NATIONAL AUSTRALIA BANK LTD v FC of T

Judges:
Ryan J

Court:
Federal Court

Judgment date: Judgment handed down 4 November 1993

Ryan J

Pursuant to O. 29 r. 2 of the Rules of this Court, it has been directed in proceedings numbered VG 23 of 1991 that there be a separate trial of two questions arising under the Fringe Benefits Tax Assessment Act 1986 (``the Act'') in relation to what are said to be loan fringe benefits. A similar direction has been made in proceedings numbered VG 24 of 1991 in respect of a further seventeen questions. Like those identified in proceedings VG 23 of 1991, some of the latter questions concern the application of the Act to loans made in various circumstances by the applicant (``the Bank'') to certain of its employees. Other questions raise the application of the Act to the transport in taxi cabs of employees of the Bank between their homes and their places of employment. It is convenient to examine separately, and in order, the questions arising under the two heads which I shall designate respectively ``Loans'' and ``Taxis''.

Loans

General evidence in respect of loans was given by Mr Crowe, a chartered accountant who is the public officer of the Bank for taxation purposes. He deposed that the Bank and its wholly owned subsidiary, National Australia Savings Bank Limited (``the Savings Bank'') customarily lend money to employees of the Bank at interest rates less than they charge to their customers. Those employees borrow money for a variety of purposes, including the purchase of homes, personal investment, defraying the cost of relocation and the purchase of motor cars. Borrowing limits and entitlements to take out these ``staff loans'' vary according to the seniority of the staff members concerned. Employees at management level are permitted to borrow for any purpose provided that they have furnished adequate security and are able to meet the repayment commitments after taking into account their other obligations.

Occasionally, a staff member at pre- management level who, upon being transferred in employment, is required to move into another home, retains his or her previous home and derives rental income from it. In that event, the loan advanced by the Bank for the purchase of the previous home is thereafter treated by the Bank, in determining its liability to fringe benefits tax, as an investment loan.

The remuneration of an employee of the Bank at management level consists of a cash component and other benefits up to a maximum value which may, at the election of the employee, be taken in the form, for example, of a housing loan, superannuation, investment loan, the use of a motor vehicle, a private loan, or any combination of two or more of those non-cash benefits.

As at 30 June 1991 approximately 4,300 employees of the Bank at management level were entitled to a remuneration ``package'' of the type just described. When an employee at management level elects to take out an investment loan, he or she is required to complete, for the purposes of s. 19 of the Act, a declaration in the following form:

            
                              ------------------

"I, ------------- declare that the undermentioned loan/s made to me
by National Australia Bank Limited were used by me during the year
ended 31 March 19 ---- for income earning investments.

Amount of Loan Date Drawn/Increased         Please tick appropriate box
               or Restructured
                                                       +-+
1. $--- /--/-- Loan account name is in-----  Employee  | |  Jointly
                                                       +-+
               Funds have been on lent    +-+         +-+
               to an associate........    | | No      | | Yes at%
                                          +-+         +-+
        Income earning investments +-+          +-+         +-+
        are in name of ..........  | | Employee | | Jointly | | Associate
                                   +-+          +-+         +-+

I also declare that had I paid interest at a commercial rate on the loan
(or for my portion of the loan) for the above period, I would have been
entitled to claim an income tax deduction equal to ------- % of the
interest on that loan."

                              ------------------

Mr Crowe has further deposed that:

``The Bank relies upon such declarations when computing its self-assessed fringe benefits tax liability. It is simply not possible for the Bank to investigate the details of each and every such employee to ensure that the monies borrowed have been used for income producing purposes as declared.''

A similar declaration is completed by pre- management staff who derive rental income from their Bank-financed previous home in the circumstances described above.

Evidentiary effect of employee's declarations

An issue which is common to each question formulated in respect of the loans and which has been put at the forefront of the submissions advanced on behalf of the Bank is whether a declaration of the kind contemplated by s. 19(1)(c) of the Act is conclusive in the sense that the employer is entitled, for the purpose of calculating the taxable value of the loan fringe benefit, to rely on the assertions made therein by the employee so as to render the employer's calculations unimpeachable by the Commissioner. To permit an understanding of s. 19 in its context, I set out s. 18 and the relevant parts of s. 19 which occur in Subdivision B of Division 4 under the heading ``Taxable Value of Loan Fringe Benefits''.

``18. Subject to this Part, the taxable value, in relation to a year of tax, of a loan fringe benefit provided in respect of the year of tax is the amount (if any) by which the notional amount of interest in relation to the loan in respect of the year of tax exceeds the amount of interest that has accrued on the loan in respect of the year of tax.

19(1) Where-

(a) the recipient of a loan fringe benefit in relation to an employer in relation to a year of tax is an employee of the employer;

(b) if the recipient had, on the last day of the period (in this subsection called the `loan period') during the year of tax when the recipient was under an obligation to repay the whole or any part of the loan, incurred and paid unreimbursed interest (in this subsection called the `gross interest'), in respect of the loan, in respect of the loan period, equal to the notional amount of interest in relation to the loan in relation to the year of tax - both of the following conditions would have been satisfied:

(i) a once-only deduction (in this subsection called the `gross deduction'), not being a foreign income deduction, would, or would but for section 82A, and Subdivisions F and G of Division 3 of Part III, of the Income Tax Assessment Act 1936, have been allowable to the recipient under that Act in respect of the gross interest;

(ii) in the case of the transitional year of tax - the gross deduction would not be:

(A) a deduction in respect of rental property loan interest within the meaning of Subdivision G of

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Division 3 of Part III of that Act; or

(B) an eligible rental property deduction within the meaning of Subdivision G of Division 3 of Part III of that Act;

(ba) the amount (in this subsection called the `notional deduction') calculated in accordance with the formula:

GD − RD

where:

GD is the gross deduction; and RD is:

(i) if no interest accrued on the loan in respect of the loan period - nil; or

(ii) if interest accrued on the loan in respect of the loan period - the amount (if any) that would, or that would but for section 82A, and Subdivisions F and G of Division 3 of Part III, of the Income Tax Assessment Act 1936, have been allowable:

(A) as a once-only deduction other than a foreign income deduction; and

(B) in the case of the transitional year of tax - otherwise than as a deduction in respect of rental property loan interest within the meaning of Subdivision G of Division 3 of Part III of that Act and otherwise than as an eligible rental property deduction within the meaning of Subdivision G of Division 3 of Part III of that Act;

to the recipient under that Act in respect of that interest if that interest had been incurred and paid by the recipient on the last day of the loan period;

exceeds nil;

(c) except where the fringe benefit is:

(i) an employee credit loan benefit in relation to the year of tax; or

(ii) an employee share loan benefit in relation to the year of tax;

the recipient gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, in respect of the loan concerned;

...

the taxable value, but for Division 14, of the loan fringe benefit in relation to the year of tax is the amount calculated in accordance with the formula:

TV − ND

where:

TV is the amount that, but for this subsection and Division 14, would be the taxable value of the loan fringe benefit in relation to the year of tax; and

ND is:

(e) if neither paragraph (ca) nor (d) applies - the notional deduction;''

Section 136 of the Act gives the following definition of ``statutory evidentiary document'':

```statutory evidentiary document', in relation to an employer in relation to a year of tax (in this definition called the `current year of tax'), means-

(a) a declaration or other document that is-

(i) given to the employer pursuant to a provision of Part III or of a definition in this sub-section that is relevant to that Part; and

(ii) relevant for the purposes of determining-

(A) the taxable value of a fringe benefit provided in, or in respect of, the current year of tax in respect of the employment of an employee of the employer;

(AA) the notional taxable value of a benefit provided in, or in respect of, the current year of tax in respect of the employment of an employee of the employer; or

(B) whether a benefit provided in, or in respect of, the current year of tax in respect of the employment of an employee of the employer is an exempt benefit;

(aa) car records that:

(i) are maintained by the employer in relation to the current year of tax; or

(ii) were maintained by the employer in relation to an earlier year of tax but are relevant to the employer's liability

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under this Act in respect of the current year of tax;

(b) a document maintained by the employer in relation to the current year of tax as mentioned in paragraph 10A(b) or 10B(a) or sub-subparagraph 24(1)(c)(ia)(A) or 24(1)(c)(i)(B); and

(c) log book records or odometer records maintained in relation to a particular car where any of the following subparagraphs apply:

(i) both of the following conditions are satisfied:

(A) the current year of tax is not a log book year of tax of the employer in relation to the car;

(B) section 10A required the records to be maintained by or on behalf of the provider of a car fringe benefit in relation to the employer as a condition of the employer being entitled, in respect of the year of tax that was the last log book year of tax of the employer in relation to the car before the current year of tax, to a reduction in the operating cost of the car on account of business journeys undertaken in the car during that last log book year of tax;

(ii) both of the following conditions are satisfied:

(A) the current year of tax is not a log book year of tax of the recipient of a loan fringe benefit, an expense payment fringe benefit, a property fringe benefit or a residual fringe benefit in relation to the car while it was held by the recipient during a period in the current year of tax;

(B) section 65E required the records to be maintained by or on behalf of the recipient as a condition of the employer being entitled, in relation to the year of tax that was the last log book year of tax of the recipient before the current year of tax, to a reduction of the taxable value of a fringe benefit on account of business journeys undertaken in the car in that last log book year of tax.''

Acceptance that the declaration contemplated by s. 19(1)(c) of the Act is a ``statutory evidentiary document'' appears to me to entail no more than that the document is a repository of evidence to be used for the purposes of the Act and must be retained as stipulated in s. 123. That section, it seems, is the only one, apart from the definition of the phrase itself in s. 136, in which the expression ``statutory evidentiary document'' is used. It is significant that, although the legislation imposes a sanction for failure to retain a statutory evidentiary document for the specified period, it does not, in terms, attach any penalty to the making of a declaration of the kind specified in s. 19(1)(c), or any other statutory evidentiary document which is incomplete, erroneous or untruthful. In this context, Mr Batt QC who appeared with Mr T.P. Murphy, for the Bank, pointed to s. 8K of the Taxation Administration Act 1953, sub-ss. (1) and (2) of which provide:

``(1) A person who-

(a) makes a statement to a taxation officer that is false or misleading in a material particular; or

(b) omits from a statement made to a taxation officer any matter or thing without which the statement is misleading in a material particular,

is guilty of an offence.

(2) In a prosecution of a person for an offence against sub-section (1), it is a defence if the person proves that the person-

(a) did not know; and

(b) could not reasonably be expected to have known,

that the statement to which the prosecution relates was false or misleading.''

It is accepted that a declaration of the kind contemplated by s. 19(1)(c) of the Act may be ``a statement made to a taxation officer'' for the purposes of s. 8K of the Taxation Administration Act since s. 8J(9) of the latter Act provides that:

``A reference in this Subdivision to a statement made to a taxation officer includes a reference to a statement made to a person other than a taxation officer for a purpose in

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connection with the operation of a taxation law.''

The Act clearly falls within the definition of ``taxation law'' in s. 2 of the Taxation Administration Act. As a result the making of a false or misleading loan fringe benefit declaration exposes the employee concerned to a penalty or conviction and an order for payment to the Commissioner of not more than two or three times the tax liability avoided as a result of the false or misleading character of the declaration; see s. 8W(1) of the Taxation Administration Act. However, the availability, by a somewhat circuitous and indirect route, of penalties for the making of declarations which are false or misleading, does not, in my view support an interpretation of the Act which accords to declarations of the kind described in s. 19(1)(c) a conclusive evidentiary effect.

Reliance was placed by Counsel for the Bank on some observations of members of the High Court in
Davies Coop & Co Ltd v FC of T (1948) 8 ATD 320; (1948) 77 CLR 299 to the effect that a statutory provision which imposed sales tax on a seller of goods to a person ``who has not quoted his certificate in respect of that purpose'' by corollary exempted from tax a seller to a person who had actually quoted his certificate whether lawfully or not. However, in that case the quotation of the certificate was the sole matter on which exemption was predicated. In the present case, by contrast, the provision of a declaration under s. 19(1)(c) is one only of at least four prerequisites to the assessment of the taxable value of a loan fringe benefit. It does not, of itself, exempt the provider of the fringe benefit from liability to tax.

In a related way, Counsel for the Bank pointed to the enormous practical difficulties which large employers, like the Bank, would face if they were required to verify, within the 28 days allowed by s. 68 of the Act for the lodging of a return, hundreds or thousands of loan fringe benefit declarations supplied by their employees. However, the construction which I prefer does not preclude an employer from relying on the declarations. It simply leaves it open to the Commissioner to issue an amended assessment after going behind a particular declaration or taking a different view of the legal consequences of the matters declared by the employee.

It should be noted that s. 19(1)(c) requires a declaration in a form approved by the Commissioner (emphasis added). The contents of the declaration are not specified by the Act and a multiplicity of forms could be approved. However, in each case the ability of the employer to make the calculations necessary to a self-assessment of the liability to tax (see s. 72 of the Act) depends on the accuracy and completeness with which the employee has filled up the form. That assessment is subject to a discretionary power of amendment reposed in the Commissioner by s. 74(1) which is exercisable within three years, or within six years if the employer does not make full and true disclosure of all the material facts necessary for an assessment of the tax payable by the employer [s. 74(3)(e)] unless the resultant avoidance of tax is, in the opinion of the Commissioner, due to fraud or evasion. In that event, by virtue of s. 74(3)(d) the power of amendment is exercisable at any time. Moreover, the application of the formulae specified in s. 19(1)(ba) and the quantification of the factors TV and ND involves, in part, a question of law or mixed fact and law.

All of these considerations, in combination, tend, I think, against the view that the employee's declaration is conclusive so as to prevent the Commissioner from going behind it. Its existence is merely a prerequisite to the calculation of a possible reduction in the taxable value of a loan fringe benefit. This conclusion does not avoid the need to examine the declarations furnished by particular employees in relation to loans which are the subject of specific questions which have to be answered in these proceedings. I shall consider details of those declarations as appropriate in discussing, in order, each of the relevant loans.

1. - The Heskett Loan

Question (1) formulated in proceedings numbered VG 23 of 1991 is in these terms:

``Whether the taxable value of the loan fringe benefit provided by the applicant or an associate of the applicant to Garry Desmond Heskett and Julie Maree Heskett both of 27 Dublin Drive, Grovedale is reduced by section 19(1) of the Act to `nil' or to some other, and if so, what amount?''

Mr Heskett and his wife took advantage of a staff loan from the Savings Bank, and used that loan to purchase a property at Mill Park which they used as their principal place of residence until December 1986 when Mr Heskett was transferred to the Queenscliff Branch of the

ATC 4921

Bank. Thereafter, the Mill Park home was used to derive rental income which Mr and Mrs Heskett returned in their respective tax returns for the year ended 30 June 1987 and following. In loan fringe benefit declarations, Mr Heskett described the purpose of the loan as ``investment - due to transfer to the country area'' and, because he misunderstood what was required, left blank the space in the concluding declaration for insertion of the percentage of interest that would have been deductible had he paid interest at a commercial rate on the loan. After Mr Heskett's transfer, his wife derived a small remuneration from the Bank for cleaning its premises at Queenscliff. That income was disclosed in her tax returns for the years ended 30 June 1987 and 30 June 1988.

It is contended on behalf of the Bank that s. 138(3) of the Act applies where a loan is made at a concessional rate of interest in the circumstances of the Heskett loan. Section 138 of the Act is in these terms:

``(1) Where-

(a) a person (in this subsection referred to as the `employee') is both-

(i) an employee of an employer (in this section referred to as the `first employer'); and

(ii) an employee of one or more associates of the first employer;

(b) a benefit is provided to, or to an associate of, the employee by the first employer; and

(c) the benefit is a fringe benefit in relation to the first employer,

the benefit is not a fringe benefit in relation to an employer who is an associate of the first employer.

(2) For the purposes of this Act, where, in a case to which subsection (1) does not apply, a benefit provided to, or to an associate of, an employee would, but for this subsection, be a fringe benefit in relation to 2 or more employers, the benefit shall be taken to be a fringe benefit in relation to such one of those employers as the Commissioner determines and not in relation to any other of those employers.

(3) For the purposes of this Act, where a benefit in respect of the employment of an employee is provided jointly to the employee and one or more associates of the employee, the benefit shall be deemed to have been provided to the employee only.

(4) For the purposes of this Act, where a benefit in respect of the employment of an employee is provided jointly to 2 or more associates of the employee but not to the employee, the benefit shall be taken to have been provided to such one of those associates as the Commissioner determines and not to any other of those associates.''

``Associate'' is defined by s. 136(1) of the Act as having the same meaning in relation to a person as that expression has in relation to s. 26AAB of the Income Tax Assessment Act 1936. It is common ground between the Commissioner and the Bank in the present case that a spouse of an employee is an ``associate'' within s. 138(3). At first sight, therefore, the loan fringe benefit provided by the Savings Bank should be deemed to have been provided to Mr Heskett as the employee only. (I accept that although Mrs Heskett, after the loan was granted, became an employee in a minor way of the Bank, the loan was not made to her in that capacity, but as the spouse of Mr Heskett and, presumably, co-owner of the property which the loan funds were to be used to purchase.)

The prima facie conclusion which I have just indicated results in part from the definition of ``fringe benefit'' in s. 136(1) of the Act, which, so far as is relevant, provides:

