Commissioner of State Taxation v T & S Liapis Pty Ltd
[2015] SASCFC 151
•23 October 2015
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
COMMISSIONER OF STATE TAXATION v T & S LIAPIS PTY LTD
[2015] SASCFC 151
Judgment of The Full Court
(The Honourable Justice Gray, The Honourable Justice Sulan and The Honourable Justice Stanley)
23 October 2015
TAXES AND DUTIES - LAND TAX - EXEMPTIONS - PRIMARY PRODUCTION LAND
Appeal against a Judge’s decision to allow an appeal against a land tax assessment. The respondent owned 5 hectares of land in Rostrevor. From 1992, the respondent subdivided 3.5 hectares of the land into residential lots, while the remaining 1.5 hectares were used as an olive grove. By the end of the 2006 financial year, all but one of the residential lots had been sold and there was little activity in respect of the subdivision business. The majority shareholder of the respondent worked full time on the olive grove. The respondent sold olives and olive oil from the olive grove. The grove was cultivated with machinery owned by the respondent and significant earthworks and grafting had taken place to enable the expansion of the grove. The olive grove was not particularly profitable, in contrast to the subdivisions, and record keeping was poor.
Whether the respondent was entitled to a primary producer exemption under the Land Tax Act 1936 (SA).
Held per Gray J (Sulan and Stanley JJ agreeing)(dismissing the appeal):
1. The Judge was correct to conclude that the olive grove was run as a business.
2. The Judge did not err in his construction of section 5(10)(g)(vi)(A) of the Land Tax Act 1936 (SA).
3. The Judge was correct to conclude that the respondent satisfied the requirements of section 5(10)(g)(vi)(A) of the Land Tax Act 1936 (SA) in respect of the 2006 and 2007 financial years.
Per Gray J:
1. The Judge was correct to conclude that the olive grove was the respondent’s main business for the 2007 financial year.
2. The Judge erred in concluding that the olive grove was not the respondent’s main business for the 2006 financial year.
3. The respondent satisfied the requirements of section 5(10)(g)(v) of the Land Tax Act 1936 (SA) in respect of the 2006 and 2007 financial years.
Land Tax Act 1936 (SA) s 2(1), s 5(10)(g)(v), s 5(10)(g)(vi) and s 5(13), referred to.
T & S Liapis Pty Ltd v Commissioner of State Taxation [2015] SASC 63; Ericksen v Last (1881) 8 QB 414; Martin v Federal Commissioner of Taxation (1953) 90 CLR 470; Ferguson v Federal Commissioner of Taxation (1979) 37 FLR 310; Newton v Pyke (1908) 25 TLR 127; Inglis v Federal Commissioner of Taxation (1979) 10 ATR 493; Evans v Federal Commissioner of Taxation (1989) 20 ATR 922; Hope v Bathurst City Council (1980) 144 CLR 1; Tweddle v Federal Commissioner of Taxation (1942) 180 CLR 1, considered.
COMMISSIONER OF STATE TAXATION v T & S LIAPIS PTY LTD
[2015] SASCFC 151Full Court: Gray, Sulan and Stanley JJ
GRAY J.
This is an appeal against a decision of a Judge of the Court to allow an appeal from the Minister’s disallowance of an objection to land tax assessments.
Background
In 1966, 5 hectares of land at Rostrevor, South Australia, were purchased by three brothers: Thomas, Sotirios and George Liapis. In the ensuing years, portions of the land were used to grow olives, flowers and strawberries and to raise pigs and chickens. Their customers included the Central Market and Coles.
In 1992, a portion of the land was subdivided into 15 residential allotments. These allotments were sold within two to three years.
