Tourapark Pty. Limited v. Federal Commissioner of Taxation.

Members: Gibbs CJ
Mason J
Murphy J

Aickin J
Wilson J

Tribunal:
Full High Court

Decision date: Judgment handed down 23 April 1982.

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Aickin J.

This is an appeal from the Full Court of the Federal Court upon a challenge by the appellant taxpayer to an assessment of income tax under the Income Tax Assessment Act 1936 (Cth.) (as amended) (``the Act'') in respect of the year of income ended 30th June 1977.

In that year the appellant carried on the business of a tourist caravan and camping park on land in Canberra. On that land it provided caravans and motel units which were available to members of the public wishing to occupy them and for which they paid a charge. The caravans were mounted on concrete blocks but retained their wheels and were capable of being moved from one site to another. They were connected to an electricity supply and a water supply. The customers paid a stated amount per day and were provided with a key to a particular caravan. The customers were given by the appellant a document in the form of a receipt which stated ``This licence subject to conditions noted on back hereof''. It is not material to the present case to determine whether the conditions which were in fact set out on the back of the document formed part of the contract between the appellant and the customer and we are therefore not concerned with the problems of the ticket cases. However, it is clear that each customer was in fact granted a licence to occupy a caravan and to make use of the communal facilities which were provided on the site, e.g. lavatories, laundries, etc. The issue with which the appeal is concerned is whether the appellant was entitled under Subdiv. B of Div. 3 of Pt. III of the Act to an ``investment allowance'' in respect of certain caravans acquired in the year of income.

The relevant provisions of the Act are sec. 82AA, 82AB and 82AG(1), which provisions were as follows:

``82AA. Subject to the following provisions of this Subdivision, this Subdivision applies in relation to a unit of eligible property acquired or constructed by the taxpayer that is -

• (a) in the case of any taxpayer, for use by the taxpayer wholly and exclusively -
  • (i) in Australia; and
  • (ii) for the purpose of producing assessable income otherwise than by -
    • (A) the leasing of the eligible property;
    • (B) the letting of the eligible property on hire under a hirepurchase agreement; or
    • (C) the granting to other persons of rights to use the eligible property; or
• (b) in the case of a taxpayer being a leasing company, for use wholly and exclusively -
  • (i) in Australia; and
  • (ii) for the purpose of producing assessable income,

by another person to whom the taxpayer has, on or after 1 January 1976, leased the eligible property under a long-term lease agreement that was entered into by the taxpayer in the course of carrying on business in Australia and was so entered into by the taxpayer and the other person at arm's length.

82AB. (1) Subject to this Subdivision, where -

• (a) on or after 1 January 1976, a taxpayer has incurred expenditure of a capital nature (in this section referred to as `eligible expenditure') in respect of the acquisition or construction by him of a new unit of eligible property in relation to which this Subdivision applies;
• (b) the eligible expenditure exceeded $500;

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• (c) the eligible expenditure was incurred -
  • (i) in respect of a unit of property acquired by the taxpayer under a contract entered into on or after 1 January 1976 and before 1 July 1985; or
  • (ii) in respect of a unit of property that was constructed by the taxpayer and the construction of which commenced on or after 1 January 1976 and before 1 July 1985; and
• (d) the unit of property was first used or installed ready for use before 1 July 1986,

there shall be allowed as a deduction from the taxpayer's assessable income of the first year of income during which that unit was either used for the purpose of producing assessable income, or installed ready for use for that purpose, an amount (in this section referred to as the `relevant amount') ascertained in accordance with the following provisions of this section.

...

82AG. (1) This Subdivision does not apply, and shall be deemed never to have applied, in relation to property acquired or constructed by a taxpayer, not being property that, in the case of a taxpayer being a leasing company, the taxpayer has leased to another person, if, before the expiration of 12 months after the property was first used, or installed ready for use, by the taxpayer -

• (a) the taxpayer disposed of the property or the property was lost or destroyed;
• (b) the taxpayer leased the property, let the property on hire under a hire-purchase agreement or otherwise granted a right to another person to use the property; or
• (c) the taxpayer used the property outside Australia or for a purpose other than the purpose of producing assessable income.
• ...''

It is necessary also to refer to the definition of ``eligible property'' in sec. 82AQ(1) which is defined to mean ``plant or articles within the meaning of section 54'' and it is not disputed that the caravans were ``plant or articles'' within that section.

It was common ground that the caravans were acquired by the appellant for use by it wholly and exclusively in Australia and for the purpose of producing assessable income. It was also common ground that the appellant was not a ``leasing company'' within the meaning of that term as defined in sec. 82AQ(1) and that the caravans were not leased to the customers nor let on hire to them under hire-purchase agreements.

The only question is whether they were acquired by the appellant for the purpose of deriving or producing assessable income by ``the granting to other persons of rights to use'' them. On the facts of the present case the same question arises under both sec. 82AA and sec. 82AG because it is clear that from the outset the caravans were acquired for the purpose of producing assessable income in the form of the payments to be made to the appellant by the persons who occupied the caravans from time to time pursuant to the arrangements described. In the result both sec. 82AA and sec. 82AG deny the deduction in such circumstances.

