FEDERAL COURT OF AUSTRALIA - David Marks

1 FEDERAL COURT OF AUSTRALIA Rosgoe Pty Ltd v Commissioner of Taxation (2015] FCA 1231 Citation: Appeal from: Parties: File number(s): Judge(s): Date of judgment: Catchwords: Legislation: Rosgoe Pty Ltd v Commissioner of Taxation [2015] FCA 1231 WWXYv Commissioner of Taxation [2015] AATA 130 ROSGOE PTY LTD ACN 110 625 524 v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA QUD 154 of2015 LOGANJ 13 November 2015 INCOME TAX-private ruling-review by Administrative Appeals Tribunal (Tribunal) of Commissioner of Taxation's (Commissioner) disallowance of objection to - where Tribunal affirmed as correct objection decision holding that sale of property owned by applicant was not the mere realisation of a capital asset but rather occurred in the course of carrying on a business of property development and thus yielded ordinary income -whether Tribunal misconceived its review function by redefining the "arrangement" as set out by Commissioner in private ruling pursuant to s 359-20 of the Taxation Administration Act 1953 (Cth) Held.)

2 Tribunal's finding that applicant was carrying on a property development business was not a fact identified by the Commissioner - Tribunal cannot draw inferences of fact contrary to those in the arrangement - Tribunal should have found that profit of sale was not ordinary income ADMINISTRATIVE LAW -Administrative Appeals Tribunal - powers of - review of Commissioner's disallowance of objection to private ruling-nature of review in relation to private rulings versus usual merits review - whether Tribunal can redefine facts Administrative Appeals Tribunal Act 1975 (Cth) s 44 Income Tax Assessment Act 1997 (Cth) ss 6-5, 995-1 Taxation Administration Act 1953 (Cth) ss 359-20, 357-100, 357-110, 14 ZVA Taxation Laws Amendment (Self Assessment) Act 1992 (Cth) Cases cited: -2-Belton v General Motors Ho/den's Ltd (No 1) (1984) 58 ALJR 352 cited Cocoa Cola Amatil (PNG) Ltd v Yanda [2012] PGSC 52 cited Commissioner of Taxation v Co-operative Bulk Handling Ltd (2010) 189 FCR 322 cited Commissioner of Taxation v McMahon (1997) 79 FCR 127 applied Cooperative Bulk Handling Ltd v Commissioner of Taxation (2010) 79 ATR 582 applied CTC Resources NL v Commissioner of Taxation (1994) 48 FCR 397 cited Kratzmann v Commissioner of Taxation (1970) 44 ALJR 293 cited Date of hearing: 16 July 2015 Date of last submissions: 3 August 2015 Place: Brisbane Division: GENERAL DIVISION Category.

3 Catchwords Number of paragraphs: 33 Counsel for the Applicant: Mr D Marks Counsel for the Applicant: HWL Ebsworth Lawyers Counsel for the Respondent: Mr D 0' Sullivan QC Counsel for the Respondent: Australian Government Solicitor IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 154 of 2015 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: AND: ROSGOE PTY LTD ACN 110 625 524 Applicant COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent JUDGE: LOGANJ DATE OF ORDER: 13 NOVEMBER 2015 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The appeal be allowed. 2. The decision made by the Administrative Appeals Tribunal (Tribunal) on 6 March 2015 to affirm the objection decision in respect of a private ruling under the Taxation Administration Act 1953 (Cth) made by the respondent on 28 January 2014 (the private ruling) be set aside.

4 3. In lieu thereof, so much of the private ruling as answered Question 1, "No", be set aside and, in lieu thereof, that question be answered, "Yes". 4. The matter be remitted to the Tribunal for the purpose of considering the answer to be given to Question 2 of the questions posed for a private ruling. 5. The respondent pay the applicant's costs of and incidental to the appeal to be taxed if not agreed. Note: Entry of orders is dealt with in Rule of the FEDERAL COURT Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 154 of 2015 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: AND: JUDGE: DATE: PLACE: ROSGOE PTY LTD ACN 110 625 524 Applicant COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent LOGANJ 13 NOVEMBER 2015 BRISBANE REASONSFORJUDGMENT 1 It is now approaching a quarter of a century since the private ruling regime was introduced, in its original form, into the Taxation Administration Act 1953 (Cth) (TAA) by the Taxation Laws Amendment (Self Assessment) Act 1992 (Cth).

