SCOTT v FC of T (No 4)

Members:
BJ McCabe M

Tribunal:
Administrative Appeals Tribunal

MEDIA NEUTRAL CITATION: [2002] AATA 1160

Decision date: 12 November 2002

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BJ McCabe (Member)

Introduction

1. Dr Christopher Scott claimed several deductions in the years of income ending 30 June 1994 and 30 June 1995. The Commissioner disallowed a number of the claims, and Dr Scott has come to the Tribunal seeking redress.

2. The applicant did not persist with a number of his claims at the hearing. The Commissioner also conceded that a claim in respect of travel costs was to be allowed. At the hearing, three separate issues were left to be resolved. The applicant appealed against the disallowance of claims for:

• (a) motor vehicle expenses;
• (b) the costs associated with maintaining a home office; and
• (c) depreciation of home office equipment.

The material before the Tribunal

3. The respondent provided the documents compiled pursuant to s 37 of the Administrative Appeals Tribunal Act 1975. The applicant provided a number of receipts and a statement to the Tribunal, and gave oral testimony at the hearing. His mother, Mrs Clara Scott, conducted the case on his behalf at the hearing. Mrs Scott was also the applicant's tax adviser. Mr Curran represented the Commissioner.

The background facts

4. Dr Scott completed his studies at medical school at the University of Sydney in 1992. He was admitted as a Bachelor of Medicine and a Bachelor of Surgery. He commenced working as an intern or junior doctor at Westmead Hospital in Sydney in 1993. At first he shared a three-bedroom house with his brother and a lady to whom he was subsequently engaged. During the bulk of the period covered by the objection decisions, he leased a two-bedroom apartment with his fiance near the hospital where he worked.

5. His fiance was not in paid employment during much of this period, as she was completing her practical legal training at the College of Law. Dr Scott had some difficulty recollecting the details of when she commenced work. I gather from his evidence (although he was vague on this point) he paid most of the household expenses out of his own pocket.

The claim in respect of motor vehicle expenses

6. Dr Scott possessed a succession of motor vehicles during the period covered by the

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objection decisions. The first vehicle was a Ford Falcon (Reg: 330 ACR). It was unclear from the evidence when the vehicle was acquired. In any event, Dr Scott had the vehicle in his possession when he commenced work at Westmead. It was supplied to him by his father, who had purchased the vehicle in 1984.

7. I questioned Dr Scott in some detail regarding the acquisition of the vehicle. I wanted to know whether he owned it. While he spoke of the vehicle as ``my car'', he did not appear to have acquired it by way of gift from his father and there was no evidence of a sale. He said nothing was really said when he asked for the car: he asked for the vehicle, and he was given it. He admitted in his evidence that he did not anticipate that he would have the right to sell that vehicle, although it was understood he would meet all the running and maintenance costs. He was unable to recall paying for registration or insurance in respect of the vehicle. Mrs Scott produced a transfer of registration document that recorded a transfer of the registration into Dr Scott's name on 29 September 1993, although Mr Curran for the respondent produced a notice of renewal that was issued after that date recording Mr Scott (the applicant's father) as the person holding the registration.

8. The date on the transfer document - 29 September - is Dr Scott's birthday. I asked him in evidence whether there was any significance to the transfer occurring on that date. Was it a birthday present, perhaps? Dr Scott said it was a coincidence. The change in registration was not intended to signify that he had been given the car by way of a gift.

9. Dr Scott also had possession of a Holden Commodore at some point during the period covered by the objection decision. The returns suggest a claim is made with respect to the costs of the Commodore, but it became clear at the hearing that the claim was incorrect. In fact, Dr Scott had acquired another vehicle from his father to replace the Falcon, a Mitsubishi Magna (Reg: 201 BGW). The claim was made in respect of that vehicle. Dr Scott said he drove the car constantly to and from work. He worked long hours. As a shift worker, he needed a car and could not rely on public transport. But it appears this vehicle was acquired from Dr Scott's father on the same basis as the Falcon. He met the extensive costs of maintaining the car, but he did not pay for its registration or insurance.

