He farmed the land for 35 years. When the growth boundary swallowed it, the structure of the development agreement kept the proceeds on capital account.
He farmed the land for 35 years. His father bought it in the 1950s. He bought his block in 1980 for $13,500. When Melbourne’s Urban Growth Boundary swallowed it in 2010, he engaged a developer to subdivide and sell.
The Commissioner assessed the proceeds as income. The Full Federal Court said no. Commissioner of Taxation v Morton [2026] FCAFC 31 (O’Callaghan, Derrington and McEvoy JJ).
The facts
Morton owned a 10-acre block in Tarneit, “Dave’s Block”, part of Morton Farm. Pre-CGT. Farmed from 1980. When the rezoning hit, rates and land tax surged and farming became unviable. He engaged Dacland under a development agreement to subdivide and sell. 1,632 lots across the Farm.
The Commissioner assessed the net proceeds as business income under s 6-5 and alternatively as a profit-making undertaking under s 15-15. Morton won at first instance. The Commissioner appealed, accepting all factual findings. He lost on every question.
How the Commissioner lost
The central argument was contractual. The Commissioner said the agreement made Dacland Morton’s agent, the development done “on behalf of” Morton. Rejected at every level.
The agreement gave Dacland the exclusive right to subdivide, develop, market and sell [cl 6.1]. Dacland bore all costs [cl 18], sourced its own finance [cl 19], and the land could not be used as security. Morton had “no interest in the Development” other than the land [cl 6.3].
Clause 38: no partnership, no joint venture, no agency beyond the agreement’s terms. Dacland acted “as an independent party” assuming all risks [cl 38.2]. Full effect given, citing Personnel Contracting (2022) 275 CLR 165 [120].
O’Callaghan J drew a critical line between agency affecting legal relations, executing contracts of sale, and the broader development work, which was Dacland’s own business for its own return [171]. A limited agency clause did not convert the development into Morton’s business.
Morton’s two “tenets”, no use of the land as security and a fixed percentage of sale proceeds, showed he was not pursuing maximum profit at any cost. He changed the nature of his investment with minimal risk, leaving profit on the table for Dacland [112].
Scale failed. 1,632 lots. Mere magnitude does not convert a realisation into a business, citing Statham [175]. And no repetition: Morton only ever developed one landholding. An isolated disposal [117].
Why this matters
Morton reinforces that how you structure the engagement with a developer is decisive. Independent contractor, no security over the land, no borrowing by the owner, limited agency, developer bearing all costs and risk: each feature told against the Commissioner.
A well-structured development agreement turned what could have been a multi-million dollar income tax liability into a capital receipt.
General information only. This note was accurate when written. The law may have changed since and the note is not updated. It is not legal or tax advice, does not take account of your circumstances and must not be relied upon as a substitute for advice on your own matter. If the issue is live for you or your client, email arda@nortonquaytaxlaw.com.au for advice on the current position.