Case K9

Judges: HP Stevens Ch

RE O'Neill M
CF Fairleigh QC

Court:
No. 1 Board of Review

Judgment date: 29 March 1978.

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R.E. O'Neill (Member): The conclusion I have reached is contrary to that reached by my colleagues. When the taxpayer and his wife came to Australia from one of the Baltic countries they acquired the relevant parcel of about 6 ½ acres in an area that was and still is zoned rural. The taxpayer built a home on it and as he cleared the land bit by bit he planted fruit trees until there were about 150 trees mainly orange and apple trees planted in wide rows over an area of 5 acres. The land, he said, ``is good for orchard''.

2. His aim has been to have a source of income to supplement his own earnings so that at least his wife would not have to work. His evidence on this point may be quoted: -

``Has it ever been your intention that you would become self-supporting from the orchard? - Yes. As I told you, I wanted to get at least back what I spent. That was my intention and, of course, I wanted to get as much as possible - I did not expect other circumstances.

Did you ever intend the farm should be able to support you so you and your wife would not have to work anywhere else to get money? - My intention was to get at least one part of my income so my wife should not work.

So you hoped eventually to make a profit but not necessarily enough to support you wholly? - Yes, not wholly but at least part of it. I am doing what I can but we have lost till now.''

3. The taxpayer has, as Mr. Fairleigh finds in para. 8 of his reasons, pursued ``his rural activities... in a proper manner and has sought and applied the advice of State agricultural officers.'' He has not failed ``to conduct his venture in a good husbandlike manner.'' That finding is supported by such evidence as the following: ``Every year I have to spray all oranges before Christmas, December or January, with that white oil and soda... That I am doing every year sometimes once or twice and then again for apples I have to spray every year against fruit fly and that I have to do every week because otherwise you cannot get crop of apples. One year I sprayed only twice and it was all very bad, those apples.''

4. The reason why the venture has not brought the financial returns which were and are expected and wanted by the partners is mirrored in what is said by Mr. Fairleigh in para. 10 of his reasons. Put tersely the marketing of the fruit crop is subject to many difficulties. Objectively, the crop, although it is far beyond the domestic needs of the taxpayer and his wife, is not enough to allow it to be graded for size and quality and boxed for sale through commercial channels; subjectively, the taxpayer is not a man hooked on the dollar with greed for money: ``If possible you always get for sale at first'' but what he could sell he sold cheaply, and then he bartered what he could and ``what is left we use ourselves''.

5. It is, I think, of some relevance to know what are the major items comprised in the total deductions claimed which were: -

                                 1973       1974



      Depreciation               $17        $347

      Water pipes and hoses       19         139

      Fruit tree replacements    105          16

      Watchdog maintenance       194          25

      Sundries                   119         154

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                                $454        $681

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Replacement of fruit trees at a cost of $105 in 1973 was a major expense compared with the five preceding years in each of which that expense was no more than $10. The watchdog which kept humans and animals from breaking through the boundary fencing and taking produce, died just after the middle of the 1973 calendar year and the expenses include veterinary services. The expenditure on water pipes in the year ended 30 June 1974 is explained in the next paragraph. The depreciation claim for 1974 includes $332 in respect of a new rotary hoe to replace at a cost of $1,300 the old rotary hoe which the taxpayer had used for more than 15 years. The sundries include the cost of fertilizers and sprays.

6. Although he had earlier excavated a dam on the property, connexion of the property to

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the newly available public water supply some time in 1973 brought brighter prospects as it enabled taxpayer to move into the growing of vegetables between the rows of fruit trees. He installed 1 " water pipes along with agricultural skinner pipes. ``That was about five years ago when we got water on. Then we got to grow vegetables. Before that it was hard, we got no water but now it is much better.'' Vegetables were sold much the same way as fruit to shopkeepers through friends. ``One year we got about two acres between oranges, two acres of peas. Then we sent to market but not every year.'' ``Even for fruit trees sometimes the crop was not so good because we could not water it, but now it is a much better position.''

7. The following table indicates increased productivity since the supply of water became secure: -

                         1973    1974    1975   1976

      Gross income       $49     $130    $155   $187

      Produce taken

        for own use       57       99     124    101

                        $106     $229    $279   $288
      

The figure for gross income of the three years 1974-1976 combines both cash sales and the taxpayer's valuation of produce bartered which, he said, he found it hard to put in dollars and cents. Without records he had at the time he could not particularize the respective amounts of cash sales and barter value.

8. The expenditure in 1973 to maintain the number of fruit trees at around 150; the regular and methodical spraying of the trees to protect the crop; the husbandlike rotary hoeing of both orchard and vegetable growing areas; the installation of water pipes to irrigate fruit trees and vegetable crops are activities that are characteristic of a business of fruit and vegetable production. The difficulties encountered in marketing the produce have been solved as best they could be having regard to the scale of production and the small material means available to the partners. These factors taken with the general background combine to establish that the venture was during both of the years ended 30 June 1973 and 1974 being conducted as a business to the end that it would produce profit to supplement the wages earned by the taxpayer-husband. I would, therefore, allow the taxpayer's objections.