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NELSON v FC of T

Judges:
Greenwood J
Rares J
Davies J

Court:

MEDIA NEUTRAL CITATION: [2014] FCAFC 163

Judgment date: 2 December 2014

Greenwood, Rares and Davies JJ

1. The Appellant ( "Mr Nelson" ) has appealed the decision of a Judge of this Court dismissing an appeal from the Administrative Appeals Tribunal ( "the Tribunal" ) affirming the decision of the Respondent ( "the Commissioner" ) to disallow Mr Nelson's objection. The objection was against the disallowance of his deduction claims for expenditure incurred in a "primary production" business in the income years ended 30 June 2004 to 30 June 2009 inclusive ( "the financial years" ). Mr Nelson has appealed the decision below and the Commissioner has objected to the competency of this appeal on the ground that the notice of appeal does not raise any relevant question of law that would have enlivened the jurisdiction of the Court under s 44 of the Administrative Appeals Tribunal Act

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1975 (Cth) ( "the AAT Act" ) to hear and determine an appeal from the Tribunal. For the reasons that follow, the appeal should be dismissed.

BACKGROUND

2. Mr Nelson is the trustee of his family trust. In 2002 the trust acquired a 500 acre property, and leased it to Mr Nelson who commenced making certain improvements to the property and undertook various activities which he claimed amounted to carrying on a business of primary production and qualified him for concessional tax treatment as a primary producer. In his taxation returns for each of the financial years in question, Mr Nelson claimed deductions for "primary production" business expenses incurred in respect of his various activities conducted at the property and, as he returned no income from those primary production activities, he claimed a loss each year from his primary production activities which he carried forward. Following an audit, the Commissioner determined that Mr Nelson's activities on the property did not amount to carrying on a business for taxation purposes and disallowed all the deduction claims. Amended assessments were issued to Mr Nelson adjusting his taxable income for the financial years in question. Mr Nelson's objection against the amended assessments and the disallowance of his deduction claims was also disallowed. The reasons for the objection decision stated that "[w]hilst the activities were undertaken in an organised and repetitive manner, their scale and size were insufficient to be considered a business for tax purposes even when combined" and that "many of the activities were preparatory in nature consisting primarily of research and preliminary steps". Mr Nelson exercised his statutory right to have the objection decision reviewed by the Tribunal.

THE TRIBUNAL DECISION

3. The sole question addressed by the Tribunal was whether Mr Nelson was carrying on a primary production business during the 2004-2009 income years. As the Tribunal stated, Mr Nelson could not succeed on his claim to carry forward his losses from the conduct of a primary production business unless his activities amounted to the carrying on of a business. The case was conducted on the basis that if the Tribunal held that Mr Nelson was carrying on a business, the matter would need to be referred back to the Commissioner for consideration of the specific expense claims. In the event, the Tribunal answered "no" to the question, holding that Mr Nelson's farming operations "had not reached the point" during the income years in question "where it could properly be described as a business".

4. The Tribunal's reasons record that Mr Nelson claimed to have "planned, conducted or commenced up to 14 different business activities" on the property, none of which had produced any income for Mr Nelson in those years. These activities were listed as:

  • (a) Aquaculture: the taxpayer wants to build a dam to stock fish for sale to restaurants. He has been researching fish species, talking to local restaurants, consulting experts and visiting other fisheries. He has drawn up some plans and identified a site for the dam and done some preparation work - but the dam has not been built yet.
  • (b) Cropping: the taxpayer has prepared the pastures for cropping and improved fences and other structures. He tested a number of crops during the years of income, but none were a success. He still has not identified an appropriate crop, although he remains positive - and he knows more about the potential as a result of his experimentation.
  • (c) Free-range pigs: the taxpayer has investigated the establishment of a free-range piggery. He has done extensive research and spoken with a number of people in the industry. He has prepared plans and done calculations, but he still has not obtained the finance necessary to execute the proposal even several years after the years of income in question.
  • (d) Growing timber for fencing: the taxpayer has harvested some timber for fencing purposes. He also planted seedlings to grow more timber during the years of income but most of those seedlings were eaten by wildlife. He has been planning to plant more seedlings and commence a timber growing operation, and cleared an area of the property to that end during the years of income in question.

