FEDERAL COURT OF AUSTRALIA Deputy Commissioner of Taxation v Australasian Feed Pty Ltd [2000] FCA 1351 ADMINISTRATIVE LAW – TAXATION – carrying forward losses – whether taxpayer carried on same business in years of income as it had carried on in the years in which it incurred losses – whether Tribunal had erred in law – whether appeal by way of application was "on a question of law" – whether "same business" is a question of fact or law – whether Administrative Appeals Tribunal failed to have regard to change in taxpayer's customer base. Income Tax Assessment Act 1936 (Cth), ss 79E, 80A, 80E, 196(1) Administrative Appeals Tribunal Act 1975 s 44(1) Avondale Motors (Parts) Pty Ltd v Federal Commissioner of Taxation (1971) 124 CLR 97 applied Boyded (Holdings) Pty Ltd v Federal Commissioner of Taxation (1982) 40 ALR 701 distinguished AGC (Advances) Ltd v Federal Commissioner of Taxation (1975) 132 CLR 175 referred to Fielder Downs (WA) Pty Ltd v Federal Commissioner of Taxation (1979) 79 ATC 4,019 referred to Geraghty v Minter (1979) 142 CLR 177 referred to Federal Commissioner of Taxation v Murry (1998) 193 CLR 605 referred to DEPUTY COMMISSIONER OF TAXATION v AUSTRALASIAN FEED PTY LTD W 8 of 2000 CARR J 20 SEPTEMBER 2000 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W 8 OF 2000 On appeal from the Taxation Appeals Division of the Administrative Appeals Tribunal BETWEEN: DEPUTY COMMISSIONER OF TAXATION Applicant AND: AUSTRALASIAN FEED PTY LTD Respondent JUDGE: CARR J DATE OF ORDER: 20 SEPTEMBER 2000 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The application be dismissed. 2. The applicant pay the respondent's costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W 8 OF 2000 On appeal from the Taxation Appeals Division of the Administrative Appeals Tribunal BETWEEN: DEPUTY COMMISSIONER OF TAXATION Applicant AND: AUSTRALASIAN FEED PTY LTD Respondent JUDGE: CARR J DATE: 20 SEPTEMBER 2000 PLACE: PERTH REASONS FOR JUDGMENT introduction 1 This is an application by way of an appeal by the Deputy Commissioner of Taxation from a decision of the Administrative Appeals Tribunal made on 20 December 1999. By that decision the Tribunal remitted to the applicant the subject matter of two disallowed objections with a direction that the respondent was entitled to deductions for certain tax losses, pursuant to ss 79E and 80 of the Income Tax Assessment Act 1936 (Cth) ("the Act"). factual and procedural background 2 The following factual background is taken largely from the reasons for decision of the Tribunal. The respondent was incorporated in Western Australia on 23 June 1987 as a shelf company. Initially it allotted one ordinary share to each of two persons. In September 1987 the respondent allotted a total of 49,998 further ordinary shares of which 14,999 were allotted to a Mr Bevon Sinnott and 34,999 to a company called Austrex International Pty Ltd ("Austrex"). At the same time six new directors were appointed to the respondent's Board of Directors, including Mr Sinnott, who was also appointed principal executive officer. The two founding shareholders each transferred one ordinary share to Mr Sinnott and Austrex respectively giving them 15,000 and 35,000 shares i.e. 30% and 70% respectively. The restructure of the respondent in September-October 1987 was with a view to setting up a factory to supply high quality feed for both domestic feedlot consumption and for use in the live sheep trade from Australia and New Zealand. The latter feed was to be produced as pellets to be transported to ports and loaded on to ships to feed sheep during the voyage delivering them to overseas buyers. Mr Sinnott had previous experience in a similar business. His early projections of production by the proposed mill indicated that about 25% would be sold to its principal shareholder Austrex whilst the rest would be sold into the live sheep export trade. Mr Sinnott considered that at the time Austrex was about the sixth largest exporter of live sheep. The larger ones were Saudi Livestock & Trading Co, Kuwait Livestock & Trading Co, Wellard Rural Exports Pty Ltd ("Wellard"), Fares Rural & Co Pty Ltd and Van Ommeran International Trading Australia Pty Ltd. 3 The respondent purchased land at Wongan Hills (about 190 kms north of Perth) and built a factory and mill on that land at an approximate cost of $3,350,000.00. The building was completed in about March 1988. Initially, the respondent funded the acquisition of the land and the building works by short-term bill finance facilities. In July 1989 the respondent refinanced its borrowings through the Hong Kong Bank of Australia Ltd ("the Hong Kong Bank") to which it granted a first mortgage over the land and buildings at Wongan Hills and a fixed and floating charge over the whole of its assets (the "HKB Securities"). 