Case Q123

KP Brady Ch

JE Stewart M
DJ Trowse M

No. 2 Board of Review

Judgment date: 16 December 1983.

K.P. Brady (Chairman), J.E. Stewart and D.J. Trowse (Members)

This reference relates to the deductibility of telephone rental paid during the 1979 year of income by a taxpayer, an area manager, in the employment of a large retailing organisation. It appears that the managerial appointment may have occurred in August 1978, and that the taxpayer occupied the position for a period extending beyond 30th June 1979. At the hearing, the taxpayer was represented by his tax agent, and the Commissioner by one of his officers.

2. An examination of the taxpayer's return revealed the following details of the claim made:


Required for security purposes to be registered with Police, Fire Brigade, etc., on call at all hours. This is a requirement and condition of employment - expense is not reimbursed.

      Claim - Rental           85
      Calls                     8

The Commissioner, in raising the 1979 assessment, allowed the claim for calls, but denied a deduction for the rental on the basis that the outgoing was of a private nature. Upon the disallowance of the resultant objection, the taxpayer requested that the matter be referred to a Board for review. Subsequent to the disallowance of the objection, the Commissioner decided to allow rental to the extent of $20, and an amended assessment giving effect to that decision has issued to the taxpayer. The matter requiring our attention is whether the balance of $65 is a permissible deduction in terms of sec. 51(1) of the Income Tax Assessment Act.

3. The taxpayer, in his role as area manager, was required to supervise the management of several stores located in the metropolitan area and, in turn, was answerable to head office. It seems that at the time of the appointment, the taxpayer was told that the duties attaching to the position were such that arrangements should be made whereby he could be contacted at all times. The taxpayer regarded that instruction as a condition of his employment and did not

ATC 736

anticipate any problem in complying with that condition as a telephone had previously been installed in his home.

4. A computerised security system had been introduced into all of the stores within the trading group, and it appears that after-hours calls resulting from the breaching of security were directed to the respective area managers for their attention. Further, it seems that recurring faults in the system resulted in a number of false alarms being triggered off during the year, and that the taxpayer was involved in the taking of additional telephone calls of evenings and weekends and in organising remedial action. Also, the taxpayer was required to prepare sales reports on special trade days occurring during the year and to ring those results through of an evening to his superiors. The taxpayer also stated that he was the person responsible for rectifying problems associated with merchandise and staff rostering in the stores under his control, and that the telephone located in the home was used as a means of communicating his decisions on those matters, particularly when they arose at short notice.

5. The provisions contained in sec. 51(1) of the Act are as follows:

``All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such income, shall be allowable deductions except to the extent to which they are losses or outgoings of capital, or of a capital, private or domestic nature, or are incurred in relation to the gaining or production of exempt income.''

The words ``to the extent'' have been emphasised to demonstrate that the section specifically contemplates apportionment in appropriate cases. The principle of apportionment embodied in sec. 51(1) makes it clear that the mixed character of a loss or outgoing is in itself no bar to the deductibility of an appropriate portion of that loss or outgoing.

6. As the taxpayer was not carrying on a business during the year under review, he is required to establish that the telephone rental was incurred in the gaining of his salaried income and that such expenditure was not of a private or domestic nature. The representative for the Commissioner submitted that the outgoing was not incurred in producing assessable income and, in any event, the rental was excluded by the exception clause of the section as its essential character was of a domestic nature.

7. It is our belief that during the period from the commencement of the taxpayer's appointment to the position of area manager to 30th June 1979, the telephone fulfilled a dual purpose, one business and the other private, and that the business portion should be viewed as expenditure incurred in the process of carrying out the employee's duties, and that the part qualifies as an allowable deduction under sec. 51 (see judgment of Helsham J.,
F.C. of T. v. White 75 ATC 4018 at p. 4022).

8. The question of the deductibility of the cost of light and power consumed in a taxpayer's home was considered by Mason J. in
F.C. of T. v. Faichney 72 ATC 4245, and the following comments made by the learned Judge at p. 4250 are relevant to the problems allied to domestic expenditure:

``It may be acknowledged that expense incurred in the provision of light and heating in the taxpayer's home is normally an expense of a private or domestic nature, dissociated from the gaining or production of assessable income. However, to the extent to which the expenditure is incurred in providing light and heating for the taxpayer exclusively whilst he is engaged in work from which he derives income it may be said to be an expense having a business or employment character. By reason of that circumstance it is not an expense of a private or domestic nature.''

9. Further, we agree with the following statement made by Mr. B. Pape, Member of Taxation Board of Review No. 1, at p. 297 in Case N57,
81 ATC 282.

``It seems to me that the maintenance of a telephone in the taxpayer's home is not related to the home as such but to the purposes for which the taxpayer uses the telephone. In my view it is impossible to categorize the use of the telephone for business purposes as having a domestic

ATC 737

character because it happens to be installed in the taxpayer's home. Its character is in my view more dependent upon the nature of its use than to where it is installed.''

10. We consider that the telephone rental should be apportioned as between business and private, and that the business portion should be calculated by comparing business incoming and outgoing calls with total calls made during the period of the taxpayer's employment as an area manager up until 30th June 1979. No firm basis for such a division was indicated at the hearing, and indeed the evidence tendered and submissions made, either by or on behalf of the taxpayer, create some confusion. Although the full amount of $85 was claimed as a deduction in the return, the taxpayer, in giving evidence, estimated the business use of the telephone to be between 90% and 95%. In answer to a question on the method applied in determining the amount of $8 for calls, the taxpayer replied that he thought it represented 75% of total calls made. Finally, the taxpayer's representative, in his closing address, suggested that the business use would not be less than 60%. The task of allocation is made no easier by the taxpayer's lack of memory as to the date of his appointment to the position of area manager, the duties of which necessitated the business use of the home telephone.

11. We are left in the difficult position of having to make a guess at what might be a proper apportionment, and this we have no mandate to do. The result is that we are obliged to hold that the taxpayer has not discharged the onus of proof imposed upon him by sec. 190(b), and in consequence the claim for the balance of rental of $65 must fail.

12. For that reason, we uphold the Commissioner's decision on the objection and confirm the assessment before us.

Claim disallowed

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