Case J62

Members:
JL Burke Ch
RE O'Neill M
CF Fairleigh QC

Tribunal:
No. 1 Board of Review

Decision date: 21 October 1977.

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J.L. Burke (Chairman): The issue before the Board is whether the taxpayer during the years of income ended 30 June 1973 to 1976 inclusive was carrying on a business of primary producer so as to be entitled to deductions as summarized hereunder: -

                                              Year ended 30 June

                                       1973      1974       1975    1976

      Rates                             $61                  $36    $304

      Interest                        1,866      $1,228      400     400

      Depreciation                      103         374      326     268

      Motor vehicle expenses            406         108      135     193

      Legal expenses                                 32

      Repairs                                                110      82
    

The depreciation claimed was in respect of a utility, land-rover, tractor, trailer, chain-saw, fencing and a galvanized iron shed.

2. The taxpayer, now aged 36, was employed full-time during the said years of income as a geologist and his occupation took him north away from his capital city base, A, for about 2-3 months each year. He has had no professional training in livestock management but stated in evidence that he has long had an interest in horse breeding.

3. In April 1972 the taxpayer purchased a rural property of 1,430 acres 30 miles from A for $24,000 financed by first and second mortgages to secure $22,000. In October 1973 he exchanged 959 acres of the holding for a domestic residence in A where he still resides with his wife and child.

4. The area of 471 acres retained by the taxpayer fronts a major river and a substantial proportion of it is covered with deep reasonably rich volcanic soil. Apart from the water available from the river it carries natural streams and springs. (The taxpayer's present intention is to build two dams (the land has already been cleared for one) and a 20,000 gallon concrete tank to be filled from the river.)

5. When the taxpayer acquired the property, 20 acres of it had been cleared but it was in a run down condition. It took the taxpayer two years to have a number of sheep (not the property of the vendor) removed from the property and areas of pasture had been affected by sheep carcasses.

6. Two boundary fences were reasonably secure but the third was in such condition that it would not keep out stock from the adjoining holding. There was considerable rabbit infestation which the taxpayer overcame over a period by trapping and shooting.

7. After taking possession of the property the taxpayer cleared a further 40 acres, the timber on which had been ring-barked. More recently he has cleared an additional 60 acres. He estimates that a total area of 150 acres is capable of clearing for pastures. Such pasture as there is on the land is indigenous - there has been no sowing or fertilization under the taxpayer's ownership.

8. Most of the work done on the property to date (including work done on an access road) has been by the taxpayer himself at week-ends but the time devoted to this activity has been limited by the periods spent north each year and also because he has chosen to devote a lot

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ATC 534

of time to the improvement of his domestic residence which he intends to sell with a view to financing the building of a residence on the rural property.

9. The taxpayer's stated intention is to develop the property in question for stock breeding - mixed horses and cattle. In December 1976 he borrowed $5,500 to finance the purchase of 10 horses and the building of stock yards but the deal fell through. More recently 25 head of cattle have been agisted on the property and of those the taxpayer intends purchasing 10 cows (in calf) plus two calves and in a year's time hopes to have 16 head of cattle and 10 horses on the property. The taxpayer sees a future for horses bred specifically for endurance and cross-country trials and expressed the hope that the property would be capable of supporting him in two to three years time. His 10 years government service is coming up shortly and he intends to retire at the end of his long service leave and devote himself full-time to the rural venture.

10. Here, accepting as perfectly genuine the taxpayer's evidence that he intends to engage in stock breeding as a business, it must be said that during the years in question he was doing no more than laying the groundwork for such a business. He was preparing the land for primary production but he was not engaged in it. See
Southern Estates Pty. Ltd. v. F.C. of T. (1966-1967) 117 C.L.R. 481 . On facts such as presented here, where rural land has been held for a considerable period of time but no stock at all have been acquired and depastured thereon, I am unable to hold that the taxpayer's activities amounted to the carrying on of a business during the years 1973 to 1976 inclusive.

11. I would accordingly uphold the Commissioner's decisions on the objections (except as to one minor matter not now in dispute) and confirm the assessments the subject of review.