Case P80

Judges:
KP Brady Ch
LC Voumard M
JE Stewart M

Court:
No. 2 Board of Review

Judgment date: 16 September 1982.

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

By agreement the references in this case, which concern the years of income ended 30th June, 1978 to 1980 inclusive, were heard together. The questions in issue, which were common to all years, may be summarised briefly as follows:

• (a) Whether the use of premises given or granted to the taxpayer because of his employment or because of services rendered by him was a ``benefit'' for the purposes of sec. 26(e) of the Income Tax Assessment Act 1936.
• (b) If so, whether an amount of $585 included in each of his assessments in respect of those years as the value of the benefit was excessive.
• (c) Whether each of the abovementioned amounts of $585 could be said to be an allowable deduction in respect of each year pursuant to the provisions of sec. 51(1) of the Act.
• (d) Whether any part of the amount of $225 and of the amounts of $250 paid to a maid for cleaning services rendered by her during the years of income ended 30th June, 1978, 1979 and 1980 respectively, is an allowable deduction under the provisions of sec. 51(1) of the Act.

2. The taxpayer was ordained a minister of his Church in 1952. From that time until 1977, under the rules of the Church, he was required as a serving minister to live in a house provided by it. In 1977 that requirement was changed so that thereafter a minister could be granted permission to live in a house other than one provided by the Church. However, where leave to live elsewhere was granted, Church policy required that a serving minister should reside in the parish in which his official duties were to be performed. Unlike the situation where a minister was required to live in a Church residence, a minister, who with permission lived in his own home (in the years in issue), was paid, in addition to the usual stipend paid to all ministers, an amount of $1,040 towards the costs of providing his own accommodation.

3. The taxpayer did not seek nor was he granted permission to live other than in Church premises where he resided with his wife during the years in issue. He was not charged nor did he pay rent for them. He could not sub-let them wholly or in part, nor could he in any way convert his right of occupancy into cash. On the other hand, the taxpayer and his wife and, as occasion demanded, their daughter took advantage of their entitlements to unrestricted access and rights of occupancy of the premises which were used as a family home as well as for official purposes. The use of the premises (estimated to be 60% for private purposes) included the free use of a phone. Electricity expenses for power and lighting were paid by the taxpayer. Rates and taxes were paid by the Church as were expenses incurred in connection with renovations (if any) and with major repairs and maintenance; minor maintenance costs were paid by the taxpayer. Living in Church premises located in the parish in an inner suburb of a capital city conferred upon the taxpayer general advantages of convenience and savings in costs usually incurred in time-consuming travel to and from work and in the pursuit of normal parish duties. However, there were disadvantages associated with living in Church premises (especially when located near to a Church building where services were conducted) that arose out of social some coercion for him to be at the disposal of parishioners at all hours of the day and night. A further disadvantage lay in the fact that the premises would not be available for use by the taxpayer or his family in the event that his services as a minister were terminated for any reason.

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4. The house provided for the taxpayer's use was said to be a normal residential bungalow style dwelling that was generally indistinguishable from other houses in its locality. It was furnished as a home, although one of four rooms built as bedrooms was used as a study, another one as a dining room and yet another one as a separate lounge room. Its internal facilities were said to be of a modern nature, including cupboards, separate shower and bathroom, and carpet and lino floor coverings where appropriate. In the opinion of a departmental valuer who gave evidence for the Commissioner, the values of the property were $31,000 as at 1st July, 1977, $31,000 as at 1st July, 1978, and $33,000 as at 1st July, 1979. In the valuer's opinion, the commercial rental of the premises would have been $50 per week for the two years ended 30th June, 1979, and $55 per week for the year ended 30th June, 1980. Those figures were said to have been based upon comparisons made of sale prices of properties in the same area during the relevant period and of rentals (said to have been stable) obtained for similar properties in that period.