```fringe benefit', in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit-

(a) provided at any time during the year of tax; or

(b) provided in respect of the year of tax,

being a benefit provided to the employee or to an associate of the employee by-

(c) the employer;

(d) an associate of the employer; or

(e) a person (in this paragraph referred to as the `arranger') other than the employer or an associate of the employer under an arrangement between-

(i) the employer or an associate of the employer; and

(ii) the arranger or another person,

in respect of the employment of the employee...''

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However, Counsel for the Commissioner contend that s. 19 of the Act has no application to the circumstances of the Heskett loan because Mr Heskett would not himself have been entitled to a once-only deduction in respect of the gross interest if he had paid it in respect of the loan in any relevant year of tax. This contention invokes the partnership provisions of the Income Tax Assessment Act. Section 6(1) of that Act provides that:

``In this Act unless the contrary appears-

...

`partnership' means an association of persons carrying on business as partners or in receipt of income jointly, but does not include a company;''

The scheme of Division 5 of Part III of the Income Tax Assessment Act is to treat a partnership as a separate entity up to the point where its receipts and outgoings have been ascertained for the purpose of determining whether it has made a profit or a loss. Only then is the resultant net profit or loss apportioned rateably between the partners and carried into the hands of each of them as an addition to, or deduction from, his or her assessable income.

On this analysis, the Commissioner contends, the recipient of the Heskett loan within the meaning of s. 19(1)(a) of the Act was the partnership between Mr and Mrs Heskett and neither of them individually would have been entitled, as required by s. 19(1)(b), to a once- only deduction in respect of the loan.

For that submission to succeed, it is necessary to deny to s. 138(3) of the Act any application to a loan fringe benefit received by a partnership subsisting between an employee and one or more associates of the employee. Such a denial imposes a limitation on the introductory words of s. 138(3) ``For the purposes of this Act'' by reading down their wide general import to exclude the purposes of s. 19. I can discern no warrant for such a limitation in either the language of the provisions or in general principle.

It was argued for the Commissioner that s. 138 as a whole is designed to prevent the double taxation of benefits. That much may be conceded in the sense that sub-ss. (1) and (2) are designed to avoid two or more employers being liable to tax in respect of the same single benefit. Similarly, sub-ss. (3) and (4) are designed to avoid a single employer being liable to tax twice in respect of the same single benefit provided jointly to an employee and two or more associates or two or more associates but not to the employee. However, the mechanism chosen by the draftsman to avoid that result in the circumstances of a single benefit provided jointly is to deem it for all the purposes of the Act to have been provided to a single recipient.

Thus, the loan provided jointly to Mr and Mrs Heskett is deemed to have been provided to Mr Heskett alone. On that basis, s. 19(1)(a) of the Act is satisfied. When the same fiction is maintained for the purposes of s. 19(1)(b), Mr Heskett, as the sole recipient of the loan and the sole investor of the proceeds, would have been entitled to a once only deduction in respect of the whole of the gross interest had he paid it in the relevant tax year. If the assumptions made below in respect of the Deans loan are used as far as they are applicable to the Heskett loan, the gross deduction (GD) for Mr Heskett in the year ended 30 June 1987 would have been $14,750.

When s. 19(1)(ba) is applied on the same assumptions, there has to be deducted from GD the interest of $5,000 actually paid yielding a result (ND) of $9,750. As that amount exceeds nil, the requirements of s. 19(1)(ba) have been satisfied.

Because, for the reasons outlined above, a loan fringe benefits declaration in a form approved by the Commissioner is not conclusive, I do not regard the omission from Mr Heskett's declaration of any figure representing the percentage of interest that would have been deductible had he paid interest at a commercial rate on the loan, as precluding those documents from being declarations of the kind required by s. 19(1)(c) of the Act. The matter omitted was capable of being supplied from other information contained in the body of the form. The prerequisite to deductibility enshrined in s. 19(1)(c) was therefore satisfied.

On the assumptions indicated above, the taxable value of the loan fringe benefit to Mr Heskett under s.18 of the Act was $9,750 being the amount by which the notional amount of interest ($14,750) exceeded the actual interest ($5,000). Thus the formula TV − ND transposes to $9,750 − $9,750 and yields a result of nil.

Mr Graham QC submitted that to apply s. 138(3) on its literal construction to loan fringe benefits covered by Division 4 of Part III of the

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Act will lead to a double taxation of a loan fringe benefit provided to two employees each of whom is an associate of the other. However, in my view, s. 138(3) is erected on the assumption that a fringe benefit cannot be provided to an associate who is also an employee in respect of the same fringe benefit. That is borne out by the definition of ``fringe benefit'' quoted above which is cast in terms of ``a benefit'' ``in relation to an employee'' being ``provided to the employee or to an associate of the employee'' (emphasis added). The disjunctive or, in particular, negatives contemplation of the possibility that the same benefit might be provided jointly to an employee and an associate. The assumption on which I have suggested s. 138(3) to be erected also receives independent support from the general presumption against double taxation, as to which see e.g.
Executor Trustee & Agency Co of SA Ltd v FC of T (1932) 2 ATD 35; (1932) 48 CLR 26 where Dixon J observed, at ATD 44; CLR 43:

``Income will be taxed twice if paragraph (b) means to include in the trustee's assessment income of which it cannot be said that there is another person presently entitled who is in actual receipt thereof and liable as a taxpayer in respect thereof. For, if this is its meaning, a beneficiary who is presently entitled but not in actual receipt of the income would be liable to assessment and payment of tax in respect of the income under sub-s. (1) of s. 31, while at the same time the trustee would be liable under paragraph (b) of sub-s. (2) to assessment and payment of the tax in respect of the same income because there is no person in actual receipt thereof. No interpretation of a taxing Act should be adopted which results in the imposition of double taxation unless the intention to do so is clear beyond any doubt. The arrangement and the substance of the provisions contained in sub-s. (1) and in sub-s. (2) of s. 31 suggest very strongly that they were intended to be complementary and mutually exclusive. The object of sub-s. (1) is plainly to define the liability of the beneficiary in order to ensure that, whether it reaches his hands or not, all income to which a person is presently entitled shall be included in his assessment so that it may not escape aggregation.''

For these reasons I am led to answer the question posed in respect of the Heskett loan as follows:

``Yes - to nil.''

2. - The Blake Loan

Question (2) formulated in proceedings number VG 23 of 1991 asks:

``Whether the taxable value of the loan fringe benefit provided by the applicant or an associate of the applicant to Rodney Palmer Blake and Merran Elizabeth Blake both of 7 Griffith Street, Bacchus Marsh is reduced by section 19(1) of the Act to `nil' or to some other, and if so, what amount?''

Mr Blake is a Branch Manager for the Bank who, jointly with his wife, borrowed a sum of money which they used wholly for the purchase of a residential property which was then let to derive assessable income. The property has since been sold. Mr and Mrs Blake returned the rental income in their respective tax returns for the year ended 30 June 1987 after deducting the interest paid to the Bank and other expenses related to the property. Mr Blake made a fringe benefit declaration as required by the Bank but left blank the percentage rate of interest on the loan which would have been deductible for tax purposes had interest at a commercial rate been paid on the loan.

Although the circumstances of this loan are similar in most aspects to those of the Heskett loan discussed above, it is accepted by the Bank that Mr and Mrs Blake's gross deduction in respect of gross interest in the transitional year would have been a deduction in respect of rental property loan interest within the meaning of Subdivision G of Division 3 of Part III of the Income Tax Assessment Act. Accordingly, the condition stipulated in s. 19(1)(b)(ii)(B) of the Act is satisfied and it is accepted on both sides that there can be no reduction in the taxable value of the loan fringe benefit provided to Mr and Mrs Blake. The question posed in relation to that loan is therefore answered ``No''.

3. - The Harrison Loan

The first question formulated in proceedings numbered VG 24 of 1991 asks:

``Whether the taxable value of the loan fringe benefit provided by the applicant or an associate of the applicant to James Graham Harrison and Linda May Harrison, referred to in paragraph 9(a) of the applicant's Particulars of Objection is

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reduced by section 19(1) of the Act to `nil' or to some other, and if so, what amount?''

Mr Harrison has been employed by the Bank for twenty-three years and is now at managerial level. He and his wife have jointly borrowed from the Savings Bank a substantial sum on which interest has been charged between December 1987 and December 1989 at 7.4% per annum. The funds so borrowed were used to purchase a residential property which, from the time of its acquisition until 1990, was let to derive rental income which was disclosed in a partnership tax return by Mr Harrison and his wife. (Since September 1990 the property has been occupied by Mr and Mrs Harrison themselves and has ceased to produce income.) In his loan fringe benefit declaration, Mr Harrison described the purpose for which those funds were borrowed as ``purchase of house property to be let for income purposes'' and in the concluding paragraph declared that had he paid interest at a commercial rate on the loan for the relevant period he would have been entitled to claim an income tax deduction equal to 100% of the interest of the loan.

