Commissioner of Taxes (Qld) v Burke [1926] HCA 21; (1926) 38 CLR 314 (29 June 1926)

In our opinion the judgment of the Supreme Court should be discharged and the first question stated by the case answered in the affirmative. The respondent carried on the business of dealing in real property at Brisbane and elsewhere in the State of Queensland. He made up the profit and loss account of that business for the year ending on 30th June 1923, and showed in round figures a net profit of £18,194, of which his share amounted to £15,010. That account debited the value of land unsold on 1st July 1922 and the expenses of the trading year, and credited various sales, interest and other items received during the trading year, and the value of land remaining unsold on 30th June 1923.

Some, if not all, of such sales were made on terms, and the purchase-money was payable by monthly instalments over periods ranging from two to five years; but the point to be observed is that the respondent for the purposes of his business treated the net profit shown in the account as earned and derived in the trading year ending on 30th June 1923. He dealt with it as a divisible profit of that year, and the Commissioner was quite justified, in our opinion, in dealing with it in the same fashion.

There is nothing in the case which shows that the respondent was in error in so ascertaining his profit and treating it as realized in the year of his trading to which he attributed it. If the sums still unpaid under contracts of sale are treated as part of the amount realized by the sale, the profit or income of the trading year must be the same, whether calculated under the provisions of sec. 3, prescribing that income from personal exertion shall include income arising or accruing from any business carried on in Queensland, or according to the formula prescribed in sec. 14, as amended by sec. 7 of the Act of 1923 (14 Geo. V. No. 42). It is therefore unnecessary to consider the relation of the provisions of sec. 3 to those of sec. 14 as amended, or to define the class of cases that fall within sec. 14, or to determine whether the formula prescribed in sec. 14 proceeds on the same principle as would be applied in ascertaining income arising or accruing from businesses under sec. 3, or how that formula should be applied if land were subdivided and sold in allotments at various times and on extended terms.

The questions stated by the case are answered as follows:—(1) Yes. (2) and (3) Unnecessary to answer. (4) By Thomas Michael Burke.

I am of opinion that the first question must be answered in the affirmative. We have not before us any of the numerous contracts of sale, and my conclusion is founded on the mere facts stated.

I am glad to find myself in concurrence with my learned colleagues in this opinion; but, personally, I do not feel myself justified in basing my opinion on the form of the profit and loss account for the year 1922-23 furnished by the taxpayer as explaining his return of income for the year. I assume this account to include all the instalments payable, in that year or afterwards, for sales made in that year; but if the taxpayer made a mistake in charging himself for the year with all the instalments, I cannot find anything in the Act that estops or precludes him from showing that, as a matter of law, they ought not to have been so charged. The question asked of the Court is, expressly, one of law—was the Commissioner right in basing his assessment on the whole of the purchase-money so payable? There is no appeal from the Commissioner from his findings generally; we are not asked whether the Commissioner was justified in his conclusion. The Commissioner has to make his assessment in accordance with the law "in such manner as may be necessary"; he can ask for a new or further and fuller return of the income (sec. 46); he can examine the taxpayer orally (sec. 48); he can even require the taxpayer to alter his method of keeping his books (sec. 48); but he is not put by the Legislature under a duty to take advantage of any blunder of the taxpayer operating to the taxpayer's prejudice.

Even if sec. 14 of the Act 1902-1922, as amended by sec. 7 of the Act 1923 (14 Geo. V. No. 42), is to be treated as an exception to the definition of in sec. 3—even if it is to be treated (contrary to my view) as a separate and complete code as to profits from the sale of any real property—I do not think that the taxpayer's contention is right. I do not think that under the scheme of this Act, with all its contortionist amendments, the amounts payable in instalments in subsequent financial years under the several contracts of sale are not to be treated as income until they have been actually received. Not only did the taxpayer include the amounts of the sales in his own return of his earnings for the year 1922-23, for the purpose of assessment, but the scheme of the Act required him to do so. If he regarded any of the debts as bad or doubtful, his remedy was under sec. 17 (ii.); and if any amount were received on account of the bad or doubtful debts it was to be credited in income in the year of receipt and not to be subject to income tax. Similarly, if a sale be cancelled an allowance may be made to the taxpayer in the year in which the cancellation takes place, or a refund made of the tax overcharge (proviso to sec. 14 (I.) (1)). But, in the year of assessment, the year following the year of earning, "all net gains or profits arising from the sale of any real property ... in connection with any business carried on by the taxpayer; or ... in all other cases where such real property was purchased or acquired by him during the year in which the sale took place or the six years prior thereto, arrived at by deducting from the amount realized by the sale the expenses of sale and the cost to the vendor ... of the property," are expressly included in the income liable to tax (sec. 14 (I). (1) as amended in 1923). This subtraction sum must obviously be done at one time; and the only time appropriate is the time of the assessment made of the earnings in the year of the contract. One asset—the purchase-money—has to be substituted for the former asset—the land.

