242]:

[241] Finally, I observe that Parsons thought that the test of "business deal" might only require that the transaction be the sort of thing a business person, or person in trade, might do. In his seminal book at [2.498]-[-2.500], Parsons wrote the following:

…2.498 But the features which are necessary to give a transaction the character of a business deal or of a trade of dealing on a single occasion, include an elusive factor that is more than purpose to profit. This elusive factor may not be capable of any more precise defining that to say that the transaction must be the sort of thing a business man or man in trade does. In this context "business man" or "man in trade" brings in received ideas in the community about how such people behave.

A taxpayer may acquire and sell land and not engage in trade, provided there is a decent interval between acquisition and disposition so that he does not appear too concerned about his profit, or, if circumstances have required him to sell soon after acquisition, he did not contemplate a quick sale when he acquired (
Turner v Last (1965) 42 T.C. 517,
Eames v Stepnell Properties Ltd [1967] 1 W.L.R. 593)….

[242] Six propositions may next be stated:

…

(4) fourthly, expressing, as Parsons did, the applicable test as being that the transaction must be the sort of thing a business person or person in trade does… In my view, this is an adequate expression of the content of the test ". (emphasis added)

(5) fifthly, the Court here was urged to accept that a "private" transaction is not one which has the characteristics of a "business deal". There was a debate about what is and is not "private". The proposition is rejected. Many truly private transactions may not be capable of being a "business deal" because they are not business-like. The usual example might be a gain encountered in the pursuit of a hobby. However, just because a transaction has been undertaken "privately", it does not follow that any gain thereby made is necessarily an affair of capital: c.f. Federal Commissioner of
Taxation v Anstis (2010) 241 CLR 443 at 458-459 [38] per French

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CJ, Gummow, Kiefel and Bell JJ. The concept of a "private" transaction, referred to briefly in Whitfords Beach and in McClelland in the context of an "investment", is not referred to in Myer Emporium or Montgomery. Parsons also does not relevantly refer to it; it does not form part of his eight propositions concerning what is income. Nor is there an equivalent exclusion in s 6-5 of the 1997 Act akin to that found in s 8-1(2)(b) concerning a loss or outgoing of a "private or domestic nature". In that respect, I observe that s 8-1(2) would appear to assume that expenditure of a capital nature (addressed in s 8-1(2)(a)) is distinct from expenditure of a private nature (s 8-1(2)(b)). Private expenditure, it would appear, is not subsumed within expenditure of a capital nature for the purposes of s 8-1. The Commissioner here otherwise made no attempt to rely upon s 8-1(2)(b); …

(emphasis added)

81. The Commissioner asserted at [36] of his Amended Statement of Facts, Issues and Contentions that the acquisition and subsequent sale of the Dune Walk Unit does not reflect the characteristics of a business operation or commercial transaction as "there were no ancillary and recurrent activities that were undertaken to generate the intended profit or to indicate that the Loss on Sale was incurred in carrying out a business operation or commercial transaction". Granted, Mrs Bowerman did not apparently do much more after purchasing the Dune Walk Unit except for living in and looking after the Dune Walk Unit, before re-selling it. However, there is no requirement in the Second Limb nor in any of the cases which have applied Myer Emporium for ancillary or recurrent activities in order for a transaction to be considered a business operation or commercial transaction. In fact, Myer Emporium, being the leading authority for this area of law concerns an isolated commercial transaction otherwise than in the ordinary course of business of the taxpayer. The transaction only has to be the sort of thing a business person or person in trade does for it to satisfy the requirements of the Second Limb. The buying and selling of an asset including property, with a view to profit-making, is obviously something that business person would do. Although retired, Mrs Bowerman was an experienced business person having regard to her past businesses and investments, including the sale of in excess of 20 properties (see [18] - [20] above).

82. The Commissioner further argued Mrs Bowerman's purchase and sale of the Dune Walk Unit was a private investment on capital account. The plurality in Greig, however, specifically rejected that same submission as set out in the reasons of Steward J at [242] (extracted at [80] above), with whom Kenny J agreed.

83. Finally, the Commissioner submitted that Mrs Bowerman did not act in acquiring the Dune Walk Unit as a "business person" would. The Commissioner emphasised that Steward J in Greig gave particular weight to the taxpayer's business knowledge and activities which were said to be commercial and business-like. The taxpayer in Greig was found to have engaged professional help and researched and monitored the value of his shares. He also demonstrated system and organization in relation to the acquisition of the shares (see, in particular, Greig at [248]).