The circumstances in which the Bank provided the loan to Mr and Mrs Harrison were not materially different from those of the Heskett loan which has been discussed above. For the reasons there given the same answer must be given to the question in respect of the Harrison loan.

4. - The Deans Loan

The second question posed in VG 24 of 1991 is in these terms:

``Whether the taxable value of the loan fringe benefit provided by the applicant or an associate of the applicant to John Deans, referred to in paragraph 9(b) of the applicant's Particulars of Objection, is reduced by section 19(1) of the Act to `nil' or to some other, and if so, what amount?''

Although now retired, Mr Deans was also in a senior managerial position with the Bank and exercised his entitlement to borrow, at a favourable rate of interest, funds which he then lent to his wife pursuant to written loan agreements. The rate of interest charged by Mr Deans to his wife was 1%, and later.5% higher than the rate charged to him from time to time by the Bank.

Mrs Deans invested the moneys borrowed from her husband in interest bearing deposits. Loan fringe benefit declarations made by Mr Deans for each of 1987, 1988 and 1989 identified the amount of the loan made to him by the Savings Bank, declared that it had been used during the relevant tax year for the purpose of ``investment'' and concluded with a declaration that ``had I paid interest at a commercial rate on the loan for the above period I would have been entitled to claim an income tax deduction equal to 100% of the interest on that loan''. When asked by Counsel for the Bank at what rate he would have lent to his wife had he been charged by the Bank a commercial rate of say, 14.5%, Mr Deans replied that he would still have charged his wife a slight margin above the rate charged to him by the Bank. Had the Bank prohibited lending to a wife or other associate of moneys advanced by it, Mr Deans would still have taken the loan and invested the proceeds in his own name if it had been part of his overall remuneration package.

Under cross-examination by Counsel for the Commissioner, Mr Deans indicated that he had been advised by accountants retained by the Bank as part of a program of ``package enhancement'' that it was desirable or appropriate for tax purposes to charge his wife a slight margin above the rate of interest charged to him by the Bank. He also conceded that the arrangement whereby he lent money borrowed at a low rate of interest to his wife to invest at a higher rate was intended to allow her to generate a net income which would attract tax at a lower marginal rate than would have been incurred had the investment been made by Mr Deans himself.

It was submitted on behalf of the Commissioner that calculation of the ``notional deduction'' for the purposes of s. 10 of the Act requires consideration, first, of the hypothesis erected by s. 19(1)(b). The term ``notional amount of interest'' used in that paragraph is defined as follows by s. 136(1):

```notional amount of interest', in relation to a loan in relation to a year of tax, means the amount of interest that would have accrued on the loan in respect of the year of tax if the

ATC 4925
interest was calculated on the daily balance of the loan at:

(a) where the loan is an eligible pre- commencement loan:

(i) the statutory interest rate in relation to the time when the loan was made; or

(ii) the statutory interest rate in relation to the year of tax;

whichever is the less;

(b) where the loan is not an eligible pre- commencement loan, was made before 3 April 1986 and is a housing loan relating to a dwelling:

(i) the statutory interest rate in relation to the year of tax; or

(ii) 13. 5% per annum;

whichever is the less; or

(c) in any other case - the statutory interest rate in relation to the year of tax;''

In turn s. 136(1) thus defines ``statutory interest rate'', so far as is relevant for present purposes:

```statutory interest rate'-

(a) in relation to a year of tax, means-

(i) if there is only 1 benchmark interest rate in relation to the year of tax - that rate;

(ii) if there are 2 or more benchmark interest rates in relation to the year of tax - the lower or lowest of those rates; or

(iii) if there is no benchmark interest rate in relation to the year of tax - such rate as is prescribed...''

