Case J62

Judges: JL Burke Ch

RE O'Neill M
CF Fairleigh QC

Court:
No. 1 Board of Review

Judgment date: 21 October 1977.

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R.E. O'Neill (Member): Taxpayer was born in 1941 in Europe whence he emigrated to Australia in 1967. His long-term aim was to settle on the land. At the end of 1971 he found what he had been looking for. It was 1,430 acres comprising four blocks: two containing 939 acres behind two containing 491 acres with frontage to a major river. About half of the area of the front blocks has ``quite a deep and reasonably rich soil'', whereas the rear blocks are very steep and have granite formations and not much soil. It was ``the last reasonably sized property'' in such area only 30 miles from where he lived and worked in his professional job.

2. There was no residence on the property, the only improvements being a galvanized iron shed, fencing and sheep yards. The price was $24,000. He had $2,000 savings. He borrowed $4,000 at 10% per annum and the vendor left on mortgage $18,000 repayable $3,000 per annum with interest over six years. Settlement took place in April 1972.

3. The Board now has for review the Commissioner's decisions rejecting taxpayer's objections to disallowance of deductions claimed in each of the four years 1973-1976 and which I summarize: -

                                     1973       1974       1975       1976

      Interest                     $1,866     $1,228        400        400

      Vehicle expenses                380        108        135        193

      Depreciation:

        Vehicles                        103      298        230        180

        Fencing                                   40         39         37

        Shed                                      23         21         20

        Chain saw                                 13         36         31

      Repairs to access road                                110         82

      Discharge of mortgage                       32

      Rates                            61                    36        304

                                    ------    ------     ------     ------

                                    2,410     $1,742     $1,007     $1,247

                                    ------    ------     ------     ------
      

4. When he acquired the property there were about 400 head of sheep on it, but their owner refused to make any payment to the taxpayer. The sheep had been neglected and there were carcasses of dead sheep scattered over the land. These the taxpayer had to clear

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ATC 535

away. More than 12 months passed before the owner of the sheep removed them and only then under threat of legal proceedings.

5. As well as clearing the land of sheep carcasses the taxpayer, by trapping and shooting, brought the rabbit population under control. Then having bought a second-hand tractor in September 1972, he devoted his spare time up to the end of 1973 to clearing and burning off dead ring-barked trees standing on some 40 acres of the front blocks. That gave him, with 20 acres already cleared with natural acres of pasture land covered with natural grasses which, once freed of sheep, would rejuvenate.

6. In December 1973 the taxpayer effected settlement of transfer of the rear blocks containing 939 acres plus 21 acres of a front block in exchange for a house in the city where he is employed and, on security of the house, he borrowed money and paid out the vendor-mortgagee of the rural property. It seems that the house he got needed attention and, as I understand the evidence, he had to spend nearly all his spare time during the two years 1974 and 1975 in making extensive renovations. He did continue to spend some time on the 470 acres mainly, it seems, working to improve the access road. He has cut a new road running from the access road through his property down to the river and this will enable horses and cattle to walk to the river.

7. When he bought the property there was a wire-netting fence between the front blocks and the rear blocks and it was in reasonably good condition, as was the boundary fence on the northern side running down to the river. But the boundary fence on the southern side down to the river was in poor condition. The taxpayer did some maintenance on the fencing but, until the end of 1976, he did little on the southern boundary.

8. Having regard to the topography of the 470 acres about 150 acres were to be developed as pasture land. During 1976-1977 he had a bulldozer operator clear 60 acres which had never been touched before and that gives him 120 acres for grazing pastures.

9. There are natural streams and natural springs on the 470 acres and the average annual rainfall of 24 to 27 inches is enough for grazing pastures but taxpayer plans to construct at least two dams. He has already in 1977 planned and prepared the land for one dam and he proposes to build for emergency use in drought times a 20,000 gallon concrete tank to hold water pumped from the river.

10. In the latter half of 1976 taxpayer negotiated to buy 10 horses and had in fact borrowed on his house $5,500 to pay for them and build yards. But for no fault of his, the deal fell through. In June 1977 he took on agistment 25 head of cattle and of them he is buying 12 being 10 cows (in calf) and two calves.

11. He proposes during 1978 to take his long service leave and build a house on the property. If he succeeds in selling the house he acquired in 1973 he will probably resign from his job and move onto the property full-time.

12. There cannot be any doubt that the taxpayer did acquire the land for the purpose of breeding stock - horses and cattle - for sale. With its improved pastures the retained area will carry one beast to four acres. His main interest was and is breeding and training horses for endurance and cross-country trials. But ``always it is good for pasture and good for business to have mixed stock''. Accepting all that the fact remains that no move was made to acquire any livestock until the latter half of 1976. In no year up to and including the year ended 30 June 1976 did the taxpayer own a single beast. His activities had scarcely gone beyond bringing rabbit infestation under control and clearing land to promote rejuvenation of natural pastures. Although I accept that, from the time he acquired the land, it was his firm intention to commence a business on it - see
Fairway Estates Pty. Ltd. v. F.C. of T. 70 ATC 4061 ; (1970) 123 C.L.R. 153 - none of his activities up to 30 June 1976 can be characterized as a first transaction constituting the commencement of business.

13. I regret having to come to that conclusion because the taxpayer is certainly a man of enterprise and courage, determined that his venture should be substantially more than just one of the ``week-end farms and holiday farms'' in the vicinity of his property. Nevertheless, on the facts up to 30 June 1976 there is no other conclusion open to me than that the taxpayer was not carrying on business during the years under review. Accordingly, I would uphold the Commissioner's decisions and confirm the assessments which are before us.

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ATC 536