Federal Court of Australia

Brisbane Club v Commissioner of Taxation [2026] FCA 220

ORDERS

THE COURT ORDERS THAT:

1. By 4pm on 16 March 2026, the parties are to submit agreed, or in the absence of agreement competing, short minutes of orders in accordance with these reasons for judgment (which may contain any timetabling orders, including as to costs).

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

REASONS FOR JUDGMENT

WHEATLEY J:

INTRODUCTION

1 The Brisbane Club ACN 009 657 863, (the Club) brings a taxation appeal against the objection decision of the Commissioner of Taxation (the Commissioner) dated 25 October 2023 (Decision) which disallowed the Applicant’s objection dated 23 May 2023 (Objection) in respect of the assessment in relation to a substituted accounting period ending 31 March 2022 (Assessment).  The Assessment imposed capital gains tax (CGT) on, amongst other matters not all of which are relevant, the sale of the Brisbane Club Tower (Building) located at Adelaide Street, in Brisbane owned by the Club.  The Assessment also imposed CGT on the sale of two subleases in the Building owned by the Club.

2 It is an agreed fact that the Club acquired land, being Lot 1 on RP 948, Title Reference 17132167, more commonly known as 241 Adelaide Street, Brisbane (Land) in 1963.  The Club submits that the acquisition date of the Land, together with the relevant Deed (defined below) provides for the construction of the Building on the Land dated 8 May 1985, which meant that any capital gain is to be disregarded as the asset was acquired before 20 September 1985.

3 Further, in relation to two subleases, the Club submits that the origin of the Club’s right to obtain the first sublease was the Deed and the second sublease was submitted to be acquired on or about 12 August 1985, when the Club exercised an option for that sublease under the Deed.

4 The Commissioner disagrees submitting that each of the Building and the two subleases are post-CGT assets and therefore subject to capital gains tax.

5 Section 104-10(5)(a) of the Income Tax Assessment Act 1997 (Cth) (ITAA97) relevantly provides that a capital gain made is disregarded if the asset was acquired before 20 September 1985.

6 Division 108 of the ITAA97 defines the various categories of assets, which are CGT assets.  Subdivision 108-D provides for when certain CGT assets are separated.  Relevantly, s 108-55(2) provides for when a building is a separate asset from land for CGT purposes, providing an exception to the common law principle that what is attached to the land is part of the land. A building or structure that is constructed on land acquired before 20 September 1985 is taken to be a separate CGT asset if a contract for its construction was entered on or after 20 September 1985.  The Commissioner submits that this provision applies to separate the Building from the Land with respect to the sale by the Club of the Land and Building, as the relevant contract for construction was the Building Contract (defined below), later entered, and not the Deed.

7 Division 109 sets out ways in which a CGT asset can be acquired and the time of that acquisition.  Relevantly, a CGT event F1 relates to the grant of a lease.  The timing rule generally provides that this asset, being the grant of lease (or sublease) is acquired when the contract is entered.  Although the Commissioner advances a particular construction, ultimately he submits that because the parties to the subleases were different to the parties to any earlier contract or option, the relevant date can only be entry into the subleases which was after 20 September 1985.

8 Therefore, the two main issues can be described as follows:

(1) is the capital gain from the disposal of the Building to be disregarded pursuant to s 104-10(5)(a) of the ITAA97 or does s 108-55(2)(a) apply to separate the Building from the Land, for CGT purposes (Building Issue); and

(2) is the capital gain to be disregarded pursuant to s 104-10(5)(a) of ITAA97, because each of the relevant subleases were acquired by the Club before 20 September 1985 (Subleases Issues).

9 The Club submits that each of these were disposals which should be disregarded pursuant to s 104-10(5)(a) of the ITAA97.  On this basis, the Commissioner’s assessment is excessive, and the taxation appeal ought to be allowed.

10 For the following reasons the taxation appeal should be allowed in part.  The Building would not be regarded as a separate CGT asset pursuant to s 108-55(2)(a) as the relevant contract, properly construed, was entered before 20 September 1985.  However, the position in relation to the subleases is different.  As the grant of each sublease, being the relevant lease contract, was entered after 20 September 1985 the CGT event  will not be disregarded.

BACKGROUND

Agreed Facts

11 The parties provided and relied on an amended statement of agreed facts.

12 Relevantly, the following background facts are accepted, for the purposes of this proceeding.

13 The Club is a public company limited by guarantee under the Corporations Act 2001 (Cth).

14 On 7 May 1985, the Club held an extraordinary general meeting to consider resolutions regarding the re-development of the Land and entry into relevant documentation with F. A. Pidgeon & Sons Pty Ltd (Developer).

15 On 8 May 1985, the Club entered into a Deed (it was also at times also referred to as the ‘Development Agreement’, however given its terms, the description in the statement of agreed facts and the agreement entered into by the Developer and CML (below), it will be referred to as the Deed) with the Developer.

16 On 10 January 1986, the Club entered into the Building Agreement with the Developer.

17 Construction on the Land commenced on or after 14 February 1986.

18 On 18 June 1986, the Club (as lessor) granted a lease over the whole of the Land (including the Building) to City Mutual Life Assurance Society Ltd (CML) (as lessee) with the lease term commencing on 27 March 1986 (Head Lease).

19 Also on 18 June 1986, CML (as lessor) and the Club (as lessee) executed a sublease of parts of the Building for a term commencing on 1 September 1986 (registered lease number J239318M) (First Sublease).  Further on 18 June 1986, CML (as lessor) and the Club (as lessee) executed a sublease of parts of the Building for a term commencing on 1 September 1986 (registered lease number J239320Y) (Second Sublease).

20 Earlier, between 9 April 1986 and 18 June 1986, the Club and CML engaged in correspondence concerning the Head Lease, the First Sublease and the Second Sublease.

21 The Developer did not enter into any lease or sublease in relation to the Land or the Building, or any part thereof, with the Club, or any other person.

22 On 24 June 1986, the Developer and CML entered into an agreement entitled, Development Agreement.

23 The Brisbane City Council issued a Certificate of Classification dated 4 February 1988 in relation to the Building.

24 The Building, known as the Brisbane Club Tower was completed in 1988, reaching practical completion on 12 February 1988.

25 On 10 June 2021, the Club contracted with CHAB Office Pty Ltd (Purchaser) to sell, relevantly, the Land, the Building, the First Sublease and the Second Sublease (among other property) for $32 million (excluding GST).  The Club accepts that this was a CGT Event A1, but that any gain from it should be disregarded in accordance with s 104-10(5)(a) of the ITAA97.

Procedural History

26 On 21 January 2021, the Club requested a pre-lodgment engagement with the Commissioner to determine the tax treatment regarding the proposed sale of the Building, the Land, the First Sublease and Second Sublease.  At that time the discussions for the proposed sale were described as well-progressed.  After meetings and further correspondence on 18 January 2022, the Commissioner advised of his view that relevantly, the Building, the First Sublease and the Second sublease were post-CGT assets and would be subject to CGT.

27 On 19 April 2023, the Club lodged its income tax return.  In doing so, the Club lodged the return consistent with the Commissioner’s views expressed during the pre-lodgment process.  The Club returned a net capital gain of $13,526,818 which resulted in taxable income of $6,005,444 which resulted in a tax liability of $1,801,633.20 (after the application of carried forward losses, amongst other income and deductions), which was paid in full.

28 On 30 May 2023, the Club lodged the Objection.

29 On 25 October 2023, the Commissioner made the Decision.

30 On 22 December 2023, the Club filed an appeal under s 14ZZ of the Taxation Administration Act 1953 (Cth) (TAA). The Club bears the onus of establishing that the assessment is excessive or otherwise incorrect and what the assessment should have been or what is “more nearly right”: Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63; [1936] HCA 77 at 88 (Latham CJ); Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614; [1990] HCA 3 at 623–625 (Brennan J) and at 632–634 (Toohey J); s 14ZZO(b)(i) of the TAA.

31 The Appeal only relates to:

(a) the Building Issues; and

(b) the Sublease Issues, being the First Sublease and the Second Sublease.

