Brisbane Club v Commissioner of Taxation — CGT Cost Base Appeal

Original Word Document (86.1 KB) Federal Court of Australia

Brisbane Club v Commissioner of Taxation (No 2) [2026] FCA 521

| File number: | QUD 581 of 2023 |

| Judgment of: | WHEATLEY J |

| Date of judgment: | 28 April 2026 |

| Catchwords: | INCOME TAX — Capital Gains Tax — Cost base — Whether money paid should be included in the cost base of the relevant Building or Second Sublease— Where money paid pursuant to a particular clause of the Deed — Where parties to the Second Sublease were not the same parties to the Deed — Interpretation of the Deed — Proper construction of s 110-25 of the Income Tax Assessment Act 1997 (Cth) — Indexed payment amount to be included in the cost base of the Building |

| Legislation: | Acts Interpretation Act 1901 (Cth) s 18A

Income Tax Assessment Act 1997 (Cth) ss 2-10, 100-40, 110-1, 110-25, 995-1

Taxation Administration Act 1953 (Cth) s 14ZZQ |

| Cases cited: | Brisbane Club v Commissioner of Taxation [2026] FCA 220

Kelly v R (2004) 218 CLR 216; [2004] HCA 12

Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560; [2019] HCA 32

SkyCity Adelaide Pty Ltd v Treasurer of South Australia (2024) 419 ALR 361; [2024] HCA 37

Trustees Executors & Agency Co Ltd v Reilly [1941] VLR 110 |

| Division: | General Division |

| Registry: | Queensland |

| National Practice Area: | Taxation |

| Number of paragraphs: | 20 |

| Date of last submissions: | 2 April 2026 and 24 April 2026 (Applicant)

17 April 2026 (Respondent) |

| Date of hearing: | Heard on the papers |

| Counsel for the Applicant: | Mr DW Marks KC with Mr N Hanna |

| Solicitor for the Applicant: | Macpherson Kelly Lawyers |

| Counsel for the Respondent: | Mr DJ Butler KC with Mr J Sproule |

| Solicitor for the Respondent: | Norton Rose Fulbright Australia |
ORDERS

| QUD 581 of 2023 |

| BETWEEN: | THE BRISBANE CLUB ACN 009 657 863

Applicant | |
| AND: | COMMISSIONER OF TAXATION

Respondent | |

| order made by: | WHEATLEY J |
| DATE OF ORDER: | 28 April 2026 |
THE COURT ORDERS THAT:

1. The taxation appeal filed 21 December 2023, as amended on 11 July 2024, be allowed in part.

2. The objection decision dated 25 October 2023 be set aside, in part, in relation to the Building so that the CGT event A1, on the sale of the Building, is disregarded pursuant to s 104-10(5) of the Income Tax Assessment Act 1997 (Cth) with the consequence that the Applicant’s total net capital gain of $13,358,529 is reduced by $1,149,125.00.

3. The taxation appeal is otherwise dismissed.

4. The matter be remitted to the Respondent for the issuing, pursuant to s 14ZZQ of the Taxation Administration Act 1953 (Cth), of such amended assessments as are necessary to give effect to this order.

5. Except as provided in order 6, each party bear their own costs of the proceeding.

6. The Applicant pay the Respondent’s costs of the further written submissions on the ‘Cost Base Issue’.

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

REASONS FOR JUDGMENT

WHEATLEY J:

1 Substantive reasons were delivered on this taxation appeal on 6 March 2026: Brisbane Club v Commissioner of Taxation [2026] FCA 220 (J). However, the parties sought to be heard further after the substantive reasons were provided on an issue regarding the cost base (J at [148]). This judgment will assume a familiarity with those earlier reasons and will adopt the same definitions.

2 The issue now to be resolved is whether an indexed amount of $928,378 (being a payment of $600,000 under clause 27(b) of the Deed to the Developer) should be included in the cost base of the Building or the Second Sublease.

Which cost base should be increased?

3 It is appropriate to commence with the statutory provisions. The principles of construction remain applicable: J at [33]-[37]. Division 110 of the ITAA97 provides the relevant provisions to work out, relevantly the cost base of a CGT asset: s 110-1 of the ITAA97. These are necessary to work out if a capital gain or loss has been made from a CGT event.

4 Section 110-25(1) provides the general rules about cost base. The cost base of a CGT asset consists of 5 elements. The issue between the parties turns on a consideration of what “is the total money you paid, or are required to pay, in respect of acquiring it”: s 110-25(2)(a) of the ITAA97.

