Federal Commissioner of Taxation v. Phillips.
Judges: Bowen CJDeane J
Fisher J
Court:
Federal Court
Fisher J.: This is an appeal brought by the Commissioner of Taxation against a decision of the Supreme Court of New South Wales in its Administrative Law Division. That Court allowed appeals of Ian Richard Phillips (hereinafter called ``the taxpayer'') against two assessments of income tax issued against him by the Commissioner of Taxation, one in respect of the year of income ended 30 June 1972 and the other in respect of the year of income ended 30 June 1973.
In his return for each year the taxpayer, a chartered accountant and a member of the firm of Fell & Starkey, Chartered Accountants (hereinafter called ``the firm''), disclosed the amount of his share in the income of the firm. The Commissioner in making his assessment in respect of each year adjusted the taxable income of the taxpayer as returned by adding in respect of the year ended 30 June 1972 $3,263 and in respect of the year ended 30 June 1973 $5,905.
By a letter accompanying the notice of assessment the Commissioner indicated that he had made the adjustments because he was of the opinion that the firm was ``not entitled to deduct from its assessable income amounts totalling $375,217 in 1972 and $470,954 in 1973 representing secretarial charges and interest.''
The consequence of these adjustments to the assessable income of the firm in each of the years in question was to increase the taxable income of the taxpayer by the amount of his share of each adjustment.
The taxpayer objected by a substantially similar form of objection in respect of each year of income on the ground that the Commissioner had overstated the net income of the partnership by the amounts set out above. He contended that these amounts were in each instance properly deductible under sec. 51 of the Income Tax Assessment Act 1936 (hereinafter called ``the Act'') as payments made as to the major part thereof for hire of equipment and provision of secretarial and share registry and other necessary services. Payments for interest on moneys borrowed accounted to all intents and purposes for the balance in each year and were similarly claimed to be deductible under sec. 51.
The Commissioner on 30 September 1974 disallowed each of the objections and the taxpayer subsequently requested that each objection be treated as an appeal and forwarded to the Supreme Court of New South Wales.
The taxpayer's appeals were heard together by that Court. The Commissioner in
ATC 4364
defending his assessments appears to have conceded that the transactions under consideration were legally effective and not shams. However, he contended that the amounts claimed were not deductible, either wholly or in part, under sec. 51. Alternatively he claimed that the transactions were void against the Commissioner by virtue of the application of sec. 260 of the Act. On 6 May 1977 the Court upheld the appeals of the taxpayer with costs on the ground that the amounts in question were wholly deductible under sec. 51 and that sec. 260 had no application. A subsidiary argument on the part of the Commissioner to the effect that certain income additional to that returned by the firm was deemed to have been derived by the firm pursuant to sec. 19 of the Act was also dismissed.The Commissioner lodged notices of appeal against these decisions but each notice was restricted to what might fairly be called the sec. 51 and sec. 19 aspects of the matter. The trial judge's finding that sec. 260 was inapplicable was not challenged by the notices of appeal nor was that section relied upon at the hearing of the appeals. Upon the commencement of the hearing, counsel for the Commissioner abandoned those grounds of appeal which raised the sec. 19 issues and indicated that he was not pressing another ground which raised a particular aspect of the sec. 51 issue.
The questions before us therefore are restricted to the propriety of the inclusion as assessable income by the Commissioner of the taxpayer's share in each year of income of amounts equal to the disallowed deductions. The Commissioner contends that these sums are not deductible under sec. 51, or alternatively not wholly deductible. It is appropriate to make the comment at this point that if apportionment of expenditure was rendered necessary by our conclusions, there is no, or at least no satisfactory, evidence before us upon which to base an apportionment or to determine the quantum of non-business expenditure.
The facts in the matter are complex and relate to arrangements made by the firm. Prior to 1 July 1971 the taxpayer had been for a number of years a professional employee of the firm. Subsequent to that date, he was at all relevant times a partner.
These facts have been set out carefully and fully by the trial judge who was required to consider not only sec. 51, but also the applicability of sec. 19 and sec. 260. The more limited issues before us do not require such a full statement of facts and in particular certain documents set out in the reasons for judgment under appeal need not be repeated here. In addition the essential facts are not in dispute.
The firm is a large one and carries on business throughout Australia, with branches in each State other than Tasmania. It is a member of an international partnership Whinney, Murray Ernst & Ernst in conjunction with a British and a United States firm. As Chartered Accountants its business comprises accounting and secretarial work, auditing, taxation and management advice, maintenance of share registers, conduct of liquidations and receiverships. In the course of this business the partners employed substantial numbers of staff, both professional and non-professional.