ISSUES

32 Given the issues involved in this matter, it is worth setting out the principles to be applied in relation to statutory construction.

33 The starting point for construing a statutory provision is the text of the statute understood in context, whilst regard is had at the same time, to its statutory purpose: Palmanova Pty Ltd v Commonwealth of Australia (2025) 99 ALJR 1362; [2025] HCA 35 at [4] (Gageler CJ, Gordon, Jagot and Beech-Jones JJ); SZTAL v Minister for Immigration and Border Protection (2017) 262 CLR 362; [2017] HCA 34 at [14] (Kiefel CJ, Nettle and Gordon JJ); Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 at [69]-[70] (McHugh, Gummow, Kirby and Hayne JJ).  In this sense, context is an enquiry made at this first stage and in its widest sense: CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; [1997] HCA 2 at 408 (Brennan CJ, Dawson, Toohey and Gummow JJ); SZTAL at [14]; R v A2 (2019) 269 CLR 507; [2019] HCA 35 at [33] (Kiefel CJ and Keane J) and [148] (Nettle and Gordon JJ); Palmanova at [5].

34 It is necessary to construe the provision in light of the relevant extrinsic materials and legislative history, that being the statutory purpose which the provision is designed to actually achieve: Palmanova at [4].  Extrinsic material may assist in understanding the context and in fixing the meaning of the statutory text: Palmanova at [6].  Such materials will illuminate the mischief which the statute is intended to remedy: R v A2 at [33] and [148]; CIC Insurance at 408. However, considerations drawn from the extrinsic materials cannot be relied on to displace the clear meaning of the text of the relevant provision: Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27; [2009] HCA 41 at [47] (Hayne, Heydon, Crennan and Kiefel JJ); Federal Commissioner of Taxation v Consolidated Media Holdings Pty Ltd (2012) 250 CLR 503; [2012] HCA 55 at [39] (French CJ, Hayne, Crennan, Bell and Gageler JJ).  Furthermore, such extrinsic materials cannot be substituted for the text of the statute: Consolidated Media at [39].  The construction which best achieves the purpose or object of the legislation is to be preferred: s 15AA of the Acts Interpretation Act 1901 (Cth).

35 There is a presumption that the same words which occur in different parts of a statute have the same meaning, however this presumption is one which must yield to the requirements of context: McGraw-Hinds (Aust) Pty Ltd v Smith (1979) 144 CLR 633; [1979] HCA 19 at 643 (Gibbs J); WorkPac Pty Ltd v Skene (2018) 264 FCR 536; [2018] FCAFC 131 at [106] (Tracey, Bromberg and Rangiah JJ). When construing a statute, all words are to be given meaning and effect: Project Blue Sky at [71]; Saeed v Minister for Immigration and Citizenship (2010) 241 CLR 252; [2010] HCA 23 at [39] (French CJ, Gummow, Hayne, Crennan and Kiefel JJ).

36 A deeming provision creates a statutory fiction which operates only so far as is necessary to achieve its statutory purpose: Minister for Immigration and Border Protection v Makasa (2021) 270 CLR 430; [2021] HCA 1 at [51] (Kiefel CJ, Gageler, Keane, Gordon and Edelman JJ), Ziegler v Federal Commissioner of Taxation (2025) 313 FCR 574; [2025] FCAFC 168 at [25] (Bromwich, Thawley and Jackman JJ).  The phrase “is taken to be” is generally used when the provision is a deeming provision: Vanstone (in her capacity as Minister for Immigration and Multicultural and indigenous affairs) v Clark (2005) 147 FCR 299; [2005] FCAFC 189 at [137] (Weinberg J, with who Black CJ agreed).

37 Finally, taxing statutes do not form a separate class of statutes which should be construed differently.  These are to be construed by application of these settled principles: Alcan at [57] (Hayne, Heydon, Crennan and Kiefel JJ).  However, that the statute being construed is a taxing statute does form part of the context: Commissioner of State Revenue (Vic) v ACN 005 057 349 Pty Ltd (2017) 261 CLR 509; [2017] HCA 6 at [24] (Bell and Gordon JJ, Kiefel and Keane JJ agreeing), also see Sunlite Australia Pty Ltd v Federal Commissioner of Taxation (2023) 296 FCR 600; [2023] FCAFC 43 at [6] (Colvin, O’Sullivan and Feutrill JJ).

Building Issue

38 The ultimate issue to be decided in relation to the Building is whether despite the occurrence of a CGT event A1, the gain from this disposal should be disregarded in accordance with s 104-10(5)(a) of the ITAA97, because the Building is taken to be acquired before 20 September 1985.  If the Building is taken to be acquired after 20 September 1985, s 108-55(2)(a) applies to separate the Building from the Land and CGT will apply to the disposal of the Building.

39 To determine that issue, the parties agreed it was necessary to consider certain sub-issues, however they disagreed as to the formulation. There was overlap in how these sub-issues were expressed.

40 On a consideration of both formulations of the issues to determine the Building Issue, the sub-issues can be expressed as follows.

(1) What is the proper construction of s 108-55 of the ITAA97? (Construction of s 108-55(2) of the ITAA97)

(2) Pursuant to s 108-55, is the Building a separate asset from the Land because the Club entered into a contract for construction on or after 20 September 1985? (Is the Building a Separate Asset?)

(3) If the Building is a separate asset, was it acquired after 20 September 1985 pursuant to s 109-5(1) and s 109-10 of the ITAA97? (What date was the Building Acquired?)

Construction of s 108-55 of the ITAA97

41 Chapter 3 of the ITAA97 provides specialist liability rules.  It commences with Part 3-1 which provides for the general topics relating to capital gains and losses.  Relevantly, Division 100 provides a guide to capital gains and losses, Division 103 provides the general rules, Division 104 provides for CGT events, Division 108 provides for CGT assets and Division 109 provides for the acquisition of CGT assets.

42 Division 100 expressly states that it is a Guide. A Guide forms part of the ITAA97 as “this Act” is defined by way of an inclusive definition which would include the ITAA97: s 950-100 and s 995-1. Section 950-150(1) provides for what consists of a Guide. Section 950-150(2) provides that although the Guide forms part of the Act, it is kept separate from the operative provisions and can only be considered in the ways provided for in s 950-150(2)(a)-(d), which state as follows:

(a) in determining the purpose or object underlying the provision; or

(b) to confirm that the provision’s meaning is the ordinary meaning conveyed by its text, taking into account its context in the Act and the purpose or object underlying the provision; or

(c) in determining the provision’s meaning if the provision is ambiguous or obscure; or

(d) in determining the provision’s meaning if the ordinary meaning conveyed by its text, taking into account its context in the Act and the purpose or object underlying the provision, leads to a result that is manifestly absurd or unreasonable.

43 Accordingly, the Guide in Division 100 and each of the Guides at the commencement of Divisions 103, 104, 108 and 109 is in the nature of intrinsic explanatory material and cannot be used to contradict the language of the operative provisions or confine the operative provisions: Federal Commissioner of Taxation v Resource Capital Fund IV LP (2019) 266 FCR 1; [2019] FCAFC 51 at [12] (Besanko, Middleton, Steward and Thawley JJ).

44 Division 104 provides for CGT events.  There was no dispute between the parties that the relevant event was an “A1 disposal of a CGT asset” (see s 104-5) which then refers to s 104-10 of the ITAA97.

45 Although there was no dispute that the disposal was a CGT event A1, given the issue regarding s 104-10(5), it is worth setting out s 104-10 (1)-(3) and (5), for context:

s 104-10 Disposal of a CGT asset: CGT event A1

(1)    CGT event A1 happens if you *dispose of a *CGT asset.

(2)    You dispose of a *CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner.

Note:    A change in the trustee of a trust does not constitute a change in the entity that is the trustee of the trust (see subsection 960-100(2)). This means that CGT event A1 will not happen merely because of a change in the trustee.

(3)    The time of the event is:

(a)    when you enter into the contract for the *disposal; or

(b)    if there is no contract—when the change of ownership occurs.

