Case T48

Judges: HP Stevens Ch
TJ McCarthy M

PM Roach M

Court:
No. 1 Board of Review

Judgment date: 20 June 1986.

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P.M. Roach (Member)

The taxpayer was an employee in the service of a major oil company. He was appointed to duties to be taken up in a major country town as Territory Manager for the Company. His responsibilities extended over a substantial rural area, the boundaries of which varied from time to time. His duties required of him the maintenance of records relating to all persons dealing with his employer; the storage of company materials and equipment (including a microfiche reader capable of being operated from the electrical system of a motor vehicle, but not conveniently); composition of reports for dispatch to head office; incoming and outgoing correspondence; and the use of a telephone for incoming and outgoing calls. The company provided no office or equivalent for the use of the taxpayer. It did provide him with a motor vehicle, necessary to enable him to move throughout his territory. The company also provided a telephone (including telephone answering service) for installation at his home with the company bearing the expense of the service subject to the taxpayer making a small contribution in relation to his private calls. I find as a fact that in order that the taxpayer should perform the duties of his employment it was essential that something in the way of an office be available; and that it was expected of the taxpayer - and accepted by him - that it was his responsibility to provide such a facility.

2. I further find that the taxpayer did make provision in that regard in the manner hereafter described by utilising portion of his private residence and that that was the ordinary practice of his fellow employees carrying out similar responsibilities in other areas. That is not to say that I find that all of his fellows acted in a substantially similar way in relation to the more detailed matters to be mentioned hereafter.

3. When the taxpayer was first appointed to be Territory Manager he was a bachelor. He was introduced to the territory by his predecessor and received from him many of the records held for his employer which he was now required to preserve and maintain. As a bachelor he resided alone in a rented two-bedroom flat, using one ``bedroom'' exclusively as an office. He did not accommodate guests there and on the two occasions his parents came to the town to visit him they stayed at a motel. He equipped the ``office'' with a desk, a four-drawer filing cabinet (filled with the records of the company), a chair and cupboard. He provided these items at his own expense. The ``office'' comprised 20% (approximately) of the floor area of the flat. When he later married, he and his wife initially resided in the same premises but his use of the ``office'' continued unaffected. The taxpayer's wife worked for a brief period following the marriage, but did not contribute from her earnings to the expenses of renting the flat or maintaining the office.

4. At a later date the taxpayer and his wife jointly purchased a three-bedroom fibro cottage with a detached ``shed'' set under a common roof with the carport and a verandah, the roof being connected to the main roof of the residence. From the outset of their occupation a bedroom comprising approximately 8% of the floor area of the main structure was used as an office. Three telephone points were provided of which one was in the office. The ``office'' equipment previously used in the flat was established there and, in addition, four shelves of some 2.5 m each were removed from the lounge room and erected in the ``office'' and there used for the storage of materials of the company. Then in about August 1982 the detached shed was adapted for use as an office. It had previously been used in the fashion of a storage shed. It was painted out, curtained and carpeted and a telephone extension installed there. It was of the same size as the former office.

5. Although the taxpayer travelled quite extensively in the course of his duties he was not in any sense continuously ``on the road''. He visited most parts of his territory approximately once a month. Occasionally he was away overnight but not often. His evidence was, and I accept it, that he was office based on about three days per week on average. On those occasions he usually worked from about 8 a.m. until about 6 p.m. leaving ordinarily only to go to collect mail delivered to him by courier to

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the local supply depot operated by an agent of the company.

