Case U231
Members:RD Nicholson DP
Tribunal:
Administrative Appeals Tribunal
R.D. Nicholson (Deputy President)
The following is a statement in writing of reasons given orally at the hearing:
Objection decisions under review
The objection decisions which arise for review are ones which disallow to the applicants an investment allowance in certain years of income in respect of coin-operated washers, coin-operated dryers and a coin-operated soap dispenser.
Facts
The applicants operate two laundrettes as partners. With respect to laundrette no. 1, they are in partnership with another person; with respect to laundrette no. 2, they are the only partners.
In relation to the partnership operating laundrette no. 1, the partners claim an investment allowance as follows:
Dividing that balance with their other partner, the applicants claim an entitlement to an investment allowance deduction of $2,140 in the partnership between them leading, by application of sec. 92(2) of the Income Tax Assessment Act 1936 ("the Act"), to a deduction of $1,070 in each of their returns in the 1981 year of income.
In relation to the laundrette no. 2 the applicants claim entitlement to an allowance of $1,038 in respect of six washing machines. In the 1980 year of income the applicants considered they were entitled to claim an investment allowance of $1,152 but, in error, they claimed only $114. They claimed the balance of $1,038 in the 1981 year of income, that is the sum of $519 in each of their individual returns. In total each of the applicants sought an investment allowance of $1,589 comprising $1,070 and $519.
The machines in question were purchased by the partnerships owning the relevant laundrettes and installed by them in those premises. They were all operated as a consequence of a customer, namely a member of the public, putting a coin in the machine. In some cases, certainly less than 10 per cent and probably not more than five per cent, one of the applicants may have inserted the coins at the request of the customer but that was not the usual mode of operation. Having inserted the coin the customer was entitled to wash clothes, to dry clothes or to receive loose soap powder according to the machine in which the coin was inserted. Electricity and water to operate the machines was paid for by the partnership in whose premises the machines were installed. There was no staff maintained to provide change for customers and frequently they obtained it from nearby shops. The partnerships operating the laundrettes were entitled to the coins which were collected from time to time from the machines by one of the partners. The partners were also responsible for repairs to the machines, for preventative maintenance and for replacement of parts.
If a customer required more than the time for which a machine would operate on the insertion of the first amount of coins, they were required to put in a further amount of coins. A notice on the wall of the laundrettes and on each machine told the customer the price for the machine, what the machine did, and how long it would work for the particular price. Therefore, the position is that the customer having paid money to any of those machines had the use of that machine for the purpose for which it was created, namely, to wash, or dry clothes or to provide soap to assist that task; and that use continued until the time purchased by that money had expired.
Relevant statutory provisions
The matter arises in relation to sec. 82AA and 82AG of the Act. It is not contended by the Commissioner that any of the provisions of those two sections remains unsatisfied other than the provisions in sec. 82AA(1)(a)(ii)(C) and 82AG(1)(b) which apply to exclude from the application of the investment allowance, machines (described in the Act and accepted by the respondent as "eligible property") in respect of which there has been a granting to other persons of rights to use the eligible property. The essential point which the Tribunal is asked to decide is whether the applicants have granted to other persons rights to use the eligible property comprised by the coin-operated washers, dryers and soap dispenser.
Prior decisions
The point which arises is one which was reserved by the High Court of Australia in
Tourapark Pty. Ltd. v. F.C. of T. 82 ATC 4105. In that decision Gibbs C.J. at p. 4108 said:
"Counsel for the taxpayer in the course of argument gave a list of examples of property in respect of which it was said that if the Commissioner's construction of the Act is correct, a taxpayer would not be entitled to the investment allowance. The list included self-service petrol bowsers at service stations, automatic lockers at transport terminals, lifts and escalators and aircraft and buses. It is unnecessary to consider whether it would be correct to say that a taxpayer grants to another person a right to use property of the kind mentioned in the examples, and undesirable to do so since the question may fall for decision in other
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cases. However, if the conclusion is that the allowance is not payable in respect of property of that kind, the result is neither absurd nor unjust. It is apparent that the investment allowance is made available for the purpose of encouraging particular behaviour which the Parliament regarded as desirable, namely, the expenditure of money on certain plant which (except in the case of leasing companies) is intended to be used and is in fact used by the taxpayer himself wholly and exclusively for the production of assessable income and which others have no right to use. The Parliament attached conditions to the right to the allowance, no doubt with a view to preventing the right being used simply as a means of tax avoidance, and no reason appears why the words imposing the conditions should be given any other than their ordinary and natural meaning."