In 1994, Thomas and Sotirios Liapis purchased George Liapis’ share in the estate and incorporated T & S Liapis Pty Ltd, the respondent, to hold the land. Thomas Liapis was the majority shareholder and Sotirios was the minority shareholder. Both were directors, along with one of Thomas Liapis’ sons, Socrates Liapis, who had no legal or beneficial ownership of the company. In 2011, another of Thomas Liapis’ sons, Thoma Liapis, was appointed director in place of Sotirios Liapis upon the latter’s death. T & S Liapis held the land on trust for a number of trusts set up to benefit the Liapis family.
By 2001, the remainder of the land had been further subdivided into 19 residential allotments and two further allotments, which totalled approximately 1.5 hectares, on which olive trees were situated. All but one of the residential allotments had been sold by 30 June 2006, which is the last relevant date for tax purposes in the present appeal.[1]
[1] The final residential allotment was sold on 29 October 2007.
In the 2002 financial year, sale proceeds from subdivisional sales totalled $1,328,475.00 and gross profit was $284,262.00. In the 2003 financial year, the sale proceeds from subdivisional sales totalled $1,465,077.00 and gross profit was $150,312.00. In the 2004 financial year, the sale proceeds from subdivisional sales totalled $749,859.00 and gross profit was $193,938.00. In the 2005 financial year, there were no subdivisional sales. In the 2006 financial year, the sale proceeds from subdivisional sales totalled $370,000.00 and gross profit was $186,912.00.
The 1.5 hectare portion of the land on which olive trees were situated was used as an olive grove. In 1996, a sprinkler irrigation system was installed on the olive grove by Thomas Liapis, with assistance from Sotirios Liapis. Cuttings were grafted onto root stocks of old olive trees. Both table and oil producing varieties were grafted. Over time, a number of table variety grafts were replaced by oil producing grafts, as the latter were more profitable. The land was cultivated using a tractor, a plough, a slasher and a boom spray. A motor vehicle was used for transporting olives and olive oil. The vehicles and equipment were owned by T & S Liapis.
Olives were first sold by T & S Liapis in 2001. Customers could pick their own olives from the olive grove for a fee. T & S Liapis also sold olives that it had picked and pickled.
From 2005, T & S Liapis implemented a plan to cut a series of terraces on steep portions of the land and planted seedlings on the terraces in organised rows. Contract crushers were used to extract oil from part of the harvest. The oil was sold under the brand “Liapis Estate” in containers of 500 millilitres to 10 litres. Customers included Greek clubs and persons who heard about the brand by word of mouth or noticed the olive grove when driving past. Over time, a number of regular customers continued to purchase oil from the olive grove.
After 2006, T & S Liapis continued to graft cuttings onto rootstocks of old olive trees and to plant new seedlings. By 2014, T & S Liapis was producing approximately 400 litres of olive oil per annum. The olive grove consisted of approximately 50 trees and 1020 scions.
Between 2005 and 2009, stops were placed on T & S Liapis’ account by the appellant, the Commissioner of State Taxation, as a consequence of purported transfers in the beneficial ownership of the land and of T & S Liapis acquiring other properties in Adelaide. On 11 August 2009, the Commissioner wrote to T & S Liapis advising that a new ownership number had been created for it, under which the tax payable on the Rostrevor land from the 2005 financial year onward would be assessed. The Adelaide properties owned by T & S Liapis would be assessed under a different ownership number and are not relevant to the present appeal. The Commissioner in his letter provided a notice of land tax assessment for the olive grove land for the 2005 to 2009 financial years. The notice provided that the olive grove had a total taxable site value of $1,770,000.00 and that land tax in the amount of $145,740.40 was due.
On 15 October 2009, T & S Liapis wrote to the Treasurer objecting to each of the assessments for the 2005 to 2009 financial years. On 31 August 2012, the Acting Minister for Finance disallowed the objection.
On 4 September 2013, T & S Liapis filed a notice of appeal against the Minister’s determination. On 23 April 2015, a Judge of this Court allowed T & S Liapis’ appeal and set aside the Commissioner’s assessments in respect of the 2006 and 2007 financial years.[2] This decision is the subject of the present appeal.
