McCormack v. Federal Commissioner of Taxation.
Judges:Wallace J
Court:
Supreme Court of Western Australia
Wallace J.
On 5 April 1979 the Full High Court ordered that the appellant's appeal herein be remitted to the Supreme Court of Western Australia for hearing and determination in accordance with its directions. Originally the respondent assessed the appellant to tax upon the combined income sum of $249,665 received in almost two equal moieties for the income years ending 30 June 1970 and 30 June 1971. The alleged income was said to be the profit derived by the appellant upon the sale of realty at 8 Macey Street, East Perth (Macey St.), in the year 1970 - the purchase price, $260,000, being paid in two moieties in each of the two years of income mentioned. To these assessments the appellant objected. The respondent disallowed the appellant's objections and in subsequent proceedings before the Board of Review the appellant was again unsuccessful.
The appellant then appealed to the Supreme Court (Wickham J.), before whom the transcript of proceedings in the Board of Review was tendered and but one witness gave viva voce evidence. His Honour dismissed the appellant's appeal. An appeal to the Full Federal Court was also dismissed. The appeal to the High Court resulted in the order to which I have already referred. This is a proceeding in the original jurisdiction of the Supreme Court. It is not an appeal in the strict sense. In a carefully prepared case both the appellant and her husband have given evidence and been subject to cross-examination. Further the appellant has called a number of supporting witnesses, some of whom have not hithertofore given evidence and has brought to light documentary evidence hithertofore unseen.
The respondent's assessments are based upon the argument that the Macey Street property was acquired by the appellant for the purpose of profit making by sale, sec. 26(a) of the Income Tax Assessment Act (The Act). The facts relied upon to ground the assessment are that the purchase of Macey Street and its subsequent resale was no different from, and formed a pattern to the prior purchase and sale of two properties in Leederville and Ashfield in the same year in which Macey Street was purchased, 1963. The appellant denied having purchased Leederville and Ashfield properties for the purpose of profit making by sale. She was never taxed thereon. Her purpose for acquiring Macey Street was to make a home therein. Implicit in the respondent's argument is the inference that the appellant and her husband misled the witnesses called in support of the appellant's foresaid purpose of acquisition at Macey Street. The onus is upon the appellant to satisfy this Court that the respondent's assessments are excessive, sec. 190(b) of the Act, through her counsel the appellant has accepted that burden. The short facts are as follows.
The McCormacks were married in 1942. Their first child Patricia was born on 29 July 1943. Two boys follow on 20 December 1944 and 21 February 1955. At the time of their marriage the appellant's husband was a hairdresser - not a land salesman or estate agent. In 1951, the couple purchased a small house at 38 Campbell Street, South Perth. The husband was still a hairdresser. Thereafter, however, he worked as a land salesman for three different real estate firms in succession before starting his own business on 12 August 1959. That business was
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operated from 38 Campbell Street, South Perth until about the year 1961. By 1963 the estate agency business was being conducted in a small shop premises 33A Canning Highway, South Perth where at first the appellant assisted her husband by answering the telephone and doing the typing. The business consisted of the selling of houses and small businesses, including small country businesses which took the husband away from Perth. Upon the evidence before me including some income tax returns and my appreciation of the husband's evidence, it could not at any time be said that he was in business in a big way or entirely successful as a land agent. He said he did not have much knowledge of real estate and I think that was a frank confession.The house at Campbell Street had, inter alia, but three rooms - two bedrooms and a living room - a back verandah, portion of which was enclosed for the first of the two boys and a small patio outside the second bedroom occupied by the daughter, first child of the marriage. Eventually the patio was enclosed for the second son but entry thereto had to be gained through the daughter's bedroom. By 1963 the youngest son was eight. I accept the appellant's evidence that she found Campbell Street too small and inconvenient as her family grew. She is supported in her evidence by her husband, daughter Mrs. Dodd, her sister Mrs. O'Meagher, her friend Mrs. Jean Jones, a tenant in Macey Street Mrs. Schwind and the husband's lifelong friend Harrold. I accept the evidence of Mrs. Dodd, Mrs. O'Meagher and Mrs. Jones as to the smallness of the Campbell Street house and the appellant's desire to find larger accommodation from time to time, although it is clear to me that the appellant was ever conscious of the need for the financial circumstances of her husband and herself to improve in order to perfect her purpose.
