---

ADMINISTRATIVE APPEALS TRIBUNAL - SITTING AS SMALL TAXATION CLAIMS TRIBUNAL

[2002] AATA 1157

Re Nicoll and Federal Commissioner of Taxation

B J McCabe, Member

12 November 2002 - Brisbane

---

B J McCabe, Member.

Introduction

   The Commissioner of Taxation disallowed a number of the applicant's claims for a deduction in the year of income ended 30 June 2000. The applicant, Mr Robert Nicoll, has asked the tribunal to review the Commissioner's decision and determine whether the deductions should be allowed.

The material before the tribunal

  2  The documents required under s 37 of the Administrative Appeals Tribunal Act 1975 (Cth) were provided to the tribunal. The applicant gave evidence in person. The tribunal was also provided with a statement signed by the applicant's tax agent dated 26 March 2002. Although described as an affidavit, it was really a set of submissions that read like a crie de couer. The Commissioner did not call any witnesses.

  3  The applicant was represented by his tax agent, Mr O'Brien. The Commissioner was represented by Ms Balkin.

The facts

  4  The applicant worked for several different entities during the year of income ending 30 June 2000. He was also unemployed during part of that year. The evidence established he worked for:

 •  M & S Steel Buildings Pty Ltd from 1 July-5 November 1999;

 •  Aussie Garages Pty Ltd between 6 November 1999 and 3 January 2000;

 •  Pantex Roofing Systems Pty Ltd from 4 January - 24 February 2000; and

 •  Simarnya Construction and Management Pty Ltd from 1 March - 30 June 2000.

  5  It was unclear from the evidence whether Mr Nicoll was an employee of all those businesses or merely a commission agent. A letter from Aussie Garages Pty Ltd dated 25 October 2000, for example, describes Mr Nicoll as "a commission agent based in our Caboolture office". But nothing turns on the distinction for the purposes of these proceedings. It was also unclear how much income he derived from each employer. For example, the applicant agreed during the course of his evidence that he did not make any money at all out of his work at Aussie Garages Pty Ltd.

  6  In the course of his work, Mr Nicoll says he incurred a number of work-related expenses. He said he moved from Toowoomba to Brisbane in the second half of 1999 to oversee M & S Steel's "push" into the Brisbane market. The company did not provide him with an office or any other accommodation, so he said he had to take out a lease over a house. The lease was for a term of 6 months. He lived in the house, which was fitted out with a home office. Mr Nicoll seeks to deduct part of the rental costs on the house to reflect his use of a home office. He says that is a business-related expense. He has claimed the cost of electricity used to power various items of office equipment. He also wishes to depreciate the cost of his computer.

  7  The applicant also claimed the cost of work-related mobile phone calls, tools, stationery and the cost of 2 trips to Toowoomba.

Concessions

  8  The scope of the dispute was narrowed as evidence was adduced at the hearing. The dispute in respect of the tool was resolved. Evidence was provided that Mr Nicoll had purchased the tool from a Mr Kent Bullock. It was accepted that Mr Nicoll used the drill in connection with his work, although Ms Balkin said the tool should have been depreciated using one of the established methods of deduction provided for in s 42-25 of the Income Tax Assessment Act 1997 (Cth) (the ITAA 1997) as the tool cost over $300: s 42-167. (Mr O'Brien for the applicant said the tool was a replacement tool so it could have been deducted instead of depreciated by reason of s 62AA(3)(i) of the Income Tax Assessment Act 1936 (Cth) (the ITAA 1936) - but that section was repealed prior to the year of income in question). It follows the tool should be treated as a depreciable item.

  9  The Commissioner conceded the parking fees were properly deductible once it was established the applicant was in employment when he incurred those costs. The respondent also conceded the cost of purchasing a hands-free kit for the mobile phone was allowable as a deduction.

  10  Although it is unfortunate these concessions came so late in the day, I do not hold the Commissioner's personnel responsible for the delay. There appears to have been a breakdown in communication between the applicant's tax agent and the Commissioner's officers assigned to deal with the case.

The matters in dispute

(i) Home Office Expenses

  11  The applicant claimed a deduction in respect of his home office while working for M & S Steel Products in Brisbane. Specifically, he seeks to deduct a portion of his rent. He says he had to establish a home office because his employer did not provide him with a place of work. His employer was based in Toowoomba, so he could not use its offices.

  12  The house he rented in Brisbane was leased on a 6-month term at $380 per fortnight. The applicant conceded he became unemployed before the expiration of the lease. But he says he should nonetheless be able to claim a portion of the rent for the full 6 months as he was obliged to see out the lease. The applicant says he used 14.893% of the floor space in his home exclusively for his work (including cupboards and the half the garage where he parked his car - I note he received a mileage allowance from his employer for his car that he used for work purposes). He argued he was therefore entitled to claim a deduction of $1471.

  13  The respondent accepted in the objection decision that part of the house was used for work-purposes, although he concluded the garage and a walkway should not have been included in the area. The Commissioner said that only 10.335% of the total floor space was used for work purposes and allowed that portion of the rent over the period during which the applicant was employed with M & S Steel Buildings Pty Ltd - some 128 days. The amount comes to $359.

