Case A66

Judges:
JL Burke Ch
RC Smith M
RE O'Neill M

Court:
No. 1 Board of Review

Judgment date: 10 October 1969.

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J. L. Burke (Chairman): H and W (husband and wife) are partners in an accounting practice the main income of which is derived from the management of companies and businesses and advising of companies. In April/May 1966 the said partners made a business trip to the Far East (Darwin, Singapore, Manila, Hong Kong, Taipei, Osaka, Tokyo, returning via Hong Kong, Singapore and Perth) at a cost of $2,771. The partnership claimed a deduction of $2,251 under sec. 51AC of the Assessment Act as being ``export market development expenditure''.

2. During the course of their trip abroad H and W pursued inquiries related to the export activities of a number of their clients but it is fair to say that their chief concern was the affairs of Company A and Company B. H is the chairman and managing director of A Ltd. which manufactures goods in Australia primarily for the local market but which draws heavily on overseas sources for its supplies of raw materials. On 28 January 1966 the board of A Ltd. resolved ``That the Managing Director proceed to Hong Kong and Japan as soon as convenient for the purpose

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ATC 377

of insuring supplies and so as to prevent any loss of agencies at present held'' and minutes of a directors' meeting held on 28 February 1966 contain the following -

``Japan Trip

The Chairman advised that he had arranged the trip to Japan commencing on 11 April 1966 and returning on 1 May 1966 and visiting Hong Kong, Singapore, Taipei, Osaka and Tokyo.

The tourist fare was $894.20 and he had been advised that he should allow $20 a day to cover Hotel and other expenses.

He advised that he was taking his Partner, W, and therefore suggested that he be voted the sum of $1,294.

Resolved: That H be voted the sum of $1,300 to cover the expenses of the trip to Japan.''

3. H is a director of B Pty. Ltd., a private company carrying on insurance business in Australia, and in the course of their trip abroad H and W conducted interviews with overseas principals with a view to attempting to revive pre-war business and endeavouring to have business transacted in Australia so that 35% of the premiums would remain in Australia instead of going overseas. At a meeting of directors of B Pty. Ltd. held on 24 February 1966 it was resolved ``That H and W be requested to contact and have preliminary talks with our connections in Japan with a view to regaining and expanding business previously held'' and further ``That this Company contribute $1,200 towards H and W's expenses.''.

4. It is common ground that the amounts of $1,300 and $1,200 ( supra ) were paid to the partnership and accounted for by it as part of its receipts for taxation purposes.

5. The positive requirements of the ``export market development expenditure'' are set out in paras. ( a ), ( b ) and ( c ) of the statutory definition, followed by exclusions in paras. ( d ) and ( e ). Under para. ( e ) of the definition the deductible expenditure is specifically stated not to include ``so much of any outgoings incurred by a person as - (i) has been, or is to be, paid or reimbursed to him by another person; or (ii) is incurred in or in connexion with services or doing any thing for which he has been, or is to be, paid by another person.''

6. Assuming that the whole or some part of the outgoings claimed by the partnership under sec. 51AC satisfies the positive requirements of para. ( a ), ( b ) or ( c ) of the definition of ``export market development expenditure'' (and I am not to be taken as deciding that it does) I think none the less that the claim fails in limine because of the provisions of para. ( e ) of the definition quoted above. To the extent that Companies A and B contributed a total amount of $2,500 specifically towards the expenses of H and W's trip abroad (see text of minutes quoted above) the outgoings of $2,251 claimed by H and W under sec. 51AC fully satisfy the description of outgoings incurred which have been or are to be paid by another person and so are excluded from the definition. In their objections H and W, seizing on the word ``reimbursement'' used by the Commissioner in his adjustment sheet, claimed that ``the amount they (A Ltd. and B Pty. Ltd.) paid us was paid before we made the trip so could not be a reimbursement''. But the ground ignores the wording of the provision ``so much of any outgoings incurred... as - (i) has been, or is to be, paid ... by another person''. Clearly the provision was intended to operate to deny a deduction in the circumstances of a case such as the present and the wording of the sub-paragraph leaves no doubt that it has achieved its objective.

7. Another ground taken by H and W was that ``None of our clients who paid us special fees have claimed under sec. 51AC nor did we have to account to them for any expenditure we made.''. The fact that neither A Ltd. nor B Pty. Ltd. claimed a deduction under sec. 51AC is probably due to a recognition of the exclusion from ``prescribed outgoings'' for the purposes of the provision of ``amounts paid or payable to - a director of the taxpayer, where the taxpayer is a company''. (See para. ( a ) (iv) of the definition of ``prescribed outgoings''.) But whether that be so or not the claim before us by H and W must be looked at in the light of the terms of the provision and the ground taken by H and W is not offered as one of the statutory tests.

8. I would uphold the Commissioner's decisions on the objections.