One Burridge, a finance broker gave McCormack instructions from time to time. McCormack's solicitor was a Mr. D. O'Dea. On 16 January 1963 O'Dea instructed McCormack to sell a property at 14 Byron Street, Leederville which had been valued for the purposes of probate duty in the sum of £2,100 - at a price of £2,250. At the time Byron Street was occupied by a tenant who had applied to the Housing Commission for accommodation. The sale had to be for cash. McCormack had no life assurance. He sought assistance from Burridge to finance the purchase of Byron Street as an investment for his children and in the name of his wife. He negotiated a sale with O'Dea at £2,100 and financed the transaction on a mortgage given to a Mrs. Stewart for £2,000 that mortgage was dated 14 March 1963. Improvements to Byron Street were effected by painting the inside and outside thereof including the roof and eradicating termites. On 5 February 1963 O'Dea wrote to the occupant at Byron Street requesting him to leave the premises because the property had been sold - to the appellant. The occupant of Byron Street did not move as quickly as had been hoped and although McCormack took a number of prospective tenants to inspect the property he was unsuccessful in letting it. This meant that the McCormacks found themselves having to pay the outgoings on Byron Street. It was the first property that they had purchased apart from Campbell Street. They resolved to sell it and did so on 23 May 1963 for £3,100. The transaction involved the taking of a second mortgage for £400 payable by weekly instalments of £3.4.0 inclusive of interest. Registration to the new purchaser was effected on 18 June 1963. The profit elements seems to have been represented by the amount of the second mortgage.
No sooner had the appellant quitted Byron Street than she agreed to purchase a property in Guildford Road, Ashfield for £2,400. The transfer therefore is dated 6 June 1963 and a mortgage was given to one Sugden for £2,000 dated 10 June 1963 - the same day upon which the transfer from the appellant to the purchaser of Byron Street, Leederville was signed. The appellant contends that Guildford Road was purchased for the same purpose as Leederville - that is an investment for the children. I accept her evidence that neither Byron Street nor Guildford Road were bigger than Campbell Street and were thus unsuitable as a family home.
Again the appellant had difficulty with the tenants at Guildford Road. On 23 July 1963 solicitor O'Dea was writing to the tenants for payment of arrears of rental. In September 1963 McCormack gave authority to O'Dea to commence proceedings against the tenant
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and does not seem to have recovered vacant possession until November 1963 by which time inspections of Macey Street had been made and I shall refer to that later. I accept McCormack's evidence that he did take more than one prospective tenant Dulieu to inspect Guildford Road. Eventually it was decided to sell that property and this was effected again for the sum of £3,100, the transfer therefor being signed on 6 December 1963. Again it was necessary for the appellant to take a second mortgage to assist the sale of the Guildford Road property and this she did in the sum of £500. That amount, at least, appears to have been a profit upon resale. The same mortgagee who financed the purchase of the Guildford Road property financed the purchase of Macey Street. Registration of the transfer of the Guildford property into the purchaser's name was not effected until 17 December 1963 whilst registration of Macey Street was effected on 7 January 1964. The appellant argues that neither of the two purchases and sales to which I have just referred, form a pattern to support the respondent's contention in respect of Macey Street. They are irrelevant when construing the appellant's purpose.Eight Macey Street, East Perth, is of an approximate area of 1¾ acres situated on the Swan River. Erected thereon is an old six-room brick and iron roofed home with a verandah running around three sides of it, one side being enclosed. There are also horse stables. McCormack first heard of the property when he received a telephone call from Burridge who asked him if he would like to sell it. That was in late October 1963. McCormack had a look at the property but there was no one there and he could not get inside. He heard nothing from Burridge for three or four days until Burridge again telephoned and expressed the owner's son's desire for a quick sale. McCormack then arranged to pick up the keys and inspect Macey Street. That was early November. He took his wife to see it two or three days later. Both expressed interest and it is then that the appellant expressed the desire to purchase Macey Street as a family home. It had all of the extra room including a dining room which her children could enjoy and added to that were facilities for the sons for the keeping of a horse and boating. There was little more than a desire however, because finance had to be arranged to enable a purchase to be effected and some expenditure would be involved in renovating the house to the condition where it could be occupied. This would require the sale of Campbell Street. The sale of Guildford Road had yet to be completed and Sugden's mortgage thereover discharged.
McCormack was busy, but by 29 November Burridge rang him and asked him to come and witness the execution of the Will of Macey Street's owner. This he did together with Burridge and was there and then instructed to sell Macey Street in writing for £2,500. His instructions entitled him to a sole agency for eight weeks. I accept his evidence that he did not fix the purchase price. Either on 29 November or shortly after McCormack asked Burridge if he could provide finance for McCormack's purchase of Macey Street. It was not until 3 December that Burridge confirmed the availability of such finance.
