Biggs v. Federal Commissioner of Taxation.

Judges:
Wickham J

Court:
Supreme Court of Western Australia

Judgment date: Judgment handed down 29 September 1975.

Wickham J.:

PREFACE

Mr. Keith Biggs objected to assessments or amended assessments of income tax for the years 1967, 1969, 1970, 1971 and 1972, and upon the objections being disallowed requested that each objection be treated as an appeal and forwarded to the Supreme Court to be dealt with under the powers conferred on the Court by sec. 199 of the Income Tax Assessment Act 1936 and amendments.

The effect of the assessments was to increase the taxpayer's returned taxable income in each of the years as follows - 

      1967 -           $2,062
      1969 -            7,917
      1970 -        1,210,097
      1971 -          543,061 and
      1972 -            2,886

making a total increase in taxable income of $1,766,023.

The added income in 1967 arose out of share transactions. That in the other years arose out of cash or shares received as consideration for contracts relating to mineral claims and cash received by the taxpayer upon sale of the shares.

The assessment for 1970 brought to account cash received and the ``money value'' of shares received upon an application of sec. 21 of the Act. The assessments for 1971 and 1972 brought to account cash received upon the sale of the shares without giving credit for the ``money value'' or cost price of the shares. This involves double taxation but the Commissioner would not concede that one or other of the methods of assessment was in principle wrong, but contended that both were right in the sense that each was a legitimate alternative method of assessing.

Before me the Commissioner preferred the choice which was called the ``profit emerging method'', i.e. that the alleged profit be brought to tax only upon sale of the shares (less an annual proportion of expenses incurred) and not upon receipt of the shares as provided in sec. 21. While making no concessions the Commissioner accepted that on this basis the assessable income for 1970 should be reduced from $1,210,097 to $249,786.

The taxpayer contended that, even so, all the assessments were wrong. In respect to 1967 he contended that none of the shares concerned were acquired by him for the purpose of profit-making by sale, and in respect to the other years he contended -

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The Commissioner contended that apart from the assessment in 1967 which fell squarely within the first part of sec. 26(a) of the Act, all the other relevant activities of the taxpayer were in the course of carrying on or carrying out a profit-making undertaking or scheme, or alternatively that the shares and cash were income in the ordinary sense and that this was combined with a scheme to sell the shares at a profit and also to make a profit out of any share rights which became available. The Commissioner denied that any of the consideration received in relation to the mineral claims was exempt income and submitted that even if it was, so far as the shares were concerned, the sale of them fell within one or other of the limbs of sec. 26(a) and that this ``secondary profit'' as it was called was income which was not exempt and was for that reason taxable. In respect to sec. 23(p) the Commissioner contended that the taxpayer was not at relevant times a bona fide prospector, and that if he was a prospector at all he was not one who had personally carried out the whole or the major part of the field-work of prospecting in the particular areas, and further that some of the transactions were not sales, transfers or assignments and that none of them involved ``his rights to mine''.

Exhibits A and B are useful papers and copies are attached to this opinion for ready reference. I have altered A to provide a column to show the result of the appeals and B slightly to show a little more detail.

It is necessary first to make findings of primary fact and to draw some inferences of fact before reaching the final conclusions of fact, and applying the provisions of the Assessment Act to the ultimate facts as found. Remembering that a wide survey and an exact scrutiny of the whole of the taxpayer's relevant activities is required, it is nevertheless convenient for the purposes of exposition to deal with the various matters item by item, starting with the 1967 assessment and then proceeding with the various other transactions, largely in chronological order. Various explanatory documents were tendered and these were marked with letters of the alphabet to distinguish them from documents partly or wholly of an evidentiary character and which were numbered in the ordinary way.

The result of the method of assessment first adopted by the Commissioner will be seen in ``A'' and the result of the method which he now prefers is shown in Ex. ``Amended A''. There was also a contest between the Commissioner and the taxpayer as to the date upon which certain shares should be valued if the sec. 21 method was adopted. For the purposes of this case only, the values at particular dates were agreed, and it was the correct date for valuation only which was in dispute. The different results can be seen in Exs. AA, AB and AC to which in each case there is attached a table showing the competing results achieved between the ``profit emerging'' method and the sec. 21 method on the basis of including secondary profits and losses.

INTRODUCTION

Mr. Biggs was born in May 1941 and has lived in the Laverton-Leonora area all his life. He received no significant secondary education

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but acquired some knowledge of business methods while working for Elder Smith & Co. Ltd. in Leonora. He went truck-driving, leased a butcher's shop at Gwalia and by 1966 was the proprietor of his own butcher's shop in Leonora. Up to that stage he had had a passing, although not a serious interest in mining. In 1966 the Western Mining Corporation discovered nickel at Kambalda on Lake Lefroy and this stimulated talk in the Eastern Goldfields about mining generally. Probably in about 1967 Mr. Biggs attempted unsuccessfully to de-water an old goldmine out of Laverton. By this time he was beginning to prosper in a modest way and, under advice, he invested in stocks and shares, mainly of an industrial kind, or in non-speculative mining stocks (Ex. 51). In 1967 the taxpayer acquired an interest in Laverton Downs Station with a Mr. Sullivan and Mr. Detez, which gentlemen had a garage in Leonora and were also part-time prospectors. He raised some of the money for this purpose by selling shares in Western Mining Corporation. His reason for buying shares in Great Boulder Goldmines was the fact that this company had an interest in the nickel discovery at Scotia in 1967.

1967 Assessment: The taxpayer purchased 500 Consolidated Goldfields N.L. in December 1966 and sold them at a small loss on 26th April 1967. He purchased 200 Western Mining Corporation on 23rd February 1967 and sold them at a profit on 6th April 1967. He then bought 300 on 21st April and I accept his evidence that he had been advised to buy W.M.C. back again. At about the same time he also bought 500 Great Boulder and he sold these at a small profit on 21st April. He purchased another 300 Great Boulder on 3rd June and sold them at a loss on 23rd June. He purchased 200 Metal Exploration N.L. on 26th April and sold them at an insignificant profit on 4th June. On 6th June he sold 200 of his W.M.C. at a substantial profit; he retained the other 100. It is the result of these transactions which comprise the additional assessment for 1967 (Ex. 50) but they should be read in the context of Ex. 51. He bought 400 W.M.C. on 24th April which are not included in Ex. 50. The date of sale of 200 in Ex. 50 should read 16th June instead of 6th June. The profit from the Ex. 50 transactions amounts to $2,062 and this is the amount brought to tax.

Transaction 1 - Lake Carey:(T.1.) As a result of the discoveries of nickel at Kambalda and Scotia there was renewed interest generally in the Eastern Goldfields relating to mineral exploration, and more particularly in nickel. Nevertheless by mid-1968 the major activity radiated around Kalgoorlie to Lake Lefroy in the south and Scotia to the north, and the Leonora-Laverton area and northwards was from the point of view of nickel largely virgin country. The taxpayer was a friend of Mr. Alan Cleland, the proprietor of Glenorn Station, whose homestead was about 30 miles south-east of Leonora. Mr. Cleland had lived on the station all his life and had always had a passing interest in minerals as there had been workings for both gold and copper on the pastoral leases. Biggs and Cleland decided to do some prospecting for nickel. Mr. Cleland had already collected what he believed to be some specimens of nickel. The two decided to go prospecting together for nickel and arranged for the visit of a lecturer from the Kalgoorlie School of Mines to visit Leonora and give a public lecture on the elements of prospecting for nickel. This was delivered on 20th July 1968 and notes (Ex. 1) were handed around. In using the term ``prospecting'' and derivatives, I am conscious of question-begging as to the meaning of the word.

The next day the taxpayer and Cleland went to various points on Glenorn Station looking for likely rocks and then on Monday 22nd July Cleland, while primarily looking for cattle tracks but in possession of a hammer and sample-bags, found some likely specimens in the area of Lake Carey. Further searching disclosed magnesite and serpentinite. He took samples and showed them to the taxpayer and also to Mr. Detez who was a fairly experienced prospector and who confirmed that the rocks were of the right type for nickel. An assay (Ex. 2) was obtained. Encouraging values for nickel are between 1,000 and 1,500 parts per million, and the results of the assay were encouraging. I have here and in other cases accepted Cleland's evidence as to the sequence of events because although both men were thoroughly honest, Cleland had his station diaries and was able to add precision as well.

On Sunday 28th July 1968 the two men went again to the Lake Carey area and spent the major part of the day searching and sampling, and on that day they pegged three claims. They were out there again on 31st July, both prospecting and pegging and I think it

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probable that it was this day that five more claims were pegged making eight in all. (See details on Ex. C.) The taxpayer at this time had some interest in Leonora Air Charter Pty. Ltd. and therefore access to an aeroplane with pilot. The two men flew back again on 1st August and then to Melita Station owned by a Mr. Finlayson who was a knowledgeable retired mining engineer. He was enthusiastic at the samples produced and advised that some magnotometer traverses should be done. The taxpayer did not then own a magnotometer but one was hired and some traversing was done on a date left uncertain, but it is clear that the two men returned again within a few days and dug a number of pits on the south side of the claims to try to strike the serpentinite but the sand was too deep. The taxpayer had camped at the area for two or three days and I infer that these were the days at the end of July. At about this time Biggs had met Mr. Codner, the geologist for Westfield Minerals (W.A.) N.L., and that company on 31st July received some more samples and produced another favourable assay on 8th August, Ex. 4A. On 13th August the taxpayer and Cleland took Codner to the claims and spent seven or eight hours in the area, and I accept the evidence that Codner expressed the opinion that the taxpayer could do very little more, primarily because of the soil cover. Some further samples were obtained and analysed on 23rd August, again with encouraging results. Codner wrote to Biggs on 24th August (Ex. 4C) in cautiously optimistic terms. At this stage all the work had been done which could be done by the taxpayer and Cleland. The latter saw Mr. Appelby, the Western Australian manager for the Utah Mining Company, in Perth, in order to obtain more expert advice, and he showed him some samples. As a result a Mr. Shirley, Utah's prospector and who later made the find for Poseidon, together with a Mr. Cawsey, inspected the claims with Cleland on 17th August. On 28th August Cleland went to the claims in a 4-wheel drive vehicle with two station hands to help with further pegging. While the hands did the labouring work Cleland prospected further. The taxpayer was not there that day but Cleland and party camped the night and Biggs arrived the next day, 29th, with a Mr. Moriarty, by aeroplane. Moriarty said he could arrange a sale of the claims for between $25,000 and $35,000, which offer or suggestion the partners refused. They stayed again overnight on 2nd and 3rd September doing further pegging and prospecting. On 9th September they were out there again, this time with Mr. McDonald, the manager for Newmont Pty. Ltd. and Mr. Lightfoot, his geologist. On 27th September Mr. Appleby wrote a report on behalf of Utah (Ex. 5) in which he said that early in August an approach had been made to that company by the partners regarding possible options over the claims. Biggs denied that this was so and Cleland had no memory of it. I believe this reference to early August to be a mistake which should read ``early September'', although in August Appleby was interested as a result of Cleland's discussion with him in Perth.

