RD Fayle SM
Administrative Appeals Tribunal
RD Fayle (Senior Member)
On 10 November 1995 the Tribunal heard the matter of the applicant and the Deputy Commissioner of Taxation (``the respondent'') and provided oral reasons affirming the decision of the respondent. That is, not to treat portion of the amount received by the applicant upon sale of his taxi licence, taxi vehicle, its radio and meter, as goodwill for the purposes of s 160ZZR of the Income Tax Assessment Act 1936 (``the Act'').
2. On 11 January 1996 the respondent, through its legal representative, the Australian Government Solicitor, requested written reasons on the grounds that a similar application was heard and decided by this Tribunal in another place and ``... the decision in that case was to the opposite effect to the Tribunal's decision in the instant case''.
3. Subsection 43(2) of the Administrative Appeals Tribunal Act 1975 (``the AAT Act'') provides that the Tribunal may give its reasons orally and subsection 43(2A) provides that either party may request written reasons within 28 days of having been served with a copy of the Tribunal's decision. Whilst the present request for written reasons is out of time the Tribunal is of the view that it would be in the public interest now to provide its detailed written reasons in support of its decision to affirm the objection decision under review.
4. Evidence was given by the applicant, Mr R Leister from the Taxi Unit of the Department of Transport and Mr JR Thompson, a business broker, the latter by telephone and an affidavit by Mr G Finlen, the general manager of Swan Taxis Cooperative was taken into evidence. The Tribunal had before it the documents filed pursuant to s 37 of the AAT Act.
5. In May 1987 the applicant purchased a taxi vehicle and its attached radio and meter. On application to the Taxi Control Board by the vendor, the taxi licence plate was transferred to the applicant that month. The ``Application to Sell Taxi-Car Licence Plate'' form, submitted to the Taxi Control Board required the vendor's signature only, and set out the following details:
Sale price: Goodwill $54 100 Radio 500 Meter 400 Vehicle 16 000 ------- Total 71 000 -------
6. However, alongside each of those numbers was written other numbers, in order being $60 100, $500, $400 and $10 000 but no new total since both sets of numbers total the same, that is, $71 000. The evidence of the applicant is that the latter numbers were those agreed as between the parties to the contract but no written sale agreement was in evidence. The Tribunal understands, from the respondent's submissions, that as it accepts the amended numbers for its purposes, that is, the ``goodwill'' (which description is not admitted) at $60 100 and the vehicle at $10 000 the difference was not in issue. In addition, the applicant paid a transfer fee of $3 623.
7. The applicant sold the taxi, its attachments and the licence (``the taxi'') on 17 January 1990. The ``Application to Sell Taxi-Car Licence Plate'' form, signed by the applicant, then submitted to the Taxi Control Board read:
Sale price: Goodwill $108 000 Radio 1 500 Meter 500 Vehicle 5 000 -------- Total 115 000 --------
8. Although no disclosure, in relation to the sale, was made in the applicant's income tax return for the year ended 30 June 1990, in May 1992 the applicant requested an amended assessment to include a capital gain pursuant to s 160ZO of the Act. The amount volunteered relied upon an application of the provisions of s 160ZZR of the Act. After inquiries, the respondent issued an amended assessment in July 1994 which assessed a capital gain of $30 208 pursuant to s 160ZO(1). The issue before the Tribunal was whether the respondent ought to have reduced the amount of the assessable capital gain pursuant to s 160ZZR on the basis that part of the consideration on disposal of the taxi etc. was ``goodwill''.
9. Section 160ZZR, as it was in relation to disposals of assets prior to 26 February 1992, read:
- (a) a taxpayer disposes of, or of an interest in, a business (in this section referred to as the `relevant business' ), being a disposal that includes, or includes an interest in, the goodwill of the business;
- (b) in a case to which paragraph (c) does not apply - the net value of the relevant business, or the value of the taxpayer's interest in the net value of the relevant business, as the case may be, is less than $1,000,000;
- (c) if, at the time of the disposal, there is another business that is, or there are other businesses that are, associated with the relevant business - the sum of the net values of the relevant business and the associated business or associated businesses, or the sum of the values of the taxpayer's interests in the net values of the relevant business and the associated business or associated businesses, as the case may be, is less than $1,000,000; and
- (d) a capital gain is deemed for the purpose of this Part to have accrued to the taxpayer in respect of the disposal of, or of the taxpayer's interest in, the goodwill,
the amount of the capital gain shall be deemed to be reduced by half.''