The entry of a substantial judgment in the Supreme Court of New South Wales early in 1970 against another large firm of Chartered Accountants based on professional negligence caused the partners of the firm to consider the impact which such a judgment would have upon their own business. In particular, they were concerned to protect their assets and the assets used in the firm's business against the possibility of an award being made against them in excess of their professional negligence cover. Moreover there was disquiet at the time concerning the considerable increase in premiums payable to obtain cover and whether it might be impossible in the future to obtain the necessary cover at a reasonable cost.
In or about the month of July 1970 discussions took place with solicitors in Melbourne regarding the possible establishment of a unit trust scheme to take over certain of the activities of the firm and to acquire certain of its assets. A draft trust deed was prepared by the solicitors which was considered by a meeting of all partners held in the month of October 1970. Subsequently a letter dated 30 November 1970 was sent to the Commissioner wherein the proposed establishment of the unit trust
ATC 4365
scheme was described and its activities were detailed. The letter sought in particular confirmation from the Commissioner that payments made by the firm to the trustee of the unit trust would be allowed as deductions. The letter is set out in full in the reasons of the learned trial judge. Whilst the letter and its contents were of some significance on the question of the applicability of sec. 260, it is of but limited relevance to the particular issue before us.Whilst waiting for a reply from the Commissioner (which ultimately was set out in a letter dated 23 June 1971) the solicitors instructed by the firm proceeded with the establishment of the scheme. On 22 December 1970 two companies were incorporated. Fellstar Holdings Pty. Limited (hereinafter called ``the trustee company'') was set up for the purpose of acting as trustee of the trust deed. However, its function was rather in the nature of a ``custodian'' trustee in that the second company Fellstar Secretariat Pty. Ltd., (hereinafter called ``the management company'') was incorporated to act as manager of the proposed unit trust.
In mid-June 1971 the national committee of the firm decided to proceed with the scheme, and it was about this time that verbal advice was received from the Commissioner to the effect that he could not accept that the scheme would have the desired consequences for income tax purposes. This advice was confirmed as abovementioned by the letter dated 23 June 1971.
On 30 June 1971, the trust deed was executed by the trustee company as trustee and by the management company as manager and it provided for execution then or thereafter by persons who applied for units, being beneficial interests in the fund therein defined. The trust and the fund were established by the management company lodging the sum of $100 with the trustee company and the trust thereby constituted was called ``The First Meritable Trust''. It was contemplated, as was in fact ultimately the case, that units in the trust would be applied for and held by wives, family trusts and companies of the partners.
The essence of the scheme was that certain of the business activities of the firm being those currently performed by the non-professional staff of the firm would be performed by such staff employed by the trustee company. These activities in general comprised typing, secretarial and general clerical work, maintenance of share registers, photocopying and printing work, organisation of seminars and training courses and insurance agency work. In addition it was contemplated that the furniture and equipment would be purchased by the trustee company and leased back to the firm.
In a circular attached to a memorandum sent out to all partners in the middle of July 1971, an explanation of the scheme was made, its advantages and disadvantages were summarised and the consent of each partner to the scheme was sought. The circular and summary are set out in some detail in the reasons of the learned trial judge and need not be repeated here. Suffice to say that the reasons for establishment of the scheme were stated as follows:
``1. To move assets away from partners to minimise consequences of successful litigation.
2. To reduce taxes; income tax during your lifetime and death duties upon your death.''
The circular also indicated that each partner or his nominee might apply for a specified number of units, the particular number depending upon whether the partner was a full or fractional partner.
Under the trust deed dated 30 June 1971 the trustee company was constituted as trustee of the First Meritable Trust. The directors and shareholders of the trustee company were at all relevant times two Melbourne solicitors holding the two issued shares. The deed also constituted the management company as manager of the investments of the trust and any business carried on by the trustee company. There were again only two issued shares held by persons neither of whom was at the time a partner in the firm. These persons were also the sole directors. The powers and duties of the trustee and the manager were set out in the trust deed in some detail and provision was made for creation and issue to other persons of units additional to those subscribed for by the management company.
