30 Further support for this interpretation can be found in Example 1.6 of the Explanatory Memorandum which follows the comments on s 35-55(1)(b). The example concerns the cultivation of macadamia nuts by John and states,
'The standard time period for macadamia farming to become profitable at the time John commenced the activity was 5 years.'
31 The example refers to a common feature of macadamia farming, not a feature that could be said to be peculiar to the way in which John has chosen to carry on his business. The example in the Explanatory Memorandum is consistent with the note to s 35-55 which refers to the kind of business activity which the section is intended to cover and mentions, by way of example, the planting of hardwood trees for harvest. Such activities have an inherent characteristic that cannot be overcome by conducting the business activity in a different way but only by changing the nature of the business.
32 The respondent makes the valid point that an example is used to illustrate the operation of the section not to limit its application. Where, however, the example illustrates an exception to a general rule (in this case the rule in s 35-10) one should take care not to expand the exception so that the exception is greater than the general rule. In my view, to adopt the construction advocated by the respondent would be very close to allowing the exception to supplant the basic position set out in s 35-10. In my view, the phrase 'because of its nature' in s 35-55 indicates that the failure must be a result of some inherent feature that the taxpayer's business activity has in common with business activities of that type.
33 This brings me to the question of whether the Tribunal correctly construed the 'nature' phrase in determining whether the failure of the respondent's business activity to pass one of the tests referred to in s 35-55(1)(b)(i) was 'because of its nature'. The respondent's business activity was described in the private ruling as 'migration consultancy or agency work'. The applicant alleges that the evidence submitted by the respondent was inadequate to support the Tribunal's conclusion. For reasons explained in [5] above, whether the evidence before the Tribunal was adequate to support its conclusion is not an issue that the Court has jurisdiction to review. If, however, the Tribunal, acting on an erroneous interpretation of the 'nature' phrase, did not subject the evidence before it to the correct statutory criterion then the Tribunal would have made a reviewable error.
34 It is appropriate to quote the Tribunal's reasoning on this issue at length:
'What is the nature of Mr Eskandari's business activity? He is a registered migration agent and thus is permitted by the Migration Act 1958 to charge a fee for providing immigration assistance or for making immigration representations …. Registration is renewable annually …. Following registration with effect from 20 February 2001, Mr Eskandari started his migration consultancy in April 2001. The start-up phase, the period during which his business activity is being established, would last some months. I am prepared to accept that the start-up would extend into the 2001-02 income year. In the service industries it would not be uncommon for an activity to run at a loss for a period. Fixed costs of securing premises, hiring equipment and overdraft interest will typically be incurred, as well as other expenditure necessary for developing the business, such as advertising. Customers have to be found. The experience of a registered migration agent during the start-up phase would not be dissimilar to the experience of the newly admitted barrister, for example. Fees may be subject to contingencies. Cost may not be covered by revenue from the activity, so requiring the individual to supplement their income from a second job as Mr Eskandari has found. I am satisfied that the nature of the business activity of a registered migration agent encompasses the type of work entailed by giving immigration assistance and making immigration representations. The nature of Mr Eskandari's business activity is that he charges an initial fee on being retained by a client. He does not receive the larger part of his overall fee unless and until the visa application is granted. There may be several years delay prior to the visa application being finally determined. I find that it is because Mr Eskandari's migration consultancy is being built up, which is a developmental stage or attribute applicable to the business activity, that it will not satisfy the assessable income test (s 35-30) in 2001-02, being its first full year of operations.' (underlining and emphasis added)
35 It is not entirely clear from this passage exactly how the Tribunal categorised the cause of the respondent's business failing to meet the 'assessable income test' (the only one of the four tests mentioned in s 35-55(1)(b)(i) that was relevant). In the passage underlined the Tribunal refers to the nature of migration agencies in general. In the passage in bold, however, the Tribunal refers to a feature of the respondent's particular business. The Tribunal notes that, under the respondent's particular fee structure, there might be several years delay before (in the case of successful applications) the larger part of his overall fee is payable. As I read the Tribunal's reasons, the conclusion that the respondent's business activity would not satisfy the relevant test was based on this particular feature and not on an aspect of the nature of migration agencies in general. One might reasonably take the view that the delay to which the Tribunal refers is an inherent feature of migration consultancy businesses but there is nothing to support the view that the 'success fee' approach is an essential or even a common means of dealing with this delay.
36 Alternately, the Tribunal's conclusion might be that the respondent's business activity is in a developmental stage which the Tribunal regards as a feature of its nature, and responsible for failing the assessable income test. The problem with this reasoning is that it could apply to almost any new business. Most tellingly it could apply to the business described in the example in the note to s 35-10; an example which is clearly meant to illustrate a situation when, inter alia, the discretion in s 35-55 does not apply. On either view of the Tribunal's reasoning its decision is tainted by legal error and cannot stand.