Issue
Is a bird used for display in a tourist park trading stock for the purposes of section 70-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. A bird used for display in a tourist park is not trading stock for the purposes of section 70-10 of the ITAA 1997 because the bird is a working beast used in a business other than a primary production business.
Facts
The taxpayer operates a tourist park. Birds are purchased for display in the tourist park. The birds are kept in cages and do not perform tricks. They are not for sale generally, but might sometimes be sold if there is a large population explosion of a certain type.
Generally, the natural increase of the birds corresponds with deaths and escapes, and the only stock acquired is to increase the variety on display.
Reasons for Decision
(All legislative references are to the ITAA 1997).
Subsection 70-10(1) states that trading stock includes: (a) anything produced, manufactured or acquired that is held for purposes of manufacture, sale or exchange in the ordinary course of a business; and (b) live stock.
The use of the word 'includes' in the definition of trading stock in subsection 70-10(1) signifies that a thing may be trading stock for the purposes of the provision if it meets the requirements in paragraphs 70-10(1)(a) or 70-10(1)(b) or is otherwise trading stock within the ordinary meaning of that term. However the thing must not fall within the negative definition at subsection 70-10(2).
Birds purchased by a tourist park for display are not trading stock either within its ordinary meaning or under paragraph 70-10(1)(a) because, even though the birds may be sold occasionally if there is a large population explosion of a certain kind, they are not held for purposes of sale or exchange in the ordinary course of the business of a tourist park.
Birds purchased by a tourist park for display may be trading stock under paragraph 70-10(1)(b) if they are live stock for the purposes of that paragraph. In Peterborough Royal Foxhound Show Society v. Commissioners of Inland Revenue [1936] 1 All ER 813, Lawrence J said that 'the words "live stock" are ordinarily and properly used in contrast with dead stock and include all live animals and birds the breeding of which is regulated by man'. The definition of livestock was also considered in Federal Commissioner of Taxation v Wade [1951] 9 ATD 337. In that case, Dixon and Fullagar JJ stated that the definition of livestock, by inference, makes it clear that all animals used in a primary production business are included as live stock.
The term 'live stock' is also defined in subsection 995-1(1). Rather than outlining what is considered to be live stock, this definition states that live stock does not include animals used as beasts of burden or working beasts in a business other than a business of primary production. As a tourist park is not a primary production business (as defined in subsection 995-1(1)), birds used for display in a tourist park would be live stock as defined in subsection 995-1(1) if the birds are neither used as beasts of burden or working beasts in the business. Birds used for display in a tourist park are not beasts of burden, in accordance with the ordinary meaning of that term.
In Riddle v. FC of T (1952) 9 ATD 391; (1952) 5 AITR 225, the High Court considered that 'the Act contemplates that the words "working beast" may apply to beasts used outside primary production'. In that case, it was considered that a racehorse which was trained and kept for racing was a working beast used in a business other than primary production because it was common usage to say that a racehorse was 'in work'. However, the High Court did not go further to explain what would make a beast, which is not a horse, a working beast.
Case V144 88 ATC 906; AAT Case 4609 (1988) 19 ATR 3880 is helpful in this respect. In that case, an observation was made that: If dogs are used to provide security for business premises against intruders, there is no reason in principle why they should not be considered as 'working beasts' or 'plant', as much serving the productive functions of the business as any piece of inanimate equipment.
It is considered that if an animal serves a productive function of the business then the animal may be described as a working beast. Birds used for display in a tourist park serve a productive function of the business.
Therefore, birds used for display in a tourist park are used as working beasts in a business other than a primary production business and are specifically excluded from the definition of live stock. Accordingly, birds purchased by a tourist park for display are not trading stock under paragraph 70-10(1)(b).
As birds purchased by a tourist park for display are not trading stock under its ordinary meaning or under paragraph 70-10(1)(a) or 70-10(1)(b), they are not trading stock of such a business.
Amendment History
Date of Amendment Part Comment 22 March 2017 Reasons for Decision section 70-10 updated to subsection 70-10(1). Subsection 2 was added to the legislation in 2012 Reasons for Decision Minor wording changes Legislative References Minor change required to reflect addition of another subsection to the relevant provision. Substance of the law unchanged. Case References Updated case citation Related ATO Interpretative Decisions Withdrawn and replaced by ATO ID 2011/18 and TD 2008/26
Date of Amendment | Part | Comment
22 March 2017 | Reasons for Decision | section 70-10 updated to subsection 70-10(1). Subsection 2 was added to the legislation in 2012
Reasons for Decision | Minor wording changes
Legislative References | Minor change required to reflect addition of another subsection to the relevant provision. Substance of the law unchanged.
Case References | Updated case citation
Related ATO Interpretative Decisions | Withdrawn and replaced by ATO ID 2011/18 and TD 2008/26