84. The Commissioner argued the Tribunal would not be satisfied that Mrs Bowerman has discharged her onus of proving that the acquisition of the Dune Walk Unit had the character of a business deal in the same manner as set out in Greig because Mrs Bowerman's transaction did not involve a significant degree of sophistication, expertise, systemisation, organisation, research, or effort. The Commissioner further argued that a business person would not ordinarily be expected to acquire a property which so precisely matches their own personal living needs and that the purchase of the Dune Walk Unit was a means to an end for Mrs Bowerman to leave the Matrimonial Home. Furthermore, a business person would not contribute to the wear and tear of the property by personally living in it for 26 months. Nor would they unnecessarily diminish the pool of prospective buyers at the time of re-selling it, by being forced by personal circumstances to market and sell the Dune Walk Unit in such an expeditious manner without any opportunity to await more favourable offers.

85.

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Notwithstanding the above, I was persuaded by Mrs Bowerman that her acquisition of the Dune Walk Unit with the intention of re-sale at a profit, not with the intention to be held for some other long-term purpose, satisfies the Second Limb of Myer Emporium and can be considered, therefore, to be a "commercial transaction". This is because it was the sort of thing a business person would do, and as noted by Steward J in Greig at [235], the requirement that a transaction be a 'business deal' or 'commercial transaction' involves only a low threshold. So long as there is a flavour of commercial or business dealing, that is sufficient. In particular, Mrs Bowerman satisfied me that she purchased the property to make a profit from buying and re-selling the Dune Walk Unit, in the short-term. She demonstrated that she was a business person and opportunistic in the purchase of the Dune Walk Unit.

86. As Mrs Bowerman has persuaded me that she satisfies the First Limb and the Second Limb of Myer Emporium, Mrs Bowerman has discharged the burden of proving that any loss was incurred in gaining or producing her assessable income for the purposes of s 8-1(1)(a).

SECOND ISSUE - IS THE LOSS OF A PRIVATE OR DOMESTIC NATURE?

87. The text of s 8-1 of the ITAA 1997 is extracted at [58] above. Under s 8-1(2)(b), an outgoing or loss cannot be deducted to the extent that it is a loss of a private or domestic nature. The question of whether the loss on the sale of the Dune Walk Unit is not deductible under the negative limb in s 8-1(2)(b) raises a difficult question of law.

88. The Commissioner argued that given the loss arises from the sale of the Dune Walk Unit, "it is therefore plain, as a matter of common sense, that the essential character of the loss is "of or belonging to the unit, house or household". The definition of "domestic" in The Macquarie Dictionary online is "of or relating to the home, the household, or household affairs". The Commissioner submitted that the fact that Mrs Bowerman lived in the Dune Walk Unit for the entire period of her ownership "stamps the loss as being of a private or domestic nature", even if Mrs Bowerman intended to make a profit when the Dune Walk Unit was sold. Accordingly, the Commissioner submitted that the exception with respect to losses of a private or domestic nature in s 8-1(2)(b) of the ITAA 1997 prevents Mrs Bowerman from claiming the loss as a deduction.

89. I reject the Commissioner's submissions and conclude that the negative limb with respect to losses or outgoings of a private or domestic nature in s 8-1(2)(b) does not apply. My reasons are based on the finding that Mrs Bowerman intended, from the outset, to make a profit on the sale of the unit when she sold it, and despite her having resided in the unit that characterisation did not change. Contrary to the Commissioner's position, the fact that Mrs Bowerman resided in the Dune Walk Unit does not displace the fact that it was acquired by her in gaining or producing assessable income. In any event, I was also not convinced that just because the property sold was Mrs Bowerman's residence, that it was automatically a loss of a domestic nature.

90. It was common ground that at the time of entering into the contract to purchase the Dune Walk Unit, Mrs Bowerman's intention was to live in it when it became available to her. However, that was only one of her purposes. The other, more significant purpose was that when she no longer needed the Dune Walk Unit and was able to settle on the purchase of the Foreshore Boulevard Unit, she would re-sell it at a profit. This corresponds with the undisputed fact that Mrs Bowerman did in fact reside in the Dune Walk Unit until it was necessary to sell it in order to complete the purchase of the Foreshore Boulevard Unit and that she never changed her intention of re-selling the Dune Walk Unit. Accordingly, the characterisation of the property having been purchased by Mrs Bowerman with a profit-making intention did not change.

