Morton’s Case and Mere Realisation – UPDATE

In May 2025 we wrote an article setting out the facts and the Federal Court’s decision in Morton’s Case. Broadly, and by way of summary, the taxpayer (David Morton):

• owned and farmed 384 acres of land west of Melbourne; and
• entered into an agreement with a developer to develop the property into residential subdivision lots for sale (done via 31 stages and resulting in 1632 lots).

The case considered whether the activities of Mr Morton comprised the mere realisation of an asset. At the time of publishing that article we noted that the Commissioner had appealed that decision.

On 27 March 2026, the Full Federal Court handed down its decision (‘the Morton appeal’) unanimously dismissing the Commissioner’s appeal. [Commissioner of Taxation v Morton [2026] FCAFC 31]

For a more detailed explanation of the facts of this case, refer to the original article. Here, however, we note the key aspects of the appeal case.

Commissioner’s Argument

The appeal was brought by the Commissioner, and despite initially filing written submissions, these were not referred by counsel for the Commissioner when verbal arguments were made (as ‘those documents contained grounds and submissions that were, in considerable part, inconsistent with the case advanced by the Commissioner at the hearing’. Instead, the Commissioner:

• accepted all findings of fact made by the primary judge were sufficient and complete (other than a couple of minor references);
• did not challenge the factual findings or the legal reasoning of the primary judge;
• expressly eschewed any suggestion that the terms of the development agreement were a sham;
• did not challenge the primary judge’s favourable assessment of the credibility of Mr Morton,
• argued that various provisions of the development agreement and terms of sales contracts demonstrated that the acts and activities of the developer were undertaken on behalf of Mr Morton; and
• considered the primary judge erred as a matter of the proper construction of those terms in concluding that they were the acts and activities of the developer in the independent pursuit of its own business, and that they were not the acts or activities of Mr Morton.

Essentially, the Commissioner argued that:

• both the developer and Mr Morton were driven by a profit-making purpose;
• the scope of converting the land from rural to developed residential lots was very considerable;
• that Mr Morton had appointed the developer to carry out the development as his agent/on his behalf;
• therefore Mr Morton had ventured the land to a business venture or profit-making undertaking or plan; and
• that while Mr Morton did not have an active role (nor any expertise) in relation to planning and construction activities, terms of the development agreement required him to be actively involved.

Taxpayer’s Submissions

Counsel for Mr Morton contended that:

• he was merely realising a capital asset;
• he was not carrying on a business of developing, subdividing and selling his land;
• he had not ventured the land into a profit-making undertaking or scheme;
• the terms of the agreement made it clear that, amongst other things:
  • Mr Morton had granted the developer the exclusive right to subdivide, develop, market and sell the land;
  • Mr Morton had no interest in the development;
  • the manner in which the developer undertook and completed the development was at its discretion;
  • the developer was to conduct the development in its own right;
  • the developer was to determine the terms and conditions or sale of the developed lots, including the sales prices;
  • Mr Morton was not required to borrow any money for the development or provide any guarantee, and the land was not to be used as security;
• the primary judge applied the correct tests to determine if Mr Morton was carrying on a business or had ventured the land into a profit-making undertaking or plan;
• the primary judge’s reasoning as to the application of the relevant statutory tests to the evidence was correct; and
• the Commissioner had not demonstrated error in the primary judge’s conclusions or any particular factual finding.

The Decision

While the Full Federal Court noted, and accepted, that:

• the development agreement involved a commercial transactions;
• Mr Morton intended to derive profit;
• Mr Morton anticipated the value of the land, and sales proceeds, would increase once the development was completed;
• development works were designed to effect major changes to the land; and
• Mr Morton appointed the developer to act as his agent to do and perform specific acts for the purpose of undertaking his obligations under the agreement,

in its unanimous decision, it did not accept the Commissioner’s contention that the developer was appointed to carry out the development on behalf of Mr Morton as his agent such that it was Mr Morton that ventured the land to a business venture or profit-making undertaking or plan.

It was also noted that there were many factors in favour of it being a mere realisation of an asset, including:

• the land was not acquired with the intention of profiting from its sale;
• the circumstances were not of Mr Morton’s making because farming the land was no longer commercially viable; and
• Mr Morton did not seek to achieve the maximum available proceeds at any cost and he stuck to his two key tenets:
  • he did not want to borrow any money to fund the development; and
  • he was unwilling to be involved (and was not involved) in any active way with the development.

Finally, notwithstanding the ‘massive’ or ‘very extensive scale’ of the subdivision, the court concluded that this was a product of the size of the land involved, but without more, the size of the land or the number of lots did not indicate that Mr Morton was engaged in a business of subdivision and development.

Conclusion

Accordingly, the Full Federal Court accepted the primary judge’s conclusion and reasoning that Mr Morton merely realised a capital asset.

While the size and scale of a development is one of the relevant factors to be considered, this decision appears to reduce the weight of that factor, and which may increase the relative importance of other factors (such as the degree of involvement of the owner of the land, etc.).

Now, at least, it remains to be seen whether the Commissioner will seek leave to further appeal this to the High Court.

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