Case Q84

Judges:
HP Stevens Ch
BR Pape M
TJ McCarthy M

Court:
No. 1 Board of Review

Judgment date: 6 September 1983.

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H.P. Stevens (Chairman)

I have had the advantage of reading the reasons prepared by my colleagues Mr. Pape and Mr. McCarthy. Each having reached opposite conclusions in relation to the claim under sec. 51(1) it is necessary for me to say with whose conclusion I agree. On balance I concur with that of Mr. Pape.

2. During the hearing I indicated that I thought the taxpayer was carrying on a business and, in the course of dialogue with the Commissioner's representative in relation to the application of sec. 51(1) I, inter alia, said (responses are omitted):

``Assuming it is a question of fact or degree if we were to find the business is being conducted so that part of the home is being used for the business base, there being no other base. Do you say still that all the quotes you have been reading out are still applicable because it is just part of the home that he and his then wife bought for their overall use?''

``No, you are telling us about the principles, how do the principles apply if there is a business being conducted exclusively in part of the house? We all know, of course, the case where you see the doctor with his surgery in front, he is okay.''

``What do you say are the real principles? The facts in pretty well all the High Court decisions were that someone who had a base elsewhere for his own convenience did some work at home. So the fact that he used part of his home for his own convenience for those purposes even though they might be business purposes was irrelevant, it did not alter the character, but then you have the other comments, of course. Murphy J. and others saying if it was in truth his business base is seen to be an implication even in some of the majority Judges' remarks that it would be allowable if it was used wholly and exclusively as to business base and there was no other business base. It may be that the evidence in this case is that this room was used for other purposes as well, I think Mr.... did say that although we never ever got any details as to what quantification that other use might amount to, the phone was in there and the phone was used for both private and business purposes. Where you get a situation like that, what are the principles. I mean the minority of the High Court said that use is enough, the majority said that in those circumstances it was only for convenience so use was not enough, but if this is his business base there is no other business base and there is a business being carried on, what are the principles about that?''

My comments were designed to obtain assistance, for the case before the Board is not the usual type of case. It is one in which a business was being conducted from part of a home without this part being exclusively devoted to such use.

3. Whilst fully conscious of the remarks of Murphy J. in
Handley v. F.C. of T. 81 ATC 4165 and whilst accepting that the facts therein were different to that of the present case, I am unable to conclude that partial use as a business base is sufficient to overcome the essential character of the expenditure (excepting additional electricity and insurance amounts) concerned as related to the provision of a home. It may be said that Murphy J. had in mind part time, as well as full time, use of portion of a home, and that the portion did not have to have separate access, etc., but, as present advised, I would be hesitant to so conclude.

4. Turning now to the alternative claim in terms of sec. 72 for the 1981 year of income (not necessary to be considered by Mr. McCarthy), rates and taxes are under sec. 72(1) prima facie allowable deductions but, by virtue of sec. 72(1G), no deduction is allowable:

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ATC 424

``in respect of a dwelling, flat or home unit that is used by the taxpayer during the relevant year of income as his sole or principal residence except to the extent that the amount is allowable as a deduction under sub-section (1C) by reason that the amount is an amount of the kind referred to in paragraph (a) of sub-section (1B).''

Subsection 72(1B)(a) refers to amounts -

``... paid in respect of land that is, or premises that are, used by the taxpayer during the year of income for the purposes of gaining or producing income or carrying on a business for the purpose of gaining or producing income.''

whilst subsec. 72(1C) provides:

``If an amount referred to in paragraph (a) of sub-section (1B) is paid in respect of land that is, or premises that are, used by the taxpayer during the year of income partly for the purpose of gaining or producing income and partly for another purpose, so much only of that amount is allowable as a deduction by virtue of that paragraph as, in the opinion of the Commissioner, is reasonable in the circumstances.''

5. Section 159V provides for a rebateable amount in respect of:

``An amount equal to the amount, or the total of the amounts, that, but for subsection (1G) of section 72 would, in respect of the year of income, be allowable as a deduction or deductions under that section.''

Subsection 72(1D) limits the deduction allowable under sec. 72 in respect of a dwelling used by a taxpayer ``as his sole or principal residence'' to $300.

6. In argument the taxpayer's representative merely stated ``that the business proportion of council and water rates is deductible under sec. 72 of the'' Act whilst the Commissioner's representative made no direct reference to sec. 72 - his remarks being directed to no deduction being allowable in terms of sec. 51(1) because, inter alia, they were private or domestic outgoings and alternatively the taxpayer's activities did not ``amount to the carrying on of a business''. As a result the Board had no assistance in relation to the provisions of sec. 72 or in respect of whether the change from concessional ``deductions'' to concessional ``rebates'' means sec. 82(1) is inoperative where an amount could be a ``deduction'' under sec. 72 and a ``rebate'' under sec. 159N via 159V.

7. On balance I am of the view that the taxpayer, being found to be carrying on a business from his home and using part of his home for the purposes of that business, is eligible in terms of sec. 72(1B)(a) subject to the determination of what is ``reasonable in the circumstances'' in terms of sec. 72(1C). I find this difficult in view of the fact that his wife also had the right to use what is claimed as the business part of the house and the ``intermittent'' use thereof by the taxpayer - although accepting such use as substantial rather than minimal. Doing the best I can, without resorting to a pure guess, I would commence with the figure of $87 but reduce it by one half to allow for his wife's right to use and the ``intermittent'' use thereof by the taxpayer himself, i.e. I would allow $44.

8. For the above reasons I would agree with the conclusions reached by my colleague in para. 9 of his reasons.