Similarly, in that decision Aickin J. said that the purpose of sec. 82AA(1)(a)(ii)(C) (in which the relevant words appear) is "to operate as a `drag-net' provision to pick up any other right to use which might be devised or which might arise in the conduct of some particular kind of business". He also said (at pp. 4111-4112):
"It is not altogether easy to discern the purpose of the distinction between the kinds of property and the arrangements by which they may be used for the purpose of earning assessable income, or the reason for the overlap. I do not think that the fact that the section would involve the loss of the investment allowance in many cases of the ordinary but occasional use of articles and machinery falling within the definition of `eligible' property is a consideration which would warrant ignoring the plain meaning of the words used. It is true that the lending of eligible plant without any charge to a friend or business acquaintance for one day, or permitting such person to use such plant on the owner's premises for a day without charge, would appear to destroy the investment allowance. There would in such cases be a `right' to use, though the licence would be revocable. The making of a nominal charge on such an occasion would undoubtedly destroy the deduction. Likewise the use of eligible plant by the owner on some isolated occasion for a purpose which was not the derivation of assessable income would destroy the deduction. However the fact that these provisions pose risks for hobbyists and farmers, and may well induce an attitude of apparent selfishness is not a sound basis for departing from the plain meaning of the words; they are clear and unambiguous."
The position left open by Tourapark (supra) arose in argument in Case U59,
87 ATC 382. In that decision in what was described as the "micro" argument, it was said in relation to phonos, pinballs and video machines - generally styled as "amusement machines" - installed in a hotel, that a right had been given to the ultimate consumers to use that eligible property for their amusement upon the insertion of coins. The Tribunal comprised by Mr McMahon, Senior Member, noted that whether the use of a machine by the ultimate consumer for transitory periods was the type of use contemplated by the subsection had been specifically reserved in Tourapark (supra) for decision in a subsequent case. In the event, he decided the case on a so-called "macro" argument leaving the "micro" argument undecided.
In
W.A. Hughes Pty. Limited v. F.C. of T. 81 ATC 4317 Deane J. said (at p. 4322):
"Quite apart from the foregoing, it is, in my view, incorrect to approach the construction of sec. 82AA(a)(ii)(C) [sic] on the Hohfeldian basis that the `rights' referred to must be both formally defined and capable of being asserted and vindicated by legal proceedings. As was said in
F.C. of T. v. Tourapark Pty. Limited (80 ATC 4503 at p. 4507), the word `granting' in subpara. (C) is not used in a technical sense but in the sense of `an authoritative bestowal or conferring'. The `rights to use' mentioned in the subparagraph include a right in the nature of a licence, that is, `an authority to do something which would otherwise be wrongful or illegal or inoperative' (
F.C. of T. v. United Aircraft Corporation (1943) 68 C.L.R. 525 at p. 533)."
Application to facts
Approaching the words in question in the manner which is thus indicated by the authorities and taking those words in their plain and normal meaning, it seems clear to the Tribunal that the use made by customers of the
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eligible property in this proceeding, namely, the coin-operated washers, dryers and soap dispenser, is a use coming within the exclusionary provision, that is, it involves a grant by the owner of the eligible property to other persons of a right to use that eligible property.The novelty of this position is not only that it has not strictly been previously decided, but that it will exclude from the access to the investment allowance any property of an eligible nature constructed for the purpose of public use. That, however, as the remarks of the Chief Justice in Tourapark make apparent, is a matter either of choice by Parliament to which effect must be given, or a matter for future parliamentary attention.
In relation to the claim made in 1981 for $1,038 being the balance of an amount not claimed by way of an investment allowance in the prior year of income, that claim is in any event precluded by sec. 82AB(1) in that it is made in a year other than a year of acquisition of the eligible property or its installation.
The applicants were prompted to come to this Tribunal by two matters in particular, namely, that they considered a form published by the Commissioner confirmed their eligibility for the allowance and because a partner in one of the laundrettes had been successful in claiming the investment allowance in respect of the same eligible property to the extent of his share and interest therein. It was not argued that the circular estopped the Commissioner, nor was the matter raised by the objection. In relation to the second matter this proceeding has to be decided as a matter of law and cannot be governed by a decision which may have been made in relation to the partner of the applicants but which is not in accordance with the law as perceived in this proceeding.
Conclusion
The conclusion, therefore, must be that the Tribunal is bound to affirm the objection decisions under review.
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