Case G58

Judges:
JL Burke Ch
RE O'Neill M
CF Fairleigh QC

Court:
No. 1 Board of Review

Judgment date: 27 August 1975.

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J.L. Burke (Chairman): The issue before the Board is whether the taxpayer is entitled to depreciation deductions under sec. 54 and sec. 59 of the Assessment Act in respect of the use and disposal (or loss) of a motor vehicle possession of which passed to the Commonwealth as a result of an offence under the Customs Act .

2. The taxpayer's business is carried on wholly within Australia. On 24 October 1966 its managing director (M) who was then in America purchased and took delivery of a motor vehicle for use in the company's business in Australia. The vehicle was driven some 200 miles to a port for shipment to Sydney where it was landed on 10 November 1966. A declaration as to value was made on 11 November 1966 and after primary and additional customs duty had been paid on 14 November 1966 and 16 November 1966 the vehicle was released from bond into the possession of the taxpayer.

3. The total cost of the vehicle to the taxpayer was $7,295 which was financed as to $3,750 under a hire purchase agreement between a finance company and M (who was acting as nominee for the taxpayer company) in which the cash price of the vehicle was shown as $5,000. In its 1967 return of income the cost of the vehicle is shown as $6,000 but, in view of the decision proposed by this Board, the discrepancy is immaterial.

4. After its release from bond in November 1966 the vehicle was used in the company's business until its seizure by an officer of the Customs Department on or about 15 November 1967. Thereafter M was charged with offences under sec. 234(a) and (e) of the Customs Act (evading duty and making a declaration false in a particular) and was convicted, as charged, on 11 August 1971.

5. Section 229 of the Customs Act provides -

``The following goods shall be forfeited to His Majesty -

• (i) All goods in respect of which any entry invoice declaration answer statement or representation which is false or wilfully misleading in any particular has been delivered made or produced.''

Section 262 of the same Act states that -

``Where the committal of any offence causes a forfeiture of any goods the conviction of any person for such offence shall have effect as a condemnation of the goods in respect of which the offence is committed.''

6. The combined effect of the above provisions is that, in the instant case, the property in the seized vehicle passed to the Crown on the date of the offence, namely, 11 November 1966.
Burton v. Honan (1952) 86 C.L.R. 169 at p. 176 ;
Scott v. James Patrick & Co. Pty. Ltd. (1968) 42 A.L.J.R. 38 at p. 42 ;
Little's Victory Cab Co. Pty. Ltd. v. Carroll (1948) V.L.R. 249 at p. 253 .

7. The company's case to the Board was put on the alternative bases: (1) ownership and use from 24 October 1966 to 11 November 1966 when disposal or loss took place; or (2) ownership and use from 24 October 1966 to 15 November 1967, the seizure on that date to be held a disposal or loss. Alternative (2) above is answered by the finding of law in the preceding paragraph.

8. In order to qualify for a depreciation deduction under sec. 54 it is necessary that the plant or articles in respect of which the claim is made should be (a) owned by the taxpayer and used by him during the year for the purpose of producing assessable income or (b) owned by the taxpayer and have been installed ready for use for the purpose of producing assessable income and be held in reserve.

9. As to (a), on the facts outlined it is not possible to hold that the vehicle was used by the taxpayer for the purpose of producing assessable income before ownership passed from it on 11 November 1966. Use commenced when the vehicle was released from bond after that date but by then the taxpayer had ceased to be the owner.

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ATC 425

10. The extension of the ``use'' concept to cover plant ``installed ready for use'' as in (b) above is clearly designed to meet the situation of machinery installations and it is generally accepted that the conditions for the application of the section would not be met if plant has merely been purchased and placed in store. In my opinion it would not be correct to describe a motor vehicle held in Customs bond as plant installed ready for use and held in reserve.

11. The conclusion that the vehicle is not covered by sec. 54 means that the company's claim to a deduction under sec. 59 of the Act on the ``disposal'' or ``loss'' of the vehicle on 11 November 1966 fails in limine for the reason that the vehicle does not represent property ``in respect of which depreciation has been allowed or is allowable'' for the purposes of the section. On this view it is not necessary to decide the further question of whether a seizure under the Customs Act represents a disposal or loss for the purposes of the section and, if so, whether sec. 59(3)(d) would operate, in any event, to deny the taxpayer a deduction.

12. I would uphold the Commissioner's decisions on the objections.