That definition itself requires resort to the following definition, also in s. 136(1), of ``benchmark interest rate'':

```benchmark interest rate'-

(a) in relation to a year of tax, means a rate of interest offered anywhere in Australia, immediately before the commencement of the year of tax, in respect of a Commonwealth Bank housing loan...''

It is accepted on both sides that the benchmark interest rate for both of the tax years ending on 30 June 1987 and 1988 was 14.75%.

In this statutory context the Commissioner contends that one first has to ask what, if Mr Deans had paid interest on his loan from the Bank equal to the notional amount of interest (ie at the rate of 14.75% p.a.), would have been allowable to him as a once-only deduction in respect of that interest. On the Commissioner's analysis, there are three possible answers to this question in respect of any given taxpayer.

The first answer is that no deduction may be allowable because the notional interest was not outlaid at all in gaining or producing assessable income or was entirely referable to expenditure of a private or domestic nature. Secondly, the whole amount of the notional interest may be deductible because it had been entirely directed to gaining or producing assessable income of the recipient. Thirdly, part only of the notional interest may be deductible, being that part which could be characterized as having been outlaid in gaining or producing assessable income.

In support of the contention that the third answer just indicated can be made to the question raised by s. 19(1)(b) Mr Graham QC, who appeared with Mr G Davies for the Commissioner, referred to
Ure v FC of T 81 ATC 4100; (1981) 50 FLR 219. In that case the taxpayer had borrowed money at commercial rates of interest of up to 12.5% per annum and had lent it to his wife and a family company at one per cent per annum. The taxpayer declared the one per cent interest as part of his assessable income and claimed the whole of the interest on the loan to him as outgoings incurred in gaining or producing that assessable income. The Commissioner refused to allow the deduction in full and confined it to an amount of $660 being the income derived from on-lending at one per cent, deeming the balance of the interest to be expenditure of a private nature.

On appeal to this Court from the disallowance of an appeal against that refusal, Brennan J observed, at ATC 4104; FLR 223:

``Section 51 requires that a deductible expenditure be incurred `in' gaining assessable income, that is to say, it must be incidental and relevant to the gaining of that income (
Ronpibon Tin N.L. & Tongkah Compound N.L. v. F.C. of T. (1949) 78 C.L.R. 47 at p. 56). An outgoing of interest may be incidental and relevant to the gaining of assessable income where the borrowed money is laid out for the purpose of gaining that income (
F.C. of T. v. Munro (1926) 38 C.L.R. 153 at pp. 170, 171, 197;
Texas Co. (Australasia) Ltd.

ATC 4926
v. F.C. of T. (1940) 63 C.L.R. 382 at p. 468). The laying out of the borrowed money for the purpose of gaining assessable income furnishes the required connection between the interest paid upon it by the taxpayer and the income derived by him from its use.

In the present case a question arises as to whether it can truly be said that the incurring of interest charges at rates of 7.5%, 8.5%, 10% and 12.5% per annum is incidental to the gaining of income by way of interest at the rate of one per cent per annum. The answer to that question does not turn directly upon the disparity in interest rates, but upon an examination of the purposes for which the money was laid out. The disparity in interest rates is itself eloquent to suggest that existence of purposes ulterior to the earning of interest at the rate of 1% per annum, and the evidence confirms the existence of further purposes. The loans of the borrowed moneys made by Mr. Ure were calculated to achieve the further purposes of providing some income to Mrs. Ure, of enhancing the profits of Listohan, of providing Mr. Ure and his family with the Epping residence at a nominal rental, and of enabling the Joan Honeybourne Trust to take the benefit of any increment in the capital value of the Epping property and to enjoy the rents and profits of that property when it became available for letting at a commercial rental.

...

The purposes for which money is laid out is an issue of fact, turning upon the objective circumstances which human experience would judge to be relevant to the issue (cf.
Magna Alloys & Research Pty. Ltd. v. F.C. of T. 80 ATC 4542 at p. 4549). In the present case, there is an air of unreality about the proposition that the borrowed moneys were laid out wholly for the purpose of earning a return of 1% per annum. Rather is it right to say that the purpose for which the borrowed moneys were laid out included all the purposes earlier mentioned, only one of which was to earn a return of 1% per annum.

If the borrowed moneys had been laid out solely for the purpose of gaining assessable income, the interest would be wholly deductible; but as they were laid out in part for that purpose, and in part for other purposes, the interest charges must be apportioned. They are items of expenditure of the kind secondly described in the following passage in the judgment of the High Court in Ronpibon Tin N.L. & Tongkah Compound N.L. v. F.C. of T. (supra at p. 59):

`It is perhaps desirable to remark that there are at least two kinds of items of expenditure that require apportionment. One kind consists in undivided items of expenditure in respect of things or services of which distinct and severable parts are devoted to gaining or producing assessable income and distinct and severable parts to some other cause. In such cases it may be possible to divide the expenditure in accordance with the applications which have been made of the things or services. The other kind of apportionable items consists in those involving a single outlay or charge which serves both objects indifferently. Of this directors' fees may be an example. With the latter kind there must be some fair and reasonable assessment of the extent of the relation of the outlay to assessable income. It is an indiscriminate sum apportionable, but hardly capable of arithmetical or ratable division because it is common to both objects. [(1949) 78 CLR at p. 59.]'''

To similar effect, Deane and Sheppard JJ in their joint judgment said, at ATC 4108; FLR 230:

``In considering the deductibility, pursuant to sec. 51(1), of the interest paid by the taxpayer, it is important to be mindful of the fact that an outgoing which is claimed to have been incurred in earning assessable income is only deductible, pursuant to the subsection, `to the extent to which' it was so incurred and `to the extent to which' it cannot properly be characterized as being of a private or domestic nature. Where an outgoing was partially so incurred or should be partially so characterized, the subsection requires apportionment between what, not being of a private or domestic nature, should properly be regarded as incurred in earning the assessable income and what should not.

ATC 4927

The fact that money is re-lent at a lower rate of interest than the rate at which it was borrowed does not necessarily mean that the liability to pay the interest cannot properly be seen as having been incurred wholly in earning the assessable income and as being of neither a private nor domestic nature. Even where no business is carried on, circumstances can obviously exist in which money borrowed wholly for the purposes of earning income by way of re-lending can only, in the event, be re-lent at a rate of interest lower than the rate payable in respect of the original loan.

...

In the present case however, there is neither suggestion of miscalculation or lack of business understanding nor suggestion of anticipation or hope of income being derived by the taxpayer either in another form or by way of interest at a higher rate. The money was borrowed by the taxpayer at rates of interest of up to 12.5% per annum with the object of being lent at a rate of interest of 1% per annum. The explanation of the lending at the lower rate is to be found in private and domestic considerations. These included the provision of financial benefits to the taxpayer's wife and to a family trust, the provision, in the case of the first and second loans, of a residence for the taxpayer and his family and the reduction of the taxpayer's taxable income. On the assumption that the Commissioner's concession that sec. 260 of the Act has no application in the circumstances is correct and in the absence of any relevant business being carried on, the appeal raises for consideration a question of principle of some importance. That question is whether the liability to pay interest on money borrowed is, for the purposes of sec. 51(1) of the Act, an outgoing wholly incurred in earning the assessable income not being of a private or domestic nature notwithstanding that the only assessable income which was ever received or in contemplation was interest to be received on a planned re- lending at a much lower rate than the rate payable in respect of the borrowing in circumstances where the explanation of the prima facie improvident conduct of the taxpayer is to be found in private or domestic considerations including a desire to minimize liability to pay income tax.''

Their Honours then referred to Ronpibon Tin NL v FC of T (supra) and identified the questions of whether an outgoing is wholly or in part incidental and relevant to gaining or producing assessable income and whether it is wholly or in part of a private or domestic nature as questions of characterization (that identification has been confirmed by the High Court in a joint judgment in
Fletcher & Ors v FC of T 91 ATC 4950 at 4957; (1991) 173 CLR 1 at 17). Deane and Sheppard JJ then continued, at ATC 4110; FLR 233:

``In the present case, it would be a misleading half-truth to say that the object which the taxpayer had in mind or the advantage which he sought in incurring the liability to pay interest at rates of 7.5% or more was the derivation by him of interest at the rate of 1% per annum by re-lending the money which he borrowed. That was, no doubt, an object which the taxpayer had in mind: it was an advantage which he sought. In the circumstances however, characterization of the outgoing cannot properly be effected by reference to that object or advantage alone. The incurring of the outgoing can only be explained by reference also to less direct objects and advantages which the taxpayer sought to achieve and which plainly were of paramount importance. These indirect objects or advantages were, in so far as the taxpayer was concerned, not of an income- earning character in that they involved the provision of accommodation for the taxpayer and his family, the financial benefit of the taxpayer's wife and a family trust and a reduction in the taxpayer's personal liability to pay income tax.

In the result, the outlays of interest can be seen as servicing a number of objects indifferently. The predominant, though indirect, objects were not concerned with earning assessable income for the taxpayer but were, for the purposes of sec. 51(1), of a private and domestic nature. The object of earning assessable income in the form of interest was present in a subordinate role. If, in these circumstances, apportionment were not possible and it were necessary to give a single characterization to the whole of the interest which was paid, we would conclude

ATC 4928
that the interest could not be characterized as having been incurred in earning assessable income and that its primary characterization was as being of a private or domestic character. It is however established that apportionment is, in these circumstances not only permissible but required.''

In Fletcher v FC of T (supra) the High Court pointed out, at ATC 4958; CLR 19, that:

``In the present case, the outgoings of interest in the tax years were incurred in the borrowing of money. The funds borrowed did not constitute assessable income. To the extent that the outgoings of interest... can properly be characterised as of a kind referred to in the first limb of s. 51(1), they must draw their character from the use of the borrowed funds.''

Their Honours then enunciated the principle, at ATC 4959; CLR 20 that:

``To the extent that the partnership's outgoings of interest in a particular tax year did not exceed assessable income actually derived by the partnership under the annuity agreement in that tax year, they are properly to be characterised as incurred in gaining or producing that assessable income and were therefore deductible (pursuant to s. 51(1)) in the calculation of the net income or loss of the partnership for tax purposes. Beyond that point, the mere relationship between outgoings actually incurred and the much smaller amounts of assessable income actually derived does not suffice, without more, to answer the question whether, and if so to what extent, the adjusted outgoings of interest are properly to be characterised as incurred in gaining or producing assessable income. That question must be answered by reference to a common-sense appreciation of the overall factual context in which the outgoings were incurred. It necessarily involves a consideration of the contents and implications of the overall contractual arrangements to which the partnership became a party and pursuant to which the outgoings of interest became payable. As will be seen, it also encompasses a consideration of the purpose which the members of the partnership, and those who advised them or acted on their behalf, had in view in incurring the outgoings.''

If the hypothetical question posed by s. 19(1)(b) is answered in either of the second or third ways discussed above, the Commissioner accepts that the condition stipulated by that paragraph is fulfilled. However, it then becomes necessary, he contends, for the purpose of determining whether s. 19(1)(ba) has been satisfied, to assign a value to the gross deduction to which the recipient would have been entitled in the tax year in question on the hypothesis erected by s. 19(1)(b).

On the other hand, Counsel for the Bank contend that s. 19(1)(b) is concerned with deductibility under s. 51 of the Income Tax Assessment Act in the hands of the recipient which requires one to ascertain whether a particular recipient had a singular, dual or multiple purpose in borrowing the money. Only if a dual or multiple purpose can be imputed to the borrower, so the argument went, does the outgoing become apportionable for the purpose of ascertaining the deductible amount in accordance with the principle established in Ronpibon Tin NL v FC of T (supra). Accordingly, Mr Batt QC contended that if a recipient borrowed at 6% per annum and lent the same funds to another at 6½% or even at 6% a total deduction of the interest paid to the Bank would be allowable under s. 51.

Reliance was placed on this passage from the joint judgment of the High Court in Fletcher v Commissioner of Taxation (supra) at ATC 4957; CLR 18:

``Nonetheless, it is commonly possible to characterise an outgoing as being wholly of the kind referred to in the first limb of s. 51(1) without any need to refer to the taxpayer's subjective thought processes. That is ordinarily so in a case where the outgoing gives rise to the receipt of a larger amount of assessable income. In such a case, the characterisation of the particular outgoing as wholly of a kind referred to in s. 51(1) will ordinarily not be affected by considerations of the taxpayer's subjective motivation. If, for example, a particular item of assessable income can be earned by making a lesser outgoing in one of two possible ways, one of which is a loss or outgoing of the kind described in s. 51(1) and the other of which is not, it will ordinarily be irrelevant that the taxpayer's choice of the method which was tax deductible was motivated by taxation considerations or that the non-deductible outgoing would have been less than the

ATC 4929
deductible one. In such a case, the objective relationship between the outgoing actually made and the greater amount of assessable income actually earned suffices, without more, to characterise the whole outgoing as one which was incurred in gaining or producing assessable income. If the outgoing can properly be wholly so characterised, it `is not for the Court or the commissioner to say how much a taxpayer ought to spend in obtaining his income, but only how much he has spent' [See, e.g.,
Ronpibon Tin (1949) 8 ATD, at pp. 437-438; (1949) 78 C.L.R. at p. 60;
Cecil Bros. Pty. Ltd. v. F.C. of T. (1962) 12 ATD 449 at p. 451-452; (1963-1964) 111 C.L.R. 430, at p. 434.]

The position may, however, well be different in a case where no relevant assessable income can be identified or where the relevant assessable income is less than the amount of the outgoing. Even in a case where some assessable income is derived as a result of the outgoing, the disproportion between the detriment of the outgoing and the benefit of the income may give rise to a need to resolve the problem of characterization of the outgoing for the purposes of the sub-section by a weighing of the various aspects of the whole set of circumstances, including direct and indirect objects and advantages which the taxpayer sought in making the outgoing. [See e.g.,
Robert G. Nall Ltd. v. F.C. of T. (1936) 4 ATD 335 at pp. 338, 340, 342-343; (1936-1937) 57 C.L.R. 695, at pp. 699-700, 706, 708-709, 712-713.] Where that is so, it is a `commonsense' or `practical' weighing of all the factors which must provide the ultimate answer. [See, e.g.,
B.P. Australia Ltd. v. F.C. of T. (1966) A.C. 224, at p. 264;
Hallstroms Pty. Ltd. v. F.C. of T. (1946) 8 ATD 190 at p. 195; (1946) 72 C.L.R. 634, at p. 648;
F.C. of T. v. Foxwood (Tolga) Pty. Ltd. 81 ATC 4261 at pp. 4264, 4268-4269; (1981) 147 C.L.R. 278, at pp. 285, 293.] If, upon consideration of all those factors, it appears that, notwithstanding the disproportion between outgoing and income, the whole outgoing is properly to be characterised as genuinely and not colourably incurred in gaining or producing assessable income, the entire outgoing will fall within the first limb of s. 51(1) unless it is either somehow excluded by the exception of `outgoings of capital, or of a capital, private or domestic nature' or `incurred in relation to the gaining or production of exempt income'. If, however, that consideration reveals that the disproportion between outgoing and relevant assessable income is essentially to be explained by reference to the independent pursuit of some other objective and that part only of the outgoing can be characterised by reference to the actual or expected production of assessable income, apportionment of the outgoing between the pursuit of assessable income and the pursuit of that other objective will be necessary.

In the present case, the outgoings of interest in the tax years were incurred in the borrowing of money. The funds borrowed did not constitute assessable income. To the extent that the outgoings of interest incurred in the borrowing can properly be characterised as of a kind referred to in the first limb of s. 51(1), they must draw their character from the use of the borrowed funds. [See
F.C. of T. v. Munro (1926) 38 C.L.R. 153, at p. 197;
Ure 81 ATC 4100 at pp. 4103, 4109; (1981) 50 F.L.R., at pp. 223, 232; 34 ALR at pp. 241, 249.] That use was, in the case of the proceeds of the Doowarf loan, in the payment of the purchase price under the annuity agreement and, in the case of the proceeds of the Eromdim loan, towards the repayment of interest in respect of both the Doowarf and Eromdim loans. If the assessable income actually derived under the annuity agreement in each of the tax years had been at least equal to the actual outgoings of interest, there would, in the absence of any other deductible expenses, have been little difficulty in characterising those outgoings as wholly incurred in gaining or producing that assessable income.''

It is true, as Counsel for the Bank contended, that those passages and the observations of the members of this Court in Ure's Case which I have already quoted establish that, if the outgoing gives rise to the receipt of a larger amount of assessable income, it is not necessary to refer to the taxpayer's subjective intentions. However, the argument of the Bank which I have just summarized overlooks the fact that the concept of ``gross deduction'' which is

ATC 4930

imported into s. 19(1)(ba) from s. 19(1)(b) is not concerned with an actual borrowing at the rate, e.g. of 6% per annum suggested by Mr Batt QC, but a hypothetical borrowing at a rate of 14.75% per annum.

On that hypothesis the assessable income is significantly disproportionate to the detriment of the outgoing. Accordingly, it is open to impute to the borrower who lends on at 6½% or even 6% another purpose in addition to gaining or producing assessable income, namely to advantage the person to whom the moneys are on-lent.

On the construction of s. 19 which I prefer, if it be assumed that Mr Deans had borrowed $100,000, he would have paid ``gross interest'' in the year ended 30 June 1987 of $14,750. To arrive at his gross deduction (GD) it is necessary to deduct from $14,750 that part of $14,750 which would have been allowable to Mr Deans as a deduction under s. 51 of the Income Tax Assessment Act. If it be further assumed that Mr Deans had borrowed from the Bank at a rate of 5% per annum and lent the sum of $100,000 to his wife at a rate of 6% per annum, the gross deduction contemplated by s. 19(1)(b) would, by application of the principles in Ure's Case and Fletcher's Case have been $6,000 representing the income actually received, and intended to be received, by Mr Deans.

To apply s. 19(1)(ba) it then becomes necessary to deduct from GD the amount of the interest actually incurred that would have been allowable to Mr Deans as a once-only deduction, being the recipient's deduction (RD). On the assumptions just made that would be the interest of $5,000 actually paid to the Bank. The application of the formula GD − RD transposes to $6,000 − $5,000 yielding a result of $1,000. Since that amount exceeds nil the requirements of s. 19(1)(ba) have been satisfied and it is appropriate to calculate the taxable value of the loan fringe benefit in accordance with the formula TV − ND. The taxable value of the loan fringe benefit under s. 18 of the Act, on the same assumptions was $9,750 being the amount by which the notional amount of interest ($14,750) exceeded the actual interest ($5,000). Thus the formula TV − ND transposes to $9,750 − $1,000 and yields a result of $8,750.

This approach to the application of s. 19 is consonant with the legislative purpose which I discern in the relevant parts of the Act read as a whole which is to subject to tax the value of a benefit except to the extent that such value, had it been received and used by the recipient in the form of money, would have been allowable to him or her as a deduction for income tax purposes. The imputation of this purpose to the legislature receives some support from the explanatory memoranda which were circulated with the Bills which respectively became the Act and the Taxation Laws Amendment (Fringe Benefits and Substantiation) Act 1987 which, amongst other things amended s. 19(1)(b) and inserted s. 19(1)(ba) of the Act.

The value of a loan fringe benefit on which the tax is primarily imposed is unambiguously identified in s. 18. Section 19 works a reduction of that value in an array of specified circumstances and consequently a reduction or elimination of the liability to tax. I have been unable to detect an ambiguity in the specification of those circumstances so as to justify widening the reach of the exception beyond that which I have just illustrated. Accordingly, the benevolent approach to the construction of a taxing statute, as endorsed, for example, by Deane J in
Hepples v FC of T 91 ATC 4808 at 4818-4819; (1991) 173 CLR 492 at 510-511 does not avail the Bank.

For these reasons, I would answer the question posed in respect of the Deans loan as follows:

``The taxable value of the loan fringe benefit provided to John Deans is reduced by s. 19(1) of the Act to an amount ascertained by deducting from the excess of the notional amount of interest over the actual interest the difference between the interest actually paid by Mr Deans to the Savings Bank and the interest derived by him from lending the moneys so borrowed to his spouse.''

5. - The Symons Loan

The third question formulated in VG 24 of 1991 is:

``3. Whether the taxable value of the loan fringe benefit provided by the applicant or an associate of the applicant to John Burnett Symons and Catherine Georgina Symons referred to in paragraph (9c) of the applicants' Particulars of Objection, is reduced by s. 19(1) of the Act to `nil' or to some other, and if so, what amount.''

ATC 4931

Mr Symons is another senior employee of the Bank at management level who, jointly with his wife, had borrowed a substantial sum from the Bank, approximately two-thirds of which (``the investment funds'') was applied in the production of assessable income. From March 1987, Mr Symons applied his share of the investment funds to a loan from him to his wife at the same rate of interest as was being charged by the Bank on the whole sum. Mrs Symons used all of the funds which she had borrowed from the Bank and from her husband by depositing them at interest with an investment company, Thirteenth Possidentis Pty Ltd, controlled by herself and her husband. Interest derived by both Mr and Mrs Symons and income generated by Thirteenth Possidentis Pty Ltd from the funds deposited by Mrs Symons has been returned as income in their respective tax returns for the years ending 30 June 1987 and 1988. In his loan fringe benefit declaration, Mr Symons described the purpose of the loan of the investment funds as being ``to earn investment income in my name; funds on lent to wife C.G. Symons who pays interest to me''. In the space for specifying the deductible percentage in the concluding declaration on that form Mr Symons had inserted the figures ``100'', in the belief, induced, by the Bank, that such an insertion was appropriate.

In his oral evidence-in-chief, Mr Symons said that had he been required to pay interest of 14.75% per annum on his loan from the Bank, he would have charged his wife the ``same rate'', by which I took him to mean 14.75% per annum. He also said that had he been prohibited from lending the funds to his wife or other close relative, he would still have taken out the concessional loan offered by the Bank.

Under cross-examination, Mr Symons indicated that Thirteenth Possidentis Pty Ltd had used funds lent to it by Mrs Symons to invest in the short term money market and later in real estate in the form of a rental property on which it had made a loss. It paid Mrs Symons the same rate of interest from time to time which she had been charged by her husband. Although Mr Symons had received at a meeting of senior managers, a copy of the Peat Marwick booklet, he did not regard himself as adopting one of the techniques outlined in it. That was because he did not charge his wife a differential rate of interest above that charged to him by the Bank. However, he conceded that the arrangements were advantageous because Thirteenth Possidentis Pty Ltd would pay tax at a lower rate than Mr Symons would have paid had he made a profit by directly investing the funds which he had borrowed from the Bank.