4 The respondent chose Wongan Hills as the site for its factory and mill because it was considered to be the centre for growing lupin which was the main grain used in the production of feed pellets. At all material times the respondent purchased its requirements of grain from farmers in the area. 5 On 19 July 1989 a further change in the shareholding of the respondent took place which has a central significance in this matter. On that date the respondent issued 1,700,000 ordinary shares to a company called Jandabup Pty Ltd ("Jandabup") and a further 250,000 ordinary shares to Austrex. I shall refer to that transaction as "the Jandabup change". At the same time, the constitution of the Board of Directors also changed so that the interests of Jandabup dominated. Mr Sinnott continued as a director and manager. The respondent also employed a mill manager responsible for the purchase of raw materials from local farmers and for the daily operation of the mill. Six others were employed in the mill. 6 The respondent had commenced sales in early 1988. Its sales were predominantly into the live sheep trade. There was no steady pattern to the total of sales from April 1988 to July 1990. Sales fell dramatically in June 1988, picked up again in August 1988, but fell steadily from April 1989 until January 1990. No sales were made in February 1990, but relatively large sales commenced again in March 1990, through the rest of that year of income and beyond. In early 1988 the respondent had entered into an agreement with Saudi Livestock & Trading Co to supply pellets for its shipments of live sheep to Saudi Arabia. Also in June 1989 it entered into a contract to supply Wellard 5,000 tonnes of pellets over six months, but subject to price. Wellard was engaged in the export of live sheep to the Gulf. The evidence was that sales agreements of that kind did not bind the purchaser to actual quantities to be delivered over time, but sales were made only if the purchaser required pellets during the agreed period. As the Tribunal observed, the contracts favoured the purchaser by giving them some certainty about supply and the contractual conditions tended to reflect the uncertain state of the market for live sheep exports at the time. 7 Export of live sheep to Saudi Arabia was suspended on 22 August 1989 after the discovery, by the Saudi authorities, of blue tongue and sheep pox in six shipments from Australia. This adversely affected the respondent's business and it experienced liquidity problems. Towards the end of 1989 and the beginning of 1990 the respondent made arrangements with its creditors to pay out those owed less than $1,000.00 and suspend payments to the rest of the creditors until December 1990. 8 The respondent sought to alleviate its financial difficulties by entering into a contract to supply Kuwait Livestock & Trading Co with pellets during the remainder of 1990, sought new domestic customers and investigated the possibility of producing heat beads for export to Asia. Nothing came of that and the company continued production of pellets. 9 On 2 August 1990 Iraq invaded Kuwait causing a cessation of live sheep exports to the latter country. Whilst this adversely affected Wellard's sales to Saudi Arabia and the Gulf, it was fortunate in having a market for live sheep exports to Jordan and lower Gulf States which continued, notwithstanding the problems in Saudi Arabia and Kuwait. This cessation of live sheep sales to the Saudi Arabian and Kuwait markets, the principal markets of the respondent's established customers, exacerbated the respondent's then financial difficulties. On 27 August 1990 the Hong Kong Bank, pursuant to its security, appointed a receiver and manager of the respondent. 10 By November 1990 Wellard had become aware of the respondent's financial difficulties and of the appointment of a receiver and manager by the Hong Kong Bank. Wellard was interested in securing the business of the respondent since it (Wellard) had an ongoing need for the kind of pellets produced by it. It commissioned a report of the respondent's operations. That report stated that there were problems with the respondent's mill as shortcuts had been taken in its commissioning. However, so the report stated, the respondent's employees and suppliers (the farmers) thought that the mill was capable of being operated to produce 50,000 to 60,000 tonnes of pellets annually, although at that time, in the opinion of the author of the report, it was not capable of that level of output. Wellard's General Manager, Mr S M Meerwald, believed that the respondent could easily supply all of Wellard's needs and still have considerable excess capacity which it would need to sell into the spot market where the respondent had been directing its sales at the time. On 21 November 1990, Wellard made a conditional offer to the receiver and manager to acquire the respondent's mill, plant, equipment and other assets (which the receiver and manager was then offering for sale) on a walk-in walk-out basis for $610,000. The offer contained two relevant conditions. The first was that Wellard be satisfied that all plant and equipment was operating within the manufacturer's specifications, Department of Occupation Health Safety and Welfare Guidelines and Environmental Protection Authority limits. The second condition was that the respondent have access to all records of the respondent to decide whether, in the alternative, it would purchase the debt owing to the Hong Kong Bank for the same amount. 