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High Court of Australia |
PARAMAC PRINTING CO. PTY. LTD. v. FEDERAL COMMISSIONER OF TAXATION [1964] HCA 56; (1964) 111
CLR 529
Income Tax (Cth)
High Court of Australia
Owen J.(1)
CATCHWORDS
Income Tax (Cth) - Overseas trips by Company's employees - Deductibility of expenses paid by company - Artistic nature of employment - Visits to art galleries and other places of general tourist interest - Whether expenses wholly deductible - Superannuation policies for benefit of family employees - Premiums paid by company - Whether wholly deductible - Deduction of salaries and director's fees paid to family directors partially disallowed - Whether opinion of Commissioner could be reviewed - Deduction of salary and director's fees to one family director wholly disallowed - Admission of document indicating item not allowed under s. 51 (1.) of the Income Tax and Social Service Contribution Assessment Act 1936, as amended - Review of decision - Competency of appeal from Board of Review - Decision involving question of law - Income Tax and Social Services Contribution Assessment Act 1936-1962 (Cth), ss. 51 (1.), 66, 109, 196 (1.).
HEARING
Sydney, 1964, August 28, 31; September 1, 2, 3;DECISION
October 12.2. I will deal later with each individual appeal but it is convenient first to set out a number of matters which bear upon the questions for decision. (at p533)
3. For many years a Mr. Bruce McWilliam was employed by Wm. Brooks and Co. Pty. Ltd., well-known printers and stationers in Sydney. In 1950 he left that Company's employ and went into business as a printer and stationer on his own account, trading under the name of Paramac Printing Company. He started the business in a small way and in its early years his only assistants were his wife and, during school holidays and weekends, his two children, a girl named Jan who was born in September 1938 and a boy named Peter who was born in February 1940, both of whom came to know something of the workings of the printing trade at an early age. With the aid of his family, Mr. McWilliam gradually built up the business, concentrating more and more as time went on on fine colour printing and what has come to be known in the printing and advertising world as "Direct Mail" advertising, a method of advertising which has become increasingly popular since the war amongst those who wish to sell their goods or services. It is a form of advertising in which letters, pamphlets, brochures and the like are mailed to "selected" persons. The material is usually produced in colour and contains features such as pictures and drawings, captions and letterpress striking and attractive to the eye and calculated to arouse the interest or curiosity of the recipient. Mr. McWilliam was one of the pioneers in Australia in this field. The printer who undertakes this type of work is required to think out and "create" the design, make-up, colour and so on for the material proposed to be used. If the product is approved by the organization for which the work is proposed to be done, the printer gets the printing order and is usually employed also to address and post the material to the "selected" persons whose names are provided by the customer. In England, on the Continent and in the United States, particularly in the latter country, this form of advertising has assumed very large proportions and it has become increasingly popular in Australia. Printing establishments which aim at succeeding in this line of business employ a team, large or small according to the size of the business, of "creative thinkers" whose task it is, by "group thinking" and "group discussion", to evolve ideas, designs, colours, captions and other distinctive features. Their ideas are then put into more concrete form by commercial artists, usually employed by the printer but sometimes freelances, and if the result is acceptable, the printer gets the order to produce and mail the finished product. The "creative" work done by the "group" is not always entirely original. It is the practice to build up a "library" in which are collected quantities of pamphlets, cards, posters, company annual reports of a modern kind, magazine advertisements and the like gathered from all parts of the world and all fields of commerce, and such a "library" must be kept up to date so that new developments elsewhere in the world may be made known to the "creative thinkers" who use this material to assist them in evolving their own ideas. It often happens that they incorporate in their work or are influenced in forming their ideas by something seen by them in material collected in the "library". I do not say that in any critical or disparaging sense. Those who seek to express their ideas and use their talents as painters or sculptors, as architects or writers, consciously or unconsciously gather inspiration and ideas from the work of others and I have no doubt that this applies also to those whose artistic bent takes them into the advertising and printing world. (at p534)
4. It is, I think, apparent from what I have said that "Direct Mail" advertising is a specialized field of advertising and high class printing. A printing establishment, if it is to succeed in this line of business, must keep in touch with overseas developments and techniques and have a "library" - or at least have access to one - which is kept up to date. For example, the evidence shows that in the United States there is a "Direct Mail" Association, of which the leading "Direct Mail" establishments in that country are members and which maintains a very large "library" in New York to which its members have access. No such facility was available in Australia during the relevant period. (at p534)
