W. Smith v. Federal Commissioner of Taxation.

Judges:
Bowen CJ
Fisher J
Fitzgerald J

Court:
Federal Court

Judgment date: Judgment handed down 4 June 1982.

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Bowen C.J., Fisher and Fitzgerald JJ.

This is an appeal from a decision of the Supreme Court of Queensland. That Court dismissed an appeal against the disallowance by the Commissioner of Taxation of a claim for a deduction and confirmed the Commissioner's assessment. The taxpayer, William Douglas Wilson Smith, now appeals to this Court.

The taxpayer claimed the deduction under sec. 82AB of the Income Tax Assessment Act 1936 as amended (``the Act'') as it stood at the time the relevant expenditure was incurred, the year of income ended 30 June 1977. The deduction related to expenditure incurred by the taxpayer in respect of a 56 foot boat, the ``Sea Strike''. It was common ground that the boat was a new unit of eligible property acquired by the taxpayer in that year of income for use by the taxpayer wholly and exclusively in Australia for the purpose of producing assessable income and that all requirements of sec. 82AA and 82AB were met, save one. The Commissioner's first submission was that the boat was not, in the year of income in question, either used for the purpose of producing assessable income or installed ready for use for that purpose (see sec. 82AB(d)). The only other point argued related to the Commissioner's contention that the deduction was not allowable by reason of sec. 82AF(2) which relevantly provided:

``This Subdivision does not apply in relation to -

• ...
• (f) plant or articles (other than plant or articles referred to in sub-section (1))

for use in, or primarily and principally in connexion with -

• (i) amusement and recreation;
• (ii) sport (including the racing of animals or vehicles) or physical exercise or any similar activity;
• (iii) gaming or gambling;
• (iv) circus performances or the performance in public of music, plays, dancing or similar entertainment; or
• (v) the exhibition to the public of cinematograph films otherwise than by television broadcasting;

...''

(The Subdivision referred to is Subdiv. B of Div. 3 of Pt. III of the Act.) It was not disputed that the amount of the deduction to which the taxpayer would be entitled if he succeeded was $136,701.88.

The primary facts found by the learned trial judge were not disputed. Since we have not found it necessary to determine whether or not the boat was used or installed ready for use in the relevant year of income, we need mention only that the boat was acquired by the taxpayer for the purpose of producing assessable income by chartering it to game fishermen. The evidence showed that it was possible to charter the boat either with or without a crew. Most, if not all of the findings, were directed to the taxpayer's intention rather than to the nature of the boat. His Honour largely rejected the taxpayer's evidence and concluded that his intention was to use the boat for the purpose referred to. Clearly, the boat was constructed to the taxpayer's specifications. We infer

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ATC 4242

that the use for which the boat was suited accorded with the taxpayer's intention as found by the primary judge, i.e. the production of assessable income by chartering the boat to game fishermen.

The main ground of appeal argued for the taxpayer was that the learned trial judge was wrong in holding that it was not used ``by the taxpayer'' which was the relevant use of the vessel under sec. 82AF(2)(f). It was submitted that the words ``by the taxpayer'' should be inserted after the words ``for use'' in that paragraph. Also attention was drawn to sec. 82AA and it was pointed out that the Subdivision applies only in relation to units of eligible property acquired or constructed by the taxpayer, inter alia, ``for use by the taxpayer... for the purpose of producing assessable income''. The words quoted were thus, it was submitted, to be implied into sec. 82AF(2)(f) after the words ``for use'' where they first appear. The relevant provision was thus to be read:

``This Subdivision does not apply in relation to -

• (f) plant or articles (other than plant or articles referred to in sub-section (1)) for use [by the taxpayer for the purpose of producing assessable income] in, or primarily and principally in connexion with -
  • (i) amusement...''

It was then submitted that the evidence did not establish use of the boat by the taxpayer for game fishing but rather use of the boat for that purpose by those who chartered the boat from the taxpayer.

The latter submission for the taxpayer assumes a dichotomy, which in our opinion does not exist, between active personal use of the boat and its equipment for game fishing by the taxpayer's customers on the one hand, and the taxpayer's use of the boat for the purpose of producing assessable income on the other: cf.
Tourapark Pty. Ltd. v. F.C. of T. 82 ATC 4105. Even if words were introduced in sec. 82AF(2)(f) in the way suggested by the taxpayer, no more would be necessary for the exclusion to operate than that it be established that the taxpayer used the boat in connexion with game fishing for the purpose of producing assessable income.

However, there is a fundamental objection to the taxpayer's approach to the interpretation of sec. 82AF(2)(f). This was the primary answer of Counsel for the Commissioner. While sec. 82AA and 82AB in Subdiv. B are concerned with the conditions to be met by those who are to be entitled to the investment allowance in respect of eligible property, sec. 82AF is concerned with property which is excluded from the benefit of the Subdivision. Section 82AF deals with this subject by listing various types of property. Some are identified by simple description, e.g. ``motor cars'' in para. (a); some by the use for which they are designed, e.g. ``discs... that are designed to be used for the storage of... sounds'' in para. (d); others by the words ``for use'' followed by a description of the relevant activities, e.g. ``musical instruments and equipment for use in conjunction with musical instruments'', para. (e). Clearly in employing the word ``use'' in para. (d) and (e) the draftsman was concerned to describe the attributes of the property which he was seeking to identify. He was not concerned with the identity of the person by whom the property might be used or whether it would be used for the purpose of producing assessable income. That was taken care of by sec. 82AA and 82AB.

Paragraph (f) is constructed in the same way. The reference to plant or articles for use in or primarily and principally in connexion with... ``(ii) sport'' is apt to describe the attributes of the property which the draftsman is seeking to identify. It does not in its terms introduce any notion of use by a particular person. Indeed, it is not easy to read into a description of an article by reference to the use for which it is suited a further qualification limiting that use to use by a particular person. In our view para. (f) is clearly concerned with the nature of the articles and not the identity of the users.

In the present case the vessel was a ``game fishing launch'', i.e. a vessel constructed and equipped for game fishing. It was not suggested that game fishing was not a sport. In the result we conclude that it was covered by the exclusionary provision in sec. 82AF(2)(f).

We would dismiss the appeal with costs.

ORDER:

The appeal be dismissed with costs.