11 Six days later Wellard sent a revised offer to the receiver and manager. The offer stated that Wellard had inspected an engineer's report and no longer conditioned its offer in terms of the first condition. The second offer contained a variation of the second condition referred to above. Relevantly, the offer contained the following: "During the time prior to settlement we require access to all records of the company to enable us to decide whether we may, as an alternative, purchase the debt of the first secured creditor for $610,000.00 or enter into some other scheme of arrangement with all creditors and purchase the issued capital of the company." 12 On 30 November 1990 the receiver and manager accepted the revised offer. However, between that time and February 1991 Wellard had a change of mind and considered that it was preferable to bring about the acquisition of the respondent under a scheme of arrangement. 13 In the meantime, in January 1991, Wellard commenced purchasing pellets from the respondent. The respondent has been Wellard's principal supplier since 12 February 1991. 14 On 8 February 1991 an agreement was entered into between a company called Waterbay Holdings Pty Ltd ("Waterbay"), the Hong Kong Bank and the receiver and manager of the respondent. At all relevant times Waterbay was owned by a company called Turquoise Holdings Pty Ltd ("Turquoise") whose shareholders were the same as those of Wellard, but in different proportions. That agreement provided for three options. One was an option which the respondent granted to Waterbay to purchase the respondent's assets for $645,000.00 ("the Purchase Option"). The second option was the grant to the respondent of the right to require Waterbay to purchase its assets for $645,000.00 ("the Vendor's Option"). By the third option, Hong Kong Bank granted Waterbay an option to purchase the debt owed by the respondent to that bank being the subject of the HKB Securities ("the Securities Option"). On the same day (8 February 1991) Turquoise acquired from the Hong Kong Bank the secured debt owed to it by the respondent and took an assignment of the HKB Securities for the sum of $645,000.00. As the Tribunal noted, this acquisition was presumably with the consent of Waterbay which was a company within the same group. At the same time the Hong Kong Bank terminated the receiver and manager's appointment. Immediately thereafter Turquoise appointed him as its receiver and manager under the securities assigned to it. 15 As at 8 February 1991 it would seem that the parties accepted that the agreement for the sale and purchase of the assets of the respondent had lapsed. The Purchase Option and the Vendor's Option were exercisable at any time after 30 June 1991 or upon a scheme of arrangement with the unsecured creditors of the respondent becoming unconditional. The result of the above sequence of events was that, treating the Wellard group of companies as a group, Wellard (in practical terms) became committed to the acquisition of either the respondent's assets or its issued share capital. It had in fact outlaid $645,000 in buying the Hong Kong Bank's debt. In relation to the put option, it would, as the secured creditor, receive any proceeds that were paid to the taxpayer. As Mr A H Slater QC, senior counsel for the applicant pointed out, Wellard still had the option to purchase the respondent's assets, but there was no particular need for it to do so because it had acquired the secured debt. 16 In October 1991 a scheme of arrangement was prepared whereby Turquoise was to provide funds of $30,000 which were to be used to pay out the unsecured creditors in full satisfaction of their debts. The arrangement also required Turquoise to subordinate the difference between the debt due under the HKB Securities and the sum of $645,000.00, an amount of $1,245,577.00. The scheme document stated that the purpose of the scheme of arrangement was "… to ensure that the company will be able to trade from a solvent position after the Scheme has been implemented." A further condition of the scheme of arrangement was that the existing shareholders of the respondent would transfer their shares to Turquoise for $10,000 apportioned as to $1,500 to Austrex and $8,500 to Jandabup. The contract to purchase the shares was executed on 24 July 1991. The scheme of arrangement was approved by the creditors of the respondent at a meeting on 11 November 1991 and by the Supreme Court of Western Australia on 14 January 1992. The relevant transfers of the shares were dated 28 January 1992 and 3 February 1992. 