Federal Court of Australia

Aitken v Commissioner of Taxation [2026] FCAFC 18

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be dismissed with costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

Synopsis

1    This is an appeal from the decision of Aitken v Commissioner of Taxation [2025] FCA 372 (‘J’), which was an appeal of a reviewable decision under Part IVC of the Taxation Administration Act 1953 (Cth) (‘TAA’) in respect of an amended assessment issued to the appellant for the income tax year ended 30 June 2016.

2    These proceedings concern the existence and treatment of capital gains tax events (‘CGT events’) which happened in relation to certain forestry interests held by the appellant under the AgriWealth 2011 Softwood Timber Project (‘the Project’) and the tax consequences arising from the application of s 394-25(2) of the Income Tax Assessment Act 1997 (Cth) (‘ITAA 97’) to those CGT events.

3    The central issue before the primary judge concerned the identification of CGT events which happened in relation to the appellant’s forestry interests in the Project and the determination of the market value, or reduction in the market value, of those interests, in order to ascertain the appellant’s assessable income for the purposes of his 2015–2016 income tax return.

4    When the appellant acquired the forestry interests, he was required by the scheme to acquire an equal number of put options, for which a put option fee was payable. These put options will be referred to in the singular in these reasons as the ‘Put Option’. The Put Option was the subject of a ‘Put Option Deed’ entered with AgriWealth Capital Limited (‘the Manager’), by which the Manager was bound to acquire the forestry interests at $14,000 each upon exercise of the Put Option during a defined period. On 1 July 2015, being during the relevant period, the appellant exercised the Put Option and then, later on the same day, entered a novation deed with the Manager in relation to his forestry interests excluding certain rights which were retained by the appellant (‘Novation Deed’).

5    The respondent assessed the appellant on the basis that there was more than one CGT event that happened in relation to the appellant’s forestry interests under s 394-25(1)(c) of the ITAA 97, being the exercise of the Put Option which reduced the market value of the forestry interests, and the disposal of the appellant’s forestry interests by way of the Novation Deed (ss 394-25(2)(a) and (b)).

6    On appeal to the primary judge, the appellant challenged the respondent’s assessment on the basis that there was only one CGT event that happened in relation to his forestry interests, being the disposal of his forestry interests by way of the Novation Deed. The appellant relied on expert valuation evidence of Mr Halligan, who provided a valuation of the appellant’s forestry interests referable to that one CGT event.

7    The primary judge dismissed the appeal, finding that:

(a)    there were at least two CGT events that happened in relation to the appellant’s forestry interests — one on the exercise of the Put Option (J [69] and [90]) and the other on entry into the Novation Deed (J [91]);

(b)    the appellant had not shown, as per s 394-25(2), that the reduction in the market value and/or subsequent market value of his interest in the Project, as at 1 July 2015, was less than the amended assessment: J [20] and [175].

8    For the following reasons, we conclude that:

(a)    the exercise of the Put Option was a CGT event that happened in relation to the forestry interests under s 394-25(1)(c). Contrary to the premise of the appellant’s case, this means that there were two CGT events;

(b)    the existence of the Put Option, and the fact that all investors or ‘Growers’ in the Project held put options in relation to their forestry interests on the same terms as the Put Option, was material for the purposes of determining the market value of the appellant’s forestry interests;

(c)    the exercise of the Put Option decreased the market value of the appellant’s forestry interests;

(d)    it was necessary for the appellant to adduce evidence of the value of the forestry interests before the exercise of the Put Option to work out the decrease in market value of those interests, if any, as required by s 394-25(2)(b). However, no such evidence was adduced by the appellant;

(e)    it was necessary for the appellant to adduce evidence to explain why an executory contract of sale for the forestry interests (which arose following the exercise of the Put Option) (‘the Sale Contract’) was replaced with a contract for the disposal of part only of those forestry interests for the same price as was payable by the Manager under the Sale Contract, with the latter contract not being a compulsory sale. However, no such evidence was adduced by the appellant;

(f)    it was necessary for the appellant to adduce evidence of the market value of the interests which were retained by him following the Novation Deed. However, no such evidence was adduced by the appellant;

(g)    in these circumstances, not all material facts which bore upon the impact on the market value of the appellant’s forestry interests of the relevant CGT events were known or before the primary judge, with the consequence that his Honour was correct to find that the appellant had not discharged his onus of proof.

9    It follows that the appeal will be dismissed with costs. It is unnecessary to address the Notice of Contention in light of that dismissal.

Grounds of appeal

10    The grounds of appeal as contained in the Notice of Appeal which were pressed on the appeal were as follows:

1.    The primary judge erred in the interpretation and application of s 394-25(1)(c) of the Income Tax Assessment Act 1997 (ITAA 1997) to the facts of the case.

2.    The primary judge erred in having regard to and treating as material for the purpose of determining the market value of the appellant’s forestry interest for the purposes of the application of s 294-25(2) [sic] of the ITAA 1997:

(a)     The appellant’s put option over the forestry interest; and

(b)     The existence of put options held by other investors in the same forestry management scheme over their respective forestry interests in that scheme.

3.    The primary judge erred in characterising the ending of the appellant’s put option over his forestry interest by the exercise of that option as the happening of a CGT event in relation to the forestry interest which was the subject of the option for the purposes of ss 394-25(1) and (2) of the ITAA 1997.

…

6.    The primary judge erred by considering the market value of the appellant’s forestry interest both immediately prior to and immediately after the exercise of the put option which conflated the market value of the appellant’s put option with the market value of the appellant’s forestry interest.