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The funds provided by the subscribers were payable to the management company for lodgment by that company with the trustee company and provision was made for investment of the funds in authorised investments selected by the management company. Authorised investments were defined as including inter alia the purchase of chattels including typewriters and other business machines and office equipment and any other equipment used in the conduct of a commercial undertaking or business. A business undertaking acquired by the trustee company at the request of the management company was also an authorised investment. Finally, provision was made for the distribution of the income of the trust fund to the unit holders in proportion to the number of units each held and for the transfer and re-purchase of units.The circular and memorandum distributed to the partners contemplated the scheme being implemented as from I August 1971. Just prior to that date funds were subscribed by the nominees of the partners in their respective proportions or in one instance by a partner personally. The entitlement of the taxpayer was taken up by his wife who at 30 June 1972 held 3,000 $1 units paid for out of her resources. In consequence of the overall subscriptions, units to the value of $220,000 were in early August issued to the subscribers.
On 31 July 1971 the firm terminated by notice the services of all of its non-professional staff who were then all offered employment from 1 August 1971. This offer of employment was made by the management company ``on behalf of the Trust'', i.e. on behalf of the trustee company as trustee of the trust fund. All accepted the offer of new employment. On the same day the management company purchased on behalf of the trustee company the whole of the furniture, office machines, partitions and office equipment owned by the firm for $198,973.
Again on that day the management company by decision of its directors resolved to carry out certain specified business undertakings on behalf of the trustee company as trustee of the First Meritable Trust. These business undertakings included such activities as previously contemplated, namely, the leasing of office furniture, machines, partitions and equipment, provision of clerical and secretarial staff, provision of share registry facilities and printing and photocopying services, making of deposits at call and acting as insurance agents. The resolutions did not spell out that these business undertakings were to be performed only in conjunction with the firm, though with certain minimal exceptions that is what in fact occurred. By the same resolutions the directors also provided for the salaries to be paid to the Sydney and Melbourne managers of the management company.
On the following day the directors determined upon a charge to be made for the services offered namely a percentage on purchase price for the lease of office furniture and equipment, a fee for provision of clerical and secretarial staff based on the formula of:
annual salary
------------------------------- x 1.5
number of productive hours
and a fee for share registry services at the rate of 95 cents per shareholder as a maintenance fee and 95 cents for each transfer.
By letter of the same date the management company by its manager in Melbourne offered the abovementioned services to the firm. The services were offered generally and not for any particular period of time. The firm accepted these services and leasing propositions at the specified rates but again there was on neither side any reference to a term, whether as a minimum period or otherwise. It is common ground that since 1 August 1971 the management company as manager of the business operations which the trustee company owns as an investment of the trust has provided the secretarial and other services required by the firm and has hired the office plant and equipment used by the firm. These services and hirings are hereinafter compendiously described as ``the services''.
It is relevant at this stage to consider the charges made by the management company to the firm for the services in each of the years of income under consideration, and the particular matters in respect of which the charges were made. These charges were made on a monthly basis and were either paid by
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the firm or alternatively accrued pursuant to a further arrangement (hereinafter called ``the amended arrangement'') which is later described. In the year of income ending 30 June 1972 a total sum of $375,217 was charged by the management company to the firm. This sum was made up as follows: Provision of typing and filing staff, telephonists,
receptionists, messengers, etc. $275,961
Leasing of furniture, fittings, office machines, etc. $ 35,533
Provision of share registry services $ 53,976
Interest on advances made pursuant to the amended
arrangement $ 9,747
--------
$375,217
--------
In the year of income ending 30 June 1973 a total sum of $470,954 was charged for the services by the management company to the firm. This sum was made up as follows:
Provision for typing and filing staff, telephonists,
receptionists,
messengers, etc. $328,170
Leasing of furniture, fittings, office machines, etc. $ 44,168
Provision of share registry services $ 77,382
Interest on advances pursuant to the amended arrangement $ 20,381
Professional development costs $ 718
--------
$470,954
--------
In each instance the firm claimed the total sum charged as an allowable deduction. It is the taxpayer's aliquot share of these sums namely $3,263 in the year ended 30 June 1972 and $5,905 in the year ended 30 June 1973 which the Commissioner disallowed and added back as additional assessable income of the taxpayer.
The amended arrangement was to the effect that the firm was not required to pay immediately the whole of the charges for services. These charges were rendered on a monthly basis. So much of those charges as remained unpaid was accepted as being loan monies repayable at call and bearing interest at 10% per annum. Subsequently the repayment of these sums (which totalled $174,353 at 30 June 1972 and $254,444 at 30 June 1973) was secured by way of a first charge over the book debts of the firm and the interest rate was reduced to 8 ½ %.
