Case G72

Judges:
N Dempsey M
G Thompson M

Court:
No. 3 Board of Review

Judgment date: 27 November 1975.

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N. Dempsey (Acting Chairman): The company concerned in this reference is a public company and it carries on mining operations in Queensland. One of its mining operations is carried out at a location some 28 miles from a large provincial city. In this city it has its administration centre and all administrative and costing functions are carried out there. The Secretary and the Managing Director of the company both reside in this city.

2. A manager is employed to control and supervise the mining operations and each manager that has been so employed has resided in this city and he travels to the mining location daily to supervise and direct operations. Because of the location of the mine, its distance from amenities etc., managers have insisted on a residence in the city. Quite a number of the mine employees also reside in this city and they travel each day by a bus provided by the company to the mine and in like manner they return at the end of the day. It is necessary for the manager to supervise the departure of the bus to ensure that a sufficient work force is available and if there is a shortage to take steps to endeavour to rectify the position.

3. Deeming it advisable and necessary for the company to provide a residence for the manager in the provincial city referred to, the company in 1967, acquired land at a cost of

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$3,400 from a local builder and then contracted with him to build a home on this land. It is agreed between the company and the Commissioner, that this home, apart from the land, ultimately cost $15,887. This cost was incurred prior to 1st July, 1971 and in the income year ended 30th June, 1972, a further $140 was spent on the home.

4. A claim was made in the return for the year ended 30th June, 1972, for deductions in relation to this residence.

5. In relation to the expenditure prior to the 1st July, 1971, the claim is made under sec. 122D and in relation to the $140 spent in the year ended 30th June, 1972, the claim is made under sec. 122F. It was conceded at the hearing that the quantum of the claim under sec. 122D was incorrect and in lieu of a cost of $19,287 as shown in the return, the correct cost was $15,887.

6. In assessing the return the Commissioner disallowed in full, the amounts claimed in respect to this residence and he also made other adjustments. Taxpayer objected to these disallowances and in due course, the Commissioner issued an amended assessment in which all claims with the exception of those relating to the manager's residence were adjusted to the satisfaction of the company. An appeal has been made to the Board against the refusal of the Commissioner to allow deductions under sec. 122D and 122F in respect to the manager's residence.

7. In the statement supplied to the Board in compliance with Regulation 35(1), the Commissioner contends that no amounts are allowable under either section as the amounts on which the claims are based are not expenditure on ``housing and welfare'' within the meaning of sec. 122(1).

8. Section 122(1) so far as is relevant reads as follows: -

``In this Division -

`housing and welfare', in relation to a taxpayer, means -

• (a) residential accommodation provided by the taxpayer at, or at a place adjacent to, the site of prescribed mining operations carried on by the taxpayer, being accommodation provided for the use of employees of the taxpayer employed for the purposes of the operations of the taxpayer on that site or operations of the taxpayer connected with those operations, or for the use of dependants of such employees.''

9. There is no dispute that the expenditures in relation to which deductions are sought were incurred by the company to provide residential accommodation for the use of an employee and the sole question at issue is whether the accommodation which is admitted is not at the site of the prescribed mining operations can be held in the circumstances to be at a place adjacent to such operations.

10. The Board was afforded an opportunity to inspect the site of the mining operations. There is no doubt that it is located in what might be termed a small railway centre where there is a hotel, a small store and a very small number of homes. However, the company itself does own two homes situated between the railway and the mine which are occupied by its employees.

11. There are also several other homes in the vicinity owned by the Government Housing Commission which are occupied by mines employees. However, it is certainly not a locality where one would choose to live if it could be avoided. Also, from a functional point of view, it is desirable for the manager to reside in the provincial city from where the company is controlled and from where a substantial part of the work force is drawn. However, what has to be decided is whether the provincial city, some 28 miles from the mining site, can be held to be ``adjacent'' thereto.