7.    The primary judge erred by failing to determine that that [sic] the time for assessment of the market value of the appellant’s forestry interest was the time of entry by the appellant into the Deed of Novation with Agriwealth Capital Limited.

8.    The primary judge erred in assessing the market value of the appellant’s forestry    interest in the Agriwealth 2011 Softwood Timber Project at a figure of $14,000 per timberlot upon its disposition to Agriwealth Capital Limited on 1 July 2015 under the Deed of Novation.

9.    The primary judge erred in holding that the appellant had not discharged the burden of proof to show that the assessment of his taxable income and income tax thereon for the year ended 30 June 2016 was excessive and to show what the assessment should have been.

Relevant background

11    The detailed factual background appears at J [1]–[16] and [24]. None of these facts is disputed on this appeal.

12    The stated purpose of the Project is as set out in the Information Memorandum issued by the Manager dated 11 May 2011 (‘Information Memorandum’), being the establishment and tending of radiata pine trees for felling in Australia. Each Grower had their investment fractionalised with each Grower holding a certain number of forestry interests or ‘Timberlots’ (as defined). Each Timberlot comprised an area of 0.5 hectares of land in the plantation on which there would be planted around 425 trees.

13    The Information Memorandum required an applicant for each Timberlot to acquire one put option and one ‘Sinking Fund Interest’ per Grower and one ‘Land Trust Interest’ per Unit Holder.

14    If an applicant wished to acquire the right to sell all Timberlots which had been acquired by him (being the course which the appellant adopted), the application price for each Timberlot was as follows:

Right to sell all Timberlot(s)

1. Establishment Services Fee (inclusive of GST) $29,645.00

2. Put Option Fee (ex GST) $343.00

3. Land Trust Unit (ex GST) $17.00

4. Sinking Fund Payment (ex GST) $95.00

Total Application Price $30,100.00

15    The Project was established by a deed poll dated 19 June 2011 executed by the Manager which required the Manager to execute on behalf of each Grower, pursuant to a power of attorney, the various agreements required to evidence their interest in the Project. Those agreements included a Put Option Deed dated 29 June 2011 (as amended) and associated ‘Put Option Guarantee’, as well as a ‘Definitions and Interpretations Deed’, which was the master definitions document for the Project.

16    Clause 2 of the Put Option Deed provided as follows:

2. Put Option

2.1 Grant of Put Option by the Manager

In consideration of the Put Option Fee (exclusive of GST) paid by the Grower to the Manager (the receipt and sufficiency of which the Manager acknowledges) the Manager grants to the Grower the option to require the Manager to purchase the whole (but not part) of the Put Option Property from the Grower for the Sale Consideration and on the terms of this document.

2.2 Exercise of Put Option by the Grower

Provided that the Grower is not at the time in material default under any Project Documents, the Grower may exercise the Put Option by notice in writing served on the Manager at any time during the Exercise Period.

2.3 Parties bound on service of notice

If the Grower gives to the Manager a notice under Clause 2.2, then the Manager shall be bound as purchaser and the Grower shall be bound as vendor of the whole of the right, title and interest of the Grower in the Put Option Property.

2.4 Sale Consideration

The Sale Consideration for the Put Option Property, subject to the exercise of the Put Option, for each Timberlot to which the Grower is entitled is set out in the Definitions and Interpretations Deed for the AgriWealth Timber Project.

2.5 Lapsing of Put Option

The Put Option lapses at, and cannot be exercised after, the end of the Exercise Period.

(Emphasis original.)

17    ‘Put Option Property’ is defined in the Definitions and Interpretations Deed as:

(a)    All the rights and benefits of the Grower under the Project Documents as they relate to Trees, Harvest Proceeds, Carbon Sequestration Rights, Carbon Sequestration Benefits, Salinity Credits and Salinity Credit Benefits (but does not include any rights and benefits of a Unit Holder under the Project Documents as they relate to the Land Trust or the Plantation Land).

(b)    Each Forestry Right Interest held by the Grower or to which the Grower is entitled.

(c)    All Trees, Harvest Proceeds, Carbon Sequestration Rights, Carbon Sequestration Benefits, Salinity Credits and Salinity Credit Benefits owned by the Grower or to which the Grower is entitled.

18    The ‘Sale Consideration’ referred to in cl 2.1 is defined in the Definitions and Interpretations Deed as a fixed price of $14,000 for the Put Option Property for each Timberlot to which a Grower is entitled. As to the ‘Exercise Period’, it was defined as being the period for the exercise of the put options under the Put Option Deed and was the period commencing on 1 July 2015 and ending on 16 June 2016.

19    By the terms of the Put Option Deed, the put options had no value on their own or separate from the forestry interests or Timberlots.

20    Clause 3.1 of the Put Option Deed provides the timeline for completion of sale of the Put Option Property as follows:

Completion of the sale and purchase of the Put Option Property pursuant to Clause 2.3 shall take place 5 Business Days after the date that the Grower serves a notice on the Manager, advising that the Put Option has been exercised, on which date:

(a)    the Put Option Property shall pass to the Manager free of Encumbrances; and

(b)    the Grower must deliver to the Manager a transfer in registrable form of the Grower’s Forestry Right Interests; and

(c)    subject to paragraph (b) and clause 4 below, the Manager shall provide the Sale Consideration to the Grower by paying to the Grower in cleared funds so much of the Sale Consideration as is payable in cash after taking to account any amounts owing under a Manager Loan Agreement.

21    On 30 June 2011, the appellant submitted an application form to acquire 337 Timberlots in the Project together with 337 put options, and 337 land trust units in the name of the Aitken Family Superannuation Fund.