5. In the early days of Mr. McWilliam's business, the "creative" thinking was done by him and his wife. She had, he said, a "terrific colour sense" and had, earlier in her life, been a competent "makeup artist" in the moving picture industry. Later, the daughter Jan, a girl with an artistic bent, joined the "creative" group. She left school in 1955 and did the first year course in physiotherapy at the University in order to get some knowledge of anatomy which, it was thought, would be of help to her in her art work. She then took a three-year course in commercial art at a Technical College, qualifying in 1959. During the time when she was doing these courses and afterwards she participated regularly with her father and mother in the "group discussions" and, so Mr. McWilliam said, produced a number of good suggestions. In February 1961 Jan married and went to live at Goulburn with her husband who was employed in the Goulburn branch of a woolbroking company. Thereafter she frequently visited Sydney where she stayed with her parents and during those visits continued to participate in the "group discussions". (at p535)
6. In December 1955 the Printing Company was incorporated and took over the business previously conducted by Mr. McWilliam. At first he and Mrs. McWilliam were its only shareholders. He was the managing director and she the secretary. In 1957, Jan and Peter became shareholders and in that year Jan became a part-time employee of the Company commencing at a salary of 10 pounds per week. Later she also became an employee of the Promotions Company and from time to time that company made some salary payments to her. In 1957 Mr. McWilliam held 501 shares in the Printing Company, Mrs. McWilliam 1,501 shares, Jan and Peter 650 shares each and Bruce Scott McWilliam, presumably a relative of the others, held 650 shares. In 1958 the shareholdings remained as in 1957. In 1959 Mrs. McWilliam's holding increased to 4,151 shares, and the holdings of Jan, Peter and Bruce Scott McWilliam increased to 1,400 shares each. In 1960, the family holdings remained the same but 1,000 preference shares were issued to Australian Direct Mail Advertising & Addressing Co. Pty. Ltd., a subsidiary formed in March 1960 for the purpose, I gather, of gradually taking over and developing the mailing side of the "Direct Mail" advertising business. From the inception of the Printing Company until 1960, Mr. and Mrs. McWilliam were the directors and from 1960 onwards Jan and Peter were also directors. In March 1958 the Promotions Company was formed. It was intended that it should eventually take over from the Printing Company the promotion of "Direct Mail" advertising, employ the "creative thinkers" and the commercial artists and that it would, on behalf of the Printing Company, obtain business from customers who would become the customers of the latter Company. At all relevant times, the only shareholders in the Promotions Company were Mr. and Mrs. McWilliam each of whom held one share and the Printing Company which held 100 shares. Mr. and Mrs. McWilliam were the directors until 1960 when Jan and Peter also became directors. In fact, during the relevant period, most of the "promotion" business seems to have been conducted by the Printing Company. (at p535)
7. Peter McWilliam was first employed by the Printing Company in August 1957 and later he, like his sister Jan also received some salary payments from the Promotions Company. It was intended that he should eventually take the place of his father as the head of the family business and his father saw to it that he took part in and became familiar with all its workings and departments. From 1957 onwards Peter, although to a lesser extent than the other members of the family, played a part in the "group discussions" which evolved the "creative" ideas. He took part also in the actual printing work, the costing and all the other activities of the business, including deliveries to customers and calling upon them and prospective customers to obtain orders. (at p536)
8. It is convenient at this stage to give some details about the remuneration paid to Jan and Peter and to Mr. and Mrs. McWilliam during the relevant period. These payments fluctuated from time to time according to the fortunes of the business. In the year ending 30th June 1957, Mr. McWilliam was paid by the Printing Company a salary of 1,404 pounds and director's fees of 250 pounds. Mrs. McWilliam was paid a salary of 520 pounds and director's fees of 300 pounds. Jan was paid a salary of 210 pounds and Peter 90 pounds. In the year ending 30th June 1958, Mr. McWilliam was paid 2,484 pounds in salary but drew no fees. He was paid 250 pounds in director's fees by the Promotions Company. Mrs. McWilliam was paid 750 pounds in salary and 300 pounds in director's fees by the Printing Company. Jan was paid a salary of 660 pounds and Peter a salary of 1,057 pounds, both payments being made by the Printing Company. In the year ending 30th June 1959, Mr. McWilliam received a salary of 1,727 pounds, Mrs. McWilliam a salary of 1,040 pounds and director's fees of 312 pounds. Jan was paid a salary of 877 pounds and Peter 877 pounds, all the payments being made by the Printing Company. In the year ending 30th June 1960, Mr. McWilliam received 2,010 pounds in salary