91. My conclusion that the negative limb in s 8-1(2)(b) of the ITAA 1997 does not apply is coherent with the observations made in a number of High Court decisions which have referenced the relationship between the positive limbs and the negative limbs of s 8-1 of the ITAA 1997, as set out further below, in respect of the deductibility of outgoings. The representatives of the parties did not bring to

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my attention any cases which have considered the deductibility of losses under the negative limb in s 8-1(2)(b).

92. In
Commissioner of Taxation v Anstis (2010) 241 CLR 443 ( Anstis ), French CJ and Gummow, Kiefel and Bell JJ relevantly observed, as follows at 456-457:

[32] Against the prospect that the outgoings were deductible under s 8-1(1)(a), the Commissioner relied on an alternative ground of appeal that the outgoings were nonetheless of a "private" nature and so were not deductible by reason of s 8-1(2)(b)…

[33] In John v Federal Cmr of Taxation, Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ accepted that on then existing authority a loss or outgoing could be incurred in gaining or producing assessable income and yet not be deductible by reason of its domestic nature. Their Honours went on to consider losses or outgoings of a private nature and said:

In Federal Cmr of Taxation v Hatchett, Menzies J commented that "[i]t must be a rare case where an outgoing incurred in gaining assessable income is also an outgoing of a private nature". His Honour's statement was accepted by Wilson J, with whom Mason J agreed, in [Federal Cmr of Taxation] v Forsyth. This view bears a close similarity to the view expressed in Ronpibon Tin in relation to a loss or outgoing incurred in gaining or producing exempt income. However, in the case of a loss or outgoing incurred in gaining or producing exempt income, it is that characteristic which takes it outside the description of a loss or outgoing incurred in gaining or producing assessable income, whilst the view expressed in Hatchett is that the fact that an outgoing falls within the description of a loss or outgoing incurred in gaining or producing assessable income serves (other than in a rare case) to stamp the loss or outgoing as one not bearing the character of a loss or outgoing of a private nature.

We do not see any necessary antipathy between a loss or outgoing incurred in gaining or producing assessable income and a loss or outgoing of a private nature.

Their Honours then applied the test of "essential character" as adopted in Handley v FCT and Forsyth.

[34] The question presented for resolution on this appeal is unusual because the outgoings incurred in study undertaken by the respondent were not deductible by reason of that study bearing some relation to an existing business or existing employment on her part. Those outgoings were deductible by reason of their being incurred in the course of her retention of a statutory right to payment. The authorities of Federal Cmr of Taxation v Hatchett and Commissioner of Taxation v Finn are thus of limited assistance in the instant case; those taxpayers were in employment, and the outcome for each decision in this court turned on the question of whether the outgoings were incurred in gaining or producing income.

[35] The terms "private" and "domestic" in s 8-1(2)(b) would seem difficult in their application to an entity other than a natural person. It is also difficult to apply them where, unlike the situation in Commissioner of Taxation v Cooper, there is no available dichotomy between an essentially "private" expense and an essentially "working or business" expense.

…

[38] The Commissioner contended that the respondent's expenditure was private in nature as it was an attempt by her to better herself as an individual; it was an investment in "human capital". However, in Finn, Windeyer J observed:

Outgoings incurred for the genuine purpose of acquiring or maintaining knowledge and skill in a vocation do not become an outgoing "of a private nature" simply because the taxpayer got pleasure and satisfaction in increasing his knowledge and attainments.

It follows that the respondent's desire to obtain a degree, whether to enable

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her to become a teacher or for some other reason, cannot deny the circumstance that expenses occasioned by her enrolment, full-time study and satisfactory progress in that degree were incurred by her as a recipient of youth allowance. The outgoings did not lose their connection with the "position" she held as a recipient of youth allowance simply because she might have been studying for reasons other than enjoying an entitlement to youth allowance. As Hill J recognised in Cooper, in relation to the consumption of food or drink, the concept of a particular type of expenditure being absolutely or always "private" cannot be sustained. There is no sufficient foundation for a conclusion that the expenditures by the respondent were essentially private in nature within the sense of s 8-1(2)(b) of the 1997 Act.

