FC of T v SWANSEA SERVICES PTY LTD

Judges:
McKerracher J

Court:
Federal Court, Perth

MEDIA NEUTRAL CITATION: [2009] FCA 402

Judgment date: 24 April 2009

McKerracher J

Introduction

1. Over several years the respondent (Swansea) accumulated a valuable collection of artwork and antiques. It treated those acquisitions as "creditable acquisitions" for the purposes of s 11-5 of A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act). They therefore attracted "input credits" pursuant to s 11-20. The applicant (the Commissioner) cancelled Swansea's registration under the GST Act on the basis that it was not carrying on an enterprise.

2. On an application for review to the Administrative Appeals Tribunal (the Tribunal), the Tribunal concluded that Swansea was carrying on an enterprise for GST purposes. This application challenges that conclusion. Essentially the challenge is based on the argument that Swansea was not conducting an enterprise. Rather, it was simply a vehicle for carrying out the hobby of its sole director or, alternatively, was simply accumulating assets as an investment, but without disposing of them. Compared with the value and number of acquisitions over the years, the value and number of sales were very small.

3. The Tribunal expressly concluded that the purpose of Swansea acquiring the assets was to eventually sell them at a profit. The Commissioner complains that such a conclusion of fact was not open at all on the evidence and that to take into account the subjective intention expressed by Swansea's director was inappropriate.

4. In my view it was open for the Tribunal to take into account the entirety of the transactional history together with explanations regarding that history, its context and statements (both contemporaneously with the events in question and in the hearing) as to the corporate objective. The Tribunal was not bound by rules of evidence. In any event, the conclusion that it reached was open to it with or without the subjective evidence of purpose. As there was a reasonable basis for the factual finding reached, and no other error is demonstrated, the conclusion should not be disturbed.

5. The argument that the finding could not possibly be open on the evidence, that is, that there was no evidence at all to support the finding cannot be accepted.

Background

6. On 18 November 2005, the Commissioner decided to cancel Swansea's registration under the GST Act. This cancellation took effect from 1 October 2001. The basis of the cancellation was that Swansea was not "carrying on an enterprise" within the meaning of those terms in s 25-55(2) of the GST Act.

7. On 17 January 2006, Swansea objected against the Commissioner's decision (the Cancellation Decision). The objection was raised pursuant to Pt IVC of the Taxation Administration Act 1953 (Cth). On 8 August 2006, the Commissioner disallowed the objection.

8. On 28 May 2008, the Tribunal set aside the Cancellation Decision and remitted the matter to the Commissioner with a direction to the Commissioner to restore Swansea's GST registration with effect from 1 October 2001 (
"The Taxpayer" v Commissioner of Taxation 2008 ATC 1-003; [2008] AATA 461).

The Tribunal's decision

9. Because of the Commissioner's argument that there was no evidence upon which the Tribunal could have reached its decision, it is necessary to consider the reasons and the evidence in some detail.

10. The key facts identified by the Tribunal in its decision were these. Since 1 July 2000, on

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the commencement of the GST Act, Swansea had spent at least $4 million on the acquisition of various artworks and antiques. Swansea had treated that expenditure as being for creditable acquisitions in relation to which it claimed input tax credits in various business activity statements (BASs) that it lodged. The basis for those claims was that the acquisition of the artworks and antiques was made in the ordinary course of an "enterprise" consisting of the dealing in such items.

11. All of the shares in Swansea have been held by Mr Nigel Satterley either directly or through interposed companies which he controls. Mr Satterley controls the Satterley Group, a group of companies which has substantial real estate development activities and business in Western Australia. Swansea is, in turn, a member of the Satterley Group. In the relevant period, Swansea's sole business was acquisition of (and the very occasional and modest sale of) valuable artworks and antiques. It has been exclusively in that business since early 1997.

12. As the Tribunal noted, in Swansea's tax returns for the years following 30 June 1999 inclusive, Swansea's activities were described consistently as being "investment in artwork and antiques". In the eight years to November 2005, some $4.8 million was spent by Swansea on the acquisition of 225 antique items and 87 paintings. During the time of those acquisitions, Swansea had no employees but was provided with services by employees within the Satterley Group. Contractors and consultants also provided expert advice on art to Swansea.

13. From 11 September 2003, Swansea was funded by a $1 million bank facility from the ANZ Bank. That facility was secured by guarantees given by Mr Satterley and the Satterley Group. Prior to that, funding was from the Satterley Group or Mr Satterley personally. The balance sheet for Swansea as at 30 June 2004 showed that Swansea owed $2.7 million in unsecured loans to the Satterley Group and to Mr Satterley and $492,255 in respect of commercial bills arranged by ANZ pursuant to the facility.

14. Of significance to the Commissioner's appeal is the fact that no sales of any items occurred until November 2002 and even then, all that was sold was one antique item which had been purchased in 1998. It was sold for a profit of $315. In the year ended 30 June 2004, another antique item and a painting were sold at losses of $1,090 and $34,090 respectively. In short, up until that time only one item had ever been sold for a profit which was minimal. Subsequent sales, if any, were also modest.

15. It was not in dispute and was certainly acknowledged by Mr Satterley that very little attempt was made in the relevant period to actively market the artworks or antiques. His evidence was that items were generally not advertised or displayed in galleries where they could be viewed by the public at large. All of the antiques and most of the paintings were kept on display at the two private residences owned by the Satterley Group. A few items were kept at the Group's head office or were loaned out for short periods of time. The evidence of Mr Satterley, which was accepted, was that the purchased art was displayed in the offices of the Satterley Group in South Perth and was also on display in his home in Peppermint Grove and at a property owned by a related company at Quindalup. Mr Satterley's wife was closely involved in a number of charities and regularly hosted functions in the Peppermint Grove home to enable people to view the artworks on display. Mr Satterley gave evidence about such functions and about the acquisition of a property as a place of future residence which was expected to include an art gallery sufficient to accommodate up to 200 visitors at a time. He gave evidence that two art dealers with whom he had regular dealings had both given advice in relation to the design and construction of the proposed art gallery.

16. One of those dealers was a Mr Purves. In the Tribunal Mr Purves was cross examined by senior counsel for the Commissioner on the purpose of Swansea establishing the collection.

17. From the extracts of such cross-examination below, evidence was given (on which the Tribunal relied) of specific directions given to Mr Purves (perhaps to his disappointment) that the whole purpose of acquiring the art was to make a profit and that Mr Satterley talked about money, not art. Mr Purves said "That's the unusualness about it":

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"But the focus of his brief was the acquisition of artwork that could constitute a great collection in due course? --- Yes, but it was accompanied with the fact that the rule, that I had not taken much notice of before that, that it must double in value every seven years or beforehand and that's when I say that was - in fact I wasn't sure that I wanted to do it, because it wasn't - and then I'd put off the meeting because Mr Satterley was introduced to me by a friend who tried to introduce us earlier and I said that it's not particularly my role to treat art as a product. But it's business and times have gone that way.

You didn't have an instruction to sell art? --- No, but I knew that was going to be part of it and not only that, I think the first conversations there was a sense of actually perhaps vetting what would have been there previously, to make sure there wasn't anything that would hold the collection back. I could see that I was preparing a collection that would be sold in part or in a lump at some stage down the track -

I have to say in general, in very specific terms, that Nigel would be telling me to sell things that only made a profit and would instruct me to buy things that made a profit .

It was my impression that Nigel would sell everything if there was a profit in it.

Has Mr Satterley ever discussed selling a painting with you of real value? --- It's a constant discussion. It's not a specific work at all in the collection, but generally the whole collection. When the time is right, and as I've said earlier .

What has he said to you? Rather than give it to me in reported speech, can you recall a conversation with Mr Satterley - if you can't, please say so - in which he said to you something and you said something back to him in response in connection with a sale of paintings? --- He said to me, "We'll watch the values. When the time is right, and they'll have to be at least double, we'll sell" .

What, the whole collection? --- Whole or part.

Do you agree with me that selling the whole of the collection is incompatible with building up a great collection? --- In the terms of the Satterley collection, it's just something that one could be aware of. There are cases where people have bought whole collections at good profit. That's happened three or four times in recent years.

Do you agree with me that selling, if the whole of Mr Satterley's collection were to be sold today, that would be incompatible with building up a great collection of art? --- Well, it depends on the starting base, doesn't it? And the fact is that this collection is being built so it can be sold.

