Kennedy and Commissioner of Taxation

[2005] AATA 329

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2005] AATA 329

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No NT2004/14

TAXATION APPEALS DIVISION		)
Re		DAVID KENNEDY

Applicant

And COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal The Hon R N J Purvis Q.C., Deputy President

Date13 April 2005

PlaceSydney

Decision The decision under review is affirmed.

..............................................

R N J Purvis Q.C.
  Deputy President

CATCHWORDS

TAXATION – whether Applicant carrying on business – intention to carry on business – nature and extent of Applicant’s activity – whether Applicant established a profit-making structure – indicia of financial success – general impression of Applicant’s activity – whether discretion should be exercised – whether expenses incurred were of a capital nature – whether expenses claimed by Applicant are deductible – decision affirmed

Income Tax Assessment Act 1997

Goodman Fielder Wadie Limited v Federal Commissioner of Taxation 91 ATC 4438

Martin v FC of T (1953) 90 CLR 470

Stone v FC of T 2003 ATC 4584

Re Hadlow and Federal Commissioner of Taxation 2002 ATC 2294

Cielkan v CIR (1984) 1 NZLR 440

Ferguson v FC of T 79 ATC 4261  

Case L28 79 ATC 138

Hart v FC of T 2002 ATC 5193; 2003 ATC 4665

Cress v FC of T 2001 ATC 2021

FC of T v Eskandari (2004) FCA 8   

REASONS FOR DECISION

13 April 2005            The Hon R N J Purvis Q.C., Deputy President

application

1.      This is an application by Mr David Kennedy (“the Applicant”) made on 10 February 2004 seeking review of a decision of a delegate of the Commissioner of Taxation (“the Respondent”) dated 11 December 2003 disallowing the Applicant’s objection against an amended assessment for the year ended 30 June 2001.

2.      The amended notice of assessment (T6/16) deferred in accordance with Division 35 of the Income Tax Assessment Act 1997 (ITAA 97), a loss of $40,125 arising from the Applicant’s documentary film production activity.  In the relevant year income of $730 was said to have been derived from the Applicant’s documentary production activity and expenses of $40,855 said to have been incurred.  On 30 June 2003, the Applicant objected against this assessment claiming that he considered himself to be carrying on a business.  The objection was disallowed in full.

issues for determination

3.      The issues arising for determination in this application are:

(i)whether the Applicant was, at the relevant time, carrying on a business of documentary film production; and if so

(ii) whether the discretion available to the Respondent, and now the Tribunal, conferred by section 35-55 of the ITAA 97 should be exercised in respect of the Applicant’s film production activity; and

(iii) whether or not the expenses claimed by the Applicant as incurred in the carrying on of the alleged business were so incurred, were an outgoing of capital or of a capital nature or were of a private and domestic nature.

4. With reference to issues (i) and (ii) above, the Respondent maintains that for the year ended 30 June 2001 the expenses that related to the Applicant’s documentary film production activity were not and are not deductible under section 8-1 (1)(b) of the ITAA 97 as a loss or outgoing necessarily incurred in carrying on a business. And further, if a business was being carried on, the discretion available pursuant to section 35-55 (1)(b) of ITAA 97 should not be exercised so as to allow the inclusion of losses from such activity in the calculation of taxable income for the year ended 30 June 2001.

hearing

5.      At the hearing of the application the Applicant was self-represented.  The Respondent was represented by Mr Damien Ong, a solicitor instructed by the Australian Taxation Office Legal Services.