In the meantime on 2 December and because of the request of Macey Street's owner, McCormack placed an advertisement in the West Australian for the sale of Macey Street at £2,500. Immediately upon receipt of Burridge's telephonic advice of the availability of finance however, the appellant signed an offer and acceptance form which McCormack immediately took to Macey Street's owner. The purchase price specified therein was £2,100. It was readily accepted. The offer and acceptance form reveals the identity of the purchaser as the agent's wife and there is nothing to suggest that the property's owner was ever unaware of that fact. McCormack did not seek commission, but it appears that he was sent a quarter thereof, namely £20 by Burridge. I find nothing sinister in McCormack's advertisement of Macey Street for sale. I accept his evidence that he did this at the request of an anxious land owner to effect a speedy sale and in order to preserve his position as agent, if his wife's purchase of the property did not come about. In my opinion it does the respondent no credit to infer a desire for a quick profit arising out of the resale of Macey Street unsupported as that allegation must be.
On 3 December the appellant's daughter was in Canberra. The appellant telephoned
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her and excitedly informed her of the purchase of the large old home. Subsequently in December of 1964 upon her return to Western Australia the appellant's daughter was shown over Macey Street at a time when the appellant was aware of the existence of a proposal to construct a bridge upon the property, but was still hopeful that the need therefor might be avoided. The evidence of both Mrs. O'Meagher and Mrs. Jean Jones includes a view of Macey Street at a time when keys were not available and entrance thereto could not be effected. The evidence also reveals the fact that they subsequently visited the property at a time when they were able to be conducted thereover and when the appellant outlined to each of them her proposals for improvements and alterations. Within days of 3 December 1963 McCormack's old school friend Harrold, whom he had not seen for many years, met McCormack outside the property. Harrold was familiar with the area. I accept Harrold's evidence that the exchange between the two evidenced the purchase by the appellant of the property for a home shortly prior thereto.At the time McCormack was selling a property for a Mr. and Mrs. Schwind at Bayswater. He sold the property and they had nowhere to go. He offered them tenancy of Macey Street pending the building of their own home upon a block of land which they owned in Bayswater. Campbell Street which was advertised through the shop window of 33A Canning Highway was on the market and it was desirable to have someone in Macey Street paying income pending the McCormacks moving therein. On 7 December 1963 Mr. Schwind paid rent to McCormack in advance and it is either on that day or the day prior thereto that the Schwinds moved in. Between 14 and 22 December depending upon the appellant's recollection or that of Mrs. Schwind the appellant visited Macey Street, saw Mrs. Schwind and revealed to her the purpose of acquisition of Macey Street. The testimony of all witnesses was carefully cross-examined by the respondent's senior counsel. There are inaccuracies in matters of time and place and this is to be expected. However in my view the evidence of these witnesses should be accepted. After all they were called simply to corroborate the appellant's purpose expressed some 17 years ago. It is sufficient that I be satisfied that conversations to the general effect of those sworn did happen. To conclude otherwise would mean, either that the corroborating witnesses were parties to deliberately misleading the Court or, alternatively, the appellant and her husband set out to mislead those witnesses, including Mrs. Dodd, prior to 3 December 1963.
Whilst it is true that Mr. Franklyn did not go as far as to suggest deception the inference to that effect is unavoidable. Yet such a proposition was never put to either the appellant or her husband and it cannot now, in my opinion, be maintained. See the rule in Browne v. Dunn cited with approval by Newton J. in
Bulstrode v. Trimball (1970) V.R. 840 at p. 847. Rather has Mr. Franklyn emphasized the discrepancies in the evidence of the appellant as opposed to that of her supporting witnesses so as to demonstrate her unreliability in all matters including her important purpose of acquisition. I shall deal with that argument after I have set out the position of Macey Street at the time of its acquisition.