As with the Heskett loan which I have already discussed, the whole of the Symons loan is deemed by virtue of s. 138(3) of the Act to have been provided to Mr Symons alone. However, that does not entail that no regard should be paid to what has actually been done with each part of the loan, one in fact received, and the other deemed to have been received, by Mr Symons alone. The fiction erected by s. 138(3) requires the Court to treat Mr Symons as having invested his wife's half-share by lending it directly to Thirteenth Possidentis Pty Ltd. However, no assumption contrary to the fact needs to be made about Mr Symons' own half- share which he invested by lending it to his wife.

Had Mr Symons lent the share actually received by his wife to Thirteenth Possidentis Pty Ltd at a commercial rate of interest, that share would have been lent solely for the purpose of producing assessable income and the reasoning outlined above in respect of the Heskett loan would have applied to reduce to nil the taxable value of that half-share of the loan fringe benefit. However, the evidence indicates that Thirteenth Possidentis Pty Ltd paid interest on Mrs Symons' half-share lent directly to it at the same rate as that charged by the Savings Bank on the whole loan notionally provided to Mr Symons alone, and charged by Mr Symons when he on-lent his actual half- share to his wife. Accordingly, the same approach must be taken to the whole loan, as that adopted above in respect of the Deans loan.

If similar assumptions are made for the Symons loan as were made for illustrative purposes in discussing the Deans loan, Mr Symons would be deemed to have paid ``gross interest'' in the year ended 30 June 1987 of $14,750. On the further assumptions that Mr and Mrs Symons had borrowed from the Savings Bank at 5% per annum, Mr Symons had lent his share to his wife at 5% per annum and that Mrs Symons had lent to Thirteenth Possidentis Pty Ltd both her share and the share lent to her by her husband at the same rate of 5% per annum, the ``gross deduction'' would, on the application of Ure's Case and Fletcher's Case, have been $5,000. Thus the application of

ATC 4932

the formula GD − RD required by s. 19(1)(ba) would transpose to $5,000 − $5,000 yielding a result of nil. Accordingly, the requirements of s. 19(1)(ba) would not be satisfied and no reduction of the taxable value of any part of the Symons loan would be available.

For these reasons, I answer the question posed in respect of the Symons loan - No.

6. - The Cross Loan

The question in respect of this loan identified for separate trial by the order of Jenkinson J of 7 October 1991 is:

``Whether the taxable value of the loan fringe benefit provided by an associate of the applicant to Peter Anthony Cross of 4 Edna Street, Heathmont is reduced by section 19(1) of the Act to `nil' or to some other, and if so, what amount?''

Mr Cross is an Assistant Regional Manager for the Bank and as at 31 March 1988 was indebted to the Savings Bank in a substantial sum, the greater part of which had been applied by him in the production of assessable income by lending it to his wife at a rate of interest 1% per annum greater than that charged to him by the Savings Bank. Mrs Cross, after consultation with her husband, decided to invest the moneys so lent to her in interest bearing deposits. Mr Cross returned the interest received from his wife in his income tax returns for the relevant years. In his loan fringe benefit declaration, Mr Cross described the purpose of the loan from the Bank as ``investment''. Like some other witnesses, Mr Cross in his oral evidence said that had he been charged an interest rate of 14.75% per annum he would have charged his wife a margin above that rate. He also said that he would still have taken out the loan had he been prohibited from lending it on to his wife or some other associate. He too made the concession common to several witnesses, that he understood the purpose of his arrangement as being to allow his wife to pay income tax at a lower marginal rate than would have been attracted by Mr Cross himself had the income from the Bank deposits been taxable in his hands. He also recalled, under cross- examination, having been given, at a meeting in Melbourne, of employees of management level, a copy of a booklet entitled ``Salary Packaging Options Taxation Considerations'' (``the Peat Marwick booklet'') which had been prepared by a firm of accountants retained by the Bank. Mr Cross said that he made his arrangements in the light of the options which that booklet showed to be available.

The circumstances in which this loan was made are not relevantly different from those already rehearsed in relation to the Deans loan. Accordingly a similar result must be reached and I answer Question 4 in proceedings VG 24 of 1991 as follows:

The taxable value of the loan fringe benefit provided by an associate to the applicant to Peter Anthony Cross is reduced by s. 19(1) of the Act to an amount ascertained by deducting from the excess of the notional amount of interest over the actual interest the difference between the interest actually paid by Mr Cross to the Savings Bank and the interest derived by him from lending the moneys so borrowed to his spouse.

7. - The Hine Loan

The question formulated in proceedings numbered VG 24 of 1991 in respect of the loan to Mr Hine is:

``Whether the taxable value of the loan fringe benefit provided by an associate of the applicant to Ronald Edward Hine of Unit 1/2 Valentine Avenue Kew is reduced by section 19(1) of the Act to `nil' or to some other, and if so, what amount?''

Mr Hine, an officer of the Bank of very long standing, deposed that as at 31 March 1988 he had outstanding borrowings from the Bank which amounted to a considerable sum, and which were wholly applied to income- producing purposes. He further deposed that interest had been payable on those borrowings on 31 March and 30 September each year at the following rates:

    "February, 1987    --    December, 1987    :     5.5%p.a.
     December, 1987    --    February, 1988    :     5.25%p.a.
     February, 1988    --    July, 1988        :     6. 25%p.a.
     September, 1989   --    June, 1991        :     6.75%p.a."

ATC 4933

The money borrowed by Mr Hine, in turn, lent by him to his wife, pursuant to a written loan agreement, at the following rates which were different from those charged to him by the Bank:

    "February, 1987   --    December, 1987   :   5.75%p.a.
    December, 1987    --    February, 1988   :   5.5%p.a.
    February, 1988    --    July, 1988       :   6.5%p.a.
    September, 1989   --    June, 1991       :   7.0%p.a.''

Mr Hine's wife used the funds so borrowed from her husband to purchase bills of exchange. Mr Hine has further deposed that:

``I have returned all interest derived by me during the fringe benefits tax year ended 31st March 1988 under the said loan agreement with my wife as assessable income in each year of income in my income tax returns based on income derived by me during the income tax years ended 30 June 1987 and 1988.''

As well, Mr Hine signed a form of loan fringe benefits tax declaration for the Bank the body of which was filled up by a Mr Thomas of the Bank's personnel department. In that form it was indicated that the loans made to Mr Hine had been used for ``income earning investment''. The declaration concluded with this recital:

``I also declare that had I paid interest at a commercial rate on the loan for the above period, I would have been entitled to claim an income tax deduction equal to 100% of the interest on that loan.''

In his oral evidence Mr Hine said that had he been required to pay interest of 14.75% per annum on the loan from the Bank, he, in turn, would have charged his wife 15% per annum. He further said that whether he would have taken out the loan if the Bank had prohibited him from lending it on to his wife or another associate would have depended on his assessment of whether that course would have been more economically beneficial than having the loan commuted to a ``cash option''. Under cross-examination, Mr Hine indicated that he had charged his wife a margin above the rate charged to him by the Bank on advice contained in the Peat Marwick booklet which included the following passage:

``SPLIT LOAN PACKAGE

The split loan package takes advantage of income splitting in circumstances where

• funds are on lent to the manager's spouse at 7%.

• the manager's spouse has no income other than the return on her $100,000 investment.

As the spouse is paying tax at a far lower marginal rate than the manager the value of the loan is enhanced. In fact the Split Loan Package is of substantially greater value than either the cash package or the income producing loan package.''

Mr Hine acknowledged that, as that passage would suggest, the purpose of his arrangement was to enable his wife to derive income on which she would pay at a lower marginal rate than would have applied had the same income been aggregated with that of Mr Hine himself.

Like the Cross loan just discussed, this loan does not differ in its salient features from the Deans loan. For the same reasons I answer the question posed in respect of it as follows:

The taxable value of the loan fringe benefit provided by the applicant to Ronald Edward Hine is reduced by s. 19(1) of the Act to an amount ascertained by deducting from the excess of the notional amount of interest over the actual interest the difference between the interest actually paid by Mr Hine and the interest derived by him from lending the moneys so borrowed to his spouse.

8. - The Seymour Loan

The question to be answered in respect of this loan is:

``Whether the taxable value of the loan fringe benefit provided by an associate of the applicant to John Horton Seymour of 19 Stanhope Grove, Camberwell is reduced by section 19(1) of the Act to `nil' or to some other, and if so, what amount?''

ATC 4934

Mr Seymour is a senior executive of the Bank who took advantage of a staff loan to borrow funds from the Bank at 5% per annum from 1 April 1987 to 30 September 1987 and at 4.75% per annum from 1 October 1987 to 31 March 1988. Acting on advice from his own accountants or elsewhere, he lent the whole of the moneys so borrowed to his wife at rates, during the corresponding periods, of 5.1% per annum and 4.85% per annum. His wife used the funds thus obtained from her husband by investing in commercial bills. Mr Seymour included the interest received from his wife in his income tax returns for the relevant years and completed loan fringe benefit declaration forms describing the purpose of the loan as being ``to generate income from various investments''. On one of those forms the figures ``100%'' were inserted in the concluding declaration, and on each of the other two forms, the space provided was left blank. Mr Seymour indicated that had the Bank required him to pay an interest rate of 14.75% per annum on the funds borrowed ``I would have had to on-lend at a similar margin above the actual rate I paid on the loans given that they were concessionary loans''. When asked by Senior Counsel for the Bank whether he would have taken out the concessional loan if he had been precluded from lending the proceeds to his wife or any associate or relative, Mr Seymour replied ``If they would preclude me by some means or another I suspect, no I would not have. The key to the whole thing, of course, is the effective use of the package so if they did have the ability to preclude me from doing it I suspect I would not have done it''.

Again I can discern no material difference between the relevant features of this loan and those of the Deans loan. I therefore similarly answer question 6 in proceedings VG 24 of 1991 as follows:

The taxable value of the loan fringe benefit provided by the applicant or an associate of the applicant to John Horton Seymour is reduced by s. 19(1) of the Act to an amount ascertained by deducting from the excess of the notional amount of interest over the actual interest the difference between the interest actually paid by Mr Seymour and the interest derived by him from lending the moneys so borrowed to his spouse.

9. - The Collings Loan

The question posed in respect of this loan is:

``Whether the taxable value of the loan fringe benefit provided by an associate of the applicant to Robert Douglas Collings of 10 Tennyson Avenue, Tranmere, South Australia is reduced by section 19(1) of the Act to `NIL' or to some other, and if so, what amount?''

However, the evidence discloses that the loan made by the Bank was provided to Mr Collings and his wife, Raelene Collings jointly. I shall therefore answer this question as if it enquired after the loan advanced to Mr and Mrs Collings.

Mr Collings, another senior officer of the Bank, took out jointly with his wife an investment loan on which interest was paid at 6.75% per annum. Mr Collings advanced his share of the loan to his wife at the rate of 7.75% per annum but, from 15 March 1988, lent his share to his two sons also at a rate of 7.75% per annum. That loan was repaid on 14 March 1989 and Collings' share of the funds was thereafter again lent to his wife who used it for income- producing purposes. Mr Collings completed two loan fringe benefit declaration forms, the first of which described the purposes of the loan as:

``Loan drawn jointly with wife (as approved by Bank) 50% of loan on lent to wife (interest received). All funds were fully to purchase interest bearing investments in wife's name.''

That first form concluded with the declaration:

``I also declare that had I paid interest at a commercial rate on the loan for the above period, I would have been entitled to claim an income tax deduction equal to 50% (fifty) of the interest on that loan.''

In the second form the purpose of the loan was described as:

``From 16th March 1988 50% on lent to children. Loan agreement drawn up, interest payable. All funds used fully to purchase interest bearing investments in wife's and children's names.''

In the concluding declaration on that second form, the space for specification of the percentage of the loan which would have been deductible was left blank.

Mr Collings indicated in his oral evidence that had he been required to pay interest at a

ATC 4935

commercial rate of 14.75% per annum to the Bank he would have lent the funds to his wife at a margin above that rate ``in an endeavour to create an income stream''. He also indicated that had he been prohibited by the Bank from ``on-lending'' to his wife or another associate he would still have taken the loan to produce an income stream for himself.

Under cross-examination by Senior Counsel for the Commissioner, Mr Collings conceded that the rate of 7.75% per annum which he charged his wife and sons on his loans to them was not a commercial rate at the time but the charging of a small margin was seen as appropriate to give a commercial flavour to the transaction. He also acknowledged that the arrangements which he made were actuated by a desire to have income received by his wife on which she would pay tax at a lower marginal rate than would have been attracted had the same income been taxable in his hands.

The reasoning outlined above in respect of the Deans loan has equal application to the half- share of the loan actually received by Mr Collings and lent by him to his wife, and later to his sons, at a concessional rate of interest only marginally above that charged to him by the Bank. However, the half-share actually received by Mrs Collings but deemed, pursuant to s. 138(3) of the Act to have been received by Mr Collings, was directly and totally invested to derive assessable income. Accordingly, the conclusion which I have reached as to the Heskett loan applies to that half-share.

I therefore answer, as follows, the question posed in respect of the Collings loan:

``(a) The taxable value of the share of the loan fringe benefit provided to Robert Douglas Collings is reduced by s. 19(1) of the Act to an amount ascertained by deducting from the excess of the notional amount of interest over the actual interest the difference between the interest actually paid by Mr Collings to the Bank and the interest derived by him from lending the moneys so borrowed to his spouse, Raelene Collings, and between 15 March 1988 and 14 March 1989 to his sons, David Morris Collings and Bradley Eric Collings.

(b) The taxable value of the share of the loan fringe benefit provided to Raelene Collings is reduced by s. 19(1) of the Act to nil.''

Taxis

General evidence under this head was given by Mr Wright, who is the manager of the Bank's central data processing operation at one of its five computer centres. He has described the shifts worked at both the East Melbourne and the Knox centres which included afternoon and night shifts as well as a day shift. In an affidavit sworn 27 August 1991 he has deposed:

``31.... it was the Bank's practice that employees who worked during certain shifts in the Production and User Services Section were authorised to use a taxi to travel both to and from, or to or from, the relevant Computer Centre at the Bank's expense depending on the time they commenced or ceased work. The Bank's practice was that employees who worked afternoon shift were authorised to travel home by taxi at the Bank's expense when they ceased work; employees who worked night shift were authorised to travel both to and from the relevant Computer Centre by taxi at the Bank's expense and employees who worked on weekends were authorised to travel both to and from the Computer Centre by taxi at the Bank's expense. Employees who worked day shift were not authorised to travel to or from the Computer Centre by taxi at the Bank's expense.

32. During the period January, 1987 to 5th March, 1988, when I was in charge of the Capture and Distribution Section, it was the Bank's practice that employees who worked shift work in the Capture and Distribution Section were authorised to use a taxi at the Bank's expense when travelling to or from the East Melbourne Computer Centre to carry out a night shift. Employees who worked afternoon or evening shift were authorised to travel home by taxi at the Bank's expense when they ceased work. During the non-daylight saving period, employees who commenced a shift at or after 7 pm were authorised to travel both to and from the East Melbourne Computer Centre by taxi at the Bank's expense. Employees who worked day shift were not authorised to travel to or from the East Melbourne Computer Centre by taxi at the Bank's expense.

33. According to the Bank's procedures, which I was responsible for ensuring and did

ATC 4936
ensure were implemented, taxis for employees travelling from the relevant Computer Centre were engaged by telephone by the shift manager, the shift supervisor or a person delegated by one of them. Where 2 or more employees were travelling to destinations within the same locality or one destination was on the way to another destination, the person engaging taxis would arrange for one taxi to be shared by all of those employees.

34. The Bank's procedures required the shift supervisor or shift manager to issue a `cabcharge' docket to each employee, or group, as the case may be, authorised to travel home by taxi or authorised to travel to the relevant Computer Centre by taxi. Details of taxis engaged and cabcharge dockets issued were required to be entered in a register kept for that purpose.''

Mr Wright's affidavit then continued:

``35. Where employees were travelling from home to the Computer Centre the Bank's procedures required that the employee concerned should engage a taxi at the Bank's expense by telephone or by such other means as suited the employee. The employee would use the cabcharge docket previously issued by the shift supervisor as described in paragraph 34.

36. Employees were instructed to hand the completed cabcharge docket to the taxi driver. The procedures required that these cabcharge dockets should be returned to the Bank by the taxi company with the account on a monthly basis. The taxi company would invoice the Bank for the sum of the amounts recorded on the returned cabcharge dockets. It would add on to the amount so invoiced to the Bank, a service charge. The amount so charged depends on the identity of the taxi company so invoicing the Bank. Normally, a 10% service charge was imposed. That charge was not imposed on each individual fare but was imposed on the total amount of each relevant invoice. The returned cabcharge dockets were checked by a shift supervisor against the register and if found to be in order the account would be approved for payment...

37. It was the Bank's policy during the period 1st April, 1987 to 31st March, 1990 that, in the event that an employee did not use a taxi to travel from or to and from the relevant Computer Centre when such travel would have been authorised by the Bank, no amount was paid to the employee in lieu of the cost of hiring the taxi.

38. The Bank's practice of providing taxis for shiftworkers who travelled to or from the relevant Computer Centres during the shift hours described in paragraphs 31 and 32 is and was based on the Bank's transport obligations in respect of shiftwork under the applicable award for those employed in the relevant tasks and the Bank's concern for its employees. This concern is based on a number of factors. One is the simple fact that not all employees have access to private transport at the times they are required at the Bank's premises, or are ending their shift. The lack of transport may be due to a variety of 2 causes, but because of the times of day or night in question, it could be difficult for employees to reach the Bank's premises, or to leave them, by public transport. Public transport during the times in question is infrequent and may be unreliable. Another and important factor is the Bank's concern for safety of employees especially when travelling to and from work at certain times of the day. The Bank needs to operate at times such that, if travel by taxi is not provided, an employee's or potential employee's reasonable concern for safety or about some unexpected hazard may make recruitment or retention of employees especially difficult. The Bank recognises that this is a concern amongst its younger employees, particularly female employees, and their parents.''

When cross-examined, Mr Wright indicated that the entitlement to taxi travel at the Bank's expense in the circumstances which he had described was available to all employees who were required to work the specified shifts. On a four week roster under which an employee worked one week on day shift, one on afternoon shift and one on night shift and was rostered off for one week, the employee would be entitled to travel to and from work by taxi at the Bank's expense on slightly more than half of the total number of journeys to and from work which that employee was required to undertake.

Evidence was also given by Mr Dann who has had wide experience in banking industrial relations. He deposed to the gradual extension

ATC 4937

for safety reasons of free transport for all employees of all the major banks who were required to work after 7.00pm or at other times when public transport was not readily available. He referred to the following sub-paragraph of Clause 20A of the Bank Officials' (Federal) 1963 Award which was in force at all relevant times:

``When an officer starts or ceases a shift or overtime at a time when the usual or reasonable means of travel are not available, the Bank (being the officer's employer) shall, at its expense, convey him or her from or to his or her home or lodging.''

Mr Dann's evidence was corroborated from another perspective by Mr Hingley, the Joint National Secretary of the Finance Sector Union of Australia who deposed:

``As the responsible officer of the Union, I would be particularly concerned if members who work shift work were not to be provided with transport to or from home outside normal business hours. I would be concerned that the members would have no practical alternative but to use public transport to travel to and from work. I would be concerned for the safety of these members fearing that they were at risk of being attacked and of being assaulted were they regularly to use public transport late at night or in the early morning.''

Mr Biggs, the Company Secretary of Cabcharge Australia Pty Ltd (``Cabcharge'') described the service offered by Cabcharge to its account holders. If a taxi cab operator agrees to accept a charge card or voucher issued by Cabcharge, the amount of the metered fare is debited to the account holder's monthly account together with an account-keeping fee or service charge equal to 10% of each metered fare. Cabcharge is obliged to reimburse the taxi cab operator irrespective of whether it recovers the amount of the metered fare from its account holder. Accordingly, Cabcharge incurs expenses by way of interest and bad debts.

10. - Brewster - Taxi Fares

The first question formulated in proceedings VG 24 of 1991 in relation to taxis is:

``8. Whether the taxi fare paid by the applicant for the journey by Neil William Brewster, referred to in paragraph 17 of the applicant's Particulars of Objection on 29 March 1988:

(i) is a fringe benefit within the meaning of the Act; and if so,

(ii) is exempt by reason of Section 58P or Section 47(6) of the Act; and, if it is not exempt, whether the taxable value of the fringe benefit includes the whole of some, and if so, what, part of the amount of the service charge paid by the applicant referable to that taxi fare.''

Mr Brewster was employed as a shift operator at the East Melbourne Computer Centre of the Bank between March 1988 and January 1990. Since then he has been employed as Supervisor of the Bureau Services at the Bank's Knox Computer Centre.

From 21 March to 13 November 1988 Mr Brewster was required to work a roster of shifts comprising one week on night shift, one week on afternoon shift, one week on day shift and one week off. During the day shift week he was required to work two shifts of 12½ hours each on Saturday and Sunday, usually on day shift, but occasionally at night. During that time, in accordance with the Bank's practice, Mr Brewster was authorised to hire a taxi cab, charging the fares to the Bank's Cabcharge account to travel to work to commence a night shift at 11.45pm or a weekend shift at 7.45am or 7.45pm, and to travel home after completing an afternoon shift at 12.15am, a night shift at 8.15am or a weekend shift at 8.15am or 8.15pm.

Whilst employed at the East Melbourne Computer Centre, Mr Brewster lived at Franks- ton, about 40 kilometres from the centre of Melbourne. Considerations of personal safety and the desire to minimize the risk of damage to, or theft of, his own motor vehicle at the Frankston Railway Station, induced Mr Brewster usually to accept the Bank's provision of transport by taxi cab at the times indicated above. The cost of each journey to or from his home during March 1988 and March 1989 was approximately $38 which over the year amounted in aggregate, to approximately $8,000. On 29 March 1988, Mr Brewster worked an afternoon shift at the conclusion of which he travelled home by taxi cab. The fare amounted to $35.70 and was paid by production of a Cabcharge voucher on the ``National Australia Bank Shift A/c''.

ATC 4938

It has submitted on behalf of the Bank that, because it has provided transport by taxi cab only to minimize the danger and inconvenience to Mr Brewster when he was required to work at inconvenient hours, and because he could not exploit the benefit for his private advantage the transport so provided, it was not a ``benefit'' as defined in s. 136(1) of the Act which stipulates that:

```benefit' includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under-

(a) an arrangement for or in relation to-

(i) the performance of work (including work of a professional nature), whether with or without the provision of property;

(ii) the provision of, or of the use of facilities for, entertainment, recreation or instruction; or

(iii) the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction;

(b) a contract of insurance; or

(c) an arrangement for or in relation to the lending of money;''

That definition is extremely wide and, in my view, comprehends the entitlement to travel to and from work by taxi cab in the circumstances in which that entitlement was exercised by Mr Brewster.

Other relevant definitions in s. 136(1) are:

```fringe benefit', in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit-

(a) provided at any time during the year of tax; or

(b) provided in respect of the year of tax,

being a benefit provided to the employee or to an associate of the employee by-

(c) the employer;

(d) an associate of the employer; or

(e) a person (in this paragraph referred to as the `arranger') other than the employer or an associate of the employer under an arrangement between-

(i) the employer or an associate of the employer; and

(ii) the arranger or another person,

in respect of the employment of the employee, but does not include -

(f) a payment of salary or wages or a payment that would be salary or wages if salary or wages included exempt income for the purposes of the Income Tax Assessment Act 1936;

(g) a benefit that is an exempt benefit in relation to the year of tax;

(h) a benefit constituted by the acquisition by the employee, or by a relative of the employee, of a share in a company, or of a right to acquire a share in a company, under a scheme for the acquisition of shares by employees, where section 26AAC of the Income Tax Assessment Act 1936 applies in relation to the acquisition;

(j) a benefit constituted by-

(i) the making of a payment of money to; or

(ii) the setting apart of money as,

a superannuation

(k) a payment within the meaning of Subdivision AA of Division 2 of Part III of the Income Tax Assessment Act 1936 that would be an eligible termination payment within the meaning of that Subdivision if-

(i) subparagraphs (a)(ii), (iii), (iiia) and (iv) of the definition of `eligible termination payment' in subsection 27A(1) of that Act were omitted;

(ii) a reference in paragraph (b) of that definition to a superannuation fund included a reference to a fund of the kind referred to in subparagraph (a)(iii) or (iiia) of that definition;

(iii) subparagraphs (b)(i), (ii) and (iii) of that definition were omitted; and

(iv) paragraph (k) of that definition were omitted;

(m) consideration of a capital nature for, or in respect of-

(i) a legally enforceable contract in restraint of trade by a person; or

ATC 4939

(ii) personal injury to a person;

(n) a payment of an amount that, under any provision of the Income Tax Assessment Act 1936, is deemed to be a dividend paid to the recipient; or

(p) a payment made, or liability incurred, to a person to the extent that the payment or liability is, by virtue of subsection 65(1A) of the Income Tax Assessment Act 1936, deemed not be income of the person for the purposes of that Act;''

```provide'-

(a) in relation to a benefit - includes allow, confer, give, grant or perform; and

(b) in relation to property - means dispose of (whether by sale, gift, declaration of trust or otherwise)-

(i) if the property is a beneficial interest in property but does not include legal ownership - the beneficial interest; or

(ii) in any other case - the legal ownership of the property;''

Given my conclusion that carriage by taxi in the circumstances in question is a benefit, it is clearly provided in respect of the employment of the employee. In the light of the definition of ``provide'', and for the reasons explained below in relation to s. 47(6)(aa), I regard the benefit as provided by the Bank as employer. It is not a payment of salary or wages so as to fall within paragraph (f) of the definition of ``fringe benefits''; contrast the fare allowances discussed by Hill J in
Roads and Traffic Authority of NSW v FC of T 93 ATC 4508. Since it is not suggested that the benefit which I have identified falls within any of paragraphs (h) to (p) of the definition of fringe benefit, it follows that it is embraced by that definition unless it is excluded by virtue of paragraph (g) as an exempt benefit in relation to the relevant year of tax.