I infer that the partners were looking for some substantial company to explore, test and develop the claims and I accept that it was their primary concern to obtain an interest in the project. Eventually agreement was reached with Newmont as in Ex. 7. I think the proper construction of this agreement to be that the partners had the option of taking either $500,000 in cash or 4.5% of the net profits. The initial $100 paid or payable does not seem to have been brought to account but the further sum of $2,000 for an extension of the option was paid, and it is the taxpayer's half-share of this amount - $1,000 - which is brought to tax in the 1969 assessment. Newmont did not require any further extensions and the option lapsed. The dates of pegging and other information contained in Ex. C. in respect to T. I may be accepted as approximately correct.

These claims were on 4th July 1969 sold to Kia Ora Gold Corporation N.L. by the partners (T.5:p.4182) without they themselves having done any more work on them.

I accept that this was fairly new country; the low numbers of the claims indicate that Biggs and Cleland were among the first in the area. Newmont had held about four claims some 3 or 4 miles to the west since 1966 but it was not this which attracted the taxpayer and his partner to Lake Carey. There was a nickel rush to the area but not until 1969, as can be seen from Ex. 53.

Transaction 2 - Pinnacles: (T. 2.) The prospecting of and the negotiations for the exploitation of the prospect, and the agreement, had in the case of T.1 (Lake Carey) been amateurish but by October 1968 the taxpayer was well on the way to becoming the sophisticated and competent prospector which he was rapidly to be. I accept the opinions in

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this last respect of Messrs. Wyatt. Galbraith and Burrill, each of whom was impartial, highly qualified not only academically but also practically, and a master of his subject. By October the taxpayer had the maps of the airborne surveys of the Bureau of Mineral Resources showing the total magnetic intensity profiles and geology of the various areas, together with the magnetic interpretation maps, and he had learned how to read them. These had been published in 1966 and probably reflect some of the work done by aerial survey upon the initiative of the Western Mining Corporation as described by Mr. Brodie Hall. They are fairly sophisticated prospecting tools although of course no substitute for work in the field, the interpretation being of a general kind only and the identification of the position of the anomalies on the ground being only approximate.

Early in October 1968 Mr. MacKinnon, the proprietor of Pinnacles Station, the homestead of which is about 70 miles north-west of Leonora (I give distances as the eagle flies) invited the taxpayer to visit his area as he thought that there might be some interesting mineralisation. The taxpayer went up and did find evidence of host-rocks for nickel. He communicated with Cleland, and the two went back and spent the 5th, 6th and 7th October prospecting and pegging. The taxpayer had a magnotometer on hire which they used; trenches and pits were dug and samples taken. The assays again produced encouraging results. About a fortnight later the taxpayer did more magnotometer traverses, walking across and beyond the areas pegged, and also did some aerial reconnaissance. However the soil cover was fairly heavy, particularly in the southern area of the claims, and there was nothing more which the syndicate of which Mr. MacKinnon was the third member, could do. Again these men were among the first in the field in this area although like Lake Carey it was caught in the nickel rush soon afterwards. It is apparent that by this time the pegging of prospects was becoming a fairly urgent matter and the rather hasty pegging by the taxpayer and his associates does not to me indicate that he was no more than a squatter hoping to speculate with worthless ground.

In December they decided to look for a company which had the resources to develop the prospect and they entered into an agreement with one Harvey who was connected with Newmont. The agreement is dated 20th December 1968 (Ex. 10). This is a more sophisticated agreement drawn by solicitors and it is noticeable that both the vendors and the purchasers are recited as being bona fide prospectors. This is of no value as evidence of that fact but is suggestive of a point to which I will return in my conclusions.

The agreement recites that the vendors have agreed to sell and the purchaser has agreed to buy all the vendors' right, title and interest in and to the claims. The operative part of the agreement is that the vendors agree to transfer and assign etc. The consideration is agreed at $115,000 payable as to $15,000 upon execution and $100,000 on 1st July 1969 payable by $5,000 cash and 50,000 fully paid shares in Consolidated Gold Mining Areas N.L. That latter provision was varied by an agreement dated 1st July 1969 (Ex. 10A) to provide in lieu of $100,000 cash the payment of a sum of $7,500 on that date, a sum of $5,000 by the issue or transfer to the vendors of 50,000 25 cent shares in Uranium & Nickel Exploration N.I.... each share paid to 10 cents, as to the sum of $2,500 by the issue or transfer to the vendors of 12,500 fully paid 20 cent shares in Australasian Mining Corporation, and as to the sum of $2,500 by the issue or transfer to the vendors of 5,000 fully paid 50 cent shares in Consolidated Gold Mining Areas N.L. A further sum of $7,500 was to be paid on 1st January 1970. It was then provided that subject to the purchaser's right to reassign the claims the balance of $75,000 was to be paid as to $25,000 in cash and as to $50,000 by the issue or transfer to the vendors of 100,000 fully paid 50 cent shares in Consolidated Gold Mining Areas N.L. it is noted that the consideration is expressed in money but some of it was to be paid otherwise than in cash, namely in shares paid as specified.

I am unable to find as a fact that transfers of the claims were signed by the vendors and handed over, the file of the solicitor Mr. Hartrey having been mislaid. I was asked to assume it but I cannot do that.

The purchasers did determine the agreement before 1st July 1970 and the last $75,000 was not therefore paid; however the taxpayer received his share of the $15,000 cash paid as deposit in the 1969 tax year and also of the $15,000 cash paid in the 1970 tax year, as well as his proportion of the shares issued. The

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Commissioner taxed the shares on a sec. 21 basis, as will be seen from p. 4196, Ex. B. Although the agreement refers to the ``issue or transfer'' of shares it was assumed for the purposes of the case, and I accept, that in fact new shares were allotted in satisfaction of the consideration. I cannot comprehend why when the consideration is expressed in cash and is to be satisfied by shares paid to an equivalent stated figure the money value of the consideration paid or given otherwise than in cash, within the meaning of sec. 21, can be any figure other than the amount paid-up on the shares substituted for the cash consideration. However, neither the taxpayer nor the Commissioner thought this to be right, so I suppose that it must be wrong. Each submitted, and for the purposes of the case agreed, that it was a matter of valuing the shares by the application of normal principles of valuation, the dispute only being about the date upon which the valuation should be made. As to this, T. 2, it makes little difference, but this approach could involve some quite bizarre results one way or the other in relation to T. 9, as we shall see. In 1969 the net cash amount of $4,593 was taxed, and by adding the cash of $5,000 received in 1970 and applying sec. 21 to the shares the Commissioner brought to tax in 1970 the net sum of $11,597 (see p. 4196, Ex. B).

The taxpayer in October 1969 sold his Uranium and Nickel Exploration shares for $5,575, his Australasian Mining Corporation shares for $1,531 and his Consolidated Gold Mining Areas for $1,151 (see Ex. 50). There were therefore some gains on the sales but these were not taxed (post p. 4184).

It may be assumed that the claims were surrendered on 24th November 1971 as shown in Ex. C but they were pegged again by Western Selcast Ltd. in 1974 and the possibility of a mine being developed remains. Indeed, although no payable mine has yet been developed on any of the taxpayer's prospects, it is not right to assume that any of them were or are worthless. Development and mining on the claims depends so much on the discovery and the proving of payable ore bodies and this in turn on capital, techniques, costs, and world demand for the mineral concerned. Most of the claims were serious prospects of viable mining operations, not proved but worthy of further exploration. If this fact matters, then I am satisfied that the taxpayer has discharged the onus.

Transaction 4 - Mount Remarkable: (T.4.) Soon after the pegging of the claims at Pinnacles Station the taxpayer, having studied the profiles and maps, observed an interesting anomaly near the Mount Remarkable homestead about 40 miles south-east of Leonora. On 13th October 1968 the taxpayer and Cleland searched along Lake Raeside, the taxpayer in a Land Rover and Cleland on a motor-cycle. The area was flat, sandy, and considerably overgrown with scrub. Only some basic rock of not great interest was discovered, so on the next day they continued prospecting another area. There were no surface expressions then and nothing to sample and the two men had no thought of pegging these claims at that time. The taxpayer however discussed the matter with Mr. Codner of Westfield Minerals and the latter visited the area again with the taxpayer and they did some magnotometer traverses. Codner said that Westfield would be interested in pegging the area and would benefit the taxpayer and Cleland who were considered to be the discoverers. Mr. Cleland said that Codner had suggested that Westfield should peg on behalf of the syndicate but I do not accept this as constituting Westfield as agents for the Syndicate.

By letter of 29th November 1968 from Westfield Minerals (W.A.) N.L. to the taxpayer, Cleland and MacKinnon, the company sent a cheque for $500 in consideration of the ``advice and guidance'' which led to the pegging of the claims, the actual pegging having been done on 24th October by the company. It was indicated that should a mine be developed the taxpayer and his associates would be paid jointly the sum of $100,000 over the first five years of production, and pending that, $1,000 on 1st December in each year. It was also stated that the claims would be transferred to the syndicate members if it was found that additional work was not warranted (Ex. 15). The managers for Westfield Minerals were to be Anglo-American Corporation (Aust.) Ltd. and on 4th July 1969 the position was further regularised by the taxpayer and his associates addressing a letter to that company granting it the necessary rights ``to carry out a prospecting and testing programme'' and to purchase the mineral claims for the sum of $100,000. The consideration for the prospecting and testing rights was $1,000 per annum for four years. These amounts were paid, although the

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purchase was not concluded. It is the taxpayer's share in these payments, namely $333, which is brought to tax in each of the years 1969, 1970, 1971 and 1972.

Transaction 3 - Yandal:(T.3.) Yandal is a station about 120 miles north-west of Leonora owned by Mr. R. Boladeras. The taxpayer was now acquiring something of a reputation, and in my opinion a justifiable reputation, as a knowledgeable prospector. A Mr. G.C. Williams, the proprietor of a transport business in Leonora, approached the taxpayer with some rocks which Mr. Boladeras had found. Mr. Biggs studied his maps and profiles and isolated an interesting anomaly. About 20th February 1969 the taxpayer visited the area with Williams. They searched, did magnotometer traverses, took soil samples and rock specimens over a period of about two days, and they pegged five claims over an area of about 1 mile by 3 miles in all, fairly roughly. It was agreed that the taxpayer would have a one-quarter interest in any venture. The taxpayer returned a few days later by himself and did some additional traverses with the magnotometer and took some more samples.

