Handley v Federal Commissioner of Taxation
(1981) 148 CLR 18255 ALJR 345
(Judgment by: Mason)
HANDLEY v FEDERAL COMMISSIONER OF TAXATION
Court:
Judges:
Stephen
MasonMurphy
Aickin
Wilson JJ.
Other References:
Income Tax (Cth)
Judgment date: 1 APRIL 1981
Judgment by:
Mason
I am in general agreement with what Wilson J. has written in this case, incorporating, as it does, his judgment in Federal Commissioner of Taxation v. Forsyth Post, p. 207. . (at p193)
Reflection on the argument presented by Mr. Priestley for the appellant has not persuaded me that the decisions in Thomas v. Federal Commissioner of Taxation (1972) 46 ALJR 397 ; 3 ATR 165 ; 72 ATC 4094 and Federal Commissioner of Taxation v. Faichney (1972) 129 CLR 38 were wrong or that they were incorrectly based on a view that outgoings by way of interest were "of a capital, private or domestic nature" within the meaning of s. 51 (1). (at p193)
It is because the study in these cases and the case now under consideration, despite its predominant use for the purposes of the taxpayer's profession or employment, remains an integral part of the home that expenditure referable to it is an outgoing having the character described. Here the study is a room in the taxpayer's home, not separate from it in any way, having no distinctive physical characteristics, readily capable of other use for family purposes, and in fact used for non-professional purposes from time to time. Moreover when used for professional work it is ordinarily used only for professional work that can be done at home, in the evenings and at weekends, e.g. working on briefs and preparing opinions. Expenditure related to the study is therefore referable to the home. The "essential character of the expenditure", to take up the expression used in Lunney v. Federal Commissioner of Taxation (1958) 100 CLR 478 , at p 497 , is therefore that of a "capital, private or domestic nature". (at p194)
With Wilson J. I agree that outgoings incurred in gaining or producing assessable income and outgoings of a capital or domestic nature are not mutually exclusive. Whether the same is true of outgoings of a private nature is a question that may be left to some future occasion. The very form of s. 51 (1) recognises that there are some outgoings which, though incurred in gaining assessable income, nevertheless fall within the exception. Then, to the extent to which they have the latter character, they are not allowable deductions. Plainly enough, the language of s. 51 (1) permits apportionment in those cases in which the expenditure in part relates to an outgoing of a capital, private or domestic nature and in part to a revenue earning item, where the expenditure is severable or capable of being apportioned. However, this is not such a case for, in the light of what I have said, the claimed expenditure, though referable to the study, was of the excepted kind. (at p194)
I do not agree that in determining the "essential character of the expenditure" we should look only to the use to which the study is put, though use is obviously a matter of great importance. It is necessary to look to the character of what is said to have been acquired by means of the expenditure, namely the study, and to its relationship to the home of which it forms part, in order to decide whether the expenditure falls within the exception. (at p194)
The outgoing consisted of interest payable on moneys borrowed to purchase a home. The fact that the home included a study and that the taxpayer proposed to use the study predominantly for professional purposes are quite consistent with the expenditure being of a capital, private or domestic nature. (at p194)
It is not altogether clear to me why the taxpayer gives so much emphasis to the circumstance that the study is predominantly used by him for professional purposes. On the principle for which he contends it appears to be a relevant, but not a necessary, factor, except in so far as it relates to the quantum of interest claimed. As the decision of the New Zealand Court of Appeal in Commissioner of Inland Revenue v. Banks (1978) 8 ATR 421 ; 78 ATC 6 ,001 shows, if the taxpayer's argument be correct, a taxpayer would be entitled to secure a deduction referable to a dining room in which he does professional work from time to time on the dining room table. In my opinion interest in such a case falls fairly and squarely within the exception in s. 51 (1). In passing I note that in Banks no attention at all was given to the purpose for which the moneys secured by mortgage were borrowed. The facts recited in the judgment are consistent with a borrowing for private or domestic purposes and the subsequent formation of an intention to use the dining room for the purpose of work - circumstances which in my view would provide a further ground for denying a deduction in respect of the liability for interest. (at p195)
The application of the provisions of s. 51 (1) gives rise to difficulty in some cases. That is because there is an infinite variety of factual situations to which it may apply. It is not always easy to distinguish one case from another when, in order to apply the section, it is necessary to take a number of factors into account. But I should have thought that the present case is clearly distinguishable from the self-contained doctor's surgery and the grocer's shop upon which so much reliance was placed by the taxpayer in argument, notwithstanding that they form part of a building which contains a residence. (at p195)
Likewise, the English decisions are also to be distinguished. They are based on different statutory provisions and the observations of Lord Upjohn and Lord Donovan in Korner v. Commissioners of Inland Revenue (1969) 45 TC 287 , at pp 297, 300 merely reflect what was the practice of the Commissioners under the English legislation. (at p195)
There is no occasion for me here to re-examine that part of the decision in Faichney (1972) 129 CLR 38 that resulted in the allowance of expenditure incurred by the taxpayer for light and heating whilst he was working in his study at home. At the time it seemed to me that a distinction, albeit a fine one, could justifiably be made between expenditure incurred in connexion with the acquisition of the study as part of the home and expenditure not so incurred, but necessarily incurred in the course of engaging in revenue earning activities which the taxpayer undertook in his study. As I say, that question does not presently arise. (at p196)
In the result I would dismiss the appeal. (at p196)