…

Exceptions

(5)    A *capital gain or *capital loss you make is disregarded if:

(a)    you *acquired the asset before 20 September 1985; or

(b)    for a lease that you granted:

(i)    it was granted before that day; or

(ii)    if it has been renewed or extended—the start of the last renewal or extension occurred before that day.

46 In s 104-10(1) the asterisk identifies that the terms “dispose of” and “CGT asset” are defined terms: s 2-10 of the ITAA97. Section 995-1 defines “dispose of” as being those circumstances specified in s 104-10.  Section 995-1 defines CGT Asset as having the meaning given by s 108-5 of the ITAA97.

47 A disposal of a CGT asset takes place as a CGT event A1 when a change of ownership occurs, whether because of some act or event or by operation of law: s 104-10(2).  The time of that event is when the contract is entered for the disposal or when the change of ownership occurs if there is no contract: s 104-10(3).

48 Section 104-10(5) provides an exception.  Relevantly a capital gain can be disregarded if the asset was acquired before 20 September 1985.

49 Section 995-1 defines “CGT asset” as having the meaning given by s 108-5 of the ITAA97.  Section 108-5 provides as follows:

s 108-5 CGT assets

(1)    A CGT asset is:

(a)    any kind of property; or

(b)    a legal or equitable right that is not property.

(2)    To avoid doubt, these are CGT assets:

(a)    part of, or an interest in, an asset referred to in subsection (1);

(b)     goodwill or an interest in it;

(c)    an interest in an asset of a partnership;

(d)    an interest in a partnership that is not covered by paragraph (c).

Note 1:    Examples of CGT assets are:

* land and buildings;

* shares in a company and units in a unit trust;

* options;

* debts owed to you;

* a right to enforce a contractual obligation;

* foreign currency.

Note 2:     An asset is not a CGT asset if the asset was last acquired before 26 June 1992 and was not an asset for the purposes of former Part IIIA of the Income Tax Assessment Act 1936: see section 108 - 5 of the Income Tax (Transitional Provisions) Act 1997.

50 The Guide to Division 108, s 108-1 describes what the Division is about, including that it sets out when land, buildings and capital improvements are taken to be separate CGT assets.  That is provided for in Subdivision 108-D.  The Guide in s 108-50, at the commencement of Subdivision 108-D provides:

s 108-50 What this Subdivision is about

Note: In addition to the circumstances set out in this Subdivision, separate asset treatment can apply under section 124 - 595 (about a roll - over for a Crown lease) and section 124 - 725 (about a roll - over for a prospecting or mining entitlement).

51 Section 108-55 provides as follows.  Although it is only subsection (2) which is relevant, it is worth setting out the entire provision, for its context.

Operative provisions

s 108-55 When is a building a separate asset from land?

(1)    A building or structure on land that you *acquired on or after 20 September 1985 is taken to be a separate *CGT asset from the land if one of these balancing adjustment provisions applies to the building or structure (whether or not there is a balancing adjustment):

(a)    Subdivision 40-D; or

(b)    section 355-315 or 355-525 (about R&D).

Example:    You construct a timber mill building on land you own. The building is subject to a balancing adjustment on its disposal, loss or destruction. It is taken to be a separate CGT asset from the land.

(2)    A building or structure that is constructed on land that you *acquired before 20 September 1985 is taken to be a separate *CGT asset from the land if:

(a)    you entered into a contract for the construction on or after that day; or

(b)    if there is no contract—the construction started on or after that day.

Example:    You bought a block of land with a building on it on 10 August 1984. On 1 December 1999 you construct another building on the land. The other building is taken to be a separate CGT asset from the land.

52 The explanatory memorandum to the Income Tax Assessment Amendment (Capital Gains) Bill 1986 (Cth) (Explanatory Memorandum), when the CGT regime was first introduced, relevantly said the following (at page 5):

Land and buildings. improvements, etc.

Where a taxpayer acquired land before 20 September 1985 and on or after that date a building is constructed on that land, the building will be treated as a separate asset from the land. Accordingly, where the land and building are subsequently disposed of, a capital gain may accrue or a capital loss may be incurred in respect of the disposal of the building. No capital gain or loss will arise in respect of the land.

53 One of the main features of the introduction of this legislation was to provide for the introduction of a tax on capital gains which would apply to assets acquired on or after 20 September 1985: Explanatory Memorandum at page 1.  There was a deliberate and definite purpose that this tax introduced was only to apply on and from this date, being 20 September 1985. In every sense the introduction of capital gains tax was to be prospective: Commonwealth, Parliamentary Debates, House of Representatives, 19 September 1985,  Mr Paul Keating, Treasurer, at page 1349.

54 Section 160P was previously the relevant provision, in relation to the separation of particular assets under the Income Tax Assessment Amendment (Capital Gains) Bill 1986 (Cth).  The Explanatory Memorandum stated the following regarding this provision.

Section l60P: Composite assets

Section 160P sets out the rules applicable to assets which may be broadly categorised as composite assets. Primarily the provisions of section 160P relate to:

* the treatment of land and buildings where land is purchased before 20 September 1985 and a building is constructed on it after that date;

* capital improvements made on or after 20 September 1985 to an asset acquired before that date; and

* the treatment of assets for capital gains purposes where the assets are regarded as separate assets for the purposes of the Act other than new Part IIIA.

Where land on which a building is erected was acquired before 20 September 1985, the building is demolished and a new building is, on or after 20 September 1985, erected on the land, sub-section 160P(1) treats the new building for the purposes of Part IIIA to be an asset separate from the land. The effect of this provision is to treat the new building as an asset acquired after 20 September 1985, the disposal of which will be subject to the provisions of the new Part, while the land itself, having been acquired before 20 September 1985, will not be subject to the new Part.

55 Section 160P(1) and (2) were as follows:

s 160P Composite assets

(1)    Where:

(a)    land on which a building is erected was acquired by a taxpayer before 20 September 1985;

(b)    after the acquisition of the land by the taxpayer the building was demolished and a new building was constructed on the land in replacement of the demolished building; and

(c)    if the new building were a separate asset from the land, the new building would be taken for the purposes of this Part to have been acquired by the taxpayer on or after 20 September 1985;

the new building shall be deemed for the purposes of this Part to be an asset separate from the land.

(2)    Where:

(a)    land was acquired by a taxpayer before 20 September 1985;

(b)    after the acquisition of the land by the taxpayer a building was constructed on the land; and

(c)    if the building were a separate asset from the land, the building would be taken for the purposes of this Part to have been acquired by the taxpayer on or after 20 September 1985;

the building shall be deemed for the purposes of this Part to be an asset separate from the land.

56 Generally, at common law, a building would form part of the land, as a fixture: Commissioner of Stamps (WA) v L Whiteman Ltd (1940) 64 CLR 407; [1940] HCA 30 at 411 (Rich ACJ, Starke and Williams JJ agreeing). This was accepted by both parties. As such if the ‘land’ was acquired before 20 September 1985, apart from legislative intervention, then fixtures to that would also form part of that land and generally be characterised as being acquired before 20 September 1985.  However, there is a clear legislative intent to create a divide between before 20 September 1985 and after that date.  All assets purchased or acquired before 20 September 1985 were not to be subject to the capital gains tax regime.  However, all assets purchased or acquired after that date, were to be subject to capital gains tax (or at least potentially, depending on whether a capital gain or loss was made).  This delineation extended to create a legislative exception to the usual position at common law regarding what is attached to land becoming part of the land.  Relevantly, special rules were created about buildings which would be considered separately to the land upon which those buildings were built, in certain circumstances.   The purpose behind this provision is to maintain that clear delineation between CGT events before or post 20 September 1985.  It is also to maintain the prospective approach, that land acquired before 20 September 1985 would remain not subject to CGT, however, buildings may in particular circumstances (previously s 160P, now s 108-55) be deemed to be a separate asset.