Has Mr Satterley said to you, "I'm just waiting for the day when the market is right, and I'm going to offload the whole lock, stock and barrel and turn a profit on in"? Is that what he's said to you? --- In basic terms, it is true. He talks about money instead of art. That's the unusualness about it ." (emphasis added)

18. The theme of profit making was also evident in Mr Satterley's evidence under cross-examination. There were the following exchanges:

"And you go on to say that all existing artwork is for sale at the right price? --- Yes, it is.

The point is, you haven't sold any at a profit, have you, during this period? --- We haven't, but when the time is right, we will sell at a profit.

Does that include the whole artwork, lock, stock and barrel? --- If someone came along and said they'd like to buy the whole collection and the price suited me, they could have the whole lot, including yourself -

Would you say that the activity of the very few sales which have been generated since 1997 from this collection is an activity of a business or commercial purpose? --- I believe so. We are acquiring and putting together a collection that is to be sold for a profit.

And when is it to be sold, and in what circumstances? --- When the price is right .

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When is the price likely to be right? --- I couldn't tell you when the price is likely to be right .

It might never be right. Is that one possibility? --- I don't believe so. The price could be right tomorrow. I don't know.

Well, I would hope that we could build up a very, very good collection that would be able to be sold for a very good profit one day ." (emphasis added)

19. In Mr Satterley's evidence he described an investment strategy, an underlying philosophy and a business philosophy in terms of acquisition and sales. The Tribunal accepted that the few sales that had been made were made as a result of conscious decisions to actively market the items by engaging art dealers to sell them. At this point, they had been restricted to items which were no longer desired to be kept in the "Swansea collection".

20. While Mr Satterley spoke at some length about his underlying philosophy or investment strategy, there exists no written business plan for Swansea. The investment strategy included developing a museum quality collection and investing to achieve a 10-15 percent per annum increase yielding a doubling in value of investments over a seven year period.

21. The Tribunal concluded that the evidence showed that the business and commercial activities of Swansea were conducted in accordance with a pre-formulated policy coupled with a carefully devised investment strategy. The Tribunal noted that all of Swansea's activities were characterised by systematic repetition and regularity which were consistent only with the carrying on of a business and the carrying on of an enterprise.

22. Swansea did not have its own bank account but detailed accounts of financial records were maintained. An accounting package was used by Swansea. Creditors' invoices were recorded on a monthly basis through the accounts payable system. The system allowed all other appropriate accounting and business entries to be made in Swansea's general ledger. Financial statements were produced annually. The tax returns were audited by external accountants before lodging.

23. Prior to 2003, Swansea was engaged in very little activity apart from the purchase of artworks and antiques. The only expenses incurred were in relation to accounting fees, fees paid to the Australian Securities and Investments Commission and other minor expenses including repairs and maintenance. Those expenses have increased since that time.

24. Within the accounts of Swansea, the purchased artwork has been treated not as "trading stock" but rather as capital or "fixed assets", that is, it has been described under the heading of "Property, Plant and Equipment". Artwork and antiques both appear to have been depreciated.

25. The Tribunal concluded that the evidence demonstrated that Mr Satterley as the sole shareholder and director of Swansea caused it to acquire the artworks with the intention of eventually selling them at a profit. On that basis, the Tribunal concluded that Swansea's activities constituted the carrying on of an enterprise for the purpose of the GST Act. It did not accept that the Cancellation Decision was justified.

26. The analysis by the Tribunal of the argument that Swansea was doing no more than carrying out Mr Satterley's hobby was as follows:

  • "161. The Tribunal rejects the respondent's assertion that the taxpayer's operations amount to a hobby. The Tribunal finds that the facts do not support any such conclusion.
  • 162. In the Tribunal's view there are no facts to support a conclusion that the applicant's activities fall within the exclusion, either on the basis that this is a private recreational pursuit or hobby of the applicant or that of [Mr Satterley].
  • 163. On the contrary, the evidence shows that the business and commercial activities of the applicant are conducted in accordance with a pre-formulated policy, coupled with a carefully devised investment strategy. The applicant retains specialist art consultants. It keeps detailed records. It uses a database of records. It has an annual budget and banking facilities. It purchases valuable property, which is insured and properly stored and housed. All its activities are characterised by system, repetition and regularity. Such activities are in the Tribunal's opinion consistent only with the carrying on of a business and the conduct of an enterprise.

  • ATC 9572

    164. In determining whether what was initially a pastime or hobby has developed and become a business operation or not, the use of a system and the systematic conduct of the activity is often particularly important."

27. The Tribunal examined the conclusions reached in
Martin v Federal Commissioner (1953) 90 CLR 470 and Case N27 (1991) 13 NZTC 3229 and continued:

  • "167. In the Tribunal's opinion the applicant's activities cannot be said to fall within that description, having regard to the manner in which they are carried out, its corporate character and the size and scale of activities. The fact that the artworks are displayed or stored in premises owned by related entities or by [Mr Satterley] does not convert the activity of the applicant to that of a hobby or other pastime. Conceptually it is difficult to see how a corporate entity could be said to be carrying on a hobby or private recreational pursuit of an associated director or shareholder. This finds support in the United Kingdom VAT cases referred to below.
  • 168. It is the opinion of the Tribunal that the costs incurred by the taxpayer in the present case are neither 'private' nor 'domestic'. It cannot be said that these are:

    'Losses and outgoings which relate solely to the house, home or family organization of the person incurring them. (CTBR (NS) Vol 5, Case 50 at 332).' "

28. The Tribunal then examined and compared a number of cases, particularly those involving United Kingdom Value Added Tax, including
Tarrakarn Ltd v C&E Commissioners [1996] V&DR 516,
Ian Flockton Developments Ltd v Commissioners of Customs and Excise [1987] STC 394, and
KPL Contracts Limited v Commissioners for Her Majesty's Revenue and Customs LON/04/1605 Decision Number V 19629. Further the Tribunal considered the cases
Applicant for an Australian Business Number v Registrar of the Australian Business Register [2007] AATA 63,
Block v Commissioner of Taxation 2007 ATC 2735; [2007] AATA 1897, and Case U79 8780 C465 and continued:

  • "184. Overall, the Tribunal finds that the activities of the applicant are consistent with the conduct of a business. The expenditure incurred in relation to the acquisition of paintings and artworks would in the Tribunal's view be deductible under s 8-1 of the ITAA 1997, and would not be excluded by s 26-50. In fact the taxpayer has accounted for the artwork and paintings as plant and equipment, and has not claimed a deduction for the purchase of such items. The taxpayer has accounted for such items as plant and equipment because the taxpayer did not expect to sell those items within 12 months of purchase. In the Tribunal's opinion that does not defeat the taxpayer's purpose of embarking on the acquisition and eventual sale of artwork and antiques at a profit which is a business for both income tax or GST purposes.
  • 185. In the Tribunal's opinion the operations and activities of the taxpayer over a period of seven years also establish clearly the carrying on of an enterprise for GST purposes. The activities are in the Tribunal's view clearly activities done in the form of a business or in the form of an adventure or concern in the nature of trade: s 9-20 of the GST Act.
  • 186. The Tribunal finds that at all relevant times it was the intention of [Mr Satterley], as the shareholder and director of the applicant, to acquire and to hold the paintings and the artwork, including antiques, with a view to turning these to account when circumstances are right, in order to derive a profit.
  • 187. The Tribunal takes the view that the income on sale of such artworks and antiques will be assessable income. It is highly unlikely that such proceeds would not form part of the taxable income of the applicant when in due course they are sold. As the High Court has held, as a general proposition, in McNeil a gain derived from property had the character of income and this included a gain to an owner who has waited passively for that return, at [21].

  • ATC 9573

    188. On the evidence before the Tribunal all of the indicators identified in matters such as Ferguson supra, Stone supra and Ell supra are present and satisfied. There is and has always been the requisite intention to make a profit. The activities are organized and are carried out in a businesslike fashion. The Tribunal also notes that the dictionary definition of 'trade' also refers to 'a purchase, sale, or exchange'. The volume of capital employed in the relevant purchases is also clearly significant.
  • 189. The Tribunal notes that, on the authority of what Hill J said in Stone at para 64, [Mr Satterley's] state of mind is clearly relevant. What differentiates the case of a taxpayer engaged in business and one engaged in a hobby is the purpose for which the activity is carried on. The profit motive is important in leading to the conclusion that the activity undertaken is a business. The evidence demonstrates that [Mr Satterley], as the sole shareholder and director, caused the applicant to acquire the artworks with the intention of eventually selling them at a profit. The Tribunal finds that the applicant's activities constitute an enterprise for the purposes of the GST Act."