(footnotes omitted and emphasis added)

93. I set out below, for completeness, the entire relevant extract from the High Court decision in
John v Commissioner of Taxation (1989) 166 CLR 417 (per Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ) ( John ) at 431 (noting that only part of it was referenced by the High Court in Anstis at [33]):

As noted previously, s 51(2) of the Act does not, in terms, preclude a loss or outgoing incurred in the purchase of trading stock from being characterised as a loss or outgoing of a private nature. In
FCT v Hatchett (1971) 125 CLR 494, Menzies J commented (at 498) that "it must be a rare case where an outgoing incurred in gaining assessable income is also an outgoing of a private nature". His Honour's statement was accepted by Wilson J, with whom Mason J agreed, in Forsyth (CLR at 216). This view bears a close similarity to the view expressed in Ronpibon Tin in relation to a loss or outgoing incurred in gaining or producing exempt income. However, in the case of a loss or outgoing incurred in gaining or producing exempt income, it is that characteristic which takes it outside the description of a loss or outgoing incurred in gaining or producing assessable income, whilst the view expressed in Hatchett is that the fact that an outgoing falls within the description of a loss or outgoing incurred in gaining or producing assessable income serves (other than in a rare case) to stamp the loss or outgoing as one not bearing the character of a loss or outgoing of a private nature.

We do not see any necessary antipathy between a loss or outgoing incurred in gaining or producing assessable income and a loss or outgoing of a private nature. However, there is a necessary antipathy between a loss or outgoing incurred in the acquisition of stock for the purpose of sale, which stock has been sold as intended, and a loss or outgoing of a private nature. The purpose of its acquisition and the fact of its sale as intended must serve to deny the possibility that the loss or outgoing is essentially private in nature, essentiality being the criterion adopted in Handley and Forsyth to determine whether expenditure is of a domestic nature and one which is equally appropriate to determine whether expenditure is of a private nature. (emphasis added)

94. Having regard to the legal principles stated in Anstis, the negative limb in s 8-1(2)(b) does not apply to prevent Mrs Bowerman from claiming a deduction. This is because, in the same way that the "outgoings did not lose their connection with the "position" [Ms Anstis] held as a recipient of youth allowance simply because [Ms Anstis] might have been studying for reasons other than enjoying an entitlement to youth allowance", the loss that Mrs Bowerman incurred on the sale of the Dune Walk Unit did not lose its connection with her profit-making intention simply because she resided in it. The loss on the sale of Mrs Bowerman's property was always connected with her gaining or producing assessable income, and the fact she resided in the property did not change her profit-making intention.

95. My conclusion on the negative limb in s 8-1(2)(b) is further reinforced by the High Court's comments in John to the effect that " there is a necessary antipathy between a loss or outgoing incurred in the acquisition of stock for the purpose of sale, which stock has been sold as intended, and a loss or outgoing of a private nature." Adapting John's case to Mrs Bowerman's situation, it is clear that the purpose of Mrs Bowerman's acquisition and re-sale as intended necessarily denies the possibility that her loss is essentially private or domestic in nature. Finally, the

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reference in Anstis to the decision of Hill J in
Commissioner of Taxation v Cooper (1991) 99 ALR 703 at 727, (with whom Lockhart J agreed) explains that it is erroneous to treat a particular type of expenditure (or loss) as being absolutely or always "private". It is self-evident that it is necessary to analyse the factual circumstances regarding the loss or outgoing in each case.

96. It is necessary to briefly also refer to the decisions of the High Court in
Handley v Commissioner of Taxation (1981) 55 ALJR 345 ( Handley ) and
Commissioner of Taxation v Forsyth (1981) 148 CLR 203 ( Forsyth ) which the Commissioner relied on.

97. In Handley, Wilson J stated the following at 352 in relation to a barrister's claim to deduct pursuant to s 51 a proportion of the interest paid under a mortgage and of the council and water rates and of insurance premiums in respect of his home:

In my opinion, the appeal cannot succeed. The room used as a study does not cease to be part of the taxpayer's home merely because as a matter of convenience he uses it for professional purposes …. The payments for mortgage interest, rates and insurance premiums were of a kind which in the circumstances of this case cannot be apportioned between home and office expenses. … They would remain the same whether or not he worked at home.

In view of the foregoing considerations, and for the reasons I have given in Forsyth supra, I conclude that no part of the outgoings possess the requisite character of outgoings incurred in gaining or producing assessable income, nor are they necessarily incurred in carrying on the taxpayer's profession. In any event, I believe that they must be regarded as outgoings of a capital, private or domestic nature, thus coming within the exception to s 51.

