Shepherd v. Federal Commissioner of Taxation.

Rath J

Supreme Court of New South Wales

Judgment date: Judgment handed down 21 November 1975.

Rath J.: These five appeals relate to the disallowance by the Deputy Commissioner of Taxation of objections by the appellant against her assessments for income tax for the years ending 30 June, 1963 to 30 June, 1967, and they were heard together by consent. The question in all the appeals is whether moneys received by the appellant from prize money and wagering in relation to her horse racing activities are assessable income under the Income Tax Assessment Act 1936-1973. There is no issue in any of the appeals as to the calculation of tax.

The appellant was born at Tamworth in 1931. Before her marriage in 1948 she worked as a shop assistant in Scone, but most of her spare time was spent in association with horses. Her interest in horses was maintained at the same, if not an increasing level, after her marriage. She continued to be an amateur horse rider and rode at shows although the last time she rode in a horse show would have been about fifteen years ago. Her interest in riding was solely for pleasure. Immediately after her marriage, the appellant and her husband went to live at his family property at Scone. It then comprised and still does an area of approximately six acres. Stables for horse accommodation were constructed on the property. To the best of her recollection, at the time of her marriage, there were at least one old brood mare and a pony on the property. These horses belonged to her father in law. In the early 1950's, she took out a trainer's licence with the North & North Western District Racing Association, for the purpose of training her own horses. She has never received training fees from any other horse owner, although on odd occasions other trainers in the district have sent their horses to her for special care or advice, which she has given without charge. Since her marriage, it has been her practice to keep at least one but not more than two horses in training. Her predominant purpose in so doing has been to maintain her love of horses and interest in their welfare and her horse riding fitness in track work. Any period of absence from the saddle, she said, makes it difficult to resume horse riding. She has always broken in her own horses. In the early years of her marriage, during the 1950's, the appellant acquired her horses by purchase. Later she commenced breeding her own horses.

Until very recently when she was employed casually for several months in the hotel of a mutual friend at Scone, the appellant had not been employed throughout her marriage. Her husband conducted a fruit and vegetable depot at Scone until 1966, when it was closed. She had worked without wages in that depot. She has provided all of the purchase money for her horses out of her own resources, and has independently funded all of her expenditure in the maintenance of horses in which she has had an interest. She has also independently funded her wagering activities. She has had one horse, named Trevors, which has been highly successful. From the time Trevors started to be successful, the appellant wagered on him and did so with considerable success. Except as to sums negligible in amount and frequency, her wagers have been limited to horses in which she has had an interest, and apart from ``Trevors'',

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her wagering on her own horses has not been substantial. She did have one very successful wager during the years under review upon a horse called Toi Port, whose owner she knew, but apart from that wager, and wagers on Trevors, she did not have a successful wager on any horse involving winnings of over a hundred dollars. The appellant has not kept records in relation to her racing or wagering activities.

The above facts are taken from the appellant's affidavit. She gave evidence, and was cross examined at some length, and I formed a firm impression that she was a truthful and reliable witness. Her affidavit was obviously carefully prepared in accordance with her instructions, and I accept it as accurate.

The appellant originally acquired a half interest in Trevors in 1962 with an acquaintance, Mr. T. Burns. Mr. Burns exhibited no real interest in the horse, being a person having no close association with the turf. After Trevors had won his first race, the appellant purchased from Mr. Burns his half interest for one thousand dollars, on terms of seven hundred dollars down-payment and one hundred dollars out of the next three of any winning races in which Trevors participated. She gave the following evidence in relation to this purchase -

  • Q. How old was Trevors when you and Mr. Burns first acquired him?
  • A. He was a yearling - a very early yearling.
  • Q. In what circumstances was it that you and Mr. Burns acquired Trevors?
  • A. We were all talking to the people who bought Puen Buen - the Allen brothers. My husband was there. They offered Mr. Burns, being the agent selling the place, a yearling and he said he would take the yearling if I would train it for him. I said I would train it for him if I could have a half share in it and a controlling interest, without any charge to Mr. Burns.
  • Q. It was in those circumstances that Trevors came into your possession?
  • A. Yes. He was non-stud book.