The trial judge found that the charges made against the firm by the management company for the services were realistic and not in excess of commercial rates. This is a most important finding and was not subject to any challenge by counsel for the Commissioner. As to the rate fixed for staff, i.e. in effect a loading of 50% on wages paid, this was the rate charged in the market place by a client engaged in hiring of office personnel. In return for paying or incurring this charge the firm not only acquired the services of the staff but was relieved from most problems of staff and office management and all financial obligations in respect of wages, sick leave, annual leave, workmens compensation, statutory holidays and long service leave. In respect of the leasing charges the trial judge found that the rate fixed represented a return of 6% to 8% on funds employed and that such a return could not be said to be excessive. Similarly, he found that the charge for share registry services could not be said to be excessive. None of these latter findings was challenged on the appeal.
The sale of the plant and equipment of the firm to the trustee company had a benefit to the firm in that it released working capital which might otherwise have had to be provided by bank overdraft or by the partners and also enabled a distribution to be made of profits released for distribution in consequence of the decision in
Henderson's case
(
Henderson
v.
F.C. of T.
(1970) 119 C.L.R. 612)
). Beneficial results also accrued to the firm in consequence of the arrangement whereby charges remained on loan at reasonable rates of interest secured by
ATC 4368
the first charge over book debts. Again it increased the amount of working capital available to the firm and had the effect of reducing the assets of the firm and protecting these assets against the consequences of an unfavourable judgment against the firm.This was the rearrangement of the firm's affairs to which the taxpayer was a party. The benefits were not only those specifically set out above but additionally included the obvious advantage of decreasing what otherwise would have been the taxable income of the taxpayer and providing an income for his wife upon which she was taxable at her relevant rate. The wife's income from this source was $1,016 in the year of income ending 30 June 1972 and $1,800 in the subsequent year. There is no issue on the question of a contract, scheme or arrangement to which sec. 260 might be attracted, and although there was considerable incentive to the firm to use the services thereafter provided by the management company there was no obligation to use them for any prescribed term or to refrain from terminating the arrangement at any time.
It was the Commissioner's rejection of the firm's claim to deduct the cost of the services provided in each year by the management company in arriving at the net income of the firm which prompted the proceedings. Such rejection led to the increase in the assessable income of the taxpayer and the appeal by the taxpayer against the disallowance of the objections. In allowing the taxpayer's appeal on the sec. 51 issue the trial judge based his decision on the ratio of
Europa Oil (N.Z.) Ltd. (No. 2)
v.
Commr. of I.R. (N.Z.)
76 ATC 6001
by finding that the firm in engaging the management company and accepting the obligation to pay for the services did not acquire any legally enforceable right otherwise than to the performance of those services. It is my opinion that the trial judge was correct in this finding. However, I am also of opinion that the matter can be determined favourably to the taxpayer on another and perhaps more fundamental point, namely, that from the firm's point of view the only purpose of the expenditure was the acquiring of assessable income or the carrying on of business for that purpose. There was no secondary purpose of benefiting the families of the partners, rather the benefits which accrued to these families were the incentive for the acquisition of the services from the management company rather than from elsewhere.
The deductibility or otherwise (under sec. 51) of expenditure can generally be determined by answering the question whether ``the circumstances of its expenditure give it the complexion of money laid out in furtherance of a purpose of gaining income'':
Robert G. Nall Ltd.
v.
F.C. of T.
(1937) 57 C.L.R. 695
per
Dixon
J. at p. 712. This statement is literally applicable rather to the first limb of sec. 51 but would encompass equally the second limb if the words ``or are necessarily incurred in carrying on a business for such purpose'' were added. The question is ultimately one of fact:
F.C. of T.
v.
Gordon
(1930) 43 C.L.R. 456
per
Dixon
J. at p. 462, but the relevance or otherwise of particular circumstances have been considered by the courts on a number of occasions. Such consideration has been undertaken to determine what is invariably the essential question, namely: What is the purpose of the expenditure or what is the legal character of the expenditure?
A crucially important circumstance in the present matter is the unchallenged finding of the trial judge that the charges paid by the firm were realistic and not in excess of commercial rates. The services were essential to the conduct of the firm's business and the fact that the charges paid were commercially realistic raises at least the presumption that they were a real and genuine cost of earning the firm's income and the cost of that alone. It strongly supports the view that the expenditure was exclusively for business purposes. Without doubt the cost of acquisition of the services was ``necessarily incurred'' in the sense that it was ``clearly appropriate or adapted for'' the production of the assessable income:
Ronpibon Tin N.L. and
Tongkah Compound N.L.
v.