98. In Forsyth, Mason J observed that there were some factual differences as the outgoing sought to be deducted is a fee paid for the licence to use the study in the family home. The right which the taxpayer acquired under the licence was a right to occupy the study and use it for professional purposes. Mason J held at 206 that the same principle applied as in Handley. Wilson J stated at 215-216:

…it is not open on the facts of this case to find that the outgoings in question were incurred in gaining or producing the assessable income, or were necessarily incurred in carrying on the taxpayer's professional business. The home was not his business premises. It was not open to be described, with any show of reality, as his base, or one of his bases, of operations, to use the term adopted by the Court of Appeal in Newsom v. Robertson; cf. Lunney; Horton v. Young. The outgoings were therefore neither incidental nor relevant to the gaining of assessable income.

The relationship between the first part of s. 51 (1) and the exception of outgoings of a capital, private or domestic nature, was the subject of comment by Menzies J. in Federal Commissioner of Taxation v. Hatchett:

"My conclusion that the expenditure in gaining the Teacher's Higher Certificate was incurred in gaining assessable income in the circumstances carries with it the conclusion that the expenditure was not of a private nature. It must be a rare case where an outgoing incurred in gaining assessable income is also an outgoing of a private nature. In most cases the categories would seem to be exclusive."

(citations omitted)

99. I did not consider the decisions in Handley and Forsyth to be particularly helpful to the present case. Those cases addressed the deductibility of outgoings with respect to part of the house being used as a study for business related purposes. The conclusions that the expenses were of a private or domestic nature were additional to the findings that the expenses were not in the positive limb for deductibility purposes. Furthermore, to the extent that Handley and Forsyth canvassed deductions pertaining to the use of a house, the payments had nothing to do with transactions involving the purchase and re-sale of property.

100.

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Mrs Bowerman also referenced commentary by Professor Parsons in the text Income Taxation in Australia: Principles of Income, Deductibility and Tax Accounting, which broadly confirms my approach. In particular, Professor Parsons wrote at paragraph 8.2 "there is no case in which an expense has been found incurred in gaining assessable income, but has been denied deduction as a private or domestic expense. Forsyth and Handley do not destroy the latter assertion…".

101. Therefore, the Second Issue is decided in favour of Mrs Bowerman as s 8-1(2)(b) of the ITAA 1997 does not apply.

THIRD ISSUE - WAS THE LOSS ";INCURRED"; IN THE YEAR ENDED 30 JUNE 2020?

102. As set out in the extract of s 8-1 of the ITAA 1997 at [59] above, that section relevantly provides for a deduction from [your] assessable income for any "loss or outgoing" that is "incurred" in gaining or producing [your] assessable income. The parties agreed that the relevant loss in the present case is $265,936 representing the failure of the asset, the Dune Walk Unit, to realise and exceed its cost. It is calculated, in effect, as the balance of proceeds on the sale over the costs related to the purchase of the asset. If the loss is otherwise deductible under s 8-1 of the ITAA 1997, it then simply reduces the assessable income in the year in which it is incurred. The parties, however, disagreed as to the application of the principles regarding the meaning of losses "incurred".

103. The Commissioner argued that the distinction between the treatment of "losses" and "outgoings" is important in this case and referenced a number of observations, which are summarised below.

104. In
Amalgamated Zinc (De Bavay's) Ltd v Federal Commissioner of Taxation (1935) 54 CLR 295, ( Amalgamated Zinc ), Chief Justice Latham relevantly observed (at 303):

The phrase "losses and outgoings actually incurred in gaining or producing assessable income" may, in relation to outgoings, be read as meaning that the outgoings must be an expenditure which has an effect in gaining or producing income, e.g., the purchase price of goods which are subsequently sold. But it is difficult to see how a loss, as distinct from an outgoing, can ever gain or produce income. On the contrary a loss, as distinguished from an outgoing, simply and merely reduces income - or capital, as the case may be. In order to make the section intelligible it must, in my opinion, be read as meaning "losses and outgoings actually incurred in the course of gaining or producing the assessable income. (footnotes omitted) (emphasis added).