[2] T & S Liapis Pty Ltd v Commissioner of State Taxation [2015] SASC 63.
The Trial Judge
At trial, T & S Liapis tendered affidavits of Thomas and Thoma Liapis. An expert report of Lisa Rowntree, a horticulturalist and Chief Executive Officer of the Australian Olive Association, was also tendered. Each gave oral evidence.
The Commissioner tendered an affidavit of Lee Jurga, a Senior Taxation Specialist in Revenue SA and an expert report of Charles Drew, an agricultural economist. Both gave oral evidence.
The Judge accepted all witnesses to be honest and reliable. However, the Judge found Thomas Liapis, aged 79 years at the time of trial, to be somewhat unreliable as to the years when certain events occurred and to quantities of olive grafting, planting and oil production over the years. The Judge considered Thoma’s evidence to be more reliable in these respects.
Thoma Liapis gave evidence that records were not kept for individual sales. Revenue was calculated based on total production of olives and oil. Financial statements recorded revenue from primary production of $6,501.00 for the 2003 financial year, $4,752.00 for the 2004 financial year, $4,236.00 for the 2005 financial year, $4,947.00 for the 2006 financial year and $3,470.00 for the 2007 financial year.
Thomas and Thoma Liapis both gave evidence that some of their trees produced no olives but that their best trees produced 60 to 70 kilograms of olives per tree per annum. On average, they expected their trees to produce 40 to 50 kilograms of olives per tree per annum once they reach their maximum capacity.
Thomas Liapis gave evidence that he usually spent 30 to 35 hours per week working at the olive grove. During harvest and pruning time, he would work seven or eight hours per day, seven days per week. Harvest lasted about two months and pruning about six weeks.
Documents provided by Thoma Liapis to T & S Liapis’ accountant disclosed that, in the 2007 financial year, 180 litres of olive oil were sold at an average price of $16.50 per litre and 100 kilograms of pickled olives were sold for $5.00 per kilogram. 50 litres of olive oil were consumed by the Liapis family. The extraction rate from the olives was 23 per cent. Labour and olive crushing expenses were $257.00, approximately $0.20 per kilogram of olives. Glass bottles cost approximately $1.00 per litre. Vehicle expenses were $2,465.00. Rates and taxes were $4,164.00. Depreciation was $1,104.00. Wages to Thomas and Sotirios Liapis were $2,880.00. These figures were said to be indicative of annual expenses throughout the mid-2000s. Disregarding labour by the Liapis family, T & S Liapis made a loss of approximately $3,000.00 to $4,000.00 on the olive grove in the 2006 and 2007 financial years.
Ms Rowntree expressed the opinion that the olive trees were in good condition and should produce high quality extra virgin olive oil. She had tasted olive oil produced in 2013 and assessed it as extra virgin olive oil. She considered that the olive grove was well planned, maintained and tended. She further considered that the horticultural practices in place were good and that the grove was run in business-like manner consistent with the operations of many of the boutique growers in the industry. Ms Rowntree gave evidence about, inter alia, the makeup of the olive growing industry in Australia and expected crop yields. In particular, her evidence was that T & S Liapis’ olive trees should easily produce 50 kilograms of olives per tree per year once they reach their maximum capacity. She considered that 24 per cent represented a reliable average yield.
Mr Drew gave evidence about, inter alia, expected crop yields and the profitability of T & S Liapis’ business. He assumed that the trees would produce an average of 20 kilograms of olives per tree per annum once they reached their maximum capacity. He further assumed an average yield of 20 per cent. The Judge noted that Mr Drew had considerably less experience in the olive industry than Ms Rowntree.
A document produced by the New South Wales Department of Primary Industries in 2007 which was tendered into evidence suggested that average oil production for nine year old olive trees was 40 kilograms per tree per annum.
The Judge made the following findings in respect of the olive grove. As at mid-2005, an average of two scions had been grafted onto 210 rootstocks, giving a figure of 420 scions in total. As at July 2014, there were approximately 1,020 scions grafted onto the rootstocks of 340 old olive trees at an average of three scions per rootstock.