10. The applicant's evidence was that he purchased the taxi to provide his then unemployed father with a job. His father was an experienced taxi driver. The applicant followed up an advertisement in the local paper offering a taxi for sale and on advice from his father, he purchased it. About the time of purchase the applicant applied to become a member of the Swan Taxi Cooperative which required him to purchase a parcel of shares. That entitled him to use the booking services of the cooperative, contact being made by radio from the taxi. Mr Finlen's evidence was that taxi owners may take up shares which entitle them to the benefits of the cooperative's marketing of taxi services and it provides a base point for customers to contact and have taxis allocated to them. Any taxi may use any of the taxi ranks located in and around the metropolitan area - these are not exclusive to cooperative members and taxis are free to pick up passengers when hailed from any place where it is lawful to stop.
11. The applicant's taxi was immediately leased to his father (although there was no formal agreement) for a fixed sum each month, his father retaining all the proceeds from operating the taxi under their agreement. Later, his father gave up driving the taxi and the applicant leased it to a married couple whose names he could not recall nor did he produce any evidence of a lease. He said that the terms of that lease were similar to those under which he previously leased the taxi to his father. At no time did the applicant operate the taxi. The taxi was eventually sold after advertising it for sale in the same newspaper used by the applicant to locate the taxi when purchased. The applicant's evidence was that on each occasion of his purchase and sale of the taxi there was no other information about the taxi or its operations provided by the respective vendor to the relevant purchaser, nor was it ever considered that the applicant or his lessees had built up any regular customers.
12. Mr Leister's evidence was that in order to operate a taxi it is necessary to obtain a licence. These may be acquired by transfer from an existing licensee or by being a successful tenderor to the licensor, the Department of Transport, when new licences are made available. Some special and restricted licences are issued from time to time to cope with exceptional demand, such as happened at the time of the Americas Cup. Taxi licences are issued on conditions requiring them to be available for hire for certain times on a regular basis and for drivers to observe a set code of conduct. There are generally no restrictions on transferring a licence provided that the purchaser meets certain standards laid down by the Department. Mr Leister also provided extracts from the Western Australian Department of Transport Taxi Unit's records of amounts recorded for ``goodwill'' in relation to transfers of taxi licences from July 1988 to June 1991. These show respectively for each month the average and the maximum. For example, in January 1990, when the applicant's taxi was sold for a ``goodwill'' allocation of $108 000 the average was $112 588 and the maximum $122 000. There is no evidence as to how many transfers occurred each month, except that Mr Leister opined that there would only be a few at the most. In any event, a perusal of the reported
ATC 202amounts indicates that there is no great variation between the monthly average and maximum amounts reported.
13. Before getting to its reasons, the Tribunal makes reference to the evidence of Mr JR Thompson called by the applicant as an expert witness to assist the Tribunal in understanding the meaning of the term ``goodwill'' as it occurs in s 160ZZR of the Act. The respondent objected to the evidence of Mr Thompson on the grounds that he has no special qualifications which would enable him to enlighten the Tribunal in this regard and in any event his evidence was largely opinion and to the extent that he referred to case law, those precedents were generally available and what he thought they meant was of no particular benefit to the Tribunal. The Tribunal noted the objections and proceeded on the basis that his evidence would be given due weight.
14. In the opinion of the Tribunal, it was not assisted by the witness. He had neither particular qualifications nor relevant experience which would assist the Tribunal in ascertaining the nature or character of the consideration paid and received by the applicant for the acquisition and disposal respectively, of the taxi.
15. There are two issues for determination by the Tribunal. The first is whether the applicant disposed of a business, because if not then that is the end of the matter since that is a prerequisite for s 160ZZR to apply. Should the Tribunal find that the applicant did dispose of a business then it remains to determine whether the disposal consideration included $108 000 for goodwill, there being no submissions to the effect that if there is a goodwill element it is something different in amount.
Did the applicant dispose of a business?
16. That s 160ZZR requires a business to have been disposed of is axiomatic, a proposition supported by the judgment of Branson J in
Krakos Investments Pty Ltd v DFC of T 95 ATC 4369 where, in particular, his Honour cites Lord Macnaughten's speech in
Commrs of Inland Revenue v Muller & Co's Margarine Limited  AC 217 at 223-224 where his Lordship is discussing the nature of goodwill-
``It differs in its composition in different trades and in different businesses in the same trade.... For goodwill has no independent existence. It cannot subsist by itself. It must be attached to a business. Destroy the business, and the goodwill perishes with it, though elements remain which may perhaps be gathered up and be revived again.''
See also Lord Lindley's speech at p. 235.
17. And, in this respect, Branson J also cites the joint judgment of Dixon CJ, Williams, Fullagar and Kitto JJ in
Box v FC of T (1952) 10 ATD 71 at 75; (1952) 86 CLR 387 at 397-
``Goodwill includes whatever adds value to a business, and different businesses derive their value from different considerations. The goodwill of some businesses is derived almost entirely from the place where they are carried on, some goodwills are purely personal, and some goodwills derive their value partly from the locality where the business is carried on and partly from the reputation built up around the name of the individual or firm or company under which it has previously been carried on.''
