Case N49

Judges:
KP Brady Ch
LC Voumard M
JE Stewart M

Court:
No. 2 Board of Review

Judgment date: 30 June 1981.

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K.P. Brady (Chairman); L.C. Voumard and J.E. Stewart (Members)

In her return of income for the year of income ended 30 June 1979, the taxpayer, a trained nurse, claimed the maximum amount of concessional rebate, viz. $597, under sec. 159J, Div. 17, of the Assessment Act for her husband on the basis that he was a ``dependant'' as stated in subsec. (1) of that section, and that his separate net income for that year was nil.

2. In preparing her assessment, the Commissioner considered that her husband did in fact derive income in that year and that such income amounted to $2,316. Accordingly, he reduced the rebate by $528 to $69 by application of sec. 159J(4) which, as amended in its application by sec. 159Z, stipulates that the rebate otherwise allowable shall be reduced by $1 for every $4 by which the separate net income derived by the dependant in the year of income exceeds $203.

3. The taxpayer objected to the Commissioner's action, contending that her husband had sec. 80(1) losses available to him amounting to $7,320 as at the beginning of the year of income in issue, and that the offset of a proportionate amount of those losses reduced his separate net income to nil. Upon the Commissioner disallowing her objection, the matter has come before this Board for review.

4. The issue covers a very narrow compass and is simply whether the sec. 80 losses can be allowed as a deduction in arriving at the separate net income of the dependent husband, it being agreed by the Commissioner that the losses did in fact amount to $7,320, and that her husband did reside with her for the full year and that he was a dependant for that full year.

5. The words ``separate net income'' are not defined in the Act, although sec. 159J(6) narrows the term by excluding certain receipts such as child endowment and a handicapped child's allowance. These exclusions are not relevant however in the instant case.

6. In the absence of the Act giving a special meaning to the words, we consider that they should be given their natural or ordinary meaning. In the case of
Unwin v. Hanson (1891) 2 Q.B. 115, which dealt with a statutory stipulation that trees growing near a highway should be pruned or lopped, the Court stated at p. 119:

``Now when we have to consider the construction of words such as this occurring in Acts of Parliament we must treat the question thus: If the Act is directed to dealing with matters affecting everybody generally, the words used have the meaning attached to them in the common and ordinary use of language.''

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7. Accordingly, we consider that the ordinary meaning of the term, separate net income, is the dependant's gross income after deduction of the expenses which may be regarded, in accordance with ordinary accounting and commercial principles, as direct charges against that income. In short, separate net income means gross income less the expenses incurred in deriving it - and no other expenses. The ordinary meaning which can be attributed to the words therefore precludes the additional deduction from that gross income of expenditures incurred in previous years in deriving other income. Also, it is not to the point that the Act in a general provision lying outside Div. 17 permits (subject to some important limitations) as a deduction from subsequently earned assessable income, the loss that emerges when such of these expenditures as constitute allowable deductions exceed a taxpayer's assessable income and net exempt income.

8. The provisions which are contained in the Assessment Act relating to concessional rebates are relatively recent, having been inserted by Act No. 117 of 1975 with effect from the year of income that commenced on 1 July 1975, and were introduced in substitution for a system of concessional deductions that had operated for over 25 years. Accordingly, there is very little case law on the subject to assist us in the instant case. However, bearing in mind that the current legislation in regard to rebates, and the erstwhile provisions of repealed sec. 82B, are almost identical, assistance in the issue before us can be obtained from an examination of the cases which came before Boards when sec. 82B and 82C (which granted a concessional deduction to a parent of the taxpayer or of his spouse) were in force.

