Amalgamated Zinc (De Bavay's) Ltd v Federal Commissioner of Taxation
(1935) 54 CLR 295(1935) 9 ALJR 342
(1936) ALR 67
(1935) 3 ATD 288
(Judgment by: STARKE J)
AMALGAMATED ZINC (DE BAVAY'S) LTD v. COMMISSIONER
Court:
Judges:
Latham CJ
Rich J
Starke J
Dixon J
Evatt J
McTiernan J
Subject References:
Taxation and revenue
Income tax
Deductions
Compulsory contributions to fund
Continuing obligation to contribute
Outgoings
Loss made
Legislative References:
Income Tax Assessment Act 1922 (Cth) No 37 - ss 23(1)(a); ss 26
Judgment date: 19 December 1935
MELBOURNE
Judgment by:
STARKE J
STARKE J. Case stated under the Income Tax Assessment Act 1922-1934, s. 51A (8).
The appellant carried on the business of treating tailings and ore and ore and producing Zinc concentrates and other metalliferous substances at Broken Hill. It closed its mine, and during the year 1924 discontinued the production of zinc concentrates. But it had on hand a large quantity of zinc concentrates, the whole of which was, between the years 1924 and 1929, sold and delivered to the Zinc Producers Association. During the financial years 1931-1932 and 1932-1933, the appellant contributed to a fund established under the Workmen's Compensation (Broken Hill) Act, 1920, No. 36, and its amendments, in respect of compensation payable to employees of mine-owners at Broken Hill (including the appellant) who had contracted pneumoconiosos or tuberculosis, or to the dependants of deceased employees. In the year 1931-1932 the appellant contributed or paid to the fund established under this Act the sum of PD1,207 0s. 2d., and in the year 1932-1933 the sum of PD1,175 11s. 6d. And it claims to deduct these sums from its assessable income for those years derived from property held or various investments made by it. But this income was not derived from mining operations carried on by the appellant.
Income tax is levied for each financial year upon income derived directly or indirectly during the period of twelve months preceding the financial year for which the tax is payable (Income Tax Assessment Act 1922-1934, s. 13). The twenty-third section of the Act, however, provides: "In calculating the taxable income of a taxpayer the total assessable income derived by the taxpayer shall be taken as a basis, and from it there shall be deducted-(a) all losses and outgoings (including commission, discount, travelling expenses, interest and expenses, and not being in the nature of losses and outgoings of capital) actually incurred in gaining or producing the assessable income." Then s. 25 (e) provides: "A deduction shall not...be made in respect of any...money not wholly and exclusively laid out or expended for the production of assessable income." The question is whether the expenditure of the two sums already mentioned was actually incurred in gaining or producing the assessable income.
In Ward & Co v Commissioner of Taxes [F3] the Judicial Committee observed, upon a somewhat similar provision: "In considering that question, their Lordships put aside the circumstance that the expenditure was not of such a nature as to produce income in the actual tax-year in which it was incurred. In every trade, much of the expenditure in each year-such as expenditure in the purchase of raw material, in the repair of plant or the advertisement of goods for sale-is designed to produce results wholly or partly in subsequent years; but, nevertheless, such expenditure is constantly allowed as a deduction for the year in which it is incurred." Taxable income may be estimated, I gather, in accordance with the principles of commercial trading, subject to any limitations prescribed by the Act. A taxpayer may deduct expenditure in the year of assessment (which is not capital outlay) incidental to or connected with his operations or earning of that year. He has not to track, as Ferguson J. said in Toohey's Ltd v Commissioner of Taxation for New South Wales [F4] , at p. 440, each item of expenditure, and allocate it to some definite item of income. But in the present case the expenditure had nothing whatever to do with the appellant's income in the years in question. It was connected with and incidental to its mining operations, which had ceased long before the years in which the deduction is claimed. It was not, therefore, actually incurred in gaining the assessable income of the years 1931-1932 and 1932-1933.
Next it was contended that the appellant was entitled to a deduction under s. 26 (1) (a) of the Act. The section, which is an obscure one, provides for bringing a loss in a business against assessable income gained from sources other than the business; against the net amount of that income, that is, the net amount or residue remaining after all other deductions allowed by the Act have been made. But the present case does not fall within the provision. The appellant had not a business and a source of income other than that business; in truth the appellant had but one business, though its major operations had ceased; and that business was the source of its income, though accruing from investments and rents.
The questions stated should be answered in the negative.