22    The appellant claimed a deduction of $9,082,150 under Div 394 of the ITAA 97 in his tax return for the financial year ending 30 June 2011 in respect of his initial payment of $10,143,700 (being 337 x $30,100).

23    On 1 July 2015, the appellant gave the Manager notice of exercise of his put options in relation to his 337 Timberlots. There was unidentified negotiation with the Manager as a result of which the appellant decided to keep certain carbon sequestration rights and salinity rights which he said in oral evidence “could have value”.

24    On 1 July 2015, the Manager wrote to the appellant in these terms:

I refer to your request to exercise your Put Option to sell 100% of your interests in the Project to AgriWealth Capital Limited for $14,000 per timberlot. In order to give effect to your request please sign the attached Notice and Novation deed and return to me.

As you have 337 timberlots the sale consideration under the Put option is $4,718,000. This amount will be applied against the balance owed by you to AgriWealth Capital Limited under the 7 year loan (being $4,718,000 as at 1 July 2015). After the sale consideration is applied against the AgriWealth loan the loan will be fully discharged.

…

25    Later that same day, the appellant executed the Novation Deed which reflected the negotiations with the Manager. In the Novation Deed, Put Option Property had the meaning given to it in the Definitions and Interpretations Deed “excluding all the rights and benefits of the Grower under the Project Documents as they relate to Carbon Sequestration Rights, Carbon Sequestration Benefits, Salinity Credits and Salinity Credit Benefits and all Carbon Sequestration Rights, Carbon Sequestration Benefits, Salinity Credits and Salinity Credit Benefits owned by the Grower or to which the Grower is entitled” (‘excluded rights’).

26    As stated by the primary judge at J [59], the effect of the Novation Deed, stated to take effect a minute after midnight on 1 July 2015, and considered in context, was:

(a)    the Sale Contract that was created by the exercise of the Put Option effectively ceased to exist, such that the completion date for that contract, being five business days after the execution of the Put Option, necessarily also ceased to exist;

(b)    the consideration stipulated in the schedule to the Novation Deed was the same as the consideration stipulated in the Put Option Deed;

(c)    Mr Aitken retained the excluded rights that were part of the Put Option Property as originally defined in the Definitions and Interpretations Deed, without any diminution of the amount he would be paid by the Manager;

(d)    the Manager became the owner of the rest of the Put Option Property as originally defined.

27    The appellant lodged his tax return for the financial year ending 30 June 2016 on 6 July 2017 disclosing a taxable income of $17,767. It did not include income under s 394-25 of the ITAA 97 and claimed a capital loss of $52,033 arising from the disposal of the forestry interests.

28    On 26 July 2017, the respondent issued a notice of assessment. On 22 November 2017, the Commissioner commenced a review. On 13 January 2021, the Commissioner issued an amended assessment raising the appellant’s taxable income for the 2016 financial year to $4,718,000 on the basis of the decrease in the market value of the forestry interests due to the exercise of the Put Option and the market value of the interests at the time of novation. The Commissioner also issued an assessment of administrative shortfall penalties for the same year. On 5 March 2021, the appellant objected to those assessments. On 31 August 2023, the Commissioner disallowed the income tax objection and allowed the penalties objection in part. These proceedings were then commenced by the appellant.

The legislative framework

29    Under s 394-10 of the ITAA 97, a taxpayer who holds a ‘forestry interest’ in a ‘forestry managed investment scheme’ can claim a deduction for certain amounts paid under the scheme if the conditions in that section are satisfied. The expressions ‘forestry managed investment scheme’, ‘forestry interest’, ‘participant’ and ‘initial participant’ are defined in s 394-15. It is not disputed that the appellant satisfied each of these preliminary elements: see J [33].

30    If a CGT event occurs in relation to a taxpayer’s forestry interest (other than in respect of thinning) and the taxpayer is an ‘initial participant’ in the scheme, s 394-25 specifies the amount to include in the taxpayer’s assessable income. Section 394-25 provides:

(1)    This section applies if:

(a)    you hold a *forestry interest in a *forestry managed investment scheme as an *initial participant in the scheme; and

(b)    at least one of these conditions is satisfied:

(i)    you can deduct or have deducted an amount for an income year under section 394-10 in relation to the forestry interest;

(ii)    the condition in subparagraph (i) would be satisfied if subsection 394-10(5) were disregarded; and

(c)    a *CGT event happens in relation to the forestry interest, other than a CGT event that happens in respect of thinning.

(2)    Your assessable income for the income year in which the *CGT event happens includes:

(a)    if, as a result of the CGT event, you no longer hold the *forestry interest–the *market value of the forestry interest (worked out as at the time of the event); or

(b)    otherwise–the decrease (if any) in the market value of the forestry interest as a result of the CGT event.

(3)    Any amount that you actually receive because of the *CGT event is not included in your assessable income (nor is it *exempt income).

31    The explanation of why Div 394 operates to include in the taxpayer’s assessable income the market value or decrease in market value of the forestry interest is found in [8.14] and [8.33]–[8.35] of the Explanatory Memorandum to the Tax Laws Amendment (2007 Measures No. 3) Bill 2007 (Cth): see also J [6]–[8] and [30]–[32].

32    Relevantly, for the purposes of s 394-25(2), whether the taxpayer still holds the forestry interest affects what is ultimately required to be included in assessable income.

33    The identification of the CGT events is important. These are defined in Div 104 of the ITAA 97 read with s 108-5(1) ITAA 97: see J [38]–[39]. A number of CGT events occurred in this case as follows:

(a)    on the exercise of the Put Option, CGT event C2 happened to the CGT asset comprising each Put Option (s 104-25(1)(e)) (‘Put Option CGT Event’).