105. In
Commissioner of Taxation v Day (2008) 236 CLR 163, the High Court stated at [21]:

The words "incurred in gaining or producing…assessable income" appearing in the section, have long been held to mean incurred "in the course of gaining or producing income", as was observed in Payne. In Amalgamated Zinc (De Bavay's) Ltd v Federal Commissioner of Taxation, Latham CJ explained that it was necessary to read "losses and outgoings…incurred in gaining or producing the assessable income" as incurred "in the course of" gaining or producing income, in order to make the section intelligible. Outgoings may have an effect in gaining income, but losses cannot, as they simply reduce income. In Commissioner of Taxation v Cooper Hill J observed that an outgoing might be referable to a year of income other than that in which it was incurred. That was a reason why s 51(1) of the Income Tax Assessment Act 1936 (Cth) did not express the right to a deduction in terms of outgoings incurred to earn income. The words "in the course of" therefore facilitate the application of s 8-1(1)(a). They do not require a direct connection between the expenditure in question and an activity itself productive of income" (emphasis added).

106. In the seminal text, Income Taxation in Australia: Principles of Income, Deductibility and Tax Accounting, Professor Parsons relevantly explains at [5.14] - [5.15]:

[5.14] The words used in s. 51 to identify the items with which the section is concerned are "losses and outgoings". There has been very little discussion in the cases of what may

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have been intended by the use of these words. At time the words are quoted as if they were interchangeable. Whatever its overlap in other respective with "outgoings", "loss" must have a distinct meaning in order that s 51 might provide for the deduction of a specific loss where a specific profit would be income by ordinary language .

[5.15] …a gain that is income by ordinary usage may be a specific profit - the balance of proceeds over cost . Where this is so, there must be provision for the allowance of a specific loss, if loss and not profit is the outcome" (emphasis added).

107. The Commissioner also relied on
Sole Luna Pty Ltd (as trustee for the PA Wade No 2 Settlement Trust) v Commissioner of Taxation (2019) 110 ATR 307 ( Sole Luna ), a decision of Steward J (as he then was) in which his Honour held that any loss that is deductible under s 8-1 must be a "realised" loss. The Commissioner specifically referenced his Honour's comments at [65]:

The starting point for the application of s 8-1 is to determine whether a "loss" was made in the 2013 year of income for the purposes of calculating the net income of the Wade Trust. To be deductible, the loss must be a realised loss which has been definitively encountered, run into or fallen upon by the taxpayer : Federal Commissioner of
Taxation v James Flood Pty Ltd (1953) 88 CLR 492. In the area of foreign exchange gains and losses, the "loss" which is deductible under s 8-1 is not any economic loss; it is not an unrealised loss; rather, in the context here, where the taxpayer is a lender, it is the identification of a loss arising from a decrease in Australian dollars received upon repayment of a loan in a foreign currency. In the case of a borrower, it is an increase in the amount of Australian dollars needed to discharge a foreign currency loan.

(emphasis added)

108. The Commissioner argued that if there had been a gain on the sale of the Dune Walk Unit, and had that gain not been a capital gain but rather realised on revenue account, there would be no doubt that the gain, calculated as the balance of proceeds over cost, would have been derived at the time of settlement (in the present case, that would be in the year ended 30 June 2021).

109. In
Gasparin v Commissioner of Taxation (1994) 50 FCR 73 ( Gasparin ), also relied on by the Commissioner, von Doussa J (with whom Jenkinson J and Spender J agreed) reasoned (at 83) that income was 'derived' from the sale of allotments of land not when the contracts became unconditional, but at settlement when a debt accrued due from each purchaser. It was held that the critical consideration was when the debt arose, as that was the point in time in the transaction when the vendor finally loses all dispositive power, and the possibility that the sale will not proceed to completion disappears.

110. The Commissioner argued that while there isn't always symmetry in the timing of income being 'derived' under s 6-5 as described in Gasparin and corresponding outgoings being 'incurred' under s 8-1, a loss is not realised until the particular transaction is complete such that there has been an actual conversion of the asset into cash or money.

111. The Commissioner submitted that while Mrs Bowerman may have sustained an economic loss or an unrealised loss, when entering into the contract for the sale of the Dune Walk Unit, she did not incur a realised loss at that time. The loss was only realised upon the receipt of proceeds at settlement on 9 July 2020. Accordingly, any loss otherwise deductible under s 8-1 of the ITAA 1997 on the sale of the Dune Walk Unit was not "incurred" in the year ended 30 June 2020 (being the income year the subject of these proceedings).