17 Mr Meerwald (who it will be recalled was the General Manager of Wellard) gave evidence to the Tribunal that Turquoise had three principal reasons for acquiring the shares in the respondent, rather than having its wholly associated company Wellard acquire all of the respondent's assets. Those reasons were set out in the scheme of arrangement document in the following terms: "[This] course of action is preferred by Turquoise for the following reasons: (a) The mill is very automated and neither Turquoise nor Waterbay have any previous experience in relation to the unique technology employed in the mill. Accordingly, it is very important for the owner of the mill to have the benefit of all the warranties and other rights of the [respondent] in relation to the plant and equipment. It will be difficult for Waterbay, as purchaser of the Assets and distinct from the [respondent], to preserve the benefit of these warranties. (b) By maintaining the existing corporate structure, Turquoise, as the new shareholder, will obtain benefits arising from its ability to utilise the [respondent's] local and overseas trading name and contacts and its ability to access all of the [respondent's] records, including its technical records and drawings. (c) There may be certain taxation advantages available to Turquoise in purchasing the [respondent] as compared to allowing Waterbay to purchase the Assets. These possible tax advantages relate to the allowable depreciation on plant and equipment and the potential to utilise the [respondent's] accumulated losses. The taxation advantages are, however, by no means certain and Turquoise will be unable to determine the extent of the available benefits (if any) until after it has acquired control of the [respondent]. Further, any tax benefits which may be available will only be of real benefit to the extent the [respondent] returns a profit." 18 The respondent's mill continued in production whilst all of the negotiations proceeded. As I have mentioned, the Hong Kong Bank appointed the receiver and manager on 27 August 1990. The mill's last production before that appointment was on 10 August 1990 and its last sale before the appointment was on 22 August 1990. Repairs to the mill plant were undertaken between 6 September 1990 and 30 September 1990, whereupon the mill recommenced production. Sales recommenced on 5 October 1990 but, were what the Tribunal described as "rather sporadic" i.e. as follows: · 5/10/1990 sale of 125.42 tonnes to Austrex · 22/10/1990 sale of 219.24 tonnes to Fares Rural · 23/10/1990 sale of 215 tonnes to Fares Rural · 31/10/1990 sale of 107.78 tonnes to Fares Rural · 4/12/90 sale of 300 tonnes to Fares Rural 19 Apart from plant shutdowns to enable repairs to be carried out for two days in October 1990, two weeks in November 1990 and two days in December 1990, the plant continued to produce during that period. After the assignment of the HKB Securities to Turquoise, a senior employee of Wellard, Mr David Jarvie, was assigned to oversee the operation of the mill, initially reporting to the receiver and manager who had been appointed by Turquoise. 20 At the time of the first appointment of the receiver and manager the respondent had seven employees. By mid December 1990 the number of employees was reduced to three, but there was assistance from outside contractors. The receiver and manager later re-engaged some employees who had been retrenched and promoted one to manage the mill. At all material times most of the suppliers continued to do business with the mill. From mid February 1991 to 30 June 1991 only 11,587 tonnes of fodder were produced. However, during the following year ended 30 June 1992, production reached 40,991 tonnes and in the next year, ended 30 June 1993, production was 48,685 tonnes. Since then production has been in excess of 50,000 tonnes per year. 21 On 25 January 1991 Wellard paid the respondent $36,357.60 in respect of its first purchase of pellets from it. Between 19 November 1990 and 11 February 1991 the respondent effected sales of pellets totalling $187,754.00 to about thirteen separate debtors. During the period 1 March 1991 to 23 January 1992, with a few exceptions, the respondent's sales were to Wellard. For example, in the five-month period to August 1991 the respondent's total sales were $1,961,592.00 of which only $55,658.00 were to customers other than Wellard. In the following 5˝ month period to 23 January 1992, the respondent's total sales were $1,866,218.00 of which only $4,565.00 were to a customer other than Wellard. During the period 1 March 1991 to 23 January 1992, the respondent's sales to Wellard were for a fixed purchase price which was set each year based on the perception of the respondent and Wellard of market price. 