6. The documents lodged by the Respondent pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 (“T-documents”) were admitted into evidence and marked T1 to T57. Written material tendered on behalf of the parties, was also admitted into evidence and marked accordingly:

Exhibit No	Description	Date
A	Applicant’s letter together with bundle of documents identified as A1 to A13	24 September 2004
B	Bundle of documents provided by the Applicant
C	Applicant’s e-mail with attachments	4 August 2004
D	E-mail with copies of extracts from books by David Day and Robert Stinnett	13 August 2004
E	E-mail described as resumes of evidence to be given by a number of witnesses and attachments to various letters and three page computer print-out “How the Australian Film Industry lost the plot”	13 August 2004
F	E-mail and copy of article from Geraldton Guardian	13 August 2004
G	E-mail and copy of newspaper article titled “Labor’s new world is only for the brave”	13 August 2004
H	Computer print-out referrable to Koprivshtitza/Bulgaria
J	E-mail from Prof Horsfield to Applicant	10 November 2004
K	Notice of Batavia Lecture Series, W.A. Maritime Museum “In Search of HMAS Sydney and HSK Kormoran”	19 November 2004
L	Video “Britt, Aces & Kings of the Turf”
M	Video “Britt and the Track, Comparisons”
N	Video “Britt in India”
O	Video “Visa/Visum”
P	Video “Black Raider”
Q	Letter from Prof Bruce Horsfield to Applicant	26 November 2002
R	Statutory Declaration by Prof Horsfield	13 September 2004
S	Two copies of a letter from Halstead Press to Applicant one unsigned the other signed with notations by Applicant	17 February 2005
T	Agreement between Applicant and Prof Horsfield as to sharing net income re “Black Raider”	11 January 2005
U	Computer print-outs “Banker could pay for dream”, “Brits laud film we didn’t want”, “From rejection to  gong, just like a movie”, “Australian pairs long walk to fame”
V	Article by J King in Sydney Morning Herald	23 February 2005
W	Undated letter Dr M McCarthy, W.A. Maritime Museum
X	Statutory declaration Dr Trevor John McArthur	7 September 2004
Y	Extract video of various projects as per exhibits L to P
Z	Undated statement Ray Henman
AA	Statement Mark Ryan (first sentence and last paragraph struck out)	15 September 2004
1	Computer print-out of ASIC	8 March 2005

7.      Oral evidence was given by the Applicant, Mr Edgar Britt, Mr Stefan Kozuharov, Professor Bruce Horsfield, Dr Michael McCarthy, Dr John McArthur and Mr Ray Henman upon which they were each cross-examined.

relevant legislation

8. The relevant sections of the ITAA 97 in this matter:

“8-1 General deductions

(1) You can deduct from you assessable income any loss or outgoing to the extent that:

…

(b) it is necessarily incurred in carrying on a “business for the purpose of gaining or producing your assessable income.

…

35-55 Commissioner’s discretion

(1) The Commissioner may decide that the rule in section 35-10 does not apply to a “business activity for one or more income years if the Commissioner is satisfied that it would be unreasonable to apply that rule because:

(a) the business activity was or will be affected in that or those income years by special circumstances outside the control of the operators of the business activity, including drought, flood, bushfire or some other natural disaster; or

(b) the business activity has started to be carried on and; for that or those income years:

(i) because of its nature, it has not yet satisfied or will not satisfy one of the tests set out in  section 35-30, 35-35, 35-40 or 35-45; and

(ii) there is an objective expectation, based on evidence from independent sources (where available) that, within a period that is commercially viable for the industry concerned, the activity will either meet one of those tests or will produce assessable income for an income year greater than the deductions attributable to it for that year (apart from the operation of subsection 35-10(2)).”

factors relevant to carrying on of a business

9.      Consequent upon statements made in various decisions of Courts and this Tribunal, the following factors to be considered and questions to be asked can be identified as being relevant to, but no one solely determinative of, a resolution of the issue as to whether the Applicant’s documentary film production activity (“the activity”) may be said to entail the carrying on or carrying out of a business for income tax purposes.

i.Was there an intention to carry on a business (Goodman Fielder Wadie Limited v Federal Commissioner of Taxation 91 ATC 4438 at 4446)?

·     What is the nature and extent of the activity (Martin v FCFT (1953) 90 CLR 470 at 474)?

·     What was the purpose of the Applicant engaging in the activity (Martin (supra) 474)?

