Case V137

Members:
P Gerber DP

Tribunal:
Administrative Appeals Tribunal

Decision date: 7 September 1988.

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Dr P. Gerber (Deputy President)

Some time in early 1980, one Schumann, a horse trainer, who had been operating a racing stable in partnership with his wife Clara, became interested in extending the operation of the stable, but, lacking the necessary funds, he approached his accountant, Anton Bruckner of Bruckner & Co., accountants, seeking ``help to form a syndicate with a view to investing money to train and race horses for profit''. In the result, all the partners of Bruckner & Co., together with one Brahms, a client of the office who had, since 1963, been involved in an investment syndicate with the partners of Bruckner & Co. - Brahbruck Investments - decided to become involved in the racing and breeding business. In the result, a syndicate was formed, initially consisting of all the above, known as Aristocrat Thoroughbreds. This syndicate operated with a varying membership for some two years, leased three horses and made a loss in both years which each member sought to deduct from his assessable income. All losses were disallowed by the respondent. Hence this application.

2. As syndicates go, this one was quite informal. Meetings were held irregularly, no minutes were kept and, what started on a basis of equality, soon began to change its structure when some members failed to meet their progressive contributions. For example, Brahbruck Investments dropped out after one year and Mrs Schumann ``was allowed a small share in one of the horses''. For good measure. when the syndicate came to an end in 1981. Schumann continued to train those horses still on lease for various members of the former syndicate ``on an individual basis''.

3. Most of the members of the syndicate gave evidence, and I have no doubt that some, at least, looked on their financial contribution as a commercial investment and all hoped to make a profit. Fond hope, however, is not the only test whether or not an activity amounts to a business.

4. This racing syndicate, like so many before it, was not a commercial success. Again, success or failure is not the test whether or not a business is being carried on, although the Commissioner, like Mr Micawber before him, seems to cling to the belief that a business commences when receipts exceed expenditure and the taximeter begins to tick over. The short history of this syndicate can be shortly stated: It obtained stake winnings of $191 and $450 in 1981 and 1982, against expenditures of $10,446 and $8968 respectively.

5. On the whole of the evidence. I am satisfied that, although the case is a borderline one, it clearly falls on the wrong side of the border. What constitutes a business is frequently a difficult question. ``Business'' has its own unique chemistry and earlier decisions

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ATC 867

are at best a rough and ready litmus test. Ultimately the determination is based on the large or general impression gained; see Webb J.,
Martin v. F.C. of T. (1952-1953) 90 C.L.R. 470 at p. 474. Whilst the term ``hobby'' is as imprecise as the word ``business'', the activity in the instant case is more characteristic of the former than the latter. There was an insouciant informality about the whole arrangement; the agreement was not reduced to writing, the syndicate did not bother to register its name under the Business Names Act 1962 (W.A.) as required by the Act before a business may be carried on under that name, the few records of meetings that were kept do not reflect the respective contributions of its members. The syndicate owned no land or stables. For good measure, the horses - all three of them - were not leased or raced in the name of the syndicate but in the names of some of its members, and the racing colours were registered in the names of some of the members rather than in the name of the syndicate. In short, this syndicate's activities lacked virtually all of the requisite characteristics of a business. The Tribunal, compelled to characterise the few activities that did take place, has concluded that they are more consistent with a recreational pursuit than with a commercial undertaking. The Tribunal is satisfied that an ever-changing syndicate, leasing three horses on a shoestring over two years was engaged in a pleasant hobby rather than the pursuit of a business as that much maligned word has been interpreted by the courts; cf.
Hope v. Bathurst City Council 80 ATC 4386. The objection decision under review is affirmed.