Moffatt v Webb
16 CLR 120(Judgment by: Barton J.)
Moffatt v Webb
Court:
Judges:
Griffith CJ
Barton JIsaacs J
Gavan Duffy J
Subject References:
Taxation and revenue
Income tax
Assessment
Deduction
Outgoings
Whether incurred in production of income as a grazier
Whether Commonwealth land tax deductible
Legislative References: - Income Tax Act 1895 (Vic) No 1374
Hearing date: 28 February 1913; 3 March 1913; 11 March 1913; 12 March 1913; 13 March 1913Judgment date: 13 March 1913
MELBOURNE
Judgment by:
Barton J.
The question is whether the taxpayer, an owner in fee of lands on which he carries on the business of a grazier, is entitled to deduct from his gross income for 1911 from personal exertion, in order to arrive at his income taxable under the Victorian Income Tax Act s, a sum of PD387 paid to the Commonwealth under the Federal Acts of 1910 as land tax in respect of the lands upon which he carries on his grazing business. The Supreme Court of this State has held, Beckett J. dubitante , that the taxpayer is not entitled to the deduction, and he appeals to this Court.
The Principal Act, No. 1374, passed in 1895, six years before the establishment of the federal legislature, provides in s. 9 that
"(1) All losses and outgoings actually incurred in Victoria by any taxpayer in production of income and all taxes payable by him under any Act of the Parliament of Victoria except this Act shall be deducted from the gross amount of such taxpayer's income."
Sub-s. (2) of the same section forbids ( inter alia ) the deduction, in estimating the income liable to tax, of (b) any sum "used or intended to be used as capital" in the taxpayer's "trade," or of (g) any disbursements or expenses whatever, "not being money wholly and exclusively laid out or expended for the purposes of such trade."
The Act No. 1467 amends s. 9 of the Act No. 1374, but not so as to affect the present question.
As Hodges J. said in his judgment, the amounts fixed by the Federal Land Tax Acts are to be paid by the owner, whether he earns income from the land or not.
The appellant's contention is put in three ways.
First, he says that there is nothing in the Victorian Income Tax Acts to prevent the application of the case of Lawless v Sullivan [F9] . There it was held by the Judicial Committee that the word "income" in a provincial rating Act, which did not define it, must, when applied to the taxable income of a trade or business, be understood in its natural and ordinary sense, as the balance of gain over loss in any year. The appellant contends that if the word income is so understood in this case, there being no definition of it nor any context to alter its meaning, one of the allowances to be made in his favour in arriving at the balance of his gain over his loss is this sum which he has paid as federal land tax proper to the year.
Secondly, he says that the sum in question is an "outgoing," within the meaning of s. 9 (1), "actually incurred in Victoria ... in production of income," and is therefore to be deducted from the gross amount of his income.
Thirdly, he contends that as s. 9 (2) (g) allows by clear inference the deduction of "any disbursements or expenses ... being money wholly and exclusively laid out or expended for the purposes of" his "trade," this is such a disbursement or expense, and he is entitled to deduct it.
The Commissioner contests all these propositions of the appellant, and further contends that the payment is within s. 9 (2) (b) as a sum "used or intended to be used as capital in such trade," and that its deduction is therefore expressly prohibited.
I am of opinion that the answer to the question before us depends entirely on the construction of s. 9 of the Act of 1895, so that while the case of Lawless v Sullivan [F10] is useful as a guide to the meaning of the term "income," as used in s. 9, it does not give ground for any construction of it which is independent of that section. I have some doubt whether the sum sought to be deducted can fairly be called an "outgoing actually incurred in production of income," within the meaning of the first sub-section, although there is much to be said in favour of that view, as Beckett J. evidently thought, and I do not dissent from it. But the strength of the appellant's case seems to me to rest on paragraph (g) of the second sub-section. As I understand the Case Stated, the sole use to which the appellant puts the land is for the purposes of his business as a grazier. He needs a large area of land for that purpose, and this area of about 18,000 acres is applied to his business needs. It seems too much altogether to say that he would have to pay the federal tax on this land if he did not carry on the grazing business. Somebody would be taxed, no doubt, but would it be the appellant? It cannot be predicated that he would own the land at all if he carried on any other business. It is scarcely an inference from the case to say that he holds the land simply as an instrument essential to the proper conduct of his business: I think it is the fair meaning of the first paragraph, at which we can arrive without inserting anything not imported by the words. If I am right there, then is the land tax payment a disbursement or expense wholly and exclusively laid out or expended for the purposes of the business? It may not be so if the criterion is whether the business could be carried on without payment of the tax. But I do not think that is the criterion. Is the payment wholly and exclusively incidental to the carrying on of the business? Well, it is only by reason of the necessity of land for his business that he holds this land, and it is only because of his holding it for his business that he necessarily pays the tax, for without the business it cannot be said that he would hold the land at all. In view, then, of the particular facts, I think the payment is incidental to the conduct of his business, and that it is money wholly and exclusively expended for the purposes of his trade.
The reasoning of Lord Halsbury and Lord Atkinson in the case of Smith v Lion Brewery Co Ltd [F11] , and of the majority in the Court of Appeal [F12] , seems to me to help the appellant's contention. Strong & Co Ltd v Woodifield [F13] was an entirely different case, and affords no basis of comparison with the present one. But the remarks of Lord Herschell in Russell v Town and County Bank [F14] , at p. 425 are, I think, a strong support to the appellant's argument.
On the other hand, the cases cited for the Commissioner to show that the land tax payment is "money used or intended to be used as capital" do not apply to the present question. The payment is an annual one, which, as I believe, is truly incidental to the conduct of his business. It is incurred by reason of the ownership of the land to enable that business to be carried on. It is a payment which must be taken into account each year before the taxpayer can ascertain what is the balance of profit in his favour.
In my opinion the appeal should be allowed, and the question answered in the affirmative.