22 During the three years ended 30 June 1989, 1990 and 1991 the respondent made losses of $531,845, $562,373 and $334,664 respectively, being a total of $1,428,882.00. The respondent claimed those losses in the income years ended 30 June 1992 ($1,353,832.00) and 30 June 1993 ($75,050.00). On 23 September 1997 and 24 September 1997 the applicant issued to the respondent amended notices of assessment for the income years of the respondent ended 30 June 1992 and 30 June 1993 respectively. The applicant disallowed the losses claimed on the basis that there had been a relevant change in the beneficial ownership of shares in the respondent and the respondent had not during the years of income ended 30 June 1992 and 1993 carried on the same business as it carried on before the two relevant changes in the beneficial ownership of shares in the respondent i.e. the Jandabup change on 19 July 1989 and the change when Turquoise purchased all of the shares in the respondent. On 24 November 1997 the respondent objected to those assessments. The applicant disallowed those objections on 20 February 1998. On 24 April 1998 the respondent applied to the Tribunal for review of those objection decisions. the tribunal's decision 23 By reason of a concession made by the applicant (i.e. the Commissioner) before the Tribunal to the effect that at all times during the two relevant years of income the respondent carried on the same business as it carried on immediately before the second change of beneficial ownership of shares in the respondent, the only change in beneficial ownership now relevant is acknowledged by the parties to be the Jandabup change on 19 July 1989. The Tribunal in its reasons appears to have overlooked that concession. The concession means that the applicant no longer disputes the respondent's entitlement to deduct the loss of $334,644 sustained in the year ended 30 June 1991 from its income earned in the one or other or both of the relevant years of income. Which particular year or years of income will depend, so I understand, on the outcome of this application. 24 One issue before the Tribunal arose out of the fact that the respondent generated some rental income during the financial years ended 30 June 1992, 1993 and 1994 and thus, so the applicant had contended, s 80E(1)(c) had not been satisfied. That matter is now no longer in issue between the parties. 25 In applying the "same business" test the Tribunal first considered the decision of the High Court of Australia in Avondale Motors (Parts) Pty Ltd v Federal Commissioner of Taxation (1971) 124 CLR 97. In that case Gibbs J found that the taxpayer company was not entitled to deduct past losses from its assessable income for two reasons. First, it had not been carrying on any business at all immediately before the change in the beneficial ownership of its shares took place. Secondly, the business that it had once carried on was not the same as that which it carried on during the year of income. 26 The Tribunal noted that it was common ground that the respondent had not ceased to carry on its business immediately before either of the two changes in beneficial ownership of its shares. 27 The Tribunal distinguished Avondale Motors for the following reasons; "48. The facts of this case are clearly distinguishable from those in Avondale Motors (Parts). In the present case the applicant continued to produce the same (or identical) product from the same mill after the changes as it had before. It obtained its supplies from the same sources. It continued to trade under the same name. It kept on a critical mass of employees and after the second change in beneficial ownership of shares, it re-employed some who had been retrenched due to the downturn in business. The [respondent] retained the same manager employed prior to the change by the receiver-manager. The only significant change in the business is that in about March 1991 the [respondent] commenced to sell its product almost exclusively to a customer with which previously it had only one large sale some time after November 1990. Notwithstanding, the market into which the [respondent] made its sales remained generically the same – to suppliers of live sheep for export, either to their feed-lots near the wharfs or for provision of feed during the voyage. 49. Clearly, this change in customer base occurred after the first change in beneficial ownership of shares on 19 July 1989 when Jandabup acquired 85 percent of the issued share capital. 50. However, it is not a change that occurred after the second relevant changes in beneficial ownership of shares. The evidence is that the two share transfers were executed on 24 July 1991, but dated 28 January 1992 and 3 February 1992 respectively, about the time that the court approved the scheme. Presumably that too was about the time that the consideration of $11,500 was paid by Turquoise. So if the relevant date is the latter then Wellard had become a regular customer of the [respondent] some time before hand. And if the relevant date of change is July 1991 the same conclusion obtains. So the only relevant question is whether Wellard subsequently becoming the applicant's only customer determines a significant event to establish that the same business was no longer being carried on ..." 