With regard to her exceptional wager on Toi Port, the appellant gave the following evidence as to the circumstances in which it occurred -

  • A. I was very good friends with people from the market. Mr. Minjoy, particularly, he was a very good friend of my sister. That is how we became so interested in it. My sister had a little with me and my mother had some of it with me too. It was 16/1. It netted me about $2,500, or something like that.
  • Q. What was the amount of the wager?
  • A. It would have been about 60 each way, or 50 each way.

The appellant's system of backing Trevors appears from the following evidence -

  • Q. Can you indicate to his Honour why it was on some occasions you backed Trevors and on other occasions you did not?
  • A. Well, we didn't back him when he was not fit, of course, and you can't always get a horse fit without racing them. On the occasion of when he ran second at 25/1 he really surprised me. He was fitter than I thought he was, which is most unusual, because when he got fit he really pulled hard and you knew he was fit. He always indicated that very well. He was a very lazy horse as a rule.
  • ......
  • Q. You of course, when you placed a bet on Trevors, as you said, you thought he had a good chance of winning. If you didn't think he had a good chance of winning I take it you didn't put any bets on it?
  • A. No.
  • Q. And you also advised your friends the same thing, did you?
  • A. Yes.
  • Q. You were betting really on information that you acquired by your training of Trevors, is that right?
  • A. Yes.
  • Q. I suppose in racing Trevors you were interested in winning prize money?
  • A. Yes.
  • Q. I suppose when you were betting on Trevors on occasions when you thought he would win, you were interested in getting money from the bets, is that right?
  • A. Yes.

    ATC 4247

  • Q. Indeed, when you did get some capital from the bets you reimbursed or reinvested a certain amount of that capital on the purchase of other horses?
  • A. Yes.
  • Q. So really the betting that you conducted on Trevors was related to the acquisition of money from wins and for reinvestment in your activities with the stud?
  • A. Mostly for sport - all for sport - exercise riding.
  • Q. When you say, ``Mostly for sport'', nonetheless one of your objectives was to get the prize money - get the winnings and then use that capital to purchase further horses?
  • A. Yes, everyone wants to win, don't they. If you play tennis or golf it is the idea to win, isn't it.
  • Q. Well, you say it was one of your objectives. Did you have the objective before you started to win substantial sums of money or was your objective formed after you had already won substantial sums of money?
  • A. After I had won money.
  • ......
  • Q. You like to bet as nearly as you can on a certainty, do you?
  • A. I think we all do, don't we? I am not very much of a gambling person really.

That last answer, considered with her other evidence, I take as meaning that she is not predominantly interested in gambling; that the gambling, in other words, is subsidiary to her love of horses. Cross examination was directed towards showing, if it could be shown, that her activities with horses were directed to the end of making money, and that her activities were systematically aimed at that end. The impression I gained on the other hand was that her primary interest was in owning horses, training them to their peak, and having the excitement of riding them in trackwork, and having them race. She wanted them to do well, because it pleased her that she was handling her horses well. The prize money was acceptable of course, particularly as she had found owning and racing horses to be expensive. The fact that she confined her betting primarily to her own horses is indicative not so much of a system for winning money as it is of pride and confidence in her skills. She does not say so much in just those terms; but that seems to me the tenor of her evidence.

Though the appellant is obviously not particularly interested in domestic affairs, it is none the less a true assessment of her activities that she has been primarily a wife and mother. She readily agreed that her housework did not take much time, and her daughter, who apparently liked it, has helped her. But she spent ``a fair bit of time'' in her husband's shop, principally in keeping the books. Her daughter was born in 1951 and was very actively engaged in competitive championship swimming until she became sixteen years of age. The appellant gave the following evidence of her involvement in her daughter's swimming activities -

  • Q. To what extent did you participate in the training activities of your daughter?
  • A. I used to run her to the baths and wait for her to bring her home of a morning, and I used to pick her up again, and the same after school. If I didn't do it my husband did it. Mostly I picked her up and took her to the pool.