12. For the taxpayer, it is submitted that the decisions of the High Court in the cases of
Waratah Gypsum Pty. Ltd. v. F.C. of T. (1965) 112 C.L.R. 152 and
F.C. of T. v. Broken Hill Proprietary Co. Ltd. (1969) 120 C.L.R. 240 support its case that notwithstanding the fact that the residence is situated some 28 miles from the mining operations it should, in the circumstances, be regarded as being at a place ``adjacent to the mining operations.''

13. It seems to me that the basis of the decision in the Broken Hill Proprietary Co. Ltd. case, supra, did not have regard to the distance between Whyalla, where the accommodation existed, and the location of the actual mining property where the ore was mined. When Kitto J. dealt with the matter initially, as I understand from his decision, he did not advert to sec. 122(8). At page 243, he set out the questions that arose in relation to the

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interpretation of the provisions and then went on to deal with what was involved as regards sec. 122(1). It is to be noted that he did not advert at any time to the requirements of sec. 122(8).

14. It thus seems to me, a view, I believe is supported by Barwick C.J., McTiernan and Menzies JJ., that the question of what should be regarded as ``accommodation situated on or adjacent to the mining property'' was not considered. The decision of Kitto J., it seems to me allowed the deduction in respect to the Waiting Shed at Whyalla as being part of the cost of development of the mining property. Barwick C.J. and McTiernan and Menzies JJ. in their joint decision, where they agree with the decision of Kitto J. that the shipment of ore at Whyalla is to be regarded as operations in connection with the taxpayer's mining operations, then went on to say:

``... we would agree, therefore, that, in conformity with sec. 122(8), expenditure upon the housing of employees engaged in the loading operations is deductible as expenditure on `residential accommodation for the use of employees of the taxpayer... in connexion with, the mining operations of the taxpayer' upon its mining properties in the Middleback Ranges.''

15. I note that although they refer to sec. 122(8) and refer to ``expenditure on residential accommodation for the use of employees'' they do not say that they regard the accommodation at Whyalla as being capable of being regarded as ``situated on or adjacent to the mining property.'' I therefore consider that this decision leaves the question open.

16. Turning now to the Waratah Gypsum Pty. Ltd. case supra this case is, in my opinion, more to the point. At p. 162 of this decision, McTiernan J. said dealing with the matter of the housing:

``I do not think that the distances of the buildings from the excavations are too great to break the connexion. Two or three miles in the case of Stenhouse Bay and Inneston and nine miles at Penong are regarded as trivial in those remote and isolated places. The three towns are the nearest places to the mines where the workers could conveniently dwell. The houses are all used for the accommodation of the taxpayer's employees at the mine. Indeed, the evidence showed that unless the taxpayer provided such accommodation it would most likely be unable to attract labour to work the mine.''

17. I feel therefore that the question is to be decided taking into account all the circumstances of the case and bearing in mind, if one might be pardoned for saying so, what appears to be the intention of the legislation. It is recognised that the law at times does not accord with what was intended. Kitto J. in his decision in the Broken Hill Proprietary Co. Ltd. case at p. 244, said, referring to the scheme of sec. 122:

``The rationale, of course, is that the mineral deposits are wasting assets and therefore the advantages gained for the mining operations by means of capital expenditure, are, in effect, wasting assets too.''

18. Now while it would be quite correct to consider that, as in the Waratah Gypsum case supra, the houses like the mine would be wasting assets, it is not possible to take the same view of the residence for the manager in this case. Whilst the mine situated some 28 miles from the provincial city could well be a wasting asset, it cannot be said that a residence situated in a thriving provincial city is a wasting asset. On the contrary, due to inflationary trends, most city residential properties have, over late years, appreciated in value.

19. Considering what might be regarded as the normal understanding of the word ``adjacent'', it is difficult to see that two places 28 miles apart can be regarded as adjacent. I do not think that there is a sufficient degree of proximity in these circumstances to justify a finding that the provincial city is adjacent to the place where the mining operations are carried on.

20. For these reasons. I would uphold the decision of the Commissioner and confirm the assessment.