28 The Tribunal then referred to what Gibbs J had held in Avondale Motors in relation to the phrase "same business". Gibbs J held that the reference to "same business" meant "identical business". The Tribunal then reviewed some case law on the application of the "same business" test. Following that review, the Tribunal expressed its conclusions thus: "52. This array of cases indicates that the relevant focus to determine whether the same business has continued is the uniqueness of the product (or service) and the process by which it is obtained. There is no emphasis on the individual customers but the former two criteria will obviously determine the nature of the market into which the product is sold. In Case Y45 the taxpayer company, after the change, shed a significant source of gross earnings and changed the broad structure of its business which it conducted during the years of income in which it sought to deduct the past years' tax losses. In the present case the facts do not point to a change in the structure in the business in the sense that it did not alter in any significant way the source of its gross earnings. The relevant source was from the sale of its unique product produced at all material times in the very same way. No part of the operations or foundations of the [respondent's] business changed. The change in customer base was a mere change in process. 53. For the above reasons the Tribunal finds that the [respondent] carried on at all times during the years of income 30 June 1992 and 1993 the same business as it carried on immediately before the two relevant changes in beneficial ownership of shares." the statutory framework 29 In terms of the application of the Act to the facts of this matter, it is common ground that, subject to s 80E of the Act, the losses incurred by the respondent in the years ended 30 June 1989, 1990 and 1991 cannot be taken into account in the years of income ended 30 June 1992 and 30 June 1993 unless there was the necessary continuity in beneficial ownership of shares in the respondent in the years of loss and the years of income – see s 80A. That section, however, does not apply where s 80E is satisfied. In the circumstances of the applicant's concession, referred to above, and the narrowing of the issues which were once in dispute between the parties, s 80E will be satisfied and s 80A will not apply in this matter if the respondent at all times during the two relevant years of income carried on the same business as it carried on before the Jandabup change. the appeal to this court 30 The two questions which the Court has to decide are: · is this application an appeal "on a question of law" within s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth)?; and · whether the Tribunal erred in law in holding that the respondent carried on at all times during the years of income ended 30 June 1992 and 1993 the same business as it carried on immediately before the Jandabup change in beneficial ownership of shares. the respective contentions and my reasoning 31 The applicant contended that the Tribunal made two errors of law. The first was said to be in the construction and application of s 80E of the Act. The second, so the applicant submitted, was in the Tribunal's appreciation of the concept of a "business" as that term is used in s 80E. the first alleged error of law 32 The applicant contended that the Tribunal misapplied s 80E(b). That paragraph required, so the applicant pointed out, that the respondent should have carried on at all material times during the respective relevant years of income the same business as it carried on immediately before the disqualifying change – in this case the Jandabup change on 19 July 1989. The applicant submitted that the Tribunal had erred by not looking at the question of what was the nature of the taxpayer's business throughout the years of income. Rather, so it was put, the Tribunal had looked only at whether there was a change in the taxpayer's business on the occasion of the change in shareholding. By doing so it had fallen into what Mr A H Slater QC, senior counsel for the applicant described as "a critical error". 33 The applicant submitted that the whole of the Tribunal's reasoning on this point was to be found in paragraphs 46 and 49 of the Tribunal's reasons. Paragraph 49 is set out above. Paragraph 46 should, in my view, be read together with paragraph 45. Those two paragraphs read as follows: "45. Whilst it was not in issue, the facts support the conclusion that the [respondent] did not cease to carry on business immediately before either of the two changes in beneficial ownership of shares in question. The facts discussed in the next two paragraphs are, of themselves, sufficient to establish that business activity did not cease at any relevant time (Kirk and Randall Ltd v Dunn (1924) 8 TC 663). 46. In regard to the first change in beneficial ownership of shares, which occurred in July 1989, this did not result in or cause any significant change in the business of the [respondent]. There was no change in the way in which business was conducted or in the product, nor the staff or the management of the mill. The [respondent] did open an office in Fremantle but there is no evidence that that altered the nature of the business of the [respondent] although it may have impacted on the way aspects of its sales and distribution were managed. The change brought about a much-needed injection of capital by Jandabup but even that in time proved insufficient to sustain the business." 