Martin v Commissioner of Taxation

Martin v Commissioner of Taxation - [1953] HCA 100 - HCA 1953 case summary — Zoe

[12]

If the taxpayer's betting and racing operations were as extensive as he claimed, then I think he carried on the business of betting on racehorses during the first income year in question and the business of horse racing and betting on horse races during the remaining two years. I base this view mainly on the considerable amount of time spent by him on racing and betting operations, the very large proportion of his assets and income applied to them, and the systematic methods employed by him, which were, I think, really directed more to making profit than deriving pleasure. The taxpayer's hotel was a small one as the price he paid for it suggests. His wine quota was only £7 a month. He claims he made a loss on the farm of over £500 in the last three income years. It is not always easy to conclude that an individual carries on the business of racing or betting when at the same time he has another business which ordinarily would be a full-time occupation. On the one hand it might well be that a man of considerable means could give as much time to racing and betting as the taxpayer did, without being properly found to be carrying on the business of racing or betting. On the other hand, while it is true that in some peculiar circumstances a man might indulge in racing or betting even beyond his means merely for pleasure, it is more likely to be for profit where his betting or racing transactions are so heavy as to be out of proportion to his assets or income and are systematically conducted, as in this case. However, there is no single factor or group of factors that points to a betting or racing business in any case in which it appears. Many factors might be common to the activities of two individuals, and yet, because of the presence of other factors, a different conclusion might properly be reached in respect of those persons by the same court. The test is both subjective and objective: it is made by regarding the nature and extent of the activities under review, as well as the purpose of the individual engaging in them, and, as counsel for the taxpayer put it, the determination is eventually based on the large or general impression gained.

[20]

These are three appeals by a taxpayer, G. E. Martin, from orders of Webb J. dismissing his appeals from assessments in respect of his income derived during the years ending 30th June 1944, 1945 and 1946. The first two assessments are amended assessments, the third assessment is an original assessment. The original assessments for the first two years were amended by the respondent so as to include in the taxpayer's assessable income gains which the taxpayer had made from betting or racing. In the third assessment similar gains were included in his assessable income. The taxpayer is not by occupation a bookmaker or trainer or jockey. During the whole of the year ending 30th June 1944 he was carrying on the business of a small hotel-keeper in the Metropole Hotel, Ipswich, Queensland. He continued to carry on this business till the end of March 1945 when he sold the business and bought a farm. He was still carrying on the farming business at the end of the third year. During the whole of the three years the taxpayer employed a registered tax agent. W. E. Michel, to keep his books of account and prepare his income tax returns. He gave Michel particulars of his wins and losses from betting from time to time from his betting-books, and Michel entered these particulars in the taxpayer's books of account. His betting was confined almost entirely to one racecourse, Albion Park, Brisbane. Michel prepared balance sheets of the taxpayer's affairs which were sent to the respondent with his income tax returns, and the balance sheet for each year showed as part of the taxpayer's capital account under the heading "betting transactions" the total amount of winning bets, losing bets and the balance. For the year ending 30th June 1944, the figures were: winning bets £3,538 5s. 0d., losing bets £1,149: credit balance £2,389 5s. 0d. For the year ending 30th June 1945: winning bets £7,513 10s. 0d., losing bets £2,839: credit balance £4,674 10s. 0d. For the year ending 30th June 1946: winning bets £4,429 10s. 0d, losing bets £2,565 0s. 0d.: credit balance £1,864 10s. 0d. The total credit balance for the three years was £8,928 5s. 0d. In the last two years the taxpayer also indulged in the luxury of racing and breeding racehorses and owned blood stock and his capital account in these years showed entries of prize moneys and racing and stud expenses. Over the two years the taxpayer was also successful in his racing, his expenses for the year ending 30th June 1945 being £186 9s. 0d. and the prize money £91 2s. 0d. and for the year ending 30th June 1946 his racing and stud expenses being £652 1s. 2d. and the prize money £950 14s. 8d. The respondent included these items of income and expenditure in the adjustments he made in the amended assessment for the year ending 30th June 1945 and in the original assessment for the year ending 30th June 1946.

