JL Burke Ch
RE O'Neill M
CF Fairleigh QC
No. 1 Board of Review
J.L. Burke (Chairman); R.E. O'Neill and C.F. Fairleigh Q.C. (Members): The Board has for review the Commissioner's decision denying taxpayer's objection to the disallowance in his assessment for the year ended 30 June 1970 of a deduction claimed under sec. 82H for $741 paid by the taxpayer to the trustee of a ``one-man'' superannuation fund. Taxpayer owned and personally managed a block of holiday flats for short term lettings at a beach resort town on the north coast of New South Wales. In substance the Commissioner maintains that taxpayer was not self-employed in any occupation and, he being admittedly not an employee, there was nothing from which he could retire on account of age or illness when he might be said to be ``superannuated''. Hence, it was said, what he paid to the trustee of the fund was not paid to a ``superannuation fund'' within the meaning of sec. 82H.
2. Such reliance as was put for the Commissioner on the terms of the deed was confined to the proposition that, as the trustee was by cl. 4 prohibited from accepting contributions to the fund during any period in which the taxpayer ``is not engaged in gainful occupation and does not derive income from personal exertion'', the trustee committed a breach of trust by accepting the contribution of $741 and, accordingly, the contribution was not a ``payment... paid to... a superannuation fund'' in terms of sec. 82H. In these circumstances we need but give a brief outline of the substantive provisions of the deed.
3. Taxpayer was born on 11 March 1913. The deed bearing date 18 May 1970 was executed by him (``the contributor'') and by an accountant as trustee. It recites -
``(a) The Contributor desires to constitute a Superannuation Fund for the benefit of himself and/ or his dependants in the manner hereinafter set out.
(b) The said (accountant) has been nominated by the Contributor as Trustee of the Fund.''
The permissible contributions in a year are not to exceed stated maxima related to the contributor's age; any contribution must be made from the contributor's own funds and be made when he is engaged in gainful occupation (cl. 4). Clause 8 provides, inter alia, that the contributor's benefit shall be paid to him -
``(a) Upon his retirement from work, but not before he reaches the age of 60 years.
(b) In the event of the permanent incapacitation for work of the Contributor before he reaches the age of 60 years.
(c) Not later than the date of the 70th anniversary of his birth.''
In the event of the contributor dying before becoming entitled to benefits the trustee shall pay the benefit to the contributor's dependants. Clause 10 provides that in various circumstances (e.g. bankruptcy, insanity, etc.) the trustee in his discretion may apply the amount of the benefit then held by or under his control to one or several of payments to the taxpayer or one or more of his dependants subject to conditions expressed in the clause. Clause 15 restricts investment of the trust fund to trustee securities, shares in public companies, specified unit trusts, bank deposits.
4. Before going to the facts it is desirable to consider what construction should be put on sec. 82H (see para. 8) so that we have some preconception of the scope of the expression ``superannuation fund'' in that provision. To that end we trace the legislative history of sec. 82H.
5. From the beginning of Commonwealth income tax the law has made provision for the deduction of payments made to a superannuation fund. Thus sec. 18(g) of Act No. 34 of 1915 allowed payments made ``by a taxpayer who is in receipt of salary, wages, allowances, stipends, or annuity to superannuation, sustentation, widows' or orphans' fund or any society duly registered under any Friendly Societies Act of the Commonwealth or a State''. That provision had predecessors in State income tax law dating back to 1896 (see
15 T.B.R.D. Case Q64 at p. 306).
6. Speaking of sec. 18(g) the Kerr Royal Commission in its report dated July 1922 said at p. 162 (para. 528) that it saw no reason for limiting the deduction to taxpayers in receipt of salary, etc., and recommended that it be amended ``so as to make the deduction apply generally''. In the result sec. 23(1)(g) of consolidating Act No. 37 of 1922, assented to in October 1922, allowed deduction of payments ``by a taxpayer who is in receipt of salary, wages, allowances, stipends or annuity, or whose taxable income does not exceed Eight hundred pounds'' to a superannuation, etc., fund. By Act No. 50 of 1930 the words ``taxable income'' were altered to read ``net income'' defined as being the residue of the taxpayer's assessable income after deducting all allowable deductions except the statutory exemption.