34 In my view, the facts discussed in paragraph 46 were directed to the question whether the respondent had ceased to carry on business immediately before the Jandabup change. The Tribunal can be seen to be addressing the first part of the ratio decidendi in Avondale Motors. That is what the Tribunal said, in the last sentence of paragraph 45, it was about to do. Kirk and Randall Ltd v Dunn (referred to in that sentence) was a case concerned with whether a company had discontinued its trade. 35 In my opinion, a fair reading of the Tribunal's reasons is that it examined the nature of the business carried on by the respondent before the Jandabup change and compared that with the business carried on thereafter, including the two relevant years of income. It did not, in my view, confine its consideration to what took place on the occasion of the change in shareholding. In paragraph 48 (set out above) it summarised what it saw to be the factual situation which, so it concluded, distinguished the case from Avondale Motors. It returned to that subject matter in paragraph 52 where it then distinguished the case of Y45 from the present matter. Significantly, in relation to case Y45 the Tribunal referred to the taxpayer in that case as having shed a significant source of gross earnings and changing the broad structure of its business which it conducted during the years of income in which it sought to deduct the past years tax losses. Then it returned, again, to contrast the factual circumstances of this matter. Finally, the Tribunal expressed its conclusion that the respondent carried on at all times during the years of income 30 June 1992 and 1993 the same business as it carried on immediately before the two relevant changes in beneficial ownership of shares. 36 I think that it would amount to an overly critical examination of the Tribunal's reasoning to suggest, as the applicant contended, that the Tribunal focussed on the question whether there had been a change in the business as at July 1989, to the exclusion of considering what business was carried out during the two years of income ended 30 June 1992 and 1993. It should be noted that the Tribunal had reviewed the evidence, including the history of the conduct of the respondent's business activities through to June 1994, in paragraphs 5 to 33 of its reasons. 37 The applicant contended that the Tribunal did not address its mind to the fact that immediately before the Jandabup change the respondent was manufacturing pellets and selling them to anybody it could, but that during the years of income it was doing something quite different i.e. manufacturing pellets and supplying them to a member of the same wholly-owned group of companies. Mr Slater, in oral submissions said "The Tribunal didn't investigate that question." With all due respect to counsel, it is apparent that the Tribunal was well aware of the fact that from about March 1991 the applicant commenced to sell its product almost exclusively to Wellard: see the last two sentences of paragraph 48 and the last four sentences of paragraph 52 which led to its conclusion in paragraph 53, which I have just mentioned. For those reasons, I reject the applicant's submission that, by addressing the wrong question, the Tribunal fell into an error of law which was fundamental to its decision. In my view, a fair reading of its reasons shows that it well understood the law, found the facts and applied the law to those facts. Mr Slater, in my view quite properly, conceded that subject to the second point of law which he sought to raise, if I found that the Tribunal had indeed addressed the right question then its decision was not otherwise open to review in this Court. I now turn to what the applicant contended was the Tribunal's second error of law. the proper construction of the expression "the same business" 38 The applicant's arguments on this point started with the second part of the ratio decidendi in Avondale Motors i.e. that "the same business" meant the identical business. The applicant submitted that the interpretation of the expression "the same business" (and implicitly the application of that expression) was a question of law. The applicant relied upon a decision of the New South Wales Court of Appeal, Boyded (Holdings) Pty Ltd v Federal Commissioner of Taxation (1982) 40 ALR 701 for that proposition. With all due respect to the Court of Appeal, I do not find Boyded to be a helpful decision on the point in this matter. In the present case the question is whether there is an appeal "on a question of law" within the meaning of s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth). In Boyded there was a different question. The question was whether the decision of the Board of Review was one "that involved a question of law" within s 196(1) of the Income Tax Assessment Act 1936. The statutory scheme has, of course, changed since then, but at that time there was a long line of authority on the meaning of the phrase "that involves a question of law". 