The Judge found that, in 2005, the decision was taken to terrace parts of the land and plant new trees on the terraces. Earthmoving works took place from March 2006. As at mid-2005, T & S Liapis’ intention was to expand the olive grove gradually so that, ultimately, all of the 340 rootstocks would be grafted with an average of three scions.
The Judge found that, in 2005, olive production was approximately 1,000 kilograms. A reasonably conservative prediction of the yield per tree, for trees that had reached their maximum production, was 40 kilograms.
The Judge concluded that, in 2005, it was reasonable to predict that potential annual olive oil production would be 6,000 litres, which would generate revenue of $60,000.00. The prediction was based on the following assumptions: all 340 rootstocks of old trees would be grafted with oil producing varieties of olives; 250 new trees would be planted and all reach maximum production capacity; an extraction rate of 23 per cent; and a conversion rate of 1.1 kilograms to litres. Having regard to the costs as set out above, if labour by the Liapis family was excluded, the Judge concluded that T & S Liapis would make a marginal profit if production doubled and a significant profit on Mr Drew’s assumptions. T & S Liapis would make a substantial profit based on what the Judge found was a reasonable prediction of production.
After making his findings of fact, the Judge considered in detail the relevant regime created by the Land Tax Act 1936 (SA) and the Taxation Administration Act 1996 (SA). The primary production exemption is found in section 5(10)(g) of the Land Tax Act, which relevantly provided:
land used for primary production that is situated within a defined rural area may be wholly exempted from land tax if—
…
(v)the land is owned by a company, or by 2 or more companies, or by a company or companies and 1 or more natural persons, and the main business of each owner is a relevant business; or
(vi)the land is owned by a company and 1 of the following conditions is satisfied:
(A) a natural person owns a majority of the issued shares of the company and is engaged on a substantially full time basis (either on his or her own behalf or as an employee) in a relevant business
Relevant business was defined by section 5(13) as follows:
"relevant business"—a business is a relevant business in relation to land used for primary production that is situated within a defined rural area if—
(a) the business is a business of primary production of the type for which the land is used or a business of processing or marketing primary produce; and
(b) the land or produce of the land is used to a significant extent for the purposes of that business;
Section 2(1) defined “land used for primary production” to mean:
land of not less than 0.8 hectare in area as to which the Commissioner is satisfied that the land is used wholly or mainly for the business of primary production
The Judge considered in detail the authorities addressing the indicia of a business and said:
The question whether an activity amounts to a business or a hobby involves matters of fact and degree and ultimately is a matter of overall impression in which no one factor is determinative or necessarily predominant.
The most important indicia of a business are that the taxpayer has a purpose, expectation and prospect of making a profit. When there are significant start-up costs and/or a significant leadtime is required to reach full production or revenue, a long-term view can be taken and it does not matter that losses will be sustained for a number of years until it is expected that a profit will ultimately be made.
Other indicia are:
1. that there is repetition and continuity to activities rather than an isolated activity;
2. that activities are conducted in an organised, businesslike or systematic manner;
3.the size of the operation, although size is not a determining factor and a business might be quite small in scale;
4.that activities are of the same kind and conducted in the same manner as by recognised businesses.
...
It is common ground on appeal that the term “business of primary production” in the Act has the same meaning as in the Income Tax Assessment Act 1997 (Cth) and as elucidated in TR 97/11.
TR 97/11 includes the following passage:
12.Whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant indicators. Therefore, although it is not possible to lay down any conclusive test of whether a business of primary production is or is not being carried on, the indicators outlined below provide general guidance. This is explained further at paragraph 25 of this Ruling.
