Hance v Commissioner of Taxation

THE SCHEME 4 The Scheme is described in the applications for private rulings. We set out below the description contained in Mr Hannebery's application. That description differs slightly from that submitted by Mr Hance. Mr Hance proposes to utilize financial accommodation offered by AIMA and/or an associated company, whilst Mr Hannebery does not. Mr Hance therefore sought a ruling as to the deductibility of interest payments made in connection with such financial accommodation. The Commissioner ruled that Mr Hance's interest payments would be deductible. For present purposes we proceed upon the basis that there is no material distinction between Mr Hance's case and that of Mr Hannebery. 5 In Mr Hannebery's application, the Scheme is described as follows: The taxpayer will sub-lease 4 Almondlots comprising in total one hectare of land under the 2009 AIMA Almond Scheme. The 2009 AIMA Almond Scheme will be governed by the Production Disclosure Statement (tab 5), Constitution (tab 4), Almondlot Management Agreement (tab 2), Head Lease (tab 9) and the Sub-lease (tab 3). Unexecuted copies of these proposed agreements and documents are attached. In addition, the following assumptions are to be made: 1. AIMA Ltd holds and [sic] Australian Financial Services Licence issued by the Australia Securities Investment Commission. 2. AIMA Ltd will execute the Constitution before 30 April 2009. 3. The 2009 AIMA Almond Scheme will be registered by the Australian Securities and Investments Commission (ASIC) as a registered managed investment scheme before 31 May 2009. 4. AIMA will issue the PDS [product disclosure statement] on or before 1 May 2009 in respect of the Scheme and lodge an 'in-use' notice with ASIC within 5 days thereafter. 5. The Land Owner will have carried out the work described in clause 2.1 of the Sub-lease before 31 May 2009. 6. The taxpayer acquires a copy of the PDS before 31 May 2009 and decides to participate in the 2009 AIMA Almond Scheme by sub-leasing 4 Almondlots. 7. The taxpayer sends to AIMA Ltd, and AIMA Ltd receives before 31 May 2009 - (a) a completed and signed application for 4 Almondlots in the form attached to the PDS (tab 6) including a power of attorney; and (b) a cheque for $30,000 ("the application moneys"). 8. Before 31 May 2009 the taxpayer applies for registration under the A New Tax System (Goods and Services Tax) Act 1999. 9. AIMA Ltd deposits the application moneys into the special trust account established by the responsible entity in accordance with clause 4.2 of the Constitution. 10. AIMA Ltd executes a Head Lease (see Tab 9) with Almond Land Pty Ltd for the Land before 31 May 2009 and lodges the lease for registration at the Land Titles Office. The Lease gives AIMA Ltd sufficient title to the Land to enable it to fulfil all its obligations under the Sub-lease. 11. AIMA Ltd accepts the taxpayer's application on 2 June 2009. 12. AIMA Ltd executes the Almondlot Management Agreement on its own behalf and as attorney for the taxpayer on 2 June 2009. 13. AIMA Ltd executes the Sub-lease as Sub-lessor and as attorney for the taxpayer on 2 June 2009 in respect of Almondlots 1-4 (inclusive). 14. On 2 June 2009, AIMA Ltd, in its capacity as responsible entity: (a) transfers the sum of $29,713.32 (including GST) from the trust account to its personal bank account in discharge of the management fees (inclusive of GST) payable by the taxpayer to AIMA Ltd pursuant to clause 12.1(a) of the Almondlot Management Agreement; and (b) transfers the sum of $166.68 (including GST) from the trust account to its personal bank account in discharge of the rent (inclusive of GST) payable by the taxpayer to AIMA Ltd pursuant to clause 7.1(a)(i) of the Sub-lease. 15. AIMA Ltd, in its capacity as responsible entity, transfers $120 (inclusive of GST) from the trust account to its personal bank account in discharge of the responsible entity's fees payable by the taxpayer to AIMA Ltd for the period ended 30 June 2009 under clause 14.1 of the Constitution. 16. AIMA Ltd carries out all its obligations under the Almondlot Management Agreement, the Head Lease, the Sub-lease and the Constitution. 17. The taxpayer does not give any directions to AIMA Ltd under clause 14.2 of the Almondlot Management agreement. 18. The fees of $109.08 (excluding GST) payable to the responsible entity under clause 14.1 of the Constitution are realistic and not in excess of commercial rates. 19. The rent of $151.52 (excluding GST) payable under clause 7.1(a)(i) of the Sub-lease is realistic and not in excess of commercial rates. 20. The fees of $27,012.12 (excluding GST) payable under clause 12.1(a) of the Almondlot Management Agreement are realistic and not in excess of commercial rates. 21. The fees payable under clause 12.1(b), (c) and (d) of the Almondlot Management Agreement, the rent payable under clause 7.1(a) of the Sub-lease and under clauses 14.1(b), (c) and (d) of the Constitution are realistic and not in excess of commercial rates. 22. Based on reasonable projections of income and expenditure made by the taxpayer shortly before he sends to AIMA Ltd his application to sub-lease 4 Almondlots, the expected income to be derived and outgoings to be incurred by the taxpayer during each financial year from growing the almonds are as set out in the spreadsheet behind Tab 7. 23. Based on reasonable projections of income and expenditure made by the taxpayer shortly before he sends to AIMA Ltd his application to sub-lease 4 Almondlots, the Management Fees (including deferred Management Fees) payable under the Almondlot Management Agreement by the taxpayer to AIMA Ltd in respect of each financial year will be the amounts shown on the spreadsheet behind Tab 8. 24. AIMA Ltd's accounting system will at all relevant times enable AIMA Ltd to identify the money held in the Agency Account for the taxpayer. 25. The taxpayer intends to sub-lease the Almondlots for the term of the Sub-Lease and to engage AIMA Ltd for the term of the Almondlot Management Agreement and to derive income from the sale of the Almond Crop and Product for such term. 26. The taxpayer's assessable income from sources other than the 2009 AIMA Almond Scheme is greater than $40,000 (excluding net capital gains) for each year of income to which this ruling application relates.

THE DOCUMENTATION 6 Further relevant details emerge from the documentation.

Draft product disclosure statement 7 The draft product disclosure statement (the "PDS") is designed to meet the requirements of Part 7.9 of the Corporations Act, ensuring an appropriate level of disclosure by those promoting a managed investment scheme to potential investors. In other words, it is in the nature of a prospectus. Under the heading "How does the 2009 AIMA Almond Scheme work?" the following passage appears: If you participate in the 2009 AIMA Almond Scheme under this offer, you will become a sub‑lessee of land described as Almondlots and the grower of almonds on such Almondlots. The Almondlots are expected to enter commercial production from early 2012. You will lease from us at least two allotments of land (Almondlots), of approximately .25 hectares each, developed with all of the improvements required to grow almonds, including almond trees, irrigation infrastructure and an allocation of irrigation water. You will engage us to manage your Almondlots, and harvest and sell your almonds on your behalf. You will be entitled to the proceeds from the sale of your almonds during the term, subject to the payment of outgoings. The services of Select Harvests, Australia's largest integrated almond producer, processor and marketer of almonds, will be utilised to undertake day-to-day Almondlots operations and to process and market the crop. 8 The PDS discloses that the aim of the Scheme is to produce almonds to sell for commercial gain. The term of the Scheme is to be approximately 23 years. Prima facie it will expire on 30 June 2031. In certain circumstances it may be extended for another two years. Almond Land is to plant almond trees on the Almondlots, install the irrigation system and perform other capital works. Each participant in the Scheme (a "Grower") will own the almonds grown on his or her Almondlots but generally, almonds will be pooled for sale and the proceeds shared on a "pro rata basis", according to the number of Almondlots owned. The Grower bears the "risks attendant upon such an undertaking" which are identified in some detail at pages 45 to 48. In Section 3 of the PDS the benefit of participation in the Scheme is said to be "regular income from sales of almonds". Sale in commercial quantities is expected to commence in 2012. The availability of water is a matter of some importance. It is dealt with in Section 9 of the PDS. Almond Land Pty Ltd ("Almond Land"), the head lessor, will be responsible for acquiring water rights "at its own cost" to meet the needs of the plantation. It is to provide up to a maximum of 12.5 megalitres per planted hectare. If additional water is required, or if the amounts available under purchased licences are reduced, additional water will be procured at the cost of the Growers. 9 Upon application for Almondlots a potential Grower must pay the sum of $7,500 per Almondlot, including $681.81 by way of GST (the "Application Moneys"). Each Grower must take at least two Almondlots. The Almondlots assigned to individual Growers will eventually be identified. In Section 4 of the PDS it is said that the Application Moneys "cover the rent, management fees and [responsible entity] fees from the date [of acceptance of the application] until the following 30 June", that is 30 June 2009. In subsequent years Growers will pay: · responsible entity fees, · annual rental for Almondlots, · management fees, including both fixed fees and deferred management fees, · farm operating costs, · incentive performance fees; · in the event of assignment, assignment administration fees; and · in the case of default, default costs. 10 Some of these amounts will vary over the term of the Scheme. The responsible entity fee and the rent will be indexed. The management fee will have two components. The fixed management fee will be a specified sum payable on 31 October 2009 and 31 October 2010. The deferred management fee is to be a percentage of the gross proceeds from the sale of almonds. It is to be paid by 31 October in each year, commencing in 2011. From 2012 to 2014, the fee will be payable in respect of services provided in the 2010 financial year. From the financial year ending 30 June 2015 the fee will be payable in respect of services provided in the 2010 and 2011 financial years. Farm operating costs are "the variable farm costs of operating your Almondlot and include but are not limited to the cost of fertilisers, pesticides, herbicides, labour and subcontractor charges in relation to spraying, pruning, irrigating, harvesting and pest control, fuel, oil and lubricants, and maintenance of plant and equipment". A contribution to administrative overheads will also be included under that heading. Farm operating costs are to be payable on 31 October in each year, commencing in 2012. That payment will be for three months in arrears and nine months in advance. An incentive (performance) fee will be payable if the amount of the net proceeds from the sale of almonds exceeds the threshold set out in Table 2. The fee seems to be payable to AIMA.