A good deal of attention in the course of argument was devoted to an analysis of the contractual arrangements which may be said to have been made between the taxi cab operator on the one hand, and the employee or the Bank on the other. It was the Commissioner's contention that the provision of travel by taxi cab is an expense payment benefit within s. 20 of the Act. That section provides:

``Where a person (in this section referred to as the `provider')-

(a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the `recipient') to pay an amount to a third person in respect of expenditure incurred by the recipient; or

(b) reimburses another person (in this section also referred to as the `recipient'), in whole or in part, in respect of an amount of expenditure incurred by the recipient,

the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient.''

Little assistance is gleaned for the purpose of this analysis by endeavouring to impute to the taxi cab operator or driver a belief as to the person with whom the contract of carriage is made. On the evidence, it can be inferred only that the taxi cab operator is content to accept, as consideration for provision of the service, the right, arising from delivery of the Cabcharge voucher, to claim from Cabcharge the cost of providing the service. If the taxi cab operator thought about it at all, he or she would probably regard the contract of carriage as being made with the party having the contractual right to discharge the cost by means of the Cabcharge voucher; i.e. the Bank.

What I regard as the preferable view, that the contract is between the taxi cab operator and the Bank, accommodates the arrangement under which the shift supervisor arranges for the attendance of one or more taxi cabs and two or more employees travel in the same cab. The contract which the taxi cab operator then and there makes is to attend at the Bank's premises and convey one or more of its employees as directed, in consideration of the provision by the Bank of a warrant authorizing the cost of the conveyance to be met by Cabcharge on the Bank's account. Even where the employee commissions the taxi cab from his or her home, the analysis which I favour remains available because the employee can be regarded as the agent of the Bank, having actual authority, evidenced by the possession of the Cabcharge voucher, to conclude a contract with the taxi cab operator on behalf of the Bank. This view

ATC 4940

derives some support from the fact that the Bank was under a legal obligation imported by cl. 20A of the Bank Officials' (Federal) 1963 Award to convey Mr Brewster, on at least some occasions, from and to his home before or after the commencement of a shift.

On this analysis there is no scope for the operation of s. 144 of the Act which has been invoked by Counsel for the Commissioner. By that section:

``For the purposes of Part III, any conduct by a person that effects or results in a discharge or extinction of an obligation of another person to pay an amount to a third person shall be taken to constitute the payment of the amount by the first- mentioned person.''

The view which I take of the contractual arrangement is that no obligation is imposed on the employee. Accordingly, the provision of the warrant for payment in the form of a Cabcharge voucher does not effect or result in a discharge or extinction of an obligation of the employee to pay any amount to the taxi cab operator.

The Commissioner argued, in the alternative, that the transport by taxi cab in the circumstances in which it was provided to Mr Brewster was a residual benefit under s. 45 of the Act. That section provides:

``A benefit is a residual benefit for the purposes of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive).''

As already indicated, I have accepted that the provision by the Bank to Mr Brewster of transport by taxi cab was a ``benefit'' as defined in the Act. I have also explained why that benefit is not an ``expense payment fringe benefit'' by virtue of any provision of Subdivision A of Division 5 of the Act. Since it has not been suggested to fall within Subdivision A of any of Divisions 2 to 4 or 6 to 11, it follows that it is a residual benefit by virtue of s. 45 of the Act.

The question which next arises is whether the benefit which I have found was provided to Mr Brewster in the form of conveyance by taxi cab is an ``exempt benefit'' which is described as follows in s. 47(6) of the Act:

``(a) a residual benefit consisting of the provision or use of a motor vehicle is provided in a year of tax in respect of the employment of a current employee;

(aa) in the case of a standard year of tax - the motor vehicle is not:

(i) a taxi let on hire to the provider; or

(ii) a car, not being:

(A) a panel van or utility truck; or

(B) any other road vehicle designed to carry a load of less than 1 tonne (other than a vehicle designed for the principal purpose of carrying passengers); and

(b) there was no private use of the motor vehicle during the year of tax and at a time when the benefit was provided other than:

(i) work-related travel of the employee; and

(ii) other private use of the motor vehicle by the employee or an associate of the employee, being other use that was minor, infrequent and irregular;

the benefit is an exempt benefit in relation to the year of tax.''

Were it not for the presence in that sub- section of paragraph (aa), I would have regarded a benefit constituted by provision of conveyance of an employee in a taxi cab as not consisting of ``the provision or use'' of a motor vehicle. See e.g. my observations in
Kirby v FC of T 87 ATC 4503 at 4515; (1987) 14 FCR 563 at 578. However, the insertion into the Act by Act No 139 of 1987 of paragraph (aa) indicates that ``use of a motor vehicle'' in paragraph (a) was regarded by the legislature as capable of comprehending a passenger's travel in a taxi. Faced with the prima facie consequences of the amendment Counsel for the Bank argued that the ``provider'' referred to in s. 47(6)(aa)(i) should be identified, in the present circumstances, as the taxi driver. I reject that contention. In my view, ``provider'' in the context afforded by the reference in the introductory words of s. 47(6)(a) to ``the employment of a current employee'' and the references to ``employee'' and ``an associate of the employee'' in s. 47(6)(b), means the employer or an associate of the employer of the relevant employee. To give ``provider'' in paragraph (aa) the meaning contended for by the Bank would have the entirely capricious result of taking away the exemption if the taxi cab happened to be let on hire to the driver or

ATC 4941

operator but preserving it when the conveyance was provided in a cab owned by the driver or operator.

I accept the submission of Counsel for the Bank that, on the principles of statutory construction endorsed by in
No 20, Cannon Street Ltd v Singer & Friedlander Ltd [1974] Ch 229 at 235, sub-paragraph (ii) of paragraph (aa) has no application to the provision or use of a motor vehicle which is a taxi within the meaning of sub-paragraph (i).

My conclusion that the residual benefit provided to Mr Brewster is not exempt under s. 47(6) makes it necessary to consider whether the Bank is relieved from liability to fringe benefits tax by s. 58P which, so far as is relevant, provides:

``58P(1) Where:

(a) a benefit (in this section called a `minor benefit') is provided in, or in respect of, a year of tax (in this section called the `current year of tax') in respect of the employment of an employee of an employer;

...

(e) the notional taxable value of the minor benefit in relation to the current year of tax is small; and

(f) having regard to:

(i) the infrequency and irregularity with which associated benefits, being benefits that are identical or similar to:

(A) the minor benefit; or

(B) benefits provided in connection with the provision of the minor benefit;

have been or can reasonably be expected to be provided;

(ii) the amount that is, or might reasonably be expected to be, the sum of the notional taxable values of the minor benefit and any associated benefits, being benefits that are identical or similar to the minor benefit, in relation to the current year of tax or any other year of tax;

(iii) the amount that is, or might reasonably be expected to be, the sum of the notional taxable values of any other associated benefits in relation to the current year of tax or any other year of tax;

(iv) the practical difficulty for the employer in determining the notional taxable values in relation to the current year of tax of:

(A) if the minor benefit is not a car benefit - the minor benefit; and

(B) if there are any associated benefits that are not car benefits - those associated benefits; and

(v) the circumstances surrounding the provision of the minor benefit and any associated benefits including, but without limiting the generality of the foregoing:

(A) whether the benefit concerned was provided to assist the employee to deal with an unexpected event; and

(B) whether the benefit concerned was provided otherwise than wholly or principally by way of a reward for services rendered, or to be rendered, by the employee;

it would be concluded that it would be unreasonable to treat the minor benefit as a fringe benefit in relation to the employer in relation to the current year of tax;

the minor benefit is an exempt benefit in relation to the current year of tax.

58P(2) For the purposes of this section, a benefit is an associated benefit in relation to a minor benefit if, and only if:

(a) any of the following subparagraphs applies:

(i) the benefit is identical or similar to the minor benefit;

(ii) the benefit is provided in connection with the provision of the minor benefit;

(iii) the benefit is identical or similar to a benefit provided in connection with the provision of the minor benefit;

(b) the benefit and the minor benefit both relate to the same employment of a particular employee; and

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(c) the benefit is not an exempt benefit by virtue of a provision of this Act other than this section.''

It is accepted on both sides that the notional taxable value of the benefit to Mr Brewster falls to be determined in accordance with s. 50 of the Act which provides:

``Subject to this Part, the taxable value of an external non-period residual fringe benefit in relation to an employer in relation to a year of tax is-

(a) where the provider was the employer or an associate of the employer and the benefit was purchased by the provider under an arm's length transaction - the amount paid or payable by the provider for the benefit;

(b) where the provider was not the employer or an associate of the employer and the employer, or an associate of the employer, incurred expenditure to the provider under an arm's length transaction in respect of the provision of the benefit - the amount of that expenditure; or

(c) in any other case - the notional value of the benefit at the comparison time,

reduced by the amount of the recipient's contribution.''

In the light of my conclusion that the Bank was the provider of the benefit to Mr Brewster I regard the benefit as having been purchased by the Bank from the taxi cab operator. Since no contribution was made by Mr Brewster as the recipient of the benefit, its notional taxable value was the amount paid or payable by the Bank to the taxi cab operator. On the evidence, that amount for the journey undertaken by Mr Brewster on 29 March 1988 was $35.70.

No guidance is to be found in the legislation itself as to when a notional taxable value is to be regarded as ``small''. It does not appear to be a relative concept. However, the explanatory memorandum circulated with the Bill which became Act No 139 of 1987 by which s. 58P was inserted into the Act contains this discussion of the concept:

``Some guidance as to how new section 58P would apply in practice might be obtained by reference to particular examples.

It is common practice for employers to give employees gifts at Christmas time. A single gift to each employee of, say, a bottle of whiskey or perfume would be an exempt minor benefit provided the value of each was modest. However, if some employees were given a range of gifts of which only some were of modest value, e.g., expensive art works, and food hampers and wine, it would be necessary to determine the application of section 58P by reference to the package of associated benefits rather than each individual item.

Employers may provide employees with transport to and from work on an occasional basis because of particular contingencies, e.g. taxis for employees who work back late. In those circumstances, the exemption authorised by new section 58P would apply where the transport is provided to employees required to work late on an ad hoc basis to clear backlogs or meet particular deadlines. Such cases are distinguishable from regular transport provided to shift workers or others whose duties of employment are such that they regularly work late hours in the normal course of events.

The occasional use of an employer's vehicle by an employee for a special purpose such as rubbish removal or to travel from home to work during a transport strike would be exempt benefits provided the employee in question did not have a general entitlement to use the vehicle for private purposes. However, in some cases, the benefit would be of sufficient value to override considerations of irregularity or lack of frequency. A `one-off' loan of a four-wheel drive vehicle to enable an employee to travel cross country during an extended annual holiday break may not be exempt under section 58P because the value of such a benefit is not small.''

In the light of that indication, I am prepared to assume for the purpose of these reasons that the notional taxable value of the travel by taxi cab provided to Mr Brewster on 29 March 1988 was ``small''.

However, on a broad view of the matters specified in paragraphs (F) of s. 58P(i) of the Act I am not able to conclude that it would be unreasonable to treat the presumptively minor benefit provided to Mr Brewster on 29 March

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1988 as a fringe benefit in relation to the relevant year of tax.

It is necessary to regard each journey by taxi cab undertaken in similar circumstances in the relevant tax year as an associated benefit within the meaning of s. 58P(2) since each such benefit is identical or similar to the presumptively minor benefit and like it relates to the same employment of Mr Brewster. For the reasons indicated above none of the associated benefits is an exempt benefit by virtue of any provision of the Act other than s. 58P itself. On the evidence, the associated benefits have not been provided infrequently or irregularly to Mr Brewster. The sum of the presumptively minor benefit and all the associated benefits to Mr Brewster both in the current year of tax (amounting on the evidence to about $8,000) was substantial in the current tax years and might reasonably be expected to be similarly substantial in subsequent tax years.

