Case N14

Judges:
KP Brady Ch
LC Voumard M
JE Stewart M

Court:
No. 2 Board of Review

Judgment date: 16 March 1981.

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

The taxpayer is a minister of religion, and as such lives with his wife and family in a house owned by his church. He is not obliged to, and in fact does not, pay any rent for his occupancy. In his return of income for the year ended 30 June 1979, the taxpayer included as assessable income, in accordance with sec. 26(e) of the Income Tax Assessment Act, an amount of $588 as the value of the residence provided rent-free by his employer. This was not a figure determined by him, but was one that was advised to him by church authorities, perhaps after discussions with the Commissioner, as the correct amount to be included. There was no dispute about the inclusion of an amount as representing the value to the taxpayer of the rent-free housing.

2. But in his return the taxpayer claimed to deduct $84 (being one-seventh of the amount so included) on the ground that one room in the house was used exclusively as a study where the taxpayer interviewed parishioners and otherwise conducted his ministry, and that room represented approximately one-seventh of the floor area of the house. In issuing the assessment the Commissioner disallowed this claim, and the question whether the claim is properly allowable is now before us. There was another claim that was originally disallowed but subsequently allowed by the Commissioner, but the amended assessment that issued as a result maintained the disallowance of the claim to deduct $84.

3. It was not altogether clear from the taxpayer's objection on what basis the $84 was claimed to be deductible, but as it was claimed that the study was ``related to a facility used wholly and exclusively for gaining assessable income,'' the claim may have been made under sec. 51(1). That subsection provides:

``All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such income, shall be allowable deductions except to the extent to which they are losses or outgoings of capital, or of a capital, private or domestic nature, or are incurred in relation to the gaining or production of exempt income.''

It will be observed that it permits the deduction of ``losses and outgoings'', and we cannot discern any basis on which the sum of $84 can be so described. It was not representative of any outgoing incurred by the taxpayer, and for this reason cannot fall within sec. 51(1).

4. It may be, and is more likely, that the objection was intended to dispute the value of $588 treated as the value to the taxpayer of the rent-free occupation of the house on the ground that only six-sevenths of the area of the house was used as a house, and the remaining one-seventh was used as the taxpayer's work area. This involves not only sec. 26(e) of the Income Tax Assessment Act, but also sec. 26AAAA, which was introduced into the Act with effect from 1 July 1977. As far as relevant, sec. 26AAAA provides:

``In determining, for the purposes of the application of paragraph (e) of section 26, the value to a taxpayer of a benefit granted to the taxpayer in respect of or in relation to his employment, being a benefit by way of the grant of a lease or licence in respect of residential accommodation that is occupied by the taxpayer or by the taxpayer and his family, the Commissioner shall have regard to all relevant matters and, in particular, where -

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ATC 74

• (a) the residential accommodation is situated in a place that is remote from a major centre of population;
• (b) it is customary for employers in the industry in which the taxpayer is employed to provide residential accommodation for their employees without charge or for a rent or other consideration that is less than the market value of the right to occupy the accommodation concerned;
• (c) the taxpayer has no reasonable alternative other than to occupy the residential accommodation by reason of the unavailability on reasonable terms and conditions of suitable alternative residential accommodation (other than accommodation provided by or on behalf of his employer) within a reasonable distance from his place of employment;
• (d) the residential accommodation is of a higher standard than could reasonably be expected to be provided for the taxpayer or is of a larger size than is necessary to accommodate the taxpayer or the taxpayer and his family; or
• (e) any onerous conditions are attached to the lease or licence,

the Commissioner shall take that matter into account and make such reduction in the amount that would otherwise be the value to the taxpayer of that benefit as is appropriate in the circumstances.''

5. The Commissioner called, as an expert witness, a valuer who on instructions had made two assessments of the rental value of the house, the first one relating to the house as it stood, and the other on the assumption that it had three, rather than four bedrooms. The first assessment was that a fair rental was $80 per week; the second put the figure at $60. Neither figure was challenged. Obviously to arrive at the figure of $588 per annum ($11.30 per week), the Commissioner must have applied a substantial discount to the fair market value, probably in recognition of such factors as that the taxpayer had no choice as to the type of house he would live in or as to its location, that the house would be used for church business both regularly and irregularly, and so forth. The Commissioner's representative informed us, in relation to sec. 26AAAA, that in determining the value to the taxpayer the Commissioner had given due weight to the likely extent to which the house would be used for church business.

6. Standing in the place of the Commissioner, we do not think that there is anything in the evidence before us which, looked at with sec. 26AAAA in mind, would warrant us in reducing the value to the taxpayer of the benefit stemming from the right to occupy the house below the figure of $588. And, of course, as explained above, there are no allowable deductions under sec. 51(1) to be set off against that figure. The consequence is that the decision of the Commissioner on the objection should be upheld, and the amended assessment before us confirmed.

7. The taxpayer told us that in returns of prior years, claims similar to that in issue here had been allowed, and we can quite understand that a different approach to the 1979 return could be a source of confusion to him. All we can say, however, is that no estoppel runs against the Commissioner in this regard, that the only return before us was that for the year ended 30 June 1979, and that while sympathising with the taxpayer we cannot consider those of prior years in reaching our decision.

Claim disallowed