Case M50

Judges: MB Hogan Ch
P Gerber M

GW Beck M

Court:
No. 3 Board of Review

Judgment date: 30 July 1980.

---

Dr. G.W. Beck (Member)

The question at issue in this reference is whether the taxpayer was carrying on a business of primary production in the tax years 1977 and 1978 on 19.42 ha of land he purchased in 1971. The land was located on the banks of a sizeable river and about 30 km from a large provincial town. Until 1979 the taxpayer was based in another town about 150 km distant from the land, and although his week-day work was concerned with animal (especially bovine) nutrition he said that he had considerable contact with agrostologists. In the light of his training and experience it was reasonable to expect the taxpayer to possess the capacity to make sound farming decisions and carry them out.

2. Not all the information the taxpayer gave the tax department and the Board was correct and it was difficult to understand how, or why, the taxpayer could unwittingly or would wittingly provide some of the erroneous information. For example, in a statement attached to the objection dated 9 June 1978 the area of the land is shown as 19.5 ha In replying to departmental questions in a statement accompanying his agents' letter of 4 July 1979 he shows the area as 39 ha on two occasions and indicates that his final development plan is for 2 ha of bananas, 9 ha of the legume leucaena and 27 ha. of improved pasture. Allowing for 1 ha for the residence, these areas add also to 39 ha. In his opening address before the Board the taxpayer on three occasions said the property was 39 ha in extent. In fact, subdivisional maps were tendered by the Commissioner's representative which made it clear the property originally was 19.42 ha and, after being subdivided by the taxpayer with new titles issued on 4 June 1979, it became Lot 1 and Lot 2 with 1.96 ha and 17.46 ha respectively. Now there is obviously a very significant difference in viability between a property of 19.4 ha and one twice as big assuming the quality of the land is comparable. There were certain other responses at the hearing that caused me to have reservations about this taxpayer's credibility.

3. After purchasing the land in 1971 the taxpayer erected a cottage and in the period 1974-1977 he had a small area cleared of trees as a rainfall collection area, the water being directed into concrete ``irrigation channels'' which were also constructed in this period. Where the irrigation channels were constructed he said he planted ``a fairly wide spectrum of fruit trees with the idea of trying to find out which trees did best in that particular area''. This broad spectrum consisted of 1 mulberry, 1 mango, 1 lemon, 1 orange, 2 grapefruit, 3 mandarin, 8 banana, 9 pawpaw and 2 grape and a valuer called by the Commissioner observed when asked about the fruit trees he had seen on the taxpayer's property that he had more in his backyard added that his ``looked healthier too''. Up to the end of the second year of this reference no crops had been planted and no cattle purchased or bred.

4. The taxpayer stated in evidence that he acquired the land originally with the intention of eventually earning his livelihood there from small crops fruit and cattle breeding and although he had to modify that plan when irrigation water from the river was denied him, he had at no stage abandoned the original intention. I accept this, but in view of the evidence of the valuer with a rural background called by the Commissioner, I am in no doubt that it was a misguided intention. More than half the land consists of extremely poor soils and the problems of supplying the water necessary for small crops and fruit production are significant. However, whether or not the intention was misguided is, in my view, irrelevant, and this taxpayer gets over the first hurdle insofar as it is accepted that he intended to carry on business and did not merely intend to pursue a hobby or pastime.

5. It is necessary to look beyond his

---

ATC 352

intention and consider what was actually done in the years in question and unfortunately for the taxpayer his actions do not even approach what I would regard as necessary in order to be designated ``carrying on business''. Probably the easiest test of carrying on business as yet imposed by a Court was the test of Walsh J. in
Thomas v. F.C. of T. , 72 ATC 4094 , where a tree farming business was accepted on the basis of 30 avocado pear, 75 macadamia nut trees and 1,800 pine trees planted and tended. ( Walsh J. left out of account the pine trees which he thought did not have significant commercial character.) It must, I think, be accepted that, given the relationship between the value of output from individual mature avocado or macadamia trees and individual fruit trees of the type listed in para. 3 and having regard to the number of trees in Thomas' case and the number here, the taxpayer is a long way from satisfying the test applied in Thomas . In addition, Walsh J. took care to distinguish Thomas' case from the decision in
Southern Estates Pty. Ltd. v. F.C. of T. (1967) 117 C.L.R. 481 , but even if the planting of trees had been very much more extensive in the taxpayer's case I think on his own evidence he must be caught by the ``too early'' principle laid down by Southern Estates . In answer to a question from a Board member he described his activities: ``... in those years I was developing the land towards a viable primary production industry''.

6. There have in recent years been many cases of taxpayers pursuing small scale fruit or vegetable growing or cattle rearing and arguing before Boards that they were carrying on primary production business. I have reviewed a number of them and there seems to be in some a great similarity to the case under consideration here. Some examples are Case K9,
78 ATC 98 ; Case L16,
79 ATC 84 ; and Case L22,
79 ATC 106 , all of which were heard by other Boards and none of the taxpayers was successful.

7. I confirm the assessments in respect of 1977 and 1978.

Claims disallowed