This competitive swimming involved the appellant on many occasions being absent from Scone accompanying her daughter to Sydney and interstate. Over the period from 1963 to 1968 the appellant spent about four hours a day on duties associated with her horses. This four hours, she said, was not ``work time'', but ``the time you spend with the horses''.

In the period from 1954 to 1960 the appellant had an interest in four race horses. Quick Knock, Manner Lad, King Cape, and Cortiraca. It appears that she had in the last horse a lease interest in the year 1957 only. The horse Quick Knock was part owned with her husband over the years 1954 to 1958. He was purchased for $600, and won about ten races, none of them important. The appellant bought Manner Lad in 1956 and after one unsuccessful run and owning him for about a year or so, she gave him away. She acquired King Cape in 1957 in part ownership with a friend. He had two unsuccessful runs and was sold after about twelve months. The appellant received about $60 for her half share.

An affidavit of Mr. Dunn, a senior investigating officer of the respondent, has annexed a valuable chart showing the appellant's

ATC 4248

horses and her interest in them. From this chart it appears that after this initial period the appellant for something over a year had no interest in racing or breeding horses. Then in 1962 she acquired Trevors in the circumstances already mentioned, and a new phase of her activities began. She had Trevors until it died of an infection in 1967. Early in this second phase, in 1963, she purchased another horse called Chan for $2,072. He won five country races but as in the case of Quick Knock the expenses of ownership and racing at least approximated the prize money which he earned. The appellant in 1967 or 1968 gave Chan to a friend of hers for his daughter to have as a hack. Then in 1964 or 1965 she purchased a brood mare Muezzin for $400, thus commencing her activities as a breeder. In 1967 another stud mare, Honey Song, was purchased by her. Of her bred stock, a filly called Zi is the first. She was the first pure bred bred by the appellant and after one unsuccessful run she was sold as a two year old for $200. The next of the bred stock is Nevus, born in 1966. He was sold in 1973 for $800, having won one race in 1972 and having taken part in many unsuccessful races. The expense of ownership and maintenance of Nevus would have greatly exceeded his prize money. He was a good natured horse and the appellant had great pleasure in riding him around the property.

In 1968 the appellant purchased a horse called Guilian as a yearling for $10,430. He was unsuccessful in racing for the appellant, and she sold him in 1973 as a gelding for $1,000. This horse was a ``rogue'' in maintenance and training, and was when a colt the cause of injury to the appellant. Other horses have been bred by her over the subsequent years 1968 to 1974, and some have been sold for good prices. In these later years she has had success in racing one of her bred stock, a horse called Titaria. During the years under review no racehorse of the appellant earned prize money in excess of all costs associated with its ownership. The following evidence is of some significance -

  • Q. In your career, if I might call it that, of the racing and handling of horses you really have got yourself two good horses?
  • A. Yes.
  • Q. That is not a bad average, is it, for a small stud?
  • A. Most unusual.
  • Q. What do you mean by most unusual?
  • A. Well, I think it is about a million to one to get a reasonably decent one let alone a good horse in Trevors.
  • Q. Until you got Trevors you made no money out of your horse racing career at all, did you?
  • A. No, not really.
  • Q. And after he died, at least up to the year 1974, you have made no money at all, have you?
  • A. No, not really.
  • Q. You have either just broken even or you have lost?
  • A. Yes.
  • Q. So in your career your possession of Trevors is the only reason you have made any money out of this game?
  • A. Yes.

For the tax years ending 30 June 1963 to 30 June 1968 the respondent ascertained the appellant's taxable income by a betterment calculation, that is by a comparison of assets at the beginning and end of the year. The taxable incomes for the years 1963 to 1967 were $7,676, $7,512, $23,964, $13,586 and $14,961. For the year 1968 it was nil. For the years 1969 to 1973 the taxpayer has furnished details of income. Her returns show nil taxable income for years 1969 and 1970, and losses for the other three years. There is no suggestion in the evidence, or otherwise, of any inaccuracy in her returns.