9. In
(1959) 10 T.B.R.D. 424 Case K78, the No. 1 Board, as then constituted, had cause to examine the meaning of the term ``separate net income'' as contained in sec. 82C(3). There, the Board refused to accept the taxpayer's argument that the inclusion of the word ``net'' in the phrase ``separate net income'' <sup>*</sup> indicated deductibility of something over and above the direct expenses of earning that income, leading to the view that ``net income'' in the context of sec. 82C(3) should be the gross assessable income less such deductions as were allowable under the Act other than possibly the concessional deductions. On the basis of that argument, the taxpayer contended that the Commissioner was in error in not deducting from the amount of gross income in arriving at his mother-in-law's ``separate net income'' an amount paid by her for rates on the residence (which was admittedly not income-producing) in which she and the taxpayer and his wife lived. In making its finding, the Board pointed out that where the legislature intended the words ``net income'' to have a special meaning as in sec. 90 and 95 of the Assessment Act, it was at pains to expressly so provide. Accordingly, by attaching no special definition to the words ``separate net income'' as they appeared in sec. 82C(3), the legislature had, in the Board's view, clearly indicated that the net income of the dependant for whom the deduction was provided in the section, was to be ascertained in accordance with ordinary usages and concepts, and without reference to the provisions of the Assessment Act relating to assessable income or allowable deductions. On this view, ``net income'' was used in contradistinction to ``gross income'' and was of the same character as the words net profit, as ordinarily understood.

10. This view was subsequently endorsed by the No. 2 Board, as then constituted, in a reference decided by it some three years later and cited as
(1962) 12 T.B.R.D. 154 Case M28. There, the taxpayer sought to deduct a zone allowance (then allowed as a concessional deduction under the terms of sec. 79A) from the gross income of his wife in order that her separate net income might be reduced to a nil figure, and so enable him to obtain the maximum concessional deduction under the provisions of sec. 82B(3). There the Board, in considering the phrase, separate net income, said at p. 155:

``The phrase has no technical meaning and should, in our opinion, be interpreted in accordance with the ordinary concepts and usages of mankind. In Maxwell on Interpretation of Statutes (9th ed.) p. 57, it states that `In dealing with matters relating to the general public, statutes are presumed to use words in their popular sense.' In this sense the words `net income' mean the amount of income remaining after deducting from the gross

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income the expenditure incurred in gaining it.''

11. The Board went on to say that a zone allowance was an income tax concession granted by way of an allowable deduction, and was not an expense incurred in gaining income. Accordingly, it had to be disregarded in ascertaining the ``separate net income'' of a dependant when claiming a concessional deduction for that dependant.

12. Also, we consider that running counter to the taxpayer's argument in the case now before us is the fact that the ``separate net income'' of the dependant cannot be the income derived by him in any year, but can only be that income derived by him in the year of income in issue, viz. that ended 30 June 1979. That view is based on the explicit words of sec. 159J(4), which states as follows:

``The amount of the rebate otherwise allowable under this section in respect of a dependant shall be reduced by $1 for every $4 by which the separate net income derived by the dependant in the year of income exceeds $170.''

(For the year of income in issue, the amount of $170 was increased to $203 by the application of sec. 159Z.) Section 159J(4) is consistent with sec. 17 of the Act dealing with the levy of income tax which provides in effect that income tax shall be levied and paid for each financial year on the taxable income derived by any person during the year of income.

13. We consider that the words ``year of income'', as contained in sec. 159J(4), in the absence of any contrary intention, have the meaning given to them in the general definition section of the Act, sec. 6. To the extent that it is here relevant, that definition states:

```year of income' means -

...

(b) in relation to any other person - the financial year for which income tax is levied, or the accounting period, if any, adopted under this Act in lieu of that financial year;''

14. Accordingly, we consider that we can only be concerned with the net income of the year of income in issue, i.e. the year ended 30 June 1979, and thus losses of past years must be considered as irrelevant in the computation of what constitutes a taxpayer's separate net income.

15. The taxpayer's representative also sought to maintain that the trading operation of the taxpayer's spouse which induced the sec. 80 losses, whilst non-operative in the year of income in issue, possessed the potential to derive income in the future and so recoup, at least, portion of the losses. From that proposition he contended that net income must mean gross income after recoupment of all losses so that the spouse of the taxpayer would only have a separate net income after all such losses had been offset against his income. Therefore (he contended) the taxpayer should be able to claim the concessional rebate at the maximum level until such time as full recoupment had been obtained. However, for the reasons stated, we consider that that line of argument is in direct conflict with the express words of sec. 159J(4), and is therefore not soundly based.

16. In our view, the taxpayer's claim must fail. We would therefore uphold the Commissioner's decision on the objection and confirm the assessment before us.

Claim disallowed