5 Since then, in substance unchanged, the private ruling regime has migrated to the densely populated territory of Schedule 1 to the TAA, where it now forms part of Part 5-5 - Rulings. Within Part 5-5, the private rulings regime is found in Division 359 - Private rulings. 2 As CTC Resources NL v Commissioner of Taxation (1994) 48 FCR 397 and Commissioner of Taxation v McMahon (1997) 79 FCR 127 (McMahon), each judgements of the Full COURT delivered early in the life of the private ruling regime, attest, the intricacies of complying with the formal requirements of that regime, either in the making or on the review of a private ruling, presented challenges for the Commissioner of Taxation and, on review, the Administrative Appeals Tribunal (Tribunal).

6 This case illustrates that those challenges remain with us. 3 Rosgoe Pty Ltd (Rosgoe) is the trustee of a discretionary trust known as the Rosgoe Trust (the trust). By an application dated 11 December 2013, Rosgoe applied to the Commissioner for a private ruling in relation to the proposed sale of two adjacent parcels of land at Indooroopilly (the Property), which formed part of the property of the trust. - 2 -4 In the ruling application Rosgoe furnished details of particular background facts and requested the Commissioner to rule upon two questions. Those questions and the answers which the Commissioner came to give them by his private ruling dated "28 January 2013" [sic] (in fact, 2014, illustrating that those in public administration are not immune from an embarrassment a good many of us face each New Year) were as follows: Question 1 Is the proposed sale of the Property a mere realisation of a capital asset and hence taxable on capital account under the capital gains tax (CGT) rules for the purpose of the taxation legislation?

7 Answer No Question 2 If the answer to question 1 is affirmative, is the Commissioner satisfied, in respect of the sale of the Property, that: (a) your 'projected goods and services tax (GST) turnover' is below the relevant threshold (b) you are not required to be registered for GST, and ( c) the supply of the Property is not a taxable supply? Answer Not applicable. The answers to these questions constituted the Commissioner's ruling. 5 The ruling was made on the basis of an arrangement identified by the Commissioner. In light of the issues which arise for determination in this statutory appeal, it is necessary to set out in full the arrangement identified. Relevant facts and circumstances This ruling is based on the facts stated in the description of the scheme that is set out below.

8 If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The arrangement that is the subject of the private ruling is described below. This description is based on the application for private ruling dated 12 December 2013 and the accompanying documents. These documents form part of and are to be read with this description. You are a discretionary trust settled by a deed dated 20 August 2004 with Rosgoe Pty - 3 -Ltd as your Trustee. The directors and shareholders of your Trustee are Greg Wright and Ross Badcock. Mr Wright and Mr Badcock are named as your primary beneficiaries in the Trust deed. Mr Wright and Mr Badcock have a history of property development through other entities.

9 Their experience involves the physical construction of premises on land for the purpose of sale. Both have skills and expertise in the project management of construction activities. The Property is comprised of two adjacent lots: (a) 15 Lambert Road, Indooroopilly ('Lot l '),and (b) 181 Clarence Road, Indooroopilly ('Lot 2). Lot 1 was purchased and registered on 28 March 2006 with one derelict vacant house situated on the lot. It was leased to Queensland Rail for a period of 18 months from July 2007 to December 2008 for use as a works depot. Since 1 November 2012 the property has been let to Shamrock Civil Engineering for use as a works depot. Lot 2 was purchased and registered on 23 August 2007 with a tenanted house on the lot. The house has been continuously tenanted since the purchase of the property by you.

10 You acquired the Property with the intention of developing and selling it as part of a joint venture with Indigo, a large property developer. An email, dated 6 February 2009, summarises discussions between Indigo, Mr Badcock and Mr Wright regarding the joint venture. During the 2009-10 financial year the negotiations with Indigo fell through. You were unable to secure funding and decided to abandon your intention to carry on a development business and develop the Property. You state that at this point you ceased to hold the Property as trading stock and began to treat it as a capital asset. The financial statement for the year ended 30 June 2012 shows an asset Land and buildings with a book value of $3,068,367. You have not provided any details of whether you have acquired other land or buildings.