Burt v Commissioner of Taxation

15 CLR 469

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(Judgment by: Griffith CJ)

Burt v Commissioner of Taxation

Court:

Judges:
Griffith CJBarton J
Higgins J

Subject References:
Crown
Crown lands
Crown lease
Liability to income tax
Pastoral lease
Owner
Deductions
Business premises
Improvements
Taxation and revenue
Income tax

Legislative References: - Land and Income Tax Assessment Act 1907 (WA) No 15; Land Act 1898 (WA) 62 Vict No 37

Judgment date: 29 October 1912

PERTH

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Judgment by:
Griffith CJ

This case raises two questions-Whether a pastoral tenant from the Crown in Western Australia, who is, under the Land and Income Tax Assessment Act 1907, subject to the liabilities of an "owner" for the purposes of land tax, is entitled to the privileges of an "owner" for the purpose of income tax, and, if so, what is the extent of those privileges? The appellant, according to the facts found, was, during the year in question, the holder under pastoral leases from the Crown of certain land in this State, and during that period used the land solely for pastoral and farming purposes. By s. 2 of the Land and Income Tax Assessment Act 1907 the term "owner," as applied to any estate or interest in land, includes "every person who is, jointly or severally, whether at law or in equity entitled to land for any estate of freehold in possession" and "every person who is, jointly or severally, whether at law or in equity entitled to land for any estate of freehold in possession" and "every person entitled to land for any leasehold estate or interest granted under the Land Act 1898 ... with or without the right to acquire the freehold." In the present case, as I understand, the appellant is not entitled to acquire the freehold. By the same Act land tax is imposed on the unimproved value of land, and by the same s. 2 the "unimproved value" in respect of land held for a leasehold estate under the Land Act 1898 means a sum equal to twenty times the difference between the rent actually paid and what may be called the rack rent at which it might be let to a tenant if that amount has been ascertained; if not, as in the present case, a sum equal to twenty times the amount of the annual rent reserved by the lease. The provisions as to income tax are included in the same Act. Section 29 lays down general rules for assessing the taxable amount on which income tax is payable. Section 30 provides for certain deductions from that amount; paragraph 1 is: "Losses, outgoings, and expenses actually incurred in Western

Australia by the taxpayer in the production of his income ..." Under that rule it is, we are told, accepted in Western Australia that rent paid by the taxpayer in respect of land used by him for the purposes of his business is to be treated as an outgoing, and in the present case the rent payable by the appellant to the Crown has been deducted accordingly. Paragraph 7, on which the difficulty arises, is as follows:"Where any taxpayer occupies and actually uses for the sole purposes of his business any business premises or any portion thereof of which he is the owner, he shall be entitled, in any return of income derived from such business, to claim as an outgoing a sum computed at the rate of four pounds per cent per annum on the actual value of his interest in such business premises or portion thereof." Now, the appellant, as I have shown, is an owner within the definition of s. 2 and, prima facie, he comes within the words of the provision I have just read, of which he claims the benefit. The Supreme Court thought that this would, in effect, be allowing him a deduction in respect of rent twice over, and so, at first sight, it would appear. They thought that that could not have been intended, as it would lead to a conclusion inconsistent with the whole scheme of the Act. It does seem strange a man should receive a deduction practically in respect of the same land or the same thing twice over. The object of the provision is pointed out by McMillan J. in these words:"The whole object of the section is to put one who is the owner of business premises in as good a position as one who pays rent for premises which belong to another," with which I respectfully agree. He goes on to say:"The appellant who is a leaseholder pays rent under his lease to the Crown, and he has been allowed deductions for rent paid. Having received the relief to which he is entitled as a leaseholder, he now claims a further deduction on the ground that he is not a leaseholder, but an owner." The Supreme Court therefore thought that, having

