Federal Commissioner of Taxation v Whitford Beach pty ltd
University of affiliation
The case dated 17th March 1982 took place in the high court of Australia. Whitford Beach was a company founded by a group of fishermen in 1954. They were the original owners of the company shares in the taxpayer. Land that was next to shacks in the same year. This land was in the north of Perth. This land was not to be used for business or any profit-making venture. On 20th December 1967, the shareholders of the company sold the land to three purchasers (Pearson, 1998). The three companies had bought the land to merely have its control and that the taxpayer would cause development of land, subdivide it and then sell it on profit. The initial purchase price for the land was $1,600,000. Expectations were that the land would undergo some development in a span of 3-5 years after which the land was to be subdivided and sold at profit of approximately $7,000,000.
Two of the purchaser company were appointed as general managers on 20th December 1967 after a new clique of articles had been adopted by the taxpayer. The general managers were supposed to ado all they could in their power to develop and partition the land then sell it. The managers then started to look for a water source, finding means of transport, sewage, electricity among other services. These accelerate in 1969 after the Western Australia government started encouraging partition of land in that division. First sales of divided land began in early 1971 and in the following years substantial sums were acquired from the process of sales.
The commissioner evaluated the taxpayer on the profits made from land sales which came up in 1972,1973,1974 and 1975. The big question now is whether these profits were evaluable income of the taxpayer. If it is answered in favor of the commissioner, it will lead to other questions arising such as; if the land was meant for a profit-making scheme in 1967 or in posterior date, or if the land was committed wholly or part by part when development of subdivisions. Parties were in concession that if the first query were to be responded in favor of the commissioner, the federal court was to be given the matter for the auxiliary questions to be answered.
Significant facts in the Whitford beach party ltd case came up. It is clear that the transactions that took place on 20th December in 1967 were entirely to reconstruct the foundation of the taxpayer (Porcaro & Slegers, 2006). The taxpayer was a company that had land as its only significant asset that had been the shacks of the Whitford Beach, that when partition would be possible, the land was to be allocated amongst shareholders having any extra land dealt with at the company general meeting.
The taxpayer had been clear on the projected activity in connection with the land that included procurement of changes of zoning, development of the particular piece of land and the leading sale of subdivided land over a long period of time (in this case, years). These activities were expected to produce a net return excluding tax exceeding $7,000,000 during the first decade while taking the land in question for subsequent partitioning, development and selling of the land.
The taxpayer’s articles did not contain any evidence for allocating the land amongst the shareholders and identity of the land owner had changed to the three companies that had purchased the shares in the taxpayer’s capital. This was to benefit the three companies later through sales made from the projected subdivision and development of the land in question.The evidence of transactions that took place in 1967 allowed the three companies to proceed with their project. In June 1969, the government of western Australia had interposed and encouraged the fast development and selling of housing pieces of land in the north of Perth (a section that also was inclusive of the land in question). Subdivision of this part of land was later on approved. Within a short period, multiple plots were sold. Evidence showed that amounts spent for land development and other sums obtained from sales were as shown below.