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  • (e) Growing timber for milling: the same can be said of the taxpayer's efforts to establish a timber milling operation. He has taken some limited steps towards establishing a forest. He had not acquired a mill. He did some research and talked to some people about the potential and he concluded from his experience in the building industry that there might be a market for the type of timber he could produce in years to come.
  • (f) Storing and breeding cattle: a number of cattle have been agisted on the property for some time. Fences have been built and some other improvements have been made to this end. The taxpayer has been looking into establishing his own herd. He has been talking to experts, drawing up plans, and identifying appropriate sites for dams and other improvements. He has not yet obtained finance to commence the operation.
  • (g) Conducting a nursery and producing seedlings and plants for cultivation: the taxpayer established a shade house and nursery (two, in fact: the first was destroyed in a flood in 2004). He has cultivated a number of seedlings and plants for use on the farm: he has a small area near the accommodation block where he has tested different species. Most of the seedlings in the relevant years perished. The taxpayer has been researching and consulting experts about the way forward.
  • (h) Producing seedlings and plants for sale: the same can be said of the efforts to produce plants and seedlings for sale. None have yet been sold.
  • (i) Growing an orchard: the taxpayer has identified an area on the property that will be used for an orchard. He has commenced clearing and preparing the area, and he has worked on the dam that will supply water. He has done extensive calculations and planning for the irrigation system, investigated machinery and consulted experts and potential customers. He has not yet identified suitable fruit trees, but he has been experimenting.
  • (j) Poultry: the taxpayer has a relatively small number of chickens in a small hen house. He acquired an incubator. He proposes establishing a commercial operation but so far the hens only produce enough eggs for private consumption. He anticipates he will be able to produce more eggs and has been researching the business. He does not yet have enough chickens to justify obtaining a permit from the local council to conduct a poultry operation.
  • (k) Building cabins for accommodation on the property: the taxpayer showed me the sites on which he proposed establishing some cabins which would be built from timber harvested on the property. The sites are very pleasant and it is easy to see how such an accommodation business might flourish. He has conducted some research into the opportunity and drawn up plans. He does not have any finance to undertake the construction of the cabins.
  • (l) Manufacturing relocatable cabins out of local timber: the same can be said of the plan to produce cabins for sale. The proposal is still at the investigation stage.
  • (m) Meat processing: the taxpayer has been researching the establishment of a meat processing operation. He has drawn up some plans and sought advice but he has not yet obtained the necessary approvals or finance.
  • (n) Producing stock feed: the taxpayer is considering producing stock feed for sale. His research so far suggests corn and lucerne might be the best crops but his experience to date has not been good: the test crops he sowed all failed.

5. The reasons for decision record that the Tribunal was satisfied that Mr Nelson's "operation" met a number of the criteria referred to in Taxation Ruling 97/11 as relevant indicators of whether a business was being carried on by a taxpayer. The Tribunal stated:

[Mr Nelson] has carefully researched the various business activities. He has identified a great many opportunities and he has assessed those opportunities in a careful and informed way. He has prepared extensive business plans. He keeps meticulous books and records. He has a well-stocked library of resource material. There is evidence of a systematic approach: he has conducted a number of experiments in relation to crops, for example, which have been unsuccessful -

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but which he says have yielded valuable lessons about what crops are worth cultivating. He has acquired a good deal of machinery, although he is constrained by his financial resources. The operation is small, but not necessarily unsustainable. I also think he is genuinely committed to making a profit out of the farming operation in due course. I accept he does not see the property as a mere hobby or lifestyle. He has obviously worked hard on the property and he and his family have made many sacrifices to get the property to its current state.

I accept the taxpayer has made a number of improvements to the property. He has cleared parts of the property and laid down or improved vehicular access routes. He has built fences out of harvested timber. He has planted trees in test orchards and established farm outbuildings, including a hen house and nursery. He has installed irrigation pipes. He has a large machinery shed adjoining the residential accommodation he shares with his family. All of these things are consistent with the operation being characterised as a business. …

6. The Tribunal, nonetheless, found that Mr Nelson was not carrying on a business because no actual business activity had commenced. The Tribunal concluded:

And yet I am not satisfied the taxpayer was engaged in a business during the years of income in question. None of the activities identified by the taxpayer had advanced much beyond the planning stage. Some of the activities had not even gone that far: they remained glimmers in the taxpayer's eye during the period in question. He has certainly put a lot of thought into the various activities he would like to undertake, and he has taken some steps towards achieving those plans. He may yet manage to make a success of some of the proposals, but the link between the activities he has already undertaken and a production of income at some future point [was] too tenuous during the years of income in question.