(b)    the sale contract which arose on the exercise of the Put Option (being the Sale Contract) would, if completed, have resulted in CGT event A1 happening in relation to the forestry interests (s 104-10). The Sale Contract was not completed because of the execution of the Novation Deed.

(c)    on the execution of the Novation Deed, two CGT event C2s happened in relation to the appellant’s forestry interests.

34    The CGT event C2s which happened on the execution of the Novation Deed were as follows:

(a)    the novation of the appellant’s rights (and obligations) in respect of the Put Option Property (as defined) and the Agreements (as defined) which was a cancellation or discharge of those rights (s 104-25(1)(a) or (b)) (‘First Novation Deed CGT Event C2’). The capital proceeds for the novation was the consideration of $14,000 per Timberlot under cl 3; and

(b)    the discharge of the Sale Contract under cl 2.1(a) (s 104-25(1)(a) of (b)) (‘Second Novation Deed Event C2’). As no consideration was payable, the capital proceeds are equal to the market value of the benefit of the Sale Contract as if the CGT event had not occurred and was never proposed to occur (s 116-30(1) and (3A)).

35    The characterisation of any of those CGT events as ones that happen in relation to the forestry interests is critical having regard to the terms of s 394-25(1)(c). If a CGT event cannot be so characterised, then the section has no application to the CGT event. It is to this issue that we now turn.

Whether one or two CGT events in relation to the forestry interests

36    It was common ground before the primary judge that the Put Option was not a forestry interest, and that the exercise of the Put Option was a CGT event: J [65], [69], [73]. So much may be accepted as the exercise of the Put Option was CGT event C2: see s 104-25(1)(e).

37    The issue below and on this appeal is whether the exercise of the Put Option was a CGT event in relation to the appellant’s forestry interests.

38    The foundation of the appellant’s case is that the only relevant transaction for the purpose of calculating his assessable income is the execution of the Novation Deed novating the timber component of his forestry interests (being other than the excluded rights), which was an event which happened to his forestry interests directly (and therefore, on his posited construction, is an event “in relation to” his forestry interests).

39    As to this, the appellant submits that “appeal grounds 1, 3 and 7 reflect the appellant’s position on s 394-25(1)(c), that the statutory context of s 394-25 and its relationship to the range of CGT events in Division 104 indicates that a CGT event happens ‘in relation to’ a forestry interest if that interest is the CGT event with which it is connected by the relevant operative rule in Division 104”. The appellant submits that the CGT event C2 was a CGT event in relation to the Put Option, which is a separate asset to the forestry interests, and that the structure of CGT events in s 104-25 was described as happening to the asset that ends, not necessarily to any other asset. Thus, so it is said, when the Put Option ended by its exercise, that CGT event was in relation to the Put Option only.

40    During oral submissions, senior counsel for the appellant maintained that the only relevant taxing event was the appellant’s disposal of the forestry interests under the Novation Deed, and that the prior step of exercising the Put Option did not itself diminish or end his forestry interests. The appellant emphasises that the Put Option was a separate contractual right — not part of the forestry interests — and its exercise did not “happen to” or alter the forestry interests which were then sold. It is said that, in other words, the forestry interests’ ownership and scope remained intact until the novation; the option exercise merely set the stage for the transfer. The appellant points to the text of s 394-25(1)(c), which requires a CGT event “in relation to” each forestry interest and contends that not every CGT event involving the investor triggers it — only events that directly affect the interest itself (such as its sale or ending). Here, the relevant CGT event was the ending of the appellant’s ownership of the forestry interests by novation (a CGT event C2 or possibly A1) when the rights were transferred to the Manager. The appellant accepts that this novation/sale is within s 394-25 but maintains that the exercise of the Put Option was a CGT event affecting the Put Option, not the forestry interests. He bolsters this argument by reference to the structure of CGT events in Division 104 ITAA 97: event C2 (ending of an intangible) is described as happening to the asset that ends, not necessarily to any other asset. Thus, when the Put Option ended upon its exercise, that CGT event relates to the Put Option itself (an asset separate from the forestry interests) and so should not fall under s 394-25.

41    The respondent contends that there are two relevant transactions, including the exercise of the Put Option, because the phrase “in relation to” extends not just to a CGT event which affects a forestry interest directly, but also to a CGT event that in some sufficiently proximate way is connected to the forestry interests. The respondent submits that the exercise of the Put Option by the appellant was a CGT event which happened in relation to his forestry interests because the necessary proximity was achieved by the exercise of the Put Option by which the appellant brought into existence a contract for sale between himself and the Manager for the purchase of his forestry interests.

42    As observed by the primary judge at J [81], the section is broad enough to encompass circumstances where a CGT event causes a decrease in the market value of the forestry interest (s 394-25(2)(b)). This supports a construction which includes an external CGT event which does not happen to the forestry interest but the occurrence of an event which has an impact on the market value of the forestry interest.

43    This conclusion finds support in the Explanatory Memorandum, especially at [8.34], which contemplates direct and indirect impacts on the forestry interest:

This is achieved by requiring the assessable income of the investor to include the market value of the interest when a CGT event happens to your interest under the scheme. A CGT event will happen in relation to your interest if that interest is sold, is extinguished or ceases, or if the CGT event reduces the value of the interest. The market value that is included in your income is the value of the interest just before the event, or if you continue to hold your interest after the CGT event, the amount by which the market value of your interest is reduced.

(Emphasis added.)