and 500 pounds in director's fees from the Printing Company and 1,250 pounds in salary from the Promotions Company. Mrs. McWilliam was paid 1,380 pounds in salary and 500 pounds in director's fees by the Printing Company and 940 pounds in salary by the Promotions Company. Jan received 1,645 pounds in salary from the Printing Company and 825 pounds in salary from the Promotions Company. Peter was paid a salary of 1,645 pounds by the Printing Company and 825 pounds by the Promotions Company. In the year 30th June 1961, Mr. McWilliam's salary was 1,672 pounds, Mrs. McWilliam received a salary of 1,040 pounds, Jan was paid 1,040 pounds and Peter 1,058 pounds. All these payments were made by the Printing Company and no payments were made by the Promotions Company. In the year ending 30th June 1962, the Printing Company paid Mr. McWilliam 1,520 pounds by way of salary but no other payments were made to him. Mrs. McWilliam received nothing from the Printing Company and a salary of 520 pounds from the Promotions Company. Jan received 520 pounds in salary and Peter 1,520 pounds from the Promotions Company and no payments were made to them by the Printing Company. (at p537)
9. In March 1958 it was decided that Mr. and Mrs. McWilliam and Jan should go abroad "to study latest printing methods, direct mail advertising and stationery shops". The reference to "stationery shops" arose from the fact that it was intended to develop the stationery printing side of the business and open a retail stationery shop in the city. It was resolved that the expenses of the trip should "be charged to the Printing Company and its subsidiary Paramac Promotions". The Promotions Company was not in fact incorporated until a week later. The party left Sydney in April and returned in September of that year. In his evidence Mr. McWilliam described their itinerary in detail. They flew via Hongkong and Bangkok to Athens and Rome, covered a good deal of ground on the Continent and went on to the United Kingdom where they spent about six weeks. From there they flew to New York, spent about a fortnight in the United States and flew home across the Pacific. The evidence of what they did during the trip was given in much detail by Mr. McWilliam and I accept what he said. It is impossible to summarize it - but I am left with the clear impression that his activities were related in one way or another to bettering his knowledge of the printing trade and its processes and techniques, and of "Direct Mail" advertising. Trunkloads of material for a "library" were collected and shipped to Sydney and many useful personal contacts were made with and information obtained from printers, stationers, printing machinery and paper manufacturers, and from persons and establishments concerned with "Direct Mail" advertising and its development. In his case, it was certainly a business trip. On the whole I think Mrs. McWilliam's and Jan's journeyings should also be so regarded. They were members of the team of "creative thinkers" and to have had the opportunity of seeing for themselves what was being done overseas in the advertising and printing world would and did, I think, advance their own techniques, widen their minds and give them new ideas which would be of real benefit to them and to the business in which they were engaged. In this respect the case bears a considerable resemblance to that of Commissioner of Taxation v. Finn [1961] HCA 61; (1961) 106 CLR 60 It is not, I think, to the point to say of such persons that visiting overseas art galleries and exhibitions, and I give this as only one example of their activities abroad, is a usual tourist activity and that the expense incurred cannot therefore be treated as a deduction for income tax purposes whether the claim for a deduction be made by the individual concerned, as in Finn's Case [1961] HCA 61; (1961) 106 CLR 60, or by those who employ him to use his artistic and creative abilities. (at p538)
10. While the rest of the family was away, Peter McWilliam, although then only eighteen or nineteen years of age, played a very considerable part in the running of the business and its various activities of which, by that time, he knew a great deal. The impression that I formed of him was that he, like the other members of his family, regarded printing as a craft, a printer as a craftsman, and was determined that the family business should attain and maintain a high standard. (at p538)
11. The cost of the trip was 7,791 pounds, of which 5,417 pounds was expended during the year ending 30th June 1958 and the balance in the following year. In addition the members of the party spent about 1,000 pounds out of their own moneys. The cost, with the exception of the private moneys expended, was paid by the Printing Company and no part of it was charged to the Promotions Company which was then very much in its infancy. (at p538)