112. Mrs Bowerman submitted that she had incurred the loss on the sale in the 2020 income year. That was the income year in which the contract for the sale of the Dune Walk Unit was executed, the cooling off period expired and it became binding, as per the conveyancer's confirmation dated 27 May 2020 (see [49] above). Furthermore, Mrs Bowerman submitted that the sale proceeds of $1,015,000 and related disposal costs were known and/or capable of determination at that time and this enabled the deductible loss of $265,936 on the sale of the Dune Walk Unit to be calculated.

113.

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Mrs Bowerman referred to the numerous cases which support the view that a liability could have been incurred even though it remains unpaid. Those cases provide that the taxpayer must be "definitively committed" or has "completely subjected" itself to the liability: see
Federal Commissioner of Taxation v James Flood Pty Ltd (1953) 88 CLR 492 at 506. The same concept was expressed by Dixon J in
New Zealand Flax Investments Ltd v Federal Commissioner of Taxation (1938) 61 CLR 179 at 207 where his Honour stated "[i]ncurred does not mean only defrayed, discharged, or borne, but rather it includes encountered, run into, or fallen upon. But it does not include a loss or expenditure which is no more than impending, threatened, or expected." Insofar as the Commissioner relied on the decision of Steward J in Sole Luna, Mrs Bowerman stated that that decision applied to foreign exchange losses and referred me to the analysis by Stewart J at [68] which focused on the treatment of foreign currency variations.

114. Finally, Mrs Bowerman also pointed to the fact that her treatment of the loss being incurred in the 2020 income year when she was definitively committed was consistent with the Commissioner's views in his binding public ruling : Taxation Ruling Income tax: section 8-1 - meaning of 'incurred' - timing of deductions ( ), which she relied on. Relevantly, in at [1], the Commissioner states the ruling applies to all taxpayers who claim a loss or outgoing under s 8-1 of the ITAA, whether or not the taxpayer accounts for income on a cash receipts or earnings basis. The Commissioner further states, as follows:

Background

…

6. The courts have been reluctant to attempt an exhaustive definition of a term such as 'incurred'. The following propositions … help to outline the scope of the definition….

  • (a) … a loss or outgoing may be incurred within section 8-1 even though it remains unpaid provided the taxpayer is 'completely subjected' to the loss or outgoing… it is not sufficient if the liability is merely contingent or no more than pending, threatened or expected …
  • (b) a taxpayer may have a presently existing liability, even though the liability may be defeasible by others;
  • (c) a taxpayer may have a presently existing liability, even though the amount of the liability cannot be precisely ascertained, provided it is capable of reasonable estimation (based on probabilities);
  • (d) whether there is a presently existing liability is a legal question in each case, having regard to the circumstances under which the liability is claimed to arise;
  • (e) in the case of a payment made in the absence of a presently existing liability (where the money ceases to be the taxpayer's funds) the expense is incurred when the money is paid.

115. Under the heading 'Ruling' in , the Commissioner rules, as follows:

Accounting practice

8. The principles set out above relating to the interpretation of the word 'incurred' derive from cases where taxpayers operated on an earnings basis. However, the cases have not generally sought to limit the meaning of the word 'incurred' by reference to the nature of a taxpayer's accounting system.

9. In these circumstances, subject to the propositions outlined above, a taxpayer who uses a cash receipts based accounting system need not necessarily have paid or borne a loss or outgoing in order for that loss or outgoing to have been 'incurred' for the purposes of section 8-1.

(emphasis added)

116. It is not precisely clear what the Commissioner means in paragraph 9 of set out immediately above, as no helpful explanation is provided. For example, the word "borne" is not referenced again in . Notwithstanding the fact that the Ruling aspects in may be vague, it is a "public ruling" (see further below) which expresses the Commissioner's views as to the taxation law. In any event, it is not appropriate to subject to a robust statutory interpretation exercise, particularly in circumstances where the Commissioner's representative submitted at the hearing that it was necessarily very broad in its application. The ruling expressly

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provides that a taxpayer who uses a cash receipts based accounting system need not have borne the loss in order for it to have been 'incurred' under s 8-1(1) of the ITAA 1997.

