Re Helen Fisher v Secretary, Department of Social Security [1991] FCA 439; (1991) Assc 92-123 (1991) 23 ALD 596 (1991) 31 FCR 377, (1991) 14 Aar 374 (19 September 1991)

FEDERAL COURT OF AUSTRALIA

Re: HELEN FISHER
And: SECRETARY, DEPARTMENT OF SOCIAL SECURITY
No. Q G147 of 1990
FED No. 571
Social Security
[1991] FCA 439; (1991) ASSC 92-123
(1991) 23 ALD 596
(1991) 31 FCR 377, (1991) 14 AAR 374

COURT

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Heerey J.(1)

CATCHWORDS

Social Security - entitlement to unemployment benefits - income - s.3 Social Security Act 1947 - calculation of profits of farming business - cost of stock to be deducted from income of business - whether opening and closing stock for period to be included in calculation - whether cost of purchase of farm to be deducted from income of business.

Administrative Decisions (Judicial Review) Act 1977

Income Tax Assessment Act 1936: s.75B

Social Security Act 1947: Ss.3, 122(4)

Social Security and Veterans' Affairs (Miscellaneous Amendments) Act 1986

Bond v Barrow Haematite Steel Co (1902) 1 Ch 353

Department of Social Security v Garvey (1989) 91 ALR 245

Federal Commissioner of Taxation v Slater Holdings Limited [1984] HCA 78; (1984) 156 CLR 447

Haldane-Stevenson v Director-General of Social Security (1985) 9 FCR 73, (1985) 60 ALR 621

Re Spanish Prospecting Co Limited (1911) 1 Ch 92

HEARING

BRISBANE
19:9:1991

Counsel for the Applicant: Mr M. Amerena

Solicitors for the Applicant: Creevey Sheehan and Mallett

Solicitors' Town Agents: Callaghan and Reidy

Counsel for the Respondent: Mr J. McGill

Solicitors for the Respondent: Australian Government Solicitor

ORDER

The application be dismissed.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

This application under the Administrative Decisions (Judicial Review) Act 1977 is concerned with the definition of "income" contained in s.3 of the Social Security Act 1947 ("the Act") for the purposes of entitlement to unemployment benefits under Part XIII of the Act.

2. The matter has had a particularly complicated history, involving an appeal to the Administrative Appeals Tribunal and a subsequent decision of the Department of Social Security made on or about 25 October 1990, which is the decision sought to be reviewed in this proceeding. The reasoning which lead to that decision is now conceded by the respondent to be incorrect, but it is said a correct application of the Act to the facts of the applicant's case produces the same result; viz that she is not entitled to the benefits sought. Counsel before me were able to agree on the issues requiring this court's determination. I think therefore that no useful purpose would be served by a recital of the procedural history. But to put the issues in context it will be necessary to say a little about the factual background.

3. The income in question is that of the applicant's spouse, Mr Gordon Kerr. Mr Kerr's income is of course to be taken into account in assessing the applicant's entitlement: s.122(4) .

4. Since 1975 Mr Kerr has carried on a farming business on a property of 513 hectares called "Milton" in the Chinchilla district of Queensland. He runs beef cattle and sheep.

5. In November 1987 he leased an adjoining grazing property of 513 hectares called "Mayberry".

6. By April 1988 seasonal conditions had improved to the extent that Mr Kerr was able to buy further sheep. However the owner of "Mayberry" fell ill and died towards the end of 1988. It seemed likely that the executors of the owner's estate would be obliged to sell the property. Fearing the loss of his agistment rights with new ownership, Mr Kerr entered into negotiations with the executors and at about the end of May 1989 he signed a contract for the purchase of "Mayberry". The sale was completed on about 25 June 1989. For the purpose of the sale Mr Kerr obtained a loan of $180,000 from the Queensland Industry Development Corporation and some financial support from an uncle. He had also some funds which had become available from the sale of his wool amounting to $35,000. Sums were paid for legal costs and stamp duty.

7. The period in respect of which the applicant's entitlement to unemployment benefits is disputed is the period 18 November 1988 to 3 July 1989. The Administrative Appeals Tribunal had considered that period on the basis of Mr Kerr's income tax return for the 1987/88 year. By the time of the reconsideration which led to the decision sought to be reviewed, that is to say in October 1990, Mr Kerr's 1988/89 return was available. Counsel for the respondent submits that the entitlement to benefit during the relevant period ought to have been calculated on the basis of the best evidence available as to the actual earnings of Mr Kerr during that period, namely the information contained in the 1988/89 return.

8. No authority was cited on this point and little argument was addressed to it. However as a matter of common sense the respondent's contention is compelling. As between the applicant and the Department, obviously the fairest and most satisfactory result is that which is based on the most accurate information. To apply an aphorism sometimes used in other branches of the law, why speculate when you can calculate?
Stock

9. The respondent's contention is that in the course of calculating the income of Mr Kerr for the purposes of the Act one should deduct from the figure for the sales of stock during the year the cost of that stock. This latter figure is arrived at by taking the stock on hand at the beginning of the year, adding the cost of purchases during the year and deducting stock on hand at the end of the year.