Statutory framework

29. Carrying on an enterprise includes doing anything in the course of the commencement or termination of the enterprise. An enterprise, then, is defined as having the same meaning as that given by s 9-20 of the GST Act. Section 9-20 of the GST Act relevantly provides:

" 9-20 Enterprises

(1) An enterprise is an activity, or series of activities, done:

  • (a) in the form of a *business; or
  • (b) in the form of an adventure or concern in the nature of trade; or "

… (emphasis added)

30. A business is by s 195-1 is defined as:

"…

business includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee. …"

31. Certain other definitions are also relevant including s 11-10, the meaning of acquisition and s 11-15, the meaning of creditable purpose. Relevantly, those two terms are defined respectively as follows:

" 11-10 Meaning of acquisition

(1) An acquisition is any form of acquisition whatsoever.

(2) Without limiting subsection (1), acquisition includes any of these:

  • (a) an acquisition of goods;

…

11-15 Meaning of creditable purpose

(1) You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise .

…" (emphasis added)

32. For the purposes of Div 23 Pt 2-5 of the GST Act, s 23-10 provides:

"(1) You may be *registered under this Act if you are carrying on an *enterprise (whether or not your *GST turnover is at, above or below the *registration turnover threshold).

(2) You may be *registered under this Act if you intend to carry on an *enterprise from a particular date."

By s 23-15, there was a threshold level which Swansea clearly passed.

33. Finally, in terms of the GST Act, the Commissioner "must" cancel registration under s 25-55 amongst other reasons if the Commissioner is satisfied that the taxpayer is not carrying on an enterprise.

Questions of law

34. The Commissioner's amended notice contends that the following "questions of law" are raised on the "appeal":

Grounds of appeal

35. On the first "question of law", (whether an enterprise) the grounds of appeal are reasonably extensive. They are:

36. For the remaining three questions of law, the grounds are much briefer.

37. For the second question of law (form versus substance), the grounds, in effect, simply repeat the question of law. They are that the Tribunal erred in law in holding that the apparent legislative intention was that the form of the activity by itself will suffice to bring the activity within the definition of "enterprise" (see Tribunal's reasons at [113]). The Commissioner contends that the legislative intent is that it is the substance of the activities which must also amount to the carrying on of a business or adventure in the nature of trade.

38. On the third "question of law" (a hobby), the grounds of appeal are that the Tribunal erred in law in holding that conceptually it was difficult to see how a corporate entity could be said to be carrying on a hobby or a private recreational pursuit of an associated director or shareholder. The ground of appeal is that the Tribunal should have effectively lifted the corporate veil to recognise that the taxpayer company was the alter ego of Mr Satterley.

39.

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On the fourth "question of law" (long term private investment), the grounds of appeal were that it was open for the Tribunal to conclude on the undisputed facts as found and the admissions made by Mr Satterley in his evidence that it was his intention to acquire and to hold paintings and artwork including antiques with a view to turning these to account when circumstances were right in order to derive a profit and, accordingly, on that evidence, the Tribunal should further have held that Swansea's activities amounted only to long term private investment and not the carrying on of an enterprise as defined.

Competency of the appeal - is there a question of law?

40. There is a threshold question as to the competency of the appeal. In assessing Swansea's competency argument three issues arise. The first is to identify the Court's jurisdiction. The second is to determine whether the conclusion reached by the Tribunal was one of law or one of fact. The third arises if the conclusion reached was one of fact. The third issue is to consider whether there can be any circumstances in which a conclusion of fact is amenable to review.

41. As far as the jurisdiction of the Court is concerned, s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act) provides as follows:

" 44 Appeals to Federal Court of Australia from decisions of the Tribunal

(1) A party to a proceeding before the Tribunal may appeal to the Federal Court of Australia, on a question of law , from any decision of the Tribunal in that proceeding." (emphasis added)

42. In
Birdseye v Australian Securities and Investments Commission (2003) 76 ALD 321 Branson and Stone JJ observed that an appeal from the Tribunal to the Federal Court must be on a "pure question of law". It has also been clarified that the existence of a question of law is not simply a qualifying condition to ground the appeal but also the subject matter of the appeal itself:
TNT Skypack International (Aust) Pty Ltd v Federal Commissioner of Taxation 88 ATC 4279; (1988) 82 ALR 175 at 178 per Gummow J. In Birdseye (2003) 76 ALD 321 Branson and Stone JJ agreed with the comments of Ryan J in Lambroglou's case (
Australian Telecommunications Corporation v Lambroglou (1990) 12 AAR 515), observed that:

"O 53 r 3(2) discloses an intention that a question of law to be raised on an appeal from the tribunal should be stated with precision as a pure question of law. It is in the specification of the grounds relied upon in support of the orders sought that, in our view, one should expect to find the links between the question of law, the circumstances of the particular case and the orders sought on the appeal."

43. Brennan J in the High Court in
Waterford v Commonwealth (1987) 163 CLR 54 (at 77) observed:

"A finding by the A.A.T. on a matter of fact cannot be reviewed on appeal unless the finding is vitiated by an error of law. Section 44 of the A.A.T. Act confers on a party to a proceeding before the A.A.T. a right of appeal to the Federal Court of Australia 'from any decision of the tribunal in that proceeding' but only 'on a question of law'. The error of law which an appellant must rely on to succeed must arise on the facts as the A.A.T. has found them to be or it must vitiate the findings made or it must have led the A.A.T. to omit to make a finding it was legally required to make. There is no error of law simply in making a wrong finding of fact."

44. In
Comcare v Etheridge (2006) 149 FCR 522, the Full Court held that 'on a question of law' is narrower than an appeal that merely involves a question of law. The subject matter of an appeal under s 44(1) is of the same character as the subject matter of a reference of a question of law to the Court under s 45 of the AAT Act.

45. In
Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 at 356, Mason CJ said:

"Thus, at common law, according to the Australian authorities, want of logic is not synonymous with error of law. So long as there is some basis for an inference - in other words, the particular inference is reasonably open - even if that inference

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appears to have been drawn as a result of illogical reasoning, there is no place for judicial review because no error of law has taken place."

46. Further, in
Blackwood Hodge (Aust) Pty Ltd v Collector of Customs (No 2) (1980) 47 FLR 131, Fisher J in the Full Court (at 145) observed:

"It is my firm view that this Court when hearing appeals from a Tribunal constituted for the purpose of reviewing decisions of [an administrative] nature should adopt a restrained approach. Parliament contemplated that only in exceptional circumstances should the decision of the Tribunal not be the final decision" . (emphasis added)

47. Although the basic proposition that an "appeal" from the Tribunal is confined to a question of law is well understood, distinguishing between a question of law and a question of fact on occasions is less straight forward. The High Court in
Craig v South Australia (1995) 184 CLR 163 at 186 said that almost any question that arises for determination by a judge can be "dressed in the garb of a question of law" and in
Collector of Customs v Agfa-Gevaert Ltd (1996) 186 CLR 389 at 394 that:

"Notwithstanding attempts by many distinguished judges and jurists to formulate tests for finding the line between the two questions, no satisfactory test of universal application has yet been formulated."

48. Swansea submits that the question of whether or not it was carrying on an enterprise is a question of fact. By comparison and in the context of carrying on a business, in
Federal Commissioner of Taxation v Shields 99 ATC 4783; (1999) 42 ATR 504, O'Connor J said at [21]-[23]:

  • "21 A number of other submissions of the same kind were made repeating the gist of those referred to. None in my view demonstrated any perversity or failure to consider the evidence before the decision maker. Whether the respondent carried on a business is a question of fact. The test to be applied in forming a conclusion as to that issue is both subjective and objective. Regard is to be had to the nature and extent of the activities undertaken and the purpose of the individual engaging in them (
    Martin v FCT (1952) 90 CLR 470 at 473; 5 AITR 548 at 550-1; 10 ATD 37 at 39 per Webb J).
  • 22 The decision-maker accepted the evidence of the respondent who gave evidence before him and gave it weight in coming to his decision. The submission that the conclusion reached was perverse or that material evidence was disregarded is not supported by a balanced reading of the decision.
  • 23 It is clear from the transcript (to which I was taken during the hearing) that the decision-maker saw his conclusions as 'finely balanced'. After detailed consideration he decided the question of whether he was 'carrying on a business' in favour of the respondent. On all the material presented to the court he was entitled to do so. No error of law has been established." (emphasis added)

49. Similarly in
Helton v Federal Commissioner of Taxation (1959) 12 ATD 82 at 83.3, Taylor J in the High Court of Australia said:

"In seeking to set aside the assessment it was necessary for the appellant, in the circumstances of the case, to establish that the amount in question, namely £9082 accrued to him from winning bets and, further, that the bets in question were not made as part of a business activity in which he was engaged. So stated these issues appeared to raise for decision questions of fact and the objection was taken on behalf of the respondent that the appeal was not competent. Counsel for the respondent indicated that the Board of Review had dealt with the matter on the assumption that the amount in question had been derived from winning bets and it had dismissed the taxpayer's appeal on the ground that the proper inference was that he was engaged in betting as a business activity. He contended that in relation to the second issue questions of law would arise and, influence to some extent by the note of the decision in
Holt v The Federal Commissioner of Taxation 3 ALJ 68, I allowed the matter to proceed.