·     Did the activity have a purpose of profit making (Stone v FCFT 2003 ATC 4584 at paragraph 74)?

ii.Had the activity reached a stage where it was able to be characterised as a business (Re Hadlow and Federal Commissioner of Taxation 2002 ATC 2294; Goodman Fielder Wadie Limited (supra) 4447)?

iii.Was the activity engaged in by the Applicant of a provisional kind only (Goodman Fielder Wadie Limited (supra) 4448)?

iv.Had the Applicant established a profit making structure and begun ordinary business operations (Cielkan v CIR (1984) 1 NZLR 440 at 446)?

·Was there a system in the activity coupled with repetition and continuity (Stone (supra) paragraph 74)?

·Was the activity carried on in a businesslike way and in accordance with commercial principles (Stone (supra) at paragraph 74)?

·Is there sufficient commercial flavour attaching to the Applicant’s activities (Ferguson v FC OF T 79 ATC 4261. Hadlow (supra) 2294)?

v.Is there indicia of financial success (Case L28 79 ATC 138 at 142)?

·     Has the Applicant demonstrated a likelihood of making a profit in future years (Hart v FC of T 2002 ATC 5193; 2003 ATC 4665; Cress v FC of T 2001 ATC 2021)?

vi.Was the activity merely preparatory and preliminary (Re Hadlow (supra) 2294)?

vii.What is the general impression gained of the Applicant’s activity (Martin (supra) at 474)?

10.     The judicial and Tribunal statements of indicia relevant to reaching a decision as to the carrying on or carrying out of a business for income tax purposes have further been identified in Taxation Ruling TR 2005/1.  The indicia are summarised in the Ruling as:

“10…

(a) whether the activity has a significant commercial purpose or character; this indicator comprises many aspects of the other indicators;

(b)  whether the taxpayer has more than just an intention to engage in business;

(c)whether the taxpayer has a purpose of profit as well as a prospect of profit from the activity;

(d)whether there is repetition and regularity of the activity;

(e)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;

(f)whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit;

(g)the size, scale and permanency of the activity; and

(h) whether the activity is better described as a hobby, a form of recreation or a sporting activity.”

11.     Specifically with reference to the existence or otherwise of a profit motive, the Ruling provides that the taxpayer must have had an intention and expectation, on objective grounds, that the relevant activity or activities would eventually become profitable.  With reference to repetition and regularity the Ruling specifically provides that the taxpayer should regularly participate in activities designed to promote the work or build a reputation as, in the subject case, a documentary video maker.  With specific reference to organisation the Ruling provides that there needs to be evidence of systematic and researched attempts to bring the end result of the activity to a suitable market and there be evidence of the use of traditional business structures in aid of carrying on the business.  Paragraph 45 of the Ruling stipulates that “what distinguishes the professional from the hobbyist is an intention (objectively determined), to carry on as a business that which others undertake merely for personal enjoyment, coupled with activities which implement the taxpayer’s intention to carry on a business”.  Further indicators of a taxpayer engaging only in the pursuit of a hobby or recreation include, the taxpayer not intending to make a profit from the activity, the dominant motive being personal pleasure rather than the desire to commercially exploit an artistic skill and the absence of a plan in place to demonstrate how the taxpayer intends to make a profit from the activity (Ruling 47).  In discussing the significance of the profit motive the Ruling notes, at paragraph 63, that:

‘…Especially in a high risk industry like art, often the profit-motive indicator will be demonstrated more by the taxpayer’s genuine attempts to make the arts activity profitable, rather than consistent actual profits.”

Further, “What distinguishes the vigorous pursuit of a hobby from the carrying on of a business will often be the absence of an intention to make a profit” (paragraph 67).

12.     Whilst the Ruling is of recent date, it does conveniently detail the interpretative factors.

factual situation

-  generally

13.     The Applicant is a professional journalist presently employed as a sub-editor by a leading Australian newspaper where he has been retained for the last 16 years.  His work entails writing occasional feature stories, reviewing the writings of others, checking stories for accuracy and “cutting to size”.  Prior to his present position the Applicant was engaged both in Australia and overseas.  He spent some time with Radio Free Europe at the news desk collating news stories from around the world considered appropriate for transmission to Eastern Europe.  Writing stories and documentaries, he has had extensive experience in the print media.