39 As Mr D H Bloom QC, senior counsel for the respondent pointed out, Boyded was a special case, not only because it was decided under the former s 196, but also because the taxpayer in that case had immediately before the change of ownership carried on two businesses and after the change, in the relevant years of income, it carried on only one of those two businesses, but it was an identical business. 40 In any event, the weight of the authorities is to the effect that the question whether or not a company is at any two points of time conducting the same business is a question of fact. In Avondale Motors at 104 Gibbs J said: "The question whether a company has commenced a new business or has continued an old business under different conditions is simply one of fact." 41 In AGC (Advances) Ltd v Federal Commissioner of Taxation (1975) 132 CLR 175 at 194 his Honour said: "The question whether the business carried on by the appellant since about 3rd June 1970 is the same as that which it carried on before 2nd December 1968 is one of fact." 42 To like effect, Campbell J in Fielder Downs (WA) Pty Ltd v Federal Commissioner of Taxation (1979) 79 ATC 4,019 at 4,023 said: "I propose to consider the provisions of para (b) [s 80E(1)(b)] and to express my view as to whether the business carried on during the relevant years by the company was the same business which it carried on immediately before the change in shareholding. This involves a factual inquiry: [authorities cited]." 43 The error of law which the applicant submitted had been made by the Tribunal was its failure to have regard to what was said to be one of the critical criteria in determining what is the same business, namely goodwill. The applicant relied upon authorities such as Geraghty v Minter (1979) 142 CLR 177 and Federal Commissioner of Taxation v Murry (1998) 193 CLR 605 for the proposition that goodwill and the business to which it relates are inseverable. There can be little argument with that proposition. Then it was put that a fundamental element in the conception both of goodwill and of a business is the bringing in of income or custom. 44 The applicant contended that: "If it is not the same goodwill, it is not the same business. If it is not the same business, it is not the same goodwill. . . . An essential element in the identity of the business and an essential source of its goodwill is its relationship with its customers and that is the key element which the Courts have come back to again and again in terms of what has to be protected, in terms of identifying the nature of the sources of goodwill." 45 In the present case, so the applicant contended, there had been an abandonment by the respondent of effectively all dealings with customers in the public market and a turning instead to an activity comprising almost entirely the supply of product to a co-subsidiary under common management. The applicant submitted that that involved the abandonment of the former business of dealing with the public and the adoption of a new business. The Tribunal was said to have failed to appreciate the significance of that change. It failed to have regard, so it was contended, to one of the critical criteria in determining what is the same business, i.e. the significance of the taxpayer going out of the public market and going into an activity of supplying only its co-subsidiary. 46 I reject that submission on two bases. First because, as the authorities show, the question whether a business is the same business for the purposes of s 80E(2)(b) is a question of fact. 47 Secondly, the Tribunal was well aware of the change upon which the applicant relied. For example, at paragraph 48 of its reasons the Tribunal referred to the only significant change in the business as being that, in about March 1991, the applicant commenced to sell its product almost exclusively to a customer with which previously it had only one large sale. At paragraph 52 of its reasons it referred to "The change in customer base …". The Tribunal did not refer to "goodwill". But it certainly took into account the factual matters which the applicant contended it had overlooked. The Tribunal found on the facts that, despite this change in the respondent's customers, it was still carrying on the same business in the two relevant years of income. This was a central part of its reasoning. 48 In my view, not only has no error on the Tribunal's part been identified, but no question of law arises in the application. Conclusion 49 For the foregoing reasons the application will be dismissed with costs. I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment of Justice Carr. Associate: Dated: 20 September 2000 Counsel for the Applicant: Mr A H Slater QC with Mr E M Corboy Solicitor for the Applicant: Australian Government Solicitor Counsel for the Respondent: Mr D H Bloom QC with Mr J E Pickering Solicitor for the Respondent: Messrs Freehills Date of Hearing: 6 September 2000 Date of Judgment: 20 September 2000