57 By imposing this separation there is also an evident purpose of seeking to reduce the ongoing  impact to the revenue of pre-CGT land.  That is, if a taxpayer held land acquired before 20 September 1985 and continued to hold such land, at some stage in the future the buildings or structures will need replacement.  Then, applying this separation provision, future buildings or structures (at least potentially) will eventually be subject to the CGT provisions, and not disregarded pursuant to s 104-10(5) of the ITAA97.  The Treasurer observed that revenue was expected to build up gradually over a lengthy period, as newly acquired assets were disposed of and became subject to CGT.  The separation of buildings from land acquired before 20 September 1985 is also consistent with this evident purpose of CGT applying to all assets and the revenue increasing over time.

58 Then to the language of the provision.  Section 108-55(2)(a) uses the language “is taken to be”.  It is a deeming provision and is to operate only so far as is necessary to achieve its statutory purpose.  It is deeming a circumstance which is contrary to usual position at common law.  Usually, a building would be regarded as a fixture and part of the land on which it is built.  However, a building or structure constructed on land acquired before 20 September 1985 will be deemed to be a separate CGT asset from that pre-CGT land if “you entered into a contract for the construction on or after that day.”  The reference to “that day” is to 20 September 1985 and “the construction” is the construction of the building or structure, being considered which would be separated if the provision applies.

59 The parties focused upon the phrase “entered into a contract for the construction” within s 108-55(2)(a) of the ITAA97.

60 The Club submits that an ordinary meaning of this phrase should be adopted, observing that s 108-55(2) modifies the ordinary common law position that fixtures become part of the land.  The Club also refers to the dictionary definition of “construction”, by reference to the word “construct” as being “to form by putting together parts; build; frame; devise” (Macquarie Dictionary).

61 To this should be added the dictionary definition of the word “for” which means (as a preposition) “with the object or purpose of” (Macquarie Dictionary).

62 Dictionaries can be useful, but appropriate caution needs to be observed in their use due to the obvious limitations: Federal Commissioner of Taxation v BHP Billiton Ltd (2011) 244 CLR 325; [2011] HCA 17 at [49] (French CJ, Heydon, Crennan and Bell JJ); Thiess v Collector of Customs (2014) 250 CLR 664; [2014] HCA 12 at [23] (French CJ, Hayne, Kiefel, Gageler and Keane JJ).  Dictionaries will often supply a range of meanings, however no dictionary will provide guidance as to which of those meanings the legislature intended, that is the process of statutory construction which the Court must undertake: Will v Brighton (2020) 104 NSWLR 170; [2020] NSWCA 355 at [52]-[57] (Bell P).

63 The Club also seeks to draw on s 104-10(3)(b) and previously s 160U(3) which was in Pt IIIA of the Income Tax Assessment Act 1936 (Cth) (ITAA36) at that time.  In this regard, the Club also relies on Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520; [2000] HCA 35 at [42] (Gleeson CJ, Gaudron, McHugh and Hayne JJ) in relation to the words “under a contract” in s 160U(3). Section 160U(3) relevantly provided:

s 160U(3)    Where the asset was acquired or disposed of under a contract, the time of acquisition or disposal shall be taken to have been the time of the making of the contract.

64 Section 160U(1) provided that where an asset has been acquired or disposed of the time of that acquisition or disposal for the purposes of that part of the Act, was to be ascertained in accordance with that section.  Section 160U is a timing provision. That is, the purpose of s 160U is different to the purpose of s 108-55 of the ITAA97 and it uses different statutory language.

65 Sara Lee concerned the identification of the year of income in which a capital gain made by the taxpayer was to be taxed, being either the 1991 or 1992 income year.  The change of ownership occurred in the 1992 income year however the assets were disposed of under a contract which was made during the 1991 income year.  The relevant original contract was dated 31 May 1991, however there were a number of amendments to the purchase and sale agreement, which were the subject of an amendment agreement executed on 30 August 1991.  By definition, what was referred to as “the Agreement” was the agreement dated 31 May 1991 as amended (Sara Lee at [17]).  The Court held that the parties did not intend to rescind the 31 May 1991 agreement, but that rights and liabilities and the mode of performance was to be varied in certain respects (Sara Lee at [25]).  Further the 31 May 1991 agreement, as amended, contemplated that the assignment of assets and the assumption of liabilities would be effected by separate deeds, which in fact occurred.  The change of ownership of the Australian assets occurred on 30 August 1991.  The central question was whether the disposal which occurred on 30 August 1991 was under the contract dated 31 May 1991 (Sara Lee at [30]).  From a consideration of the relevant statutory provisions (as they then stood) it was the provisions as to timing which were material.  Section s 160U(3) provided that it was the time of the making of the contract and the High Court held (Sara Lee at [40]-[42]) that it was not the time when it became unconditional or specifically enforceable, which was determinative.  In this context Gleeson CJ, Gaudron, McHugh and Hayne JJ stated (Sara Lee at [42]):

42    The words “under a contract”, in s 160U(3), direct attention to the source of the obligation which was performed by the transfer of assets which constituted the relevant disposal. From 31 May 1991, until completion on 30 August 1991, there was a contractual obligation upon the respondent to dispose of its assets to Roche, or to an entity of the kind referred to in s 12.3 of the purchase and sale agreement. The content of that obligation did not change. The price was varied, as were certain other terms and conditions of the sale, but the agreement of 31 May 1991 was the source of the obligation which the respondent discharged by performance on 30 August 1991.

(footnote references omitted)

66 It is also worth considering Sara Lee at [49]:

49     Where there are two or more contracts which affect the rights and obligations of the parties to a disposal of assets, the identification of the contract under which the assets were disposed of, for the purpose of applying s 160U of the Act, requires a judgment as to which of the contracts is properly to be seen as the source of the obligation to effect the disposal. In the present case, that contract is the purchase and sale agreement of 31 May 1991.

67 The Club submitted that Sara Lee was a useful guide in applying the words of s 108-55.  The Commissioner submits that based on the textual, contextual and factual differences, Sara Lee is not relevant to construction of s 108-55 of the ITAA97.

68 There is guidance that can be obtained from Sara Lee.  Of course, the provision under consideration in Sara Lee, must be construed in accordance with the usual principles of statutory construction and that provision was different.  The relevant contract must also be construed in accordance with the usual principles and it must then be ascertained whether it accords with or answers the necessary description of the provision under consideration, s 108-55(2).  In Sara Lee the provision required the identification of the contract which provided the source of the obligation, because of the words of that provision, being “under a contract”.

69 The Club submits that a “contract for the construction” requires a commitment under a contract and for that commitment to be entered pre-CGT.

70 The Commissioner contends that the phrase means an agreement under which a party is obliged (subject to the terms of the agreement) to construct a building, so as to bring a building into physical existence.  The Commissioner also places emphasis on the reference to “a” contract for the construction, not “the” contract.  This, the Commissioner submits, supports a construction that if there was more than one contract for the construction of a building, then the provision would separate the building as an asset if there is at least one contract entered into post-CGT.

71 The Commissioner seeks, by this submission, to place an unwarranted emphasis on the word “a”.  First, the provision would be quite awkward if it was in the following terms “you entered into the contract for the construction...”, the use of the word “a”, makes the provision more readable.  Second, the use of the word “a” is not directed towards a choice of being able to select any contract which might answer the description of a contract for construction after 20 September 1985. It is directed to a particular contract being one for construction. Third, the “a” provides a recognition that in the project or development there may be several contractual documents that are entered.  It is entry into a particular contract, which carries the legal obligation for, being to effect the construction of the building or structure, on or after 20 September 1985, which will be within the terms of s 108-55(2)(a) of the ITAA97.

72 There is also a need for the harmonious operations of the relevant provisions regarding a CGT event A1, in relation to:

(1) s 104-10(3)(a), for disposals which uses the language of “enter into the contract for the disposal”;

(2) s 109-5 (case 1), for acquisitions which uses the language “when the disposal contract is entered into”; and

(3) s 108-55(2)(a), for the separation of a CGT asset which uses the language of “entered into a contract for the construction”.