Lease from Almond Land 11 Almond Land Pty Ltd owns the land on which the Scheme is to be conducted. It is to lease the land (with almond trees and other improvements) to AIMA for a term commencing on 30 April 2008 and expiring on 30 June 2034. In cl 2.1 of the lease the parties will acknowledge that AIMA has entered into the lease in its personal capacity. Clause 2.2 will provide that the lease is not to form part of "scheme property" as defined in s 9 of the Corporations Act.

Sub-leases 12 Almond Land, AIMA and the relevant Grower will be parties to each sub-lease. Almond Land will covenant with AIMA and each Grower that it has, at its own cost, established and planted each Almondlot with approximately 62 almond trees "in accordance with Best Horticultural Practice" and "has constructed necessary infrastructure and carried out the necessary capital works …". The capital works, almond trees and any water licences are to remain the property of Almond Land. The sub‑leases will commence on the date of execution and terminate on 29 June 2032. In some circumstances, they may be extended.

The constitution 13 The constitution will be executed by AIMA and each Grower in order to satisfy the requirements of Chapter 5C of the Corporations Act. In particular, it will prescribe the way in which certain moneys and other assets are to be held. Clause 4.1 will provide that the "Application Moneys" be held by AIMA: … as a bare trustee for the Applicant until such moneys are applied on behalf of such Applicant in payment of the initial Rent under the Sub-Lease, the initial Management Fees payable under the Almondlot Management Agreement and the initial Responsible Entity's fee payable under this Deed. 14 Clause 12.1 will provide that: [AIMA] must keep or cause to be kept a separate Agency Account or Agency Accounts for the purpose of depositing the Gross Proceeds and other money that the Responsible Entity may hold for the Grower, other than Application Moneys and interest on Application Moneys. 15 The term "Gross Proceeds" means, in effect, proceeds from the sale of almonds, less outgoings incurred in so doing. Clause 13.1 recognises that in accordance with cl 7 of the Almondlot Management Agreement (the "management agreement"), to which we will presently refer, the almonds produced on an Almondlot and any product will be owned by the Grower. The term "product" seems to describe almonds which have been processed prior to sale. Clause 13.1 will provide that the crop and any product cease to belong to the Grower when they are sold or collected in accordance with cl 8 of the management agreement. That clause will permit the Grower, in certain circumstances, to withdraw his or her crop from the pool. The drafting of cl 13.1 is defective. It can hardly be intended that upon collecting his or her crop, a Grower will cease to own it. Pursuant to cl 13.5 a Grower will be entitled to his or her share of the net proceeds of sale held in the Agency Account. 16 Clause 5 will provide that AIMA is to hold Scheme Property for each Grower in the proportion that the number of his or her Almondlots bears to the total number. Pursuant to cl 5.2 AIMA will be authorized to appoint an agent to hold Scheme Property separately from any other property. The expression "scheme property" is defined in s 9 of the Corporations Act to mean: (a) contributions of money or money's worth to the scheme; and (b) money that forms part of the scheme property under provisions of this Act or the ASIC Act; and (c) moneys borrowed or raised by the responsible entity for the purposes of the scheme; and (d) property acquired directly or indirectly with or with the proceeds of contributions or money referred to in paras (a) (b) or (c); and (e) income and property derived directly or indirectly from contributions, money or property referred to in para (a) (b) (c) or (d). 17 The term, "Scheme Property", is defined in the constitution to mean: The funds for the time being in the Agency Account, all Authorised Investments, assets and any other property acquired throughout the term of the Scheme but excluding the Grower's interest in the Sub-lease, the Crop, the Product and any rights under the Almondlot Management Agreement … . 18 The definitions are not identical. Obviously, in applying the Corporations Act we must use the statutory definition. In construing the constitution (and perhaps other Scheme documents) we must use the definition in that document. Some aspects of the Commissioner's oral submissions seem not to accept this approach. In these reasons we will use the term "Scheme Property" when considering the operation of the constitution and other Scheme documents, and the term "scheme property" when considering the operation of the Corporations Act. 19 Pursuant to cl 12.1 Gross Proceeds are to be held in the Agency Account. It would seem to follow that they will be Scheme Property for the purposes of the constitution. However, pursuant to cl 13.5, subject to the payment of expenses, such moneys are to belong to individual Growers. Pursuant to s 601FC(2) of the Corporations Actthe responsible entity "holds scheme property on trust for scheme members." This provision is relevant to the Commissioner's argument in the present case. We will return to it at a later stage. 20 Clause 19.2 of the constitution provides that none of the relationships between each Grower and each other Grower, between each Grower and AIMA and between each Grower, AIMA and Almond Land is intended to be, or deemed to be, or to be treated as, a partnership, limited partnership, unit trust, unit trust scheme, joint venture, limited company or association. The relationship between Grower and Grower is not to be taken to be contractual.

Custody agreement 21 AIMA proposes to enter into a custody agreement with an unidentified "Custodian". The Custodian will agree to hold Scheme Assets as agent for AIMA. For the purposes of the custody agreement Scheme Assets will be "Subscription Moneys, until they are expended, and Proceeds until they are distributed, in accordance with the Responsible Entity's proper instructions …". "Subscription Moneys" will be "moneys paid by Growers upon application to the Scheme". "Proceeds" will be: (a) interest received on moneys in the Agency Account; (b) any moneys payable to a Grower under any policy of insurance in relation to the Grower's Almondlots, the Product, or the 2009 AIMA Almond Scheme; (c) Gross Proceeds; and (d) any other moneys payable to a Grower under the 2009 AIMA Almond Scheme … . The term "Gross Proceeds" will have the same meaning as in the management agreement, namely the proceeds of sale of almonds, less expenses.

Application form and power of attorney booklet 22 A potential Grower must submit an application form. It will contain a power of attorney in the following form: By completing the Application Form you agree to appoint AIMA Ltd as your attorney on the following terms: I/we … appoint AIMA Ltd … to be my/our attorney and in my/our name and on my/our behalf and as my/our act and deed to: - enter into and execute on my/our behalf a Sub-lease and an Almondlot Management Agreement in respect of the Almondlots for which I/we have applied and which AIMA Ltd accepts ("the Grower Agreements"); - vary replace or cancel the Grower Agreements and execute, vary, replace or cancel any other documents which are referred to in or which are ancillary or related to, the Grower Agreements; - appoint one or more substitute attorneys to exercise the powers granted to the Attorney and to revoke any appointment of any substitute attorney or attorneys made under this document; and to do all things necessary or expedient to give effect to those documents, including, but not limited to, dating and completing any blanks in the Grower Agreements, making any variations, replacements and cancellations to the documents which the Attorney considers not contrary to the interests of the Applicant, on the terms and conditions and subject to the acknowledgements in Part 2 of this booklet.

Management agreement 23 Each Grower will enter into a management agreement with AIMA. By it, the Grower will engage AIMA to manage the growing, cultivation, harvesting and sale of almonds on its Almondlots. AIMA will agree to provide such services as an independent contractor and not as a trustee or fiduciary. Pursuant to cl 7.3 the Grower will be entitled to the Gross Proceeds (as defined) from the sale of almonds produced on his or her property, after deduction of fees and expenses. The Grower will agree that his or her almonds may, at the discretion of AIMA, be pooled for the purposes of sale. AIMA will have a lien over the crop and any product produced from the crop, securing the payment of outstanding fees and expenses. 24 We have previously referred to cl 8.1 which will provide that: If any agreement entered into pursuant to clause 7.3 of this Agreement by AIMA or an entity AIMA has engaged to sell the Grower's Product or Crop is terminated, or there is no agreement for sale in force in respect of the Grower's Product or Crop; (a) AIMA must notify the Grower within 7 days that the Grower's Product or Crop is not under contract for sale for that year; (b) AIMA must use all reasonable endeavours to seek and procure another contract for sale of the Grower's Product or Crop; and (c) until such time as AIMA has entered into a further agreement on behalf of the Grower for sale of the Grower's Product or Crop, the Grower may elect for that year to take the Grower's Collectable Crop from the Orchard when the Almonds are harvested that year. 25 The drafting of cl 8.1 is defective. The clause deals with two situations. The first situation is where an agreement for sale has been terminated. The second is where no such agreement has been made. Prima facie, none of sub-paragraphs (a) (b) or (c) applies to the second situation. Nonetheless, the better view is that ownership will remain in the Grower until there is an agreement for sale of his or her crop. Until such time the Grower will be permitted to elect to appropriate the crop to his or her own use. After that time, the Grower will be entitled to share in the proceeds of sale. Such an approach is consistent with the provisions concerning ownership in the constitution. The management agreement seems not to deal with the possibility that crops from individual Almondlots may be physically pooled prior to sale or that a contract may collapse after physical pooling. It seems likely that in either case, a Grower will be entitled to the same proportion of the crop as the number of his Almondlots bears to the total. An alternative approach might be to construe the management agreement as permitting physical pooling only at the point of physical delivery pursuant to a contract of sale. 26 Pursuant to cl 14.2, a Grower may give written directions to AIMA relating to the manner in which it is to perform its obligations under the management agreement. However AIMA need not comply with such direction. If it chooses to do so, such compliance will be at the expense of the Grower. Pursuant to cl 16.1, a Grower may, in certain circumstances, terminate the management agreement. The Growers, may, by special resolution, terminate AIMA's "engagement".