44    The words “in relation to” usually connote the broadest possible meaning intended to convey some connection or relation between the subject matters, and in the absence of compelling reasons to the contrary, those words should not be read down: see IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466 at 483 (Clarke JA); Travelex Ltd v Commissioner of Taxation (2010) 241 CLR 510; [2010] HCA 33 at [25] (French CJ and Hayne J); HP Mercantile Pty Ltd v Commissioner of Taxation (2005) 143 FCR 553; [2005] FCAFC 126 at [35] (Hill J); Fountain v Alexander (1982) 150 CLR 615 at 629 (Mason J) (cited by the primary judge at J [84]).

45    The primary judge found that there was no cogent reason to read the phrase down in this case, stating at J [86]–[89] that:

It is readily apparent that the use of the CGT event trigger regime was intended to ensure that a CGT event which impacted upon a forestry interest in any of the ways set out in Div 104 would lead to there being assessable income in the financial year of that event, ordinarily via the CGT regime itself, but via the Div 394 regime for FMIS arrangements. There was no compelling reason advanced by Mr Aitken for it to be read in any other way. That would be against the entire tenor of Div 394, as well as being contrary to the wide scope of CGT events generally in their usual setting of triggering liability for CGT. The recognition of the Put Option exercise as a first-in-time CGT event does not preclude a second CGT event from also being relevant for the purposes of determining assessable income.

This conclusion becomes even clearer upon examining the text of s 394-25(1)(c) in which the phrase is used:

(1)    This section applies if:

…

(c)    a *CGT event happens in relation to the forestry interest, other than a CGT event that happens in respect of thinning.

The Commissioner made the compelling argument that Parliament could easily have omitted the words “in relation” in the phrase, to convey a more direct connection between the two concepts and limit the application of the section to circumstances where a CGT event happens to a forestry interest. The words “in relation” preceding “to” must have work to do in this context as “a court construing a statutory provision must strive to give meaning to every word of the provision”: Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355 at [71] (McHugh, Gummow, Kirby and Hayne JJ). I am satisfied that there was an obvious, relevant and not remote connection between the exercise of the Put Option and Mr Aitken’s forestry interest: HP Mercantile at 563.

Having regard to the context and structure of the legislation, the apparent deliberateness of the use of the phrase “in relation to” when simpler and more direct language could easily have been deployed if that was all that was intended, and fortified by the Explanatory Memorandum, I am unable to accept that this phrase, which has so authoritatively been given a wide meaning, should or even could be read down in the way that Mr Aitken contends. No cogent reason was advanced for limiting the reach of s 394-25 in this way.

(Emphasis original.)

46    With respect, we agree with these reasons.

47    As to the critical finding at J [88] that “there was an obvious, relevant and not remote connection between the exercise of the Put Option and Mr Aitken’s forestry interest”, such a connection is manifest because all Growers were required to acquire a put option for each forestry interest which they acquired, such that, as recognised by the primary judge at J [118], the complete field of all prospective sellers of all the forestry interests in the Project had the benefit of put options on the same terms as the appellant. The exercise of the Put Option by the appellant altered his status quo as a prospective seller such that he ceased to be able to sell his forestry interests along with the associated put options, or indeed at all, but became contractually bound to sell the forestry interests to the Manager at the price fixed and on the terms provided by the Put Option Deed. It necessarily follows that the exercise of the Put Option, being a CGT event C2, was a CGT event which happened in relation to the appellant’s forestry interests because of the direct impact which that CGT event had on those interests, and upon the appellant’s rights with respect to those interests.

48    For these reasons, ground 1 must fail.

Whether exercise of Put Option decreased the market value of the forestry interests and whether s 394-25(2) applies where there is more than one CGT event

49    The appellant submits that, even if s 394-25(1)(c) applied, the exercise of the Put Option did not decrease the market value of his forestry interests within the meaning of s 394-25(2)(b) on the basis that, before exercise, the forestry interests could be sold for at least $14,000 each (because of the Put Option) and immediately after the exercise of the Put Option, each interest would be sold for the same amount pursuant to the Sale Contract with the Manager.

50    The appellant further submits that Parliament did not intend double counting of what is economically one disposal. The appellant relies upon s 23(b) of the Acts Interpretation Act 1901 (Cth), which provides that the singular includes the plural, in order to argue that using “a CGT event” in s 394-25 allows for multiple events but does not mandate treating two inseparable steps as bringing to tax two distinct amounts. The appellant also relies on policy, submitting that s 394-25 is meant to bring symmetry by taxing the real proceeds or value of the forestry interest when it ends.

51    We reject the first of these arguments. Before the exercise of the Put Option, the forestry interests’ market value included the valuable unexercised put option associated with each interest, with the possibility of selling or holding; after the exercise of the Put Option, the appellant still held the forestry interests but their value to any other buyer was immediately curtailed because any hypothetical buyer would know that those interests were as good as sold to the Manager.

52    The exercise of the Put Option thereby caused a decrease in the market value of the appellant’s forestry interests within the meaning of s 394-25(2)(b).

53    We reject the second argument, too. As the appellant correctly accepts, s 394-25(2) literally applies by reason of s 23(b) of the Acts Interpretation Act to more than one CGT event. However, his submission that it only brings to tax amounts resulting from one of multiple CGT events cannot be accepted for at least two reasons. First, it requires an implication to be read into s 394-25(2) that can identify which of multiple CGT events is to be the one to which the word ‘includes’ is to apply. Secondly, it requires a further implication to be read into the provision that amounts resulting from the occurrence of the other CGT events (admittedly triggered) are not to be ‘included’ in the taxpayer’s assessable income. Neither implication is tenable. As to the first, the text of s 3945-25(2) provides no criterion of operation by which the single tax significant CGT event may be identified. Thus, the appellant’s submission provides no textual architecture to assist understanding which of multiple CGT events are to matter and which are not. As to the second, even if there was any way of working out which CGT events mattered for the purposes of s 394-25(2) and which did not, in relation to the latter class the appellant’s submission requires the word ‘includes’ in s 394-25(2) to be read as if it said ‘does not include’. Here the problem is that this is exactly what the word ‘includes’ does not mean.