13.The courts have held that the following indicators are relevant:
* whether the activity has a significant commercial purpose or character; this indicator comprises many aspects of the other indicators (see paragraphs 28 to 38);
* whether the taxpayer has more than just an intention to engage in business (see paragraphs 39 to 46);
* whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity (see paragraphs 47 to 54);
* whether there is repetition and regularity of the activity (see paragraphs 55 to 62);
* whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business (see paragraphs 63 to 67);
* whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit (see paragraphs 68 to 76);
* the size, scale and permanency of the activity (see paragraphs 77 to 85); and
* whether the activity is better described as a hobby, a form of recreation or a sporting activity (see paragraphs 86 to 93).
[Footnotes omitted.]
The Judge rejected the Commissioner’s contention that “profit” meant “economic profit”, namely took account of the cost of internal labour or capital. The Judge concluded that T & S Liapis was conducting a business of primary production. In particular, the Judge concluded that: there was repetition and continuity to the growing and production activities; the operations were conducted in a businesslike or systematic manner; the size of the operation was larger than would be expected of a hobby or past time; the operation was of the same kind and conducted in the same manner as boutique olive producers; and that T & S Liapis was engaged in a continuing expansion which, in 2005 and 2006, meant it had a reasonable prospect of ultimately making a profit. In making these findings, the Judge had regard to potential limitations on T & S Liapis’ capacity to expand production, including the need to engage external labour as production increased.
The Judge concluded that Thomas Liapis was engaged on a substantially full time basis:
The question whether an owner is engaged on a substantially fulltime basis ultimately involves questions of fact and degree and is a matter of overall impression in a similar manner to the question whether a person is conducting a business. It is relevant to take into account the absolute time devoted by the owner to the business in question as well as the relative time devoted to that business compared to time devoted to any other business or income producing activity undertaken by the owner. On one hand, the question is not how much time would be devoted to working in the business if the person worked efficiently but how much time is actually devoted working in the business by the person working at his or her own pace. On the other hand, time is only counted when the person is actually working in the business. The reference to “substantially” entails that the person does not need to work full time in the business but it is sufficient if the person is engaged on a substantially full-time basis in the business.
Applying this approach, in 2005 and 2006 Thomas was engaged on a substantially fulltime basis in the business of primary production. He was not devoting his time to any other business or income producing activity. For at least four months of the year during harvest, pruning and planting time, he was working hard more than 40 hours per week. During the balance of the year, he was working, albeit as a leisurely pace, at least 30 or 35 hours per week and, taking into account his age in assessing his efficiency, he was engaged on a substantially fulltime basis in the business of primary production throughout the year.
...
... The fact that the words in question are placed in parentheses suggests that they are merely explanatory. If those words did not appear, the clause might be read as requiring that the person be engaged as an employee, such that if he or she worked in his or her capacity as owner or as a so-called independent contractor, the test would not be met. The words in parentheses proceed on the basis that there is a simple dichotomy when work is undertaken by an owner of a company and such work is always undertaken either on the person’s own behalf (capacity as owner or as independent contractor) or as an employee. The words do not contemplate that there is some third capacity in which a person might undertake work for the company which does not qualify for the purpose of engagement on a substantially fulltime basis. Nor would there be any rationale for such a distinction.
Thomas was an employee of Liapis as at 30 June 2005 and 30 June 2006 because he was paid wages for each of those financial years. While his wages were very modest, there is no reason to doubt that he was an employee. It does not matter whether the work he undertook is regarded as having been undertaken by him in his capacity as majority owner of the company or as an employee. All of the work undertaken by Thomas in those years was undertaken either on his own behalf or as an employee.
As a consequence, the Judge concluded that T & S Liapis was entitled to the primary producer exemption under section 5(10)(g)(vi) of the Land Tax Act.
For completeness, the Judge considered whether T & S Liapis was entitled to the primary producer exemption under section 5(10)(g)(v) of the Land Tax Act. The Judge said:
As at 30 June 2005 and 30 June 2006, Liapis was engaged in two businesses: the olive business and the residential land subdivision business. The issue is which was its main business as at those dates.