The first group of samples were received by the laboratories at Kalgoorlie on 21st February 1969 and being assayed on 24th - (Ex. 16) - showed fair values for nickel. The taxpayer then communicated with Mr. Codner and they spent another day searching and taking samples. The assay of those is dated 17th April 1969 and again shows encouraging values.

A Mr. Dean representing Kia Ora Gold Corporation No Liability (Kia Ora) communicated with the taxpayer with a view to a joint venture, and in furtherance of that, Mr. J.D. Whyatt, a highly qualified and very experienced consulting geologist and practical man in the field, and manager of his own consultant company Geotechnics (Aust.) Pty. Ltd. accompanied the taxpayer to the claims. I accept Mr. Whyatt's evidence in its entirety. The taxpayer now had a very professional approach and was able to direct Whyatt's attention to relevant features in a knowledgeable and competent manner. Mr. Whyatt prepared the report signed by Mr. Ward which is Ex. 66 and which is dated 12th May 1969. Whyatt, reporting in the interests of Kia Ora recommended that an option be arranged. He indicated that a proposed investigation would include geochemical soil sampling, geological mapping, extensive geophysical induced polarisation and magnotometer work; the initial work (which the report called ``field investigations'') was estimated to cost about $8,500. Mr. Whyatt explained in evidence that geological mapping is done with the assistance of aerial surveys and photographs and is for the purpose of fixing the general geology of the area; this is followed by gridding on the ground which can only be done by experienced surveyors, and that its accuracy is basic to proper mapping, which in turn is essential for an efficient programme of geochemical sampling and other sophisticated investigation. The work requires qualified and experienced professional staff. Geochemical sampling, as he explained, involves the taking of small specimens at about 200 ft. intervals and at a depth of about 12 inches, numbered with co-ordinates from the previously prepared grid. Mr. Whyatt said that this was a modern tool and not used much before the mid-1960s in Australia. Objection was taken to this evidence but I hold that Mr. Whyatt was well qualified to give it. Induced polarisation is the injection of high voltage pulses into the ground giving a return pulse which can be interpreted by a qualified geophysicist and only by such a person. This was not used in Australia prior to 1965 and is dangerous for an unqualified person to use. The magnotometer also measures a pulse and its use is to outline precisely the boundaries of potential ore bodies. It has been used extensively for some years, probably prior to 1950 but in those days as an air-borne device only and not held by hand. The hand-held magnotometer was not in common use before 1965 in Australia. An example of its original use can be found on Ex. 8 which is the result of an air-borne magnetic survey in 1967 and may be read together with Ex. 9. An induced polarisation unit is a costly item - up to $30,000. All this work is a type of mapping work and is an essential prerequisite to drilling, and Mr. Whyatt mentioned that, with drilling, and Mr. Whyatt mentioned that, with drilling, these preliminary costs could be as much as $100,000. Drilling in the end was essential because the surface indications could not by themselves indicate the quality or quantity of nickel. Mr. Godfrey Burrill, another consulting geologist whose evidence I also unhesitatingly accept confirmed Mr. Whyatt's opinions on all these matters, and added that the necessary surveyors, geologists and geophysicists are specialists. He pointed out that at the Poseidon strike at Windarra $200,000 was spent before a shaft was thought

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to be justified, and that was an easy prospect to drill. Dr. B.K. Welch, another consulting geologist of high qualifications and wide experience provided further confirmation for these opinions.

On these claims at Yandal I am satisfied that Biggs and party had done all that they could do. This syndicate decided to accept an offer from the representatives of Kia Ora. The agreement, Ex. 18, is dated 5th June 1969. It again recites that the vendors and purchasers are bona fide prospectors. The vendors agreed to ``transfer, assign and make over to the purchasers all their right title and interest in and to the claims''. The consideration was $128,000 payable as to $8,000 on 1st June 1969 and, subject to the purchasers' right to reassign the claims, the further sum of $20,000 on 1st June 1970. The purchasers had the right to determine the agreement at any time before 1st June 1971 and to reconvey the claims to the vendors but should they not elect to do so the balance of $100,000 was then to be paid.

The $8,000 was paid and the taxpayer's share of this is the amount of $1,991 brought to tax in the year 1969 after allowing for his proportion of the expenses. The $20,000 was also paid and the amount of $4,989 is the taxpayer's share brought to account in 1970 after allowing for his proportion of direct expenses. There was no consideration in the form of issue of shares in relation to this transaction.

Transfers of the mining claims were executed by the taxpayer and his associates and were delivered to the purchasers. (See the solicitors' file, Ex. 64 where there are file copies of the transfers.) There is no evidence that the transfers were registered. I do not think it matters (see my dicta in Allied Minerals N.L. v. Adamson (1974) W.A.R. 21 at 27). The taxpayer was literally the first into this area - see the map, Ex. 55.

Transaction 6 - Stone Soak: (T.6.) While the preceding matters were in progress, the taxpayer, a part-owner of Laverton Downs Station had been studying his geological maps and profiles. Mr. M.J. Williams was the manager of the station. The taxpayer observed an anomaly four or five miles to the north of the homestead at a place called Stone Soak. He and M.J. Williams investigated the area over a period of several days; the taxpayer located some likely rocks and they dug pits for samples and on 27th May 1969 pegged three claims. They later went back and found further indications and pegged two more claims. The taxpayer was back at the area a number of times sometimes prospecting and sometimes pegging. There was a fairly heavy ground cover on all the claims. The taxpayer did some magnotometer traverses in the surrounding area without finding justification for any further pegging. The results of the first assay of specimens received on 29th May and dated 3rd June 1969 showed encouraging values for nickel - see Ex. 19A - and some more samples, received by the laboratories on 9th June and on 11th June, disclosed further values rather less encouraging.

Mr. Whyatt for Kia Ora examined the claims on 6th June 1969 and his report, Ex. 68, is dated 16th June. I accept Whyatt's evidence that there was nothing more that the taxpayer could have done personally. He showed Whyatt the pits he had dug and directed his attention to relevant features which he had discovered. The geologist was able to collect further samples, and eight out of nine showed encouraging values. He recommended a programme of baseline survey and grid pegging, geological mapping, geochemical soil sampling, magnotometer traverses and very low frequency electromagnetic traverses, to be all of an estimated cost of $7,000. This work, as well as some percussion drilling, was carried out by Kia Ora.

The syndicate of the Williams brothers and the taxpayer entered into an agreement with Kia Ora dated 1st August 1969. Again it is recited that each the vendors and the purchasers are bona fide prospectors and the agreement is in the same terms as before. The consideration was the sum of $110,000 payable on 7th August 1969 by $7,500 in cash and the allotment of 10,000 25 cent fully paid shares in the purchasing company, i.e., a total of $10,000 in value at that date. Subject to the purchasers' right to reassign the claims the balance of purchase money was payable on 7th February 1971 as to $15,000 by the allotment of 25 cent fully paid shares to the vendors at market value as at that date and also the allotment to the vendors of 100,000 25 cent fully paid shares at par value. The balance of the price was also to be paid on the same date by the payment of $60,000 in cash. The wording of this consideration is interesting because it points up what I think might be a difference in the application of sec. 21 to the case where the

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consideration is stated to be the allotment of shares fully or partly paid at par paid, as compared with a case where it is stated to be the transfer of shares at market value. In this case the consideration was expressed in money and to be satisfied by cash, the allotment of shares, and the transfer of shares. The total money price of $110,000 was as to $67,500 to be satisfied in cash and the remainder as to $27,500 to be satisfied by the allotment of fully paid shares at 25 cents, and as to $15,000 by the transfer of an unspecified number of shares to the market value of $15,000. Nevertheless the price remains the same regardless of the value of shares to be transferred - it is only the number that varies.

Transfers were executed by the vendors and handed to the purchasers. As a relevant although not a very telling point was made about it by the taxpayer, I again mention that he was also on this occasion one of the first in the area - see Ex. 57.

The taxpayer received his one-third share of the initial cash payment and one-third of the initial allotment of 10,000 shares and sold them in 1970 (cf. col. 2). The shares as received were valued for tax under sec. 21 at the par value. The total amount of $2,985 is the amount brought to tax in 1970, as appears on Ex. A, and the detail will be found at p. 4197, Ex. B. The balance of consideration due on 7th February 1971 was not paid and it may be assumed that under cl. 3 the purchaser determined the agreement.

Transaction 5 - Lake Carey: (T.5.) This is a sequel to T. 1. Newmont had done some magnotometer work and impulse polarisation survey over a small section but had not taken up the option. The taxpayer himself did no further work on the claims. Mr. Whyatt inspected and reported for Kia Ora on 29th May 1969 and his report is dated 12th June 1969 and is Ex. 67. Again he was met by the taxpayer who showed him the features on the geological maps and pointed out other relevant features on the site, as a result of which Mr. Whyatt collected his own specimens. Again Mr. Whyatt confirmed that nothing more could have been done by the taxpayer and he recommended a more detailed inspection involving the establishment of a grid system, geological mapping, ground magnotometer traverses and very low frequency electromagnetic traverses, as well as geochemical soil sampling, at an estimated cost of $10,250. He considered that this work should be done before proceeding to induce polarisation and exploratory percussion and diamond drilling. Some of the work which Mr. Whyatt recommended was carried out by Kia Ora.

Agreement was reached on 4th July 1969 and there are the usual recitals. The consideration was $115,000 payable on 1st July 1969 as to $15,000 cash on the basis that the vendors would subscribe for 10,000 25 cent fully paid shares at par in the purchaser company. This part of the consideration was therefore $12,500 in cash and $2,500 by the allotment of 10,000 fully paid shares. The balance of the consideration of $100,000 was payable on 1st January 1971 (subject to the purchasers' right to reassign the claims before that date) by, in effect, the allotment of 100,000 25 cent fully paid shares at par value, i.e., $25,000, then as to the sum of $15,000 by shares of that market value, and the remainder of $60,000 in cash.

Transfers of the mineral claims were signed and handed over to the purchaser, Ex. 63, but it determined the agreement under cl. 3 and on 4th February 1971 the transfers were returned to the vendors as seen in Ex. 62.

The initial issue of shares was brought to tax at par as well as the taxpayer's share of the cash received, making a total of $7,500, and this is the amount which appears against T.5 in Ex. A under the 1970 assessment. The detail of it can be seen on p. 4197, Ex. B.

The taxpayer sold his 3,333 shares in Kia Ora in T. 6 and also his 5,000 shares in that company in T.5 from January to March 1970 for a total of $18,712 but no further amounts were as a consequence assessed for tax (post p. 4184).

