MLC 703- Principles of Income Tax Law
Problem Question 1A
Extraordinary transactions are those transactions that are not within the usual or normal operations of the business: Westfield Ltd v FCT, and FCT v Myer Emporium Ltd. The isolated transactions are those transactions that occur once in a lifetime, and are not conducted by the current business operations: FCT v Whitfords Beach Pty Ltd[1]. In a case where income generated from a project lacks the features of a business operation, the income or profit generated would be considered as ordinary income, and this, is more likely to occur if the income necessitates significant planning and capital. The circumstance of Karl and Petra is best illustrated by the case of FCT v Whitfords Beach Pty Ltd where the ordinary income created emanates from a land development project conducted by a firm, which previously did not have similar, or identical business operations. The decision in the FCT v Whitfords considered the provisions in both section 26 (a) and 26 (b) ITAA 1936. Also, in a case of Myer Emporium Ltd, the courts held that the gains or income that is generated from conducting business operations are considered as ordinary income[2]. In this case, Karl and Petra, the land is sold-off as part of a one-off or isolated transaction. However, the transaction between the parties was entered with a purpose of making profits, and thus, it is viewed as a sufficient business-like or commercial purpose. Karl obtained a quarter interest of the land that Petra’s DVD business laid on, with the intention of selling it in the near future. Although, this transaction can be viewed as being outside the Karl’s business, it was acquired with the intention of resale, and thus, based on the ruling in Jones v Leeming, the income or transaction would be not considered in ordinary principles[3]. The House of Lords in Jones v Leemings alleged that if a tax payer bought a property or land outside the nature and scope of
[1] FCT v The Myer Emporium Ltd (1987) 163 C.L.R 199.
[2] Paul Kenny, Michael Blissenden and Sylvia Villios, Australian Tax (LexisNexis Butterworths, 2016).
[3] Jones v Leeming [1930] A.C. 415.
(I.C. JPS 1730)