5 As this is the issue which divides the parties, it is worth setting out the relevant provision, in full:

110-25 General rules about cost base

(1) The cost base of a *CGT asset consists of 5 elements.

Note 1:    You need to keep records of each element: see Division 121.

Note 2:    The cost base is reduced by net inputs tax credits: see Division 103-30.

Note 3:    An amount that makes up all or part of an element of the cost base of an asset may be determined under section 230-505, if the amount is provided for acquiring a thing, and you start or cease to have a Division 230 financial arrangement as consideration for the acquisition of the thing.

5 elements of the cost base

(1) The first element is the total of:

(a)    the money you paid, or are required to pay, in respect of *acquiring it;

(b)    the *market value of any other property you gave, or are required to give, in respect of acquiring it (worked out as at the time of the acquisition).

Note 1:    There are special rules for working out when you are required to pay money or give other property: see section 103-15.

Note 2:    The element is replaced with another amount in many situations: see Division 112.

(2) …

6 The Club made a payment of $600,000 to the Developer pursuant to clause 27(b) of the Deed.

7 Clause 27(a) and (b) of the Deed provide as follows:

(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 cost 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 term “actual cost” shall mean the cost of construction including rise and fall plus fees, but excluding builders profit PROVIDED ALWAYS that the amount payable by the Club to the Developer under this clause shall not exceed the sum of ONE MILLION TWO HUNDRED THOUSAND DOLLARS ($1,200,000.00) in respect of both HUNDRED THOUSAND DOLLARS ($600,000.00) in respect of either level five (5) or level six (6) individually which sum of either ONE MILLION TWO HUNDRED THOUSAND DOLLARS ($1,200,000.00) or SIX HUNDRED THOUSAND DOLLARS ($600,000.00) as the case may be is hereinafter called “the building cost”. The standard of finish to levels five and six shall be to the same standard as provided in the final plans to all other equivalent levels in the new building including air conditioning and carpeting. The building cost shall remain fixed up to and including the thirtieth day of June, 1985. As and from the first day of July, 1985 the building cost shall escalate at the rate of one half of one per centum (0.5%) per month calculated on a simple interest basis until such time as a Certificate of Classification pursuant to the provisions of the Building Act, 1975-1984 is issued in respect of the new building. If the actual cost of construction exceeds the building cost or the escalated building cost as the case may be any increase in cost shall be borne by the Developer PROVIDED that in the event of the actual cost of construction being less than the building cost or the escalated building cost as the case may be then such cost saving shall be for the benefit of the Company. The building cost or the escalated building cost as the case may be shall be paid by the Company to the Developer upon the issue of the certificate of practical completion (or in the case of the issue of more than one certificate of practical completion upon the issue of the last such certificates) pursuant to Clause 38 of the building agreement and upon a document of warranty being given by the Developer to the Company against any defects due to any cause including but not limited to design construction workmanship or materials which warranty shall cover the matters contained in Clause 33 of the building agreement and shall remain in force for a period of twelve (12) months from the date of delivery of the aforesaid certificate of practical completion and shall be prepared by or on behalf of the Company .

8 The Club submits that the reference in clause 27(b) to “the building cost” is simply a defined term, which could have easily been defined as “the sub-lease cost”. The clause then leaves the building cost risk, in terms of the actual cost, with the Developer, but gives the Club the benefit of the costs of construction being less than the payment amount.

9 The Club submits that it seems that this option was exercised by it, with reference to the 19 August 1985 letter: J at [136]-[138]. However, it was not necessary to decide whether the Club did exercise the option by way of the 12 August 1985 letter (referred to in the 19 August 1985 letter) because the Second Sublease was not between the Developer and the Club. Although the Club in its supplementary submissions refers to clause 32 of the Deed which provided an ability for the Developer to assign or transfer its right title and interest in the Deed, there was no evidence of any assignment by the Developer to CML: J at [138]. The Second Sublease was between CML and the Club: J at [138] and [145]-[146].

10 The Club maintains the submission that although the exact contractual route to the Club having the Second Sublease cannot be traced with precision, it did get the Second Sublease that it sought and it did make a payment of $600,000. The Club submits that the words “in respect of” in s 110-25(2)(a) are wide enough to accommodate a payment, even in an indirect way.