10. The only significant difference between the arrangement with respect to the two cars was that Dr Scott was apparently permitted to sell the Magna. He traded it in on a newer car. There is no suggestion that anyone else - apart from Dr Scott's father - had a right to the Magna.

11. The question of ownership is important because only an owner or lessee of a vehicle can make a claim for vehicle expenses using one of the four approved methods of substantiation under the Income Tax Assessment Act 1936 (ITAA36). Those substantiation provisions can be found in two places. Where the claim relates to expenses incurred prior to the end of June 1994, one must have regard to the provisions found in Subdivision F of Division 3 of Part III of the Act. For claims with respect to later years, the taxpayer has regard to Schedule 2A to the Act. Dr Scott chose in each year to claim using the cents per kilometre method (see ss 82KS and 82KX in Subdivision F in relation to 1993-1994, and s 82KZBE and s 1-3 of Division 1 of Schedule 2A for 1994-1995).

12. ``Ownership'' is a slippery concept. It is one of those terms that everyone uses and apparently understands, but which no one ever defines. It is certainly not defined at common law. A definition was not required because the common law tended to focus on possession. But the expressions ``owned'' and ``owner'' and ``ownership'' are used on occasion in statutes like ITAA36 so it becomes necessary to devise a working definition of the concept.

13. Most of the cases and academic texts that discuss ownership suggest it is a bundle of rights. In
Knapp v Knapp [1944] SASR 257 at 261, for example, Mayo J said:

``The general right of ownership embraces subsidiary rights, such as exclusive enjoyment, to destroy, to alienate or to alter, and, of course, the right to maintain, and to resume and recover possession from other persons.''

14. Lawson and Rudden expressed a similar view in The Law of Property (2ed, Clarendon Press, Oxford, 1982). The learned authors suggested (at 8):

``The main elements [of ownership] are (a) the right to make physical use of a thing; (b)

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the right to income from it, in money, in kind, or in services; and (c) the power of management, including that of alienation.''

15. Later, the learned authors emphasised that the right to dispose of the asset is particularly important. They said (at 116):

``We can say that the owner of a thing, whether land or a chattel, is the person who can convey the full interest in it to another person...''

16. This approach lacks precision because the rights contained in the bundle have never been precisely enumerated.

17. More recently, the Full Federal Court in
Bellinz Pty Limited & Ors v FC of T 98 ATC 4634 suggested (at 4640) ownership might be regarded (depending on the context in which the word is used) as ``the entire dominion of the thing said to be owned''. This approach has echoes of the Roman law concept of dominium. It is difficult to understand precisely what is meant by expressions like ``entire dominion of the thing...''. I also have some hesitation in borrowing concepts like dominium which arguably describe a much more precise and absolute set of rights over the property than has ever been recognised in the attractively fluid common law concept of ownership.

18. Professor Welling, in his seminal work Property in Things in the Common Law System (Scribblers Publishing, Australia, 1996) suggests a claim to possession (either immediately or ultimately) lies at the heart of the concept of ownership. He reluctantly offers a definition of the concept (at 35):

``Ownership is a form of property in things. A holder of ownership of a thing either (i) holds possession of the thing which no one is at liberty to interfere with, or (ii) holds, or will when a contract expires hold, right to immediate possession of the thing, while someone else holds possession or right to immediate possession after transfer.''

19. I think Professor Welling's approach to the question is consistent with - and illuminates - the Federal Court's approach in Bellinz. It requires that I ask whether Dr Scott had a form of possession with which no one could interfere. Alternatively, I could ask whether Mr Donald Scott, the person from whom Dr Scott took possession of the vehicle, had either a right to immediate possession of the vehicle or would have that right upon the expiration of some arrangement with Dr Scott?