54    Consequently, s 394-25(2) requires there to be brought to tax: (a) the decrease in market value caused by the forestry interest being shorn of its associated put option, bringing its independent value down to what a passive forestry interest would be worth absent the option and (b) the market value of each forestry interest which was the subject of the novation, and therefore disposal.

55    Such an approach is mandated by the text and purpose of the legislation, and is supported by the Explanatory Memorandum which stresses including all proceeds or value realised, whether by sale or by reducing interest value through partial deals.

56    The sum of those two components in this case, and as found by the primary judge at J [134], equals $4.718 million — that is, the amount of $4.718 million is allocated between s 394-25(2)(b) (decrease in market value following the exercise of the Put Option) and s 394-25(2)(a) (market value of forestry interests disposed of through the Novation Deed). Therefore, the approach taken by the primary judge was the approach required to be taken by the legislation, and was the correct one.

57    For these reasons, grounds 1 and 3 must fail.

Relevance of Put Option to market value

58    The burden of the appellant’s complaint on this topic is that the primary judge predetermined market value by reference to the Put Option, for which a separate amount was paid, which was a separate asset and which was not part of the forestry interests, rather than evaluating the forestry interests on their own merits. He does this on two bases. First, the appellant submits that the sale of the forestry interests pursuant to the exercise of an option at a fixed strike price is a sale under compulsion, and so the market value of the forestry interests should have been determined without regard to the existence and terms of any option entitling its owner to force a sale of the interests at a fixed price or obliging its owner, at the election of another, to sell the assets at a fixed price. Secondly, the appellant submits that such a sale is outside the contemplation of the principles relating to the determination of market value, and cites the reference in the statement by Isaacs J in Spencer v Commonwealth (1907) 5 CLR 418 at 441 that “to arrive at the value of the land” we have to suppose it sold then “not by means of a forced sale”.

59    As to this issue generally, the primary judge referred to the relevant principles pertaining to assessing market value at J [99]–[111]. In particular, the primary judge cited Commissioner of State Revenue (WA) v Placer Dome Inc (2018) 265 CLR 585; [2018] HCA 59 at [17]–[18] (Kiefel CJ, Bell, Nettle and Gordon JJ):

Next, in determining the value of all land and all property to which a corporation is entitled, the “ordinary principles of valuation” are to be applied. There was no dispute that the “ordinary valuation principles” were those stated in Spencer: the value is the price which a hypothetical willing but not anxious seller could reasonably expect to obtain and a hypothetical willing but not anxious buyer could reasonably expect to pay after proper negotiations between them have concluded and without overlooking any ordinary business consideration.

And there was no dispute that those ordinary valuation principles required both the seller and the buyer to be taken to be “perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property”.

(Footnotes omitted.)

60    His Honour also cited authorities which emphasise that the realities of the market and the full extent of the asset’s potential should be considered in valuation (especially at J [102]–[111]).

61    The primary judge then stated at J [115]–[116]:

The reality underpinning the Commissioner’s submissions is the fact that the Put Option cannot be separated from Mr Aitken’s forestry interest, having regard to the terms of the Put Option Deed. Under cls 2.1 and 2.3 of the Put Option Deed, the Manager was required to purchase the whole (not part) of the Put Option Property, with the Manager “bound as purchaser” and Mr Aitken “bound as vendor” to deliver “the whole of the right, title and interest … in the Put Option Property”. Upon purchase, the Put Option Property was required to pass to the Manager free of any encumbrances, and Mr Aitken was required to deliver a registrable transfer of his forestry interest: cl 3.1.

As a matter of practicality, none of the Growers – that is to say, none of the investors in the Project – could hold a Put Option without the corresponding forestry interest as they would then be unable to deliver the registerable transfer. Therefore, the value of the Put Option derives from each and every Grower’s ability to deliver the forestry interests and is valueless otherwise.

(Emphasis removed.)

62    At J [118]–[119], the primary judge continued:

…there was a unique situation: every Grower who participated in the Project held Put Options in respect of their forestry interests, exercisable at any time between 1 July 2015 and 16 June 2016. The complete field of all prospective sellers of all the forestry interests in the Project had the benefit of Put Options on the same terms as Mr Aitken. They all had the same means of compelling the payment of a purchase price of $14,000 per timberlot within the exercise period.

Accordingly, the existence of the Put Option forms part of the factual matrix that reflects the realities of the market for the forestry interests held by all of the Growers in the Project. In the period during which the Put Option could be exercised, it could not be said that a hypothetical seller in the position of the Growers, who is perfectly acquainted with the asset and cognisant of all circumstances which might affect its value, would reasonably expect to obtain a value lower than $14,000, much less $896, as Mr Aitken principally contends.

(Emphasis original.)

63    Contrary to the appellant’s contentions, no error has been shown in the primary judge’s approach. That is for the following reasons.

64    As to the first argument, the exercise of the Put Option was a CGT event which happened in relation to the appellant’s forestry interests. For that reason, the primary judge was required by the terms of s 394-25(2)(b) to have regard to the terms of the Put Option Deed in order to determine whether there had been any decrease in the market value of the forestry interests.