Other documents 27 Numerous other documents were provided to the Commissioner. However we need not refer to them at this stage.

APPLICATIONS FOR PRIVATE RULINGS 28 In Mr Hance's application for a private ruling, the questions posed for the Commissioner's consideration were as follows: 1. Is the amount of Gross Proceeds to which the taxpayer is entitled pursuant to clause 7.3 of the Almondlot Management Agreement assessable income of the taxpayer under s 6-5 of Income Tax Assessment Act 1997 ("ITAA 97") or any other provision of the ITAA 97? 2. Is - (a) the sum of $151.52 (excluding GST) to be paid by the taxpayer pursuant to clause 7.1(a)(1) of the Sub-lease; and (b) the sum of $27,012.12 (excluding GST) to be paid by the taxpayer pursuant to clause 12.1(a)of the Almondlot Management Agreement; (c) the sum of $109.08 (excluding GST) to be paid by the taxpayer pursuant to clause 14.1A of the 2009 AIMA Almond Project Constitution ("the Constitution") - deductible under s 8-1 of the ITAA 97 in calculating the taxpayer's taxable income for the year ending 30 June 2009? 3. Are - (a) the amounts referred to and calculated pursuant to clause 12.1(b), (c) and (d) of the Almondlot Management Agreement; and (b) the amounts referred to and calculated under clause 14.1(b), (c) and (d) of the Constitution - deductible under s 8-1 of the ITAA 97 in calculating the taxpayer's taxable income for each of the relevant years of income ended 30 June referred to therein? 4. Are the amounts payable by the taxpayer under clause 7.1(a)(ii)-(v) of the Sub-lease deductible under s 8-1 of the ITAA 97 in calculating the taxpayer's taxable income for each of the relevant financial years referred to therein? 5. Is the interest payable by the taxpayer under the Loan Terms an allowable deduction under s 8-1 of the ITAA 97 in calculating the taxpayer's taxable income for the year of income in which the interest was incurred? 6. If yes to any of the questions in paragraphs 2, 3 4 or 5, will the Commissioner decide that the rule in s 35-10(2) of the ITAA 97 will not apply in respect of the relevant activity of the taxpayer pursuant to which the expenses referred to in those questions were incurred, and if so, for how many years will he make that decision? 29 Mr Hannebery's application differed from Mr Hance's in that question 5 was omitted and question 6 renumbered as question 5. Following receipt of the applications, the Commissioner requested further information. We need not set out those requests or the applicants' responses. We will identify any further relevant information in the course of our reasons.

PRIVATE RULINGS 30 By letter dated 4 March 2008, the Commissioner responded to each of questions 1 to 6 in Mr Hance's application as follows: 1. Yes. 2. No. 3. No. 4. No. 5. Yes 6. Does not apply. 31 In effect, the Commissioner ruled that the net proceeds of sale of almonds (proceeds of sale less direct costs and expenses of marketing and selling) would be assessable income under s 6-5 of the 1997 Act, and that the various outgoings (other than interest) were not allowable deductions pursuant to s 8-1 of that Act. Similar rulings were given to the corresponding questions in Mr Hannebery's requests. The Commissioner did not consider whether or not Part IVA of the 1936 Act might apply to the Scheme. The Commissioner's reasons for disallowing the outgoings as deductions may be summarised as follows: · each applicant will derive assessable income from the Scheme; · the outgoings will be incurred in gaining or producing that assessable income; · neither applicant will be carrying on a business; · each applicant's interest in the Scheme will be a right to share in the profits to be generated from it, either contractually or as beneficiary of a trust; and · the relevant outgoings (other than, in the case of Mr Hance, interest payments) should be characterized as the price paid for the acquisition of such interest and therefore as payments of capital or of a capital nature.

Assumptions in the private rulings 32 In paragraphs 22, 23, 24 and 25 of Mr Hance's application for a private ruling the Commissioner was asked to assume that the responsible entity fees, rent and management fees were "realistic and not in excess of commercial rates". Similar assumptions were proposed by Mr Hannebery. By letter dated 20 December 2007, the Commissioner indicated that he proposed to assume only that: · the responsible entity fees payable pursuant to cl 14.1 of the constitution would be within the range of fees charged in the industry for similar services provided in relation to schemes of this nature; · the rent payable pursuant to cl 7.1(a)(i) of the sub-lease would be within the range of rents charged in the industry under similar sub-lease arrangements; · the fees payable under cl 12.1(a) of the management agreement would be within the range of fees charged in the industry for similar services provided in relation to schemes of this nature; and · the fees payable under cl 12.1(b), (c) and (d) of the management agreement, the rent payable under cl 7.1(a) of the sub-lease and the responsible entity fees payable under cl 14.1(b), (c) and (d) of the constitution would be within the range of fees and rents charged in the industry. 33 The passages which we have summarised in the first three subparagraphs of the preceding paragraph probably refer to payments for the period prior to 30 June 2009. The passage summarized in the fourth subparagraph refers to payments to be made for subsequent years. The "industry" referred to in each assumption may be the industry of almond growing, processing and selling or the industry of promoting and managing managed investment schemes. The applicants, in their applications for private rulings, used the expression "commercial rates", suggesting that they had in mind costs on the open market. The Commissioner seems to have had more limited assumptions in mind. The parties did not address this question.