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Having now heard the evidence in the case I am satisfied that the only questions which arose before the Board of Review and which arise here are questions of fact. There was no dispute that betting may constitute a business activity and there is no question that profits derived from betting as a business activity constitutes assessable income. Nor is there any question whether the conclusion is open upon the evidence that the appellant so carried on his betting activities. … no questions of law were involved in the determination of these issues and although questions may have arisen concerning the proper inference to be drawn from the proved facts this does not mean that any question of law was, or is, involved. Accordingly the appeal, should, in my opinion, be dismissed on the ground that it is incompetent ." (emphasis added)

50. Swansea contends that if, as it is submitted occurred in this case, the relevant principles of law have been correctly identified by the Tribunal and the only question is the application of those principles to the facts, that is normally a question of fact even though the Court might have reached a different conclusion on the facts (
Federal Commissioner of Taxation v Brixius 87 ATC 4963; (1987) 16 FCR 359 at 366. I agree with this submission emphasising, however, "normally".

51. In the Tribunal itself it appears to be accepted that carrying on an enterprise is a question of fact. In D'Arcy and Commissioner of Taxation [2008] AATA 709 the Tribunal said:

"Ultimately, as his representatives acknowledged, the question whether Mr D'Arcy is carrying on an enterprise is a question of fact. The factual material presented in support of Mr D'Arcy's case has fallen far short of satisfying me that his horse breeding activities are done 'in the form of a business'. I am unable to distinguish his activities from those of a person who, with a keen interest in horses and their breeding, chooses to become a part-owner of broodmares for the purpose of pleasure or recreation, or as a hobby."

52. In another GST appeal, the Full Court considered the jurisdictional point. In
HP Mercantile Pty Limited v Commissioner of Taxation 2005 ATC 4571; [2005] FCAFC 126 (a tax payer's appeal against the Tribunal's agreement with the reduction of input tax credits by the Commissioner). Hill J with whom Stone and Allsop JJ relevantly agreed said: -

  • "3 Although called an appeal, the matter is in the original jurisdiction of the Court and is an appeal on, that is to say, limited to, a question of law: Administrative Appeals Tribunal Act 1975 (Cth), s 44(1). Pursuant to s 44(3) of that Act, the appeal, being from a decision of the Tribunal in which the President of the Tribunal participated, is heard by a Full Court of this Court.
  • …
  • 39 Whatever may be the case where a relationship is indirect, that is not the case here. Once it is accepted that what is required is a real or substantial relationship, it becomes then a question of fact whether such a relationship exists in a particular case. The Tribunal, as sole arbiter of fact, found, without difficulty, that there was a real relationship that existed between, on the one hand, the acquisition of the debt collection supplies and on the other, the acquisition of the debts. As the Commissioner's written submissions say, the activities of the Trust in acquiring the debts and then collecting them were closely connected as one continuous course of conduct. Necessarily, for the Trustee to be entitled to a refund of input tax credits the Trust had to be carrying on an enterprise - relevantly here, activities in the form of a business: (cf s 9-20(1)(a)). That business began with the feasibility study and proceeded through the acquisition of the debts (the financial supply) and the collection of those debts. To say that fees paid for assistance to collect the debts had no real relationship with the acquisition of the debts would, in this context, be remarkable.

…"

53.

ATC 9579

Stone J also considered the distinction between a question of fact and a question of law, her Honour observing:
  • "82 In respect of the cross-appeal, the Trustee did not raise this issue of jurisdiction and there was no suggestion that the cross-appeal was incompetent. One can only assume that the Trustee had formed the opinion that this Court had jurisdiction to determine the issue in the cross-appeal. Nevertheless, it seems to me that even in the absence of a challenge by either party, where the jurisdiction of the Court to determine an issue is conditional on that issue being a question of law, the Court needs to be satisfied on that point.
  • 83 It appears to be accepted that, in general, the ordinary meaning of a word is a question of fact;
    Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 at 287, accepted on this point at least by the High Court in
    Collector of Customs v Agfa-Gevaert Limited (1996) 186 CLR 389 ('Agfa-Gevaert') at 395-7. In Life Insurance Co of
    Australia Limited v Phillips (1925) 36 CLR 60 at 78, Isaacs J distinguished between 'meaning' (a question of fact) and 'construction' (a question of law). Quoting Lindley LJ in
    Chatenay v The Brazilian Submarine Telegraph Company Limited [1891] 1 QB 79 at 85, his Honour explained,

  • '[Lindley LJ] says: "The expression 'construction' as applied to a document, at all events as used by English lawyers, includes two things: first, the meaning of the words; and, secondly, their legal effect, or the effect which is to be given to them. The meaning of the words I take to be a question of fact in all cases whether we are dealing with a poem or a legal document. The effect of the words is a question of law." '

  • 84 In Agfa-Gevaert the High Court viewed this distinction with some scepticism, commenting at 396-7,

  • 'With respect this distinction seems artificial, if not illusory. The meaning attributed to individual words in a phrase ultimately dictates the effect or construction that one gives to the phrase when taken as a whole and the approach that one adopts in determining the meaning of the individual words of that phrase is bound up in the syntactical construction of the phrase in question. …

  • If the notions of meaning and construction are interdependent, as we think they are, then it is difficult to see how meaning is a question of fact while construction is a question of law without insisting on some qualification concerning construction that is currently absent from the law.'

  • 85 More recent guidance can be found in
    Vetter v Lake Macquarie City Council (2001) 202 CLR 439 at 450 where Gleeson CJ, Gummow and Callinan JJ commented:

    'Whether facts as found answer a statutory description or satisfy statutory criteria will very frequently be exclusively a question of law. To put the matter another way … whether the facts as found by the trial court can support the legal description given to them by the trial court is a question of law.'

    See also,
    Hope v Bathurst City Council (1980) 144 CLR 1 at 7-9 per Mason J, with whom Gibbs, Stephen, Murphy and Aickin JJ agreed, and
    Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47 at 51 per Fullagar J.

  • 86 In this case the facts as accepted by the Tribunal include that the Trustee 'incurred expense for due diligence advice from S as to whether it should acquire the debts'. The Tribunal stated the issue in respect of the expenses incurred for the due diligence advice as being, 'whether the procuring of advice whether to make supply by acquiring debts is related to the acquiring of the debts when the advice is accepted and implemented.' Implicit in those statements is a finding of fact as to the reason the advice was sought. This involves an acceptance of the fact of a relationship between the advice and the acquisition. In my view, the subsequent question whether 'the acquisition relates to making supplies that would be input taxed' is a question of law which properly invokes the jurisdiction of this Court under s 44(1) of the AAT Act."

54. The Commissioner however contends that where only one conclusion is open on the evidence and the Tribunal arrives at a different conclusion, it follows that the Tribunal must

ATC 9580

have applied some wrong principle of law (
Federal Commissioner of Taxation v Cooper 91 ATC 4396; (1991) 29 FCR 177).

55. Cooper was an appeal from the Supreme Court of New South Wales. The taxpayer (a professional rugby league player) had been instructed by his coach to consume specified quantities of steak, potatoes, bread, beer and sustagen off-season to keep up his weight. He claimed deductions for several years for the cost of meeting that diet. The majority held that there was not sufficient a nexus between the expenditure and the gaining or producing of his assessable income in order for it to be deductible.

56. There is in Cooper, a very helpful analysis by Hill J at 192 and following (with whom Lockhart and Wilcox JJ agreed) on the issue for which the Commissioner now contends. His Honour said:

" The appeal to the Supreme Court: was a question of law involved?

