The taxpayer was a resident of Switzerland who conducted a business in that country as a distributor of earthmoving equipment. The taxpayer was not in the business of investing in securities. However, between January and May 1984, the taxpayer used funds borrowed from his parents and a bank to acquire six units in the Energy Research Group Unit Trust at a cost of $150,000. The acquisition was made on the advice of a Perth business acquaintance in the expectation that a public offer of units or shares in the entity would soon be made and that these securities would be listed on the Australian Stock Exchange, allowing for their sale at a profit. In November 1984, the taxpayer sold the units to the recently incorporated Energy Research Group Australia Ltd (ERGA) for $300,000 in consideration of the allotment to him of 600,000 fully paid ordinary shares of 50 cents each in the share capital of the company. The shares in ERGA were soon thereafter listed on the Australian Stock Exchange and the taxpayer immediately instructed his stockbrokers to sell the whole of his shareholding. In February and March 1985, parcels of shares were sold at prices ranging from $2.10 to $2.75 per share. Sales of the shares stopped when the Commissioner assessed the taxpayer to income tax on profits from the unit and share sales. Section 26AAA of the Income Tax Assessment Act 1936 (Cth) included in a taxpayer’s assessable income the profit arising from the sale of property which was sold within 12 months of its purchase. The Commissioner treated the taxpayer as having made an assessable profit under s 26AAA of $590,307 consisting of, first, the profit made on the sale of units in exchange for shares in ERGA and, second, the profit made on the sale of the shares. The taxpayer contended that he was not liable to tax in Australia on either of the profits by reason of the Double Taxation Agreement between Australia and Switzerland (the DTA), which takes effect for Australian tax law purposes pursuant to s 11E and Sch 15 of the Income Tax (International Agreements) Act 1953 (Cth). Article 7(1) of the DTA provided that “the profits of an enterprise of one of the Contracting States shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein”. Article 3(1)(f) defined “enterprise of one of the Contracting States” to mean “an enterprise carried on by a resident of Australia or an enterprise carried on by a resident of Switzerland, as the context requires”. The Commissioner contended that Art 7(1) was inapplicable because the taxpayer’s activities arose from an isolated adventure which did not constitute an “enterprise carried on” by him since the activities had no continued operation and were not conducted through any vehicle or identifiable entity capable of carrying on a business. The taxpayer contended, however, that for the purposes of Art 7(1) references to “enterprise” should be interpreted as meaning not just vehicles or entities through which a business was conducted but any commercial or business transaction by which profits are produced.
Were the profits derived by the taxpayer from the unit and share sales properly characterised as “profits of an enterprise carried on by a resident of Switzerland” within the meaning of Art 7(1) and 3(1)(f) of the DTA, notwithstanding that they were profits derived from an isolated commercial transaction?

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