F.C. of T.
(1949) 78 C.L.R. 47
at p. 56
.
Doubtless the converse would apply, namely, if the expenditure was grossly excessive, it would raise the presumption that it was wholly payable for the services and equipment provided, but was for some other purpose. Such is not the case here.
A circumstance relied upon by counsel for the Commissioner was that the amount of
ATC 4369
the charge was such that it enabled the provider of the services to make a profit. Additionally the charge exceeded the cost which the firm would incur if it reverted to its original practice of employing its own staff and owning the plant and equipment. The relevance of this circumstance in determining the complexion of the expenditure, especially when the expenditure is found to be commercially realistic, is denied by the authority of the Ronpibon Ton case, supra at p. 60, when the Court said: ``it is not for the court or the Commissioner to say how much a taxpayer ought to spend in obtaining his income, but only how much he has spent''. This statement received the approval of the High Court inCecil Bros. Pty. Ltd. v. F.C. of T. (1964) 111 C.L.R. 430 at pp. 434 and 441 and the Privy Council in
Commr. of I.R. (N.Z.) v. Europa Oil (N.Z.) Ltd. (1971)A.C. 760 at p. 772; 70 ATC 6012 at p. 6019 and in the Europa Oil (No. 2) case, supra at p. 6010.
The
Cecil Bros. case
is also authority for the proposition that the fact that the expenditure of the taxpayer confers ultimately a benefit (and an intended benefit) on associates or relatives of the taxpayer is nothing to the point. Again it is doubly difficult to challenge the deductibility of the expenditure on this score in the face of the finding that the charges were commercially realistic. In the present matter the firm, whilst under no obligation, was doubtless motivated to engage the management company in the knowledge that it was thereby indirectly benefiting the relatives of the partners. There was considerable incentive for the firm to continue to use the services provided by the management company. However, motive and incentive are not synonymous with purpose:
Plimmer
v.
Commr. of I.R. (N.Z.)
(1957) 11 A.T.D. 480
;
XCO Pty. Ltd.
v.
F.C. of T.
(1971) 124 C.L.R. 343
at p. 350,
71 ATC 4152
at p. 4156
, per
Gibbs
J., and sec. 51 speaks of purpose and not of motive which is irrelevant.
Another circumstance which might be regarded as relevant to the question whether the expenditure was exclusively for business purpose is the fact that the services were provided by the management company on behalf of the trustee company. The complex rearrangement of the firm's activities and the setting up of the unit trust scheme enabled services to be provided to the firm in effect by the unit trust. Moreover the rearrangement and the structuring of the scheme were for a nominated purpose. However in my opinion, such circumstances and the purpose achieved thereby are irrelevant to the ascertainment of the purpose of the firm's expenditure. If sec. 260 was under consideration, it might well be otherwise. The fact that the firm was under no enforceable obligation to use the services and had the option of reverting or going elsewhere indicates that the purpose of the setting up of the unit trust scheme was a separate and independent purpose without any necessary relevance to the purpose of the expenditure. However, having opted to use the services of the unit trust, the deductibility of the expenditure depends upon the character of the expenditure and not the circumstances which brought about the situation in which the unit trust scheme was enabled to offer and to make available the services. It is my opinion that the latter circumstances are not relevant to the question of the complexion of the expenditure.