Transaction 7 - Baneygo: (T.7.) Later in August 1969 the taxpayer with the aid of his maps was becoming interested in an area about 35 miles to the north-east of Mr. Barrett's Erlistoun homestead. Both Mr. MacKinnon and Mr. Cleland had an interest in this venture. The taxpayer went out with Barrett and located the extension of an ultra-basic formation and took samples. See assay report, Ex. 33, completed on 25th August 1969, showing interesting nickel values. Further samples were assayed on 29th August, 4th September, 6th September and 10th September. The taxpayer did magnotometer

ATC 4183

traverses although he did not keep the readings. Pegging proceeded up to 28th October 1969; the exact dates are not clear except that the taxpayer said, and I have no reason to doubt it, that the first pegging was on 24th August. Mr. Cleland was able to be more accurate as he went with the taxpayer on 7th September and then two claims were pegged and further samples were taken. He also did some further prospecting on 10th September and again with Barrett on 23rd October when five claims were pegged, further prospecting done and samples taken. On 24th October Cleland spent the night at Erlistoun Station and returned to the claims with Barrett and the latter did some further prospecting. All this is consistent with the assay reports which appear in Ex. 33A. There was some more likely country about five miles to the east of the Baneygo claims referred to as the McKenzie Group, but both groups are the subject of the same transaction. I accept that the taxpayer did most of the prospecting and sampling although some was certainly done by both Barrett and Cleland; for example on 28the October Cleland had a record of going through the McKenzie Group with MacKinnon and camping at the well, and again on 30th October he and MacKinnon and Barrett continued prospecting and pegging that area extending southwards until there was less defined mineral and the surface was covered with soil and rubble. Once again the taxpayer was one of the first in the area. Ex. 58.

The taxpayer was now in practice a full-time prospector, but at this time concentrating mainly on Baneygo (T. 7.), Windarra and the Four Mile (T. 8.) and the Mount Murphy Group (T. 9.) while visiting a few other areas at the same time. His brother had taken over the butcher shop in Leonora in 1968 and his father was there too as well as another employee. During 1969 the taxpayer spent only a little time in the butcher shop or on Laverton Downs. His brother was also the manager of the Leonora Air Charter Service Pty. Ltd. while the taxpayer was the managing director.

Early in October Mr. Matheson, the managing director of Newmetal Mines Ltd., a New South Wales company, communicated with the taxpayer on the telephone. The taxpayer did not know him before. Mr. Matheson followed that with a letter of 3rd October (Ex. 34) offering $40,000 cash and 400,000 fully paid Newmetal shares with the floatation of a public company to exploit the Baneygo-McKenzie claims and other interests, and providing for a 6% free interest in the new company to the taxpayer's syndicate amounting to 300,000 shares fully paid to 20 cents. Mr. Matheson made his offer sound attractive either to a permanent investor or to a speculator or both, and also made mention of the taxpayer taking a seat on the board of the new company. Mr. Biggs went to Sydney with his broker to discuss the proposition from which discussion it appeared that the new proposed company would be named Newmex Exploration Limited. On 16th December Mr. Cleland drove to Laverton and met Mr. Cheeseman, the consulting geologist of the firm of Watts, Griffis & McOuat (Australia) Pty. Limited who proposed to report for Newmetal, and did in fact write a report addressed to the new company, Newmex Exploration Limited, dated 9th January 1970 and which appears in that company's prospectus, Ex. 36. This also refers to the Windarra and Four Mile group (T. 8.). His assessment of the Baneygo and McKenzie claims was favourable.

I am satisfied that there was nothing further that the taxpayer could have done to exploit these claims other than reach an agreement with a capitalist. The syndicate decided to deal with Newmetal and the agreement is dated 24th December 1969, Ex. 35A. This is drawn by Sydney solicitors and the wording differs a little from the preceding agreements, but the recitals are not in substance different. It recites the incorporation of the proposed operating company, Newmex Exploration Limited, which, according to the prospectus, had been incorporated in Sydney on 18th December with a proposed issued capital of 800,000 ordinary shares of 20 cents to be issued as fully paid as vendors shares, i.e., $160,000, and five ordinary shares at 20 cents each fully paid issued to the subscribers to the Memorandum of Association, i.e. $1.00. 1,900,000 ordinary shares of 20 cents were to be offered to the public and 4,299,995 were to be offered to Newmetal Mines. The purpose of the issue was said to be to raise funds for an active programme of exploration on the company's mineral claims in Western Australia.

The agreement of 24th December 1969 relates to prescribed minerals within the meaning of sec. 23(p) of the Act and there was a separate agreement relating to non-prescribed

ATC 4184

minerals for which the consideration was $1. It is clear from this and from references to ``bona fide prospectors'' in the other agreements that the vendors Barrett, Cleland, MacKinnon and Biggs had an eye to the taxation position.

The consideration was $20,000 in cash, the allotment of 100,000 shares fully paid to 10 cents in the capital of Newmetal and the allotment of 200,000 fully paid shares of 20 cents in the capital of Newmex. It was provided that Newmetal should appoint the first directors of Newmex who should include the taxpayer or his nominee and also another resident of Western Australia.

This agreement was unconditional and not terminable by the purchaser. There were sophisticated default and other clauses. Transfers were executed and delivered, and the Commissioner concedes that this was a sale, transfer or assignment but does not concede that the taxpayer was a bona fide prospector or that he sold, transferred or assigned rights to mine. In the end the claims were surrendered by Newmetal but have now been pegged again by one Mitchell in December 1974.

The assessment of this transaction for tax is puzzling. For the year 1970 the 25,000 10 cent shares which the taxpayer received in Newmetal were taxed as if the consideration received by way of each share was 95 cents and not 10 cents, and the 50,000 shares at 20 cents which the taxpayer received in Newmex were taxed as if the consideration was $1.05 each, producing figures of $23,750 and $52,500 respectively. To this was added his $5,000 share of cash and after deduction of some expenses the total amount of $79,911 was brought to account for taxation purposes, presumably under the provisions of sec. 21 of the Act.

It is arguable that on the proper application of this section the money value of the considerations received otherwise than in cash by the taxpayer was in Newmetal shares - $2,500, and in Newmex shares - $10,000, but as neither the taxpayer nor the Commissioner agrees with that, I will not pursue it further. The figuring can be seen on p.4197, Ex.B. For the purposes of this case the Commissioner and the taxpayer agreed the consideration except as to the date of valuation.

In the tax year for 1971 the taxpayer sold his 25,000 shares in Newmetal in October 1970 for $16,243 and this amount less a small proportion of expenses was brought to tax for that year at $15,335 as appears on p.4198, Ex.B. He was given no credit for the cost of the shares assessed for tax and this latter assessment cannot be right.

In the tax year of 1972 the taxpayer sold his 50,000 shares in Newmex, i.e., on 23rd December 1971 for an amount of $2,704, and the whole of this amount less some expenses was brought to tax at $2,553. Whatever the cost of the shares this was a sale at a substantial loss and again the assessment cannot be right. The explanation for the double tax is found in the fact that the 1970 assessment was issued after the 1971 and 1972 assessments, and it seems that the Commissioner had changed his mind about assessing the shares to tax on what was called a profit-emerging basis (i.e. when cash is actually received) and when he came to issue the 1970 assessment had decided to assess on a sec. 21 basis instead. He has now changed his mind again. However, apart from the difficulty faced by the taxpayer in coping with assessments of this sort and the increased difficulties of the Court, it does not matter. The actual result can be seen reading across Item 7 in Ex.A, and the result if the profit-emerging basis (as it was rather inaptly called) is used consistently can be seen from Ex. Amended A, the real difference being that instead of the taxpayer being taxed on $79,911 in 1970 he is taxed on only $4,720.

On this point, in the 1970 year of tax the taxpayer received consideration in shares in respect to T.2 - Pinnacles, T.5 - Lake Carey, and T.6 - Stone Soak, and in each case was taxed on what was said to be the money value of the consideration received. In that same taxation year he sold the shares resulting from each transaction (ante pp. 4179, 4182, 4183) and no ``secondary profit'' so arising was assessed. I might however have to return to this aspect in relation to other transactions because it could be that, even if the value of the shares (however they may be valued) is not subject to income tax either because it was a capital transaction or because the income is exempt under sec. 23(p), that nevertheless the asset was acquired for the purpose of profit-making by sale and that a secondary profit being the difference between the final sale price and the value of the asset as received (or more accurately, its cost) could be taxable.

Transaction 8 - Windarra and the Four Mile: (T.8.) Mt. Windarra is about 16 miles

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west of Laverton Downs homestead and this is now the centre of the Poseidon mine. Mr. Shirley for Poseidon had pegged extensively north and south of Windarra in 1969 commencing, it seems from the plan Ex.59, early in March. The taxpayer in September noticed an anomaly about four miles east of the Poseidon claims near the Four Mile well, and he had also noticed promising country immediately adjoining the Poseidon claims near Mt. Windarra. At the Windarra claims he dug some shallow pits and took samples and obtained an assay dated 10th September 1969 showing high copper values but only indifferent nickel (Ex.37), and this general result was confirmed by further assays dated 16th September. At the Four Mile itself where he dug pits and carried out magnotometer traverses with Mr. M.J. Williams and later on his own, he obtained assays dated 22nd September (Ex.38) showing good values for nickel and this was confirmed by another assay on 3rd October and another on 10th October (Ex.39 and Ex.40). Mr. Cleland did not help with the prospecting of the Windarra area but did go to the Four Mile with Williams on 3rd October, did some prospecting and pegged three claims.

Mr. Burrill, the consulting geologist for Poseidon evaluated the claims pegged by Shirley in March 1969 and was also consultant for Utah, and it was he who instructed Shirley to peg all those claims and then recommended the usual programme of gridding, geophysical mapping with ground magnotometers, geophysical chemistry and impulse polarisation - all expert work, and then the drilling. Poseidon announced its first sulphide intersection by a percussion drill on 25th September 1969 not long after the taxpayer had started pegging the adjoining areas. Poseidon started diamond drilling in the first week in October 1969 and after 30 or 40 percussion drills and 20 or 30 diamond drills found an ore body worth developing, although it was another six or seven months before the shaft was warranted and by that time $200,000 had been spent.

In relation to the Four Mile the taxpayer spent another day on the claims with Mr. Burrill, prospecting and obtaining his advice. It was also inspected by Mr. Cheeseman on behalf of Newmetal. Burrill obtained an analytical report (Ex.41) relating to the Four Mile and other claims. Cheeseman's report on the Windarra and Four Mile claims is as mentioned contained in the Newmex prospectus. I do not conclude that the taxpayer did much prospecting at the Windarra group but I do conclude that there was very little that could be done personally in the field. I think that he had done in practice all that an individual prospector could do, and that the same applies to the Four Mile.