It was not disputed by the appellant that the customer was given ``a right to use'' the caravan in one sense of that term. It was however argued that the appellant continued to use the caravan for the purpose of producing assessable income. That is no doubt correct. Reliance was placed on the decision of this Court in
Ryde Municipal Council v. Macquarie University (1978) 139 C.L.R. 633 , at p. 638 , where it was said by Gibbs A.C.J. that ``[a] person who owns land may be said to use it for his own purposes notwithstanding that he permits someone else to occupy it, even under a lease''. In that sense the appellant undoubtedly used the caravans for the purpose of deriving assessable income by permitting customers to occupy them on payment of a charge. Indeed that was the very business which the appellant conducted on the caravan park. In another sense the customer also used the caravan for his own purposes just as a person may use a motel unit or a hotel room. In those cases also the person who owns and operates the motel or the hotel uses the building in the course of carrying on his business and derives assessable income therefrom.

The argument presented on behalf of the appellant was that the relevant sections were concerned with ``rights to use'' which operated, or were such as, to exclude

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altogether the use by a taxpayer of the relevant property in the course of his business. It was argued that a taxpayer who uses the relevant property for the purposes of his business and thereby produces assessable income is entitled to receive the benefit of the investment allowance notwithstanding that someone else is granted a right to use that property. Thus it was said that only such rights to use as exclude the possibility of any use by the taxpayer, or any ``active use'' by the taxpayer, operate to exclude the taxpayer from his entitlement to the investment allowance.

A somewhat similar argument was advanced by way of alternative, namely, that the exclusion operated only where the owner of the property did not use it in any other way or where the leasing etc. was the only use made of the property by the taxpayer.

It was argued that the structure of sec. 82AA and particularly the three sub-sub-para., (A), (B) and (C), required such meaning to be attributed to sub-sub-para. (C) because otherwise the separate provisions in sub-sub-para. (A) and (B) were unnecessary as they would be embraced within sub-sub-para. (C) as being ``the granting to other persons of rights to use the eligible property''. I think it clear enough that the leasing of property or the letting of it on hire under a hire-purchase agreement does amount to ``the granting to other persons of rights to use the eligible property''. The natural meaning of the words in sub-sub-para. (C) embraces the content of sub-sub-para. (A) and (B). It may be that real property lawyers would not ordinarily use the words of sub-sub-para. (C) to describe a lease of land but this section is not dealing with land; it is dealing with chattels. I think it clear that sub-sub-para. (C) does embrace the whole of the content of sub-sub-para. (A) and sub-sub-para. (B) since both of the latter paragraphs are readily and accurately described as the granting to other persons of rights to use the property. That however is not enough to enable the appellant to succeed.

There is no doubt a difference between sub-sub-para. (A) and (B) but each of them would in their ordinary meaning fall within sub-sub-para. (C). It seems to me that the purpose of sub-sub-para. (C) is to operate as a ``drag net'' provision to pick up any other right to use which might be devised or which might arise in the conduct of some particular kind of business. Thus the draftsman has progressed from the particular to the completely general.

The distinction between sub-sub-para. (A) and (B) on the one hand and sub-sub-para. (C) on the other may perhaps have been intended to indicate that an arrangement which involved some other person having possession of the relevant property, which would be the case in both sub-sub-para. (A) and (B), was thought too narrow and that it was desirable to add a ``catch all'' provision in quite general terms to pick up cases where there is no grant of possession but there is a right to use. An example would be the grant of a right to enter an owner's premises and there use the owner's machine tools or other equipment, and the ingenuity of financiers and manufacturers might provide other examples. The fact that the words chosen turn out to be apt to embrace the whole of sub-sub-para. (A) and (B) as well as the wider area does not seem to me to warrant the reading down of sub-sub-para. (C). Moreover the attempt to devise a suitable form of reading down seems to me to fail. It may be said that both sub-sub-para. (A) and sub-sub-para. (B) do not, in their ordinary meaning, exclude the use of the relevant property by the taxpayer who is the owner of it. Such a taxpayer may properly be said to use his property by leasing it, just as a land owner may properly be said to use his property by letting it to a tenant; so also in the case of letting of chattels on hire under a hire-purchase agreement the owner does not part with his property until the property is ultimately acquired by the person who takes it on hire under such an agreement. Both are recognized means of using property for the purpose of deriving assessable income.

It is not altogether easy to discern the purpose of the distinction between the kinds of property and the arrangements by which they may be used for the purpose of earning assessable income, or the reason for the overlap. I do not think that the fact that the section would involve the loss of the investment allowance in many cases of the ordinary but occasional use of articles and machinery falling within the definition of ``eligible'' property is a consideration which

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would warrant ignoring the plain meaning of the words used. It is true that the lending of eligible plant without any charge to a friend or business acquaintance for one day, or permitting such person to use such plant on the owner's premises for a day without charge, would appear to destroy the investment allowance. There would in such cases be a ``right'' to use, though the licence would be revocable. The making of a nominal charge on such an occasion would undoubtedly destroy the deduction. Likewise the use of eligible plant by the owner on some isolated occasion for a purpose which was not the derivation of assessable income would destroy the deduction. However the fact that these provisions pose risks for hobbyists and farmers, and may well induce an attitude of apparent selfishness is not a sound basis for departing from the plain meaning of the words; they are clear and unambiguous. The appellant's use of the caravans falls precisely within the ordinary meaning of sub-sub-para. (C).

I would therefore dismiss the appeal.