The decision in the Europa Oil (No. 1) case, supra, established that expenditure is not laid out in furtherance of a purpose of gaining income if the expenditure acquires for the taxpayer a contractually enforceable benefit or advantage not related to the production of assessable income. It was an illustration of a circumstance which denied to the expenditure, at least in part, the relevant complexion. The trial judge in the present case found, and found correctly in my view, that the expenditure did not acquire for the firm and the taxpayer an enforceable advantage. On this ground he found, and again in my view correctly, that the expenditure was wholly deductible. The majority decision of their Lordships in the Europa Oil (No. 1) case is clearly distinguishable on a number of grounds but in particular on the ground that any collateral unrelated advantage was not enforceable by the taxpayer or the firm. But if the assumption is made that there was such a benefit or advantage in the present case this benefit did not arise as it did in the Europa Oil (No. 1) case in consequence of the original rearrangement but in consequence of the continuing decision of the firm to use the
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services of the management company. It is not possible to find that there was any enforceable collateral advantage provided to the taxpayer or the firm for which portion of the expenditure was consideration. In both the Europa Oil (No. 1) case and the Europa Oil (No. 2) case the collateral unrelated advantage accrued to the taxpayer. But in the present case any advantage which accrued from the rearrangement accrued to the holders of the units and not to the firm or the taxpayer. The existence in the taxpayer in the Europa Oil (No. 1) case of a right of enforcement was crucial. It is the ground upon which that case is distinguishable from the Europa Oil (No. 2) case where the taxpayer had no right of enforcement of the arrangement which produced the benefit. In the present case neither the taxpayer nor the firm had any right to enforce or supervise the performance of the arrangement which produced the benefit to the holders of the units. Thus the general situation in the Europa Oil cases may shortly be distinguished from the present case on the ground that no collateral unrelated advantage accrued in the present case to the taxpayer or the firm from the expenditure, that any advantage which accrued to the families accrued from the rearrangement, and such advantage was not enforceable by the taxpayer or the firm.The evidence in my view clearly establishes that the expenditure was an outgoing reasonably and genuinely incurred in acquiring the assessable income of the firm or in the carrying on of business by the firm for that purpose. The relation between the expenditure and the carrying on of the firm's business is clear. It was necessarily incurred because it was crucial to the business that it be incurred. The expenditure was as regards amount commercially realistic and what was purchased by the expenditure, namely, services and use of plant and equipment, were essential in the conduct of the business.
The Commissioner at the outset contended that no deduction at all should be allowed because the expenditure was not or was not sufficiently connected with the business. It was connected he submitted, rather with the provision of benefits for the families of the partners and the movement of part of the revenue of the firm out of the assessable income of the partners and into the hands of families or family companies. He linked the purpose of the expenditure with the purpose of the initial rearrangement. If the applicability of sec. 260 was before the court this argument would be relevant. This approach however gains no support at all from the evidence which rather, as I have stated, supports the view that the purpose of the rearrangement was different from the purpose of the expenditure.
In the alternative the Commissioner presented what was his primary submission, namely that an examination of the ends or purposes to be achieved by the expenditure established that it was not exclusively referable to the gaining of assessable income. He contended that an examination of this outgoing indicated that a substantial part thereof, to the extent of the profit content, was private or domestic in that the expenditure of this amount was not dictated by the exigencies of the business.
This argument runs counter to the established principle already mentioned to the effect that it is not for the court to say how much a taxpayer ought to spend in obtaining his income, but only how much he has spent. In essence the Commissioner is saying that the services could have been provided more cheaply, that to the extent of the excess the exigencies of the business did not demand the expenditure and that rather it was made for the purpose of benefiting the families. Such an approach required the Cecil Bros. case to be distinguished and this the Commissioner attempted but in my view failed to do. He contended that the Cecil Bros. case and the Europa Oil cases should be confined to their special facts, namely, that the expenditure was laid out in acquisition of stock in trade. It is my view that they are not capable of being distinguished on this ground and there is no reason in principle why they should be so distinguished. The Commissioner was not able to support his submission with any authority. As has been said, the contrary approach is supported by the Ronpibon Tin case, supra, where the principle finds its genesis and is stated quite generally. The relevant quotation was: ``It is not for the court or the Commissioner to say how much the taxpayer ought to spend in obtaining his income '' and thus was not restricted to expenditure in acquisition of stock in trade.
ATC 4371
Moreover the expenditure in the Ronpibon Tin case was not referable to the acquisition of stock in trade.The conclusions which are appropriate in this matter may be stated as follows:
The finding of the trial judge that the expenditure under consideration was commercially realistic raises a presumption that it was laid out for the purpose of obtaining assessable income. Only if the expenditure had been found to be grossly excessive would the finding of a dual purpose of acquiring services and raising of family benefits be open. It is nothing to the point that it might be possible for the services to be provided in other ways more cheaply, and this principle applies equally to the provision of services and to the acquisition of trading stock. The family benefit which accrued in consequence of the use by the firm of the unit trust's services was an inducement or incentive to the firm to avail and to continue to avail itself of this source of services. It was not a purpose of the expenditure. It is only if the taxpayer obtains, for a consideration which is identifiable and quantifiable, an additional advantage unconnected with the business activity that it can be said that portion of his expenditure is laid out for a purpose other than the acquiring of assessable income. It is in this circumstance that the identifiable portion would not be an allowable deduction.
It follows that in my opinion the appeal should be dismissed with costs.
ORDER:
Appeal dismissed with costs.
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