Conducting a business 34 In his explanations of the private rulings, the Commissioner placed considerable weight upon the fact that, pursuant to the power of attorney to be given by each applicant in favour of AIMA, the latter would "in practical terms do all things and make all decisions related to the Scheme during its Term". It may be arguable that the power of attorney only concerns the execution of documents and associated matters. Nonetheless, AIMA is clearly to play a dominant role in each applicant's undertaking. Pursuant to s 601FC(1) of the Corporations Act a responsible entity must exercise its powers, and carry out its duties, honestly, with due care and diligence, and in the best interests of members. 35 At para 25 of the explanation it is said that: In particular, the fees that will be charged to AIMA … by Select [Harvests], under the Management Agreement, to perform the day-to-day services on the "Orchard" during the four week period between 2 July 2009 and 30 June 2009 will be substantially less than the amount charged to [the applicant] and the other "Growers" by AIMA … for the same four week period for what are essentially the same categories of services. 36 The Commissioner then acknowledged that AIMA will incur other costs during the nominated period but concluded that the difference between the cost of operating the orchard (to be charged to AIMA by Select Harvests) and the amount to be paid by Growers to AIMA was "indicative that it is not, in substance, a payment for management fees and other fees." He noted that in subsequent years, such disparity remained substantial, although less than in the first four week period. Although the Commissioner referred to the period from 2 July 2009 to 30 June 2009, the reference to "2 July 2009" is clearly erroneous. The relevant date is 2 June 2009, the anticipated date of execution of many of the Scheme documents. 37 We make three comments concerning the Commissioner's inference that the amount to be paid by Growers will not be, in substance, a payment for management and other fees. Firstly, there is nothing particularly surprising about the fact that AIMA may be able to acquire the services which it is to provide to Growers at a price lower than that at which it proposes to supply them. Secondly, the selection of 2 June 2009 as the commencement date of the relevant period is a little artificial. It is certainly the date on which, according to the description of the Scheme, various documents are to be executed and/or to take effect. However Select Harvests may actually commence to provide management services at an earlier date. This appears from the proposed Almond Orchard Management Agreement to which agreement Select Harvests, AIMA and Almond Land are to be parties and, pursuant to which, Select Harvests is to provide services to AIMA. The commencement date of that agreement is said to be the date of the Product Disclosure Statement to be issued by AIMA in respect of the Scheme or 30 June 2009, whichever is the earlier. According to the description of the Scheme, Almond Land's work is to be completed prior to 31 May 2009. The constitution must be executed prior to 30 April 2009. The product disclosure statement is to be issued on or before 1 May 2009. This suggests that the Almond Orchard Management Agreement may commence on or before 1 May 2009. It seems likely that some allowance for an early start (ie prior to 2 June 2009) has been built into the management fees payable for the period up to 30 June 2009. 38 Thirdly, the Commissioner conceded that AIMA will incur other costs apart from the cost of services provided by Select Harvests. There are also functions to be performed prior to 30 June 2009, which services will not be performed in later years. This can be seen from cll 5 and 12 of the management agreement. Clause 5.2 prescribes the services to be performed prior to 30 June 2009. AIMA is to be paid for such services pursuant to cl 12.1(a). The services in subsequent years are identified in cl 5.3. AIMA is to be paid for them pursuant to cl 12.1(b), (c) and (d) and subsequent sub-clauses. Pursuant to cl 5.2(a), AIMA is obliged, in the period between 2 June 2009 and 30 June 2009, to undertake a comprehensive internal quality assurance audit in respect of capital works carried out by Almond Land under the Sub-leases. Pursuant to cl 5.2(g), AIMA is required to prepare a market report for the Growers. Pursuant to cl 5.2(n) AIMA must undertake a comprehensive internal quality assurance audit in respect of almond trees, stakes and all infrastructure. Pursuant to cl 5.2(o) AIMA must obtain formal verification from an expert that the Growers' Almondlots are of an appropriate standard and that all required services have been performed to an appropriate standard. 39 We do not understand that these additional duties will be performed by Select Harvests pursuant to the Almond Orchard Management Agreement. The duties do not appear to be insignificant. Nor is it surprising that they should be undertaken at the commencement of the Scheme. Some will require the engagement of experts. It is difficult to speculate about the cost. It cannot be assumed, as is inherent in the Commissioner's approach, that they will have no substantial cost, either in terms of fees paid to experts, or in terms of time and effort on the part of AIMA, its employees and agents. In the circumstances we conclude that the Commissioner's reliance on this matter was misconceived. 40 The Commissioner also pointed out that the cost of services to be provided by Select Harvests to Almond Land in performance of Almond Land's obligations under the sub-leases will be substantially less than the management fees to be charged by AIMA to Growers for the four week period from 2 June to 30 June 2009. Select Harvests' function will be primarily to supply and plant almond trees on behalf of Almond Land and to advise as to, and perform some aspects of, other capital works. The exact extent of such obligations is unclear. We see little relevance in comparing the charges to Almond Land for those services with the charges by AIMA to Growers for performing the functions set out in cl 5.2 of the Management Agreement. We do not understand counsel for the Commissioner to have relied on this aspect of the case in their submissions on appeal. 41 The Commissioner also concluded that the almond crop would be pooled and sold, from which fact he inferred that the "substance" of a Growers' rights would be the right to participate in a "collective investment scheme, operated as the one commercial enterprise", rather than to carry on business on his or her own Almondlots. He observed that anybusiness would be conducted by the "AIMA Group, including AIMA … and Almond Land … on the whole of the 'Orchard' using the trees that it has chosen and infrastructure that it has established and which it will own both during and after the full Term of the Scheme, and using the Water Licences that it owns". 42 Paragraphs 34 to 39 of the Commissioner's explanations are as follows: 34. In practical terms, [the applicant's] involvement in the Scheme will be limited to signing the Application Form to acquire an interest in the Scheme and paying the initial Application Moneys and the annual amounts set out in the Scheme documents. 35. [The applicant]: (a) will have no input into where the "Orchard" is located or how and by what method it is established, including the variety of almond trees to be planted, the irrigation method to be employed or the layout of the "Orchard", as it is a feature of the Scheme that all of these decisions are made before any members are accepted into the Scheme; (b) will not be given the opportunity to choose which of the 100 available [allotments] will be nominally his four [allotments]; (c) will not be given the opportunity to bargain or negotiate the cost for delivery of the horticultural services on his [allotments] during the Term of the Scheme; (d) will be unable to engage any entity other than [the responsible entity] to manage the allotments and will take no part in the engagement of the [principal] contractor …; (e) will not own the trees or the other horticultural infrastructure including the "Water Licences" during the term of the Scheme and will be given no opportunity to purchase them and continue carrying on almond growing after the termination of the Scheme; (f) is unable to refuse to give [the responsible entity] the power of attorney required to be a member of the Scheme and will not be given the option to execute his own agreements and retain a copy of those agreements; (g) during the Term of the Scheme will be unable to dispose of what is nominally, at least, his business, consisting of his interest in the Sublease and the [Grower] Management Agreement, without the consent of [the responsible entity]; (h) will not be permitted to take part in the day-to-day operations or the decision making related to what is nominally, at least, his business; (i) will have a right to give [the responsible entity] directions relating to the manner in which it is to perform its obligations under the [Grower] Management Agreement, but this right is constrained by protracted procedures and additional fees, and [the responsible entity] may still refuse to follow [the applicant's] directions or, in other circumstances, will not be obliged to comply with his directions; (j) except in limited circumstances (outside of his control), will be unable opt out of the marketing and sale arrangement and collect the [produce] grown on his designated allotments and sell them independently; (k) will be required to contribute the [produce] grown on his [allotments] to the pooled [produce] with the other Growers in the Scheme and, according to page 30 of the Product Disclosure Statement, with [produce] grown outside of the Scheme; (l) will have no say in how, or to whom the [produce] will be marketed or sold; (m) will not have title to the [produce] grown on his [allotments] at the time a purchaser pays for [that produce]. That title will be [the principal contractor] at that time; and (n) will be unable to visit his designated allotments without first giving 7 days notice of the intended visit and only after receiving permission from [the responsible entity] or its contractors. 36. Decisions and actions such as these would ordinarily be within the control of a person carrying on a business. 37. If [the applicant] wished to participate in any more active way other than that proposed and defined entirely by [the responsible entity] he is prevented from doing so by the terms of the Constitution and "Grower Agreements". 38. If [the applicant] wished to personally carry out any of the [primary production] activities on his designated [allotments] his application to participate in the Scheme would be refused by [the responsible entity]. 39. The Scheme can only function as described in the PDS if it is accepted that it [the responsible entity] which carries on the business and that [the applicant's] role and the role of the other members is passive. The passive investment nature of the Scheme is also revealed by Section 7 of the relevant Product Disclosure Statement, where reference is made on page 28, to the possibility of the Term of the Scheme being extended, where a specified internal rate of return over the period from commencement to 30 June 2031 is not achieved. 43 The Commissioner concluded that neither applicant would be conducting a business. This appears to have led him to infer that each applicant had acquired a right to share in the net proceeds of the sale of almonds, either as a contractual right or as a beneficial interest under a trust. Such contractual right is presumably to be found in the Scheme documents. Broadly speaking, a Grower will own the almonds grown on his land until they are sold. He or she will then be entitled to the net proceeds of sale. We will discuss the latter aspect in more detail at a later stage. However we should, at this stage, say a little more about the Commissioner's views concerning the existence of a trust.

Beneficiaries under a trust 44 The Commissioner considered that the conduct of the Scheme will require that certain property rights be made available to AIMA by each Grower, including the right of access to Almondlots and "the capacity to deal with third parties in relation to the almonds grown on the 'Orchard and pooled for sale". The Commissioner concluded that such rights would be scheme property for the purposes of s 601FC(2) of the Corporations Act. The Commissioner then observed that "the scheme property would be held by the Custodian as agent for AIMA Ltd on trust for the members of the Scheme …". However, pursuant to the custody agreement, the Custodian will hold Scheme Assets, not scheme property. Scheme Assets are defined as "Subscription Moneys, until they are expended, and Proceeds, until they are distributed, in accordance with the Responsible Entity's proper instructions." Other scheme property, as defined in the Corporations Act, will not be held by the Custodian. It will be held by AIMA. 45 The Commissioner then asserted that an applicant's financial return … from his membership of the Scheme will not arise as a result of carrying on almond growing activities on his four "Almondlots" but will be based on the interest that he will hold as a proportion of all the other interests held by other members of the Scheme. The relationship between AIMA and [the applicant] and the other Scheme members in respect of the "scheme property" will be one of trustee and beneficiary. 46 The Commissioner concluded that a Grower's interest in the Scheme "is equivalent, in substance, to an interest in, or a unit in, an investment trust." This is said to follow from "the characterisation of the Scheme as that of a business carried on by AIMA Ltd as trustee and [the applicant's] role as that of beneficiary holding an interest in that trust."

Outgoings of capital or of a capital nature 47 The Commissioner concluded that: In substance the most important advantage sought by [the applicant] in making the contributions will be the right to a proportionate share of the net proceeds of the Scheme over its term. 48 In reaching this conclusion the Commissioner gave less weight to the "form of the relevant transactions" which had been designed to create "the outward appearance of a Scheme" involving "regular acts on behalf of [the taxpayer]". Greater weight was given to "competing factors found in an examination of the substance of the relevant transactions" including: · that it makes little commercial or agricultural sense to operate as individual "Almondlots", there being no distinction between individual Almondlots other than "pegging"; · Growers will lack day-to-day control of their Almondlots; · the regulatory structure under the Corporations Act; and · returns to Growers will be calculated on the basis of sales from the almond pool. 49 The Commissioner concluded that the relevant payments would be capital contributions made to acquire an income-producing asset, namely an interest in the Scheme and the right to share proportionately in the net proceeds arising from the sale of pooled almonds. Such rights would arise from each applicant's membership of the Scheme, and not from carrying on an individual business. Further, the Commissioner asserted that: The capital contributions made by [the applicant] will be used by AIMA … to capitalise the Scheme at its inception and to provide additional capital during its Term.

