Case T98

Members:
P Gerber SM
KL Beddoe SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 4 November 1986.

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Dr P. Gerber and K.L. Beddoe (Senior Members)

The applicant in this case is a commercial nursery, claiming $20,600 as an investment allowance for the 1976 tax year.

2. The subject glasshouse was built in 1976 at the instigation of the applicant's chief executive, a man well versed in the nursery business and keenly alive to the ever-changing technology of that industry. Since the Tribunal has concluded that the principal issue in this case turns on whether or not the glasshouse is a ``structural improvement'' within the meaning of sec. 82AE of the Income Tax Assessment Act, it is proposed to set out in clinical detail the exact composition of this structure. Regrettably, whilst the Tribunal was much assisted by a series of photographs of the glasshouse in issue, the actual verbal description of it in evidence was sparse. This is how the principal witness described it:

``The structure is out of galvanised pipe. The glazing bars are galvanised flat steel, which are screwed into the pipes. You have got stanchions, uprights which go into the ground, which have to be held in the ground with concrete because the biggest problem with the glasshouse - the way it has been built - the greatest amount of damage is done where you get a wind blowing over it. It sucks it out of the ground, and you have to have it bolted down for that reason, or formed into the ground.''

In cross-examination, the following was elicited:

``So far as you recall, the first thing (the builder) did was to dig some foundations; was that right? - It would have been, yes.

And what did the foundations comprise? - Strip footing.

How deep down did they go? - I could not tell you.

And the brick walls, the little hob walls you have referred to, were put on the foundations, no doubt, were they? - They would have.

These galvanised pipes, these uprights you have referred to, were they embedded in the foundations? - They have to be.

To a particular depth? - I could not tell you. There are certain rules and regulations, I would not know really how far it goes. It has got to do with the calculation of the `lift'. Whenever you get an X amount of wind blowing, they have to put X amount of concrete on the bottom of it to hold it back.

Because it is very important in building a glasshouse, isn't it, to anchor it very firmly to the ground? - So it will not blow up.

So it will not blow away, because the wind would get underneath it? - No, not underneath it; it sucks.

So, because the air pressure inside the glasshouse is constant, if there were a sudden change in air pressure outside the glasshouse due to the wind, it would...? - It would lift the whole unit up, and then it crumples it.

Crumples it outwards in other words, is that right? - Uplift - I have seen photos of it done overseas, it lifts the building up, or glasshouse, up, and then the whole thing just folds up like a domino.

And the only satisfactory way to prevent that happening is to secure, or anchor, the glasshouse very firmly in its foundation; is that right? - Put plenty of weight on it, yes.

And the galvanised uprights, in turn, do they support the glazing bars? - They support the glazing bars and the sprinkler system, etcetera.

Are the glazing bars welded, or bolted, to the uprights? - Screwed.

And the glass, in turn, is it fixed in the glazing bars? - The glass is not fixed, it is laid into the glazing bars with clips, glass clips.

It is not gummed, glued, cemented, or otherwise attached? - No.''

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ATC 1164

3. The Tribunal was informed that a glasshouse used for the purposes of this applicant has a limited useful life expectancy - estimated at between five and ten years - due to the fact that the glass requires painting in summer, paint which must be scraped off again in winter. The cumulative effect of all this painting and scraping causes the glass to become darker ``and after a while, you start getting `drawing' of plants, which you will not be able to produce with any more''. The principal witness was asked what his intentions would have been at the end of the glasshouse's useful life. He replied: ``It is like any old plant or equipment; just sell it or remove it, or just dump it.'' In fact, the glasshouse was sold as part of the stock in trade, the purchaser taking over the lease, on which some $26,000 was still owing (the residual value under the lease agreement on termination was $24,000). The only other relevant fact relates to size, and whilst the Tribunal did not at any stage obtain any reliable dimensions, it seems that the glasshouse extended over several acres; it certainly seems immense when judged by the many photographs which were tendered.

4. Turning to the law, the relevant provisions are designed to permit an investment allowance deduction in respect of certain eligible capital expenditures incurred after 1 January 1976 and before 1 July 1985. However, sec. 82AE provides that, with the exception of certain specified structures, the investment allowance is not available in respect of ``structural improvements''.

``This Subdivision does not apply in relation to structural improvements other than -

• (a) plumbing fixtures and fittings to which paragraph 54(2)(c) applies; or
• (b) structural improvements of the following kinds that are on land used for the purpose of carrying on a business of primary production: -
  • (i) fences to exclude live stock from areas affected by soil erosion, where the purpose of excluding the live stock is to prevent or limit any extension or aggravation of soil erosion in those areas and to assist in the reclamation of those areas;
  • (ii) fences enclosing or partly enclosing areas affected by naturally occurring deposits of mineral salt;
  • (iii) fences to subdivide the land for the purpose of carrying on primary production on the land, other than boundary fences, fences enclosing yards or fences along public roads, public stock routes or other public rights of way;
  • (iv) structural improvements for the purpose of conserving water for use in carrying on primary production on the land (including dams, earth tanks, underground tanks, concrete tanks and stands for tanks), irrigation channels or similar improvements for the purpose of conveying water for such use and bores or wells for water for such use;
  • (v) pipes placed underground for the purpose of conveying water for use in carrying on primary production on the land; and
  • (vi) buildings or other structural improvements for the purpose of the storage of grain, hay or fodder in the course of carrying on primary production on the land.''

5. The Tribunal has no doubt that the glasshouse in dispute constitutes a ``structural improvement'' at law and within the meaning of sec. 82AE. As Denning L.J. (as he then was) noted in
Cardiff Rating Authority v. Guest Keen Ltd. (1949) 1 All E.R. 27 (at p. 31):

``A structure is something of substantial size which is built up from component parts and intended to remain permanently on a permanent foundation...''

The respondent conceded - very properly - that the glasshouse constituted an item of ``plant'' within the meaning of sec. 54 of the Act. However, this concession does not advance the applicant's argument, since the two categories are not mutually exclusive and - as in this case - a unit of property may at one and the same time constitute an item of plant and capable of depreciation, yet be excluded as a ``structural improvement'' from the investment allowance.

6. The Tribunal is satisfied that when the legislature enacted the provisions relating to the investment allowance and excluded certain structural improvements from its ambit, it had adverted to the position of the primary

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ATC 1165

producer, since it exempted from the exclusion ``buildings or other structural improvements for the purpose of the storage of grain, hay or fodder in the course of carrying on primary production on the land'' (cf. sec. 82AE(b)(vi)). In other words, where a section excludes structural improvements by general words, but exempts specific buildings ``used for the storage of grain, hay or fodder'', the rule expressio unius est exclusio alterius applies.

7. For the above reasons, the application cannot succeed.

Claim disallowed