Farm business not hobby — tax ruling

Press, 30 December 1988, Page 29

Farm business not hobby — tax ruling

PA Wellington An 84-acre (34ha) farm which returned a 1988 profit of $BOl was a business, not a hobby, and therefore previous losses were tax deductible, the Taxation Review Authority has ruled. The authority’s decision was made in spite of the Inland Revenue Department not allowing the deduction of losses in 1977, which the objector did not then challenge.

The objector to the Inland Revenue Department’s decision not to allow deduction was a surveyor in a provincial city who had farmed and lived on the land since 1958. The land, Governmentvalued at $290,000, was 6km from the city post office and had been rated as part of the city area for 20 years. The objector bought and fattened beef cows. He had also planted seven acres (2.Bha) in pines and spent a considerable time on weed and gorse con-

trol. During 1985 he had undertaken much clearance and building maintenance and suffered a loss of $9037. Under cross-examina-tion, it was suggested to the objector the farm was retained for subdivision purposes. He replied he could have subdivided over the last 25 to 30 years but, apart from dividing off some sections in 1960 and 1984, he had no further plans for subdivision. It was also put to him that the period 1974 until 1985 was a long time to run a farm without much profit. He replied that he intended to make a profit and went about his farming in a businesslike manner. It was not a small operation but a difficult hillside farm that required considerable effort, he said. Asked why the objector would run the farm for a

fairly miserable profit, a farm managment consultant said many other farms were run in that way. The objector also controlled costs in a profitseeking manner. Reaching his decision, Judge Barber said there was a substantial commitment of money, effort and time. The objector employed contractors and purchases of land since 1958 had been consistent with profit-seeking rather than maintaining a hobby. “The farming activity has at least been consistent and steady, but is always slightly on the increase, and the farm is always being upgraded,” the Judge said. He said that a meticulous accounting structure was not consistent with maintaining a hobby. The activity during 1985 and 1986 was of a level consistent with maintaining a profit, he said.