It is apparent that the appellant's activities in horse racing were of a minor nature until Trevors was acquired and commenced its winning career. In the year ending June 1963 it raced seven times, winning once. It appears that the appellant's ``betterment'' for that year would have come from a wager on Trevors in its winning race. She does not recall any details, but the money, she said, could not have come from anywhere else. It must have been at that time an unusual bet for her, because, apart from wagers on her own horses, she described herself as a dollar punter. Five dollars, she said, was a huge bet for her. It subsequently was not unusual for her to wager $1,000 on her own horses. Finding herself put in funds by her good fortune with Trevors, the appellant undoubtedly became a successful punter, but this success was almost entirely due to the capacity of Trevors, and the appellant's ability

ATC 4249

to assess its form. Until the appellant commenced to breed pure bred horses, there was no substantial difference between this second stage of her racing career and the first stage. She bought Chan for a large sum of money, but she could of course by then afford to indulge herself. Her venture into breeding was at first cautious, with the purchase of a brood mare for $400. The purchase of Honey Song in 1967 for $1,680 may indicate that she was becoming engaged in a new career as a serious breeder of pure bred horses; but whatever may be the correct interpretation of this activity from a revenue point of view, it does not in my view assist in determining the character, from that point of view, of the appellant's racing of Trevors, and later of Chan, in the years under review, and her wagering on these horses. That character is revealed rather by her previous career. It is important to bear in mind that the acquisition of Trevors came after a break in the appellant's racing activities, and that the acquisition was fortuitous. It may be the appellant thought the colt was a good one, but her acquisition of it was not commercially planned, and was not part of any business activity then being carried on by her. In the years ending June 1963 and 1964 Trevors is the only horse she raced. In the year ending June 1965 Trevors raced eleven times, Chan twice. There is a similar pattern in 1966. In 1967 Chan raced more consistently. In 1968 Trevors had gone, and all racing, except for one race by Zi, was done by Chan. In 1969, 1970 and 1971 the appellant was racing three horses. On one occasion in 1971 she had one horse racing in the country and another in Sydney. It is possible that in these years following those under review a change of pattern is discernible; but if this is the case, and if the new pattern has a business character, that does not reflect that business character into the prior activity, but rather the reverse. It may be that there was a development towards business activity; but if so, the development had not progressed significantly in the years under review. Even in the case of her present activities the profit or business element, if it exists, is not predominant, as her answer to the third question in the following evidence shows -
  • Q. It appears, does it not, that your activities are directed more to the breeding of horses. Would that be true?
  • A. Yes.
  • Q. And again I think you are hoping to make a profit out of your breeding activities?
  • A. I have. I am breeding another one. I have bred one good filly in Titaria and I am hoping to breed another one as good.
  • Q. We know you like looking after horses, but equally you like making profits?
  • A. I would like to continue to breed them, and if I don't make money out of it I can't.

The only two types of receipt with which the present case is concerned are prize money and money won on wagers. There were no receipts from the breeding activities in the years under review. Counsel for the appellant submitted that the source of these receipts was essentially a sport or pastime, and that for that reason those receipts are not income within the meaning of the Income Tax Assessment Act 1936. He said that it was a sport or pastime that had its origin in the youth of the appellant; that it received some impetus by virtue of her marriage to the son of a horse trainer who was already equipped in terms of stables and the like; and that until the unexpected success with Trevors the appellant's activity was clearly capable of characterisation only as a sport or pastime. He pointed to the circumstances under which Trevors was acquired, contrasting those circumstances with the purchase of a horse through attendance at yearling sales. He submitted that the fact that success came with Trevors, enabling an extension of the amount of time and money that might be applied to the activity, did not alter the essence of that activity as being non-business. Counsel stressed that in the years under review the appellant was essentially engaged in the activities of being a wife and mother, assisting her husband during the earlier period in his store at Scone, assisting in the training of her daughter who subsequently became a State champion swimmer, and that during those years she blended these time and attention absorbing activities with her interest in horses. He contended that the fact that her husband was a starting price bookmaker, and that the appellant placed her bets through (though not with) him was irrelevant. This latter contention is clearly in my view correct, and I did not understand it to be contested by the respondent. The appellant herself did not take any significant part in those activities of her husband.