There is no doubt that as at 30 June 2002 and 30 June 2003, residential land subdivision was Liapis’ main business. In the year ended 30 June 2002, that business produced revenue of $1,328,475, gross profit of $284,262 and had retained land stock of $2,235,618 at cost. In the year ended 30 June 2003, that business produced revenue of $1,465,077, gross profit of $150,312 and had retained land stock of $920,853 at cost.
By 30 June 2004, the position was not so clear. Liapis retained only two residential allotments (Lots 16 and 36) at cost of $364,969. Those allotments were difficult to sell because of easements and were still unsold a year later on 30 June 2005.
The position as at 30 June 2005 was that Liapis’ only revenue derived during the year came from the olive business, albeit that revenue was only $4,236 Thoma gave evidence that at this point Liapis was no longer proactively trying to sell its last two residential allotments. The residential subdivision business was descending and the last two allotments represented its tail. The olive business was ascending and the vast majority of Liapis’ efforts was devoted to that business and building it up. Based on the Valuer-General’s valuations, the value of assets deployed in the residential subdivision business was $640,000 and the value of assets deployed in the olive business was $930,000. On the other hand, if and when the last two residential allotments were sold, they would generate revenue (using the Value-General’s valuations) of $640,000 and a gross profit of $273,000.
In these circumstances, comparing the two businesses as at 30 June 2005 is like comparing chalk and cheese. Given the different directions in which different criteria point, it is difficult to determine which was Liapis’ “main” business. I am not persuaded either way that the olive business or the subdivision business was Liapis’ main business as at 30 June 2005. The onus lies on the appellant on an appeal under section 92 of the Taxation Administration Act. It follows that Liapis has failed to demonstrate that the olive grove was its main business on that date.
The position as at 30 June 2006 was that Liapis now had only a single residential allotment being allotment 36 at cost of $220,000. Based on the Valuer-General’s valuations, the value of assets deployed in the residential subdivision business was $335,000 and the value of assets deployed in the olive business was $1,005,000. On the other hand, if and when the last residential allotment was sold, it would generate revenue of $335,000 and a gross profit of $113,000.
By 30 June 2006, given the marked proportion of assets deployed in the olive business compared to the residential subdivision business, the vast proportion of effort being expended in the olive business compared to the residential subdivision business, the future potential of the olive business and the fact that it was ascending while the residential subdivision business was almost wound up, the olive business was now Liapis’ main business.
The Appeal
On the appeal, three issues arose with respect to section 5(10)(g). The first was whether T & S Liapis’ olive growing and processing operations could be characterised as a business. The second was whether Thomas Liapis, as the owner of the majority of the issued shares in T & S Liapis, satisfied the requirement in section 5(10)(g)(vi)(A) that he “is engaged on a substantially full time basis (either on his or her own behalf or as an employee) in a relevant business”. The third was whether the olive growing operation could be described as the main business for the purpose of section 5(10)(g)(v) for each of the 2006 and 2007 financial years.
The Commissioner submitted that the Judge erred in finding that T & S Liapis had a reasonable prospect of ultimately making a profit. It was submitted that the Judge erred in finding, and gave inadequate reasons for finding, that T & S Liapis’ operations were conducted in an organised, business-like or systematic manner. It was submitted that the Judge erred in finding that the olive grove was larger than would be expected of a hobby or past time. It was further submitted that the Judge erred in his construction of section 5(10)(g)(vi)(A) of the Land Tax Act and in concluding that Thomas Liapis was engaged in the business on a substantially full time basis either on his own behalf or as an employee. In respect of the 2007 financial year, it was submitted that the Judge erred in finding that the olive grove was T & S Liapis’ main business.
T & S Liapis submitted that the question of whether its olive growing and processing operations fell within the primary producer exemption was one of fact and degree. It was submitted that the Judge’s findings were open on the evidence, which he properly considered. By its notice of alternative contention, T & S Liapis submitted that the Judge should have found that it discharged its onus of proving that the olive grove was its main business in the 2006 financial year.