The tax payer is an honest, enterprising and hard-working man. He has lots of good ideas about how to make his farm turn a profit. One wishes him every success in that quest. But his operation had not reached the point during the years of income where it could properly be described as a business in the relevant sense. In those circumstances, the objection decision under review must be affirmed.

THE APPEAL TO THE FEDERAL COURT UNDER SECTION 44 OF THE AAT ACT

7. Mr Nelson's supplementary notice of appeal to the primary judge under s 44 of the AAT Act raised what he asserted were seven questions of law. The questions were framed as follows:

  • 1. Whether the Tribunal erred in law in applying the wrong test to determine whether the taxpayer was "carrying on a business" for the purposes of s 8-1 and Division 35 of the Income Tax Assessment Act 1997?
  • 2. Whether the Tribunal erred in law in failing to identify or consider relevant judicial authorities that have interpreted section 8-1 and Division 35 of the Income Tax Assessment Act 1997, or similar provisions such as section 51(1) of the Income Tax Assessment Act 1936?
  • 3. Whether the Tribunal erred in law in relying exclusively upon the analysis of legal principles relevant to the interpretation of section 8-1 of the Income Tax Assessment Act 1997 contained in a Taxation Ruling made by the Respondent, Commissioner of Taxation, and having not considered the legal principles of the relevant authorities directly?
  • 4. Whether a reasonable decision maker having regard for the relevant principles could have reached the decision made in the Tribunal?
  • 5. Whether the Tribunal adopted a manner of decision-making that resulted in it failing to discharge its obligations according to law, particularly by not addressing the principal contention of the Applicant that he only carried on a single, core forestry business?
  • 6. Whether the Tribunal failed to identify and apply the correct concept of "carrying on a business" within s 8-1(b) of the Income Tax Assessment Act 1997 given: (a) the relevant authorities (viewed in the light of

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    its findings concerning the Applicant's subjective intention to carry on the enterprise profitably, commitment to the enterprise and actual activities engaged in); and/or (b) the definitions of "carrying on" and "primary production business" in s 995-1 of that Act and the relevant context (including the notion of "non-commercial business activities" in section 35-5 of that Act)?
  • 7. Whether the Tribunal made a finding concerning the asserted business that was based on no evidence or otherwise not reasonably open?

8. The grounds supporting the questions were expressed as follows:

  • 1. The Tribunal committed an error of law by failing to correctly identify and apply the relevant principles of law which define the "carrying on a business" in s 8-1 of the Income Tax Assessment Act 1997.
  • 2. The Tribunal's decision is guided solely by the Commissioner of Taxation's Ruling TR97/11 as to principles regarding when a taxpayer will be held to be "carrying on a business". As such, the Tribunal has:
    • a. Relied solely upon the Commissioner's interpretation of the law; and
    • b. Did not apply the legal principles as determined by the relevant judicial authorities, such as
      Spriggs v Commissioner of Taxation (2009) 239 CLR 1; [2009] HCA 22, the Full Federal Court decision in
      Ferguson v Commissioner of Taxation (1979) 26 ALR 307 and the Qld Supreme Court in
      Federal Commissioner of Taxation v Walker (1985) 79 FLR 161.
  • 3. As a result of failing to consider the legal principles as determined by the relevant judicial authorities, the Tribunal failed to identify that the authorities establish that a taxpayer may be carrying on a business, notwithstanding that:
    • a. The taxpayer did not earn income in the relevant years; or
    • b. The taxpayer's business activities could be considered preparatory in nature.
  • 4. On the evidence, no reasonable decision maker could have found that s 8-1 and Division 35 of the Income Tax Assessment Act 1997, on its interpretation, would not extend to the losses incurred by the Applicant.
  • 5. The Tribunal wholly ignored the principal contention of the Applicant, emphasised in the course of oral submissions, that he only carried on a single, core forestry business, and thus adopted a manner of decision-making that resulted in it failing to discharge its obligations according to law.
  • 6. The Tribunal failed to identify and apply the correct conception of "carrying on a business" in s 8-1(1)(b) of the Income Tax Assessment Act 1997, particularly by:
    • a. characterising activities as only "preparatory" [(2)] because "the link between the activities … and … income at some future point … is too tenuous" ([12]), despite finding the Applicant: (i) had a subjective intention to carry on the alleged business activities profitably; (ii) actually carried on a range of activities specified; and (iii) was committed to the enterprise; and/or
    • b. not applying the definition of "carrying on" in s 995-1 of that Act, as picked up and applied (to s 8-1) by the definition of "primary production business" in that section, as well as not considering contextual factors such as the notion of "non-commercial business" activities in Div 35 of that Act.
  • 7. The findings of the Tribunal concerning the credibility and intention of the Applicant, actual activities undertaken and related matters (specified mainly at paragraphs [10] and [11] of its reasons) lead to the conclusion that it made a finding concerning the asserted business that was based on no evidence or otherwise not reasonably open.