20. I do not think Dr Scott was the owner of the Falcon. He was not a lessee of the vehicle either. He apparently had possession of the car under an informal arrangement with his father. The Falcon was given to Dr Scott by his father and was subsequently given to Dr Scott's brother, apparently at the direction of Mr Scott. In other words, Dr Scott's father had a right to possession that he exercised by directing that the car be given to someone else. The fact that the vehicle was, for a time, registered in Dr Scott's name does not change that conclusion, as registration is not conclusive proof of ownership. The arrangement with respect to the Commodore was apparently the same, although nothing turns on it.

21. The arrangement with respect to the Magna was more complicated because Dr Scott said he was permitted to trade-in the vehicle on a new car that he clearly owned. A right to alienate is often regarded as an indication of ownership: see, for example, Knapp. But one must be careful to examine the whole picture. The evidence suggested the car was acquired from Mr Donald Scott on the same basis as the Falcon - in other words, it was for the applicant's use. I was left with the impression from Dr Scott's testimony that Mr Scott allowed him to dispose of the vehicle through a trade-in. The best that can be said is that Mr Scott made a gift of the vehicle to his son some time before the disposition. But there is no evidence to suggest when that occurred. It may have occurred immediately prior to the trade-in by Dr Scott. It follows I cannot be satisfied that Dr Scott was the owner of the vehicle during the time prior to the disposition when he was incurring expenses.

22. I was left with the clear impression from Dr Scott's evidence in relation to both cars that he would have delivered the possession of the vehicles to his father if Mr Scott had required their return. It follows that Mr Scott had ``dominion of the thing said to be owned'' within the meaning of that expression in Bellinz.

23. As a non-owner who did not have possession under a lease, Dr Scott is unable to make a claim for a deduction using the substantiation methods provided for in the legislation. It follows that the claim in so far as it relates to the Falcon and the Magna must fail.

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Home office expenses

24. The applicant claimed that 35% of the rent paid on his apartment should have been deductible because one of the two bedrooms in his apartment was used as a study. The applicant explained he studied and prepared materials for use in connection with his work. I do not doubt it. Other things being equal, I would be inclined to allow the expenses as a deductible work-related expense. But there is a problem with the claim. Dr Scott acknowledged in his evidence that the home office did not take up 35% of the floor space of the apartment. It was therefore inappropriate to make a claim in respect of that proportion of the rent. Dr Scott had left his mother, Mrs Scott, to make the claim when she completed the income tax returns on his behalf and she apparently plucked a figure from the air.

25. In the absence of some evidence of the space actually occupied by the home office, I am unable to determine the appropriate proportion of the rent that should be allowed as a deduction. It follows that the taxpayer has been unable to substantiate his claim, and it must be disallowed.

The depreciation of the computer and printer

26. Dr Scott also encountered problems of proof in relation to the claim for depreciation of the computer. He did not recall when he bought the machine, nor did he remember exactly how much he paid. He was unable to produce receipts evidencing the purchase. I have no reason to doubt he purchased a computer as he claimed, but it is impossible to deal with the claim in the absence of any evidence which would allow me to determine the amount, if any, of an allowable deduction.

27. There is some evidence in relation to the printer. A copy of a cheque butt tendered in evidence shows that a printer was purchased for $1885. Dr Scott confirmed that he purchased the printer for work purposes during the relevant period. It was an expensive printer, but he apparently required it in connection with his work as a doctor where he was required to prepare presentations and other materials. It follows that I would allow the claim for depreciation of the cost of the printer.

Conclusion

28. I have sympathy for Dr Scott. He was an honest and credible witness who did his best to remember the details of his expenditures. But he had difficulty remembering much of what occurred. I suspect his mind was fully occupied during the relevant period with his studies and his work. He apparently left the details of the claim to his mother. That claim was ultimately defeated by a want of proper documentation and supporting evidence.

29. I affirm the objection decision under review save for that part of the decision relating to the depreciation of the cost of the printer. The matter is therefore remitted to the Commissioner to be dealt with according to the reasons set out in this decision.