Handley v. Federal Commissioner of Taxation
(1981) 148 CLR 18255 ALJR 345
(Judgment by: Murphy)
HANDLEY v. FEDERAL COMMISSIONER OF TAXATION
Court:
Judges:
Stephen
Mason
MurphyAickin
Wilson JJ.
Other References:
Income Tax (Cth)
Judgment date: 1 APRIL 1981
Judgment by:
Murphy
The burden of proving that an assessment is excessive is on the appellant taxpayer (see Income Tax Assessment Act 1936, s. 190 (b): Macmine Pty. Ltd. v. Federal Commissioner of Taxation (1979) 53 ALJR 362 ; 24 ALR 217 ; 9 ATR 638 ; 79 ATC 4 , 133 ; McCormack v. Federal Commissioner of Taxation (1979) 143 CLR 284 ). Section 51 of the act provides:
"(1) All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such income, shall be allowable deductions except to the extent to which they are losses or outgoings of capital, or of a capital, private or domestic nature, or are incurred in relation to the gaining or production of exempt income."
Thus, the section contemplates that an outgoing incurred in gaining assessable income (or necessarily incurred in carrying on a business for the purpose of gaining such income) may not be an allowable deduction because it is of a domestic nature. Therefore the question whether an outgoing is not allowable because of this exception is not answered by showing that it is incurred in gaining assessable income. The further exception relating to exempt income is anomalous and unnecessary, because such an outgoing would not be allowable under the principal clause which is limited to outgoings incurred in gaining or for the purpose of gaining assessable income (see Ronpibon Tin N.L. v. Federal Commissioner of Taxation (1949) 78 CLR 47 , at p 56 ). The insertion of this exception may be attributed to an intention to emphasize this point. (at p196)
The taxpayer's study was used so that he could do some of his work at home. The taxpayer, like most other income earners with a family, had to spend most of the week days away from home engaged in his earning activities. He therefore wished to spend his evenings and week-ends amid his family in circumstances where he could work if he wished, rather than in his professional chambers. Any outgoing incurred for this purpose was of a domestic nature even if it were incurred in earning assessable income. (at p196)
As Mason J. said in Federal Commissioner of Taxation v. Faichney (1972) 129 CLR 38 , at p 43 : "a study in a taxpayer's home, no matter how great the extent of its dedication in point of use to the pursuit of those activities from which the taxpayer earns his income, is a part of that home. Expenditure incurred in the erection of the study or in its renovation is as much an outgoing of a capital, private or domestic nature as expenditure on any other part of the home." (at p197)
Mason J. considered this view to be in accord with the decision of Walsh J. in Thomas v. Federal Commissioner of Taxation (1972) 46 ALJR 397 , at p 399; 3 ATR, at p 168; 72 ATC, at p 4097 , where he held that payment of interest by a barrister connected with a loan for the cost of extensions to his house which included a study for professional purposes, was an outgoing "of a capital, private or domestic nature". Walsh J. considered that it did not lose that character merely because the barrister "like most professional men, did some of his work at home, or because he used one of the added rooms for that purpose. The appellant did not spend money in erecting premises suitable only for use as business premises. He added rooms to his house." (at p197)
In my opinion it would make no difference if other members of the taxpayer's family never entered the study and if it were exclusively devoted to his study of briefs or more general legal studies connected with his profession. Even if the barrister's study were removed to a building adjacent to or near to his home, this may not be enough to change the domestic nature of the outgoings in connexion with it. (at p197)
These are all questions of degree. In practice a strong pointer is whether there is some other place where the work could be done and whether the doing of it at home is really for the domestic convenience of the taxpayer. There are circumstances in which a barrister's outgoings in connexion with part of his home would not fall within the exception of outgoings of a private or domestic nature, for example if part of the home were actually used for professional chambers. If the part of a home used in gaining assessable income were in a real sense a place of business, this would in general mean that the outgoing (even if some apportionment were called for) would be allowable. Thus, the case is quite different from that of a doctor, a marriage celebrant, a caterer, an author or a solicitor who uses part of his or her home as a place of business. This reference to place of business is not intended to be exhaustive; it may be sufficient but not necessary that the outgoing is referable to a place of business, for it to be an allowable deduction. (at p197)
Acceptance of the taxpayer's claim could lead to curious or even absurd results. Many lawyers, to the annoyance of their domestic partners, do a lot of legal reading in the bedroom. Also there is much scientific and anecdotal evidence in favour of the view that intellectual work goes on subconsciously as well as consciously, even during sleep. Perhaps the next claim would be for deducting part of the upkeep of the bedroom, or even a claim for part of the upkeep of the garden in which a barrister thinks about the conduct of cases whilst resting or strolling. (at p198)
The words "to the extent" in the domestic exception in s. 51 (1) require apportionment in cases where the outgoing is not wholly allowable, because it is to some extent of a domestic nature. An example might be where part of a barrister's home was used as professional chambers for several days only of the week and was used at other times for purposes of a domestic nature (income earning or not). In the present case apportionment is not required because the outgoings are entirely of a domestic nature. The appellant claimed that the allowance by the Commissioner of apportioned amounts for heating and cleaning of the study is inconsistent with the disallowance of the disputed amounts for interest and insurance. In my opinion there is force in this contention, but the correctness of the allowance for heating and lighting is not open for decision in this appeal. (at p198)
The appeal should be dismissed. (at p198)