-  making the videos

14.     It was whilst he was doing his cadetship with the Sydney Morning Herald that the Applicant first came to know of a Mr Edgar Britt.  Mr Britt had been a very successful jockey riding horses in Australia, India and England.  Later he was a sports writer and commentator.  In later years, after returning from his overseas positions, the Applicant again came upon Mr Britt in his local shopping area.  In 1993 he arranged to interview Mr Britt with the intention of writing a story about him for publication in his employer’s newspaper.  It was at this time that the Applicant became aware of the existence of extensive historical film material then stored by Mr Britt in his garage.

15.     The film footage extended back to the 1930s and some of it was not in good condition.  The Applicant thought that there existed “a great story to tell in Britt’s story”.  He concluded that the task was not one for a newspaper.  Video was not in extensive use at the time and few journalists had audio/video experience.  The Applicant had some such experience.  After discussing the subject with Mr Britt and believing that something had to be done with the film  before it deteriorated further, it was agreed that the old footage were it was in usable condition, would be transferred onto video and a documentary would be made of Mr Britt, his racing experiences and relevant races.  The concept of turning some of the film into video enthused Mr Britt, as he thought it would be of interest to the racing public.  The Applicant did indicate to him, according to Mr Britt, that “there could be some money in it”. 

16.     It was necessary to have a camera man.  The Applicant knew a Mr Henman who had worked with the BBC and, after further discussion, it was arranged between Mr Britt, Mr Henman and the Applicant that they would proceed to make a film. Mr Britt agreed to contribute $10,000 to fund the cost of transferring the footage onto video.  After repayment of the $10,000 out of any income from sales, the balance remaining, if any, was to be divided equally between the three participants (T52/577).  Neither the cinematographer, Mr Henman or the Applicant contributed any cash amount.  They did contribute their expertise.  A bank account in the names of Mr Britt and the Applicant was opened.

17.     The video film entitled “Britt: Aces and Kings of the Turf” was finished in early 1996.  The Applicant made the existence of the film and its preparation known to the Australian Jockey’s Club, Channel Nine and some newspapers.  He distributed the completed video to a local store, the TAB and a library.  He offered it to the Victoria Racing Museum and the Victorian Racing Hall of Fame.  He estimates that “several hundred” of the video were sold at $35 per copy.  He did approach some large companies, such as Qantas and Schweppes, seeking promotional support but to no avail.

18.     When asked in cross-examination whether the endeavour had been worth the effort the Applicant said he gave it his “best shot”, it “was a good story, sold for a time, picked up over the years”.  He was “glad he had made it but disappointed that others picked up and made more”.  The latter reference was to an alleged unauthorised and unacknowledged use of some of the video in a lengthy production by a television channel.

19.     Mr Britt recovered about $1000, losing $9000 “out of the film”.  Neither the Applicant nor Mr Britt knew how many sales were in fact made.

20.     In about late 1994 the Applicant started to read books and view video footage relating to the activities of German merchant raiders operating in the Indian Ocean during the early years of World War 2.  He obtained film from Germany.  The subject attracted his attention.  He was not, he said, at the time looking to make a documentary.  As the “Britt” activity drew to a close he gave more attention to the subject of the raiders, including the loss of the HMAS Sydney with its complement of 645 men.  He approached the ABC seeking to enlist their interest; “you just hope when you have a good story that it is going to be picked up”.  But to no avail.

21.     The video film was to be known as “Black Raiders”.  “Signals were sent out” and submitted “as any journalist would” to editors.  Some articles written by the Applicant were published in his employer’s newspaper relating to the raiders, the information, as the Applicant put it, coming from “material unleashed” during his work on the video.  But there was not any evidence tendered before the Tribunal nor any mention in the published articles of an upcoming documentary.  The Applicant said, in this regard, “I am a journalist who has to act ethically and commercially.  I did not suppress information and acted for the common good”.  In 1995 he released material to a New Zealand production company and was paid $2050, receipt of which sum was not included in his income tax return for that year.