It cannot be suggested that there is a significant practical difficulty for the Bank in determining the notional taxable value in relation to the current year of tax of the presumptively minor benefit and the aggregate of associated benefits provided to Mr Brewster. Nor am I persuaded that any of the aggregate of benefits so provided to Mr Brewster was to assist him to deal with an unexpected event. It is debatable whether the aggregate of such benefits was provided wholly or principally by way of a reward for services to Mr Brewster but however the consideration indicated in s. 58P(2)(f)(v)(B) be evaluated, it would not in view of the preponderance the other way of the considerations to which I have just adverted, lead to the conclusion that it would be unreasonable to treat the benefit of 29 March 1988 as a fringe benefit in relation to Mr Brewster for the relevant tax year. Nor can I discern anything else in the circumstances surrounding the provision of the aggregate of benefits to Mr Brewster as tending alone, or in combination with that indicated in s. 58P(1)(f)(v)(B), to the necessary conclusion of unreasonableness.

For these reasons the benefit provided to Mr Brewster on 29 March 1988 is not exempt by reason of s. 58P of the Act. However the taxable value of the non-exempt benefit does not include any part of the service charge paid by the Bank to Cabcharge which was referable to the taxi fare which was incurred on 29 March 1988. That result follows from the provisions of s. 50 of the Act to which I have already referred.

Since the benefit purchased by the Bank under an arm's length transaction with the taxi cab operator was the transport of Mr Brewster from the East Melbourne Computer Centre to his home, the amount payable for the benefit was the net fare shown on the Cabcharge docket. The surcharge or fee exacted by Cabcharge for providing credit to enable the Bank to acquire the service from the taxi cab operator, was merely an administrative expense incurred by the Bank. It was not part of the benefit provided to Mr Brewster to whom it was immaterial how the Bank chose to discharge its liability for the fare.

I therefore answer as follows the first question formulated in respect of Mr Brewster:

(i) Yes.
(ii) No, but the taxable value of the fringe benefit does not include any part of the amount of the service charge paid by the applicant referable to the taxi fare incurred on 29 March 1988.

11. Brewster - Cabcharge Service Fee

The second question formulated in relation to Mr Brewster is:

``9. Whether the service charge paid by the applicant referable to the taxi fare for the said journey by Neil William Brewster:

(i) is a fringe benefit within the meaning of the Act; and, if so,

(ii) is exempt by reason of section 58P, or some other provision of the Act.''

For the reasons given at the end of my discussion of Question 11 above, the service charge paid by the Bank to Cabcharge was not part of the benefit which I have found was provided to Mr Brewster. It was thus not provided to the employee in respect of his employment and so falls outside the definition of ``fringe benefit'' in s. 136(1) of the Act. This question must therefore be answered:

(i) No.
(ii) Unnecessary to answer.

12. McGarry - Taxi Fares

The tenth question formulated in VG 24 of 1991 as amended by consent at the outset of the hearing before me is in these terms:

ATC 4944

``Whether each of the taxi fares paid by the applicant for the journeys by Ray Noel McGarry, referred to in paragraph l7 of the applicant's Particulars of Objection, on each of 4 January 1988, 5 January 1988, 16 March 1988 and 17 March 1988:

(i) is a fringe benefit within the meaning of the Act; and, if so,

(ii) is exempt by reason of section 58P or section 47(6) of the Act;

and, if it is not exempt, whether the taxable value of the fringe benefit includes the whole or some, and if so what, part of the amount of the service charge paid by the applicant referable to that taxi fare.''

Mr McGarry was employed by the Bank as Shift Manager, of Operations, Group Information Systems at the East Melbourne Computer Centre from 1 April 1987 to 5 March 1988, and thereafter has been employed at the Knox Computer Centre. From 5 July 1988 to the date of his affidavit, Mr McGarry worked a five week shift roster system of a kind detailed by Mr Brewster and had the same entitlement to the provision of transport by taxi cab before commencing a night shift or weekend shift and after completing an afternoon, night or weekend shift. When he availed himself of that entitlement the taxi fares were met by the Bank through the medium of its Cabcharge account. Again, like Mr Brewster, Mr McGarry used his entitlement for reasons of personal safety largely dictated by the risk of falling asleep while driving his own car. He indicated that where practicable employees on the relevant shift who lived in the same area would share a taxi cab.

On occasions, Mr McGarry engaged a taxi cab to take him only from Lilydale Railway Station, approximately 27 kilometres from the City of Melbourne instead of from his home at Launching Place about 28 kilometres further from the centre of Melbourne. From 1 April 1987 to 5 March 1988 the cost of each journey by taxi cab from the East Melbourne Computer Centre to the Lilydale Railway Station was approximately $25.00 and from East Melbourne to Launching Place was approximately $44.00. Between 6 March 1988 and 31 April 1989 the cost of each journey from the Knox Computer Centre was approximately $33.00.

On 4 January 1988, Mr McGarry travelled by taxi from Launching Place to East Melbourne to commence a night shift at 11.45pm and, at the end of the shift at 8.15am next morning, 4 January 1988, travelled home again by taxi. The respective fares for those journeys were $43.80 and $43.40. Similarly, on the night of 16 March 1988 he travelled from Launching Place to the Knox Computer Centre at a cost of $34.40 and made the return journey on the morning of 17 March 1988 at a cost of $34.20.

In the period from 13 January 1988 to 31 March 1989 Mr McGarry was a borrower of a concessional staff housing loan from the Bank on which he was charged interest at the rate of 7.5% per annum. However, I do not regard the concessional housing loan provided to Mr McGarry as identical or similar to the transport by taxi which he enjoyed on the occasions enquired after. Accordingly, the loan fringe benefit constituted by that loan was not an associated benefit for the purposes of s. 58P. However, since I have been unable to detect any other material difference between Mr McGarry's travel by taxi and that of Mr Brewster, this question must be answered in the same way as Question 10 above.

13. - McGarry - Cabcharge Service Fee

The second question posed in respect of Mr McGarry is:

``Whether the service charge paid by the applicant referable to each of the taxi fares for the said journeys by Ray Noel McGarry:

(i) is a fringe benefit within the meaning of the Act; and, if so,

(ii) is exempt by reason of section 58P, or some other provision, of the Act.''

For the reasons given in my discussion of Questions 10 and 11 this question must also be answered:

(i) No
(ii) Unnecessary to answer.

14. - Pendecki - Taxi Fares

This question similarly asks:

``Whether each of the taxi fares paid by the applicant for the journeys by Dianne Agnes Pendecki, referred to in paragraph 17 of the applicant's Particulars of Objection, on each of 25 February 1988 and 26 February 1988:

(i) is a fringe benefit within the meaning of the Act; and, if so,

(ii) is exempt by reason of section 58P of the Act;

ATC 4945

and, if it is not exempt, whether the taxable value of the fringe benefit includes the whole or some, and if so what, part of the amount of the service charge paid by the applicant referable to that taxi fare.''

The journeys by taxi at the expense of the Bank which were undertaken by this employee were much shorter and correspondingly, less expensive than those provided to Mr Brewster and Mr McGarry. However, that difference has not been suggested to entail any different application of the Act. Since the circumstances in which Ms Pendecki received he benefit were otherwise similar to those of Mr McGarry this question must be answered in the same way as Question 12.

15. - Pendecki - Cabcharge Service Fee

Question 13 in proceedings VG 24 of 1991 is in these terms:

``Whether the service charge paid by the applicant referable to each of the taxi fares for the said journeys by Dianne Agnes Pendecki:

(i) is a fringe benefit within the meaning of the Act; and, if so,

(ii) is exempt by reason of section 58P, or some other provision, of the Act.''

It follows from my earlier reasoning that this question must also be answered:

(i) No.
(ii) Unnecessary to answer.

16. and 17. - Quinlivan

These questions are in similar form to those posed in respect of Mr Brewster which are discussed in paragraph 10 above. However, since the provision of transport to Ms Quinlivan occurred before 29 October 1987, it is common ground that it is unnecessary to answer these questions.

18. - Waugh - Taxi Fares

The question formulated in respect of this employee is:

``Whether each of the taxi fares paid by the applicant for the journeys by Diana Margaret Waugh, referred to in paragraph 17 of the applicant's Particulars of Objection, on each of 24 February 1988, 25 February 1988 and twice on 30 March 1988:

(i) is a fringe benefit within the meaning of the Act; and, if so,

(ii) is exempt by reason of Section 58P of the Act;

and, if it is not so exempt, whether the taxable value of the fringe benefit includes the whole or some, and if so, what, part of the amount of the service charge paid by the applicant referable to that taxi fare.''

This employee was employed successively at the East Melbourne and Knox Computer Centres. On the first two dates enquired after she travelled by taxi from Clayton to East Melbourne and return at a cost of $36.90. On the second occasion the journey was from Clayton to the Knox Computer Centre and return at a total cost of $28.10. As the features of the benefit provided to Ms Waugh are not significantly different from those pertaining to Mr Brewster this question must be answered in the same way as Question 10.

For the reasons already given in relation to similar questions concerning other employees, this question is answered in the same way as Question 10 above.

19. - Waugh - Cabcharge Service Fee

This question asks:

``Whether the service charge paid by the applicant referable to each of the taxi fares for the said journey by Diana Margaret Waugh:

(i) is a fringe benefit within the meaning of the Act; and if so,

(ii) is exempt, by reason of Section 58P or some other provision, of the Act.''

For the reasons already given in relation to similar questions concerning other employees, this question is answered:

(i) No.
(ii) Unnecessary to answer.

I shall reserve the costs of both parties of and incidental to the resolution of the questions formulated by the order of Jenkinson J of 7 October 1991. The parties should bring in minutes of procedural directions necessary for the resolution of any matters remaining in issue between them in the light of these reasons.

ATC 4946

THE COURT ORDERS (in matter No VG 23 of 1991):

A. That the questions specified by the Order of the Honourable Mr Justice Jenkinson of 27 August 1991 the Court be answered as follows:

1. Yes - to nil.
2. No.

B. That the costs of both parties be reserved.

THE COURT ORDERS (in matter No VG 24 of 1991):

A. That the questions specified by the Order of the Honourable Mr Justice Jenkinson of 7 October 1991 be answered as follows:

1. Yes - to nil.
2. The taxable value of the loan fringe benefit provided to John Deans is reduced by s. 19(1) of the Act to an amount ascertained by deducting from the excess of the notional amount of interest over the actual interest the difference between the interest actually paid by Mr Deans to the Savings Bank and the interest derived by him from lending the moneys so borrowed to his spouse.
3. No.
4. The taxable value of the loan fringe benefit provided by an associate to the applicant to Peter Anthony Cross is reduced by s. 19(1) of the Act to an amount ascertained by deducting from the excess of the notional amount of interest over the actual interest the difference between the interest actually paid by Mr Cross to the Savings Bank and the interest derived by him from lending the moneys so borrowed to his spouse.
5. The taxable value of the loan fringe benefit provided by the applicant to Ronald Edward Hine is reduced by s. 19(1) of the Act to an amount ascertained by deducting from the excess of the notional amount of interest over the actual interest the difference between the interest actually paid by Mr Hine and the interest derived by him from lending the moneys so borrowed to his spouse.
6. The taxable value of the loan fringe benefit provided by the applicant or an associate of the applicant to John Horton Seymour is reduced by s. 19(1) of the Act to an amount ascertained by deducting from the excess of the notional amount of interest over the actual interest the difference between the interest actually paid by Mr Seymour and the interest derived by him from lending the moneys so borrowed to his spouse.
7(a) The taxable value of the share of the loan fringe benefit provided to Robert Douglas Collings is reduced by s. 19(1) of the Act to an amount ascertained by deducting from the excess of the notional amount of interest over the actual interest the difference between the interest actually paid by Mr Collings to the Bank and the interest derived by him from lending the moneys so borrowed to his spouse, Raelene Collings, and between 15 March 1988 and 14 March 1989 to his sons, David Morris Collings and Bradley Eric Collings.
(b) The taxable value of the share of the loan fringe benefit provided to Raelene Collings is reduced by s. 19(1) of the Act to nil.
8(i) Yes.
(ii) No, but the taxable value of the fringe benefit does not include any part of the amount of the service charge paid by the applicant referable to the taxi fare incurred on 29 March 1988.
9(i) No.
(ii) Unnecessary to answer.
10(i) Yes.
(ii) No, but the taxable value of the fringe benefit does not include any part of the amount of the service charge paid by the applicant referrable to the taxi fares incurred on each of 4 January 1988, 5 January 1988, 16 March 1988 and 17 March 1988.
11(i) No.
(ii) Unnecessary to answer.
12(i) Yes.
(ii) No, but the taxable value of the fringe benefit does not include any part of the amount of the service charge paid by the applicant referrable to the taxi fares incurred on each of 25 February 1988 and 26 February 1988.
13(i) No.
(ii) Unnecessary to answer.
14. Unnecessary to answer.
15. Unnecessary to answer.
16(i) Yes.

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(ii) No, but the taxable value of the fringe benefit does not include any part of the amount of the service charge paid by the applicant referable to the taxi fares incurred on each of 24 February 1988, 25 February 1988 and twice on 30 March 1988.
17(i) No.
(ii) Unnecessary to answer.

B. That the costs of both parties of and incidental to answering the said questions be reserved.

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