7. The Ferguson Royal Commission in its report dated April 1934 expressed the opinion at p. 105 (para. 604) that certain general considerations should apply to all concessional deductions. One such consideration was that the deduction should be allowed irrespective of the amount of income. Speaking at p. 106 (para. 610) of life assurance premiums, contributions to superannuation funds, and the like it said that all such payments should be aggregated and treated as one allowance, with a fixed maximum. Adoption of that recommendation meant that there was no need to speak of the deduction being limited to payments by a taxpayer ``who is in receipt of salary'', etc., and so we find sec. 79(e) of consolidating Act No. 27 of 1936 providing for deduction of -
``Payments made by the taxpayer in the year of income, not exceeding in the aggregate One hundred pounds, and being -
(i)premiums of sums for insurance on the life of the taxpayer or of his spouse or children, or for a deferred annuity or other like provision for his spouse or children; or
(ii) payments to superannuation, sustentation, widows' or orphans' funds, or to any friendly society, for the personal benefit of the taxpayer or of his spouse or children.''
8. The above provision successively became sec. 160(2)(f) (by Act No. 22 of 1942) and sec. 82H (by Act No. 48 of 1950). In respect of the year of income ended 30 June 1970 sec. 82H read -
``82H. - (1). Amounts paid by the taxpayer in the year of income (not being amounts referred to in the next succeeding section) as -
(a) premiums or sums -
- (i) for insurance on the life of, or against sickness of, or against personal injury or accident to, the taxpayer or his spouse or child; or
- (ii) for a deferred annuity or other like provision for his spouse or child; or
(b) payments for the personal benefit of the taxpayer or his spouse or child made to -
- (i) a superannuation, sustentation, widows' or orphans' fund;
- (iii) a fund established by an Act or State Act relating to insurance; or
- (iv) a friendly society,
shall be allowable deductions.
(2). The deductions allowable to a taxpayer under this section shall not exceed, in the aggregate, One thousand two hundred dollars in respect of any one year of income.''
9. The history of sub-sec. (1)(a) may be traced back through sec. 23(1)(c) of the 1922 Act to sec. 18(c) of the 1915 Act.
10. Commonwealth law has also provided since 1915 for exemption from income tax of the income of ``a provident, benefit or superannuation fund established for the benefit of employees'' - see sec. 11(f) of Act No. 34 of 1915; sec. 14(1)(f) of Act No. 37 of 1922; sec. 23(j)(i) of Act No. 27 of 1936 which provision was superseded by present sec. 23F (by Act No. 110 of 1964 and Act No. 103 of 1965).
11. Following on the Report in 1951 of the Commonwealth Committee on Taxation (Reference No. 9 - concessional allowances for superannuation fund contributions, etc.) sec. 23(ja) was introduced by Act No. 90 of 1952 to exempt from tax ``the income of a provident, benefit, superannuation or retirement fund (not being a fund established for the benefit of employees)'' where the number of members is not less than twenty at any time and the conditions applicable to the fund have been approved by the Commissioner. That amendment was made to give further encouragement to non-employees to contribute to superannuation funds, it being already recognized that such contributions could be allowed pursuant to sec. 82H as being ``Amounts paid by the taxpayer in the year of income as... (b) payments for the personal benefit of the taxpayer or his spouse or child made to - (i) a superannuation... fund''.
12. Section 79, which was introduced by Act No. 110 of 1964, provides a measure of relief from tax of the income of personal type ``one-man'' superannuation funds. It applies to ``a provident, benefit, superannuation or retirement fund'' (sub-sec. (1)) the income of which is not exempt under sec. 23(ja) (funds for twenty or more non-employee members) or under sec. 23F (funds for employees). The relief provided by sec. 79 is a deduction equal to 5% of the cost of the net assets of the fund. In terms of sub-sec. (2) it covers funds maintained for the purpose of providing superannuation benefits for the member ``in the event of the retirement of the member from any business, trade, profession, vocation, calling, occupation or employment in which he is engaged''.