It has been argued that the word "realized" means "received" in describing the subtrahend, "the amount realized by the sale" (sec. 14 (I.) (1)). I cannot agree with this contention. The word "realized" is capable of several meanings; but it is our duty to construe this untechnical word in its popular sense in such a context—uti vulgus loquitur; and to say of a land sale that £10,000 has been "realized" would surely be taken as meaning that £10,000 was the total purchase-money for all the allotments sold, not that the £10,000 had been received. In Foster v. New Trinidad Lake Asphalt Co.[1] the word "realized" is applied by Byrne J. even to an accretion to the estimated value of an item of capital assets. Even treating the word "realized" as opposed to "estimated," and as equivalent to "tangible for the purpose of division" (as in In re Oxford Benefit Building and Investment Society[2]), a definite instalment payable is not "estimated" in that sense, and it is "tangible"—a tangible gain—"for the purpose of division." The position is the same in substance as if the purchase-money were paid and the property conveyed, and the property were mortgaged to the vendor for the amount advanced by him (at interest) to enable the purchaser to make complete payment.

I see nothing to compel us to treat the Act as introducing a practice in accountancy which is contrary to the usual business methods.

It should also be noticed that where the Legislature intends instalments to be distributed among the several years, and each instalment to be included in the assessment for year of payment, it says so expressly (sec. 14 (II.) (2) proviso; sec. 15 (1) (xvii.)). Such a provision is appropriate, of course, to the complex cases there referred to—as where a lessee receives a premium for granting a lease, and claims a deduction because he also had paid a premium for the lease which he holds. If the premium received is payable by instalments, the taxable amount is that paid in the year in respect of which the assessment is made. But in such cases there is no interest paid on the instalments—as here; and the express provision as to such instalments tends strongly to the inference that no such provision is to be implied in other cases.

But I am of opinion also that sec. 14 (I.) (1) was not meant to introduce any complete and separate code for land-jobbing. I think that sec. 3, in its definition of "income derived from personal exertion," applies to this kind of business as well as to other kinds; and that the income derived from such a business comes within the words "all income consisting of earnings ... earned in or derived from Queensland, and all income arising or accruing from any business carried on in Queensland"; and, as expressly there stated, the income subject to tax includes all income referred to in sec. 14, "without limiting the generality of the provision in sec. 3." In sec. 14 the Legislature has said that income liable to tax should expressly include all net gains &c. as described in sec. 14; but this also is "without limiting the force or effect of any other provision of this Act." The only serious difficulty has been to find the exact object of sec. 14 (I.) (1). It certainly was meant to increase the kinds of income liable to tax; but it does not appear to treat as income profit made by an isolated land sale, made by one who does not carry on the business of land selling. Looking, however, at the words which the amendment of 1923 repeals, I am inclined to think that the words repealed made the concurrence of two conditions necessary, and the new words made either of the conditions sufficient, in the alternative. In place of prescribing the inclusion of all profits from the sale of any real property—"whether or not arising ... from any business carried on by the taxpayer where such real property was purchased or acquired by him during the year in which the sale took place or the six years prior thereto," the amendment separates the two conditions and the profits are taxable where either condition applies. The area of the tax is thus extended, but it is not to operate in any way as a limitation of the force or effect of sec. 3. Whatever is the real object of sec. 14 (I.) (1), we are forbidden by the Legislature to treat sec. 14 as reducing the rights of the Commissioner under sec. 3.

[1] (1901) 1 Ch. 208, at p. 213.

[2] (1886) 35 Ch. D. 502.

High Court of Australia

Commissioner of Taxes (Qld) v Burke [1926] HCA 21; (1926) 38 CLR 314 (29 June 1926)

HIGH COURT OF AUSTRALIA