22.     Seemingly activity continued over the years on “Black Raiders” and, according to the Applicant, editing commenced in December 2004.  Delays in the completion of the video were attributed, inter alia, to a Parliamentary Enquiry into the loss of HMAS Sydney at which the Applicant gave evidence.  He says that generally completion has been delayed by situations beyond his control.   He has interviewed he says “hundreds of people over the years”.  It is noted, by the Tribunal, that no issue is taken as to lead time sometimes taken in the putting together of a film.  Instances were in evidence of some successful films having taken many years to produce.

23.     Whilst working with Radio Free Europe the Applicant became interested in Eastern Block countries including Bulgaria.  In due course he married a Bulgarian lady.  At some time the idea occurred to him that he might put together a video partly set in Bulgaria but also in the United States of America and Australia.  “The concept” he said “entered my mind in 1997 or 1998...  It would be a very good subject to make a video. Bulgaria 10 years after the Wall fell.  Difficulty in getting a visa to the U.S.  to attend a friends wedding…  The woman later becoming my wife. The idea for making a video built up…it was obvious to me that there was a story of highly educated people having difficulty in leaving…I felt it would a good story”.

24.     He was to entitle this video “Visa/Visum”.

25.     The events shown in the “Visa” Video are various.  There are location scenes in Bulgaria of the country side, of Sofia, of social events, of dancing and life generally in that country.  It comprises a tourist’s portrayal of another culture with some identification of family and friends interspersed with footage taken professionally, not by the Applicant, and incorporated into the Applicant’s video.  There is video taken in the United States and then Australia, the intent, according to the Applicant, being to portray conditions in each country and illustrate the difficulties in moving from the one to the other and the economic and cultural differences to be confronted.  He expected the video to be finished late in 2004 or early 2005. This expectation has not eventuated. The filming had extended over five or six years, the “story developing as we went along”.

-  the videos as representations of historical events

26.     The Tribunal was shown each of the three videos, at the stage they were then in, as well as what the Applicant described as a trailer.  The role of the Applicant in the “Britts” video was largely that of a commentator and collector of film.  It was technically well put together and generally traversed Mr Britt’s career in four countries.

27.     The “Visa” video is of a very different nature.  Whilst incorporating segments of film produced by professionals, the remainder is as a travel log displaying places visited; churches and galleries, singing and social events all indicative of live in Bulgaria at the time. It is not for the Tribunal to comment upon its photographic and technical qualities but suffice to say, the film is generally of interest, subject wise, and is not affected by apparent defects in production, even be it on occasions lengthy periods of time are spent with the one subject.  There is an absence of introductory material and a lack of explanatory comment or the associating of segments the one with the other.  There is extensive footage of the Applicant’s own wedding and of interviews with the Applicant’s wife.  A Bulgarian witness and friend of the Applicant gave evidence to the effect, as one might expect that the Applicant “worked on the film like a journalist”.

28.     The video “Black Raiders” is largely comprised of recorded interviews with people including German ex-sailors who had a connection with the events of the time.  As an historical record the video would be valuable.  Some interviews could not now be repeated.  Again there is a lack of explanation as to the significance to be attached to various segments.  It is apparent from his oral evidence that the Applicant derived much pleasure and satisfaction from researching events and interviewing the people.

29.       The Applicant maintains that a “home movie” would not have “the same journalistic background. I use 40 years in journalism” he said “to produce, narrate and edit the videos”.  Most of the expenditure claimed by the Applicant to be business related involved, he said the cost of interviews and accompanying travel.

30.     In answer to questions put to him in June 2002 (T13/109-113), the Applicant stated that he expected to make a profit from the sale of the videos in 2002/2003 with the “main profit” in 2003/2004 and 2004/2005.  As at the time of the hearing of this application neither “Black Raiders” nor “Visa” had been finished and needless to say not one video had been sold.