12. In April 1959 the directors of the Printing Company resolved that Peter be sent abroad "to study modern trends in printing and direct mail advertising and addressing in England, Europe and America from May 1959 to January 1961 and that the Company pay all expenses incurred on the trip", and in May of that year Peter left for the United Kingdom where he was to take a full-time course at the London School of Printing and Graphic Arts. This institution is widely and favourably known in the printing trade throughout the world and it conducts courses covering every branch of the printing trade for training sons of the proprietors of printing establishments wherever they may be. A great many of the students who take the course come from overseas. Peter attended the course, a full-time one, which began in September 1959 and ended in July 1960. When he left Sydney it was expected that it would begin in July but in fact it did not start until September and, while waiting for it to begin, he went to the Continent and visited a number of printing establishments in France, Germany, Holland and Belgium. Having finished the course and obtained his "certificate", he left England for the United States in July 1960 and there spent some weeks working in the various departments of James Craig Inc., a very large "Direct Mail" advertising and printing company in New York with which his father had earlier made personal contact on his visit abroad. He also collected and shipped to Australia much material for the "library" and visited various establishments concerned with advertising, bookbinding and printing. From there he went to Montreal and then to Los Angeles on his way back to Australia. In Los Angeles he collected "library" material and visited a number of "Direct Mail" houses. Just before leaving Los Angeles he received a cable from his father suggesting that he go to Miami and there meet his parents and with them attend a "Direct Mail" Advertising Convention which was to be held in Florida. He went there, met his parents and together they attended the Convention. Mr. and Mrs. McWilliam had left Sydney by ship in September 1960 for Florida and returned in December of that year. After the Convention the party visited the West Indies and Mexico. They then went to Los Angeles whence Peter flew home to Sydney while Mr. and Mrs. McWilliam returned by ship. In all the places to which they went they collected "library" material, visited advertising and printing houses and, from the West Indies and Mexico, prepared, had printed, and despatched to a number of "selected" persons in Australia "Direct Mail" material advertising the Printing Company's business and the benefits which that Company would be able to offer as the result of the ideas which its representatives were getting from their contacts and experiences abroad. In the result these "Direct Mail" advertisements mailed from abroad resulted in substantial orders from important customers such as Pan American Airways. The expenditure incurred on these trips was as follows:- For the year ending 30th June 1959, on account of Peter's visit to the United Kingdom and the Continent, 962 pounds; for the year ending 30th June 1950 2,030 pounds, principally on account of Peter; and for the year ending 30th June 1961 5,710 pounds, principally on account of Mr. and Mrs. McWilliam but some part of it related to Peter's expenses in America. In the first and second of these years, the whole amount was paid by the Printing Company. In the third year, that ending on 30th June 1961, 4,283 pounds was paid by the Printing Company and 1,427 pounds by the Promotions Company. (at p539)
13. None of the appeals before me relates to the year ending 30th June 1961 but the travelling expenses paid in that year are relevant since each of the companies concerned made a loss. The amount of the loss was in each case arrived at by the company concerned after deducting the expenditure on overseas travel. The deductions claimed were in part disallowed by the Commissioner with the result that in the following year, that ending on 30th June 1962, the previous year's loss taken into account in assessing the tax for the year 1961-1962 was less than would have been the case had the expenditure under this head in the previous year been allowed in full. (at p540)
14. As in the case of the travelling expenses incurred for the earlier trip to the United Kingdom and the Continent of Mr. and Mrs. McWilliam and Jan, the conclusion to which I have come is that the amounts expended should be allowed as deductions under s. 51 (1.) of the Act. (at p540)
15. I turn now to deal with some general matters on another aspect of the case. Before or during 1958, the Printing Company entered into an agreement described as "The Executive Retirement Plan" with the Legal and General Assurance Society Ltd. Under that agreement the company took out and, in each of the relevant years, paid premiums on policies of insurance designed to provide retiring benefits for Mr. and Mrs. McWilliam, Jan and Peter. Similar policies but for lesser amounts were taken out on three other employees of the company. In the cases of Mr. and Mrs. McWilliam, Jan and Peter, the annual premium paid in each case was 200 pounds, a lesser premium being paid on the policies taken out for the benefit of the other employees. The idea was put into Mr. McWilliam's mind by an insurance agent who told him that a tax deduction of 200 pounds per annum was allowable for each employee insured. This was evidently based upon a somewhat imperfect knowledge of s. 66 (3.) (c) (i) of the Income Tax and Social Services Contribution Assessment Act. In each of the years under review and in the year ending 30th June 1961 when the company made a loss, these payments, each of 200 pounds, were made. The policies in favour of Mr. and Mrs. McWilliam and Jan were payable on attaining the age of sixty-five years and, at that age, would return them 4,268 pounds, 3,144 pounds and 9,242 pounds respectively. In the case of Peter, the amount of 13,605 pounds was payable on death with a surrender value of 9,500 pounds on attaining the age of sixty-five years. (at p540)