  14  I am not satisfied in the circumstances that the applicant can claim in respect of the whole term of the lease. He continued to live in the property for the whole of that time. If he had entered into a lease for space that could not be used for any other purpose for a fixed term and the business failed leaving him to pay rent on that property, the situation might be different. But there was no evidence that this was the case here. It follows I accept the Commissioner's contention with respect to the period over which the deduction might be claimed.

  15  I am satisfied from the evidence that the floor-space occupied by the car in the carport should be included in the floor-space in respect of which a claim was made. The evidence suggested the carport area was separate from the rest of the house. Since it was accepted the car was used for work purposes, I am satisfied that the portion of the rent paid to house the vehicle might be claimed.

  16  The Commissioner should recalculate the portion of the floor-space to include the area of the garage occupied by the car but excluding the walkway in order to determine the portion of the rent paid over the course of 128 days that should be allowed as a deduction.

  17  The applicant also claimed a deduction in respect of 18% of the electricity bill. He says the power was consumed in the operation of all of his office equipment, including his computer, a photocopier and a fax machine. He said he was in his office up to 6 hours a day using the equipment.

  18  Ms Balkin, on behalf of the Commissioner, referred the tribunal to s 900-10 of the ITAA 1997. That section deals with substantiation. One must take a common-sense approach to the application of the substantiation requirements, but I do not think the applicant has discharged his burden of proof in this case. The applicant described a detailed calculation of the cost of power consumed by the equipment in question, but he included assumptions about the consumption of power that were not adequately explained or justified. I find it hard to believe that he spent as long as he claimed at work in the office each day. I also note that the claim was made over the life of the lease (that is, over 6 months). I do not think the taxpayer may seek a deduction in respect of costs incurred when he was unemployed.

  19  It follows I reject the claim for a deduction in respect of the cost of the power.

(ii) Depreciation of the Computer

  20  The applicant says he bought a computer for "about $5,000" that was used in connection within his work. I am prepared to accept he did use a computer for his work, but there was no evidence provided to substantiate his claim that he owned the computer, or the price for which it was purchased. It follows that he is unable to succeed in his claim for depreciation.

(iii) Mobile Phone

  21  The applicant claimed the cost of mobile phone calls. He says 95% of his bill in each of 2 months was in respect of business-related calls. The Commissioner originally rejected his claim on the basis that the calls were made while he worked with Pantex Roofing Systems Pty Ltd. The objection decision records the Commissioner's view that there was no need for the applicant to have a phone for the purposes of his work with that employer.

  22  The applicant said at the hearing he was only making a claim in respect of the telephone bills that were incurred during his work for Aussie Garages over the Christmas and New Year period in 1999/2000. He insists that 95% of the phone was used for business calls.

  23  It is difficult to decide how a telephone bill ought to be substantiated. One cannot be expected to maintain a diary of calls, for example, although that would obviously be helpful information if it were available. Where a taxpayer claims a very high percentage of his or bill each month for business purposes, one would normally expect some supporting evidence - or at least a very convincing explanation - in addition to a statement by the taxpayer attesting to the heavy business use of the phone. Although the taxpayer gave evidence about the calls, there was no other evidence to support his very high claim. In the absence of that evidence, I think it is unlikely that only 5% of the cost of calls by value was attributable to private use. The Commissioner was therefore right to disallow the claim for mobile telephone expenses.

(iv) Accommodation

  24  The taxpayer claimed the cost of accommodation incurred in connection with 2 trips from Brisbane to Toowoomba. There was some confusion about the dates of those trips, although I was referred to pp 30-31 of the T documents that included receipts said to be relevant. There is a record of a motel stay at the Toowoomba Motel on 8 July 1999 in the amount of $95.40 and a receipt recording the purchase of some food at a garage in Toowoomba on the same day in the amount of $10.40. It was unclear from those documents when the second trip occurred. One receipt refers to a purchase made on 19 September, while a second receipt refers to a purchase made on 30 September.

  25  I have not been provided with sufficient evidence to make a judgment about the second trip. It follows that the claim insofar as it relates to that trip must fail. But I accept the applicant's explanation that he needed to travel to Toowoomba for meetings in connection with his work. I therefore accept the claim in respect of the motel stay and the food purchase occurring in Toowoomba on 7-8 July 1999.

(v) Stationery

  26  There was also a claim made in respect of the cost of purchasing stationery. The applicant said he used stationery in connection with the operation of the computer and other office work he performed in the course of producing his assessable income.

  27  I am satisfied after hearing the applicant's account of his work that he did use stationery and would have purchased office supplies during the period in question. Consistent with this view, the Commissioner conceded a number of the receipts copied in the T documents at pp 51-55 substantiated expenses that were properly allowable. In particular, the cost of the ink cartridge at p 55 was conceded.

  28  After hearing the applicant's account of his work, I accept his account that he used the stationery the purchase of which is recorded in pp 51-55 of the T documents.

Conclusion

  29  The objection decision under review is varied in accordance with the reasons given in this decision.