Recently, in Commissioner of Taxation v Morton [2026] FCAFC 31 (FCJ), the Full Court upheld the primary judge’s conclusion in Morton v Commissioner of Taxation [2025] FCA 336 (PJ) that Mr David Morton’s receipt of proceeds from the sale of his property was not assessable income.
Facts and circumstances of Mr Morton
For over three decades, Mr Morton, a retired farmer, owned a small parcel of land (called ‘Dave’s Block’) in Tarneit, Victoria. He farmed that land and adjoining land owned by his mother and father (which was collectively called ‘Morton Farm’). In 2010, Morton Farm (including Dave’s Block) was rezoned, meaning it was converted from rural to residential land. In subsequent years, Mr Morton and his family organised for Morton Farm to be developed, subdivided, and then sold as individual allotments in a housing estate. Mr Morton received proceeds from the sale of the allotments on what had been Dave’s Block.
Key issue and holding by the Full Federal Court
The central question before the Court: Did proceeds from the sale of the allotments constitute assessable income in the hands of Mr Morton?
The Full Court upheld the primary judge’s decision, stating that Mr Morton merely realised a capital asset. Consequently, ‘Mr Morton did not embark on a business of developing land, nor did he venture Dave’s Block into a profit-making scheme, and that no part of the proceeds of the sale of Dave’s Block was assessable income in his hands’ (FCJ at [180]).
Drilling down further into the reasoning of the Full Court, there were two relevant questions (at [178]):
- In developing, subdividing, and selling the land that comprised Dave’s Block, did Mr Morton carry on a business such that the amounts in issue were income according to ordinary concepts?; or
- Are the amounts in issue assessable as statutory income on the ground that the amounts were profit arising from the carrying on or carrying out of a profit-making undertaking or plan?
Full Court’s reasons – a focus on the evidence
At the outset, it is worth noting that the Commissioner relied on an agency relationship that was said to exist between Mr Morton and the developer. However, the Full Court held that this was not consistent with the specific terms of the development agreement.
In evaluating questions of fact, the Full Court pointed to the many factors that the realisation of Dave’s Block was not motivated by factors that were to be expected in a business context (at FCJ at [172]-[175]):
- Mr Morton did not acquire the land with the intention of profiting from its sale by subdivision. Rather, Mr Morton purchased it from his father for the purpose of conducting farming operations (which he did for 35 years);
- The sale of Dave’s Block was set in the context not of Mr Morton’s making because farming on Dave’s Block was no longer commercially viable, being the incorporation of it into the expanded Urban Growth Boundary, the consequential increases in rates and land tax, etc.;
- Mr Morton did not seek to achieve the maximum available proceeds at any cost. Rather, Mr Morton adhered to two ‘tenets’, being (1) he did not borrow any money to fund the development works and (2) he was unwilling to be involved (and was not involved) in any actively developing the land;
- Practically, Mr Morton had little or no involvement in the development of the land, which tended against the notion he was engaged in any property development business;
- Mr Morton did not understand the development processes and why things were happening or not happening;
- Mr Morton only had a little active role in the development and he did not:
- oversee the project;
- contribute, in substance, to planning applications; or
- organise project finance, manage construction activities (e.g., bulk earthworks landscaping, construction of roads, footpaths, lighting, and utilities), and did not read the monthly reports (which he probably received);
- There was no doubt that the development of Morton Farm occurred on a very extensive scale. However, the Full Court agreed with the primary judge that ‘[t]he scale of the subdivision and sale of the [farm] was a product of the size and nature of [it] as an asset, in combination with forces prevailing in the market for residential property in Tarneit over the relevant period’ and that he ‘[did] not accept that, without more, the acreage or the number of lots involved indicates that Mr Morton was engaged in a business of land subdivision and development’ (PJ at [162]); and
- The Full Court held that the primary judge was correct to conclude that the development was an isolated disposal. It was held that the absence of repetition was not, as the primary judge put, ‘a significant factor’. It was, rather, a factor that was not informative in the particular circumstances of this case and was essentially a neutral factor.
Accordingly, the Full Court held that it was a mere realisation of an asset and was not assessable income in the hands of Mr Morton.
Practical reminders
We provide some of the practical reminders gleaned from this case:
- The capital vs. revenue distinction (or the tree vs. fruit metaphor) has been considered for many decades in tax disputes cases. It is a reminder that this key question remains pertinent today.
- As such, in this case, as with most cases, the taxable facts and circumstances that bear out in evidence (namely, Mr Morton’s intention of acquiring the land, the surrounding context of the property, and his actions or inactions) is important, if not crucial, in finding in favour for Mr Morton.
- Consequently, as observed by the primary judge, each case will turn on its own facts and circumstances, even if another case concerned property development with similar facts may result in an outcome that is different than that of Mr Morton’s.
It is, therefore, important that if you have any potential tax issues, it would be prudent to discuss them with an experienced tax professional. Explore what we can offer here: TAX DISPUTES | Adero Law.
Disclaimer: this article provides a summary of the case and is not intended to, either directly or indirectly, constitute legal advice.