From the Board's decision, the Commissioner appealed to the Supreme Court. For that Court to have jurisdiction, it was necessary, pursuant to the then s 196(1), that a question of law be involved in the appeal: cf s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth), which now confers a right of appeal from the Administrative Appeals Tribunal only 'on a question of law'. For relevant purposes, there are two essential distinctions between these provisions. The first is that it was necessary under s 196(1) merely that a question of law be involved. It was not material whether that question was decided correctly: see
Commissioner of Taxation (Cth) v Sagar (1946) 71 CLR 421 at 423;
Krew v Commissioner of Taxation (Cth) (1971) 45 ALJR 324 at 325. Secondly, once a question of law was identified as being involved, the appeal to the Supreme Court operated as a rehearing on both fact and law, rather than as now merely an appeal confined to the question of law on which the appeal is based: see
Ruhamah Property Co Ltd v Commissioner of Taxation (Cth) (1928) 41 CLR 148 at 151;
Commissioner of Taxation (Cth) v Miller (1946) 73 CLR 93 at 103-104;
Krew v Commissioner of Taxation (Cth) (supra) (at 326) and cf
Waterford v Commonwealth (1987) 163 CLR 54 at 77, per Brennan J.

The Commissioner's appeal to the Supreme Court of New South Wales was met with a submission that the appeal was incompetent because no question of law was involved, a submission upheld by Hunt J. Before his Honour, the Commissioner identified two questions of law said to have been involved. These questions were stated by Hunt J as follows:

'The first is said to have been that raised by any claim for an outgoing of a private nature under s 51(1), as discussed by the High Court in
John v Commissioner of Taxation (Cth) (1989) 166 CLR 417. The second question of law is said to have been that involved in the application of s 51(1) to the facts of this particular case.'

The Commissioner's submissions were dealt with by Hunt J in the following passage:

'It was conceded by the Commissioner that the Board did not in fact deal with either question of law, but it was submitted that both were necessarily involved in every case such as the present. I do not agree. There is no necessary antipathy between an outgoing incurred in gaining assessable income and one of a private nature: see
John v Commissioner of Taxation (Cth) (at 431). No question of law is involved where some principle of law was either necessarily applied by the Board in arriving at its decision or merely implicit or assumed in that decision; the question must be one which was actively involved in the Board's decision: see
Boyded (Holdings) Pty Ltd v Commissioner of Taxation (Cth) (1982) 64 FLR 381 at 385. That was not the case here. Moreover, the question whether a particular set of facts comes within the terms of a statutory definition which uses words according to their common understanding is one of fact, not of law: see
Australian Gas Light Co v Valuer-General (1940) 40 SR(NSW) 126 at 137-138;
Hope v Bathurst City Council (1980) 144 CLR 1 at 7-8. It was

ATC 9581

eventually conceded in argument that the present case, like so many of them, involved a question of fact and degree (
Commissioner of Taxation (Cth) v Forsyth (1981) 148 CLR 203 at 215), and that no submission of "no evidence" had been made to the Board and ruled upon by it either expressly or by implication: cf
Lombardo v Commissioner of Taxation (Cth) (1979) 40 FLR 208 at 212. The Commissioner's appeal is therefore incompetent, and it must be dismissed on that basis.'

With respect, I do not agree. In my opinion, more than one question of law was involved in the appeal. First, there was the matter of the findings of fact made by the Board, which had no foundation in the evidence. So few were the facts narrated by the Board in a judgment that was just over a page of typing, it must be assumed that the matters set out by the Board as facts loomed large in the Board's reasons. There can be no doubt that a question of law would be involved where there is no evidence upon which the Board could have reached its decision . It goes without saying that in such a case it is unnecessary for any submission to have been made to the Board, for the case is one where the Board has itself fallen into error in its reasons.

In
Lombardo v Commissioner of Taxation (Cth) (1979) 40 FLR 208, Bowen CJ set out a number of cases where a question of law will be involved, albeit without attempting an exhaustive summary. His Honour said (at 212):

  • '1. If it was expressly raised and the Board made a ruling on it as a relevant factor in its decision;
  • 2. If it is obvious from the decision or transcript of the case that the Board in arriving at its decision has misunderstood the law in some relevant particular;
  • 3. Technical words had necessarily to be construed before the statute could be applied;
  • 4. Where a particular set of facts had of necessity to be within or without the statute; '

The present case falls, in my opinion, within the fourth test suggested by his Honour.

There is a long line of authority that a question of law will be involved in any case where the facts are not in dispute and the only question is whether the case necessarily falls within or outside the statute: see
Commissioner of Taxation (Cth) v Western Suburbs Cinemas Ltd (1952) 86 CLR 102 at 104;
Inland Revenue Commissioners v Von Glehn [1920] 2 KB 553 at 569-570, per Warrington LJ;
Bean v Doncaster Amalgamated Collieries Ltd (1946) 27 TC 296 at 307-308, per du Parcq LJ;
Rolls Royce Ltd v Jeffrey [1962] 1 WLR 425 at 426-427; [1962] 1 All ER 801 at 802-803, per Viscount Simonds;
Farmer v Cotton's Trustees [1915] AC 922 at 932, per Lord Parker of Waddington, quoted with approval by Latham CJ in
Commissioner of Taxation (Cth) v Miller (supra) at 97; and by Fullagar J in
Hayes v Commissioner of Taxation (Cth) (1956) 96 CLR 47 at 51. The rationale for this view is particularly apparent in a case where, only one conclusion being open on the facts, the Board arrives at a different conclusion, Since the facts were not in dispute, it follows that the Board must have applied some wrong principle of law, albeit that it has not stated the principle upon which it has relied.

It is a different question, of course, and one of fact only, if the issue is whether, a number of results being open, a particular result arrived at was correct, for in such a case the matter is one of degree only.

There are, as Hunt J observed, also cases where it has been held that the meaning of an ordinary English word or phrase used in a statute is a question of fact, and the question whether a particular set of facts comes within the description of such a word or phrase, will also be a question of fact: see
Commissioner of Taxation (Cth) v Broken Hill South Ltd (1941) 65 CLR 150;
Australian Gas Light Co v Valuer-General (1940) 40 SR (NSW) 126 at 137;
Hope v Bathurst City Council (1980) 144 CLR 1 at 7;
Brutus v Cozens [1973] AC 854.

ATC 9582

It may be thought that these two principles are in conflict and that the judgment of Mason J in Hope (supra) casts doubt on the first principle. However, a careful perusal of his Honour's judgment makes it clear that this is not so, as his Honour's discussion (at 7-8) of the judgment of Kitto J in
New South Wales Associated Blue-Metal Quarries Ltd v Commissioner of Taxation (Cth) (1956) 94 CLR 509 reveals. The Associated Blue-Metal case concerned the question whether certain activities of the taxpayer were 'mining operations upon a mining property' within the meaning of s 122 of the Act. That, as Kitto J observed, involved a mixed question of fact and law. As Mason J observes (at 8), Kitto J went on to explain why this was so in the following passage:

'First it is necessary to decide as a matter of law whether the Act uses the expressions "mining operations" and "mining property" in any other sense than that which they have in ordinary speech.'

Kitto J answered that question in the negative and noted that the common understanding of ordinary words is a question of fact. He then continued (at 512):

'The next question must be whether the material before the court reasonably admits of different conclusions as to whether the appellant's operations fall within the ordinary meaning of the words as so determined; and that is a question of law … If different conclusions are reasonably possible, it is necessary to decide which is the correct conclusion; and that is a question of fact … '

Although, as Mason J observed in Hope, the meaning of the word 'business', if used as an ordinary English word, is a question of fact, where the issue was whether, on the facts as found, any conclusion was open other than that the activities of Mr Hope amounted to a business, a question of law was, in the view of Mason J, involved.

The case before us is a case where all the facts are known and undisputed. The issue of law raised is whether any conclusion is open other than that expenditure incurred by the applicant was an allowable deduction under the section. That question is a question of law .

…

It is a prerequisite of jurisdiction that the question of law as identified be really and not colourably involved: see
Fisher v Deputy Commissioner of Taxation (Cth) (1966) 40 ALJR 328; Lombardo (supra), per Franki J (at 215). As Toohey J pointed out in Lombardo, where the Board does not expressly refer to the question of law it is necessary that the decision at least 'imply or entail the question' so that (at 219):

'If a perusal of a Board's decision shows that some step, although not expressly referred to, must have been taken by the Board in arriving at its conclusion, that matter was involved in the decision. And if the matter, on examination, is shown to be a question of law, then a question of law will have been involved.'