-  collaboration with others

31.     The Applicant displayed a genuine interest in and a concomitant desire to obtain knowledge about the subjects of his video productions.  He involved himself in aid of writing articles for his newspaper, as well as the video, in a study of the historical event of the loss of HMAS Sydney.  He shared his knowledge with Professor Horsfield, Professor of Communications at the University of Southern Queensland.  Of recent date the two have resolved to combine their disparate interests in order to collaborate and work together to produce material referrable to the German raiders and the loss of HMAS Sydney.  They are “to cooperate as producers in a TV documentary on the loss of HMAS Sydney”, the Applicant having “the main responsibility for editorial and editing work”.  Professor Horsfield is to have “a leading industry outlet role”.

32.     Professor Horsfield spoke of the Applicant’s “strong motivation” and agreed that this did not necessarily make a product marketable.

33.     The Applicant and Professor Horsfield have, in January 2005, agreed to “split” any income from their future collaborative endeavours but no arrangement has been finalised as to the incurring of expenses. In the past there has been no such agreement as to income or expenses. Professor Horsfield appreciated the knowledge of the Applicant referrable to the subject as well as his “passion to make something”.  Their current relationship and joint venture is the result of what Professor Horsfield described as “the evolution of matters”.

34.     The Applicant was introduced to Dr Michael McCarthy, Curator of Maritime Archaeology at the Western Australian Maritime Museum, as a journalist with a leading Australian newspaper who “from the beginning wanted to do a documentary on German raiders”.  The Applicant was, so Dr McCarthy said, at the time “writing prolifically for his newspaper on this subject”.  Dr McCarthy referred the Applicant to other interested persons and made information held on his files available to him. He noted the Applicant’s approach to the subject as being that of a journalist “with various theories”.  He said that “by virtue of [the Applicant’s] journalistic skills and by his copious and exhaustive research that the project was achievable and would represent a worthy addition to the body of knowledge on the raiders” (Exhibit W).  Dr McCarthy has not seen any part of the Applicant’s video and is not in a position to assess its value, does not know how much has been spent so far on the video or the extent of the Applicant’s participation in its production.

35.     Dr Trevor John McArthur has been involved in the processing of documentation on the loss of HMAS Sydney for the Western Australian Maritime Museum.  He was approached by the Applicant who conducted himself in “a professional and commercial businesslike manner with enthusiasm and motivation”.  Dr McArthur made material available to the Applicant who has “established the only data base of its kind that deals with German raiders…in short it is unique” (Exhibit X).  Dr McArthur continued by stating that the Applicant “has tape records of German naval officers who have since passed on”.

36.     Dr McArthur has not as yet seen the Applicant’s video.  Referring to the possible discovery of the location of HMAS Sydney, Dr McArthur said that “hopefully the stage has been built up where discovery is imminent. It will be a climax of research. Reputations will rise and fall on when and where the ships are found.  There is something to be said for hanging on and not publish or screen too soon in case you are proved wrong”.

37.     This evidence of Dr McArthur is hardly the indicia of a commercial enterprise.

“business activities”

38.     The Applicant has, in connection with the making of the videos, used the name “Uggles” and “Uggles Productions”. He sought to rely upon the use of such names in connection with applications to Government Departments and otherwise as confirmatory of his carrying on his video activities as a business.  However, neither name is registered with the Australian Securities and Investments Commission as a registered business or a business name.

39.     The Applicant said that his “business activities” started in 1993/1994.  He had always, he said, used a firm of accountants at Mona Vale to prepare his income tax returns.  He formed his association with Mr Britt and Mr Henman when he discovered the rolls of film in Mr Britt’s garage.  He says he mentioned this association to his accountant when “next seeking tax advice”.  He operated, he said, as “Uggles Productions” but decided not to be registered for GST.  There is no mention made of “Uggles” or “Uggles Productions” on any relevant income tax return of the Applicant or on any return of the Applicant engaging in any activity other than that of a journalist.