ATC 4250

Counsel for the respondent Commissioner submitted that the appellant was conducting a business associated with the industry of racing, and alternatively that, even if the appellant's activities fell short of a business, they were still sufficiently associated with sec. 17 and sec. 25 of the Act to bring the receipts into the category of assessable income. As I understood this alternative submission, counsel for the respondent contended that unless a receipt was fortuitous it was assessable income. In elaboration of this submission he contended that if a taxpayer's receipts were derived from systematic activity, then those receipts were income within the meaning of the Act. Counsel for the appellant's reply to this alternative submission was that a receipt was not assessable income unless it constituted income in the ordinary and commercial sense of that term. He relied on the view of Dixon C.J. in
F.C. of T. v. W.E. Fuller Pty. Ltd. (1959) 101 C.L.R. 403 at 407 in the terms in which it was accepted by Barwick C.J., McTiernan J. and Taylor J. in
Gibb v. F.C. of T. (1966) 118 C.L.R. 628 at 633.

I do not think that this case requires a general consideration of the concept of income, or of the difference between fortuitous receipts and receipts from the carrying on of a systematic activity. The courts have on a number of occasions had to consider whether receipts from racing activities were income within the meaning of the Act. The criterion that has been authoritatively established is whether the activities constitute the carrying on of a business. In
Martin v. F.C. of T. (1953) 90 C.L.R. 470 the appellant during the three years covered by the assessments carried on business first as a hotel keeper and then as a farmer, and also conducted racing activities, including betting on horses, and purchasing, race horses. One of these race horses was bought for breeding purposes also. He did not keep racing stables, but he employed several trainers, from whom he obtained information for betting purposes. In the years in question he made 602 bets, including 275 winning bets. There were credit balances in each of these three years, being respectively £2,389.5s.0d, £4,429.10s0d, and £1,864.10s.0d. He employed a man to make bets for him, so that he might get longer odds. Webb J. held that the taxpayer was carrying on a business of racing and betting because of (1) the considerable amount of time spent by him in racing and betting operations; (2) the very large proportion of his assets and income applied by him for that purpose; and (3) the systematic methods employed by him which were (Webb J. thought) really directed more to making profit than pursuing pleasure (pp. 473, 479). On appeal, Williams A.C.J., Kitto J. and Taylor J. held that the evidence did not justify these conclusions (p. 479). They said: ``In fact, the taxpayer frequented one racecourse and then only on ordinary racing days. If the number of bets he made appears at first sight to have been large, they do not seem to add up to more than about one bet on each race and therefore not to point to more than a normal propensity of racegoers who bet as a pastime. The taxpayer could afford this indulgence since he was, on the evidence, so successful. He said that he never ventured much over £100 on any race and that the biggest bet he ever won was £500 to £40 on one of his own horses. He said that he stayed away from the races for the first nine months after he purchased the hotel, for he was then in a new job and had to concentrate on that until he had control of it'' (pp. 479-80). After referring to evidence of the taxpayer's betting system, the judgment proceeds: ``So it appears that the taxpayer, like many other persons who find pleasure in betting and even more pleasure in winning, used a system which he believed would bring him out on the credit side in the long run, that he sometimes got a friend who accompanied him to the races to lay his bets for him when he was himself occupied in the saddling paddock, and that he engaged trainers from time to time to train his racehorses. But we do not consider this evidence to be symptomatic of a business of betting or racing. It illustrates the normal and usual activities and nothing more of persons who derive pleasure from betting on the racecourse and racing under their own colours'' (p. 481). Earlier the Court had said (p. 479): ``The definition of income from personal exertion includes the proceeds of a business carried on by the taxpayer, but the pursuit of a pastime, however vigorous that pursuit may be, does not usually amount to carrying on a business and gains and losses made in such a pursuit are not usually considered to be assessable income or allowable deductions in computing the taxable income of a taxpayer. The onus, if the case is one in which onus assumes any importance, is on the appellant to satisfy the Court that the extent to which he indulged in betting and racing and breeding racehorses was not so considerable and systematic and organized that it could be said