6. The taxpayer claims deductions pursuant to sec. 51 of the Income Tax Assessment Act . As he was not carrying on a business on his own account it is necessary in these circumstances that he establish that the expenses in question were ``incurred in gaining or producing (his) assessable income'' and that they were not of a ``private or domestic nature''. (There was no suggestion that the expenses in question were expenses of capital or of a capital nature.) Having regard to the nature of his duties and the expectations of his employer, I have no doubt that the expenses incurred in the operation of the ``office'' were incurred in the course of producing his assessable income. The real difficulty in this case is in deciding whether the circumstance that the activities giving rise to the expense were carried on in the private home of the taxpayer and his wife gives them such a private or domestic character as to make them non-deductible. The Commissioner points to the unchallenged authority of the decisions of the High Court in
Handley v. F.C. of T. (1980-1981) 148 C.L.R. 182 and
F.C. of T. v. Forsyth (1980-1981) 148 C.L.R. 203 . If those decisions had purported to lay down a principle that there are no circumstances in which costs incurred in using portion of a private residence to generate income can be deductible that would be an end of the matter, but the High Court expressed no such principle. As was recognised by the Supreme Court of New South Wales in
Swinford v. F.C. of T. 84 ATC 4803 , a self-employed author working from an identifiable portion of her residence will be entitled to a deduction. So too in Ref. Nos. 114-116/1984 (reported
85 ATC 208 [Case S16]) this Board reached a similar conclusion in relation to a photogrammetrist in so far as he carried on his business from an identifiable portion of his residence set aside exclusively for that purpose. That being so, I am satisfied in principle that a deduction is allowable unless it is to be denied by the circumstance that the taxpayer in this case is an employee rather than a self-employed person. In my view such a distinction is not material. The expenses incurred by the taxpayer were as closely connected with the derivation of his assessable income by way of salary as if he had been carrying on the same activities as a self-employed person or even as a person carrying on business on his own account.

7. In relation to the period of occupancy of the flat, the taxpayer claimed a deduction in relation to rent. On close examination of his income tax return it is clear that it was his intention to claim on a ``floor-area'' basis and to claim 20% of total rent. Due to an error in calculation which is manifest from the return prepared by his accountants, he claimed $156 in lieu of $256. The claim as made was disallowed and alone is the subject of the objection before us. I would allow the claim in the sum of $156. Nothing more can be allowed by the Board despite the fact that the error on close examination appears on the face of the return. It is also unfortunate that the fact of the error has not been brought to notice until the matter came before the Board, too late for the Commissioner to exercise any power under sec. 170(3) to amend to correct the error in calculation or mistake of fact. In allowing the amount as claimed I observe that the appropriate percentage to be allowed is not affected by the presence in the latter period of the tenancy of the taxpayer's wife.

8. From 28 February 1981 the taxpayer's claim was in relation to the ``office'' in the jointly owned home. This claim too was advanced on a ``floor-area'' basis and I think that is, in all the circumstances, quite appropriate. In relation to interest $586 and rates $201, I would allow the sums of $47 and $16 respectively. A further claim was made in relation to an insurance premium which was acknowledged to extend to both premises and to furniture and fittings and which may have related to other matters. As a finding of fact I think the amount claimed, namely $7, is reasonable even though it is arguable that a ``floor-area'' basis of apportionment is not the most appropriate. In so holding, I accept that the taxpayer alone bore all the expenses attending home ownership, even though his wife was jointly liable with him. In my view that is not a circumstance which warrants any adjustment.

9. In the year of income ended 30 June 1982, in my view the same principles are to be applied and I would allow deductions of $203 for interest, $44 for rates and $20 for insurance.

10. In relation to the year of income ended 30 June 1983 for some two months of the year

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the pattern of the previous year continued but then the taxpayer effected a transfer of his ``office'' to the converted shed. Although the shed had the same floor area as the former office and was of fibro construction in keeping with the residence proper, I am not persuaded that it is appropriate to use the same floor-area basis of apportionment. I would allow 6% of the relevant costs for the entirety of the year and in consequence would allow $135 for interest, $36 for rates and $18 for insurance.

11. Accordingly I would reduce the taxable income of the taxpayer in the sums of $226, $267 and $189 in each of the years ended 30 June 1981 to 1983 respectively.

Claims allowed in part