The two groups of claims were sold by Williams, Cleland, MacKinnon and Biggs to Newmetal on 24th December 1969 under a contract of the same date as T.7 - Baneygo and McKenzie - and upon similar terms. (See pp. 4183-84.) The apportionment of the consideration between the vendors was different, the taxpayer being entitled to 30% rather than 25%. The contract was unconditional and the transfers of the mineral claims to the purchasers were executed and delivered. There was likewise a separate agreement relating to non-prescribed minerals.

For the taxation year 1970 the taxpayer was taxed on his share of cash received, $6,000, and also upon 30,000 shares in Newmetal, and 60,000 shares in Newmex on the same basis as in T.7, and as indicated on p. 4197, Ex.B, with the result that a sum of $97,037 was brought to tax in that year, as appears on Ex.A. He sold his Newmetal shares at the same time as those that he had acquired under T.7 for $19,493 which given an opening value of 95 cents is of course at a substantial loss. He also sold his 60,000 Newmex shares on 1st July 1970 privately to brokers as purchasers for $53,100 which given an opening value of $1.05 is also at a substantial loss. Both amounts were nevertheless brought to tax without deduction except for a trifling proportion of expenses with the result that the taxpayer was assessed in the 1971 year on the sale of these shares at the figure of $72,165. The same remarks apply to this as to T.7.

Transaction 9 - Murphy Hills Group: (T.9.) Murphy Hills is about 45 miles north of Laverton. In June and July 1969 the taxpayer had been studying his maps and literature, and more particularly the material contained in Ex.8, and Ex.22A, Ex.22B and Ex.22C. The Duketon area about 20 miles further north again was the attraction and the taxpayer suggested to MacKinnon and Cleland that they make an aerial reconnaissance. The last convenient refuelling point was on Mr. Barrett's Erlistoun Station so the taxpayer

ATC 4186

arranged with Barrett to obtain a drum of fuel and at the same time barrett said that he knew the area and would act as a guide. He was as a result made a member of the syndicate as well. According to Cleland's diary the flight was made on 18th July 1969. The taxpayer and Cleland flew with a pilot to Erlistoun where they refuelled and picked up Barrett and then flew for two or three hours over the Duketon-Bandya and Mt. Gerard areas, searching for anomalies with the aid of the map, but no interesting outcrops could be discerned. On the way back they flew over the Murphy Range and it was there that the taxpayer observed six or seven miles of a banded iron formation which looked similar to the Poseidon area at Windarra, this being one of the first areas where ultrabasic rocks had been found in association with banded iron. They landed at an Erlistoun woolshed, drove back six or seven miles east in a Land Rover and verified that the outcrop was banded iron formation with serpentinite on the eastern side. The taxpayer thought that they did not take samples that day but Cleland said that they did take some samples, and this is probably right because Ex.23(1) probably relates to Murphy Hills and shows samples received for analysis on 22nd July and analysed on 23rd. No pegging was done that day. On 27th July the taxpayer and Cleland left at 5 a.m. and met Barrett at Erlistoun and went to Murphy Hills. They drove and walked, particularly on the east side, found floaters and took samples. Each had a vehicle of some sort as the plant included a Land Rover, a utility and a motor cycle. At this date the Poseidon prospect was looking very promising and the indications at Murphy Hills were similar. Some work was done with the magnotometer and samples sent for assay, the date of which is 30th July 1969 (Ex.23). The taxpayer was at Nambi Station and the results were telephoned to him and they were highly encouraging, showing up to 4,000 p.p.m. nickel and in one case over 1%. The taxpayer, Cleland and Barrett left for the area immediately the next day, 1st August, together with Johnson, Cleland's overseer and an Aborigine named Chapman. They noticed somebody might have been before as there appeared to be at least one peg in the locality. They started pegging immediately and spent two days pegging and at the same time while prospecting and sampling, discovered that the likely areas extended further north. Some of the detail of the prospecting done can be gleaned from the taxpayer's notebook, Ex.24. The next assay, Ex.23A, was completed on 5th August and this also disclosed encouraging values although the taxpayer questioned some of them, and the laboratories were asked to re-check them, which check is shown on Ex.25A, dated 14th August and is confirmatory. After that the taxpayer was out there on many occasions prospecting and found that the ultra-basics were continuous over 2 to 2½ miles, and at the same time he did some magnotometer surveys. Not everything in his notebook relates to Murphy Hills but I infer that the first five pages do, and there is a definite reference on 17th September 1969. There are further assay reports on 2nd and 9th September and then there are many, as will be seen in Fx.26 from 10th September through to 3rd December.

On 27th August Cleland went to Laverton and picked up Burrill, Poseidon's geologist, and they went back to Murphy Hills with the taxpayer and Barrett. Cleland saw signs of the prospecting work done and the taxpayer showed Burrill the various features and where samples had been taken. Mr. Burrill was of the opinion, which I accept, that this area had been prospected very thoroughly. He suggested that further exploration be done on the other side of the banded iron formation. He considered that Murphy Hills compared as a better prospect that Poseidon South Windarra but nothing like as good as the North Windarra prospect. Mr. Burrill took samples and the results obtained by Biggs were confirmed. He suggested bringing in a back-hoe from Windarra and he marked the trenches for them. It was as a result of this that the further samples were taken. The back-hoe was brought over from Poseidon but the ground was too hard for any extensive work to be done with it. Mr. Burrill was there again on that occasion, and suggested pegging four claims on the west side as well. The taxpayer used a rock-drill borrowed from Erlistoun, a machine which will both dig and drill. He drilled and did some dynamiting. The taxpayer and party, with Burrill, laid out a rough grid and two good anomalies showed up. Mr. Burrill visited at least four times.

By early October Mr. Galbraith, the managing director and chairman of directors of Carr Boyd Minerals Ltd. and Hill Minerals N.L. had heard of the discoveries at Murphy Hills, and on 3rd October he wrote to the

ATC 4187

taxpayer inquiring about a partnership and if he could inspect the area and reports (Ex.69). This was his first communication with the taxpayer but he did speak to him on the telephone at about the same time, and a partnership was mentioned. In the meantime Mr. Burrill was preparing his report for the taxpayer and this is dated 27th October 1969 (Ex.28). Read soberly now it is no more than cautiously optimistic but in the climate of the times I have no doubt that it did nothing to dampen the optimism and enthusiasm of the syndicate members. By this time the drills at Poseidon had struck nickel sulphides. Burrill recommended close gridding, magnotometer survey, auger soil sampling, induced polarisation survey and percussion and diamond drilling at an estimated cost to the drilling stage of $23,000 with another $10,000 for percussion drilling and then an unknown amount for diamond drilling. The taxpayer and Cleland agreed that the work was beyond the financial sinews of the syndicate and also beyond their expertise, and the best course would be to interest a major company in a transaction through which they could retain a major interest. I am satisfied that the taxpayer and Cleland were each convinced that they had found the mine that they had set out to find, and that the retention of a substantial interest was an overriding consideration.

The taxpayer and Mr. Galbraith of Carr Boyd met in the latter's office in Perth on 10th November and an inspection of the claims was arranged. At the end of November Galbraith went to the claims with Dr. Welch his consultant geologist, a Mr. Barrington the company geologist, and a third geologist and, in the presence of Barrett, the taxpayer showed these gentlemen over the area and more samples were taken. Galbraith thought that the area had an excellent potential, that it had been well prospected and that no more work could be done by individuals. Dr. Welch confirmed this and noted the extensive work that had been done. Galbraith knew that the taxpayer had another offer pending and he made his offer by a letter of 31st December 1969 (Ex.65). This was for a 90% interest in the syndicate's mineral claims for $30,000 cash, and 50,000 fully paid shares in Carr Boyd, and 200,000 50 cent shares paid to 20 cents in Hill Minerals N.L., and an additional right to purchase 300,000 shares in Hill Minerals before listing. The retention of a 10% interest by the syndicate was to be ``free-carried'' during exploration and to convert to a working interest after a viable ore body was proven. Hill Minerals was a new company being formed to evaluate a number of ventures and some of its funds was to be used in share trading and investment. The syndicate did not accept this offer notwithstanding that on 3rd January a note indicates that Mr. Galbraith endeavoured to make it even more attractive by offering further share options if a mine was found.

In the meantime Mr. Hands, the chairman of directors of Westralian Nickel Exploration N.L., had telephoned the taxpayer inquiring about a joint venture. This was probably about the end of October. Mr. Cleland took the opportunity of flying to Inuendi Station on 4th January with Mr. Burrill, the taxpayer and others, to inspect some claims that Westralian Nickel had there.

Prior to this, on an uncertain date, the syndicate had made a proposition to Westralian Nickel (Ex. 29), proposing $220,000 cash plus 600,000 vendors shares fully paid to 50 cents, and which should be eligible for any new issues. It is noteworthy that it was expressly stipulated that the vendor shares would not be able to be transferred until the company had been listed for twelve months. An inquiry was made as to how many more shares would be issued if the company accepted offers from any other syndicates. The syndicate also stated that it would like to see more men with mining and experience in geology on the board.

This proposition does not read like one written on behalf of men intending to speculate and is consistent with the evidence that the taxpayer was looking for a substantial interest in a permanent venture. It was suggested by counsel for the Commissioner that the refusal of the 10% free-carried interest offered by Carr Boyd indicated the contrary but my reading of the two proposals leaves the impression that the Carr Boyd offer was of the two rather more speculative in tone.

On 30th December Westralian Nickel made its offer of $220,000 cash and 600,000 shares of 50 cents each fully paid, subject to contract. After inspecting the Westralian Nickel leases on Inuendi on Sunday 4th January, the taxpayer and Cleland flew straight to Perth and they had authority to sign on behalf of Barrett and MacKinnon. There was a meeting at the Palace Hotel between Hands, the broker

ATC 4188

Mr. Black, Cleland and the taxpayer. The taxpayer and Cleland insisted that the board of Westralian Nickel should be reconstituted and that the taxpayer should have a seat on the board. The deal was concluded on that basis and, at the insistence of Hands, Cleland wrote an acknowledgment of the agreement made, and Cleland and Biggs signed on their own behalf and also on behalf of Barrett and MacKinnon. This is Ex. 31.

The formal agreement is Ex. 32 and is dated 13th January 1970. It again recites that the vendors are bona fide prospectors and the consideration is set out as agreed, with the provision that settlement should take place on 13th January by handing to each of the vendors a cheque for $55,000, and it was provided that ``the purchaser will allot and issue to each of the vendors 150,000 ordinary fully paid 50 cent shares in the purchaser and shall take the appropriate steps to have the shares listed on the Perth Stock Exchange as soon as possible under the official list requirements of the said Exchange''. The contract was unconditional and transfers of the claims were signed, delivered and in this case actually registered.