The Judge correctly identified that the question of whether an activity amounts to a business is a question of fact and degree.[3] Relevant factors include: a purpose of making a profit; repetition and continuity; the activity being conducted in an organised, businesslike or systematic manner; the size of the operation; and the activity being conducted in the same manner as recognised businesses.[4] It is to be noted that the authorities cited by the Judge do not support the proposition that the “prospect” of making a profit is an indicia of a business. On the appeal, this Court was not taken to any other authorities that supported the proposition. It may be observed that a prospect of making a profit is an indicia of a good or successful business, rather than an indica of a business simpliciter.
[3] See Ericksen v. Last (1881) 8 Q.B. 414; Martin v Federal Commissioner of Taxation (1953) 90 CLR 470; Ferguson v Federal Commissioner of Taxation (1979) 37 FLR 310; Inglis v Federal Commissioner of Taxation (1979) 10 ATR 493; Evans v Federal Commissioner of Taxation (1989) 20 ATR 922.
[4] See Ericksen v. Last (1881) 8 Q.B. 414; Martin v Federal Commissioner of Taxation (1953) 90 CLR 470; Ferguson v Federal Commissioner of Taxation (1979) 37 FLR 310; Inglis v Federal Commissioner of Taxation (1979) 10 ATR 493; Evans v Federal Commissioner of Taxation (1989) 20 ATR 922; Hope v Bathurst City Council (1980) 144 CLR 1; Tweddle v Federal Commissioner of Taxation (1942) 180 CLR 1; Newton v Pyke (1908) 25 TLR 127.
In my view, the criticisms of the Judge’s approach to determining whether T & S Liapis was conducting the olive grove as a business amount to a series of minor criticisms of calculations and projections and are of little moment. The Judge undertook a detailed review of the evidence and made considered factual findings which were plainly open on the evidence. Insofar as the Judge prepared hypothetical calculations in his reasons when considering the prospect of the olive grove becoming profitable, these no more than illustrated the possible projections for the business. The Judge’s projections as to potential revenue and production were expressly qualified and based on assumptions which were open on the evidence. The question of whether the olive grove was being run as a business is not one of mathematics. It is a question of fact and degree based on the evidence. The Judge’s calculations did not take on undue importance in his reasoning.
The business may not have been particularly successful at the relevant times and may not have observed best practice with respect to bookkeeping and administration. However, in the circumstances, this is unsurprising. The evidence established that Thomas Liapis was a good horticulturalist. He is an elderly man. English is not his first language. He is not a trained businessperson or bookkeeper. His son, Thoma, was not involved with the olive grove on a full time basis and had other business interests. It may be expected that there would be shortcomings with respect to record keeping and administration. It may also be expected that some expansion or development plans were not carried out in accordance with strict timetables. However, the evidence as set out above clearly established that the olive grove was being run as a business. Importantly, the evidence disclosed that T & S Liapis had at the relevant time an intention to expand the olive grove to its full capacity. It had undertaken significant and costly earth moving works to enable expansion of the olive grove, which would have been totally unnecessary and wasteful if the grove was being run as anything other than a business. Systematic grafting and planting was taking place with a purpose of increasing output and revenue. Particular attention had been paid to grafting more profitable oil producing varieties of olives, which is indicative of an intention to run the grove to make a profit. Oil and olives were being sold to the public. Records were kept, albeit imperfectly. Sound horticultural practices were in place, which the only expert witness with meaningful knowledge of the industry described as being business-like and consistent with the practices of recognised industry participants. The Judge’s detailed findings of fact and thorough consideration of the relevant authorities provide sufficient reasons for supporting his conclusions.
