HP Stevens Ch
CF Fairleigh QC
JR Harrowell M
No. 1 Board of Review
H.P. Stevens (Chairman); C.F. Fairleigh Q.C. and J.R. Harrowell (Members): The taxpayer, a journalist, and his wife, a part-time secretary, lodged a partnership return for the year ended 30 June 1977 on the basis that they were in partnership in a business of primary production. His personal return of income for that year claims a deduction of $1,191 consequent upon a loss of $2,381 which it is said that the partnership suffered in that year.
2. The Commissioner adjusted the income as returned by the taxpayer by the addition of the said sum of $1,191 because ``the partnership is not considered to be carrying on a business''. A notice of assessment issued accordingly. The taxpayer objected thereto and the Commissioner decided to disallow the objection. That decision was referred to a Board for review.
3. The subject land, an area of about half an acre, is situated in the heart of a village, next to the hotel and opposite the post office. It was bought by the taxpayer and his fiancèe (now his wife) a little over six years ago from a relative of his fiancèe for $600 to assist finance an overseas trip by another relative. Those relatives retain an adjoining two blocks each of half an acre which is the usual residential block in that locality.
4. At the time when the taxpayer and his fiancee bought the subject land there was a cross fence about two-thirds of the distance from front to rear boundary and the only other fencing was a boundary fence for the three adjoining parcels. That is still the position at the present time.
5. The taxpayer has his family residence in a city which is about a half-hour's drive from the village and during his ownership of the subject land no one has ever resided on the land, and so far as is known there has never been a residence on it.
6. The improvements made during the taxpayer's ownership are the construction of a bore for $699 in November 1973; the equipping of the bore hole with an electric pump in October 1975 ($340 labour plus $193.68 for pole, wires, etc., plus $1,320 for pump); the erection of a shed at the end of June 1976 ($451). Two ridge ploughs cost $120; and an insecticide pump and hose $150. A small tractor
ATC 107was purchased for $3,086 and a small trailer for $250 in June 1976. In the financial year ended 30 June 1978 the family car was sold and a double cabin (5 seater) one ton Toyota truck was purchased. The sum total including the cost of the land is a little over $13,000.
7. The first production venture was the growing of carnations on about 27 perches; 400 or it may be 510 cuttings were purchased. The cuttings cost at least $185, possibly $295, and gross sales were $30.
8. The next production venture apart from experimenting with corn was the growing of potatoes (1978 year) and gross sales from 16 bags were $113 mainly to a football club to which the taxpayer belongs and to friends and acquaintances at work. The seed potatoes (4 bags) cost $8. Thereafter the land was fallow. A Council licence had cost $10.
9. This type of land in its condition at relevant times was pasture land, but a large area would be needed for a commercial herd as it would carry in normal seasons one beast to five acres. The subject land is unsuitable for most market pursuits, despite the high quality of the soil, as the rainfall is insufficient and the bore water is too salty for garden purposes except for a salt tolerant plant such as carnations.
10. There is no market gardening in the area other than some efforts on the adjoining two half acre blocks made at a time which spanned the taxpayer's two ventures.
11. The bore gives a ``calculated'' flow of 3,500 gallons an hour and presumably the flow will continue unless affected by any bore sunk further upstream; another bore only a few hundred yards away only gives a trickle of water.
12. The taxpayer says that the land was purchased with a view to establishing a market garden; yet even leaving aside the family circumstances which led to the purchase of the subject land, his (and it seems also his fiancèe's) knowledge of that pursuit and of the capabilities of the land were too inadequate for there to be any businesslike decision as to any use for the land. Thus his statement that at the time of purchase he had an expectation that they would establish a business which would pay its way is unrealistic from any objective assessment.
13. The Partnership Act in effect defines a partnership as the carrying on by persons of a business with a view of profit. Even if one disregards the labour of the taxpayer and his wife in trying to maintain either carnations or potatoes on the subject land (said to be 16 hours a week for each) the prospects of any profit after allowing for depreciation of farm equipment are very remote; and, of course, without a dwelling house on the land it is highly improbable that any labourer could be engaged; the bore water is not fit for human consumption.
14. There was some hope that bunches of carnations could be sold to the hotel's patrons (approximately 90 cars) on a Sunday from a transportable stall, but this was found to be a rare occurrence. There was some hope that carnations could be sold in large quantities to florists, etc., in the nearby city, but the florists had other sources of supply. The sales which were made brought at best 30 cents a bloom. One plant can average five blooms. There were seven sales on an agency basis to a (city) suburban stallholder at about $4.50 a time.
15. The carnation venture was a failure for several reasons: the taxpayer and his wife being in city employment could not give the flowers the required amount of attention; there was an infestation of grasshoppers which could only be controlled by means beyond those of the taxpayer and his wife.
16. The potato yield was disappointing because of the attack by scarab beetles. Once again, the necessity for a resident gardener is obvious.
17. To 30 June 1976 there was no income and the book loss was $502. In the subject year, as mentioned, the gross income was $30; and the next year $113.
18. For the year preceding the one here in issue the Commissioner adopted the assertion by the taxpayer and his wife that they were in a business of primary production, but that has little bearing on the question for decision by the Board. The taxpayer has some intention (consequent upon an option to purchase) to acquire the other two half acre blocks of land and then expand the activities perhaps so as to have a living provided by rural pursuits. That also has little bearing on the question which the Board has to decide.
19. The principles involved have been referred to in the majority decision of this Board in Case K9 78 ATC 98 and no useful purpose would be served by repetition
ATC 108particularly as the case law and the importance of objective evidence are both set out in the written address of the Commissioner's representative as supplied to the taxpayer at the hearing of this reference. In brief there is no significant commercial purpose.
20. The decision on the objection is upheld and the assessment confirmed.