It was never satisfactorily established what the official listing requirements were for vendor shares in this company and the Stock Exchange rules were not proved. In this case the suggestion was that it was twelve months, but in any case syndicate members welcomed a twelve months restriction as is indicated by their original proposition. The taxpayer received his $55,000 cash and lent it to his family company, Granby Pty. Ltd. which used it for the purpose of taking up additional shares in the mining company. Cleland used his money for the same purpose. What the others did is not known but the result was that the syndicate members controlled a substantial interest in Westralian Nickel.

The taxpayer was appointed to the board and then was general manager of the company for two or three months, and later was director of operations. However from May 1970 onwards some rift occurred between him and the chief geologist and he resigned on 7th July 1970. Up to that point at least I am quite satisfied that the taxpayer was convinced that a mine would be found and that he was a genuine participant in what was thought to be a permanent income-making venture.

On 23rd July 1970 he sold privately to his investment company, Leonora Investments Pty. Ltd., the whole of his 150,000 vendor shares at $2.87 for a total of $430,500. Leonora Investments sold the shares between 3rd December 1970 and 26th August 1971.

There is another matter. On 15th January 1970 it was announced that there would be a new issue of 50 cent shares paid to 20 cents at a premium of $1.50 per share, i.e., the share would cost $1.70 on allotment. Existing shareholders were offered 1 for 4, the closing date being 24th March 1970. The taxpayer was entitled to 37,500 of these rights and between 10th March and 16th March he sold 29,425 rights through the Stock Exchange for $139,352, as appears on Ex. 50. He took up the balance of 8,075 shares at the $1.70 and sold them on 13th July 1970 after he had resigned from the board, for $33,849.

As will be seen from Ex. A, the Commissioner brought to tax in the 1970 year an amount of $908,915 and the make-up of this is shown on p. 4198, Ex. B. The assessment was made under sec. 21 of the Act and the value of the consideration paid or given otherwise than in cash for the taxpayer's interest in the mineral claims was deemed to be of a money value for each 50 cent share of $5.70, this valuation being made on 13th January, the date of allotment. The taxpayer argues that the date should be 4th January, the date when firm agreement was reached, and on that basis the money value should be $1.77. The values were agreed but the correct date to be chosen remains in dispute.

In the 1971 assessment the Commissioner brought to tax the $430,500 received for the sale of the 150,000 vendor shares to Leonora Investments less a small proportion of expenses, or a net amount of $429,508, without making any allowance for the opening values of $5.70 per share taxed in 1970. If that allowance had been made the taxpayer would have shown a loss on that transaction in 1971 of over $478,000. As assessed, he is being taxed twice on $429,508.

Arising out of the same transaction and in the year 1970 the taxpayer was also assessed under the heading ``Profit on Shares'' in the sum of $89,330. This seems to be merely a mistake. Page 7 of the papers and comprising a part of the taxpayer's 1970 return makes it plain that 29,425 rights were sold for $139,352 and that the balance of 8,075 were taken up at

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$1.70 at a cost of $13,728. The taxpayer has here been given credit for the cost price of shares which he did not take up whereas in other cases he has not been given credit for the cost price of shares which he did take up. The Commissioner now contends that the whole of the $139,352 is assessable in the year 1970. The alleged profit on the sale of the balance of the shares acquired by exercise of rights is taxed at $25,720 in the year 1971 - See annexure, p. 4199, Ex. B.

The taxpayer invited the Commissioner to amend the assessments but the latter declined to do so.

General. That completes the detailed survey of the various transactions but before coming to the final conclusions on the objections and the appeal, some general remarks may be added. The taxpayer from about the middle of 1969 onwards did become something of an investor and he controlled three family companies - Granby Pty. Ltd. incorporated on 5th June 1969, Leonora Investments Pty. Ltd. incorporated in New South Wales but controlled by the taxpayer from 22nd April 1970, and Talgon Pty. Ltd. incorporated on 11th February 1970. Granby was a share investment company, as will be seen from Ex. 45. Leonora Investments had interests in Lake Violet Station, two butcher shops in Leonora and Laverton and two industrial firms in Kalgoorlie, and also held shares in Leonora Air Charter Pty. Ltd., as well as having interests in newsagents and drapery concerns in Leonora; it also dealt in shares. Talgon was also a share investment company as can be seen from Ex. 49. Most of these details are after the material dates in this case but only in the case of Granby are two trading years shown. In 1970 that company made a profit out of shares of over $200,000, although in 1971 it incurred a loss of over $173,000. I do not find these details to be of much assistance in the resolution of this case.

I am satisfied that from about the middle of 1968 the taxpayer was for all practical purposes a full-time prospector and that he did a lot more prospecting than is in fact disclosed in the transactions discussed, and that he put aside his other business interests, in particular his butcher's business in Leonora, so that he could do that. He did not peg any other claims for nickel but he did prospect other areas to the north-west of Pinnacles, and reconnoitred through Sandstone and west of Menzies and also to the east of Menzies through Mt. Ida Station and Edjudina Station, and other areas. He sometimes used station vehicles or motor cycles and sometimes his own vehicle or hired a Land Rover. He also did a lot of flying. After first hiring a magnotometer he purchased one for $2,500. He hired the back hoe for the work at Murphy Hills, paid rents, analysis and survey fees and overall was involved in considerable time, effort, and some expenditure. He also prospected for uranium in 1971, and spent about 4 months in that activity in 1972 using a Land Rover and a hired scintillometer as well as doing aerial reconnaissance. He pegged some uranium claims and disposed of them to the Western Mining Corporation. He looked at 25 to 50 anomalies some 200 miles north of Wiluna and between Sandstone in the west and Lake Carey in the south-east, and spent some $6,000 in relation to this. He also acquired an interest in a goldmine south of Leonora of which he is now the manager. I need not detail everything he said about his prospecting and mining interests but I accept all that he said.

It is also the case that Mr. Cleland did a considerable amount of prospecting without finding any ground worth pegging. The extent of this and of the taxpayer's own ventures outside this particular case can be gauged from a study of the map, Ex. 52.

That completes the findings of fact.

CONCLUSIONS

Conclusion - 1967 (ante p. 4176).

The objection is dated 25th January 1974 and objects to the inclusion as assessable income of the sum of $2,115. This less a loss of $53 on the sale of the Consolidated Goldfields shares leaves the net figure at $2,062. Accepting that some of the shares were realised by the taxpayer for the purpose of supplementing his purchase of the interest in Laverton Downs Station, I am nevertheless, having regard to the movements in the shares concerned, not satisfied that the relevant shares were not acquired for the purpose of profit-making by sale. This appeal should be dismissed and the assessment confirmed.

Conclusion - Lake Carey, T. 1 (pp. 4176-77).

The decision here, as are the decisions relating to other transactions involving mineral claims, is against the background of

ATC 4190

the basic conclusion which I reach that the taxpayer was at all material times carrying on the occupation of a prospector for the purpose of earning income from that occupation, and that his receipts from that activity whether in cash or in kind are assessable income in the ordinary sense under sec. 25 unless in any particular case they be exempt income. In particular, income received might be exempt under the provisions of sec. 23(p) of the Act. As relevant to T. 1 the income is not exempt unless it is derived by the taxpayer from the sale, transfer or assignment by him of his rights to mine. The agreement referred to on p. 4177 of these reasons, Ex. 7, does not in my opinion evidence the sale, transfer or assignment of anything, and the income of $1,000 derived by the taxpayer was not in consideration of any such dealings but in the consideration of the extension of an option. It might be that the option was of the type that could properly be described as a conditional sale - cf.
Laybutt v. Amoco Australia Pty. Ltd. (1974) 48 A.L.J.R. 492, especially Gibbs J. at 499 and Bell Bros v. Sarich (1971) W.A.R. 157, but even so, the consideration was received for the option and not for the sale or transfer.

The appeal in this respect should be dismissed.

Conclusion - Pinnacles, T. 2 (pp. 4177-80).

In this transaction the respondent raises a number of points in connection with sec. 23(p), the decisions on which also affect most of the subsequent transactions.

The agreement, Exs. 10 and 10A, is an agreement ``to transfer, assign and make over''. It is not itself a transfer or assignment and it is not a sale as contrasted with an agreement to sell. The term ``sale'' may in its context include an agreement for sale - cf.
George v. Greater Adelaide Land Development Co. Ltd. (1929) 43 C.L.R. 91, per Starke J. at 104, and counsel referred to other examples. In the context of words such as ``sale, transfer or assignment'' which imply a distinction between a conveyance and a transaction falling short of actual conveyance, I conclude that ``agreement to sell'' falls within the connotation of the word ``sale'' as used in the subsection. This agreement therefore falls within it.

Another question is whether the provision that the purchaser should have the right to determine the agreement by written notice and ``thereupon be released from paying any further moneys... and shall execute all such documents as shall be required to reconvey the claim to the vendors'' prevents the agreement from being an agreement for sale. I did not hear much authoritative argument on this point, perhaps because it is clear enough. The agreement is an agreement to sell and buy; it is not a mere option to buy - cf.
Helby v. Matthews (1895) A.C. 471 and
Lee v. Butler (1893) 2 Q.B. 318; and further the agreement to transfer is in no way conditional. The agreement cannot even be described as an agreement to buy with a condition subsequent, the condition being the payment of the balance of the price and the non-reconveyance of the claims before a stated date. The purchaser's right to determine the agreement is not a right to determine from the beginning but only a right to elect not to pay any more of the price and in consideration of that to reconvey. The very idea of ``reconveying'' indicates that the sale is at that point complete by conveyance and that the price in cash or kind is then owing although not necessarily then due. This price or balance of price would on due date have to be paid as a debt or its equivalent unless the purchaser within due time elected under the clause to determine his existing obligation to pay in the future and to reconvey. The agreement is not at all like an agreement to sell on approval or a contract of sale or return; in this case actual transfer or assignment of the property to the buyer is contemplated by the contract. Junior counsel for the respondent called it ``a concealed option'' and although this puts the argument in a nutshell it is not what it is and calling it names does not change its character. I conclude that this transaction falls within the subsection.

It was submitted that the taxpayer was not at the material time a prospector and some evidence as to the meaning of this word in the vernacular of mining men, both oral and by way of literature, was presented. It threw no more than a negative light on the meaning of the word in that nothing came out which was inconsistent with what I think to be the obvious, namely, that it is an ordinary word and not used either among mining men or in the statute in other than a conventional way. The Shorter Oxford Dictionary defines a prospector as ``one who explores a region for gold or the like'', and the verb ``to prospect'' is said also to connote ``to work a mine or lode experimentally so as to test its richness''. There is nothing in the statute to suggest that the

ATC 4191

word is used in other than its ordinary meaning and I have no doubt on the facts that at all material times the taxpayer was within the ordinary meaning of the word, a prospector.