16. I will deal now with each of the appeals.
Appeal No. 1 of 1961 (at p540)
17. This appeal by the Printing Company relates to the year ending 30th June 1958 and comes from the Board of Review. Two items are in question. The appellant claimed as a deduction under s. 51 (1.) the sum of 5,417 pounds, being the travelling expenses paid by it in that year for the overseas trip made by Mr. and Mrs. McWilliam and Jan. The Commissioner allowed as a deduction the sum of 2,709 pounds, that is to say approximately one half of the expense incurred. He must, therefore, have considered that some part of the expenditure on the trip was an outgoing of the appellant's business and allowable under s. 51 (1.), but there is nothing before me to show how he arrived at the proportion which he allowed. The majority of the Board of Review upheld the Commissioner's decision. They took the view that the decision that Jan should be a member of the party was "dictated more by personal and family considerations, such as the extension of her education in the field of art of which she was a student than by business considerations". "Tourist" rather than "business considerations dictated" the tour through the Continent even though "ideas may have been picked up there". They thought that the family "whilst abroad were engaged to some extent on business activities for the taxpayer's subsidiary" (the Promotions Company) and that "as the companies are separate taxation entities the expenditure by the taxpayer company in so far as it related to activities undertaken by its employees on behalf of" the Promotions Company "cannot be classed as expenditure incurred in carrying on its own business". In these circumstances they concluded that the appellant had failed to establish that the Commissioner's decision was wrong. The other member of the Board took a somewhat broader view of the matter and considered that 3,537 pounds of the amount claimed as a deduction should be allowed. (at p541)
18. The next matter relates to the premium payments made by the appellant on the policies taken out for the benefit of Jan and Peter. The appellant claimed to deduct the premiums of 200 pounds paid in each case under s. 51 (1.) and the Commissioner allowed a deduction of 50 pounds in the case of Peter and 30 pounds in the case of Jan. In doing so, he acted under s. 66 of the Act. By sub-s. (2.) (c) of that section, where the taxpayer is a private company within the meaning of Div. 7 of Pt III of the Act - and the appellant was such a company - and part of the sum paid to provide benefits, etc. for employees is attributable to the provision of such benefits for a person who was, at any time during the year of income, both a shareholder and an employee of that company, the Commissioner is required to determine "the part, if any, of the sum paid which, in the opinion of the Commissioner, would not have been paid if that person had not been a shareholder". The relevant part of sub-s. (3.) provides that "the amount remaining after deducting from the sum paid the amount determined by the Commissioner under sub-s. (2.) (c) shall be an allowable deduction". The Board of Review unanimously confirmed the Commissioner's decision. (at p541)
19. Before dealing with these matters, however, it must first be decided whether the appeal is competent since an appeal lies from the Board of Review only where its decision involves a question of law (s. 196 (1.)). If, however, a point of law is involved in its decision, the whole matter is open to be reviewed by the Court: Federal Commissioner of Taxation v. Sagar [1946] HCA 6; (1946) 71 CLR 421, at p 423 and cases therein cited. In the present case, the proceedings before the Board of Review appear to me to have been conducted by the parties on the basis that the issues involved were issues of fact. As to the claim to the deduction of travelling expenses, was the expenditure or some part of it and, if so, how much, incurred in gaining or producing the appellant's assessable income or necessarily incurred in carrying on the business for the purpose of gaining or producing such income? This is clearly an issue of fact and, if found by the Board in favour of the appellant, it does not appear to have been questioned that s. 51 (1.) would apply. Counsel for the appellant placed much reliance on what was said by Fullagar J. in Hayes v. Federal Commissioner of Taxation (1956) 96 CLR 47, at pp 50, 51 . He submitted that while the questions before the Board of Review were predominantly questions of fact, yet the ultimate question was one of law, that is to say whether, on the facts as found, the case was within the provisions of s. 51 (1.). In one sense, of course, that question was involved in the Board's decision. Its members would have had to read the section, assuming they did not already know it by heart, and determine whether it applied. But, on that point, the parties were not at issue and, in