Case J62

Judges: JL Burke Ch
RE O'Neill M

CF Fairleigh QC

Court:
No. 1 Board of Review

Judgment date: 21 October 1977.

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C.F. Fairleigh Q.C. (Member): The taxpayer, an employee of the Australian Government, claimed in his returns of income for the years ended 30 June 1973, 1974, 1975 and 1976 respectively deductions of $2,410, $1,742, $1,007 and $1,247 referable in one year or another to sec. 51(1), 53, 54, 67A and 72 of the Income Tax Assessment Act 1936 as amended, on the basis that he has been conducting a business as a primary producer.

2. In each instance the Commissioner adjusted the income as returned by disallowing the claim and notices of assessment issued accordingly. The taxpayer objected thereto and the Commissioner in each instance decided to disallow the objection. Each such decision was referred to a Board for review. In one instance, the year ended 30 June 1973, there is, for a reason which has no present relevance, a notice of amended assessment. Doubtless there should be a separate formal decision for each of the years in issue. Quantum is not in issue.

3. On 1 November 1971 the taxpayer paid a deposit upon the purchase of 1,430 acres of rural land for $24,000 and the sale was completed on 26 April 1972 with a first mortgage to the vendor for $18,000 and another mortgage for $4,000. The first mortgage was discharged on 19 December 1973 by funds obtained against a mortgage on a city residence which was itself obtained by virtue of an exchange on 15 October 1973 of 959 ½ acres of the rural land.

4. The 471 acres or so retained by the taxpayer are far superior in quality to those which he exchanged. The retained area has a carrying capacity of about one beast to 25 acres and with improved pastures it will carry about one beast to four acres. There is a frontage to a river and there is other natural water. About 150 acres thereof is cultivable or at least capable of supporting improved pastures.

5. The taxpayer's vendor had permitted a relative to agist sheep on the subject land (more particularly on the retained area) and due to lack of attention sheep had died and were dying; the pastures were thereby contaminated and required ``rejuvenation and restoration'' before other livestock could be grazed on the land. The taxpayer had difficulty in persuading the owner of the sheep to remove them and he received no payment in respect of pasture damage. Some fencing was and, despite some attention thereto, continues to be in poor or non-stock proof condition. There was originally an infestation of rabbits but these were largely exterminated or otherwise brought under reasonable control.

6. The taxpayer's value of improvements on the land at the date of purchase is fencing $2,500, sheep yard $200 and iron shed $500. There is now a hut, but no residence on the land; and a telephone has been installed. He has purchased vehicles and tools and equipment of substantial value (several thousand dollars) for use in development of the property and has put the same to that use. He has engaged contractors and put in a considerable amount of his own time and labour to that end.

7. The taxpayer has cleared off some trees to expand available natural pastures. He intends in the near future to erect a residence on the land and to make it his home and devote all his time and attention to the property. His intention is to breed and sell horses and also depasture cattle on the land - probably 30 or 40 mixed horses and cattle, bearing in mind the far greater amount of attention to be given to a horse than to a cow or steer or even a bull.

8. The taxpayer only owns one horse and that was purchased in March 1977 and it does not run on the subject land. He has not owned any cattle though he has negotiated for the purchase of a small mob of cattle and expects the deal to be finalized late in or soon after September 1977. These cattle are some of a mob of 20 or 25 which have been agisted on the land only since about June (``late winter'') 1977. The taxpayer had not previously allowed any cattle or other stock to be agisted on the land. The land has not been cultivated or prepared for cultivation; it has not produced any crop and was not at any material time in the course of producing anything. There has been no ``pasture improvement''.

9. The references have to be determined against the taxpayer by reason of the application (particularly to the facts as set out in para. 8 hereof) of the provisions of the definition of ``primary production'' in sec. 6(1) of the Act as presently relevant, viz.: -

... production resulting directly from -

• (a) the cultivation of land;
• (b) the maintenance of animals... for the purpose of selling them or their

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  ATC 537

  bodily produce, including natural increase,...

Similarly the oft-cited passages from the judgments of McTiernan J. (at first instance), Barwick C.J. and Taylor and Owen JJ. in
Southern Estates Pty. Ltd. v. F.C. of T. (1966-1967) 117 C.L.R. 481 at pp. 484, 488 and 491 respectively are fatal to the claim of the taxpayer.

10. I would uphold each of the aforesaid decisions of the Commissioner and confirm the assessments which are the subject of review.

Claims disallowed