[21]

The taxpayer gave evidence about his betting transactions during the three years. This evidence was summed up by Webb J. as follows: - "During those years the taxpayer claimed to have made 602 bets, including 275 winning bets. He said that he had no betting transactions between 18th August 1943 and 9th February 1944; but he claimed to have won at 23 race meetings out of 29, and to have won 41 bets out of 77, between 9th February and 30th June 1944. He also claimed to have won at 35 out of 55 race meetings, and to have won 123 bets out of 265, during the year ended 30th June 1945; and to have won at 24 out of 44 race meetings, and to have made 111 winning bets out of 268, for the year ended 30th June 1946. He further claimed that money staked by him during the three income years ranged from £4,687 to £10,352". Referring to horse racing his Honour said: "During the year 1944 and thereafter the taxpayer purchased several racehorses. One called "Nitram" was bought for £892 and won six races. Another, "Halo Girl" was bought for £100 and won three races. She was bought for breeding purposes also. Three other racehorses were bought for prices not stated. One, "Staffon", won five races, and each of the other two won a race. The income tax return for one year disclosed £950 prize money. The taxpayer did not keep racing stables; but he employed several trainers, from whom he obtained information for betting purposes. He also employed a man to make bets for him, so that he might get longer odds". Later his Honour said: "If the taxpayer's betting and racing operations were as extensive as he claimed, then I think he carried on the business of betting on racehorses during the first income year in question and the business of horse racing and betting on horse races during the remaining two years. I base this view mainly on the considerable amount of time spent by him on racing and betting operations, the very large proportion of his assets and income applied to them, and the systematic methods employed by him, which were, I think, really directed more to making profit than deriving pleasure".

[23]

The definition of income from personal exertion includes the proceeds of a business carried on by the taxpayer, but the pursuit of a pastime, however vigorous the pursuit may be, does not usually amount to carrying on a business and gains or losses made in such a pursuit are not usually considered to be assessable income or allowable deductions in computing the taxable income of a taxpayer. The onus, if the case is one in which onus assumes any importance, is on the appellant to satisfy the Court that the extent to which he indulged in betting and racing and breeding racehorses was not so considerable and systematic and organized that it could be said to exceed the activities of a keen follower of the turf and amount to the carrying on of a business. But no question of onus appears to us really to arise. It is simply a question of the right conclusion to draw from the whole of the evidence. Although the issue is one of fact there is no conflict of evidence and the case is one of those cases where the court of appeal is in as good a position to reach a conclusion as the judge below: "many, perhaps most cases, turn on inferences from facts which are not in doubt, or on documents: in all such cases the appellate Court is in as good a position to decide as the trial judge", per Lord Wright in Powell v. Streatham Manor Nursing Home [1] . Webb J. held that the taxpayer was carrying on a business of racing and betting because of (1) the considerable amount of time spent by him in racing and betting operations; (2) the very large proportion of his assets and income applied by him for that purpose; and (3) the systematic methods employed by him which were, his Honour thought, really directed more to making profit than pursuing pleasure. With all respect to his Honour the evidence does not appear to us to justify these conclusions. In fact, the taxpayer frequented one race-course and then only on ordinary racing days. If the number of bets he made appears at first sight to have been large, they do not seem to add up to more than about one bet on each race and therefore not to point to more than a normal propensity of racegoers who bet as a pastime. The taxpayer could afford this indulgence since he was, on the evidence, so successful. He said that he never ventured much over £100 on any race and that the biggest bet he ever won was £500 to £40 on one of his own horses. He said that he stayed away from the races for the first nine months after he purchased the hotel, for he was then in a new job and had to concentrate on that until he had control of it. Cross-examined as to system he said: -

At a glance

Court

Decision date

Before

Source

Judgment (44 paragraphs)

Parties