these circumstances, I would have some hesitation in saying that any question of law was really involved in the decision. However that may be, I think the members of the Board took too narrow a view of the relationship between the activities abroad of Mr. and Mrs. McWilliam and their son and daughter and the nature of the appellant's business and that, in this respect they, or at least the majority of them, misdirected themselves in point of law. Finn's Case [1961] HCA 61; (1961) 106 CLR 60 had not then been decided. That decision did, I think, open up a new line of thought on the subject of the value to Australians and those who employ them in Australia of keeping in touch with developments overseas. The majority of the Board seems to me to have taken the view that the time spent by the party on what they described as matters of "general tourist interest", of which visits to art galleries and stationery shops are instances, could not be related to the promotion of the appellant's business and that, so much of the expenditure on travel as was incurred on these "tourist activities", was not capable of being regarded as an allowable deduction. For the reasons I have given earlier I am of opinion that, in the circumstances of this case, such expenditure could and should have been treated as falling within the terms of s. 51 (1.). (at p543)
20. The further question then arises whether the appellant is entitled to claim a deduction of the whole amount expended or whether some part of that expenditure was incurred to advance the interests of the Promotions Company. On the whole I think that the appellant is entitled to say that the whole amount was incurred by it in the conduct of its own business. The Promotions Company was very much in its infancy. No doubt the experience gained on the trip by the three members of the family would ultimately be of real value to it as and when its business developed. But it was formed for the purpose of furthering the interests of the Printing Company and to obtain orders for it exclusively. Expenditure by the Printing Company to improve the skill and develop the "creative" ideas of the "creative thinkers" who would later be employed by the Promotions Company would thus be of direct benefit to the business of the Printing Company. (at p543)
21. The remaining matter in this appeal relates to the disallowance of portion of the deductions claimed for the premiums paid on the policies of insurance taken out for the benefit of Jan and Peter. As I have said earlier, the Commissioner allowed as deductions the sum of 50 pounds in the case of Peter and 30 pounds in the case of Jan as against premiums of 200 pounds actually paid. Applying s. 66 (2.) (c) of the Act, he formed the opinion in each case that the difference between the amounts paid by the appellant and the amount of 50 pounds in the case of Peter and 30 pounds in the case of Jan would not have been paid if he and she had not been shareholders. The Board of Review was of the same opinion and confirmed the Commissioner's decision. I can see no reason to think that there was any failure either by the Commissioner or by the Board to exercise its functions according to law and on this aspect of the case the appellant fails. (at p543)
22. In this appeal I am of opinion that the sum of 5,417 pounds should have
been allowed as a deduction under s. 51 (1.) of the
Act. The appeal should be
allowed and the matter remitted to the Commissioner so that he may vary the
assessment accordingly.
Appeal No. 22 of 1961. (at p543)
23. This appeal by the Printing Company relates to the year ending 30th June
1959 and comes from the Commissioner. The appellant
claimed as a deduction the
sum of 2,374 pounds, being the balance of the travelling expenses incurred on
the visit overseas by Mr.
and Mrs. McWilliam and Jan. As in the previous year,
the Commissioner allowed a deduction of approximately one half of the
expenditure
actually incurred. For the reasons I have given earlier, I am of
opinion that the full amount claimed as a deduction should be allowed.
A
further deduction of 962 pounds was claimed, that being the expenditure
incurred in the year in question on Peter's overseas trip
to take the course
at the London School of Printing and Graphic Arts and afterwards to visit the
United States. This claim was wholly
disallowed by the Commissioner. In my
opinion the deduction claimed should be allowed. (at p544)
24. The remaining item in question relates to the premiums paid on the policies taken out for the benefit of Jan and Peter. The Commissioner allowed a deduction of 50 pounds in the case of Peter and 30 pounds in the case of Jan. As in the previous year he acted under s. 66 (2.) (c) an no reason is shown for interfering with his determination. (at p544)
25. In this appeal, therefore, I am of opinion that the sum of 3,336 pounds,
being the expenditure incurred for travelling expenses
for Mr. and Mrs.
