Case D77

Judges:
FE Dubout Ch
G Thompson M
N Dempsey M

Court:
No. 3 Board of Review

Judgment date: 21 November 1972.

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F.E. Dubout (Chairman): The taxpayer concerned in this reference, a dentist, carried on his professional practice for many years in rented premises which were entirely satisfactory for his purposes. The landlord having decided to demolish its building and erect a new one, the taxpayer was obliged to seek accommodation elsewhere for his practice. He moved into temporary premises for a period of about ten months, and then went back as a tenant of his original landlord, in its newly-constructed building.

2. These moves took place during the year ended 30 June 1970, and involved the taxpayer in a total expenditure of $2,843. Individual items of expenditure relating to each of the moves were as follows -

      In connection with the move to

      temporary accommodation -

      Removal expenses                          $45

      Electrical and plumbing

      disconnection at old premises and

      installation in temporary premises       $523

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                                               $568

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      In connection with establishing the

      practice in the new building -

      Removal expenses                          $45

      Electrical and plumbing installation     $738

      Erection of partitions                  $1183

      Painting partitions etc.                 $309

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                                              $2275

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3. In his return for the year ended 30 June 1970, the taxpayer claimed a deduction for the above expenditure which actually totalled $2,842. In making the assessment, the Commissioner disallowed the claim in its entirety, and in due course, the matter has now come before this Board. There is no mention in the notice of objection of any specific section under which the taxpayer seeks to bring his claim, but from the language employed, it is clear that the taxpayer is claiming under sec.51 of the Assessment Act.

4. As the taxpayer is carrying on a profession, or ``business'', within the meaning of the definition in sec. 6, his claim falls for consideration principally under the second limb of sec. 51, which provides for a deduction in respect of all losses and outgoings to the

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ATC 453

extent to which they are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income, but specifically excludes from deductibility, inter alia, losses or outgoings of capital or of a capital nature. In the present case, I would have some difficulty in concluding that the subject expenditure was not necessarily incurred in carrying on the taxpayer's business. The outgoing was not a preliminary or establishment expense of the business, which had in fact been carried on for some thirty years. The compulsion upon the taxpayer to move was an irruption into the even tenor of business operations, but the dental practice appears to have continued without interruption over the period in which the moves occurred. But even on the assumption that the subject expenditure is properly to be regarded as having been necessarily incurred in carrying on the business, the taxpayer still faces the hurdle of the capital expenditure test, and here the authorities appear to be clearly against him.

5. Out of a large number of Board of Review decisions to which this Board was referred by the Commissioner's representative, I consider that the case most relevant in principle for present purposes, is
10 T.B.R.D. Case K.20, a decision of Board of Review No. 2. In several of the cases to which the Board was referred, reference was made to the decision of the Scottish Court of Exchequer in
Granite Supply Association Ltd. v. Kitton (1905) 5 T.C. 168 but in that case, the transfer from old to new premises appears to have been intended as a permanent arrangement. For that reason, I think that the essential facts of Case K.20 are more closely analogous to those of the present reference, and I now proceed to state briefly what those fact were. In the course of demolishing an old hotel and erecting a new one, a company incurred expenditure in erecting a temporary bar and toilet facilities in, and adjoining, an old stable at the rear of the premises. On the completion and occupation of the new hotel premises, the temporary bar and toilet facilities were demolished, and no salvage was allowed to the company by the contractor.

6. In a joint decision, the Board held that the expenditure was not an allowable deduction as it was of a capital nature. It is true that in that case, the temporary structures were erected as something ancillary to a general plan of rebuilding, and therefore more clearly partook of the capital character of the whole programme. Even so, looking at the expenditure in isolation, the Board concluded that the real and achieved purpose of the expenditure was, in the words of Dixon J, in
Sun Newspapers Ltd. v. F.C. of T. (1938) 61 C.L.R. 337 at p. 363 , ``to preserve from immediate impairment and dislocation the existing business organisation.'' Of the subject expenditure in the present reference, I think that exactly the same thing can be said. Its purpose was to preserve the professional practice from dislocation and it effectively achieved that purpose. It was expenditure going to the protection of the business entity itself, rather than to the day to day operations of the business. As such, it was expenditure of a capital nature and not allowable as a deduction for income tax purposes.

7. I would accordingly disallow the taxpayer's objection and confirm the Commissioner's assessment.