83 ATC 388
MB Hogan Ch
P Gerber M
GW Beck M
No. 3 Board of Review
Judgment date: 5 September 1983.
Dr. G.W. Beck (Member): This taxpayer disputes the inclusion of $3,921 in her assessable income for the 1979 tax year, the amount representing profits on a series of futures transactions entered into over the period 11 January to 13 February 1979.
2. In a note included with her return the taxpayer described ``a once and for all speculative investment in the `futures market''' in a way that was quite at odds with the facts that emerged at the hearing and with statements made in the objection. There is some difficulty in reconciling the conflicting statements with the impression at the hearing of a credible taxpayer who seemed to be endeavouring to relate the story as best she could. My reaction to her verbal evidence was complete credulity; in the light of certain inconsistencies and contradictions my acceptance has diminished considerably. Nevertheless, the statement of facts set out below emerges from the taxpayer's evidence at the hearing and I think it is essentially correct.
3. The taxpayer and her husband and four children came to Australia in 1971 and in the early years after arrival she tended to spend the family allowances on the children more or less as they were received. Subsequently, she said, after consulting the children it was decided to accumulate the allowances in a savings account and the accumulated amount in respect of each child was to be given to the child at the end of that child's student days. For convenience the savings account was in the taxpayer's name only, but she kept a year by year record of each child's entitlement in the back of her diaries. These diaries were tendered.
4. At the beginning of January 1979 the balance of the savings account was $6,851.37 and the taxpayer agreed that funds from sources other than family allowances had been deposited to the account. According to the figures in her 1979 diary at that time each of the four children was entitled to $533.75. Assuming her calculations in this regard were correct the balance of moneys, $4,716, must have been her own funds. On 10 January 1979 the savings account pass book records two withdrawals, one for $2,907 and one for $1,500. According to the taxpayer's evidence the $1,500 was withdrawn after consultation with the children to acquire, as jointly owned property, an investment diamond. She had seen advertisements for such diamonds and, because of concern that inflation was reducing the buying power of the cash held on deposit, it was decided to convert some of the cash to an item that would not suffer loss through inflation. Neither at the hearing nor in any of the papers before the Board was there reference to the other withdrawal of $2,907. However, in the taxpayer's diary there is an entry on 10 January 1979: ``Bought diamond contract for $2,907''. So far as the outlaid $1,500 is concerned, she said it was on behalf of herself and three of her four children. As I interpret the figures relating to the children's entitlement in her 1979 diary the profit here under dispute was shared with all four children and not just with three. Furthermore $300 is shown as deducted from the entitlement of all four in January and it would seem that the $1,500 consisted of these 4 x $300 contributions plus $300 from the taxpayer's funds.
5. Despite the avowed intention to purchase an investment diamond the $1,500 was applied to a futures contract for silver. The diary records, also on 10 January 1979: ``Bought silver contract for $1,500''. The
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taxpayer said that when she approached an investment broker and expressed a wish to acquire a diamond she was told ``even safer than the investment diamond... was the futures market''. She said that at that time she knew nothing about futures and ``did not understand what the consultant was saying''. She left the $1,500 with him ``to his discretion because I was none the wiser'' and about a week later he phoned to say he had bought a silver contract. As indicated earlier, it seems that on the same day she also bought a diamond futures contract, but the Board heard nothing of that.
6. Things happened pretty quickly after that and the transactions can be summarised:
12.1.79 Bought silver BUY contract $
16.1.79 Bought silver SELL contract, profit 645.50
17.1.79 Bought lead BUY contract
24.1.79 Bought lead SELL contract, profit 604.60
26.1.79 Bought copper BUY contract
Bought gold BUY contract (100 oz.)
5.2.79 Bought copper SELL contract, profit 4,326.10
7.2.79 Bought gold BUY contract (100 oz.)
13.2.79 Bought two gold SELL contracts, loss 1,651.59
Overall profit $3,924.61
In the return the profit appears as $3,921.61 but this seems to be incorrect. The taxpayer said it was only after the broker sought her signature on the copper contract that she began to understand what was happening. When gold started to fall and the broker asked for $2,000 to cover the loss she became aware of the very considerable liability that could accrue in futures transactions and she told the broker to cease operations on her behalf and to sell the gold contracts. The taxpayer said that at her first approach the broker warned of the inconvenience if transactions were entered into in the name of herself and her children, so they were recorded in her name only.
7. The Board heard evidence from a pleasant and intelligent taxpayer and I am reluctant to give too much weight to aspects that make her evidence seem less than credible. But there are gaps and inconsistencies and they do her case considerable harm. The failure to make any reference to the $2,907 withdrawn from the savings account and the concurrent diary reference to a ``diamond contract'' on that first critical day has to be interpreted unfavourably to the taxpayer. Early in evidence she emphasised the financial limitation of $1,500 on the investment saying ``I only had $1,500. If I had more money I would have done something more, but I only had $1,500 to invest.'' This was patently incorrect, the balance of the account at the time was $6,851 of which $2,135 seems to have been held on behalf of the children. The statement in the tax return ``I entered this (futures) market on 16.1.79 with the prospects of the futures bought to run till December `79, but sold out on 13.2.79 since the market was falling and I was advised I would lose'' does not sit very comfortably with the activity depicted by the list of transactions in the preceding paragraph. And I have the greatest difficulty accepting that a taxpayer as intelligent as this one did not fully appreciate what was happening until 13.2.79 - and that is what was contended before the Board.
8. I have concluded that the taxpayer did seek a diamond, and, in fact, I believe she acquired a diamond contract of some sort at the same time as she acquired the silver contract. In the light of all the circumstances I find it impossible to accept that she did not venture some of her own and her children's funds with a view to profit when she entered upon the silver contract and the contracts that followed. The profits on the silver, copper and lead contracts are therefore assessable under sec. 26(a) and the loss on the gold contract is allowable under sec. 52.
9. The entries in the taxpayer's diaries are convincing that the $1,500 outlaid was on behalf of her and her four children in equal shares. In consequence, only one-fifth of the profit should be included in her assessable income.
83 ATC 400
10. The summary in para. 6 indicates that the various contracts to buy metals were not sold, but were, in the jargon of the futures markets, ``closed out'' by buying contracts to sell the respective metals. The Commissioner rightly did not argue that sec. 26AAA applied in this case. That section assesses profits on ``property or an interest in property'' bought and sold within 12 months regardless of the taxpayer's intention at the time of purchase, but this taxpayer did not buy and sell the same contracts and sec. 26AAA cannot apply.
11. The taxpayer's 1979 assessment should be amended by excising $3,136 ($3,921 less $785) from the assessable income.
Claim allowed in part