ATC 4251

to exceed the activities of a keen follower of the turf and amount to the carrying on of a business. But no question of onus appears to us really to arise. It is simply a question of the right conclusion to draw from the whole of the evidence''. This is as I understand it a statement of the principle of Martin's case, and the principle I should apply in the present case.

Before me the respondent Commissioner strongly relied on the decision of Evatt J. in
Trautwein v. F.C. of T. (1936) 56 C.L.R. 196. In Martin's case the Court said of this decision ``we do not consider it to be more than a decision on the particular facts of that case''. The same observation is also true of the decision in Martin's case itself. It would be wrong to use the facts of Martin's case as in themselves establishing criteria, or tests for the determination of ``the right conclusion'' to draw from the whole of the evidence of the instant case.

In the present case prize money as well as money from betting is involved. In Martin's case the taxpayer had also won prize money, and this was included in adjustments in the amended assessments (p. 477), but apparently there was no issue in the case as to the treatment of prize money. In
Knight v. C. of T. (N.S.W.) (1928) 28 S.R. (N.S.W.) 523 (a case under the New South Wales Income Tax (Management) Act, 1912) it was held that prize money derived by the taxpayer from horses bred and raced by him was ``income'' within the meaning of that Act. The Court there said that the word ``income'' is a general expression signifying what comes in, and that it is as large a word as can be used to denote a person's receipts. As applied to the facts of that case, where the taxpayer appears to have been carrying on a business of breeding racehorses and racing them for profit, this test doubtless produced the correct result; but, the test does appear to be inconsistent with the principles of Martin's case where the issue is the characterisation of gains or losses made in the pursuit of a pastime. It is to be observed that even if the issue in Martin's case was confined to the proceeds of betting, the principle is expressed in general terms; and the Court referred to indulgence ``in betting and racing and breeding racehorses'' without any distinction being drawn in relation to gains and losses from the three named activities. Whether the taxpayer is involved in only one of these activities, or whether he is involved in two or more, the question for decision is the same namely whether the extent to which he is engaged in the activity or activities is so ``considerable and systematic and organized'' that it can be said to exceed the activities of a person keenly pursuing a pastime and amount to the carrying on of a business.

In Martin's case the Court appeared to regard the decision of Rowlatt J. in
Graham v. Green (1925) 2 K.B. 37 as affording support for its conclusion. The Court said (p. 481): ``In our opinion the present facts fall short of the facts which were insufficient to persuade Rowlatt J. in Graham v. Green that the taxpayer there was carrying on the vocation of betting. His Lordship said: `I think all you can say of that man, in the fair use of the English language, is that he is addicted to betting'''. As I understand the judgment of the High Court, in its reference to this decision, it regarded the question before it as analogous to the question before Rowlatt J. in regard to the carrying on of a vocation. One of the questions before Rowlatt J. was whether the proceeds of the taxpayer's betting transactions were ``annual profits or gains arising or accruing from any trade, profession, employment or vocation'' within the meaning of the Income Tax Act, 1918. The taxpayer was in the habit of betting on horses at starting prices. He did it on a large and sustained scale, and his income from it was substantially his means of living. Rowlatt J. was of the opinion that although a bet was an irrational agreement, and the proceeds of a bet were not in themselves profits or gain, nevertheless if a person sets on foot an organized seeking after emoluments which are not in themselves profits, he may create, by way of a trade, or an adventure, or a vocation, a subject matter which does bear fruit in the shape of profits or gain (p. 40). After indicating how a bookmaker might organise his effort so as to make a profit, he proceeds to discuss the position of a person who bets with a bookmaker, as follows: ``Now we come to the other side, the man who bets with the bookmaker, and that is this case. These are mere bets. Each time he put on his money at whatever may be the starting price. I do not think he could be said to organize his effort in the same way as a bookmaker organized his, for I do not think the subject matter from his point of view is susceptible of it. In effect all he is doing is just what a man does who is skilful at cards, who plays every day. He plays today, and he plays tomorrow, and he plays the next day, and he is skilful on each of the three days,