In
Boyded (Holdings) Pty Ltd v Commissioner of Taxation (Cth) (1982) 64 FLR 381, Mahoney JA (at 385) suggested that it was not sufficient if a principle of law was necessarily implied or that it was implicit or assumed in the decisions such as would give rise to an issue of estoppel. Rather, it seems that his Honour was of the view that the question of law be an 'active' and not a 'passive' one. No doubt what his Honour had in mind was a case such as the present, where the parties had chosen to run the case solely on the basis of the exclusory limbs of s 51(1) and subsequently it was sought to argue the Board had necessarily applied a view as to the relationship between the two limbs, to which its attention had not been drawn at all.

However, in the present case, there are at least two questions of law involved in the appeal, and accordingly the Supreme Court of New South Wales had jurisdiction to determine it. The decision to the contrary by Hunt J must be set aside."

57.

ATC 9583

The Commissioner contends that the conclusion that Swansea was carrying on an enterprise was so unreasonable and so incapable of support from any of the evidence that it could not possibly have been reached other than by error of law in disregarding crucial evidence and relying on irrelevant evidence. Specifically, senior counsel for the Commissioner contended that the facts as found in the decision "mandate the conclusion" that the activities of Swansea during the relevant period in relation to the acquisition of antiques and artworks, had no significant business or commercial purpose and was merely the expression of Swansea's sole director's private hobby or interest in collecting and appreciating such items. Alternatively, it was the pursuit of a hobby or long term private investment strategy not being the carrying on of a business.

58. In
SBLF v Minister for Immigration and Citizenship (2008) 103 ALD 566 Gray J observed:

"There is a clear distinction between making a finding of fact inconsistent with some of the material of a probative nature, after consideration of the whole of the material, and choosing not to rely on some of the material at all. In many, if not most, cases, it will be inevitable that the fact-finder will make findings inconsistent with some of the probative material before him or her. That is the natural result of the process, which involves determining what to accept and what to reject. That process is altogether different from arbitrary rejection of probative material by labelling it as without probative value, or weight, altogether, when it has probative value."

59. Although there is considerable support for the conclusion that "carrying on an enterprise" is a question of fact, in my view the question is not entirely clear. For the purposes of this appeal, however, senior counsel suggested that the ultimate conclusion as to carrying on an enterprise was partly fact and partly law. If that is so, the review in this Court would not be as to a pure question of law.

60. I accept, however, the submission of senior counsel for the Commissioner that a question of law does arise where the conclusion reached was simply not open on any view of the evidence or that obvious facts have been totally ignored.

61. While it is, in my view, more likely that the question as to whether an entity carried on an enterprise is a question of fact, that does not need to be decided. What will be addressed is the Commissioner's argument that in the circumstances of this case there was no basis at all upon which the Tribunal could have reached such a conclusion.

Whether an enterprise

Grounds 4.1.1 to 4.2.2

62. At the heart of the Commissioner's contentions is that hobby or investment purposes cannot relevantly qualify. That is so, although I reiterate that the Tribunal did expressly find that the purpose was to eventually sell the assets for profit and that the hobby exception did not arise. A finding as to purpose is factual. The Commissioner overcomes that hurdle by arguing that it was not open to the Tribunal to consider Mr Satterley's subjectively expressed purpose in determining whether Swansea's purpose was to sell the acquired assets for profit at the right time. As to this contention, I disagree. I will examine that argument in the next section.

63. As to investment activity, there is nothing in the legislation that indicates that investment activities would not amount to the carrying on of an enterprise. Further, the relatively low level of the turnover threshold ($50,000) in s 23-15 of the GST Act is consistent with eligibility being available even when sales at any given period have been minimal.

64. Further and in express terms, one activity alone may qualify as an enterprise. The width of the definition has been noted in
Toyama Pty Ltd v Landmark Building Developments Pty Ltd [2006] NSWSC 83 (at [71]) where White J held:

"Section 9-20(1)(a) does not require for there to be an enterprise that there be repeated or continuous activities. One activity done in the form of a business can be an enterprise. However, it is necessary, in order for an entity to make a taxable supply, that the supply be made in the course of furtherance of an enterprise which the entity

ATC 9584

carries on. The words 'carrying on' would ordinarily imply a repetition of acts. The expression is defined in s 195-1 as including doing 'anything in the course of the commencement or termination of the enterprise'."

65. There is support for the approach taken by the Tribunal in the Explanatory Memorandum to the GST Act. The point which is made in the Explanatory Memorandum at p 9 is that "enterprise" is defined widely because GST is intended to have a broad base. Activities of a wide nature are expected to be regarded as enterprises so that input tax credits will be available to them. The Explanatory Memorandum reads (at cl 2.3):

"Enterprise has been defined very broadly. Several of the things included as enterprises are included not so that they charge GST on their suppliers, but so that they can become registered and obtain input tax credits."

66. A natural reading of the words in the definition would appear to support this observation that enterprise has been deliberately defined very broadly or widely.

67. It also appears to have been the Parliamentary intention that input tax credits may be available in relation to the acquisition of capital items whereas capital purchases are not deductible for income tax purposes (see cl 3.25 of the Explanatory Memorandum). This is relevant to the Commissioner's contention that the activities of Swansea could not amount to an enterprise because they were long term investment activities. In my view, it cannot be discerned from the legislation or from the Explanatory Memoranda that Parliament's intention was that such "capital" activities would not amount to the carrying on of an enterprise notwithstanding that such activities may not ordinarily amount to the "carrying on of a business" or the "undertaking of a profit making scheme". Accordingly, it is not evident on the face of the GST Act that investment activities would not amount to the carrying on of an enterprise.

68. The GST Act definitions of "enterprise" and "carrying on an enterprise" appear on their face (consistently with the Explanatory Memoranda) to be substantially broader than the notion of "carrying on a business" for the purposes of income tax regulation. It would have been a simple matter for Parliament to confine registration to those entities "carrying on a business" in the income tax sense had that been its intention. It follows that those income tax cases determining whether there has been a carrying on of a business may need to be considered with some caution in the present analysis.

69. The Commissioner submits that although Swansea made many purchases of artworks, the evidence was that the artworks and antiques were and are intended to be retained indefinitely. The lack of sales and attempts to sell, it was said, was consistent with that view. The Commissioner also contends that the description appearing in repeated tax returns that Swansea's activities were "investment in artwork and antiques" is not only correct but is inconsistent with the conclusions reached by the Tribunal that the business of Swansea involved the "purchase and sale " of artwork. (I note however that the GST Act does not stipulate that to be an enterprise there must be regular continuous sales).

70. The Commissioner develops this argument by challenging a response of Mr Satterley in the course of his cross-examination when Mr Satterley said that everything was for sale "at the right price". Mr Satterley could not say, however, when the price was likely to be right. The Commissioner continued to attack that expression of intention by Mr Satterley on the basis that no attempt had been made to actively market any of the items for sale. However, Mr Satterley did go on to observe that the yardstick on which he was working was that the works must double in value every seven years for the price to be right. It followed that it would be necessary for appreciation to take effect at the rate of 10 15 percent per annum. The Commissioner attacked this evidence on the basis that Mr Satterley had conceded that no regular valuations or revaluations of the artworks were conducted. The Commissioner submitted without regular up to date valuations, Mr Satterley would never know when, if at all, his stated yardstick was reached for any particular work in the collection.

71.

ATC 9585

The Tribunal expressly concluded that the objective was to sell the assets at the right time for profit. The fact that there may not be regular valuations of goods does not necessarily mean that this objective was not the business strategy. Mr Satterley accepted that the yardstick of doubling in value every seven years was reasonably loose because it may be possible that he would continue to keep a piece after that time. His evidence was "we may sell that painting. When we get proper advice and we may not, we may keep it … I can't answer that question because the situation hasn't arisen".

72. The totality of the evidence before the Tribunal was considerable. While the Tribunal might well have been persuaded to another conclusion, it was not. It gave cogent reasons to explain its conclusion which was reached on evidence that was properly before it.