13. The problem of construction in such a case as this is in ascertaining the sense in which the expression ``superannuation fund'' is used in sec. 82H. In that task one must read the section in the context of the Act as a whole bearing in mind particularly such provisions as sec. 23(ja), 23F and 79. In that context and in light of the legislative history of sec. 82H it is clear that the term ``superannuation fund'' in that section cannot be confined to funds set up to provide benefits for employees whose income will cease as a consequence of retirement on account of age or incapacity or for their dependants in the event of the death of the employees. Historically the law has not been so confined since 1922.
Scott v. F.C. of T. (1966) 14 A.T.D. 333 at p. 351 Windeyer J. had occasion to give a general description of what he considered constituted a ``superannuation fund'' in the now repealed sec. 23(j)(i) and again in
Mahoney v. F.C. of T. (1967) 14 A.T.D. 519 at p. 527 as also did Kitto J. at p. 520 but those observations were restricted to funds ``established for the benefit of employees''. Keeping that fact in mind it is useful to quote from the judgment of Windeyer J. in Scott at p. 351.
``There is no definition in the Act of a superannuation fund. The meaning of the term must therefore depend upon ordinary usage, the attributes of a thing thus denominated being those which things ordinarily so described have. To say that all that one need do to decide whether there was here a superannuation fund of the required kind is to study the deed is a mistake, because the deed must be read with a preconception of what such a fund is, otherwise reading it can provide no answer... Such reading as I have been able
ATC 37to do leaves me with the impression that the connotation of the phrase in the Act must be determined by one's general knowledge of the extent of the denotation of the phrase in common parlance.....Considering the question in this way, and without my attention having been directed by counsel to any commonly accepted definition or to any standard form of constating document, I have come to the conclusion that there is no essential single attribute of a superannuation fund established for the benefit of employees except that it must be a fund bona fide devoted as its sole purpose to providing for employees who are participants money benefits (or benefits having a monetary value) upon their reaching a prescribed age. In this connexion `fund', I take it, ordinarily means money (or investments) set aside and invested, the surplus income therefrom being capitalized. I do not put this forward as a definition, but rather as a general description.''
15. Whereas sec. 23(j)(i) spoke of a ``superannuation fund established for the benefit of employees'', sec. 82H(1)(b) speaks of ``payments for the personal benefit of the taxpayer or his spouse or child'' made to a ``superannuation fund''. It appears that in sec. 82H ``superannuation fund'' has a wider meaning than it had in sec. 23(j) (cf.
73 ATC Case E17) and its usage in the Assessment Act, past and present, favours the view that in sec. 82H the expression has a wide embrace so that it is at least applicable no less to a fund established to provide benefits upon a person's retirement from his carrying on a business than to a fund to provide benefits to an employee upon retirement. (We note that sub-sec. (1G) inserted in sec. 82H by Act No. 51 of 1973 provides that payments after 1 January 1973 to a superannuation fund are not within the scope of sub-sec. (1) unless the income of the fund is exempt under (ja) or (jaa) of sec. 23 or the fund is a sec. 23F or sec. 79 fund).
16. It is not necessary for the purpose of deciding this case to go further, because here the facts are such that we do not doubt that it is in accordance with ordinary usage to say that taxpayer's activity in owning and managing his holiday flats for short term lettings does constitute the carrying on of a business (cf.
11 C.T.B.R. (O.S.)Case 24 and
15 C.T.B.R. (O.S.) Case 26).
17. The facts which lead us to that conclusion may now be stated. In 1959 taxpayer built a two-storey block having six units for short term lettings as holiday flats. Later he put up another building to give one more letting unit and other facilities. He and his wife occupied one of the block of six units so that he had six flats for lettings. He himself, helped by his wife to whom he paid $584 in the 1970 year, managed and maintained the flats.
18. The flats were let furnished; blankets, crockery, cutlery, pots and pans being supplied. He hired out linen on request for an extra charge and it was laundered by his wife. Blankets and bedspreads were also laundered by her whenever necessary. Taxpayer showed visiting inquirers over the premises usually spending half an hour with each. One out of every three or four made a booking. In a year he made in excess of 150 lettings. Inquiries and bookings involved fairly extensive correspondence. He collected all moneys payable and attended to the banking.