ATC 4252

more skilful on the whole than the people with whom he plays, and he wins. But it does not seem that one can find, in that case, any conception arising in which his individual operations can be said to be merged in the way that particular operations are merged in the conception of a trade. I think all you can say of that man, in the fair use of the English language, is that he is addicted to betting. It is extremely difficult to express, but it seems to me that people would say he is addicted to betting, and could not say that his vocation is betting. The subject is involved in great difficulty of language, which I think represents great difficulty of thought. There is no tax on a habit. I do not think `habitual' or even `systematic' fully describes what is essential in the phrase `trade, adventure, employment, or vocation'. All I can say is that in my judgment the income which this gentleman succeeded in making is not profits or gains (p. 42)''. It will be noticed that Rowlatt J. was confining his observations to starting price betting, but I do not think they would be any less applicable to any other betting with a bookmaker. However that may be, the taxpayer in Martin's case was not a starting price operator, and in fact had a system in some respects similar to that of a bookmaker, as that system is described by Rowlatt J. The system of the taxpayer in Martin's case also involved, on occasion, the use of information as to the form of horses from his trainers.

The decision in Graham v. Green (above) does not turn upon whether the taxpayer was pursuing a pastime, but upon whether his ``vocation'' was betting. Indeed the activity of the taxpayer in Graham v. Green could hardly have been called a pastime, for it was the source of the taxpayer's livelihood. Martin's case appears to me to stress the positive, recreational aspect of the activity in question; a pastime or recreation as such does not produce gains or losses in a relevant taxing sense, but the activities may be so organized towards the production of profit that in the particular case it cannot be properly said that the taxpayer is pursuing them as a pastime. In Knight v. C. of T. (N.S.W.) (above) the Court read the stated case as containing a finding that the taxpayer carried on horse racing as a business, and refused to consider the evidence in support of this finding. It had been submitted to the tribunal stating the case that the taxpayer carried on horse racing as a sport or pastime. The Court does not indicate what view as to tax liability it would take if the fact had been that the activity of the taxpayer was a pastime and not a business; but it did not summarily dismiss such a consideration as irrelevant.

The common reason why betting winnings were not regarded as ``profit or gain'' in Graham v. Green, or ``income'' in Martin's case is that in those cases there was no organization of the activity towards the end of making a profit. In that sense, such gains as arose in the course of the activity had a significant element of chance, and there was no system, or no sufficient system, in relation to the chances involved as to lead to the conclusion that a system for profit making had been devised. There is a similar element of chance in relation to winning prize money from the racing of horses. Owner competes against owner, and the chance of one owner's horse winning is dependent to an extent on considerations as to which no system or organization would usually apply, for example the form of the various horses and the weather conditions. Skill is involved, in bringing a horse to its peak and in the selection of riders; but skill which is displayed in a pastime, as the passage quoted from the judgment of Rowlatt J. shows, is not decisive of the question as to whether a business is being carried on, and may not in many cases be even relevant to that question.

For these reasons I consider that prize money in the present case falls to be determined under the principles expounded in Martin's case in relation to betting winnings.