regard to the context, the word "owner" could not have been used in this provision in the artificial sense given to it in s. 2, but must be taken in its natural sense, and that the appellant did not come within the provision. If the consequences which the learned Judges of the Supreme Court thought must follow really followed, I should be disposed to agree with them, but on further consideration I have come to the conclusion that those consequences do not follow. The deduction allowed-4 per cent.-is not, as seems to have been assumed, and as I myself thought for some time, to be made in respect of the value of the business premises regarded as freehold, but only in respect of the actual value of the taxpayer's interest in those premises. In estimating that value the burden of the rent must be taken into consideration, so that the deduction allowed is only in respect of the value of the land, less that burden, that is, in effect, on the total value, after deducting the national capitalized value of the rent. In the case of freehold the taxpayer is entitled to a deduction in respect of the whole value, including both unimproved value and the value of the improvements, but in the case of a Crown tenant the deduction is only on the second element of value, so that he gets no deduction in respect of that part of the value which is equal to the capitalized value of the rent, which has been already deducted. On this construction the position of a freeholder and of a pastoral tenant are equalized. I think, therefore, that the supposed inconsistency and absurdity do not arise, and that the word "owner" in this provision of s. 30 must be construed according to the definition given in s. 2. It follows that the appellant is the owner within the meaning of the provision, and is entitled to the privileges of an owner. The next question is whether pastoral lands of this sort-that is, land used solely for pastoral and agricultural purposes-are business premises within the meaning of the provision. The ordinary meaning of the

term "business premises" is premises in which business is carried on. It may include land, for instance, in the case of a yard or stable used in connection with a business; and in ordinary use the term is probably confined to premises of that sort. The term "business," however, is defined in the Act and is not limited to businesses as carried on in towns or streets. By s. 30, paragraph 9, it is to be taken to include any "profession, trade, employment or vocation." I think it is intended to include all money-making enterprises or occupations of any kind. A good definition of "business premises" may be taken from the New Zealand case which has been cited to us, where one learned Judge said it meant land or buildings or land and buildings used for the actual purposes of a business. There is, therefore, no fixed limit of area to begin with. To give some illustrations: In the case of a laundry, the drying ground is clearly part of the business premises; in the case of a rope walk, which may be of very great length, the whole extent of the land would be clearly business premises; so in the case of fruit growing or fruit drying, as at Mildura. In the case of a wool-scourer, the land on which he has to extend his fleeces is certainly part of the business premises. Again, in the case of a stud farm, I do not see how on a small stud farm there can be any doubt about the whole of the land used for the purpose of breeding the stock being part of the business premises. Then take the case of sheep growing, where the sheep are fed on artificial grasses and where intense culture is practised, and ten sheep, or perhaps more, are carried to the acre, surely that land would be part of the business premises, and, if so, where can we draw the line? Why does not the same principle apply if ten acres are needed for one sheep? I am quite unable to draw any line. The Act does not draw any distinction according to the scale of the business; it may be carried on on a small scale on a small area of land, or on a large scale. For these

reasons I have come to the conclusion, not without some doubt, for my opinion fluctuated a good deal during the argument, that the land used by this appellant is "business premises" within the meaning of the Act. There are two other subsidiary questions: First, whether the shearing sheds on the land are part of the "business premises." It follows from what I have already said, that they are. The other question is whether the other improvements on the land, windmills, bores, fences, and huts and other buildings used solely as residences for the manager and employees are business premises within the meaning of s. 30 (7) of the Act. So far as the windmills, bores and fences are concerned, what I have said disposes of the matter. As to the huts and other buildings, the case is governed by an express provision in s. 31 of the Act, paragraph 8, which provides, among other things, that no deduction shall be allowed in respect of "the ... value ... of any dwelling-house or domestic premises, except such part thereof as may be occupied for the said purposes," that is, for the purposes of the business. It cannot be contended that a dwelling-house, huts and buildings used solely as residences are not occupied for domestic purposes, except such part thereof as may be actually occupied for business purposes; that is to say, if you find a building, part of which is used, for instance, as a store, the part used as a store may be treated as used for "business premises," but the part used as a dwelling-house cannot. In the present case the huts and buildings in respect of which the exemption is claimed are used solely as domestic premises, and are therefore not entitled to the exemption. The result is that the opinion of the Supreme Court must be varied in the manner I have indicated.