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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R.E. O'Neill (Member): Taxpayer company carries on business in a highly specialized field of automotive engineering. In the latter part of 1966 its managing director went overseas on company business. The company's claim for deduction of the cost of the trip was not allowed in the original assessment made for the year ended 30 June 1967, but on objection such claim was allowed in full. Whilst he was in the U.S.A. the taxpayer's managing director bought for use in taxpayer's business a Ford motor car. The car was bought ready for use ``off the floor'' on 24 October 1966. The managing director took immediate delivery and drove it some 200 miles to a port for shipment to Australia. The car was landed in Australia on or about 10 November 1966, and it was used extensively in the company's business until it was seized by an officer of Customs on 15 November 1967.

2. In the original assessment made for the year ended 30 June 1967 the Commissioner allowed depreciation on the basis that the car was used partly for the purpose of producing the taxpayer company's assessable income. By an amended assessment dated 10 August 1971 the Commissioner eliminated any allowance for depreciation. On review of the Commissioner's decision disallowing taxpayer's objection the problem as I see it is whether or not the taxpayer is entitled to a deduction pursuant to sec. 59(1). If it is so entitled then it is agreed that the taxpayer should in terms of sec. 61 be allowed 70% of the deduction otherwise allowable under sec. 59.

3. Section 54(1) allows as a deduction depreciation during the year of income of plant or articles (a) owned by a taxpayer and used by him during that year for the purpose of producing assessable income or (b) owned by the taxpayer and which has been installed ready for use for producing assessable income and is during that year held in reserve by him.

4. The seizure of the car on 15 November 1967 by Customs related to breaches of sec. 234 of the Customs Act alleged to have occurred on 11 November 1966. The managing director was convicted of the charges on 11 August 1971. Although, as appears from what I said in para. 15 of my reasons in Case Q7,
15 T.B.R.D. 14 , I do not take a technical view of what is property ``owned'' by a taxpayer in terms of sec. 54(1), decisions such as that in
Little's Victory Cab Co. Pty. Ltd. v. Carroll (1948) V.L.R. 249 leave no doubt that immediately upon the occurrence on 11 November 1966 of the facts which constituted breaches of the Customs Act the property in the Ford motor vehicle was divested from the taxpayer and vested in the Crown or, to use the words of sec. 229 of the Customs Act , the car was on that date, i.e., 11 November 1966, ``forfeited to the Crown''.

5. Nevertheless, the car was ``owned'' by the taxpayer from the time of its purchase on 24 October 1966 until the occurrence on 11 November 1966 of the wrongful act that caused the forfeiture. During that period the car was ``used by the taxpayer for the purpose of producing assessable income'', albeit its only use was by the taxpayer's managing director when he drove it some 200 miles. When the car was so driven the managing director was in the U.S.A. on the company's business as is witnessed by the Commissioner's allowance to the taxpayer, after consideration of its objection, of a deduction of the costs of his overseas travel. It would be inappropriate to adopt a narrow view of the words ``used... for the purpose of producing assessable income'' when the Act itself allows depreciation of property ``installed ready for use for that purpose''. It follows that depreciation during

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ATC 426

the year ended 30 June 1967 is allowable to the taxpayer.

6. Sub-sections (1) and (3) of sec. 59 read as follows -

``59. (1) Where any property of a taxpayer, in respect of which depreciation has been allowed or is allowable under this or the previous Act, is disposed of, lost or destroyed at any time in the year of income, the depreciated value of the property at that time, less the amount of any consideration receivable in respect of the disposal, loss or destruction, shall be an allowable deduction.

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(3) The consideration receivable in respect of the disposal, loss or destruction means -

• (a) in the case of a sale of the property - the sale price less the expenses of the sale of the property;
• (b) in the case of loss or destruction of the property - the amount or value received or receivable under a policy of insurance or otherwise in respect of the loss or destruction;
• (c) in the case where the property is sold with other assets and no separate value is allocated to the property - the amount determined by the Commissioner;
• (d) in the case where property is disposed of otherwise than by sale - the value, if any, of the property at the date of disposal.''

7. The expression ``disposed of, lost or destroyed'' in sec. 59(1) covers cases of involuntary as well as voluntary alienation of depreciable property:
Henty House Pty. Ltd. v. F.C. of T. (1953) 88 C.L.R. 141 ; 10 A.T.D. 231 . It was there said (C.L.R. 151-152; A.T.D. 236): ``The entire expression `disposed of, lost or destroyed' is apt to embrace every event by which property ceases to be available to the taxpayer for use for the purpose of producing assessable income, either because it ceases to be his, or because it ceases to be physically accessible to him or because it ceases to exist.''

8. The taxpayer is therefore entitled pursuant to sec. 59(1) to a deduction of ``the depreciated value of the property at that time (i.e., 11 November 1966 being the date of forfeiture), less the amount of any consideration receivable in respect of the disposal, loss or destruction''. In effect, as sec. 62 provides, the ``depreciated value'' is its cost to the taxpayer less the total amount of depreciation (if any) allowed or allowable to the taxpayer in respect of it for any period of time anterior to the time of its disposal, loss or destruction.

9. The difficulty that arises is in deciding whether para. (b) or para. (d) of sec. 59(3) applies in determining the ``consideration receivable''. In the ordinary usage of language I see no difficulty in saying that there is a ``loss'' of property that is forfeited, but in the context of the depreciation provisions with their emphasis on ``ownership'' I think that sec. 59(3)(b) does not extend beyond that kind of ``loss'' of property that deprives the continuing owner of its possession to the effect that he can no longer physically use it for the purpose of producing assessable income.

10. Upon the foregoing view the ``consideration receivable'' by the taxpayer in the present case must be determined pursuant to para. (d) of sec. 59(3) as being ``the value, if any, of the property at the date of disposal''. The legality or otherwise of the act that resulted in the disposal is irrelevant to the application of the Income Tax Assessment Act - see my reasons in
16 T.B.R.D. Case R50. The car had been bought new ``off the floor'' and driven in the U.S.A. and then shipped to Australia. Its value at the date of disposal, 11 November 1966, would probably be its value in the Australian second-hand car market. There is however nothing before the Board that would enable us to put a figure on its value. If one or other of my colleagues were of the same mind as myself as to the applicability of sec. 59 this would be a case where the taxpayer should be given the opportunity of establishing what was the value of the car at the date of its disposal. However, in the circumstances, I can only decide technically that the taxpayer has failed to prove that the amended assessment is excessive.