73 The critical focus of these provisions is the entry into the contract which creates the relevant legal obligations and identification of the time of making (entering) that contract.  It does not matter if the contract, when entered, was conditional or was varied at some later point in time. However, any such conditions or amendments must maintain that the original contract remains in full force and effect.  That will be a question of construction.  If a condition or conditions are not fulfilled, then there will not be a contract “for the construction”.  At the point in time of considering the application of the provisions, the contract will have been completed and the legislation directs attention, in terms of timing, to the entry of that contract.  Consideration is not directed to when such a contract became unconditional or when that contract was varied.  The express object of Subdivision 108-D is to provide (amongst other matters) an exception to the common law principle regarding fixtures and to provide rules for when a building will be a separate asset from the land, for CGT purposes.  Usually, on a consideration of the operation of s 108-55(2)(a), the building will already have been built and the contract (whether initially conditional, or whether subsequently varied) will have been completed.

74 The language of the provision also uses the words “for” and “the”.  It must be a contract for the construction.  By the use of the word “for” the provision directs attention to the particular contract in which there is a legal obligation “for” “the” construction.  It is not simply a contract “for” construction generally but a contract “for the” construction of the relevant building or structure.  The “for” and “the” together provide the legislative requirement that it be a contract with the object or purpose specifically being the actual construction of the building or structure being considered.

75 Therefore, on a proper interpretation of s 108-55(2)(a) it requires:

(1) the taxpayer to have acquired land before 20 September 1985;

(2) a building or structure is built on that land; and

(3) the taxpayer enters into a contract (whether conditional or subsequently varied) which:

(e) provides the legal obligation for the construction (that is, the actual performance of building, to form by putting together) of the building or structure, being considered as potentially a separate asset; and

(f) entry into this contract is on or after 20 September 1985.

Is the Building a Separate Asset?

76 It is then to consider whether having determined the proper construction of s 108-55(2)(a) of the ITAA97, and whether it applies to the circumstances of the Club.

77 The Club contends that the Building was not deemed to be a separate asset in accordance with s 108-55(2)(a) because the relevant contract for construction was the Deed entered on about 8 May 1985, which is prior to 20 September 1985.  Therefore, the Club submits that the CGT event A1 should be disregarded in accordance with s 104-10(5)(a) of the ITAA97.

78 The Club submits for seven reasons that it is the Deed which provides the source of the obligation for the construction of the Building, which can be summarised as follows.  First, the Deed contemplated entering into a building contract, which did eventuate by way of the Building Agreement on 10 January 1986.  Second, by clause 28 of the Deed, the Club submits that there was an obligation to execute the Building Agreement and that clause 1(b) provides that the Building Agreement shall be read with and form part of the Deed.  Third, that clause 2 of Part 2 is a covenant to build, whereas clause 31 of the Building Agreement is the obligation to begin and finish the “Works”, which includes the whole of the work to be executed in accordance with the Contract, which also includes the Deed. Fourth, the Deed provides that it prevails over the Building Agreement in the case of conflict, as does the Building Agreement – see clause 5.1(b).  Fifth, the execution of the building works was part of an overall project, which were coordinated under the Deed.  Six, although the Deed is conditional, it is still the obligation to construct.  Seven, the way the Deed fits with the post-CGT Building Agreement, including the covenant to construct, indicates it is the Deed which was entered prior to 20 September 1985 which is the relevant contract to construct.

79 The Commissioner contends that it is the Building Agreement, entered on 10 January 1986 which is the relevant contract for the construction of the Building, which was entered after 20 September 1985. The Commissioner necessarily contends that the Building Agreement was a separate contract which included the usual terms typical for the construction of a building.

Was the Deed a contract for the construction of a building?

80 In determining the meaning of the Deed, the objective theory of contract is “in command of the field”: Realestate.com.au Pty Ltd v Hardingham (2022) 277 CLR 115; [2022] HCA 39 at [83] (Edelman and Steward JJ, providing separate reasons but agreeing with the orders of Gordon J); Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46] (French CJ, Nettle and Gordon JJ); Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [40]–[41] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).  It is necessary to ask what a reasonable businessperson would have understood the terms to mean.

81 Broadly, the Deed sets out in the recitals the following:

(1) The current position of the Club in relation to the Land and the existing building, including its desire to redevelop the Land;

(2) That negotiations have taken place between the Club and the Developer, including that the Developer has submitted conceptual design sketches, which the Club has expressed interest;

(3) An application for approval has been made to Brisbane City Council, such approval which had not yet been received;

(4) Negotiations with others regarding vehicle access were continuing and negotiations with the Land Administration Commission were also continuing regarding four levels of carparking, which had been given in principle approval.

82 Part 1 of the Deed provided various definitions. The definition of “Architect” means such Architect, Engineer or other Consultant as appointed from time to time.  That is, no such consultant had been appointed at the time of the Deed being entered.  It provided a definition of “Building Agreement” which meant the Building Agreement included in the sixth schedule including all such amendments or variations, which may be agreed between the parties, and includes the drawings and specifications. “Deed” was also defined to mean that document and included all schedules annexures and/or attachments.  It defines “Development” as the total of the works required to be done pursuant to either the Deed or the Building Agreement, including demolition and obtaining all approvals. The definition of “Final Plans”, with reference to clause 7 (and clauses 4 to 6) is clearly a reference to “plans” which at the date of entering the Deed, did not exist, however, the Deed was making provision for those final plans.  The definition of “Works” means the whole of the work “to be” executed in accordance with the Building Agreement and includes all variations.  Again, it is referring to “works” that are to be executed in the future, under an agreement which is not yet executed, at the date the Deed was executed.  However, those matters were in the contemplation of the parties at the time of entering into the Deed.

83 Clause 14 provides that 14 days prior to the Developer obtaining possession of the site, in accordance with the provisions of the Building Agreement, the Developer was to provide a Bond to the Club.  No date for vacant possession was provided for in the Deed (clause 17 provided that the Club would use its best endeavours to obtain vacant possession as soon as possible), it was to be provided in accordance with the Building Agreement.  However, objectively the parties made provision for these matters in the Deed, which would work together with the Building Agreement once entered.

84 Clause 18 required the Developer to secure alternate premises for the Club, prior to vacant possession being given.  Clause 24 required the Club to join with and consent to the Developer making all necessary development applications to Brisbane City Council or other Public or Statutory Authority.  These provisions required co-operation between the parties as to matters to be undertaken, in the future to allow for the proposed development.  It is clear that there was anticipated and contemplated, as between the Club and the Developer, that there would be a Building Agreement. However, the plans, approvals and vacant possession were not finalised, obtained or given at the time of entry into the Deed, these were conditional.

85 Clause 28 provides that prior to the delivery of vacant possession of the site, for demolition and construction “…the Developer and the [Club] mutually covenant with each other that each of them will enter into and execute a building agreement in respect of the works to be undertaken pursuant thereto which building agreement shall be in the form contained in the SIXTH SCHEDULE hereto whereupon the provision of Part 2 of this agreement relating to the “BUILDING PROVISIONS” shall forthwith take effect.” (emphasis added)

86 That is, Part 2 of the Deed did not have operative effect until the Building Agreement was entered.  However, as explained above, it matters not that at the time of entry of the Deed that this aspect was conditional.  The proper approach is to consider whether entry into the Deed itself was a contract “for the construction” of the Building.

87 Part 2 of the Deed then provided “Building Provisions”.  There is express reference that the Building Agreement shall be read with and form part of the Deed and in the event of any discrepancy, ambiguity or contradiction between anything in the Deed or in the Building Agreement, then the Deed was to prevail.  Objectively primacy is given to the Deed, however, the documents were to be construed together.

88 Clause 2 in Part 2 provides relevantly as follows:

The Developer covenants with the [Club] that the Developer will at its cost and expense and at no cost or expense whatever to the [Club] expeditiously to commence and proceed with the demolition of the old building and the construction of the new building in accordance with the final plans and the Building Agreement such new building to be completed in a proper workmanlike manner…

89 In essence, read together with the whole of the Deed, it is clause 28 and clause 2 of Part 2, which the Club relies on to submit that the Deed is the source of the obligation for the construction, being the construction of the Building on the Land.