McWilliam, Jan and Peter should have been allowed as a deduction under s. 51
(1.). The appeal should be allowed
and the matter remitted to the Commissioner
so that he may vary the assessment accordingly.
Appeal No. 21 of 1962. (at p544)
26. This appeal by the Printing Company relates to the year ending 30th June
1960. In its return for that year the appellant claimed
a deduction of 2,030
pounds for expenditure incurred on Peter's travelling expenses and this was
wholly disallowed. In my opinion
the amount in question should have been
allowed. (at p544)
27. Deductions of 200 pounds each were also claimed for premiums paid on the policies for the benefit of Jan and Peter. The amount of 50 pounds was allowed in the case of Peter and 30 pounds in the case of Jan and no reason has been shown for interfering with the Commissioner's determination. (at p544)
28. During this financial year Mrs. McWilliam was paid by the appellant a salary and director's fees totalling 1,880 pounds and this amount was claimed as a deduction. The Commissioner allowed a deduction of 1,400 pounds. Jan was paid a salary of 1,645 pounds and in her case the Commissioner allowed a deduction of 1,000 pounds. Peter was paid a salary of 1,645 pounds and this was wholly disallowed. Mr. Heatley, an Assistant Deputy Commissioner who dealt finally with the appellant's return and assessment, has since died but a departmental document was tendered which I admitted in evidence against the objection of counsel for the appellant. The document contains, amongst other matters, a series of submissions made by an officer of the Department to Mr. Heatley, together with a note of the latter's decisions initialled by him. (at p545)
29. One of the submissions, numbered (3), was in these terms: "For
consideration of the application of s. 109 for year ended 30th
June 1960 in
respect of Paramac Printing Co. Pty. Ltd. and Paramac Promotions Pty. Ltd.".
Mr. Heatley's decision on this submission,
in so far as it concerns the
appellant Printing Company, is shown as follows:
"Allow:-"Bruce" is Mr. McWilliam and "Marion" Mrs. McWilliam. From this it seems clear enough that in the cases of Mrs. McWilliam and Jan the partial disallowance of the deductions claimed was made under s. 109 but that in the case of Peter, the view was taken that none of the salary paid to him during the year in question was an allowable deduction under s. 51 (1.). Counsel for the appellant objected to the admission of the document in evidence on the ground that there was no evidence of any delegation in writing by the Commissioner to Mr. Heatley, under s. 8 of the Taxation Administration Act No. 1 of 1953, of the powers and functions conferred upon the Commissioner by s. 109 of the Income Tax and Social Services Contribution Assessment Act. I was of opinion however that, in the circumstances, a presumption of regularity applied and accordingly I admitted the document into evidence. (at p545)
Bruce As cld
Marion 1400
Jan 1000
Disallow Peter's remuneration in full under s. 51"
30. Under s. 109, so much of the amount paid by a private company to a person who is a shareholder or director of the company, being or purporting to be remuneration for services rendered by that person, as exceeds an amount which, in the opinion of the Commissioner, is reasonable, is not an allowable deduction. In refusing to allow in full the deductions claimed for the payment by the appellant to Mrs. McWilliam of salary amounting to 1,380 pounds and director's fees of 500 pounds and the payment to Jan of 1,645 pounds by way of salary, Mr. Heatley disallowed so much thereof as, in his opinion, was in excess of a reasonable figure and I can see no justification for thinking that the discretion conferred by s. 109 was not properly exercised. With regard, however, to the disallowance of the deduction of 1,645 pounds claimed in respect of Peter's salary during the relevant period, I am of opinion that it should have been allowed. The Commissioner's action, as the document shows, was based not upon s. 109 but upon s. 51 (1.). The amount in question was paid to Peter for his services to the appellant. He was one of its employees and none the less so because during the period for which the amount was paid he was abroad on the appellant's business. Whether he was paid more than his services were worth is beside the point. "It is not for the Court or the Commissioner to say how much a taxpayer ought to spend in obtaining his income, but only how much he has spent": Ronpibon Tin N.L. and Tongkah Compound N.L. v. Federal Commissioner of Taxation [1949] HCA 15; (1949) 78 CLR 47, at p 60 The amount should therefore be allowed as a deduction. (at p546)
31. The remaining matter is a claim to deduct the premiums paid on the policies taken out by the appellant for the benefit of Jan and Peter. As in the earlier years the Commissioner, acting under s. 66 (2.) (c) allowed a deduction of 50 pounds in the case of Peter and 30 pounds in the case of Jan and no good reason is shown for disturbing his determination. (at p546)
32. The appeal should therefore be allowed. The claims to deduct 2,030 pounds
for travelling expenses and 1,645 pounds for salary
paid to Peter should be
allowed and the matter remitted to the Commissioner to vary the assessment
accordingly.