9. The primary judge referred to the requirement that an appeal under s 44 of the AAT Act be on a question of law but it is implicit that the appeal proceeded before the primary judge on the assumption that the supplementary notice of appeal disclosed

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questions of law and that the Court's jurisdiction was enlivened. The primary judge dismissed the appeal on the merits, finding no legal error in the Tribunal's decision. The primary judge held:

I am not persuaded that the Tribunal failed to correctly identify and apply the relevant principles of law which define the "carrying on a business" as claimed by Mr Nelson, or that the Tribunal failed to properly consider the facts before it in light of those principles. Similarly, I am not persuaded that the decision of the Tribunal was unreasonable, or not open on the material before it.

I note Mr Nelson's contention that the Tribunal failed to appreciate his claim that, in fact, he was carrying on only one single, core, forestry business. However I am not persuaded that the decision of the Tribunal was affected by error as Mr Nelson claimed. While I accept Mr Nelson's contention that cases advanced by litigants in person may lack some degree of clarity, in this case I am satisfied that the Tribunal understood the case put to it by Mr Nelson, and that it had thoroughly and carefully considered Mr Nelson's claims in their entirety.

That the Tribunal found against Mr Nelson on the facts was not a result of any confusion on the part of the Tribunal, but the view taken by the Tribunal on the facts before it of whether Mr Nelson was carrying on a business.

10. Whilst we agree with the primary judge that there was no legal error in the Tribunal's decision, we think that there was an issue as to whether the Court's jurisdiction to hear and determine the appeal was, in fact, enlivened by the pleaded questions in Mr Nelson's supplementary notice of appeal below. The right of appeal to the Federal Court from a decision of the Tribunal conferred pursuant to s 44 of the AAT Act is of a limited nature only. Pursuant to s 44 of the AAT Act, an appellant can only appeal on a question of law from the Tribunal and an appeal is not competent unless a question is identified that is properly characterised as a question of law. The notice of appeal must disclose that the Court's jurisdiction is enlivened pursuant to s 44 of the AAT Act and if the questions, properly analysed, are not questions of law, the appeal is not competent. The form of their expression does not turn them into questions of law.

11. In the present case, none of the questions in the supplementary notice of appeal articulated some precise question of law for consideration but, rather, it seems to us having regard to the grounds supporting the questions, merely invited an inquiry into the merits of the Tribunal's decision in light of the evidence. Furthermore, it is telling from the primary judge's reasons that the case as presented essentially constituted a factual challenge to the Tribunal's decision. If it be correct that the primary judge's jurisdiction was not enlivened, the failure to raise a question of law below provides sufficient reason to dismiss this appeal on the ground that the supplementary notice of appeal below did not raise a question of law and, accordingly the proceedings below were incompetent:
Price Street Professional Centre Pty Ltd v Commissioner of Taxation (2007) 243 ALR 728 at 739;
[2007] FCAFC at [43]154 per Edmonds J, with whom Kenny J at 751 [91] agreed.

