Federal Commissioner of Taxation v Whitfords Beach Pty Ltd

Holding

Profits from the subdivision and sale of land that was originally held for fishing-shack purposes were ordinary income, where the activities went beyond mere realisation of a capital asset and amounted to carrying on a business of land development.

Facts

Whitfords Beach Pty Ltd was a company originally formed by fishing-shack owners to hold a coastal block north of Perth. In 1967 new shareholders bought the company and rezoned, subdivided and sold the land over several years. The Commissioner assessed the profits as income.

Reasoning

The High Court held that although the land had been acquired as a capital asset, the activities of the new controllers transformed the venture into a profit-making business. The scale, planning, borrowing and continuity of operations went well beyond a mere realisation. The case became the leading authority on the line between capital realisation and business income from land.