Subjective evidence

73. The Commissioner contends that the subjective evidence expressed by Mr Satterley as to his intention that Swansea should ultimately make a profit should be disregarded. The Commissioner argues that
Commissioner of Taxation v The Myer Emporium Ltd 87 ATC 4363; (1987) 163 CLR 199 at 209-210 supports the submission that the intention or purpose of a taxpayer of making a profit or gain is not the subjective intention or purpose but is to be discerned from an objective consideration of the facts. I do not accept, particularly in the Tribunal which is not bound by rules of evidence, that evidence of subjective purpose should not be allowed. While it is clear that ultimately an objective conclusion must be reached, it does not follow, particularly in a case in which there are objective factors which could support conclusions both for an against "carrying on an enterprise", that the evidence of subjective purpose cannot be considered. By comparison (but in the context of income tax), in
Ell v Commissioner of Taxation 2006 ATC 4098; [2006] FCA 71 Emmett J said:

  • "111 Although not determinative, intention is relevant where, for example, a particular activity produces no income (see
    John v FCT (1989) 166 CLR 417) or where the first step in a business is undertaken (see
    Fairwell States Pty Ltd v FCT (1970) 123 CLR 153). It is necessary to examine the activities engaged in, including their nature and extent (see
    Martin v FCT (1953) 90 CLR 470 at 474). Activities may constitute the carrying on of a business even though the activities are carried on in a small way and it is not for the Commissioner to dictate to a taxpayer in which business the taxpayer engages or how to run a business profitably or economically (see
    Tweedle v FCT (1952) 180 CLR 1). Provided that an activity said to constitute carrying on business is engaged in for the purpose of profit on a continuous and repetitive basis, that activity may constitute the carrying on of business (see
    Hope v Bathurst City Council (1980) 144 CLR 1).
  • …
  • 114 The state of mind or intention of a taxpayer may be relevant to the question of whether or not that taxpayer is carrying on a business. Even where a transaction produces no income, if the intention of the relevant taxpayer is that the transaction is the first step in a business, that subjective state of mind may be relevant. The acquisition of Athena was, the Taxpayers say, the first step in the carrying on of a business (see
    Fairway Estate Pty Ltd v FCT (1970) 123 CLR 153 at 166.8). Further, it is not for the Commissioner to dictate to a taxpayer in what way a business should be run. A business may be carried on even though it is not profitable or economical (see
    Tweedle v FCT (1952) 180 CLR 1), provided it is carried on with the purpose of making a profit (see
    FCT v Stone (2005) ATC 4234 at 4243). The Taxpayers say that they had a profit making purpose or intention in relation to the use of Athena."

74. On the detailed analysis by Hill and Lander JJ in
Spassked v Commissioner of Taxation 2003 ATC 5099; (2003) 136 FCR 441 at [51] to [77] it is clear that there are cases (Spassked itself being one - see [75]) where subjectively expressed purpose may be relevant evidence to consider in the ultimate objective characterisation test. (Spassked was an income tax case, the question being whether interest was incurred in gaining or producing assessable income).

75.

ATC 9586

As also observed by Hill J in
Stone v Commissioner of Taxation 2002 ATC 5085; [2002] FCA 1492, the state of mind may well be relevant in determining whether or not an activity is a hobby or a business. His Honour said:
  • "68. Although it has been said that it is the extent of the activity (I would prefer to say the nature and extent of the activity) and not the state of mind or intention of a taxpayer which determines whether the taxpayer carries on a business:
    Inglis v Federal Commissioner of Taxation (1980) 80 ATC 4,001, that is not to say that the state of mind is irrelevant. Two different taxpayers may carry on the same activity (for example, carpentry) and both may sell the product of their activity on just the one occasion, yet the one may be carrying on a business and the other merely selling the product of a hobby. What must differentiate the two cases is the purpose for which the activity is carried on. Generally, as the extracts cited above illustrate, the profit motive is important in leading to the conclusion that the activity undertaken is a business."

76. It is certainly true that by far the main focus of the activities of Swansea at the time its registration was cancelled was in building up the art collection. For several years Mr Satterley had been attempting through very substantial expenditure to build up "one of the great collections of this country".

77. Although the sales were very minimal, it was open to the Tribunal to accept Mr Satterley's evidence that the objective behind the exercise of building up a great collection was eventually to sell pieces of the collection for profit. It was supported strongly by the closely tested but accepted evidence of Mr Purves as to the instructions he had received from Mr Satterley.

78. The Commissioner submits that there is no evidence to support the finding that Swansea was acquiring a collection of "sound saleable artwork" in order to "turn it to account profitably" as "part of carrying on an enterprise". It seems clear to me that there was ample such evidence. The Commissioner is critical of the evidence and contends that the evidence is weak and imprecise when Mr Satterley says that everything is for sale at a profit at the right time but it was evidence on which the Tribunal was entitled to rely. It cannot be accepted that no evidence existed for the reaching of the conclusion.

79. Once this is accepted, that is the end to the challenge to the Tribunal's determination. The remaining arguments advanced for the Commissioner are, mainly, variations on the theme that there was no evidence on which the Tribunal could reach its conclusion. The primary ground must fail.

Grounds 4.3.1 to 4.3.3

80. The Commissioner contends that the Tribunal's findings (at [146]) were unsupported by the evidence and against the evidence. At [146] of the Tribunal's reasons, the Tribunal said:

"146. The Tribunal finds that none of the indicia relied upon by the Respondent in paragraph 87 of Taxation Ruling TR 97/11 are present in this matter. The indicators on which the Commissioner there relies are that:

    • 146.1 it is evident that the taxpayer does not intend to make a profit for the activity;
    • 146.2 losses are incurred because the activity is motivated by personal pleasure and not to make a profit, and there is no plan in place to show how a profit can be made;
    • 146.3 the transaction is isolated and there is no repetition or regularity of sales (which it is conceded is the case to date in this application);
    • 146.4 any activity is not carried on in the same manner as a normal, ordinary business activity;
    • 146.5 there is no system to allow a profit to be produced in the context of the activity;
    • 146.6 the activity is carried on, on a small scale;
    • 146.7 there is an intention by the taxpayer to carry on a hobby, a recreation or a sport rather than a business;
    • 146.8 any produce is sold to friends and relatives and not to the public at large."

81.

ATC 9587

The submission in support of this ground of appeal says no more and no less than that the findings set out above were unsupported by the evidence and against the evidence. As stated, I consider that it is clear on the evidence, taken as a whole, that there were proper bases on which the Tribunal could reach those findings. The issue has already been canvassed.

Grounds 4.4.1 and 4.4.2

82. Again, the short submission is that the Tribunal's findings in [147] of the reasons for decision was not open on the evidence and facts as found. Paragraph [147] was very brief. It is a conclusion.

83. It is "the Tribunal's finds that in both an income tax and GST context there is no doubt that the activities of Swansea constitute the activities of a business".

84. The argument for the Commissioner has not been developed beyond the short submission that the conclusion is wrong. The submission must fail or succeed with the first ground of appeal and, in my view, the first ground of appeal cannot succeed.

Grounds 4.5.1, 4.5.2 and 4.5.3

85. The Commissioner submits that the Tribunal erred in finding that there were no facts to support the conclusion that Swansea's relevant activities were the pursuit of a recreational pursuit or hobby. I have set out the findings and the Tribunal's analysis above.

86. The Tribunal explained (at [163]-[188]) why there were no facts to support a conclusion that Swansea's activities fell within the exclusion. The Tribunal examined the position at length. I also refer to [184]-[189] which has been set out above.

87. The Commissioner has not pointed to any additional facts which would demonstrate that Swansea was simply a vehicle for Mr Satterley's hobby. There is no foundation for a conclusion that the entirety of the evidence was not fully considered and carefully weighed. The conclusions reached were open to the Tribunal.

Grounds 4.6.1 and 4.6.2

88. By ground 4.6 the Commissioner contends that the Tribunal erred in finding that the matters outlined in [163] of its reasons for decision were "consistent only with a carrying on of a business and the conduct of an enterprise". At [163] the Tribunal said:

"On the contrary, the evidence shows that the business and commercial activities of the applicant are conducted in accordance with a pre-formulated policy, coupled with a carefully devised investment strategy. The applicant retains specialist art consultants. It keeps detailed records. It uses a database of records. It has an annual budget and banking facilities. It purchases valuable property, which is insured and properly stored and housed. All its activities are characterised by system, repetition and regularity. Such activities are in the Tribunal's opinion consistent only with the carrying on of a business and the conduct of an enterprise."

89. In substance, this ground as with ground 4.7, simply repeats the submission already dealt with on the previous ground.

90. While it may be fair to say that there was other evidence which may have led to a different conclusion, the Tribunal was expressing a view on the totality of the evidence. For the same reasons, namely, that there was ample evidence to support its finding, this ground fails.