APPEALABLE OBJECTION DECISIONS 50 In the appealable objection decisions, the reasons for the private rulings are summarised. It is then asserted (at paras 20 and 21) that: 20. The true character of the advantage sought by [the applicant] in incurring these outgoings was that of an enduring nature whether described as his interest in the Scheme (being the MIS in question), or his interest in the trust constituted by the Scheme, or his right to share proportionately in the net proceeds from the conduct of the Scheme as a single enterprise. 21. The conclusion reached by the Commissioner seems appropriate given the extent of [the applicant's] involvement in the MIS. It is apparent that [the applicant] will not have any real control of how the business will be run. That control rests with the Responsible Entity of the Scheme to whom [the applicant] must provide an irrevocable Power of Attorney. 51 At para 26 the decisions continued: On this wider view, the outgoings would secure for the taxpayer on an enduring basis, the holding of a capital asset in the form of his interest as a member in this MIS. The purpose of this expenditure therefore shows that these outgoings were capital, or capital in nature. 52 There are two, or possibly three, factual misconceptions in the objection decisions. In para 23 it is said that: In terms of harvesting produce, AIMA will harvest as it deems appropriate (clause 6.2) and it will keep any non-commercial product for its own promotional and marketing purposes (clause 6.5). 53 The references are to the management agreement, cl 6.5 of which provides: The Grower agrees that until the Grower's Almondlots enter commercial production, AIMA may harvest immature almonds from those Almondlots and use them for promotional and marketing purposes. 54 Clearly, AIMA's entitlement is limited to the period prior to the commencement of commercial production. Further, on a fair reading of the clause, relevant promotional and marketing purposes will be those of the Scheme, not AIMA's "own promotional and marketing purposes". 55 At para 23 the decision continued: Under the Power of Attorney completed as part of the Application Form to join the Scheme, AIMA is irrevocably appointed to enter into any agreement for the sale of the Almonds until the expiration of the Scheme. Harvesting and marketing of the produce will therefore be conducted for the Scheme as a whole and AIMA has absolute discretion in this regard (clauses 7.3 and 7.4.). 56 Quite apart from any limitation upon the extent of operation of the power of attorney, on our construction of the documents, a Grower may withdraw his or her crop from the pool at any time prior to sale. 57 The other possible factual error appears in a subsequent series of paragraphs (with a new numbering sequence) in which the "relevant facts" are set out. At para 4 it is asserted that: To become a Grower an applicant must complete and personally sign the Application Form and Power of Attorney Booklet. The Power of Attorney granted to AIMA is irrevocable until the expiration of the Scheme under the Constitution and gives AIMA wide powers to make decisions relating to the conduct of the Scheme, including the execution of the "Grower Agreements", and the variation, replacement and cancellation of those agreements and other related documents. 58 Any intended implication that AIMA will have an unfettered discretion in exercising the various powers is incorrect. As we have previously observed, pursuant to s 601FC of the Corporations Act all such powers must be exercised honestly and in the interests of the Growers.

THE COMMISSIONER'S SUBMISSIONS ON APPEAL 59 Although it is for the applicants to demonstrate that the rulings are wrong, it will be helpful, in view of the history of the matter, to set out the Commissioner's submissions in the context of his rulings. 60 The Commissioner accepts that the relevant outgoings will be incurred in gaining or producing assessable income and will therefore satisfy the first "positive limb" of s 8-1. However he submits that the outgoings will be of capital, or of a capital nature and therefore will not be deductible. The Commissioner submits that the advantage to be sought by each applicant in exchange for such outgoings will be the right to share rateably in the proceeds of sale of almonds produced by the Scheme as a whole, which right is a capital asset. Implicit in that submission is the assertion that: · each applicant will be properly characterized as a "passive investor"; and/or · by virtue of the structure mandated by Chapter 5C of the Corporations Act, AIMA will carry on the business of almond production for the benefit of Growers as beneficiaries of a trust. 61 The Commissioner submits that various propositions in the cases inform a principled approach to the characterization of an outgoing as being on capital or revenue account. In particular, he refers to the decision of the High Court in Sun Newspapers Ltd and Associated Newspapers Ltd v The Federal Commissioner of Taxation (1938) 61 CLR 337 where Dixon J said at 363: There are, I think, three matters to be considered, (a) the character of the advantage sought, and in this its lasting qualities may play a part, (b) the manner in which it is to be used, relied upon or enjoyed, and in this and under the former head recurrence may play its part, and (c) the means adopted to obtain it; that is, by providing a periodical reward or outlay to cover its use or enjoyment for periods commensurate with the payment or by making a final provisional payment so as to secure future use or enjoyment. 62 The Commissioner submits that of these matters, the character of the advantage sought in making the expenditure is "critical", involving the questions: · "What is the money really paid for?" and · "Is what it is really paid for, in truth and in substance, a capital asset?" 63 It is submitted that these questions must be approached from a practical, business point of view, not merely on the basis of legal structures employed to effect the relevant transactions. It follows that the way in which an outgoing is characterized in an agreement pursuant to which it is made will not be determinative. Where an outgoing is made pursuant to one of a number of interdependent agreements, the question (as to what the outgoing is for) will be answered by reference to the agreements as a whole, the totality of the rights and obligations which those agreements contemplate and their substance. 64 The Commissioner submits that the extent to which a payment is recurrent, and the extent to which it may be said to last over time, are important factors. The mere fact that consideration is payable in instalments will not prevent it from being on capital account. The Commissioner also submits that where a taxpayer is not carrying on a business within the meaning of s 8-1(1)(b), "a finding that the outgoings are on capital account will more readily be made". This proposition is said to flow from the decision of the High Court in Clowes v Federal Commissioner of Taxation (1954) 91 CLR 209 and the decision of this Court in Vincent v Commissioner of Taxation (2002) 124 FCR 350 at [74]-[75]. We doubt whether either case is really authority for that proposition. In Clowes, the High Court was considering whether a particular receipt was of capital or income. At 218 Dixon CJ said that the relevant receipt was not in the course of the taxpayer's business nor part of any system or practice. See also the reasons of Kitto J at 223. In Vincent, the Court was considering whether outgoings were of a capital nature, but the relevant passage appears in the course of the Court's consideration of whether calves to be received as the result of participation in a breeding scheme would be on capital or revenue account. Nonetheless we accept that where a business is being conducted, the surrounding circumstances are more likely to favour a finding that an outlay is on revenue account than might otherwise be the case. 65 The Commissioner accepts that a taxpayer may carry on a business notwithstanding that he or she has other, full time employment, and that a business may be carried on through an agent. However he submits that in this case, as a result of the irrevocable power of attorney, each applicant will need to take no further action with respect to the Scheme other than to pay rent and fees. It is said that each applicant will simply lay out money and await the results. Further, it is said that AIMA will be empowered to act independently of the direction or control of the applicants and may, if it wishes, unilaterally "vary, replace or cancel" the sub-leases and management agreements. It is also said that the applicants will exercise no control over AIMA and have no right of access to their Almondlots. AIMA, on the other hand, will enjoy full and free access to the Almondlots. The applicants will have no enforceable entitlement to give directions to AIMA and no recourse against AIMA in the event that they suffer loss as a result of AIMA refusing to follow any direction. AIMA will have sole discretion to decide whether, and to whom, it will delegate its functions and may change the management plan at any time. In the absence of a breach by AIMA each applicant will be unable to terminate his management agreement save by participation in a resolution of the Growers. 66 It is said that the applicants will have no right to the proceeds of sale of, or to take possession of, almond crops grown on their respective Almondlots. Thus it is said that the applicants will be passive investors in AIMA's business of almond production. Finally, the Commissioner submits that the regime established by Chapter 5C of the Corporations Act assumes that investors will not have day-to-day control of the operation of a managed investment scheme. He seems to assert that because the Scheme will be a managed investment scheme, regulated by Chapter 5C, it follows that neither applicant will be conducting a business. 67 With respect to the submission that the applicants will derive benefits as beneficiaries under a trust, the Commissioner points to s 601FC(2) of the Corporations Act, asserting that it has "the effect of creating, by force of law, a trust over the "scheme property", with AIMA as trustee. This proposition is said to lead to the conclusion that the proceeds of sale of the crop and product (net of costs and expenses) will be held on trust by AIMA for the benefit of, or for eventual distribution to, Growers rateably, in proportion to the number of Almondlots which they hold. Secondly, it is submitted that each Grower will contribute property to the Scheme, namely the right of access to his or her Almondlots for the purposes of theScheme. This, it is said, will be "a chose in action" in the nature of a licence and a contribution of "money's worth" within para (a) of the definition of "scheme property" in s 9 of the Corporations Act. The Growers will also "contribute" the right to sell the pooled almonds. 68 Turning to the ultimate issue, namely the proper characterization of the outgoings, the Commissioner simply submits that the advantage sought from them is the acquisition of a passive interest in the Scheme, namely the right to share rateably in its income, net of costs and expenses. He concedes that each category of outgoing, viewed in isolation, might appear to be a revenue expense. However it is said that when such outgoings are considered in the context of the Scheme as a whole, they bear a different character. AIMA's "ultimate obligation" will be to transfer to each applicant a rateable proportion of the proceeds of sale of the crop and product. It is then said that such obligation will give rise to "a co-relative right (or chose in action)" in the hands of each applicant, properly characterized as a right to future income. The right to future income is said to be "by its very nature, an 'income-producing asset'." It is then said that each category of outgoing will be paid for the purpose of securing that right and will accordingly be on capital account. This conclusion is said to be supported by the fact that neither applicant will be carrying on the business of almond production. 69 AIMA's intention to register the Scheme is said to demonstrate an assumption that it will be a scheme in which "people contribute money or money's worth as consideration for the acquisition of rights … to benefits produced by the scheme". It is said that on the approach taken by the applicants, there would be no contributions made in order to secure benefits, so that the Scheme would not require registration. Finally, the Commissioner relies upon the "large disparity" between the management fees payable by each applicant for the first four weeks of the Scheme (some $29,000) and the fees payable by AIMA to Select Harvests for the day-to-day orchard management services during that period (less than $2,400). We have already given our reasons for rejecting the Commissioner's reliance on this aspect of the case.