40.     The Applicant did not maintain a separate bank account or cause to be prepared books of account or records referrable to the video making activities.  There was not a separation of his personal affairs from any other financial activities.  Prior to the 2001 financial year he did not consult an accountant referrable to any business affairs.  His contact with an accountant was restricted to taxation matters.  He did not on any occasion assess the amount he would need to earn to cover expenses nor did he ever review the video activities from the point of view of cost.  He did not at any time prepare a budget of proposed expenditure.  Even though he said, in the 2001 tax year, he spent three to four hours a day, inclusive of reading and travel; on the video activity he still maintained his full time position as a journalist.  Admittedly he spent some time at work on subjects related to the video he was making.

41.     The video making activities were carried on at his Sydney residence, where in a second bedroom of his apartment he installed a computer, book shelves, cupboards with tapes and camera equipment.  He used an Apple Macintosh G4 editing equipment with a TV monitor and video cameras fitted with professional lenses.  Whilst saying in his oral evidence that the above equipment was “used almost exclusively for business”, his income tax returns show a 33 per cent private use and no identification of the specific non domestic use to which the equipment was put.  He did not employ any person to any significant extent in the course of preparing the videos.

-  applicant’s description of activities

42.     In a number of letters and documents the Applicant wrote about the nature of the video activity on which he was engaged. Such writings include:

“I was asked by Dr Michael McCarthy…to send him a tape grab from the Fremantle Navy-sponsored Seminar last November into the loss of HMAS Sydney. I thought I would send you a copy (following) to reinforce the future commercial/historical importance of this work.”  (T7/33)

“I realised that Australia needed to have Mr Britt’s story told properly and his film preserved and made into a documentary for posterity.” (T7/39)

“What did you do initially to set up/establish your activity?

Discovered rare and valuable footage for posterity and entertainment.” (T13/111)

“Britt had to be made because of deteriorating film. My present works are also valuable documents and great stories.” (T13/122)

“My first feature length documentary was made because if I had not done it, film footage dating from 1932 on an Australian treasure, jockey Edgar Britt, would have been lost forever.

While achieving that goal I came across other footage directly related to the greatest Australian naval mystery in which all 645 crew were lost – more deaths than for all services in the Vietnam War – and my research contributed directly to a parliamentary inquiry and a naval seminar.”  (T37/274)

“I find Mrs …comments about me planning a TV documentary not only deeply offensive but unconsidered.  I have made one three hour documentary already for its own sake and with gradual self-financing or assistance from others involved after initial contacts with some of the inhabitants of what Australia describes as a documentary industry.” (T37/296)

“When I visited Edgar Britt for a print interview some nine years ago now, I was amazed to learn that he had film in his garage that he had started taking personally in the early 1930s and accumulated until the 1960s. I kissed goodbye of a few years of my spare time and produced with Edgar a three hour documentary to record his story and preserve his footage for posterity. It was not made for profit and we are lucky to have sold enough to be slightly in the black.” (T37/473)

43.     Whilst it is true that these statements of belief and intent have to be taken in the context of the material in which they appear, they do nevertheless evidence a subjective appreciation by the Applicant as to the nature of the enterprise in which he was engaged.

discussion and decision

44.     In this matter I am satisfied that at no relevant time did the Applicant entertain a reasonable expectation that a profit would eventually be earned as a result of his video making activities.  The methods utilised by him were not directed to making profits but more to deriving satisfaction and pleasure from them.  The indicia identified above are such as to indicate that the Applicant did not have a profit making intent. Profit making, if the same was ever to be realised, which has not been established by the evidence before the Tribunal, was purely incidental.  His activity was pursued for pleasure and satisfaction rather than profit.  There is no evidence of the Applicant conducting his activities in a businesslike manner and no evidence of his having a serious intention of making a profit.