12. Although it was not argued below that no question of law was raised, the Commissioner now takes the point that no question of law is raised by Mr Nelson's appeal to the Full Court from the primary judge's decision. The jurisdictional point should have been taken before the primary judge, especially given that some of the grounds raised by Mr Nelson before this Court are the same as the grounds of appeal before the primary judge: cf
Condell v Federal Commissioner of Taxation (2007) 66 ATR 100; [2007] FCAFC 44. The Commissioner's attempt to raise the issue in the notice of contention for the first time on appeal is unsatisfactory. Nonetheless, parties cannot confer jurisdiction on a court by consent. Here, the Full Court is exercising its appellate jurisdiction under s 24(1)(a) of the Federal Court of Australia Act 1976 (Cth) on appeal from the judgment (in the sense of a judgment, decree or order) of the primary judge. Ordinarily, the issue on an appeal is whether the primary judge made an error in determining the matter:
Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission (2000) 203 CLR 194 at 203-204 [14] per Gleeson CJ, Gaudron and Hayne JJ. However,

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this Court can decide that it should consider whether the jurisdiction of the Court under ss 44(1) and (2A) of the AAT Act was enlivened by the supplementary notice of appeal filed below, and if it found that there was no question of law in the proceedings before the primary judge, then this Court would order that the appeal be dismissed on the ground that the proceedings below were incompetent.

THE APPEAL TO THE FULL COURT

13. Mr Nelson's amended notice of appeal to the Full Court raised three grounds of appeal:

First ground

  • 1. The learned primary judge erred in not holding that [the Tribunal] failed to consider the principal contention of the Appellant, emphasised in the course of oral submissions, that he only carried on a single, core forestry business, and thus adopted a manner of decision-making that resulted in it failing to discharge its obligations according to law.
  • 2. The learned primary judge ought to have held that the Tribunal failed to consider the principal contention of the Appellant that he only carried on a single, core forestry business, and thus adopted a manner of decision-making that resulted in it failing to discharge its obligations according to law.

Second ground

  • 3. The learned primary judge erred in not holding that the Tribunal failed to identify and apply the correct conception of "carrying on a business" in s 8-1(1)(b) of the Income Tax Assessment Act 1997 (Cth) ("the Act"), particularly because the Tribunal wrongly characterised activities as not constituting an actual business, but only "the preparatory stages of the business", merely because "the link between the activities … and … income at some future point … is too tenuous", despite all its other findings (particularly how the Appellant: (i) had a subjective intention to carry on the alleged business activities profitably; (ii) actually carried on a range of activities specified; and (iii) was committed to the enterprise.)
  • 4. The learned primary judge ought to have held that, because of
    Tweddle v Federal Commissioner of Taxation (1942) 180 CLR 1; [1942] HCA 40, the Tribunal, in denying that an actual business was being carried on simply because of what it considered to be an insufficient link between the activities and future income (that is, on the basis of an insufficient profitability or viability of the activities) failed to identify and apply the correct conception of "carrying on a business in s 8-1(1)(b) of the Act.

Third ground

  • 5. The learned primary judge erred in not holding that the findings of the Tribunal concerning the credibility and intention of the Appellant, actual activities undertaken and related matters … lead to the conclusion that it made a finding concerning the asserted business that was not reasonably open.
  • 6. The learned primary judge ought to have held that the finding of the Tribunal that no business was carried on was not reasonably open.

14. In written submissions for Mr Nelson, it was foreshadowed that application would be made at the hearing of the appeal to rely on a further ground of appeal as follows:

Fourth ground

  • 7. It ought to have been and/or be held that the Tribunal adopted a manner of decision-making that caused it to fail to discharge its obligations according to law (particularly s 39 of the Administrative Appeals Tribunal Act1975 (Cth)), by improperly causing the Appellant to relinquish his opportunity to further consider, and to obtain advice and make submissions on, the submissions of the Respondent handed to him during the final stages of the hearing of 26 June 2012.