It was also said that he was not a bona fide prospector within the definition paragraph of the subsection in that he did not personally carry out the whole or the major part of the field work of prospecting in the particular areas. It was not suggested that because he was a member of a syndicate that he was excluded from the denotation of the word ``personally'' but it was said that he did not either by himself or his associates carry out the major part of the field work of prospecting. In this respect some attempt was made to show by evidence the meaning of the term ``field work of prospecting'', but not surprisingly this did not yield anything either. ``Field'' means field, and ``work'' means work, and ``field work'' means field work. In this and subsequent cases the taxpayer did a lot of work, some of it of a clerical or administrative kind but most of it in the field and on the field and sometimes in the air over the field. In this particular area, and in the other particular areas, he did either the whole of the field work of prospecting or he did the major part of it. The sophisticated mapping, exploration, testing and development work spoken of by the geologists and mining men who gave evidence might in some aspects be prospecting but it is not to any material extent the field work of prospecting. In particular cases there might be some overlapping between the field work done personally by a prospector and the more elaborate activities of a capitalist and that is why the doing of the ``major part'' is sufficient to bring the prospector within the exemption.

This view is I think consistent with the notions contained in the definition of a bona fide prospector. The legislature was seeking to give an exemption, for the purpose of encouraging mineral discoveries, to the genuine individual who personally prospected the field - to the individual who, although not personally carrying out the work, contributed to the expenditure incurred not only in the work of prospecting but in the development in the area - and also to a company, not being an individual, which itself carried out the whole or the major part of the work of prospecting and development in the area. The second and third categories are not limited by the field work of prospecting as a qualification but are extended to the work of prospecting and development generally. I find nothing in Division 10 of the statute which points away from this conclusion; indeed I think that sec. 122J(6) tends to support it by subsuming most of the more sophisticated activities of mining men under the term ``exploration or prospecting'' in contrast with the term ``the field work of prospecting''.

It was also submitted that the taxpayer was not dealing with ``his rights to mine'', and this was said to be the case because in no instance had it been shown that there was in the particular area a payable mine to be developed. I think there to be no force in this submission. The pegging of the ground gave the taxpayer the right to mine - see
Hazlett v. Rasmussen (1973) W.A.R. 141. It is the right of which the statute speaks, and it is the right to conduct an activity - ``to mine'', and whether that activity may yield fruits or not.

The objection is dated 30th June 1970 and while being allowed in certain minor respects, the income mentioned on p. 4179 of these reasons was assessed for the taxation year 1969 at $4,593, and for 1970 at $11,597. In each case on the ground that the taxpayer is exempt under sec. 23(p) of the Act, the appeals should be allowed.

As mentioned at p. 4179 (ante), the taxpayer sold his shares in the taxation year 1970. However no further amounts were assessed and no question arises.

Conclusion - Mt. Remarkable, T. 4 (pp. 4179-80).

In this case the taxpayer did not do the prospecting nor did he peg and acquire rights to mine and nor was the consideration received for the sale or transfer of rights to mine. I think the amounts received to be income in the ordinary sense and in no way exempt. The assessment of $333 in each of the years 1969 to 1972 inclusive should be affirmed and the appeals as to those amounts dismissed.

Conclusion - Yandal. T. 3 (pp. 4180-81).

For the reasons given in relation to Pinnacles, T. 2 and the added reason that in this case transfers of the claims were actually signed and delivered, the appeals in relation to the assessment of $1,991 in the taxation year 1969 and of $4,989 in 1970 should each be allowed.

ATC 4192

Conclusion - Stone Soak, T. 6 (pp. 4181-82).

For the reasons just given in respect to T. 2 and T. 3, I am of the opinion that the whole of the amount $2,985 assessed in the 1970 taxation year is exempt income and that the appeal should be allowed and the relevant figure reduced to nil.

Conclusion - Lake Carey, T. 5 (pp. 4182).

For the reasons previously expressed, the $6,250 cash received on this transaction and the value of the 5,000 shares in Kia Ora at par at 25¢ making $1,250 (1970) is each exempt from assessment. The appeals should be allowed.

3,333 shares in Kia Ora as part of the consideration under T. 6, namely $833 of the $2,985 assessed and 5,000 shares in Kia Ora, part of the consideration under this T. 5 were in the first quarter of 1970 gainfully sold but no assessment was made and no further question arises.

Conclusion - Baneygo, T. 7 (pp. 4182-84).

For reasons previously expressed and also for the further reason that the agreement here was not terminable by the purchaser and that transfers were executed and delivered, the $5,000 cash received is exempt income. The Newmetal and Newmex shares in my opinion fall squarely within the provisions of sec. 21 and the assessment is properly made under that section although in this instance the money value of the consideration is exempt income. For that reason the appeal relating to 1970 involving a total of $79,911 should be allowed.

It is necessary to look at the matter in another respect because the assessments for 1971 and 1972 might (without so deciding) be in part supported on the basis that the taxpayer although acquiring shares in the form of exempt income, nevertheless acquired them for the purpose of profit-making by sale or in the course of carrying on or carrying out a profit-making undertaking or scheme. Not much evidence was addressed to this question, probably because it was not in issue on the assessments as made, and only arises because the respondent sought to justify the assessments in whole or in part on any ground available. As it happens, it is not necessary to decide this question, but it is desirable to decide either now or as relevant to T. 8 and T. 9 the competing contentions of the appellant and the respondent as to the correct date for the valuation of the consideration in kind having made the assumption that the proper figure is other than the amount paid or deemed to be paid on the shares. The taxpayer contended that the date for valuation should be the date of the agreement, namely 24th December, whereas the respondent contended that the date for valuation was the date of allotment, as to Newmetal 19th January 1970, and as to Newmex 17th March 1970.

In this respect I conclude that the Commissioner's contention is correct. The section speaks of ``consideration paid or given'' and it speaks of the ``money value'' of that consideration. It is necessary therefore to identify the subject matter of the consideration on the date when it is paid or the date when it is given, rather than upon the date on which it is promised to be paid or given. Then if an actual value (as distinct from commuted cash) is to be placed upon that matter, to make a valuation of it at that date. I conclude that the Commissioner was correct in choosing the date of allotment as the date for valuation and as on that basis the figure is agreed, there is no more to be said. I would however like to make it clear that by the agreement of the parties an assumption has been made in this case which ought not necessarily set a precedent for other cases, and that I remain unconvinced that the assumption is soundly based.

The result is that 25,000 Newmetal shares forming consideration for the transaction of a money value of $23,750 were sold by the taxpayer in the 1971 taxation year for $16,243 and no further income is disclosed. Likewise, 50,000 Newmex shares forming part of the money value of the consideration for the transaction at $52,500 were sold in the 1972 taxation year for $2,553 and no further income is disclosed as a result of that substantial loss. Even if the taxpayer's submission that the correct date of valuation was the date of the agreement, namely 24th December 1969, the result would be the same - see the figuring against T. 7 on page 2 of Ex. AA.

In these respects each of the appeals in relation to the years 1971 and 1972 are allowed.

Grounds - Windarra and the Four Mile, T. 8 (pp. 4184-85).

For the reasons expressed in relation to T. 7, the appeals relating to the amounts of $97,037 assessed for 1970 and $72,165 assessed for 1971 should be allowed.

ATC 4193

Conclusion - Murphy Hills Group, T. 9 (pp. 4185-89).

The amount assessed for the 1970 year is $908,915 after expenses - see p. 4198, Ex. B, this being $55,000 cash received and what was said to be the money value of the consideration paid otherwise than in cash, i.e. 150,000 50 cent shares valued at $5.70 on the date of allotment (which was also the date of formal agreement). For the reasons stated in relation to T. 7 and subject to the reservations there expressed, this approach to the assessment of tax is correct. It is also the case that the income so calculated is exempt under sec. 23(p) and that the appeal as to this amount should be allowed.

In respect to 1971 the taxpayer sold the shares for a net amount of $429,508 and again, for the reasons previously expressed, the appeal as to that is allowed.

I am able to add here that if the taxpayer's contention had been accepted, that the shares should be valued as at 4th January at a value of $1.77, or a total of $265,500, then a profit on sale in 1971 before expenses of $189,500 would be disclosed. For that reason, as I am in a position on the evidence to make a finding, I do find that the taxpayer did not acquire any of these shares for the purpose of profit-making by sale nor in the course of carrying on or carrying out a secondary profit-making undertaking or scheme, and neither was the transaction part of what might be more generally described as an overall profit-making undertaking or scheme within which could fall the whole or most of the taxpayer's prospecting and contractual activities. The only scheme that he had was to prospect for minerals and sell, transfer or assign the mineral claims containing prescribed minerals for the purpose of making profits, preferably tax-free. In this he was successful, and satisfactorily carried into effect the then intention of our people expressed through the Parliament of the Commonwealth that prospecting for prescribed minerals should be so encouraged. He made a lot of money - so be it.

It is not necessary to express an opinion on the taxpayer's contention that an assessment under sec. 21 precludes any question of further secondary profits as a matter of principle.

The other matter, shown on Ex. A as Profit on Shares, is troublesome, see p. 4188-89 of these reasons. The assessment is made on the wrong basis but the question arises as to whether something else could be substituted for it. I was not told how the $5.70 value of the original share upon allotment was arrived at. The Articles of the company were not exhibited but I draw the inference that on 13th January 1970 when the shares were allotted and a value struck, that the new issue announced on 15th January would give preemptions to the shareholders, and that this fact being known, or at least strongly rumoured, on 13th January would enhance the value of the allotted shares. The value of the strong contingent right was therefore already contained in the value of the shares and that value is exempt. The taxpayer always had the rights either contingent or later vested and there is no evidence that he acquired them other than as attached to the original shares, or that he acquired them in any other way relevant to the first part of sec. 26. Further, there is no evidence of an opening value so as to be able to calculate any profit. Counsel for the appellant argued that the opening value was about $4.00 but I do not think this was established. As a guess the rise in value of the shares between 4th January and 13th January was possibly caused by a combination of the news that Westralian Nickel had acquired the Murphy Hills claims as well as the expectation that any shares would carry rights - but it is only a guess.

Again, as a guess, I think it possible that the taxpayer took the consideration in the way he did for the purpose of holding the shares as an investment but selling expectant rights, when they vested, by way of profit-making. This would have been a businesslike approach and Mr. Biggs was a fairly experienced investor by this time. The respondent was not prepared to put it this way and thought there to be no evidence to justify such a conclusion, T/S. 1017. The learned leader for the respondent was throughout obviously acting under very strict instructions with his professional freedom on a very short rein and I do not think I have any ground for going behind the respondent's instruction which, I must assume, was for good reason in this instance.

