This case relates with the investigation of the income from the sale of subdivided land to be assessable as ordinary income or as capital in nature, since it was bought for a different purpose. The farmer used loans to buy land over a period of 10 years for grazing, farming, and growing crops. After two years of purchase, the farmer subdivided the land into multiple blocks and sold it for a profit. The farmer made substantial profits from the land sale and the income tax department demanded that the income be assessable. The court held that the farmer continued the process of selling land one by one and had all the characteristics of carrying on the business of land development and hence the income is taxable.
Casimaty acquired a large farm of 998 acres from his father and then purchased adjoining 40 acres on which he built a homestead. He carried out farming activities on the rest of the land and soon due to poor health, inability to pay debt instalments, and drought, he had to subdivide the land and sell a large portion. The income tax demanded to tax the gains either under section 25(1) or 25A of the Income Tax Assessment Act 1936 (Cth). The court held in the favour of Casimaty because he never intended to carry on the business of land sale and making profits never demanded exemptions for the interest paid, hence his income is not assessable.
Moana Sand had bought land for working and selling sand for business purpose and then decided to hold the land after the sand was exhausted until they get a good price for the same. The company sought relief under the income earned on the sale of land under the reason that their prime business was not land sale but sand sale, and this is an outcome of the sand business. The court held that the income made from the land sale is assessable under s 25(1) and the second limb of s 26(a). The rejection of the profit making purpose of the sand company was not reasoned enough in the decision.
Two brothers bought a land that had an old house which they demolished and built three houses, and soon put on for sale before their completion. With no response they lived in two houses and successfully sold the units a year later. The brothers then again bought other land and constructed more units for sale. The court held that the activity seems to be similar of a land development company and that in spite of having debt they did not secure a tenant for the third empty house and also put the house for sale before completion, hence the income from the gains is a profit and is taxable.
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