5. For the purposes of examining the taxpayer's contention that he was not the recipient of a ``benefit'', it is necessary to extend the factual discourse in several respects. First, it needs to be mentioned that the taxpayer purchased a property in 1974 (some 30 kilometres distant from his residential home) in his wife's name, which, after renovation, was used as a family beach home until it was let on a rental basis early in 1980. Funds used to purchase the property were by way of a mortgage, and a deposit from an inheritance received by his wife. The taxpayer paid all the costs of maintenance of the property, generally out of additional income derived by him from non-Church activities. In the period from July 1977 to the time of its sale, the taxpayer was a frequent visitor to the property and slept there on Friday, Saturday and Sunday nights, and usually on one other night during the week. The purchase of the property was said to have been prompted by a desire to provide financial security for the taxpayer and his wife for their retirement years and, more particularly, to provide a safeguard against any financial crisis that could arise because of illness afflicting them or his premature death.

6. In 1976 a vacant block of land opposite the beach property was purchased, also in the wife's name. It appears that a long term intention was to sell the beach house for the purpose of financing the construction in due course of a retirement home on the vacant land. However, that land was sold in 1980 for $10,000 and another property was purchased at or about the same time in an inner suburb (understood to be in the same suburb in which his residential home was located), again in his wife's name. That property has been let for rental purposes since its purchase.

7. The second matter that requires some elaboration for present purposes concerns the basis used to calculate the amount of the taxpayer's stipend and the abovementioned amount of $585 that was returned by him as part of his assessable income and assessed by the Commissioner as a ``benefit'' under the provisions of sec. 26(e) of the Act. It appears that a stipends committee, appointed by Church authorities, was responsible for the determination from time to time of stipends that would be paid by the Church to its ministers. It appears also that, in setting those amounts, the committee had regard to the average Australian wage that was thought to be payable at the relevant time. It seems that an amount approximating that average figure would be regarded by the committee as a notional gross wage from which it would deduct various amounts, representing its valuation of allowances provided, for the purpose of arriving at the amount of a minimum stipend that should be payable to all serving ministers. It is our understanding that calculations broadly on those lines were made in relation to stipends payable in the years in issue and that, in the instant case, amounts in respect of the accommodation provided (details of which were not disclosed to us), were deducted from notional gross figures in arriving at the actual stipends paid. In our understanding there was no relevant connection (for present purposes) between those calculations and those made in arriving at the amounts of $585 in issue. However, it appears that the amounts of $585 represented values in respect of the taxpayer's accommodation that had been arrived at for taxation purposes in negotiations that had taken place between taxation officials and Church authorities. The taxpayer was not involved in

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ATC 393

those negotiations and included the amounts as part of his assessable income because he was advised to do so.

8. The taxpayer's submissions in support of his contention that he was not the recipient of a ``benefit'' appear to be based, first, upon the proposition that, although he occupied and used the Church premises as his home, a benefit could not accrue to him in respect of them as a matter of principle because they were only one of a number of business places owned by the Church where he was required to be present for the purpose of performing his official duties. It seems to be implicit in that proposition that any benefits arising in his case because of the services rendered by him at the premises could only accrue to the Church because of its ownership of them and because it was his employer. The proposition appears to deny the possibility that benefits may arise in a variety of forms in any given set of circumstances and that sec. 26(e) enables the Commissioner to identify them for the purposes of determining which of them accrue to a taxpayer and, if so, the quantum of their ``value to the taxpayer''. Secondly, it appeared to be the taxpayer's contention that, by attributing a value to the accommodation provided to him and by deducting an amount in respect of it from an otherwise higher stipend payable to him, the church was in effect charging him to that extent a rental (albeit at a commercially low rate) for the premises provided. Thirdly, it appeared to be the taxpayer's view that, because the provision of the accommodation was not something that he sought, he was disadvantaged in complying with the Church's residency requirements in relation to it, relative to other citizens who were free from employer constraints in the matter of purchasing their homes; he was also disadvantaged relative to those of his colleagues who lived in their own homes and who received cash allowances (subject to income tax) for expenses incurred in respect of them. In his testimony in that connection, he pointed to his own financial experiences and to those of colleagues said to be in a similar position. In brief, it was said to be a widely held view that, notwithstanding modest superannuation and retiring allowances that may be payable in due course, the level of stipends received by ministers living in Church premises makes it impossible for them (especially in times of inflation and without other sources of income - as in the taxpayer's case) to adequately provide for financial security on retirement on account of age or illness. It was said that, in the circumstances, there could not be a benefit arising because its source could only be found in accommodation arrangements that gave rise to financial disadvantages and even hardship. In that connection the taxpayer emphasised that he was fortunate in being able to derive income (in addition to his stipends) from sources other than the Church, that enabled him to assist, as indicated, in the purchase and maintenance of the abovementioned properties. However, there were disadvantages, it was said, in not living wholly in the beach house that were associated with a need to maintain two homes and with the distance involved and time taken to travel between the two places.