APPLICANTS' SUBMISSIONS 70 The applicants submit that in the absence of any allegation of sham or reliance on Part IVA of the 1936 Act, the matter should be determined by reference to the legal relationships established by the Scheme documents. See Commissioner of Taxation v Emmakell Pty Ltd (1990) 22 FCR 157 at 163. They point out that the Commissioner concedes that the outgoings will be incurred in earning assessable income, and that they will be of a nature which might well be characterized as being on revenue account. The applicants submit that: · they will each be carrying on a business for the purpose of gaining or producing assessable income; · nothing in Chapter 5C of the Corporations Actcompels the adoption of a trust as the mechanism for carrying on the business of a managed investment scheme; · the Commissioner has not identified any trust estate; and · the relevant outgoings are in categories which would not normally be classified as being on capital account.

CHARACTERIZATION OF THE SCHEME 71 The Commissioner's submissions focus upon the legal characterization of each applicant's interest under the Scheme as a step in characterization of the relevant outgoings. The underlying reason for such focus is the Commissioner's submission that each applicant will acquire a capital asset in consideration of his paying the outgoings, necessitating the identification of such capital asset. In effect, he argues that as neither applicant will (in his view) be carrying on a business, there must be a capital asset which will eventually yield a return. The relevant asset is either a share in the income stream which will eventually be generated by the Scheme or an interest in a trust which will eventually earn income.

Will each applicant be carrying on a business? 72 The indicia of conducting a business have frequently been identified in the cases. In Ferguson v Federal Commissioner of Taxation (1979) 37 FLR 310 at 314, Bowen CJ and Franki J said, concerning that question: There are many elements to be considered. The nature of the activities, particularly whether they have the purpose of profit-making, may be important. However, an immediate purpose of profit-making in a particular income year does not appear to be essential. Certainly it may be held a person is carrying on business notwithstanding his profit is small and even where he is making a loss. Repetition and regularity of the activities is also important. However, every business has to begin and even isolated activities may in the circumstances be held to be the commencement of carrying on business. Again, organization of activities in a business-like manner, the keeping of books, records and the use of system may all serve to indicate that a business is being carried on. The fact that, concurrently with the activities in question, the taxpayer carries on the practice of a profession or another business, does not preclude a finding that his additional activities constitute the carrying on of a business. The volume of his operations and the amount of capital employed by him may be significant. However, if what he is doing is more properly described as the pursuit of a hobby or recreation or an addiction to a sport, he will not be held to be carrying on a business even though his operations are fairly substantial. 73 More recently, in Puzey v Commissioner of Taxation (2003) 131 FCR 244 at [46]-[48], Hill and Carr JJ observed: 46. The question whether a person is carrying on a business is a conclusion to be drawn from all relevant facts and circumstances. There are some relevant propositions which can, however, be stated. First … every business must have a first transaction. And there may be a business, even if that business is small in scope … . A person may carry on a business, notwithstanding that the person had some other activity, such as full-time employment. It is not necessary in concluding that a business is carried on that the acts to be undertaken are acts of the person seeking to establish he or she is carrying on a business. So a person may appoint another to take the steps which constitute the business activity … . 47. It will be relevant in deciding whether a business is carried on that there is some repetition of acts and that the activities in question have "something of a permanent character" … . What is required is that activities be engaged upon "on a continuous and repetitive basis" … . However, perhaps not too much attention should be given to the concept of repetition where the activity is one, such as plantation operation, where the activity will continue over a relatively long period of time but where there will be significant periods of what may be referred to as inactivity. Business does not mean being busy. 48. In deciding whether or not a business is carried on, courts have pointed to what have been called in the United Kingdom the "badges of trade", indicia which, while no one of them will be determinative of whether a business is carried on, collectively will demonstrate a business. These include the profit motive (although a non-profit company may still carry on a business), acting in a business-like way (although many businesses may be found which operate in a non business-like way), the keeping of books of account and records (although the fact that there are none will not necessitate the conclusion that a business is not carried on) and repetition (although a fixed term project may still be a business). 74 In approaching the question it is also important to keep in mind the observations of Dixon J in Sun Newspapers at 359-60 where his Honour said: The business structure or entity or organization may assume any of an almost infinite variety of shapes and it may be difficult to comprehend under one description all the forms in which it may be manifested. In a trade or pursuit where little or no plant is required, it may be represented by no more than the intangible elements constituting what is commonly called good will, that is, widespread or general reputation, habitual patronage by clients or customers and an organized method of serving their needs. At the other extreme it may consist in a great aggregate of buildings, machinery and plant all assembled and systematized as the material means by which an organized body of men produce and distribute commodities or perform services. 75 There can be no doubt that each applicant will participate in the Scheme for the purpose of deriving financial gain. Such a gain will only be derived if proceeds from the sale of almonds exceed the expenses (including rent) incurred in producing, processing and selling them. Each applicant will bring his leased Almondlots to the Scheme. They will be used for the purpose of growing almonds for sale. Each applicant will also have an ongoing commitment to pay management fees and other outgoings so as to ensure that the trees eventually become, and then remain, commercially productive. This activity will extend over many years and be performed by AIMA or its agent, but at the expense of each applicant, such expenses being met from year to year. There will be seasonal financial returns, but they will not commence for some years. 76 The Commissioner submits that neither applicant will be conducting a business because: · each applicant will have delegated to AIMA his responsibility for management of his Almondlots; · AIMA intends that the Scheme be registered under Ch 5C of the Corporations Act; · there is a "disparity" between the cost to AIMA of obtaining management services from Select Harvests and the management fees charged to each applicant for the period from 2 June 2009 to 30 June 2009 and in later periods; and · the almond crops will be pooled for sale. 77 As to the question of delegation, we consider that the Commissioner focuses too much upon what the applicants will not be doing and pays too little attention to what they will be doing. His approach involves the identification of functions which are, perhaps usually, incidental to the conduct of a business and are, perhaps normally, performed by the person who is ultimately carrying on the business. Such an approach fails to give sufficient weight to the observations by Dixon J in Sun Newspapers concerning the variety of forms which a business may take. It also places an artificial limit upon the proposition (which the Commissioner accepts) that a person who conducts a business may delegate functions to another. The notion of a "silent partner" assumes the possibility of more or less total delegation. 78 In any event, each applicant will have obligations under his sub-lease, his management agreement and the constitution. Each may look to AIMA to perform many of those obligations, but each will pay for such performance and, ultimately, each will bear the consequences of any failure by AIMA to do so. In those circumstances we cannot accept the Commissioner's description of each applicant's involvement in the Scheme as being to lay out money and await the results. Further, the Commissioner seems to have ignored the possibility that a prudent Grower might choose to ensure, as far as is practicable, that AIMA performs its obligations in an appropriate and economical way. Such a function is as much a part of carrying on business as any of those identified in the Commissioner's list of functions which the applicants will not perform. 79 The Commissioner's reliance upon AIMA's intention to register the Scheme under the Corporations Act is really little more than a restatement of the submissions concerning delegation. It is submitted that Ch 5 of the Corporations Act assumes that a scheme member will have no day-to-day control over its operations. AIMA's opinion as to the proper construction of the Corporations Act, or that of its legal and/or accounting advisers, is hardly relevant for present purposes. In any event we see nothing in the registration requirements (s 601ED) which would be inconsistent with a finding that an individual Grower will be carrying on his or her own business. No doubt AIMA will be carrying on a business. That business may be the promotion and management of managed investment schemes. That it will be doing so will not exclude the possibility that it may also be managing the Scheme on behalf of Growers, or that each Grower may be conducting the business of producing almonds for sale. 80 We have already said something about the so-called disparity between fees payable to AIMA and fees payable by AIMA to Select Harvests. Given the assumption that the management fees will be within the range of fees charged in the industry for similar services provided in relation to schemes of this nature, we find the Commissioner's position difficult to understand. More significantly we note the different duties to be undertaken in the period from 2 June 2009 to 30 June 2009, to which we have previously referred, and the possibility that the supply of services may commence before 2 June 2009. The Commissioner's references to alleged disparities in later periods are imprecise and seem not to have been given significant weight. In any event, these matters have little relevance to the question of whether each applicant will be conducting a business. They may, of course, be relevant to the question of characterization of the outgoings. As we have observed, in his submissions on appeal, the Commissioner did not rely upon the so-called discrepancies between Select Harvests' charges to Almond Land and AIMA's charges to Growers. 81 We turn to the question of pooling. The Commissioner asserts that AIMA will have the "right" to pool. Clause 7.4 of the management agreement may suggest as much. However, when read with cll 6 and 8 of that agreement and cl 13 of the constitution, it is clear that each crop will be the property of the Grower until it is sold. Until that time, the Grower may withdraw it from the pooling arrangement. No doubt the Commissioner is correct in assuming that generally, Growers will utilize the mechanism of marketing the pooled crop but nonetheless, a crop will be produced on each Grower's Almondlots, which crop he or she will own. That a Grower may choose to participate in pooled marketing and sales may well be an entirely appropriate way of carrying on business. 82 The Commissioner relies heavily upon the reasons of Dixon CJ and Kitto J in Clowes (supra). However that case differed substantially from the present case. Dixon CJ characterized the relevant arrangement "from the taxpayer's point of view" as follows (at 216-217): … he laid out a sum of money entitling him at the end of a protracted period of time to an uncertain return in a lump sum which he hoped might prove larger than his outlay though it might well prove smaller. In the event, when a period of fifteen to eighteen years had elapsed, he received back a sum equal to his outlay and an additional forty per cent. But the taxpayer did nothing but lay out his money on the faith of the contract to await the result. The company was in no sense his agent. The money which he paid in pursuance of the contracts became part of the general funds of the company. Its obligations to him were simply contractual. It made the contract for its own advantage and in performing it acted independently of the direction or control of any lot-holders, whose relationship to the company was simply that of persons providing it with money on special term. Further, every lot-holder made a separate contract. They were not bound together by any contract inter socios. It would be impossible to regard them collectively as an unincorporate body or association of persons that would fall within the definition of "company" contained in s 6 of the Income Tax Assessment Act 1936-1945. 83 In Clowes the amount payable by the taxpayer in order to acquire the relevant rights was a fixed sum, payable at the commencement of the arrangement, although there was provision for payment by instalments. After such payment, no further action was required of the taxpayer. It could properly be said that he or she would "await the result". In that case, too, there was no question of the taxpayer acquiring any title to relevant land or to the timber. At 218 Dixon CJ observed: If the case is considered apart from s 26(a), then I think the taxpayer's gain should be held to be a mere enlargement of capital. In the case of each of the two contracts, a single sum was paid in the expectation or hope of the return of a single sum, an increased sum. From the taxpayer's point of view it was nothing but a casual investment of capital in hope of enlargement at the end of many years. 84 In the present case, each applicant will have a continuing financial commitment to the Scheme and seasonal income over many years. The repetitive nature of both obligations and benefits strongly suggests the conduct of a business. 85 It is true that in Milne v Federal Commissioner of Taxation (1976) 133 CLR 526 the High Court seemed to place less emphasis on the single receipt of income than did Dixon CJ and Kitto J in Clowes. In that case the Commissioner sought to distinguish Clowes upon the basis that the return to investors was to be paid in almost annual sums as opposed to the lump sum payment in Clowes. The Court rejected that approach, finding the receipts to be of capital and adopting the reasoning of Dixon CJ and Kitto J. However Milne seems otherwise to have been factually similar to Clowes and therefore different from the present case. 86 The Commissioner also relies on the decision of French J at first instance in Vincent (reported at (2002) 50 ATR 20 where his Honour considered a scheme which involved the leasing of cattle for the purpose of breeding. French J observed at [108]: Nevertheless having regard to [the taxpayer's] non-involvement in the operation of the project and the way in which [the manager] managed the herd as undifferentiated group of cattle without regard to the rights of particular investors, I could not accept that [the taxpayer's] outgoings were necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. 87 It is submitted that by parity of reasoning a similar result should follow in the present case. However the observations were not part of the ratio of the case. The introductory words at [108] demonstrate that his Honour disposed of the matter on another basis. On appeal (supra) the Full Court did not consider whether the taxpayer was conducting a business, observing at [60]: For the purposes of the present argument we are content to restrict consideration of this issue to the one issue only, namely whether the management fees claimed were capital or of a capital nature. If they were, then the amount in question would not be deductible, even if incurred in gaining or producing the assessable income as held by the learned primary Judge. 88 The Court considered that the taxpayer was entitled to receive six calves of a particular description, regardless of whether the leased cows had produced those calves or any other progeny. At [62] their Honours observed: It may be accepted that moneys outlaid for management services to be rendered on a recurrent basis would ordinarily be on revenue account, particularly, although not necessarily limited to the case, where the services are rendered for a business carried on by a taxpayer. The same may be said of recurrent chattel leasing expenditure. And this result will ordinarily not be affected (absent legislative provision) merely because some part of the consideration may be payable in advance … . However, it cannot be extrapolated from cases such as those just cited that every time there is an agreement which nominates a consideration for services to be performed the payment will be on revenue account. Whether it is will depend upon all the circumstances and particularly an analysis of the agreement under which the payments are made. 89 The Court then went on to characterize the contemplated benefit from the outgoings as being the supply of six calves as described, and not necessarily the progeny of cows leased by the taxpayer for the purposes of the scheme. Had the taxpayer been carrying on the business of breeding cattle and selling progeny, the calves would have been trading stock. However, as she was not doing so they were, in effect, capital. It followed that the taxpayer's outgoings in connection with the scheme were of a capital nature. It is likely that the views expressed by French J at first instance were, at least to some extent, influenced by that aspect of the case. In any event, there is a clear distinction between the "one off" receipt of six calves and repeated seasonal returns from the Scheme. 90 In the present case the continuation of the operation over an extended period of time, the repetitive nature of the work involved in farming each Almondlot (to be paid for on a regular basis) and the return in the form of almond crops (to be received from year to year) all suggest an ongoing business. The applicants may not have control over the way in which their Almondlots are farmed, but that is an incident of their grouping for the purposes of management. Each applicant may terminate the management agreement for breach or, in company with other Growers, resolve to dismiss AIMA as manager. Each applicant has an ongoing commitment to paying AIMA to do what is necessary in order to facilitate commercial production of almonds over a lengthy period of time. In light of AIMA's authorization to pool almonds for sale under cl 7.4 of the management agreement, each applicant is likely to obtain a return for his product in a proportion differing in some degree from the actual contribution to the pool of almonds made by him. This scheme, allowing both for pooling and for the easy ascertainment of a grower's entitlement on sale, seems to us to reflect no more than a commercially sensible mechanism which, it is probably envisaged, will be fair and economical to all growers in the circumstances. In our view each applicant will be carrying on an individual business on his or her Almondlots with the purpose of producing almonds for sale at a profit.