Grounds 4.7.1 and 4.7.2

91. These grounds do not raise new points. The correct finding of the Tribunal should have been, according to the Commissioner, that the acquisition of assets by Swansea was for the purpose of long term private investment as a hedge against inflation and not as an acquisition for business or commercial purposes. On the topic of long term investment, the Tribunal said at [190]-[192]:

  • "190. The Tribunal notes further that the definition of 'enterprise' in s 9-20 does not exclude an activity or series of activities which may represent an investment in property if that is carried on in the form of a business or in the form of an adventure or concern in the nature of trade. In that regard the acquisition of an object, even by way of a long term investment, is still the acquisition of an object with the purpose of eventually disposing of it by way of or in the course of business: see Tarrakarn supra. The Tribunal rejects the respondent's assertion that an acquisition of an asset as a long term investment cannot be viewed as being an acquisition for business or commercial purposes. In the Tribunal's view none of the cases cited by the respondent support this proposition.

  • ATC 9588

    191. In the Tribunal's opinion the test should be whether the applicant has, objectively viewed, as a matter of fact commenced or continued to engage in an enterprise, being an activity or series of activities comprised of one or more transactions entered into for business or commercial purposes, done in the form of a business or in the form of an adventure in the nature of trade. In the Tribunal's view this test is clearly met by all the facts in evidence.
  • 192. The Tribunal accordingly finds that the applicant is entitled to be registered as an enterprise in accordance with the GST Act."

92. The passage at [191] and the Tribunal's express finding at [189] (that Mr Satterley as the sole shareholder and director caused Swansea to acquire the artworks with the intention of eventually selling them at a profit) demonstrate that the Tribunal has adopted the correct approach. The submissions raised for the Commissioner on this topic, in substance, simply urge re-ventilation of the facts.

93. Before the Tribunal, the Commissioner had put its position on the alternative basis that even if Swansea's purpose in acquiring the artworks and antiques was to ultimately resell them for more than they cost in order to derive resulting profits or gains, in the particular circumstances, Swansea's activities were no more than a long term investment which is not a carrying on of a business. Particular reliance was placed on the fact that the evidence established that Swansea had no definite plan to sell any particular item of artwork or antiques and that there were in fact very few sales.

94. The underlying thrust of this submission was that passive investment was not an activity that is done in the course of carrying on an enterprise. The Commissioner in support of its submissions on this topic relied upon two income tax based cases, namely,
Gauci v Federal Commissioner of Taxation 75 ATC 4257; (1975) 135 CLR 81 at 87 and 90 and Spassked136 FCR 441 at 470-471. At [84]-[85], in Spassked, Hill and Lander JJ said:

"It can be accepted that a holding company can itself carry on a business, which may be referred to as the business of a holding company:
Brookton Co-operative Society Ltd v Commissioner of Taxation (Cth) (1981) 147 CLR 441 at 469-470. The taxpayer in Total Holdings on the facts of that case was held to carry on such a business. The cases sometimes distinguish between a holding company which is a passive investor, that is to say it does no more than acquire and hold shares in a subsidiary or subsidiary companies and a company the activities of which are properly characterised as a business. That distinction is to be found not only in the context of income tax, but in the context of value added tax where liability turns effectively on whether the taxpayer is carrying on an economic activity such as a business, see for example,
Wellcome Trust Ltd v Commissioners of Customs and Excise [1996] 2 CMLR 909;
Harnas and Helm CV v Staatssecretaris van Financien [1997] 1 CMLR 649. Generally a company which may be referred to as carrying on business as a holding company will be seen to be actively involved in the management of the affairs of its subsidiaries. Active management is not, however, a necessary factual circumstance to permit there to be a finding of business. In
Carapark Holdings Ltd v Commissioner of Taxation (Cth) (1967) 115 CLR 653 the taxpayer which was found to be carrying on a business lent money to its subsidiaries and performed 'specific management functions for the group as a whole' which seem to have been primarily, at least, secretarial, budgeting and financial matters (see at 659). An example where an intermediate holding company was held to be carrying on a business is to be found in
Commissioner of Taxation (Cth) v EA Marr and Sons (Sales) Ltd (1984) 2 FCR 326.

His Honour found, it would seem, that Spassked was not carrying on such a business. Indeed it was more likely on the facts that it was IEL which was the holding

ATC 9589

company carrying on a business than Spassked. What is clear here is that the only assessable income which Spassked could possibly derive were the dividends it might receive from GIH if it were allowed to receive any dividends. Despite a submission on behalf of the appellants that Spassked was acting to further the ends of the corporate group (presumably the group of which it was the holding company, although in reality Spassked was acting to further the ends of IEL) this would not, of itself, make the interest it incurred deductible. The present case is wholly different from EA Marr & Co where the intermediate holding company leased items of plant from a finance company and made the plant available to the subsidiaries rent free."

95. It follows from the analysis in Spassked, that whether the passive nature of an activity affects the characterisation (of carrying on a business) will turn on the particular context. The critical facts in Spassked([85]) were quite different from Swansea's position. Swansea was a very active acquirer, made all the commercial decisions affecting its activities and through its sole director expressed the entirely unsurprising objective of selling acquired assets at a profit at the right time.

96. On the facts before the Tribunal, the Tribunal had reached a clear conclusion that it was carrying on an enterprise. It was a conclusion open to the Tribunal even if reasonable minds may reach a different conclusion. This ground must also fail.

Form and substance

97. The second (and after rejection of the primary ground, arguably the only) question of law on the appeal is the form or substance question. I do not consider it is accurate to characterise the conclusion reached by the Tribunal that one need be concerned only with form and not with substance or that a vague appearance of conducting an enterprise would suffice. This contention does not do justice to the very extensive analysis by the Tribunal as to the actual business activities carried out by Swansea.

98. There is no support for any suggestion that the Tribunal was prepared to approach the characterisation issue on a superficial basis. However, the words "in the form of" cannot be ignored. The Commissioner has also expressed the view (in Good and Services Tax Determination GST 2000/8 at [7]) that:

"The words 'in the form of' have the effect of extending the meaning of enterprise beyond entities carrying on a business. An enterprise will include entities that carry out activities that have … the appearance or characteristics of business activities ." (emphasis added)

99. Rather than these words supporting a suggestion that form alone may prevail over substance, they have the effect of extending the reach of "enterprise" to those activities which are in the form of a business but would not, in the ordinary meaning of "business" be considered such. But the activity must still be reasonably intended to be profit making in the case of an individual and cannot for any entity simply be a private recreational pursuit or hobby. That this is so is clear from the exclusions to s 9-20 of the GST Act which, relevantly, rules out private recreational pursuits or hobbies or, in the case of individuals, (other than a charitable trustee) an activity or activities done without a reasonable expectation of profit or gain.

Hobby

100. The third question of law deals with the "conceptual" difficulty of seeing how a corporate entity could be carrying on a hobby. This remark by the Tribunal played no significant part in the reasoning of the Tribunal and in its extensive analysis of the actual activities of the business in determining that the activities of Swansea constituted the carrying on of an enterprise. The remark made by the Tribunal was incidental to the basis for its decision. To seize on it as an error which would vitiate the entire decision would amount to an impermissible "overzealous review" of a Tribunal decision (
Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 per Brennan CJ, Toohey, McHugh and Gummow JJ at 272).

101. Had the Commissioner succeeded in establishing that Swansea was simply a vehicle for Mr Satterley's hobby, the position may have been different. However, the Tribunal extensively analysed the activities of Swansea

ATC 9590

and for reasons which were entirely open to it, rejected the argument that either Swansea or Mr Satterley were simply pursuing a hobby. This ground must fail.

Long term investment

102. Finally, the fourth question of law (long term investment) and the ground mirroring it have been canvassed earlier in these reasons.

103. As with all other grounds, it can not succeed.

Conclusion

104. Swansea was conducting business and commercial activities in accordance with a pre-formulated policy and investment strategy. Specialist consultants were retained, detailed records were kept, budgeting, insuring, storage and protection of the assets was carried out on a business like basis. The sums involved in the investment were millions of dollars.

105. It was entirely open to the Tribunal to conclude that objectively viewed (and aided by subjective evidence of purpose), Swansea's purpose was to acquire and to hold artwork and antiques with a view to turning these to account when the circumstances were right in order to derive a profit. The Tribunal was therefore entitled to conclude that Swansea was carrying on an enterprise. I am unable to discern any error on the part of the Tribunal.

106. Accordingly, I make the following orders:

 

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