Appeal No. 19 of 1964 (at p546)
33. This appeal by the Printing Company relates to the year ending 30th June
1962. Here again the claim to deduct the premium payments
on the policies in
favour of Jan and Peter was allowed to the extent of 30 pounds in the case of
Jan and 50 pounds in the case of
Peter and the Commissioner's determination
must stand. (at p546)
34. A further question arises from the fact that in the previous year the appellant's return had shown a loss after taking into account the amount of 4,283 pounds paid in that year for the travelling expenses of Mr. and Mrs. McWilliam and Peter in America. This amount had been claimed as a deduction in that year but the Commissioner allowed approximately one half of it, namely 2,141 pounds. In my opinion the full amount claimed in that year should have been allowed as a deduction and had this been done the loss permitted to be brought forward and taken into account in the year ending 30th June 1962 would have been increased. Again, in the previous year, claims to deduct 1,040 pounds paid by way of salary to Jan and 1,058 pounds paid by way of salary to Peter were allowed at 693 pounds and 616 pounds respectively. Counsel for the Commissioner frankly stated that in respect of these two items he did not contend that the Commissioner had exercised the discretion conferred upon him by s. 109 and that the disallowance must therefore have been based upon s. 51 (1.). In these circumstances I am of opinion that the claims for these deductions should have been allowed in full, in which case the loss brought forward into the year ending 30th June 1962 and taken into account in assessing the appellant's taxable income for that year would have been further increased. (at p547)
35. This appeal should be allowed and the matter remitted to the Commissioner
to vary the assessment accordingly.
Appeal No. 20 of 1962 (at p547)
36. This appeal by the Promotions Company relates to the year ending 30th June 1960. In its return the appellant claimed as deductions 940 pounds salary paid by it to Mrs. McWilliam, 825 pounds paid as salary to Jan and 825 pounds paid as salary to Peter. A deduction of 300 pounds was allowed in the case of the payment to Mrs. McWilliam and the same amount was allowed in the case of the payment to Jan. In the case of Peter the claim was entirely disallowed. The document to which I have already referred when dealing with Appeal No. 21 of 1962 by the Printing Company shows that, in disallowing portion of the deductions claimed for salary paid to Mrs. McWilliam and Jan, Mr. Heatley applied s. 109 but that the claim to deduct the salary payments made to Peter was not dealt with under that section. It was disallowed as not being an outgoing covered by s. 51 (1.). For the reasons given earlier, the deduction claimed in respect of Peter's salary should be allowed in full but there is no justification for interfering with the decisions based upon s. 109. (at p547)
37. This appeal should be allowed and the matter remitted to the Commissioner
to vary the assessment accordingly.
Appeal No. 20 of 1964 (at p547)
38. This appeal by the Promotions Company relates to the year ending 30th June 1962. In the previous year the appellant's return showed a loss after taking into account an amount of 1,427 pounds paid in that year as the appellant's proportion of the travelling expenses incurred in connexion with the trip to America made by Mr. and Mrs. McWilliam and Peter. The deduction allowed by the Commissioner was 714 pounds or approximately one half of the amount expended. The deduction claimed should, in my opinion, have been allowed in full. If it had been so allowed the amount of the loss incurred during that year which would have been brought forward and taken into account in assessing the tax payable for the year ending 30th June 1962 would have been increased. (at p548)
39. Accordingly this appeal should be allowed and the matter remitted to the Commissioner to vary the assessment accordingly. (at p548)
ORDER
Appeal No. 1 of 1961remitted to the Commissioner to vary the assessment accordingly.
Appeal No. 22 of 1961
Appeal No. 21 of 1962
Appeal No. 19 of 1964
In each of these appeals, the appeal is allowed with costs and the matter
Appeal No. 20 of 1962remitted to the Commissioner to vary the assessment accordingly.
Appeal No. 20 of 1964
In each of these appeals, the appeal is allowed with costs and the matter
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