10. The applicant argues that purchases of stock should be taken into account and deducted, along with other expenses, from sales but stock at the beginning and end of the year should be ignored. The applicant puts it that "income" in the context of the Act is directed towards money which might be actually available for sustenance and therefore one should adopt a comparison only of cash in and cash out.

11. The definition of "income" in s.3 relevantly provides:

"Income", in relation to a person, means personal earnings,
moneys, valuable consideration or profits, whether of a capital
nature or not, earned, derived or received by that person for
the person's own use or benefit by any means from any source
whatsoever, within or outside Australia, and includes a
periodical payment or benefit by way of gift or allowance......

12. The phrase "whether or a capital nature or not" was inserted by the Social Security and Veterans' Affairs (Miscellaneous Amendments) Act 1986.

13. In Department of Social Security v Garvey (1989) 91 ALR 245 at p 247 the Full Court said:

We do not think that the definition of "income" in (the
equivalent of s.3(1)) and the ascertainment of a rate of income
under s.28(2) are concerned with losses, outgoings or
deductions. Of course, some income-producing activities can
only be identified as sources of income after the outgoings of
the activities have been set off against receipts. This is the
case, for example, in ascertaining the profits of a business.
This was recognised in Haldane-Stevenson (supra) where McGregor
and Pincus JJ. said (9 FCR at p 75, 60 ALR at p 622):
It will be noted that the definition of "income" makes
no reference to his expenses or deductions. It leaves
uncertain the answer to the question whether gross
income or net income is meant. Having regard to the
purpose of reducing the pension by reference to income
earned, we are of the view that, at least in general,
net income is meant.

14. The Full Court in Garvey also cited with approval a passage from the judgment of Davies J. in Haldane-Stevenson where his Honour pointed out that the term "income" does not have the meaning which appears in the Income Tax Assessment Act 1936. Davies J. said (9 FCR at p 80, 60 ALR p 628):

In my opinion the Act is concerned with net earnings, moneys,
valuable consideration and profits and it is the net income
from each source which is to be taken into account in the
calculation of a pensioner's annual rate of income.

15. The part of the definition of "income" with which we are here concerned is "profits". Of the various expressions contained in the definition, that is the one which would in ordinary parlance be used to describe the financial benefit derived from carrying on a farming business like Mr Kerr's. What is profit has to be answered according to the particular circumstances of each individual case: Bond v Barrow Haematite Steel Co (1902) 1 Ch 353 at p 365-366. In FCT v Slater Holdings Limited [1984] HCA 78; (1984) 156 CLR 447 at p 460 Gibbs C.J. said that a starting point is provided by the well known definition by Fletcher Moulton L.J. in Re Spanish Prospecting Co Limited (1911) 1 Ch 92 at p 98:

"Profits" implies a comparison between the state of the
business at two specific dates usually separated by an interval
of a year. The fundamental meaning is the amount of gain made
by the business during the year. This can only be ascertained
by a comparison of the assets of the business at the two dates.

16. In my opinion, it would be at variance with the general understanding of the term to speak of "profits" of a farm, or any other business in which goods are bought (or acquired by natural increase) and sold over a given period, in a sense which excluded the opening and closing stock. Used in such a sense, a misleading picture would be created. Such businesses are continually turning money into stock by purchases and stock into money by sales. To ascertain how much better or worse off the trader is at the end of any period compared with the beginning, stock on hand at both those dates must be taken into account.

17. For the applicant to succeed it would be necessary to conclude that the legislature intended the word "profits" in the definition of income to be used in a special sense, that is to say one which included only cash transactions and ignored the position of stock at the beginning and end of the trading period. I find no indication of any such special intention in the Act. I do not accept the argument that such an intention can be deduced inferentially from that part of the legislation dealing with assets tests so that, as it was put, one could overcome any unfairness in favour of a social service beneficiary who took profit in non-cash terms by having regard to assets.
Wool Shorn but not Sold

18. In my opinion, and for the reasons already indicated, wool shorn but still on hand at the end of the year was properly brought into account as closing stock.
Purchase of Property

19. The applicant argued that either the whole purchase price paid for "Mayberry", or, alternatively, that part of the purchase price which was provided from Mr Kerr's own funds, should be deducted from other income of the business. It was put that all expenses, whether of a capital or revenue nature, ought to be taken into account. Here again we are concerned with a question of what is "profits". The definition of course explicitly states that a capital profit may constitute "income". It would follow that before arriving at the figure for such a profit one would have to take into account the cost expended to achieve that profit. But no question of such a profit arises here. "Mayberry" has not been sold. There was a profit from Mr Kerr's farming business but as a matter of the ordinary use of language one would not, in determining whether a farmer has made a profit, deduct the cost of the purchase of his farm (in the first year, as the applicant's argument necessarily requires) before determining whether there was a profit.

20. Expenditure under Section 75B, Income Tax Assessment Act In the 1988/89 year Mr Kerr made some claims for expenditure deductible under s.75B of the Income Tax Assessment Act in relation to dams and tankage. As I understood counsel for the applicant, by the time the hearing concluded it was conceded that on the evidence no allowance could be made for these items.
Conclusion

21. I have reached the conclusion that the issues raised are to be resolved against the applicant. It follows that she is not entitled to the benefits sought. The application is therefore dismissed. However there has been substantial confusion caused by a reasoning process which is conceded to be incorrect. In the circumstances I shall make no order as to costs.