Will each applicant acquire an interest in an income stream? 91 Our conclusion that each applicant will be conducting a business from which the relevant assessable income will be derived effectively rebuts the Commissioner's contention that the outgoings will be capital or in the nature of capital. That latter contention is predicated on a conclusion that what the applicants are acquiring in making the relevant outgoings is a 'passive investment' in the form of a right to share rateably in the income of the Scheme (net of costs and expenses) and that right is a capital asset. But such a conclusion is not open if an applicant incurs the relevant outgoings in the course of carrying on a business. 92 So much is to be taken from what a Full Court (Davies, Gummow and Hill JJ) of this Court observed in Commissioner of Taxation v Raymor (NSW) Pty Ltd (1990) 24 FCR 90 at 99: The answer to the first question posed by Dixon J [in Sun Newspapers 61 CLR 337 at 363 - the character of the advantage sought] is not to be obtained by a jurisprudential analysis of the process of entering a contract. It can be said of every payment pursuant to a contract that it secures to the payee the contractual rights under the contract. In that sense every payment made under a contract confers upon the payee a chose in action which can be described as an asset and which contractual right is discharged by the performance of the contract. But such an analysis is of no assistance in the resolution of whether a particular outgoing is on capital or revenue account. Rather as Dixon J said in Hallstroms Pty Ltd v Commissioner of Taxation (Cth) (1946) 72 CLR 634 at 648 the answer: " ... depends on what the expenditure is calculated to effect from a practical and business point of view, rather than upon the juristic classification of the legal rights, if any, secured, employed or exhausted in the process." 93 What the Court had to say a little later in its reasons concerning Federal Commissioner of Taxation v Walker (1984) 2 FCR 283 is also relevant to this point. At 100-101, the Court said: In Walker … the taxpayer had been a partner of two partnerships. The facts surrounding the first partnership (Wentara Lodge Cattle Breeders) were that the partners had "leased" six pure bred cattle which were to be operated upon so as to gain a maximum number of 48 progeny. An amount of "rental" was payable at the commencement of this lease which was in substance to procure the ultimate progeny. In the second year of income the taxpayer was a member of a partnership styled "Columba Park Charolais Cattle Breeders". The partners entered into a document referred to as a "deed of management" pursuant to which the manager was to procure operations to be performed on donor animals owned by the partnership and produce a guaranteed number of 48 calves. Although the form of documentation in each partnership differed, the commercial substance of each was the same, namely that the partners contracted for the acquisition in the future of calves for use as trading stock in the partnership business. The Commissioner made the same argument as that made before us and cited the same cases in support of it. It was found as a fact that at the time each payment was incurred by the partners, they were carrying on a business which necessarily involved the breeding up of a substantial herd of valuable pure bred cattle and the continued breeding of them for sale. In the view of Fisher J that finding was of "prime importance, and if accepted ... virtually concludes these appeals" (at 291). In answer to the submission of the Commissioner that the outgoings were on capital account, his Honour, although not elaborating upon the submissions made, said (at 294): "This contention is answered by the conclusion that the partnerships were carrying on business operations. Pursuant to and in the course of these activities they were taking steps to acquire and build up trading stock. It cannot be said that they were acquiring capital assets or enlarging the permanent structures of the partnerships ... ." Davies J found it unnecessary to deal specifically with the argument put by the Commissioner. His Honour said (at 296): "The crux of the appeals is whether or not, during the subject years the taxpayer ... and the persons with whom he was associated in the subject arrangements, carried on business. If they did carry on business, the contentions put by the Commissioner of Taxation against the fiscal effects of the arrangements and of the acts done were unsound, as Fisher J has explained." Neaves J dissented, having taken a different view of the facts. Nothing said by his Honour, however, would cast doubt upon the deductibility of the outgoings there in question had it been correct to conclude that the parties were carrying on business.'