9. In the Shorter Oxford English Dictionary the meaning attributed to the word ``benefit'' in common parlance is ``advantage, profit, good''. It would seem therefore that the taxpayer, having been granted and having occupied rent-free accommodation, received a prima facie advantage or profit and therefore a ``benefit'' within the ordinary meaning of that term for the purposes of sec. 26(e). While it is no doubt true that any value attaching to that ``benefit'' would need to be reduced in amount to properly take into account disadvantages of the kind enumerated above (including the fact that the house was also used for income-producing purposes), that necessity does not, in our opinion, invalidate the proposition that there was a benefit arising as a matter of principle. We do not think that that proposition is affected because certain benefits might have accrued also to the Church because of its status as owner and employer. In our opinion the opening words of sec. 26(e), which read ``the value to the taxpayer'', recognise that benefits may arise in a wide range of circumstances (some relating to the taxpayer's employment or services rendered by him and some not) that must be examined by the Commissioner (and the Board in his stead) for the purposes of determining the manner in which and the extent to which advantages might have been ``allowed, given or granted'' to the taxpayer.

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10. Support for that view may also be found, we think, in the various matters and conditions prescribed by sec. 26AAAA and 26AAAB of the Act that the Commissioner was required to take into account for the years in issue in determining the sec. 26(e) value to the taxpayer of the accommodation provided to him. In the light of those provisions, we do not think that the taxpayer's submissions concerning financial disadvantages and hardship, associated with living in employer-owned premises, have substance in relation to the matter of principle raised, although they were accorded due weight, we suggest, in determining the amount of the value received. While we freely acknowledge that the taxpayer's efforts in assisting in the purchase and maintenance of the various properties above-mentioned were noteworthy because they were made out of limited income, it is common knowledge that many citizens are forced (as appears to be the case with the taxpayer) to rely upon the working of overtime and second jobs to acquire the money required to purchase and maintain their homes. We do not see financial stress of that kind as unique to the taxpayer or as a disadvantage that needs to be given any weight for the purposes of sec. 26(e).

11. Finally, support for the proposition that the taxpayer received a benefit for the purposes of sec. 26(e) may be found in the words of Bowen C.J. in Eq., at p. 4205 in the N.S.W. Supreme Court case of
Donaldson v. F.C. of T. 74 ATC 4192, where, in considering what items would fall squarely within the terms of that section, his Honour stated (at p. 4205) that:

``There is little difficulty with meals. They operate in relief of the taxpayer's purse as well as his stomach. So too, I think, the use of premises or quarters, which also operate in relief of his purse and save him from having to pay rent, would be regarded as being of an income nature, at least in these days, if not eighty years ago. (cf.
Tennant v. Smith (1892) A.C. 150; 3 Tax Cas. 158.)''

Those views of Bowen C.J. in Eq. appear to have been accepted by Jenkinson J. in his judgment in the Victorian Supreme Court case of
F.C. of T. v. Cooke and Sherden 78 ATC 4685 (see in particular p. 4696), although he dismissed the Commissioner's appeals in that case for other reasons. In dismissing the Commissioner's appeals against the decision of Jenkinson J., the Full Federal Court, in the joint judgment of Brennan, Deane and Toohey JJ. (reported at 80 ATC 4140), appeared to agree with the conclusions reached by Jenkinson J. and, inferentially, with the views of Bowen C.J. in Eq. Further, the Full Federal Court at p. 4150 (80 ATC) placed reliance upon Windeyer J.'s explanation in the High Court case of
Scott v. F.C. of T. (1966) 117 C.L.R. 514 of sec. 26(e) (at pp. 525-6), which reads as follows:

``As I read sec. 26(e) its meaning and purpose is to ensure that certain receipts and advantages which are in truth rewards of a taxpayer's employment or calling are recognized as part of his income. In other words the enactment makes it clear that the income of a taxpayer who is engaged in any employment or in the rendering of any services for remuneration includes the value to him of everything that he in fact gets, whether in money or in kind and however it be described, which is a product or incident of his employment or a reward for his services. If, instead of being paid fully in money, he is remunerated, in whole or in part, by allowances or advantages having a money value for him they must be taken into account. The enactment does not bring within the tax-gatherer's net moneys or money's worth that are not income according to general concepts. Rather it prevents receipts of moneys of moneys' worth that are in reality part of a taxpayer's income from escaping the net.''