15. The question of leave to rely on that ground was reserved.

16. The written submissions for Mr Nelson identified the issues as:

  • a. Whether the primary judge erred in holding that the Tribunal did not ignore Mr

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    Nelson's principal contention that he only carried on a forestry business;
  • b. Whether the primary judge erred in holding that the Tribunal identified and applied the correct concept of a "business" in s 8-1(1)(b) of the Act;
  • c. Whether the Tribunal breached s 39 of the AAT Act.

DECISION

17. Grounds 1, 2 and 3 of appeal in the Full Court, framed as questions of law, challenge the primary judge's resolution of some of the asserted questions of law below, namely questions 5, 6 and 7. That raises the issue of whether the questions for determination, critically assessed, actually engaged any question of law for her Honour's, or our, determination. In our view, those grounds on analysis do not raise questions of law, but rather seek to challenge the findings of fact on which the Tribunal based its decision that the activities carried out by Mr Nelson did not amount to the carrying on of a business.

18. The sole issue addressed by the Tribunal was whether Mr Nelson was carrying on any business activity during the financial years in question. Whether or not Mr Nelson was carrying on a business activity in the financial years in question did not depend on the characterisation of the activity, but rather upon the nature of the activities being conducted. Characterisation would have become relevant if it was found that a business was being carried on because the deductibility of some or all of the disallowed expenses would depend on whether such business activity was properly characterised as a business of primary production. Whether Mr Nelson carried on a business, howsoever characterised, required "a wide survey and an exact scrutiny of the taxpayer's activities":
Spriggs v Federal Commissioner of Taxation (2009) 239 CLR 1 at 20 [60]. In Spriggs
(2009) 239 CLR 1 at 19 [59], the High Court stated that the existence of a business:

will depend on a number of indicia which must be considered in combination and as a whole" and "[n]o one factor is necessarily determinative … Relevant factors include, but are not limited to, the existence of a profit making purpose, the scale of activities, the commercial character of the transactions, and whether the activities are systematic and organised, often described as whether the activities are carried out in a business-like manner …

Ultimately, as the authorities make very clear, the question of whether a business is carried on is a matter of fact and degree:
Steele v Deputy Commissioner of Taxation (1999) 197 CLR 459 at 476; Spriggs
(2009) 239 CLR 1;
Ferguson v Federal Commissioner of Taxation (1979) 26 ALR 307;
[1979] FCA 2. Central to the Tribunal's decision that Mr Nelson was not carrying on a business was the finding that none of the activities identified by Mr Nelson, including those that may be described as "forestry operations", had gone much beyond the planning stage.

19. When critically examined, the "error" identified in Ground 1 (question 5 below) was simply a challenge to the facts as found. Whether or not the facts were wrongly found is a question of fact against which there is no appeal under s 44 of the AAT Act and accordingly, the primary judge's jurisdiction was not enlivened by Ground 1 (question 5 below). We consider, in any event, that the Tribunal was correct to hold, for the reasons given, that none of Mr Nelson's activities had reached a point where they could be described as a business activity.

20. The "errors" identified in paragraph 3 of Ground 2 (question 6 below), when critically examined, do not raise any appealable question of law. As the authorities make very clear, sometimes a taxpayer's activities do not amount to the carrying on of a business because they are preparatory and directed to deciding whether to commence some activity that will be income producing in the future. In that circumstance, the fact that a taxpayer may intend, or hope, or expect to commence a business in the future does not mean that the activity has reached the stage where it may be characterised as the carrying on of a business:
Softwood Pulp & Paper Ltd v Federal Commissioner of Taxation (1976) 76 ATC 4439;
Goodman Fielder Wattie Ltd v Commissioner of Taxation (1991) 29 FCR 376; [1991] FCA 206. Whether it can be said that a business has commenced will turn on the facts

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of the particular case and involves a judgment of fact.