It has been made abundantly clear that when Macey Street was purchased by the appellant it had only just become the subject of the Metropolitan Regional Planning Authority's Scheme for the City of Perth. The evidence of valuer Bryan Douglas Mickle was quite undisputed upon the following facts. Prior to 1955, there was no particular zoning or planning law affecting the area surrounding Macey Street. In 1955 the Stephenson-Hepburn report for the development of Perth was made public. On 19 February 1960 the Metropolitan Region Town Planning Scheme Act was proclaimed. Prior thereto interim development orders were proclaimed limiting development of the Macey Street area without the permission of the local authority. On 9 August 1963 the Metropolitan Region Scheme was first published in the Government Gazette, that is the text thereof and it was necessary to examine that text in association with a large atlas of maps to obtain any appreciation thereof. The scheme came into effect on 30 October 1963 five weeks before the appellant's purchase. Under the scheme Macey Street is an area shown as being subject to resumption for a projected bridge
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across to Burswood Island. The effect thereof was to reduce Macey Street in value.Compensation provisions in the legislation were amended in 1966. Prior to 1962 the City of Perth, the local authority, had no zoning by-laws covering Macey Street. Such zoning by-laws having any effect thereon were gazetted on 24 May 1962. It was not until 19 August 1968 that the City of Perth adopted the Clark-Gazzard Code which made the land in Macey Street capable of having constructed thereon multi-storey or high rise living units - were it not for the reservation placed thereon for bridge building purposes. It is only as the result of the 1968 resolution that the value in Macey Street accelerated. There was no flat building or unit building at the end of 1963 in Macey Street and no sign of any impending development of that nature. It would have needed a keen student of real estate with knowledge far beyond that which I attribute to McCormack to have been aware of all that I have set out above. I accept McCormack's evidence of the difficulties which he experienced in endeavouring to ascertain proposals for the land both from the City of Perth and the Town Planning Authority. There is no doubt in my mind whatever that the inference which the respondent has placed upon the appellant's acquisition of the land in Macey Street throughout all these unhappy proceedings does not arise.
The appellant is, I am satisfied not a knowledgeable woman in matters of business or real estate. Her endeavours to find out the position of Macey Street and her correspondence demonstrate this. Her evidence of visits to Mr. Collins of the Metropolitan Regional Planning Authority and her correspondence with him of 2 October 1967 when she still possessed the faint hope that a bridge would not be built confirm her naivety and to a degree that of her husband in permitting her to so write. Her negotiations for the sale to the authority also confirm this view. Finally she had the wisdom to place the matter in the hands of Mr. Wilkins to complete. Once the determination of the resuming authority became evident and the adoption of the Clark-Gazzard Code was effected the appellant's efforts to obtain the best price for her land cannot be said to water down her general intention - the purpose or intention she possessed at the time of purchase.
The appellant's memory for detail was not good and in a number of areas she was confused. But this is understandable in a middle age woman more disposed to being a wife and mother than a business woman. It is well settled that a husband's or father's purpose is not that of the taxpayer. See Owen J. in
Hampson v. F.C. of T. 13 A.T.D. 296 at p. 298. Be that so I do not find that McCormack possessed other than the appellant's intention or purpose. Again it is well settled that where a person's object or purpose in relation to a given transaction is in issue the statements of that person in the witness box provide the best evidence so long as they are treated with the greatest caution and tested. Cussen J. in
Cox v. Smail (1912) V.L.R. 274 at p. 283 approved by Fullagar J. in
Pascoe v. F.C. of T. 30 A.L.J.R. 402 at p. 403.
Finally it is said by the respondent that the letting of Macey Street to the Schwinds by 7 December 1963 for an undetermined period is evidence of a contrary intention to that maintained by the appellant. I do not agree. McCormack was in business in a small way. He could not afford to go into Macey Street and do the immediate necessary repairs therefor without selling Campbell Street and the appellant didn't wish to hurry the move although desirous of gaining possession as soon as possible. In the knowledge that the Schwinds would take but six to nine months to build their house the letting of Macey Street to them did not in my opinion provide evidence of a contrary intention. In fact the letting of the property to the Schwinds is more in keeping with the appellant's expressed purpose than an intention to resell at a profit as soon as possible and thus be placed in the position of having to get the Schwinds out. I find that the McCormacks did put Campbell Street on the market through their own agency and took interested parties through it. But once the cloud of future resumption arose in 1964 the appellant, in her own words didn't know what to do. She had great difficulty in finding out what was going to happen for the simple reason that no one in authority knew. The bridge has not been built today. In the meantime her daughter returned to Perth and married, the Schwinds remained for three
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years during this uncertainty and paid rent. In my opinion the Schwind transaction does not detract from the appellant's stated purpose.I find that the appellant purchased Macey Street for the purpose of establishing a home for her husband, herself and her children there, and certainly not for the purpose set out in sec. 26(a). I accept the evidence of her husband, her daughter, her sister, Mrs. Jones, Mrs. Schwind and Harrold in support thereof. I uphold these appeals and set aside the relevant assessments. I will hear argument as to the question of costs in respect of the first hearing before Wickham J.
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