65    As to the second argument, the ultimate disposal of (part of) the appellant’s forestry interests was pursuant to a Novation Deed, which was entered by the parties following negotiation and on a voluntary basis. As such, the transfer of the forestry interests to the Manager pursuant to the Novation Deed (with certain rights carved out) was not a “forced sale”. That the Manager agreed to pay the same amount as in the Put Option on a voluntary basis but for lesser interests than those identified in the Put Option Deed provides a strong reason to have regard to the terms of the Put Option Deed when determining the market value of the forestry interests as it raises a real question as to whether the Sale Consideration in the Put Option Deed was, in fact, below the market value of the entire forestry interests.

66    The decision of Spencer concerned the valuation of resumed land (that is, land which was resumed by a government under an enactment). By contrast, this case concerns a situation where (a) the asset in question has an associated put option (which put option was itself voluntarily granted) (b) the asset could not have been acquired in the first place without also acquiring the associated put option (c) all other holders of the same type of asset also hold associated put options on the same terms (d) part only of the asset over which the put option is exercised is in fact acquired by the purchaser for the same price as contained in the put option. These are all relevant circumstances which pertain to the market value of the appellant’s forestry interests within the meaning of the legislation and on the facts of this case. As the primary judge found, this was a unique situation: J [118].

67    Section 394-25(2) operates to produce a result that assesses the market value of the forestry interests (and the decrease in the market value of the forestry interests as a consequence of exercising the Put Option), which reflects the highest and best use of the forestry interests, consistent with the Spencer test. As found by the primary judge at J [129], the highest and best use of the forestry interests involved a disposal of the forestry interests by the appellant for $14,000 per interest by exercise of the Put Option.

68    In this regard, it is notable that the instructions to Mr Halligan by the appellant’s solicitors included the following assumptions in relation to market value:

(a)    the value is the price which a hypothetical willing but not anxious seller could reasonably expect to obtain and a hypothetical willing but not anxious buyer could reasonably expect to pay after proper negotiations between them have concluded and without overlooking any ordinary business consideration;

(b)    the buyer and seller are to be taken to be cognizant of all circumstances which might affect its value;

(c)    the market value will lie between the most which the hypothetical buyer is willing to pay and the least which the hypothetical seller is willing to accept;

(d)    in determining the market value of a particular Grower’s forestry interest, it is permissible to take into account the fact that each other Grower holds a Put Option, because this is a fact of which the fully informed hypothetical parties would be aware.

69    These instructions are aligned with the statements of principle by the primary judge in the judgment, about which there is no challenge by the appellant on this appeal.

70    The instructions in (a), (b) and (c) above assume as relevant to market value the amount which the seller could reasonably expect to obtain considering all circumstances which might affect the asset’s value and without overlooking any ordinary business consideration. Further, the instruction in (d) is contrary to the proposition now advanced by the appellant in ground 2 that regard should not have been had to the existence of other options held by other Growers.

71    In our view, the ability of a seller of forestry interests to compel the Manager to acquire the forestry interests pursuant to put options at a particular price would be both a circumstance which might affect the asset’s value and an ordinary business consideration which should be taken into account when assessing market value. These were matters which the primary judge was permitted to, and did, consider by the orthodox application of the principles derived from the authorities: J [116]–[121].

72    Further, in determining the market value of a particular Grower’s forestry interest, it was permissible and indeed, appropriate, for the primary judge to take account of the fact that each other Grower holds put options on the same terms, because this is a fact of which fully informed hypothetical purchasers would be aware. To submit, as the appellant does, that one must value only the forestry interests devoid of what was happening in the market on 1 July 2015 lacks a principled foundation.

73    For these reasons, no error has been shown by the fact that the primary judge had regard to and treated as material both the Put Option and the existence of put options held by other Growers. Ground 2 must therefore fail.

74    It appeared to be common ground that if the appellant failed in relation to ground 2, the appeal should be dismissed. However, we will consider the remaining grounds in the event that this is not the case.

Deficiencies in the expert evidence adduced by the appellant

75    As to the market value of the appellant’s forestry interests, each party called an expert witness. The appellant called Mr Halligan, and the respondent called Mr Nguyen in support of an alternative case, with its primary case being that no expert valuation evidence is required: J [114].

76    Mr Halligan’s valuation of the forestry interests was by reference to the market value of the novated interests only. His valuation did not account for or value the excluded rights which had been retained by the appellant, and he did not value the Put Option Property as defined in the Put Option Deed. Mr Halligan also expressed the opinion that the market value to be assigned to the appellant’s forestry interests should be “determined assuming that the hypothetical seller did not hold a Put Option”.

77    The primary judge rejected Mr Halligan’s evidence, finding that Mr Halligan’s market valuation was given in isolation and without regard to the fact that the hypothetical sale was occurring in a market where “every single potential vendor of forestry interests in the Project had the benefit of the same Put Option and the same right to be paid the same strike price. Not a single Grower had to accept anything less than that strike price, and no rational vendor in that position would have done so” and was therefore conducted “without regard to reality”: J [120], [121]. The primary judge also considered that Mr Halligan’s evidence, insofar as it excludes the effect of the Put Option, ignored the relevant statutory provision and answered the wrong statutory question: J [123].

78    Having regard to our findings above, the Put Option should have been considered by Mr Halligan when determining the market value of the appellant’s forestry interests on 1 July 2015. The primary judge was therefore correct to reject Mr Halligan’s evidence.

79    As to the decrease in value of the forestry interests following the exercise of the Put Option, the primary judge stated at J [136]–[137]:

There was a possible difference between the market value of Mr Aitken’s forestry interest following the exercise of the Put Option and the market value of the forestry interest included in his assessable income for the purpose of the Novation Deed CGT event (i.e., the two amounts proxied by ‘X’). This would have been the difference between the market value of Mr Aitken’s entire forestry interest affected by the exercise of the Put Option, and the market value of only the timber component of his forestry interest (excising the market value of the carbon sequestration and salinity rights and benefits component) affected by the Novation Deed CGT event, but that valuation exercise was not attempted by Mr Aitken. His senior counsel asked that the market value of the carbon sequestration and salinity rights and benefits component as at 1 July 2015 be treated as minimal to the point of being ignored, but the only safe course is to find that it was unknown and unproven.