Will each applicant be a beneficiary of a trust? 94 We do not understand the Commissioner to submit that Scheme income should be treated in accordance with legislative provisions concerning the taxation of trust income. The point is rather, as we have previously observed, that the Commissioner seeks to identify a capital asset arguably acquired by each applicant in consideration of payment of the relevant outgoings. The Commissioner points to the provisions of s 601FC(2) of the Corporations Act in order to demonstrate the existence of a trust for the benefit of each applicant. He identifies as trust assets: · the proceeds of sale of almonds; · AIMA's right of access to the various Almondlots; and · AIMA's "right" to "deal with and dispose of" almonds produced on all Almondlots. 95 In Southern Wine Corporation Pty Ltd (In liq) v Frankland River Olive Co Ltd (2005) 31 WAR 162, especially at [33] the majority approved the earlier decision of McLure J in Re Global Finance Group Pty Ltd (In liq); ex parte Read (2002) 26 WAR 385. In the latter case her Honour observed at [167]: Whether a condition as to the use of money will amount to a trust depends upon the intention of the creditor and the debtor. Mutual intention is usually inferred from, inter alia, the nature of the transaction, the circumstances surrounding their relationship, the conduct and the language used by the parties … . 96 Clause 12 of the constitution and cll 7.3 and 15 of the management agreement suggest that moneys will be held on trust for the Growers, but we do not understand the Commissioner to rely upon those provisions. He rather relies upon s 601FC(2) of the Corporations Act. We understand that section to apply to scheme property which is "held" by a responsible entity. It does not, for example, apply to property which is "held" by individual members of a scheme. Nor, as Keane JA pointed out in Mier v FN Management Pty Ltd [2006] 1 QdR 339, does it necessarily apply to all property held by the responsible entity or used in the operation of the scheme. Section 601FC(2) operates only in connection with scheme property as defined in s 9 of the Corporations Act. We have already set out that definition. Some of the terms used in it require explanation. The first is the word "contributions". Chapter 5C relates to "managed investment schemes". The definition of that term in s 9 of the Corporations Act has been set out above. 97 The terms "contribute" and "contributions" in that definition inform the meaning of the word "contributions" in the definition of "scheme property". Clearly, any contributions will be made by a member or potential member. 98 The second term which may require explanation is "money's worth". The Shorter Oxford English Dictionary defines that expression to mean: 1. An equivalent for the sum of money paid or to be paid …; full value. Now chiefly with possess[ive] pron[oun] … . 2. A thing that is worth money or is recognized as equivalent to money. 99 In Secretan v Hart [1969] 1 WLR 1599 at 1603, Buckley J said: The expression "consideration in money's worth" is, of course, one which is very familiar to lawyers as being a way of expressing the price or consideration given for property where property is acquired in return for something other than money, such as services or other property, where the price or consideration which the acquirer gives for the property has got to be turned into money before it can be expressed in terms of money. 100 The question was also considered in Gideons International Service Mark (1991) 108 RPC 141, a decision in the United Kingdom Trademarks Registry. The question there was the meaning of the term "money's worth" in the trademarks legislation. It was said that: This is a common phrase in everyday use in England. The definition given in the Concise Oxford Dictionary is "anything recognized as equivalent to money". My own general knowledge of English usage indicates that "money's worth" is used to mean "equivalent to money" in the sense of being something essentially material. In other words any emotional or spiritual reward, however momentous, could not properly be described as "money's worth". I maintain that this is the normal meaning of this everyday phrase and I have no doubt that it is the meaning intended by Parliament in the Trademarks (Amendment) Act 1984. 101 It is now necessary to examine the three items of "property", beneficial interests in which, as the Commissioner submits, will be acquired by each applicant as the result of paying the relevant outgoings. It is said that "the proceeds of sale of the crop and product will be held on trust by AIMA for the benefit of all Growers for eventual distribution (net of costs and expenses) rateably in proportion to the number of Almondlots which they hold …". It is not entirely clear to us that such amounts will be within the definition of "scheme property" in the Corporations Act, but we will assume for present purposes that they will be within either para (d) or para (e). However cl 12 of the constitution and cll 7.3 and 15 of the management agreement demonstrate that such proceeds are held on trust for individual Growers. It seems unlikely that s 601FC(2) is intended to apply to the benefit for which each individual member of a scheme has bargained, so as to impose upon that benefit a trust for the benefit of all scheme members. The better view is that for the purposes of s 601FC(2), AIMA will not hold any beneficial interest in the net proceeds of sale. At most s 601FC(2) will operate only upon such interest as AIMA holds, namely the bare legal title. In consequence, in the likely event of sales of produce being made from the almond pool, AIMA will hold the gross proceeds on trust for the growers in accordance with their respective entitlements in those proceeds. 102 Superficially, it might be arguable that the Growers will pay to acquire interests in the trusts created by the clauses in the constitution and the management agreement to which we have referred. That argument does not withstand close scrutiny. Those trusts are simply mechanisms to safeguard Growers' interests to which they will be entitled under the terms of the Scheme. They do not involve any income-yielding trust asset. It is probably for this reason that the Commissioner does not rely on those clauses. 103 Neither approach leads to the conclusion that each applicant will meet his financial obligations under the Scheme in order to acquire an identifiable asset which will produce the net proceeds of sale of his crop. 104 We turn to the right of access to each Almondlot which, as the Commissioner alleges, each Grower confers upon AIMA. This submission reflects a misunderstanding of the Scheme documents. Clause 10.1 of the management agreement will provide that: AIMA and its invitees will be entitled to such access to the Almondlots and Almond Trees as is necessary or desirable to perform AIMA's obligations under this Agreement. 105 However a Grower's entitlements with respect to each Almondlot are established by cl 3.1 of the relevant sub-lease to be granted by AIMA as head lessee. Pursuant to cl 5.2 of each sub-lease: AIMA: (a) is entitled to full and free access for the purposes of carrying out its obligations and exercising its rights under this Deed and the Almondlot Management Agreement with or without vehicles to the Almondlots along any road or track or any neighbouring land owned or occupied by AIMA the Land Owner or other Growers which gives access to the Almondlots; (b) is entitled to full and free access with or without vehicles to the relevant Almondlots for the purpose of accessing neighbouring land owned or occupied by AIMA, the Land Owner or other Growers; (c) may at its own expense erect and maintain a sign on the Almondlots detailing such matters as AIMA reasonably considers appropriate. 106 The grant of each sub-lease will be subject to such rights. In other words the right of access will not be created by the management agreement but by AIMA's reservation of such right from the grant pursuant to the sub-lease. The estate taken by each Grower will be limited by AIMA's right of access. It is simply not the case that individual Growers will "contribute" such "rights" to the Scheme. It follows that such "rights" are not scheme property for the purposes of the Corporations Act. We should add that pursuant to cl 1.5 of the management agreement AIMA may delegate its obligations and the exercise of its rights to its employees, agents and contractors. Thus, they may exercise AIMA's access rights. 107 The Commissioner submits that AIMA's "right" to deal with, and dispose of the crop and product will be "scheme property". In view of the fact that a Grower may revoke such "right" at will, it would be curious if it were to be treated as scheme property. Further, it will not be within either para (b) or para (c) of the statutory definition of "scheme property" as it is not money. The "right" will be purely contractual and not in any sense derived from contributions or scheme assets for the purposes of paras (d) and (e). As to para (a), it is not entirely clear that the "right" will be "money's worth", given the Grower's capacity to revoke it at will. It is therefore difficult to characterize it as a "contribution" to the Scheme. 108 There is, however, a more fundamental problem. The so-called "right" to deal with the crop is, in fact, a contractual obligation imposed upon AIMA by cl 5.3(aa) of the management agreement. AIMA will be paid for such services pursuant to cl 12. Clause 7.4 acknowledges that such obligation may properly be discharged by pooling, a course which might otherwise be inconsistent with the duty imposed by cl 7.3(b). AIMA's obligation necessarily implies a power to deal with the crop, including the power to sell it. That a Grower will authorize AIMA to deal with his or her crop so as to perform its obligation to sell it cannot readily be described as a contribution of money's worth to the Scheme. 109 It follows that there will be no relevant trust interest acquired by either applicant in exchange for payment of the relevant deductions. Out of an abundance of caution we point out that the Commissioner has not submitted that the applicants' subleases will be contributed to the Scheme.

CHARACTERIZATION OF THE RELEVANT OUTGOINGS - S 8-1 110 Once it is accepted that the relevant outgoings will be incurred in the course of carrying on a business, the characterization issue is to be answered by reference to the question of "what the expenditure is calculated to effect from a practical and business point of view" (per Dixon J in Hallstroms). The Commissioner has effectively conceded that, on the face of the documentation, the outgoings fall into categories which have traditionally been treated as on revenue account, being either rent or management fees (including responsible entity fees). Each applicant will acquire leasehold interests in land upon which almond trees will have been planted and infrastructure installed. The only permissible use of the Almondlots will be for growing almonds. Each applicant proposes to do so. The areas of land will be small, and so it will be economical and convenient that the undertakings be managed collectively with Almondlots owned by other Growers. It may also be convenient, although not essential, that the crop be pooled and sold collectively. Each applicant will have an ongoing financial commitment to the process. He will be ultimately responsible for maintaining his lease in good standing, paying his share of management and responsible entity fees and meeting other outgoings. There is no guaranteed return. That will depend upon the successful nurturing of the trees to maturity and thereafter, using good agricultural practice and marketing skills. The only answer open is that the relevant outgoings will be incurred as operating expenses in carrying on each applicant's business. It follows that they are deductible pursuant to s 8-1 of the 1997 Act.

ORDERS 111 Each appeal should be allowed. Each matter should be remitted to the Commissioner for further consideration. The parties agree that there should be no order as to costs. I certify that the preceding one hundred and eleven (111) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Finn, Dowsett and Edmonds.

Associate: Dated: 19 December 2008 Counsel for the Applicant: Mr JW De Wijn QC, Mr MT Flynn and Ms RN Annesley

Counsel for the Respondent: Mr A Robertson SC, Mr JO Hmelnitsky and Mr DF Thomas

Solicitor for the Respondent: Australian Government Solicitor