117. At the hearing, the Commissioner submitted that did not apply to Mrs Bowerman because it was mostly about the debate as to a taxpayer's accounting system and did not address all "the relevant authorities" on the meaning of "incurred". That submission, however, does not withstand scrutiny as bears the title 'Taxation Ruling Income tax: section 8-1 - meaning of 'incurred' - timing of deductions' and specifically canvasses when the Commissioner considers a loss or outgoing is "incurred" by a cash receipts taxpayer. Further, was originally issued on 30 April 1997 and revised on 23 July 1997. It is obviously a matter for the Commissioner as to whether to update his public ruling to record his views as to the relevant authorities, or to withdraw it.

118. Separately, the Commissioner submitted that Mrs Bowerman hadn't sought to rely on the public ruling "to date". That was an odd submission in circumstances where Mrs Bowerman's Outline of Submissions dated 1 June 2023 had specifically addressed . It was actually the Commissioner who said nothing about in his Outline of Submissions dated 16 June 2023, and only made brief oral submissions at the hearing.

119. Mrs Bowerman stated, and I accept, that her determination of her income and deductions for income tax purposes, as an individual taxpayer, is based on cash receipts based accounting. I also accept Mrs Bowerman's argument that is a 'public ruling' which is binding on the Commissioner: see the definition of 'public ruling' in s 385-5 of Schedule 1 to the TAA. I also conclude that Mrs Bowerman relevantly met the criteria in the 'Background' paragraphs of ; she was completely subjected to the loss, and the loss was capable of reasonable estimation. In this regard, it will be recalled that the sale contract with respect to the Dune Walk Unit became unconditional, as the cooling off period had expired by 27 May 2020 and, furthermore, the calculation of the loss was able to be estimated by reference to the sale price, purchase price and related settlement adjustments.

120. Significantly, s 357-60 of Schedule 1 to the TAA specifically states that a ruling binds the Commissioner in relation to you (whether or not you are aware of the ruling) if (a) the ruling applies to you; and (b) you rely on the ruling by acting in accordance with the ruling. Clearly, Mrs Bowerman relied on because she had acted in accordance with it in the lodgement of her Objection by claiming to be entitled to the deduction for the loss on the sale of the Dune Walk Unit. 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. As to the application of public rulings, see generally s 358-10 of Schedule 1 to the TAA. See also Taxation Ruling : Public Rulings as to the Commissioner's views regarding the status and binding effect of public rulings (noting that - which is cited in - is an outdated reference as was withdrawn on 5 April 2006).

121. Absent the reliance on by Mrs Bowerman, I would have decided that she had not "incurred" the loss on the sale of the Dune Walk Unit until settlement, which took place in the 2021 income year. That outcome would have been consistent with the tax treatment of income on revenue account derived from the sale of allotments, as per the Full Federal Court decision in Gasparin and the decision of Stewart J in Sole Luna that the loss has to be realised. However, due to the ruling applying to Mrs Bowerman, and Mrs Bowerman's reliance on , s 357-60 of Schedule 1 to the TAA binds the Commissioner.

122. Therefore, Mrs Bowerman "incurred" the loss on the sale of the Dune Walk Unit in the income year ended 30 June 2020, and the Third Issue is thus also decided in favour of Mrs Bowerman.

CONCLUSION

123. The result in this case is unusual. It is especially unusual because a loss was made on a recent re-sale of Australian property when property has mostly appreciated in value. However, there is no rule in Australian income tax law that a profit or gain made on the sale of one's residence, in circumstances where there is a profit-making intention, cannot give

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rise to a profit that is taxable as ordinary income. It follows, that a taxpayer whose intention was to make a profit in a commercial dealing but who ultimately incurred a loss is allowed to claim a deduction for that loss under s 8-1(1) of the ITAA 1997.[1] There are presently no applicable rules for a taxpayer to notify the Commissioner of Taxation that property was acquired for profit-making purposes in a tax return before later claiming an allowable deduction for a loss. However, see s 52 of the Income Tax Assessment Act 1936 (Cth) which previously provided a requirement for notification before claiming a loss.

DECISION

124. For the reasons set out above, the Tribunal decides that the Objection Decision made by the Commissioner dated 15 March 2022 is set aside and substituted with a decision allowing the Objection in full.

Footnotes

[1] There are presently no applicable rules for a taxpayer to notify the Commissioner of Taxation that property was acquired for profit-making purposes in a tax return before later claiming an allowable deduction for a loss. However, see s 52 of the Income Tax Assessment Act 1936 (Cth) which previously provided a requirement for notification before claiming a loss.

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