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Morton v Commissioner of Taxation [2025] FCA 336
The farmer, the property and the tax man
27 June 2025
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6 minute read
This decision is currently under appeal by the Commissioner.
Background
Tax law has long distinguished between capital and revenue treatment when disposing of property or assets. Despite overarching principles, each case is determined by its specific facts and circumstances. The case of Morton v Commissioner of Taxation again demonstrates the ongoing debate about whether a transaction is assessed on capital or revenue account.
Summary of the facts
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David Morton acquired farmland from his father in 1980. In 2010, due to Melbourne’s expanding urban growth zone, the property was rezoned to residential, leading to interest from various developers.
In 2012, Mr Morton entered into three development agreements with a developer, Dacland. One agreement was for the development of Morton’s 10-acre share (from a total of 384 acres), into residential lots. The bulk of the land was held with his brother as trustees for separate family trusts. The Court focused on the 10-acre parcel solely owned by Mr Morton.
Arguments
Mr Morton argued that:
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He had not acquired the property for the purposes of resale, as such the characterisation of the disposal should be capital (Federal Commissioner of Taxation v The Myer Emporium Ltd (1987) 163 CLR 199).
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The taxpayer’s involvement in subdividing the land, and organising the sales of subdivided land, were factors consistent with the principle under which the sale proceeds arose from the realisation of a capital asset.
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The scale of a development alone does not confirm an argument that there is a conversion from that of a capital characterisation to that of an undertaking of a profit making scheme and therefore a revenue characterisation (Statham v Federal Commissioner of Taxation (1988) 20 ATR 228).
The Commissioner contended that:
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The magnitude and coordination of the development indicated a revenue nature.
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The work undertaken was more than a simple subdivision, involving significant planning, infrastructure, and improvements.
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Mr Morton’s aim was to maximise profit, indicated by his insistence on controlling aspects of the developer’s financial standing, project milestones, and reporting.
Federal Court’s decision
The Federal Court ruled in favour of Mr Morton, deciding that the proceeds were on capital, not revenue, account. Key points from the judgment included:
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Mr Morton did not acquire the land with a profit-making intent.
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He realised that farming would become unviable due to rising costs and land taxes, but importantly continued to operate as a farmer after the rezoning.
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The Court found Mr Morton’s involvement in the property’s development to be minimal, with the developer taking primary responsibility for management and finance.
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The Court was not persuaded that the scale of the development of the property ultimately changed the overall complexion of the taxpayer’s activities. The scale of the development was a consequence of the size and situation of the land, rather than an indication of a systematic profit-making enterprise.
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The activity was not repeated or ongoing - Mr Morton only developed and sold land from this single holding.
Related case
For comparison, Nerang Subdivision Pty Ltd & Ors v Hutson & Anor [2023] QSC 268 (Nerang) involved the full-scale development and sale of inherited land, examined for GST purposes. In Nerang, the Court considered the commercial arrangement where the owner was entitled to a fixed percentage of sales proceeds as indicative of a profit-making scheme, and thus, revenue account treatment. The relevant passage stated that the owner’s actions satisfied the description ‘profit-making’, given the clear participation in a commercial development.
A matter of final interest
Notably, in a similar factual case (Nerang Subdivision Pty Ltd & Ors v Hutson & Anor [2023] QSC 268[ (Nerang) where the farm property was inherited and a substantial development was undertaken), but for GST purposes, and in determining whether a disposal of the property was on revenue account, a critical factual position was the entitlement of the taxpayer to income on the basis of a fixed percentage of sales proceeds. In that case, the Court stated (at paragraph 89):
‘…….In that sense, by entering into and acting in accordance with the terms of the commercial arrangement struck with the Developer, the Owner has pursued an undertaking or scheme that, from the Owner’s perspective, satisfies the description ‘profit-making’.
It will be interesting to see whether the Commissioner presses this argument in the Full Federal Court.
Find out more
Join us at The Practitioner’s Edge 2025, where we will be presenting ‘Building in my backyard’ (BIMBY) a session designed to demystify the tax and GST implications of subdividing, developing, or selling part of your family home. This is your chance to explore the practical tax, compliance, and planning considerations with real-world examples, delivered by leading experts in the field. Whether you’re advising clients or considering projects yourself, you will walk away with clear, actionable insights you can apply straight away. Don’t miss the opportunity to deepen your expertise, network with like-minded professionals, and get your questions answered by Australia’s top SMSF and tax educators. Register for The Practitioner’s Edge in Melbourne, Sydney, Brisbane, or online and sharpen your competitive advantage.
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