19. He and his wife did most of the cleaning of each flat although he did engage casual labour on busy days as when numbers of flats were vacated on the one day; his return shows $209 paid for ``cleaning and garbage disposal''. The cleaning of each flat on the average required two people each working for two hours. Cleaning was a daily chore in the off season when lettings might be for only a day or two; in the holiday season cleaning was not so constant but then work was concentrated in days when numbers of occupants changed. He charged a $2 cleaning fee on each letting. In summer lawns had to be mowed three times each fortnight and once a month in winter. He did the mowing and trimming of lawns and it was a full day's work on each occasion. He had to clear the guttering of fallen pine needles every few weeks. He did the painting both internal and external. Internal painting was done in the off-season when about half the flats were vacant although none was ever vacant for any long period. He did all running repairs in the way of plumbing such as clearing the septic toilets which were frequently blocked by people used to sewerage systems. With ``strangers and kids in all the time'' it was
ATC 38constantly necessary for him to sweep and clean stairways and balconies. He usually had to bag refuse and take it to a dump once a week as garbage clearance was available only weekly. Other work he did included the cleaning and maintenance of the garages and laundry which were used by the guests and he kept tidy an upstairs storage room; he took care of the boiler room needed to maintain water pressure to the two buildings; he had to fuel the oil burner and every two months de-coke it.
20. His task in managing and maintaining the flats was, as he said, a ``seven day a week job and hard work''. It was clearly established in evidence that the money received by the taxpayer from the occupants of the flats was not solely a payment for the right to rent a flat for a certain period. It was a payment as well for the hire or bailment of furniture, furnishings and chattels and for the provision of services which would otherwise have to be supplied by letting agents, contractors and workmen. The evidence is that there would have been an outlay of about $900 to $1,000 a year on lawn mowing and painting if the taxpayer had not done that work himself.
21. The Commissioner's representative submitted that the taxpayer was not engaged in business; that he did not have any income-producing activity from which he could ``retire'' but only an investment which yielded rents which would continue without alteration if the taxpayer by reason of age, infirmity, etc., were unable to do the work he did. That argument has force where income is received from rent in the more exclusive meaning, i.e., as payment for the occupation of land or of land and the improvements thereon. However the facts of the present case establish that taxpayer's income represented the proceeds of the business of providing fully furnished holiday flats with all the associated work.
22. Here the elements of repetition and continuity of acts and transactions are for present purposes sufficient evidence of the existence of a business. The taxpayer was actively engaged personally from day to day in multifarious activities directed to the profitable operation of his income-producing holiday flats. His is not a case of a person who simply owns flats which bring to him income vicariously through a letting agent. This taxpayer was personally gainfully employed in his occupation of managing his holiday flats for short term lettings. His income was the reward for his combined use of his capital and his labour and when, in 1973, he sold the holiday flats it seems to us to be ordinary usage of language to say that with that sale he retired from what until then had been his employment or occupation.
23. There is nothing to cut down our conclusion in the fact that the Assessment Act defines in sec. 6(1) ``income from personal exertion'' as meaning income consisting of, inter alia,
``the proceeds of any business carried on by the taxpayer either alone or as a partner with any other person... but does not include -
- (a) interest, unless..; or
- (b) rents or dividends.''
That definition seems necessarily to imply that rents, dividends and interest might be ``the proceeds of a business''. For an instance where interest was so regarded although it did not come within the ``unless'' clause and, therefore, had nevertheless to be classed as ``income from property'' for tax purposes, see
10 T.B.R.D. Case K51. In this view when the taxpayer made his contribution he was engaged in gainful occupation yielding him what, apart from the tax definition, is income from personal exertion (para. 2 of these reasons), for there is nothing in the terms of the deed to warrant those words being read as having only the narrow scope attributed to them by definition in the Assessment Act.
24. For the given reasons the taxpayer's claim is allowed and the assessment is to be amended accordingly.