90 As was described in Sara Lee at [42], what was required in that case was a contractual obligation upon the respondent (the taxpayer) to dispose of its assets, as was required under that provision.  What is required for s 108-55 (in summary) is a contractual obligation upon the Club for the construction of the Building.

91 Objectively, clause 28 provides that the Developer and the Club “will enter into and execute” the Building Agreement.  It is a covenant, being a contract to enter into the Building Agreement, rather than a covenant for the construction of the Building itself.  None of the other operative provisions (prior to entry into the Building Agreement) relied on by the Club from the Deed go to support the proposition that the Deed was a contract answering the description required by s 108-55 of the ITAA97.  The Deed prior to the entry of the Building Agreement was not a contract for the construction of the Building.

92 However, that is not the end of the matter.

93 There were terms of the Deed which were conditional upon entry into the Building Agreement.  Once the Building Agreement was entered, Part 2 of the Deed became operative.  Once entered, the Building Agreement was to form part of and be read with the Deed (Part 2, clause 1(b)).  This was contemplated and formed part of the Deed, by the Developer and the Club, at the time of entry into the Deed.  The Building Agreement was contained in the Sixth Schedule of the Deed.

94 Although it can be accepted that if the Building Agreement had not been entered, that is, had the condition not been fulfilled, the Deed would not have been “a contract for the construction” of the Building.  The Building Agreement is a critical step, in terms of the construction of the Building. It is the Building Agreement which contains the typical terms for the construction of a building and the Building could not have been constructed on the basis of the Deed without the Building Agreement forming part of it.

95 Therefore, the critical question of construction is whether the Deed contained a condition, being the Building Agreement, or whether the Building Agreement was a standalone contract which the Deed merely referenced.

96 The following passages from Sara Lee are instructive:

22    When the parties to an existing contract enter into a further contract by which they vary the original contract, then, by hypothesis, they have made two contracts. For one reason or another, it may be material to determine whether the effect of the second contract is to bring an end to the first contract and replace it with the second, or whether the effect is to leave the first contract standing, subject to the alteration. For example, something may turn upon the place, or the time, or the form, of the contract, and it may therefore be necessary to decide whether the original contract subsists. …

23    In Tallerman & Co Pty Ltd v Nathan’s Merchandise (Viet) Pty Ltd Taylor J said:

“It is firmly established by a long line of cases ... that the parties to an agreement may vary some of its terms by a subsequent agreement. They may, of course, rescind the earlier agreement altogether, and this may be done either expressly or by implication, but the determining factor must always be the intention of the parties as disclosed by the later agreement.”

(footnotes references omitted)

97 Therefore, it is necessary to also consider the terms of the Building Agreement.

98 The Building Agreement commences in the recitals with reference to the Deed, expressly recognising that the Building Agreement was subject to the provisions of the Deed.  Further, the Deed provided that upon the happening of certain events, the parties mutually did covenant that they would enter into and execute a Building Agreement in respect of the works.  The “Deed” is defined as being the Deed entered between the parties which provides for the overall arrangements between the Club and the Developer in relation to the development of the site.

99 In the Building Agreement “the Contract” is defined as follows:

“the Contract” means the document or documents which constitute or evidence, or as the case may be, all the documents which constitute or evidence the final and concluded agreement between the [Club] and the Developer concerning the execution of the work under the Contract and include (but are not limited to) this agreement, the deed, the drawings, the specifications, all and any orders or directions issued by the Architect to the Developer and all any other written information issued or supplied by the [Club] the Architect or the Developer pursuant hereto;

100 The Building Agreement provides a definition of “the Works” which means the whole of the works to be executed in accordance with the Contract including all variations provided for in the Contract and generally includes the demolition of the existing building and the construction of the new building, as referred to in the Deed.

101 Clause 5.1 of the Building Agreement provides for any discrepancies in the documents, with clause 5.1(b) providing that any discrepancy, ambiguity or contradiction between the Building Agreement and the Deed, are resolved by the terms of the Deed prevailing.

102 The Building Agreement makes other references to the Deed including for obtaining vacant possession and in relation to the Club’s ability to recover money.

103 Objectively, the parties to the Deed and to the Building Agreement, being the Developer and the Club did not intend to rescind the Deed by entering the Building Agreement.  The Building Agreement was not a condition precedent to the formation or the existence of the Deed, it was a condition precedent to the performance of the building works (Sara Lee at [30]). Neither the Deed nor the Building Agreement were to be separate, stand-alone contracts.  The Building Agreement was not intended to operate without the Deed. The manifest intention of the parties was for the rights and liabilities under the Deed to continue and the Deed was to prevail if the documents conflicted.  The Deed, when executed, made reference to and incorporated the terms of the Building Agreement.  Aspects of the Deed were conditional upon the Building Agreement being entered.  However, the Deed and the Building Agreement were to work together, as one contract.  Although the Building Agreement, being a further contract entered into means that there were two contracts (Sara Lee at [22]), as a matter of construction, the Building Agreement was part of the Deed, contained in the Sixth Schedule.  Both documents referred to the other document and made express provision for how the documents would be construed together. The entry into the Building Agreement was a conditional aspect of the Deed.  Once entered, that condition was fulfilled and in this respect, the Deed was unconditional.

Conclusion - the Deed is a contract for the construction of a building

104 Therefore, properly construed the Deed was a contract for the construction of the Building.  The Building Agreement was a condition of the Deed, it did not affect the formation of the Deed.

Conclusion – The Building is not a separate asset

105 The entry into the Deed was on about 8 May 1985, which is not on or after 20 September 1985.  As explained, the date of the condition being satisfied is not the date of the entry of that contract. Section 108-55 is directed towards the date of entry of the contract.  The date of entry of the Deed was 8 May 1985.  As such, s 108-55 does not apply.  Section 104-10(5)(a) would apply such that the capital gain made on the disposal of the Building is to be disregarded.

What date was the Building Acquired?

106 It is not necessary to answer this issue, as the Building is not a separate asset.

Subleases Issues

107 The second issue as between the parties relates to the subleases.  Broadly, the Club also submits that the subleases are pre-CGT assets as the origin of the Club’s right to obtain the First Sublease was the Deed.  Also, the Club obtained the benefit of the agreement for the grant of the Second Sublease in accordance with the option exercised on about 12 August 1985 pursuant to the Deed.  The disposal of the First Sublease and the Second Sublease were part of the 10 June 2021 sale, and the Club accepts this was a CGT event A1, there was a disposal by change in ownership.

108 Ultimately, the Subleases Issues will be determined by whether the capital gain on each of the Sublease is to be disregarded in accordance with s 104-10(5)(a) of the ITAA97.

109 To consider that ultimate issue in relation to Subleases, it is necessary to consider:

(1) What were the circumstances of the Club’s acquisition of each of the Subleases, pursuant to Division 109 of the ITAA97?

(2) What was the timing that the Club acquired each of the Subleases?

First Sublease – Circumstances and Timing?

110 On 18 June 1986, CML (as lessor) and the Club (as lessee) executed the First Sublease for parts of the Building for a term commencing on 1 September 1986.

111 The Club submits that the First Sublease was not deemed to be acquired when the registrable form of sublease was signed on about 18 June 1986.  It is the origin of that right to enter into the sublease, which the Club submits is critical, which was the Deed dated about 8 May 1985.

112 Division 109 provides for the acquisition of CGT assets.  Section 109-1 provides the Guide to Division 109.  It provides the ways in which a taxpayer can acquire a CGT asset and the time of that acquisition.  The Guide explains that the timing is important for indexation and for the exemption of assets acquired before 20 September 1985.  Generally, a CGT asset is acquired when the taxpayer becomes its owner.

113 Section 109-5 in the operative rules, provides:

s 109-5(1)    In general, you acquire a *CGT asset when you become its owner.  In this case, the time when you *acquire the assets is when you become its owner.

114 Section 995-1 relevantly defines the term “acquire”, in relation to a CGT asset as (subsection (b) relates to an item of intellectual property):

(a)    a CGT asset: you acquire a CGT asset (in its capacity as a CGT asset) in the circumstances and at the time worked out under Division 109 (including under a provision listed in Subdivision 109-B); and

Note:    A CGT asset acquired before 20 September 1985 may be treated as having been acquired on or after that day: see, for example, Division 149.

