Case A71

Judges:
AM Donovan Ch
JD Davies M
GR Thompson M

Court:
No. 2 Board of Review

Judgment date: 7 November 1969.

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A. M. Donovan (Chairman): At the relevant time, the taxpayer concerned in this reference was a Member of the Legislative Assembly of the State of Western Australia. He is challenging the disallowance as deductions of two small outgoings incurred pursuant to the Stamp Act 1921 (as amended) of that State.

2. Before proceeding to deal with the first amount in dispute, I should explain that the taxpayer received an amount of $1,400 during the year in question pursuant to the Members of Parliament Reimbursement of Expenses Act 1953 (as amended) which, by sec. 2, provided - ``Each Member of Parliament of the State is entitled as reimbursement of expenses incurred in discharging parliamentary duties in addition to any allowance to which he is entitled under any other Act to such reimbursement as is specified in the First Schedule of this Act and is appropriate, to his case.''

3. It is my understanding that the amount of $1,400 was paid without regard to the actual expenses defrayed by the taxpayer and irrespective of whether they were less than or exceeded $1,400. In these circumstances, the amount was not mere reimbursement

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of expenses which had been met by the taxpayer but constituted an allowance in respect of outgoings which might arise. The amount was included by the taxpayer in his return under the description ``Legislative Assembly reimbursement of expenses'' and a deduction was claimed (and allowed) for ``Parliamentary electorate allowance $1,400''. Additionally, the taxpayer claimed $15 paid in respect of stamp duty on ten books of cheques. This last mentioned claim was disallowed by the Commissioner and gives rise to the first matter in dispute.

4. Pursuant to the Stamp Act, each cheque in the books acquired by the taxpayer bore stamp duty of five cents. The taxpayer explained that the cheques were used by him to operate upon his bank account to obtain funds, part of which were used in the discharge of his parliamentary duties. The money thus obtained was not wholly so used, and the precise extent to which the outgoing related to the taxpayer's income producing activities cannot be determined. As it happens, however, this matter is immaterial.

5. The Commissioner's representative conceded that, to the extent to which the stamp duty on the cheques was referable to the discharge of the taxpayer's parliamentary duties, it was deductible under sec. 51 of the Act. He submitted, however, that this outgoing and all other outgoings similarly incurred were to be taken as included in the blanket deduction of $1,400 which had been allowed. On the other hand, the taxpayer argued, inter alia, that the stamp duty was not the sort of outgoing comprehended by the allowance of $1,400 that he received. He said that, on previous occasions, similar claims had been allowed to him and that this practice should be continued. He stated, too, that within his own knowledge other persons comparably situated had been allowed such a deduction.

6. While the taxpayer's feelings can be well understood, what the Commissioner has done in other instances is of no concern to the Board which is authorised only to decide whether, within the scope of the objection before it, the deduction is allowable in the year under review. The concession by the Commissioner's representative on the matter of principle leaves for consideration only the simple question whether the amount of $1,400 already allowed should be increased to some extent not exceeding $15.

7. Perhaps because of the difficulty of recording of relevant outgoings, the taxpayer submitted his claim for $1,400 without specifying the nature and the amount of the component items. It seems clear enough, and was not denied by him, that the claim was in respect of expenses incurred in carrying out his parliamentary duties. The claim could only have been admitted by the Commissioner pursuant to sec. 51 and on the basis that outgoings so incurred reached the amount shown. It is to be understood that, in spite of the coincidence of amounts, the Commissioner did not grant a deduction in respect of the allowance as such, for there is no authority in the Act for him to have done so. In consequence, it is immaterial that the expenses which the State Legislature intended to be covered by the allowance may not have comprehended stamp duty on cheques.

8. The proper course for the taxpayer to have adopted in submitting his return was to furnish details, including the amounts, of the expenses incurred by him in discharging his parliamentary duties. Had he done so, he would have been entitled to a deduction of the actual amounts expended by him which satisfied the requirements of sec. 51, for that section places no limit on the quantum of deductions. For reasons which, no doubt, were compelling, he did not adopt this method but claimed an overall deduction of $1,400 without furnishing any details. The disadvantage from his point of view is that to gain any further deduction for expenses incurred in relation to his parliamentary position he must show, inter alia, that the deductible expenses in total exceed the deduction already allowed by the Commissioner. This he has not done, and the Board has perforce to uphold the Commissioner's decision on this aspect of the objection.

9. The other claim made by the taxpayer is for an amount of $7.92 also paid under the Stamp Act 1921 (as amended). Section 16 of that Act imposes duty on instruments and, pursuant to the Second Schedule of the Act, the duty on an instrument being a receipt is one cent for an amount of $10 or less, and one cent for every $10 or fractional part thereof in respect of a greater amount. Section 99 makes it an offence punishable by fine for a person to refuse to give a receipt duly stamped in any case where a receipt would be liable to duty. Section 99A permits a person with the permission of the

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Commissioner to submit a return of amounts received and to pay duty in respect of the aggregate thereof instead of paying duty on each receipt issued as required by the provisions first mentioned.

10. Evidence was given that the taxpayer's parliamentary salary and allowance were paid to him at monthly intervals. He never at any stage gave a receipt in respect thereof. However, twice each year the amount of duty which receipts in respect of payments would have attracted in the preceding six months was calculated and the total amount thus determined was deducted by the paying officer from the taxpayer's emoluments then being paid and remitted by the officer to the State Treasury. It seems certain that this action was regarded by the State authorities as a sufficient compliance with the requirements of the Stamp Act, although, as far as I can see, it does not appear to have been strictly in accordance with its provisions. The amount so deducted and paid during the year ended 30 June 1968, was $7.92, and is the amount in dispute.