Counsel for the respondent Commissioner submitted that in resolving the question as to whether the taxpayer was conducting a business or not I should adopt as tests or criteria the matters which Evatt J. adverted to in his citation from
Jones' case (1932) 2 A.T.D. 16 in Trautwein v. F.C. of T. (56 C.L.R. 196 at 205). These matters included the circumstances that the taxpayer in Jones' case acquired no property in connection with his betting, that he had no proprietary interest in any horse, that he was not a trainer of horses, that he had no bank account and that he could not remember the names of horses on which he wagered large sums of money. On most of the matters referred to in Jones' case, if they were used as tests, the present appellant would fail. I repeat that in Martin's case the Court said Trautwein was a decision on its own facts; and the same is true of Jones' case. Evatt J. himself obviously so treated the cases, because he quotes from

ATC 4253

Jones' case to show that in cases of this sort it is important ``to make a close analysis of the particular facts of the case''. In my opinion the guidance given by Trautwein's and Jones' case is not to be found in similarities or dissimilarities of the facts of those cases with the facts of this case, but consists in the stressing of the need to analyse the facts of the case before me to determine on the application of the principles in Martin's case. Before leaving Trautwein's case, however, it is interesting to observe Evatt J.'s final view of the taxpayer's activities (p. 207): ``But the case of the present taxpayer is much more analogous to that of the bookmaker himself than to that of the mere punter at starting price who was being considered by Rowlatt J. in Green's case''.

The years under review in the present case are the five years from year ending June, 1963 to the year ending June, 1967, I have already stated the facts of the case, but I shall repeat some which particularly bear on the question for decision. Prior to 1962 the taxpayer had been keenly interested in horses, but her activities had resulted in little or no material advantage. In the year immediately prior to the acquisition of the racehorse ``Trevors'' she had no proprietary interest in any horse. Her acquisition of Trevors was not the result of any plan to renew or extend her horse racing interests, but was the result of chance circumstances. The horse within a comparatively short time displayed remarkable abilities, and it was because of this that the taxpayer made such large gains by way of prize money and betting winnings. Her success in betting on Trevors depended on a knowledge of the horse's form and likely race performance, and in this the taxpayer was assisted by the fact that she trained the horse herself and knew when it was fit, and by the fact that Trevors' form was a good indication of his race performance (in that respect contrasting with the later acquisition, Chan). The taxpayer kept no records, but she banked her winnings, and with these purchased Chan, her brood mares and the racehorse Guilian. The taxpayer has been intensely interested in horses and horseracing, not from the desire to make money, but because of her devotion to horses and the pleasure she has derived from training them. She is a skilful trainer, but she has never taken money for training, and in fact has trained only her own horses except on odd, special occasions. She is not interested in gambling as such, but she has had pleasure in betting on her own horses, and because of the factors I have mentioned she was successful over the years in question.

Counsel for the respondent Commissioner has stressed the training activities of the taxpayer, and her betting system. But she is not a trainer in the sense that she holds herself out as such. It would carry less of an overtone of business, and would be nearer to the true position, to describe her simply, in this regard, as a person who looks after her own racehorses. As for her betting system, the success was due to the obliging habit of Trevors to race true to form. I think, in the words of Martin's case, she was ``a keen follower of the turf'', but that the ``turf'' was not her business. She had no business, in these years, at all events; she was primarily a wife and mother, devoting what time she could to what I think can properly be described in her case as a passion for horses. I am satisfied that she has discharged the onus of showing that she was not conducting a business.

I find therefore that the moneys received by the appellant from prize money and wagering in relation to her horse racing activities are not assessable income for the years to which the assessments the subject of these appeals relate, namely the years ending 30 June, 1963 to the year ending 30 June, 1967.

In the circumstances of this case I understand that the proper orders to make will be that the assessment to which each appeal relates should be set aside, and the respondent Commissioner should pay the appellant taxpayer's costs in each appeal. Each appeal is allowed with costs.


Each appeal allowed. Respondent to pay the appellant's costs of each appeal. The assessments to which each appeal relates to be remitted for adjustment so as to exclude therefrom as taxable income the net receipts of the appellant taxpayer earnt from prize money from horse racing and wagering on horse races.

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