See also Isaacs J in . Bacchus Marsh Concentrated Milk Co Ltd (In liq)v Joseph Nathan & Co Ltd (1919) 26 CLR 410at p. 438
18. Subsection 6(1) of the Act defines ``business'' as:
```business' includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee;''
19. Whether a business is being conducted is a matter of fact (
California Copper Syndicate (Limited & Reduced) v Harris (1904) 5 TC 159 and see also
John v FC of T 89 ATC 4101). The learned authors of CCH's Federal Tax Reporter at ¶2-334 provide a summary of the relevant principles and examples of related cases to be considered in determining whether a business is being conducted. These speak of the need for there to be trading or commercial activities engaged in and managed for the purpose of profit on a continuous and repetitive basis, although it recognises that a separate activity may be tantamount to conducting a business. The authors cite
11 CTBR Case 24 where it was held that a person whose income consists of rents from a number of properties was not carrying on a business, although in Case G10,
75 ATC 33 the Board of Review decided that the taxpayer's activity of owning and managing holiday flats for short term letting (showing visitors over, cleaning, mowing, laundering, repairing etc.) constituted the carrying on of a business.
20. In the instant case there was no activity on the part of the applicant, apart from the acquisition and leasing of the taxi. Once the lease was established he played a passive role, receiving lease rent regularly but otherwise not engaged in the affairs of the taxi. If a business was being conducted then it was by the lessees in turn. The applicant outlaid capital to acquire the taxi in the expectation of a return from its leasing. In this sense he was a passive investor taking no part in the business risk of operating the taxi.
21. For these reasons the Tribunal found that there was no business related to the acquisition and sale of the taxi by the applicant and therefore the provisions of s 160ZZR of the Act could have no effect in that regard. That finding was sufficient to affirm the objection decision under review.
Is there any goodwill attached to the taxi?
22. The Tribunal however, proceeded to consider whether, in any event, there was any goodwill element in the sale price received by the applicant. The Tribunal finds that what the applicant paid to acquire the taxi was the then going market price and similarly what he received when he sold it was the then going market price. The Tribunal infers from the evidence of Mr Leister relating to the average and maximum sale prices for the so called ``goodwill'' of the taxis that taxis prices at any particular time are within a small price range. There was no explanation given as to why one taxi's ``goodwill'' might be greater than another's but since the price variances were relatively small this is unremarkable. In the instant case the evidence was that, so far as the applicant was aware, there were no regular customers or special arrangements which might add value to the taxi licence. In its oral decision the Tribunal made the following observations which it repeats here-
``In sum, there could be no part of the sum paid for or received for the acquisition and disposal of the taxi licence which could reasonably be regarded as anything other than the going market price for a taxi licence. Evidence shows the price bore no direct relevance to the turnover of fares derived by the taxi operator; nor indeed did it bear any direct relationship to taxi operation turnover generally. No doubt the price demanded and paid bore a relationship to a reasonable rate of return from such an investment.
Even if it were to be decided that the applicant was carrying on a business, which was not established, there is no evidence that the price paid or received upon acquisition and disposal respectively included a component for exceptional returns associated with market advantages which would command a price over and above that ordinarily extracted for a like business. In other words, what the applicant had was unremarkable and the price paid and received unremarkable. The mere fact that taxi licences are restricted and, in a relative sense, scarce is sufficient to impute to them a market premium which would fairly reflect a reasonable rate of return having regard to the inherent risk factor ordinarily associated with such an investment.''
23. The word ``goodwill'' is relevantly defined by the Macquarie Dictionary as:
``an intangible, saleable asset arising from the reputation of a business and its relations with its customers, distinct from the value of its stock...''
24. The respondent submitted that if there was goodwill then it resided in the Swan Taxi Cooperative and not its members, that goodwill being established by its advertising and making available to the public a convenient and efficient method of calling a taxi. That goodwill is the attracting force which brings in custom (see: IRC v Muller & Co's Margarine Ltd, Lord Macnaughten at 224), the customers of the cooperative would generally be indifferent as to which taxi called upon them. Given that there would be goodwill residing in the cooperative, it is not capable of transfer to or assumption by the cooperative members by some method of osmosis. Cooperative shares of the kind held by the applicant entitled him to no more than to participate in the services provided and promoted by the cooperative generally, so long as he remained a member, which was tied to his ownership of a taxi licence.
25. If however, by some quirk of exceptional service and reputation, a particular taxi was requested regularly then it seems that that taxi, or possibly the driver, may have an attracting force bringing in custom and hence an element of goodwill, probably what is called ``personal goodwill''. The evidence is that there was none
ATC 204of those distinguishing elements in the instant case.
26. For the above reasons the Tribunal affirmed the objection decision under review.