45.     The Applicant gave me the impression of being a person dedicated to his profession as a journalist.  He acquires an interest in a subject and will research its ramifications in order to then write a good story.  He is compulsive. He is creative. But in my assessment of the evidence before the Tribunal he has not exhibited the indicia of also carrying on a business of video production.  I do not consider that he ever had the intention of carrying on a business.  I doubt if at any time he envisaged his activities having a commercial purpose or character.  He may have, with the Britt’s video hoped to cover expenses and then have a surplus remaining.  However, he did not maintain any records of expenditure and did not ever prepare a budget or a plan of the number of sales necessary to cover such expenditure.  He engaged in minimal promotion of the Britt video.  Likewise with the other two videos even be it neither one is yet complete.  He did not at any time enter upon their making with an objective appreciation of their profit making potential.  There was no structure established that was indicative of or instrumental in maintaining a business.  There was no business plan, business motive or business objective in the way in which each documentary came about.  The videos were created as a result of the belief of the Applicant that there was a story to be told, history to be preserved, a message to be learned.  The activities were of a personal nature.  There was not a plan envisaged or in place to realise upon the endeavour and to market the produce. There might have been an expectation, a wishful endeavour, but there was not an objective, consequent for example on a market survey or analysis.

46.     The activities were limited and their operation contained within the confines of a room in the Applicant’s apartment and travelling.  The equipment used was not claimed to be that belonging to a business.  The Applicant undoubtedly applied himself to the video activity; this over a lengthy period of time.  As I have said he used a bedroom of his apartment as a location for this activity.  But his manner of carrying out the video activity was not that of a business man.  He had no employees.  There was no record kept showing expenditure. There was no separation of his personal and video making affairs and no attempt to separate personal and business activities.  There was no system or planing in the video making operation.  The activities were divorced of a commercial flavour and the likelihood of the Applicant producing a commercially viable product, let alone a profit making one has not been demonstrated by the material placed before the Tribunal.  It can not be said that the video making activity was planned or that it was organised or that it was carried on in a businesslike manner or directed to, inter alia, making a profit let alone directed to that end.  The video production activities had no assets of their own or bank account or separate accounts. 

47.     I am satisfied from the above that having regard to the nature and extent of the Applicant’s activities as well as the expressed purpose of his engaging in them that he was not at the relevant time engaged in carrying on a business of documentary film production.  That being so Division 35 does not apply to the Applicant’s activity.

48.     Accordingly the decision under review is affirmed.

division 35

49.     Being satisfied that the Applicant was not at the relevant time carrying on a business of documentary production, Division 35 is not applicable.  However, it is to be noted that on the basis of the evidence before the Tribunal, and if the finding had been otherwise, not one of the four tests stipulated in section 35-10 would have been satisfied.  Nor would the exception for professional arts business granted by section 35-10 (4) have been satisfied.

50. With reference to the discretion conferred by section 35-55 there is no evidence to support subsection (1) (a) and the existence of special circumstances. The prerequisites for the application of subsection (1) (b) have not been satisfied. The Applicant has not shown that his activity failed to meet one of the four tests because of its nature, that is as a result of “some inherent feature that the activity has in common with business activities of that type” (Federal Commissioner of Taxation v Eskandari (2004) FCA 8 at paragraph 28, 32). There is, as the Respondent submitted, nothing inherent in the Applicant’s documentary production that would prevent such an activity from satisfying one of the tests after the passage of time from 1994 to 2001. The Tribunal is also satisfied, as submitted on behalf of the Respondent, that the Applicant has failed to establish that within a commercially viable period his activity will either meet one of the tests or produce a profit. The burden of so establishing this “objective expectation” rests upon the Applicant (Eskandari (supra) paragraph 45, 46).

51.     The Tribunal would not for these reasons, assuming the discretion was available to it, which it is not, have exercised the same in the Applicant’s favour. 

I certify that the 516 preceding paragraphs are a true copy of the reasons for the decision herein of The Hon R N J Purvis Q.C., Deputy President

Signed:  A Krilis
           .....................................................................................
  Associate

Date/s of Hearing  17 August 2004, 15, 16 and 17 November 2004, 7, 8 and 9 March 2005

Date of Decision  13 April 2005
Applicant  self-represented     
Solicitor for the Respondent     Mr D Ong