21. Paragraph 4 of Ground 2 raises a new point not raised below and cannot be raised in this Court, an appeal from the primary judge, for the first time: Condell
(2007) 66 ATR 100;
[2007] FCAFC 44; Price Street Professional Centre
(2007) 243 ALR 728 at 739;
[2007] FCAFC 154 at [61] per Edmonds J. In any event the point is misconceived.
Tweddle v Federal Commissioner of Taxation (1942) 180 CLR 1; [1942] HCA 40 is authority for the proposition that the Assessment Acts "must operate on the result of a taxpayer's activities as it finds them" and that it is not for the Commissioner to tell a taxpayer "how to run their business profitably or economically". The proposition that the scope and nature of a business and how it is to be conducted is a matter for the taxpayer has been affirmed in many cases and is undoubted:
Magna Alloys and Research Pty Ltd v Federal Commissioner of Taxation (1980) 49 FLR 183; [1980] FCA 150. But the consideration to which the Tribunal had regard was quite different. All that it was saying was that the relationship between the activities carried on and the production of income at some future point was "too tenuous" to justify a finding that a business was being conducted in any of the income years in issue. There was no error of principle in the Tribunal taking that factor into consideration. This ground (and question 6 below) did not state a question or questions of law for determination but merely invited the reconsideration of the evidence.

22. Ground 3 (and question 7 in the Court below) on its face does not raise any question of law but is expressed as a challenge to the Tribunal's findings of fact. It follows that no further consideration of this ground is required because it did not enliven the Court's jurisdiction below and raises no issue on which an appeal could succeed.

23. Ground 4, claiming a breach of s 39 of the AAT Act is another point that was not raised before the primary judge and therefore cannot be raised on appeal from the primary judge for the first time: Condell
(2007) 66 ATR 100;
[2007] FCAFC 44; Price Street Professional Centre
(2007) 243 ALR 728 at 739;
[2007] FCAFC 154 at [61] per Edmonds J.

24. As we think that the ground does raise a question capable of founding an appeal made under s 44 of the Act, for the sake of completeness we express our view that we do not think that the ground has any merit.

25. Section 39(1) of the AAT Act provides:

Subject to sections 35, 36 and 36B, the Tribunal shall ensure that every party to a proceeding before the Tribunal is given a reasonable opportunity to present his or her case and, in particular, to inspect any documents to which the Tribunal proposes to have regard in reaching a decision in the proceeding and to make submissions in relation to those documents.

26. The breach of s 39 of the AAT Act was put in three ways.

27. First, it was again argued that the Tribunal failed to consider Mr Nelson's primary contention. For the reasons already given that contention is misconceived.

28. Secondly, it was argued that the Tribunal did not decide the case on the basis that it informed Mr Nelson, who represented himself before the Tribunal, about the argument put against him by the Commissioner. This argument needs some context to understand how it arises.

29. Immediately after the close of the evidence, the Commissioner produced thirty three pages of written submissions on which he sought to rely. As Mr Nelson had not seen those submissions, Mr Nelson was given an opportunity to read them. Upon resuming, the Tribunal asked Mr Nelson whether he wanted an adjournment to consider the submissions and seek legal advice. Mr Nelson's preference was to complete the hearing that day but he was unsure as to whether he properly understood what was being put against him. The Tribunal then asked counsel for the Commissioner to explain the argument advanced in those submissions. At the end of counsel's explanation, the Tribunal informed Mr Nelson that the argument that was put against him was that no business was being carried on because Mr Nelson was not "committed" to a business activity. Mr Nelson was asked

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whether he understood the argument and he replied "I generally do".

30. In the written submissions in the Full Court, it was argued for Mr Nelson that:

Immediately after being told that whether or not he was committed to his activity was the issue … , the Appellant submitted he was only carrying on a forestry business. Unsurprisingly, the AAT then in fact found he was "genuinely committed" to his activities … His decision to not seek advice was made on the basis, specified to him by the AAT, that he only needed to show, in addition to what he already had, that he was committed to his activities. The AAT transcript shows this was both the basis for his decision to not seek advice and the foundation for his forestry submission.

Despite finding that in fact the Appellant was committed to his activities … the AAT did not decide the case on the basis of whether he could show this, as it said it would. It thus wrongly caused him to forgo the chance to seek advice on the Respondent's submissions on a mistaken basis (viz, that showing his commitment to the activities was enough), preventing him from seeking that advice, and making related submissions, in breach of s 39.