11. I intend no discourtesy to the taxpayer by omitting to deal with the arguments he directed to this aspect of his case, for I do not regard them as tenable. I shall restrict my considerations to the applicability of sec. 51 to the outgoing, a matter which it was conceded the objection raised.

12. The two positive limbs of sec. 51 permit deduction of all losses and outgoings -

(a) incurred in gaining or producing the assessable income; or

(b) necessarily incurred in carrying on a business for the purpose of gaining or producing such income.

Both expressions, and the provisions of the earlier Act from which the first was derived, have been considered and explained by the Court on a number of occasions. For present purposes, it is sufficient to recall that -

(1) the words ``in gaining or producing the assessable income'' have to be interpreted as ``in the course of gaining or producing the assessable income''
(Amalgamated Zinc (de Bavay's) Ltd. v. F.C. of T. (1935) 54 C.L.R. 295 , per Latham C.J. at p. 303, in relation to the provisions of the earlier legislation);

(2) to be deductible as being incurred in gaining or producing the assessable income, an outgoing must be ``incidental and relevant to that end''
(Ronpibon Tin N.L. v. F.C. of T. 78 C.L.R. 47 at p. 56 , in explanation of the words of sec. 51 as presently enacted);

(3) to come within the provisions, ``it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income'' ( Ibid ).

13. The receipt by the taxpayer each month of his salary and allowance gave rise to what can be regarded, for all practical purposes, as a contemporaneous liability for receipt duty. This liability was discharged in the fiscal year in which it arose, and the fact that it was not immediately satisfied is immaterial. In the ordinary use of language, the liability can be said to have been ``incurred in the course of gaining or producing'' the taxpayer's salary and allowance, and to have been ``relevant and incidental to that end''. The occasion of the liability is found in that which was ``productive of the assessable income''. The liability for stamp duty and the discharge of that liability are seen then to fall squarely within the first limb of sec. 51, as explained in the cases above mentioned.

14. I do not think it would be seriously contended that receipt duty paid by a person carrying on a business would not be deductible under the second limb of the section as an outgoing ``necessarily incurred in carrying on business for the purpose of gaining or producing'' assessable income. Yet, the High Court has been at pains to point out that the test propounded by this limb, for all purposes presently material, covers the same ground as that of the first limb ( Ronpibon, supra ). Deductibility of the amount cannot therefore be made to depend upon whether the person concerned is or is not carrying on business.

15. In denying that the outgoing qualified as a deduction, the Commissioner's representative submitted only that the taxpayer's income had been gained or produced before the liability for the duty arose. As I have indicated above, for practical purposes the liability can be regarded as having arisen simultaneously with the payment of the salary and allowance. The argument involves an inordinately narrow approach and ignores the continuity of the services rendered by the taxpayer and the payments received by him, which together form a single process of production of income.

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16. The argument, moreover, is inconsistent with the decision in
Charles Moore & Co. (W.A.) Pty. Ltd. v. F.C. of T. 95 C.L.R. 344 , where a deduction was allowed to a trader in respect of a loss by robbery of a substantial part of the previous day's takings while they were being carried to the bank. Because of the coincidence, for most purposes, of the tests propounded by the two limbs of sec. 51, which has been adverted to, it is not surprising to find that, although it was dealing with a claim by a taxpayer carrying on business, the Court confined its consideration to the question whether the loss was incurred in gaining or producing the taxpayer's assessable income, i.e. whether it fell within the words of the first limb. The Court pointed out that the assessable income to which sec. 51 relates ``is (apart from exemptions) the total amount of the receipts of an income nature derived during the twelve months forming the accounting period''. This conclusion enabled it to reject any suggestion that the cash taken by the robber constituted assessable income which had been produced or gained before it was lost. It is clear then that ``the assessable income'' of the present taxpayer to which sec. 51 refers constitutes not the individual payments of salary and allowance as and when they arise, but the totality of such payments made to the taxpayer during the year of income. The liability for and payment of receipt duty can be seen to arise in the course of producing that total income, i.e., ``the assessable income'' to which sec. 51 refers. The decision referred to above precludes one from looking at each separate payment of salary and allowance and denying the deduction for receipt duty even if the liability for the duty could properly be regarded as having arisen subsequently.

17. In my view, the amount of $7.92 satisfies the requirements of sec. 51 and should be allowed. I should perhaps add that this outgoing was not one of those incurred by the taxpayer in the course of carrying out his parliamentary duties and, therefore, cannot be taken as being included in the amount of $1,400 referred to earlier.

18. Since arriving at this decision, I have had the opportunity of reading the judgments of the High Court in
The State of Western Australia v. Hamersley Iron Pty. Ltd. (1969) 43 A.L.J.R. 351 . The Court was there concerned with some of the provisions of the Stamp Act of Western Australia to which I have referred. The view which prevailed was that, in part, the Act imposed not a duty on instruments but a duty which amounted to a duty of excise. Nothing that was said in the judgments indicates in any way that the outgoings with which we are presently concerned were of such a character that they fail as deductions under sec. 51 of the Act.

19. I would allow the claim of the taxpayer in so far as it relates to the deduction of $7.92 paid pursuant to the Stamp Act, but would otherwise uphold the Commissioner's decision on the objection.