115 Section 109-5(2) provides a table of specific rules for the circumstances in which and the time at which a taxpayer acquires a CGT asset; Financial Synergy Holdings Pty Ltd v Federal Commissioner of Taxation (2016) 243 FCR 250; [2016] FCAFC 31 at [17] (Middleton and Davies JJ, Logan J agreeing at [40]). The parties were agreed and I accept, that the relevant acquisition event was a CGT event F1.

116 In this context, s 104-5 of the ITAA97 is also relevant.  Division 104 sets out the CGT events for which a capital gain or loss may be made.  Section 104-5 provides a summary of those CGT events.  In relation to an F1 event, it provides:

117 There is express reference to the time of the event for a grant of lease, being when the entity enters into a lease contract.

118 Section 104-110 in relation to CGT events, relevantly provides the following for granting a lease (or sublease).

s 104-110 Granting a lease: CGT event F1

(1)    CGT event F1 happens if a lessor grants, renews or extends a lease.

Note 1:    Other CGT events can apply to leases.  An assignment of a lease is an example of CGT event A1.

Note 2:     There are special rules that apply to some lease transactions: see Division 132.

(2)    The time of the events is:

(a)    for the grant of a lease:

(i)    when the contract for the lease is entered into; or

(ii)    if there is no contract – at the start of the lease

(b)    for a renewal or extension – at the start of the renewal or extension.

119 Section 109-5(2) relevantly provides in the table, for an F1 event as follows:

120 The Club submitted that the legislature recognised and distinguished between an agreement for a lease and the lease which grants the estate.  The Club submitted that parties routinely enter into an agreement for the grant of a lease, and if the matter progresses, a lease might be granted.  In this sense, the contract referred to in s 109-5 for the timing of the CGT event, was a contract relevant to the grant of the lease.  The Club submitted that it was necessary to give all of the words of s 109-5(2) work to do.  That provision expressly and separately refers to a CGT event F1 as “grants a lease” and the timing rule as “when the contract is entered into” or in the alternative “or, if none, at (the) start of lease”. It was necessary, in the Club’s submission to recognise that the timing rule contemplated the difference between a contract in relation to the grant of the lease and the contractual aspect of the lease.  On this basis the Club submits that the contract entered into is that by the Club and the Developer by way of the Deed on about 8 May 1985. That is the timing of the relevant event and that is before 20 September 1985.

121 A lease has duality of character; it is both an executory contract and executed demise: Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; [1985] HCA 14 at 51 (Deane J).  A lease is a species of contract: Willmott Growers Group Inc v Willmott Forests Ltd (Receivers and Managers appointed)(in liq) (2013) 251 CLR 592; [2013] HCA 51 at [39] (French CJ, Hayne and Kiefel JJ), [67] (Gageler J, as the Chief Justice then was), [149]-[150] (Keane J).

122 Part 3-1 of the ITAA97 was inserted by the Tax Law Improvement Act (No 1) 1998 (which was introduced as The Tax Law Improvement Bill (No 2) 1997 but retitled) (Improvement Act).

123 The First Sublease was not between the Developer and the Club.  As the agreed facts record, CML (as lessor) and the Club (as lessee) executed the First Sublease.  The Commissioner submits this is fatal to the Club’s argument.  Without accepting the Club’s construction of the provision, the Commissioner submits that even if the relevant time the event took place was on the entry into the contract, and not on the grant of the lease, the agreement to lease would still have to be a contract for the grant of that lease, which would usually be between the same parties.  That is, the Commissioner submits that contract must be one which is the precursor to the grant of the actual lease relevant to the CGT event F1 and as such, in the circumstances of this case, it must be between the same parties.

124 The Club relies on the Deed at clause 30(a).  That clause is directed towards the Developer being sublessor and the Club being sublessee.  The Club accepted that it had no evidence that the Developer entered into a sublease with the Club.  The Club submitted that the right to take subleases was conditioned, it was a qualified right, which it could assign.  Clause 32 of the Deed contemplated (subject to the Club’s consent) that the Developer was at liberty to assign or transfer the Developer’s right, title and interest in and to this Deed, in so far as it related to Part 3 – Lease Provisions.

125 Clause 6, in “Part 4 -Sub-lease Provisions” of the Deed expressly provided for an assignment and commenced with “Should the Sub-Lessor assign its interest under this Deed…”.  The Club had no evidence of any assignment.  However, the Club submitted that the real question was whether each sublease was granted, as assured by, and as contemplated by the Deed.

126 These submissions from the Club cannot be accepted. Whether the preferred construction is that the relevant contract is the precursor to the grant of the lease (that is, an agreement for a lease) or whether the relevant contract is the grant of the lease, recognising that a lease has a duality  of character as a lease is a species of contract, the focus of a CGT event F1 is the grant of the lease.  Therefore, even if the Club’s submissions as to construction can be accepted (which is unnecessary to decide) that contract to enter into a lease must be a contract to enter into the actual grant of the lease which is the CGT event F1.  Section 104-110(1) expressly provides that a “CGT event F1 happens if a lessor grants… a lease.”  Section 104-110(2) provides the time of the event, “for the grant of a lease”.  Section 109-5(2), the table provides that the F1 event occurs “in these circumstances” being “a lessor grants a lease to you” and the timing for that event, again is “for grant of lease”.  Section 104-5 provides the full description of an F1 event being “granting a lease”.  The Subleases were between CML and the Club.  There is no evidence of any earlier contract for a sublease as between CML and the Club.  The Club sought to rely on the contract, being the Deed as between the Developer and the Club, as the relevant timing event, for the grant of the subleases.  Even though the Club and the Developer contemplated and even provided in the Deed for the Developer to be able to assign the right, title and interest of the lease provisions, there is no evidence that the Developer did actually exercise that right under clause 32.  In the circumstances of this case, given the absence of any assignment, if any contract for a lease was relevant, it would have to be between the same parties as for the grant of lease, referenced in the CGT event F1 provisions.

127 Alternatively, if the Club’s construction is incorrect, the relevant contract will be the grant of the lease because a lease is a species of contract, which has been “firmly established” and “confirmed” since Tabali in 1985: Willmott at [39] and [62], that represents the position at common law and is before the enactment of the Improvement Act.  Where two alternative constructions of the legislation under consideration are open, the construction which is consonant with the common law is to be preferred: Balog v Independent Commission Against Corruption (1990) 169 CLR 625; [1990] HCA 28 at 635-636 (Mason CJ, Deane, Dawson, Toohey and Gaudron JJ); Australian Communications and Media Authority v Today FM (Sydney) Pty Ltd (2015) 255 CLR 352; [2015] HCA 7 at [69] (Gageler J); Brooks v The King (2024) 76 VR 605; [2024] VSCA 305 at [57] (McLeish, Boyce and Kaye JJA); King v Bishop of Salisbury [1901] 1 QB 573 at 577 (Wills J).  Therefore, there is support for this alternative construction that the timing being when the contract is entered may mean entry into the lease contract which was 18 June 1986, not some earlier agreement.

128 However, as observed, it is unnecessary to resolve the construction issue as the circumstances are such that the focus is upon the grant of the sublease which was between CML and the Club. Any earlier contract was not an agreement for the grant of the First Sublease.  In these circumstances the parties were different, so that there was no earlier contract entered as between CML and the Club (or assigned) for the grant of the First Sublease on 18 June 1986.

Conclusion – First Sublease

129 For the above reasons the argument by the Club cannot be accepted in relation to the First Lease.  The First Sublease was not acquired before 20 September 1985 and hence s 104-10(5) does not apply.

Second Sublease – Circumstances and Timing?

130 On 18 June 1986, CML (as lessor) and the Club (as lessee) executed a sublease of parts of the Building for a term commencing on 1 September 1986.