31. The contention reveals a misconception of the Tribunal's reasoning. It some cases the concept of commitment to an income producing activity is an element that is considered in determining whether a business is carried on, though as the High Court in Steele
(1999) 197 CLR 459 noted at [47], the utility of that concept may vary from case to case: Softwood Pulp
(1976) 76 ATC 4439; Goodman Fielder Wattie
(1991) 29 FCR 376;
Inglis v Federal Commissioner of Taxation (1979) 28 ALR 425; [1979] FCA 106. In the present case, the Tribunal did accept that Mr Nelson was genuinely committed to making a profit out of the farming operation "in due course". Critically, it was a qualified finding with respect to Mr Nelson's future intentions. The Tribunal then went on to reason that no business activity was actually being carried on by Mr Nelson in the financial years in question because most of Mr Nelson's activities had not gone beyond the planning stage. Thus the very basis upon which the Tribunal found against Mr Nelson was that his activities could not be described as a business because, although he had an intention to commence a business in the future, he had not committed himself to an income producing activity in the financial years in question.

32. Thirdly, it was argued that Mr Nelson was denied the opportunity to support his deduction claims under provisions of the Act which did not require him to show that he was carrying on a business. This argument also needs some context to understand how it arises.

33. The Commissioner's written submissions to the Tribunal identified the issues, relevantly as:

  • a. whether Mr Nelson carried on a business of primary production in the relevant years;
  • b. if so, was the business carried on by Mr Nelson in his personal capacity or as a trustee of the trust;
  • c. if the Tribunal found that Mr Nelson was carrying on a business, the question arose as to the deductibility of the claimed expenses and whether the losses could be claimed in the income years in question or whether Div 35 of the ITAA97 required the losses to be deferred.

34. It was expressly stated in the submissions that whether any of the claimed deductions were allowable had not been tested on audit or objection and that if the Tribunal found that Mr Nelson was carrying on a business in the relevant years, the matter should be remitted to the Commissioner for further consideration. The written submissions noted that Mr Nelson had not identified the provisions of the Assessment Acts under which the claimed expenses were deductible and identified s 8-1 and s 40-25 of the ITAA97 as "relevant deduction" provisions. The balance of the Commissioner's submissions addressed the arguments as to why Mr Nelson was not carrying on a business, consistently with the way in which the case had been conducted before the Tribunal - that is, on the basis that the sole issue for determination was whether Mr Nelson was carrying on a business.

35.

ATC 16388

It was argued for Mr Nelson that:

In the AAT, the threshold issue was whether, putting actual expenses to the side, the taxpayer carried on an activity that could have made any deduction claimed possible. On this, s 40-880 only needs a "proposed" business, while ss 8-1(1)(a) and 40-25, both properly raised by the Respondent, do not need a business at all. Had the Appellant obtained advice, he could have corrected the AAT's erroneous premise [that] the possibility of a deduction depended on a finding he was carrying on a business. He could, as a result of that advice, have relied on s 40-880, if necessary by seeking an order under s 14ZZK(a) of the TAA to amend his grounds of review, and indeed made submissions on ss 40-25 and 8-1(1)(a) even without such an order. The question is thus not one that "must clearly be answered unfavourably to" him (Stead). Indeed, even on the actual findings, so far as concerns s 40-880, he would have prevailed.

36. It was submitted that had Mr Nelson obtained legal advice, he would have been alerted to other provisions upon which he could have relied to support his expense claims and that he could have corrected the Tribunal's erroneous premise that the deduction claims depended on a finding that he was carrying on a business. We find this submission tendentious and without substance. It is not correct that the "threshold" issue in the Tribunal was whether Mr Nelson carried on an activity "that could have made any deduction claimed possible". Mr Nelson's sole ground of objection to the disallowance of his deduction claims was that he was carrying on a business of primary production in the financial years in question. On a review before the Tribunal (or an appeal to the Federal Court) the taxpayer is limited to the grounds stated in the objection, subject to obtaining leave to amend: s 14ZZK(a) and s 14ZZO(a) of the Taxation Administration Act 1953 (Cth). The sole question for the Tribunal therefore was whether Mr Nelson was carrying on a business, with the matter to be remitted to the Commissioner for determination of the deduction claims in the event that the issue was determined in Mr Nelson's favour. Mr Nelson was not denied the opportunity to present his case before the Tribunal and there was no breach of s 39 of the AAT Act.

CONCLUSION

37. The appeal must be dismissed with costs.


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