In our view, it is plain that the use of the premises by the taxpayer (notwithstanding any misgivings that he might have had about those arrangements) was in substitution for higher stipends which would otherwise have been payable to him and which, if received, would have been fully assessable as income in his hands. The use of the premises therefore provided him with an alternative to the receipt of actual money and, at the same time, with ``relief of his purse'' and ``advantages having a money value'' that, on the authorities, must be taken into account for the purposes of sec. 26(e) of the Act.

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12. The taxpayer did not make a submission to us concerning the value of the benefit that should be taken into account other than, by inference, that it should be ``nil''. However, based upon the valuer's evidence abovementioned, the Commissioner's contention was that a realistic commercial value of the premises occupied by the taxpayer would be $50 to $55 per week, which is $2,600 to $2,860 per annum. While the Commissioner's representative did not seek to increase the amounts of $585 as assessed, he quite properly, in our opinion, submitted that the taxpayer, by not adducing appropriate evidence that would support reductions to those amounts, failed to discharge the onus of proof placed upon him by the provisions of sec. 190(b) of the Act.

13. In any event, we are satisfied that the amounts of $585 are most reasonable and should not be reduced. We are also satisfied that, in arriving at those values, proper consideration was given to any onerous condition and all other relevant matters (including accommodation terms and conditions) that are required to be taken into account pursuant to the provisions of sec. 26AAAA of the Act. Further, we are satisfied that the provisions of sec. 26AAAB of the Act could not be applied in relation to those values because the two sets of preconditions specified in para. (a) and (b) of subsec. (1) of that section for its application, were not completely satisfied. That was so because, first, the property in question was located in or adjacent to an eligible urban area as defined in sec. 26AAAB(10) (in this instance a capital city), and therefore the requirement set out in sec. 26AAAB(1)(a)(i) was not met. Secondly, that was so because during the relevant period the Church provided residential accommodation for fewer than five other of its employees who were employed at or in association with the place at which the taxpayer was employed, hence sec. 26AAAB(1)(b)(iv) was not satisfied.

14. We do not think that the taxpayer's claims for deductions of the amounts of $585 under the provisions of sec. 51(1) of the Act have any substance. Clearly those amounts were not losses or outgoings of the kind contemplated by that section or, if they were, they were not incurred in the course of gaining or producing assessable income in the sense explained by the High Court in cases such as
Amalgamated Zinc (de Bavay's) Ltd. v. F.C. of T. (1935) 54 C.L.R. 295;
Ronpibon Tin N.L. & Tongkah compound N.L. v. F.C. of T. (1949) 78 C.L.R. 47.

15. The taxpayer's claims for deductions in respect of wages paid to a maid for cleaning the premises occupied by him and his family appear to be based upon the proposition that, as Church business was also conducted from those premises, the expenses were allowable deductions. There was no evidence before us concerning the extent to which the maid's cleaning activities were associated with the business use of those premises. However, the available evidence would indicate generally that, to a large extent, the maid was occupied in cleaning duties as a consequence of normal private activities of the taxpayer and his family which were other than those of an incomeproducing nature. Therefore, having regard also to the High Court cases abovementioned, it is apparent that, to that, to that extent, the expenses were not incurred in gaining or producing assessable income; in the alternative, they were outgoings of a private or domestic nature that are prohibited form deductibility by the exclusory clause of sec. 51(1). In any event, we are of the opinion that the taxpayer failed in relation to those claims to discharge the onus imposed upon him by sec. 190(b) of the Act of proving that his assessments were excessive.

16. For the above reasons, we would uphold the Commissioner's decisions on the objections and confirm the assessments in issue.

Claims disallowed