131 First, the Club contends that any capital gain on the disposal of the Second Sublease is to be disregarded pursuant to s 104-10(5) of the ITAA97 as the Club exercised its option to be granted this Second Sublease, in accordance with clause 27 of the Deed on about 12 August 1985 and in any event before 20 September 1985.  As such, on the basis of clause 30(b) of the Deed, the Club submits it had the benefit of an agreement for the grant of the Second Sublease.  Pursuant to s 109-5(2) of the ITAA97 the Club submits that based on an F1 item, the Club acquired the Second Sublease in about August 1985 when it exercised the option and gained the benefit of that agreement for the grant of the Second Sublease.  The contract for the Second Sublease was entered, for the purposes of the timing rule, the Club submits, when the option was exercised, not when the lease in registrable form was executed.

132 Second and in the alternative, the Club contends that the option for the Second Sublease was granted on about 8 May 1985 being the date of the Deed, which was exercised by about 12 August 1985.  These transactions entered, should be treated as a single transaction in accordance with CGT Determination TD 16.

133 The Commissioner submits that the Club acquired the Second Sublease, on entry into the grant of that sublease on 18 June 1986. The Commissioner also raises arguments about whether the exercise of the option was valid, in any event as the option was not exercised within 3 months of possession of the site being granted.  The Commissioner alternatively submits that the agreement to enter the lease was by way of the clause 27(a) of the Head Lease with CML, also executed 18 June 1986.  Further, the Commissioner submits that the reliance on TD16 is misplaced.  However, overall, the Commissioner submits that on either basis the Club’s argument on the Second Sublease is fatally flawed as the Second Sublease was not between the Club and the Developer pursuant to any clause in the Deed, but the Second Sublease was between CML and the Club.

134 Clause 27(a) of the Deed provides as follows:

27(a)    Notwithstanding anything to the contrary herein contained the Club shall have the option, exercisable within three (3) calendar months of the date upon which possession of the [Club] site is delivered to the Developer in accordance with clause 24.1 of the building agreement to notify the Developer in writing that the [Club] wishes to occupy levels 5 or 6 or both levels 5 and 6 of the new building in which case the provisions of the next succeeding clause shall take effect.

(b)    The Club should it exercise its option shall pay to the Developer the actual costs of construction by the Developer of levels five (5) or six (6) or both levels five (5) and six (6) of the new building, and for the purposes of this clause the terms “actual cost” shall mean….

135 The balance of 27(b) provides for the calculation of the “actual cost”.

136 The Club submits that it exercised the option on 12 August 1985.  Although it cannot produce the document which exercises that option, it relies on a letter from the Developer dated 19 August 1985 which refers to the 12 August 1985 letter.  It is from this letter that the Club submits that the option in 27(a) of the Deed was exercised.  The 19 August 1985 letter relevantly stated as follows:

Dear Sir,

Re:    PURCHASE OF LEVELS 5 & 6

We thank you for your letter dated 12th August 1985, wherein you formally confirm acceptance of the purchase, by the Club, of Levels 5 and 6 in accordance with conditions included in the Lease Agreement.

We are instructing our Solicitors to draw up the necessary documentation which will be submitted to you at an appropriate time.

…

137 The Club submits this was an acceptance by the Developer of the exercise of the option for the sublease by the Club.  However, whether this is the proper interpretation of this letter and whether there was (or was not) an exercise of the option in the Deed is not necessary to decide.  This is because the grant of the Second Sublease was not between the Developer and the Club, and it was not on the basis of the (possible) exercise of this option for the sublease (as explained above in relation to the First Sublease). The Second Sublease was between CML and the Club and again the Club has no evidence of any assignment as between the Developer and CML, in relation to this Second Sublease.

138 Even if the letter of 19 August was acceptance of the exercise of the option by the Club to the Developer, and even if that could be exercised at that time (or if not, but it was a fresh offer which was capable of acceptance), any agreement did not result in a grant of the Second Sublease as between the Developer and the Club.  The relevant provisions (ss 104-5, 104-110 and 109-5) are in the circumstances of granting a lease, that is the CGT event F1.  Even if the contract to enter into a lease was relevant it would not have been the contract to enter into the lease which was actually entered.  Usually, (without being exhaustive say in circumstances where there was a tri-party agreement, novation or an assignment) that would necessitate the parties being the same to any earlier agreement and then to the lease.  That is not what occurred. The Second Sublease is between the Club and CML.  The Club accepts that there is no evidence of any assignment by the Developer to CML.

139 There is evidence of a letter from the Developer’s solicitors to the Club solicitors dated 25 February 1986 which records that the Developer was requested not to issue the Lease to the Club because of the current negotiations.  There is a further letter dated 9 April 1986 from the Club’s solicitors to the National Australia Bank which states “(w)e are presently negotiating with the City Mutual to grant a Head Lease…”.  There is also a letter from CML’s solicitors to the Club’s solicitors dated 26 May 1986 referring to the “final draft of the Lease and the two Subleases”.  There is then a letter dated 18 June 1986 from the Club’s solicitors to the Club providing final versions of, relevantly the Head Lease and the two Subleases, being between CML and the Club.  The Head Lease, First Sublease and Second Lease are dated 18 June 1986.  Then, on 24 June 1986 the Developer and CML enter into an agreement which is entitled “Development Agreement”.

140 From this evidence, it is apparent that there were direct negotiations as between the Club and CML and there was no pre-CGT contract between the Club and CML (this is also relevant for the First Sublease). The Second Sublease was not as a result of any rights which may (or may not) have existed under the Deed.  The Club submits that it “got what it bargained for” and this was consistent with clause 32 of the Deed.  It may have been consistent.  The Club did have, ultimately, the benefit of a Head Lease and Subleases which it sought, however, these were not with or from the Developer.  The Head Lease and Subleases were as a direct result of separate negotiations with another party, being CML.  These were not as a result of or by way of an entry into a contract for a lease with the Developer.

141 On the alternative argument, the Club submits that the option for the Second Sublease was granted on 8 May 1985, being the date of the Deed and exercised on 12 August 1985.  On this basis the Club submits that the acquisition (or the grant) of the option and the transaction entered into from exercising the rights and obligations under the option, are treated as a single transaction under TD 16.

142 The Commissioner submits that TD 16 is no longer in force and observes that it concerned the provisions under the ITAA36, that is prior to the Improvement Act and not binding on him.  The Commissioner also submits that options are now dealt with separately in the ITAA97, in s 104-40 of the ITAA97.

143 TD 16 commences as follows:

1. Where an option is exercised, the acquisition (or grant) of the option and the transaction entered into in exercising the rights and obligations under the option are treated as a single transaction (subsection 160 ZZC(7) and (8)).

(emphasis added)

144 The Second Sublease was not the transaction entered into in exercising the rights and obligations under the option.  The Club claims to have exercised the option under clause 27(a) of the Deed with the Developer, however the Club entered into the Second Sublease with CML.  That was not as a result of exercising the rights and obligations under the option.  The parties are different.  That is sufficient to deal with this alternative argument.

145 Ultimately, it is unnecessary to consider these arguments, as this alternative argument must fail for the same reason.  Even if the exercise of the option was valid it did not result in the grant of the lease entered, and under consideration as between CML and the Club.

Conclusion – Second Sublease

146 For the above reasons the argument by the Club cannot be accepted in relation to the Second Lease.  The Second Sublease was not acquired before 20 September 1985 and hence s 104-10(5) does not apply.

conclusion

147 For the above reasons:

(a) the taxation appeal will be allowed, in part;

(b) the objection decision will be set aside, in part, in relation to the Building so that this CGT event A1 is disregarded pursuant to s 104-10(5) of the ITAA97; otherwise,

(c) the taxation appeal will be dismissed.

148 The parties submitted that it would be preferrable to hear from them further, as to the appropriate form of final orders, once reasons are delivered.  This will also include costs.

149 As such, the Order will be that:

(1) By 4pm on 16 March 2026, the parties are to submit agreed, or in the absence of agreement competing, short minutes of orders in accordance with these reasons for judgment (which may contain any timetabling orders, including as to costs).

Associate:

Dated:    6 March 2026