Case D3

Members: FE Dubout Ch
G Thompson M

N Dempsey M

Tribunal:
No. 3 Board of Review

Decision date: 28 January 1972.

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N. Dempsey (Member): Once again the Board is called on to decide whether a taxpayer, a country solicitor, was also during the relevant years, the years ended 30 June 1967 and 1968 carrying on a separate business of primary production.

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2. Section 157(1) of the Act provides that, what are referred to as the averaging provisions of the Act, (Sections 149 to 156 inclusive) apply after 1 July 1937 only to income derived by a primary producer and for the purposes of that section a primary producer includes inter alia a person who carries on in Australia a business of primary production.

3. Section 6(1) defines primary production as production resulting directly or indirectly from defined sources including the cultivation of land or the maintenance of animals or poultry for the purpose of selling them or their bodily produce, including natural increase.

4. The evidence given by the taxpayer and which has not been shown to be in any important respect incorrect or unreliable is that having spent a considerable part of his early boyhood on the properties of relations and when old enough he had worked for a time as a station hand, he had developed a liking and a yearning for a life in the country.

5. After the termination of world war two, taxpayer having qualified as a solicitor, he set up practice in a sizeable country town which was what might be described as the business centre for several other towns in close proximity to it.

6. Taxpayer claims that from the time he commenced practice in this town he was on the look out for a property to purchase and on which he could carry out farming operations. He endeavoured to purchase several properties which became available over the years but the prices required were beyond his means. Through his business as a solicitor acting for estates he was in close touch with properties which were likely to be available. He was somewhat restricted also as he wanted a property close enough to the town to run as a farm and still be able to carry on his legal practice.

7. He was handling an estate which owned a property of approximately 71 acres which had been bequeathed to three sons of the deceased father. He intimated to the sons he was interested in buying the property and no doubt, influenced by his position of trust, he offered to buy it for £ 100 more than the highest offer they might receive elsewhere. He ultimately purchased the property from the estate for $3,400, the purchase taking place in July 1964.

8. The property is approximately one and a half miles from the nearest settled residential area of the town and it has no town water available to it. It is served by electricity but this has to be paid for at a higher than normal charge. It has a frontage of about one third of a mile to the main highway to the town and is about a half mile deep. At the time of purchase it was zoned non-urban, which, in effect, meant that it could only be subdivided into blocks of no less than five acres each.

9. Prior to purchasing the property, he discussed its farming potential with other land owners in the area with whom he was friendly. He also sought advice from the district agronomist. He inspected the property with the latter person and the advice he was given from this man was that with the aid of fertilisers and establishment of planted pasture grasses the natural grasses which were not of great value at certain times of the year, could be eliminated.

10. Prior to its acquisition by this taxpayer the property had been used to some extent by its owner for farming purposes. It had a bore, which had become somewhat useless, an area of about 20 acres had been cleared and cultivated and there were some pig yards. However, generally speaking, it was very run down and the fencing, which was mainly boundary fencing, was in a very poor state of repair.

11. Taxpayer claims that at the time of purchase he had no intention of residing on the property but proposed to work it and develop it as a farm in his spare time whilst continuing to conduct his legal practice. However, in September, 1968, having received a legacy he did build a home on the property and has resided there since May 1969.

12. I do not propose to traverse in detail the various works he has carried out on the property. In short summary, they consisted of attending to fences, cultivating the area which had been previously cultivated and

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growing crops thereon of cow peas and wheat and fodder grasses and fertilising the property both by air and mechanical spreading. A fresh bore was sunk which yielded a plentiful supply of water and a dam of 3000 yards cubic capacity was constructed and irrigation to the cultivation provided.

13. In the year ended 30 June 1966 a cow was purchased which in due course produced a calf. However, the cow later died and the calf was reared and sold. In August, 1968, 40 head of cattle were purchased for $1,593. The district had suffered from a prolonged drought, which resulted in the crops and fodder grasses which were planted proving a failure.

14. Taxpayer claims he purchased the cattle in August, 1968 hoping that the drought would break and that he would be able to hold the cattle on his property for a couple of months and then resell them at a reasonable profit.

15. The dam on the property is to provide water for stock and to irrigate the cultivation. Since the home has been built, it also serves the home garden but otherwise is not used for domestic purposes. The domestic supply is drawn from a rain water tank attached to the home.

16. Cases of this nature have to be decided on their own particular facts. As I indicated in my decision reported as Case B80, 70 ATC 371 at para. 9 on page 374, the question as to whether a business is being carried on is one of fact. As I also stated an accepted test appears to be: Are the operations of the same kind and carried on in the same way as those which are characteristic of ordinary trading, in the line of business in which the venture was made?

17. In my view, taxpayer has demonstrated that his activities were carried out in the normal pattern of a person farming a small property. The fact that through bad seasons he has not been financially successful is not relevant, see
J.T. Tweddle v. F.C. of T. 7. A.T.D. 186 . I further consider that his activities in the relevant years went far beyond a mere preparation for future primary production as was referred to in
Southern Estates v. F.C. of T. , 117 C.L.R. 481 .

18. Under the circumstances, it follows that I would uphold the objections of the taxpayer for the years ended 30 June 1967 and 1968 and find that he was in fact engaged in a business of primary production during each of those years. I would also hold that he was similarly engaged in the years ended 30 June 1965 and 1966. As to whether the year ended 30 June 1965 qualifies as a first average year will depend on details not available to the Board and I leave it to the Commissioner to amend his assessments to give effect to my decision in principle.

Claim allowed