It was put that it should be concluded that the taxpayer notionally applied for the shares, notionally paid the allotment money and premium and notionally took them up and sold them. I put the submission like this in order to illustrate that calling something what it is not

ATC 4194

does not make it into something else. I do not think that tax can be levied on an hypothesis undemonstrated.

The other question is the net proceeds of the sale of the 8075 shares which he did take up by way of exercise of rights. These were sold about the time he resigned from the Board and placing the onus of proof on the taxpayer, there does not seem to me to be any basis for applying sec. 26 to the proceeds of these shares or any other authority to levy tax upon them.

In the result as to the two figures of $89,330 and $25,720 against profit on shares in the 1970 and 1971 assessments the appeals should be allowed.

RESULT

Item 10 in Ex. A is not in contest and the assessment of $7,500 for 1970 in that respect should stand.

The overall result is that the additional assessable income for the years concerned at first said to be $1,766,023 is reduced to $9,832. It is right to say that the respondent virtually acknowledged that nearly $1,000,000 of this could not stand in any event.

I do not leave the case without expressing appreciation of the work of all counsel and expressing the hope that before long there will be provision in tax ``appeals'' for the usual pretrial procedures known to all familiar with the judicature system, including provision for the pre-statement of issues. While in the public interest revenue must be collected it is also in the public interest that the process should not be inefficient and therefore wasteful of the national resources of professional, technical and other skills. Given better procedures, the time of all involved in this case, including that of public servants, would have been very substantially reduced and much cost saved.

Further, in respect to this, it could have been argued that the whole basis of all the contested assessments (except 1967) was misconceived, and issues joined in relevant factual respects. For example, assuming the correctness of the view that the taxpayer was a bona fide prospector then a submission could have been made that the exempt income relating to the receipt of a share was to be measured by the paid value of the share - and then further submitted that if the share was acquired for the purpose of profit-making by sale then the difference between the paid value and the proceeds of sale should be assessed under sec. 26. Such an approach would be important as to T. 7 and T. 8 and as to T. 9 could raise again the question of the ``rights''. This, however, in my opinion would involve a substantial retrial on the facts relating to ``secondary'' transactions which because of the position taken by the respondent were not adequately ventilated before me - and would also require more detailed argument as to the construction of relevant agreements. I neither say that this approach would be right nor forecast the result of it. It was not ever fairly put in issue and, because it involves facts, was not justiciable in the present proceedings notwithstanding that the respondent sought to resist the appellant's attack on the assessments by all embracing defences involving a degree of ambivalence. It is clear where the onus lies but merely issuing assessments does not demonstrate that the taxing power has been exercised in a manner authorised by the Parliament and if on the case as contested that authority is found to be lacking it is not for the Court to usurp the functions of the Commissioner and give directions for amended assessments the bases for such directions having not been fairly tried. 

        
                                    EXHIBIT A
                      K. Biggs - Summary of Income Received
Transaction No.   1967  Result  1969  Result  1970   Result  1971  Result  1972       Result       Totals       Result
                    $             $             $             $             $                        $

1.  Lake Carey                 1,000  1,000                                                        1,000        1,000

2.  Pinnacles                  4,593   Nil 11,597   Nil                                           16,190         Nil

3.  Yandal                     1,991   Nil  4,989   Nil                                            6,980         Nil

4.  Mt. Remarkable               333   333    333   333   333    333    333           333          1,332        1,332

5.  Lake Carey                              7,500   Nil                                            7,500         Nil

6.  Laverton Downs                                                                 (Stone Soak)                            2,985   Nil                                            2,985         Nil

7.  Baneygo                                79,911   Nil 15,335   Nil   2,553           Nil        97,799         Nil

8.  Windarra                               97,037  Nil  72,165   Nil                             169,202         Nil

9.  Murphy Hills                          908,915  Nil 429,508   Nil                           1,338,423         Nil

10. Lefroy Minerals                        7,500 7,500                                             7,500        7,500

Profit on
Shares       2,062  2,062                 89,330  Nil  25,720    Nil
                  117,112         *Nil
-----------------------------------------------------------------------------------------------------------------------
Totals:      2,062  2,062 7,917 1,333  1,210,097 7,833 543,061   333   2,886          333      1,766,023      **9,832
-----------------------------------------------------------------------------------------------------------------------
Reconciliation -

Taxable Income
as returned  2,227       1,002            4,226          6,497        (2,517)
Other
Adjustments   -           (100)           1,745          7,527           200
Income as
above        2,062 2,062 7,917  1,333 1,210,097  7,833 543,061  333    2,886         333
-----------------------------------------------------------------------------------------------------------------------
Adjusted Taxable
Income       4,289 4,289 8,819  2,235 1,216,068 13,854 557,085 14,357    569      (1,984)
-----------------------------------------------------------------------------------------------------------------------
*This appears to be in error, the correct figure should be $2,062.

**The total for the Results column should be $11,894 instead of $9,832.

ATC 4196

EXHIBIT B

Commissioner of Taxation calculation of profit on sale of mining tenements - 1969

Transaction 1 

      Lake Carey (Peninsula) - option to Newmont
            Cash                                                    $1,000

Transaction 2 

      Pinnacles claims sold to W.H. Harvey
            Cash                                          $4,834

      Less proportion of expenses                            241    4,593
                                                          ------

Transaction 3 

      Yandal claims sold to W.H. Harvey and A. Deans for
      Kia Ora Gold
            Cash                                         $2,075

      Less proportion of expenses                            84    1,991
                                                       --------

Transaction 4 

      Mt. Remarkable claims sold to Anglo American
            Cash                                          $333

Commissioner of Taxation calculation of profit on sale of mining tenements - 1970

Transaction 2 

      Pinnacles claims sold to W.H. Harvey
                                                          Valuation
                                                          per share     Income
      16,667 Uranium & Nickel Exploration N.L. at 25c.       0.24        4,000
       - pd. 10c.
      4,166 Australasian Mining Corp. at 20c.                0.35        1,458
      1,666 Consolidated Gold Mining Areas N.L. at 50c.      0.76        1,266
                                                       Cash received     5,000
                                                                       --------
                                                                        11,724
                                                       Less expenses       127
                                                                       --------
                                                                        11,597
                                                                       --------

Transaction 3 

 Yandal claims sold to W.H. Harvey & others for Kia
 Ora Gold
                                                Cash received           5,000
                                                Less expenses              11
                                                                     --------
                                                                       $4,989
                                                                     --------

ATC 4197

Transaction 4 

      Mt. Remarkable claims sold to Anglo American Corp.
                                                    Cash received       $333
                                                                      -------

Transaction 5 

      Lake Carey claims sold to Kia Ora Gold
      5,000 Kia Ora Gold N.L. at 25c.                    0.25         1,250
                                                   Cash received      6,250
                                                                    --------
                                                                     $7,500
                                                                    --------

Transaction 6 

      Laverton Downs claims sold to Kia Ora
      3,333 Kia Ora Gold N.L. at 25c                     0.25          833
                                                  Cash received      2,500
                                                                   --------
                                                                     3,333
                                                  Less expenses        348
                                                                   --------
                                                                    $2,985
                                                                   --------

Transaction 7 

      Baneygo and Mckenzie claims sold to Newmetal Mines
      25,000 Newmetal Mines Ltd. at 10c.       0.95 at 19/1/70         23,750
      50,000 Newmex Exploration Ltd. at 20c.  $1.05 at 17/3/70         52,500
             (agreement 24/12/69)
                                                 Cash received          5,000
                                                                      --------
                                                                       81,250
                                                 Less expenses          1,339
                                                                      --------
                                                                      $79,911
                                                                      --------

Transaction 8 

      Windarra and Four Mile claims sold to Newmetal Mines
      30,000 Newmetal Mines Ltd. at 10c.       0.95 at 19/1/70         28,500
      60,000 Newmex Exploration Ltd. at 20c.  $1.05 at 17/3/70         63,000
             (agreement 24/12/69)
                                                 Cash received          6,000
                                                                      --------
                                                                       97,500
                                                 Less expenses            463
                                                                      --------
                                                                      $97,037
                                                                      --------

ATC 4198

Transaction 9 

  Murphy Hills claims sold to Westralian Nickel
  150,000 Westralian Nickel
  Exploration N.L. at 50c.                    $5.70 at 13/1/70       855,000
                  (agreement alleged 4/1/70)
                                                 Cash received        55,000
                                                                    ---------
                                                                     910,000
                                                 Less expenses         1,085
                                                                   ----------
                                                                    $908,915
                                                                   ----------

Commissioner of Taxation calculation of profit on sale of mining tenements - 1971

Transaction 4 

      Mt. Remarkable claims sold to Anglo American
                                     Cash               $333

Transaction 7 

      Baneygo and McKenzie claims sold to Newmetal Mines
      Proceeds of sale of 25,000 shares in
        Newmetal Mines                               $16,243
      Proportion of expenses                             908           $15,335
                                                    ---------
      (note: estimate of value of these shares at date of allotment
      also included in 1970 assessment)

Transaction 8 

      Windarra and Four Mile claims sold to Newmetal Mines
      Proceeds of sale of 30,000 shares
        in Newmetal Mines                             9,493
      Proceeds of sale of 60,000 shares in
        Newmex Exploration                           53,100
                                                    --------
                                                     72,593
      Proportion of expenses                            428           $72,165
                                                    --------
      (note: estimate of value of these shares at date of allotment
      included in 1970 assessment)

Transaction 9 

      Murphy Hills claims sold to Westralian Nickel
      Proceeds of sale of 150,000 shares in
        Westralian Nickel                         $430,500
      Proportion of expenses                           992           $429,508
                                                                    ----------
      (note: estimate of value of these shares at date of allotment
      included in 1970 assessment)

ATC 4199

T.9 Annexure

Profit on shares (1971): It will be seen from the 1971 return that in April 1970 the taxpayer took up - 

      8,075 shares in Westralian Nickel at a cost of $1.70 or           $13,728

This was the balance of the rights the taxpayer obtained as the result of his shareholding of 150,000 shares.

      Taxpayer sold these shares for                                    $33,849
      and the Commissioner has deducted the cost of            13,728
      Less the 77D deduction of                                 5,599     8,129
                                                              -------- --------
      which when deducted from the sale proceeds left                   $25,720
                                                                       --------
      which was brought to tax.

Commissioner of Taxation calculation of profit on sale of mining tenements - 1972

Transaction 4 

      Mt. Remarkable claims sold to Anglo American
                                                     Cash                  $333

Transaction 7 

      Proceeds of sale of 50,000 shares in Newmex Exploration    2,704
      Proportion of expenses                                       151   $2,553
                                                                -------
      (note: an estimate of the value of these shares at date of
      allotment included in 1970 assessment)

 

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