A buy-back of part of a property is not "acquisition" under section CD 1(2)(a)

Summary

The Court held that a sale arrangement of the property which included a buy-back of part of it for resale was not an "acquisition" for purposes of section CD 1(2)(a) of the Income Tax Act 1994.

Impact of decision

There are no precedential implications as the case turns largely on its facts. The Court took a "plain language" approach to statutory interpretation and construed contractual agreements together rather than separately.

Facts

On or about 21 July 1964, Junior Farms Ltd ("Junior Farms") purchased a property of approximately 92 acres of land on the northern side of Ormiston Road, East Tamaki ("the property").

In about 1988, Manukau City Council ("MCC") notified Junior Farms that a portion of the property was required for flood protection purposes.

In about November 1994, Junior Farms entered into two sale agreements ("the agreements") in respect of the property. Under the first sale agreement ("the first agreement"), Junior Farms sold the property for $2,681,000.00. In the second sale agreement ("the second agreement"), Hampton sold back part of the property (approximately 14 hectares) which was designated for flood protection purposes ("the floodplain area") to Junior Farms for $100.

Junior Farms claimed that the floodplain area was not disposed under the first agreement. It claimed that under the agreements its interest in the floodplain area was held under trust or as equitable ownership.

Decision

The main issue turns on the interpretation of the agreements as to whether they should be construed as one transaction (as contended by Junior Farms) or the two separate transactions (as contended by the Commissioner).

Justice Brewer held that the agreements together with a side letter executed at that time constituted one transaction and concluded that the agreement was a device to give effect to the sale of the industrial part of the property only, with Junior Farms retaining its interests in the floodplain area. There was therefore no disposal of the legal and beneficial interest to the floodplain area of the property by Junior Farms under the first agreement and hence, no acquisition of the same under the second agreement.