Having determined that the olive growing and processing operations were conducted as a business, it remains to be considered whether Thomas Liapis was engaged on a substantially “full time basis (either on his or her own behalf or as an employee)” in the business. The evidence clearly established that Thomas Liapis was engaged on the olive grove on a full time basis. This was conceded on the appeal. In my view, the Judge was correct in his construction of section 5(10)(vi)(A). The words “either on his or her own behalf or as an employee” are enclosed in parentheses. They are, by reference to ordinary grammatical principles, parenthetical and thereby intended to clarify, rather than substantially modify or add an additional requirement to, the words outside of parentheses. The words clarify that the term “engaged” should be given a broader construction than that which it might otherwise be given, namely that the capacity in which a person is engaged is of no consequence, so long as the person is engaged on a full time basis. This makes it unnecessary to consider whether the Judge was correct to conclude that Thomas Liapis was engaged as an employee.
The foregoing conclusions make it unnecessary to consider whether the olive growing and processing operations were T & S Liapis’ main business. However, I propose to address the point for completeness. It is to be recalled that the land was originally used for primary production and held on trust for the benefit of the Liapis family. Parts of the land were subsequently subdivided and sold. It would appear at least arguable that the subdivisions were an instance of a trustee disposing of trust property to benefit the beneficiaries rather than a business of subdivision. However, it was accepted by T & S Liapis before the Judge and on the appeal that its subdivision activities were a business. Even so, it is apparent that the business was being wound down in 2004. By the end of the 2004 financial year, there were only two residential lots remaining to be sold and these lots were difficult to sell due to restrictive easements over the titles. T & S Liapis ceased to actively attempt to sell those lots. The focus of the company was on developing the olive grove, which was the only business to generate revenue in the 2005 financial year. Steps were being taken to expand capacity, in contrast to inactivity with respect to selling off the remaining lots. The evidence discloses that the remaining lots were the remnants of the subdivision business, such as it was. Although the lots may have been capable of generating, and ultimately generated, more revenue than the olive grove when sold, the company was not actively engaged in the business of developing or selling them, in contrast to its activity developing the olive grove. The Judge noted that the assets and land deployed in support of the olive grove were greater than those of the subdivision business.
In my view, the Judge when assessing the position in the 2006 financial year did not have sufficient regard to the level of activity in each business. The evidence clearly disclosed that the subdivision business had effectively concluded. All that remained was to dispose of two remaining lots which had proven difficult to sell. Selling those lots was not a priority of T & S Liapis, which had shifted its focus and assets to the olive grove. Although the potential proceeds from the sale of the remaining lots were greater than the revenue which would be generated by the olive grove, T & S Liapis was no longer engaged in a meaningful sense in the business of subdivision. That business had concluded. In this respect, the lull in activity is of a different nature to a seasonal or periodic lull or quiet period – the drop off in activity was solely attributable to the business having effectively concluded. The Judge was correct to conclude that the olive grove was the company’s main business in the 2007 financial year. The Judge was wrong to conclude otherwise in respect of the 2006 financial year.
Conclusion
I would dismiss the appeal.
SULAN J: I agree that the appeal should be dismissed for the reasons given by Gray J.
I agree that the olive growing and processing operations could be characterised as a business, and I agree that Thomas Liapis was, at the relevant time, engaged substantially full time in the business.
I agree with Stanley J that it is unnecessary to decide the question of whether the Judge was correct in characterising the olive grove as being the company’s main business in 2007 and declining to so conclude for the 2006 financial year.
STANLEY J:
I would dismiss the appeal. I agree for the reasons given by Gray J that the judge was correct in concluding that the respondent was conducting a business of primary production and that Thomas Liapis was engaged in the business on a substantially full time basis. In my view the judge was correct in the construction he gave s 5(10)(vi)(A). Accordingly, there was no error in the judge’s conclusion that the respondent was entitled to the primary producer exemption under s 5(10)(g)(vi). This makes it unnecessary to decide whether the judge was correct in finding the olive growing and processing operation was not the respondent’s main business for the purpose of attracting the primary producer exemption under s 5(10)(g)(v) in the 05/06 year but was in the 06/07 year.
9
1