11 The phrase “in respect of” is usually taken to “have the widest possible meaning of any expression intended to convey some connection or relation between two subject matters to which the words refer”: Trustees Executors & Agency Co Ltd v Reilly [1941] VLR 110 at 111 (Mann CJ). “In respect of” is an expression of wide connotation: Mann v Paterson Constructions Pty Ltd (2019) 267 CLR 560; [2019] HCA 32 at 159.

12 The Club submits that the payment amount was paid in respect of the Second Sublease.

13 The Commissioner disagrees. It is submitted by the Commissioner that s 110-25(2)(a) requires the money paid to be in relation to the particular CGT asset. The Commissioner submits that a lease between A and B is different to a lease between A and C. Further, the Commissioner submits that the payment required under clause 27(b) is for the construction of the Building and not for entry into the Second Sublease which was not entered into with the Developer, in any event. Finally, the Commissioner submits that this construction is supported by clause 2.2 of the Development Agreement (between CML and the Developer).

14 The Club submits correctly in reply that regard should not be had to the Development Agreement (dated 24 June 1986) to construe clause 27(b) of the Deed dated 8 May 1985. As such, it is not necessary to consider the Development Agreement further, in this regard.

The Cost Base of the Building should include the Payment

15 The first element of the rules regarding the cost base, relevantly requires consideration of the money [the Club] paid “in respect of” *acquiring it. The asterisk denotes a defined term: s 2-10 of the ITAA97. “Acquire” is defined in s 995-1 of the ITAA97. The different grammatical form of this word would still have the same meaning: s 18A of the Acts Interpretation Act 1901 (Cth). The definition of “acquire” is as follows:

“acquire”:

(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.

(b)    an item of * intellectual property: an entity does not acquire an item of intellectual property merely because a licence relating to a patent, design or copyright is surrendered to the entity.

16 The proper course is to read the words of the definition into the substantive enactment and construe the definition in the context of the substantive provision: Kelly v R (2004) 218 CLR 216; [2004] HCA 12 at 103; SkyCity Adelaide Pty Ltd v Treasurer of South Australia (2024) 419 ALR 361; [2024] HCA 37 at 32. As such, the first element requires that the money [the Club] paid is in respect of acquiring the CGT asset being considered. The money paid must have some connection to the specific CGT asset. The cost base is one of the factors which comes into calculating a capital gain or loss: s 100-40 of the ITAA97. This first element of the cost base is directed towards the money paid in respect of the specific CGT asset being considered for the purposes of calculating a capital gain or loss. Although the words “in respect of” are words of wide import, a payment which was not in relation to the specific CGT asset being considered would not be captured. Even with words of wide import, there must be some connection or relation between the two subject matters. The two subject matters are the payment of money and the specific CGT asset. There is no relation or connection between entity C making a payment to entity A, and entity C acquiring the CGT asset from entity B, in and of itself.

17 In the circumstances of this case, the Second Sublease was acquired by the Club from CML, and it was between these parties. The Club did not make the payment of $600,000 to CML “in respect of” the Second Sublease. The Club made the payment of $600,000 to the Developer. As already observed (see above at [9]) there was no evidence of any assignment.

18 As a matter of construction the Club’s arguments cannot be accepted.

19 There is another separate reason why the Club’s arguments cannot be accepted. It is the interpretation of clause 27(b) itself. It is directed to the construction of the Building. Should the Club exercise its option under clause 27(a) that it wishes to occupy relevantly level 5, then clause 27(b) required a payment. It was not a payment for the Second Sublease. It was a payment for the construction of the Building, which the Club could then occupy. This is because the Club was to pay the “actual cost” which was defined to mean the cost of construction of the Building including rise and fall plus fees, but excluding builders profit. However, a cap was also provided, relevantly of $600,000. That was defined as “the building cost”. Further, if the “actual cost” exceeds “the building cost”, the increase was to be borne by the Developer. The Club would only have to pay $600,000. Although the Deed defines the capped payment amount as “the building cost”, that is not determinative of the proper interpretation of this provision. However, it is relevant and provides context. The payment from the Club to the Developer of $600,000 was in respect of the Building.

CONCLUSION

20 On two separate bases the indexed amount of $928,378 (being a payment of $600,000 under clause 27(b) of the Deed to the Developer) should be included in the cost base of the Building. First, because on the proper construction of s 110-25(2)(a) the payment of money by the Club was not in respect of the Second Sublease with CML, it being a payment to the Developer. Second, because the payment of money required on the proper interpretation of clause 27(b) of the Deed, was in respect of the Building.

| I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Wheatley. |
Associate:

Dated: 28 April 2026