It follows that not only did Mr Aitken fail to establish that the amended assessment sum of $4,718,000 was excessive, but that the available evidence strongly indicates that this sum was correct.

80    The primary judge’s formulation of $“X” underscores the problems with the appellant’s case with respect to s 394-25(2)(b).

81    In the absence of evidence as to the extent to which the market value of the forestry interests decreased after the exercise of the Put Option, the primary judge determined at J [134] that the appellant’s assessable income arising from the CGT events taking place on 1 July 2015 per forestry interest (and thus to be multiplied by 337) was:

(a)    CGT event C2 from exercise of the Put Option: $14,000 minus $X;

(b)    CGT event C2 from the cancellation or discharge of Mr Aitken’s forestry interests: $X;

(c)    Total assessable income per interest: $14,000, minus $X, plus $X = $14,000.

82    As the primary judge found, the appellant was required to include in his assessable income the amount that resulted from the calculation under s 394-25(2)(b) and the market value of the forestry interests under the Novation Deed. As that valuation exercise was not attempted by the appellant below, he did not discharge his burden of proof under s 14ZZO of the TAA.

83    For these reasons, grounds 1, 6, 7, 8 and 9 must fail.

Not all material facts before the Court

84    At J [17], the primary judge observed that, “The determinative issue on this appeal is whether Mr Aitken has discharged his onus of proving that the amended assessment was excessive. The manner in which the onus can be discharged depends on whether all material facts are known” and whether the parties have agreed to confine an appeal to a specific point of law or fact on which the amount of the assessment depends, citing Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 625 (Brennan J). The appellant did not challenge this statement by the primary judge; rather, he accepted its correctness during the hearing of the appeal.

85    At J [20], the primary judge observed that:

In this proceeding, most of the material facts that are before the Court are not in dispute and the issues are largely confined to the market value, or reduction in market value, of Mr Aitken’s forestry interest, as at 1 July 2015. But as will be seen, not all the material facts going to market value are before the Court, largely due to evidentiary silence about the circumstances surrounding the Novation Deed dated 1 July 2015, and the absence of any evidence of the value of the carbon sequestration and salinity rights and credits component of Mr Aitken’s forestry interest retained by him…

86    At J [52]–[53], the primary judge observed the following about the expert evidence of Mr Halligan:

The valuation conducted on behalf of Mr Aitken by his expert, Mr Halligan, deliberately excluded any attempt to value the carbon sequestration and salinity rights and credits that were excised from the forestry interest conveyed by the Novation Deed and therefore retained. When pressed during cross-examination, Mr Halligan stated that based on his initial impressions, the excised component would not have made a material difference to the valuation. During Mr Aitken’s cross-examination, he referred to the excised component as having some value, perhaps in the future. Aside from these vague statements, there was no evidence of value as to why the Novation Deed was entered into or why the carbon sequestration and salinity rights and credits were excised and retained, as opposed to letting a sale contract be completed as the consequence of the exercise of the Put Option.

In closing submissions, Mr Aitken asked me to infer that the excised component was of little or no value, but I have no basis for doing that beyond there being no cost to him in retaining it. Beyond that, there is evidentiary silence. What matters is that there was a difference to the outcome that would have been arrived at, had the contract arising from the exercise of the Put Option been completed, instead of being effectively terminated by the execution of the Novation Deed. I cannot regard that difference as being material or immaterial, because there was no evidence upon which to reach either conclusion. Therefore, the actual market value of the excised carbon sequestration and salinity rights and credits component of Mr Aitken’s forestry interest as at 1 July 2015 remains unknown. It is no part of this case to consider what happened to those rights.

(Emphasis added.)

87    At J [61(f)], the primary judge reiterated that there was no explanation for the execution of the Novation Deed, with the only apparent reason being the appellant’s retention of the excluded rights. On appeal, there was no challenge to this finding.

88    At J [136], the primary judge rejected a submission by the appellant that the market value of the excluded rights be treated as minimal to the point of being ignored and found that it was unknown and unproven. As to this, the appellant accepted that there was no evidence of the value of the excluded rights before the primary judge.

89    His Honour then found that it followed that the appellant failed to establish that the amended assessment sum of $4,718,000 was excessive: J [137].

90    The thrust of the appellant’s submission on appeal is that the value of the rights which were retained by the appellant (and we infer the circumstances surrounding the negotiation and entry into the Novation Deed) were not material facts about which the appellant was required to adduce evidence, because the existence of the Put Option, and its preceding exercise, were not relevant to the determination of the market value of the forestry interests (being his central argument on this appeal). On this premise, so he submits, all that matters is the value of the forestry interests which were disposed of through the entry of the Novation Deed about which Mr Halligan gave evidence.

91    As we have rejected this premise when addressing other grounds of appeal, it follows that, absent evidence as to the circumstances surrounding the entry into the Novation Deed and the value of the rights retained by the appellant, not all material facts going to market value of the forestry interests were before the primary judge, and the primary judge was correct to find that the appellant had not established that the amended assessment sum of $4.718 million was excessive.

92    For these additional reasons, grounds 8 and 9 must fail.

Conclusion and disposition

93    For these reasons, the appeal will be dismissed with costs.

Associate:

Dated:    6 March 2026