Case N93

Judges:
JR Harrowell Ch
BR Pape M

Court:
No. 1 Board of Review

Judgment date: 21 September 1981.

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J.R. Harrowell (Acting Chairman)

During the year ended 30 June 1977 the taxpayer received an entertaining allowance of $1,200 from his employer, the company he managed. Against that income he claimed an offsetting deduction of $1,200 for ``Travel, and Entertainment fully expended in capacity as Managing Director''.

2. The Commissioner by notice of assessment issued on 10 October 1977 reduced the claim for $1,200 to $442 by disallowing the sum of $758. The Commissioner also allowed no rebate in respect to the taxpayer's wife. The taxpayer objected and was allowed the objection to the extent of the rebate. The notice of amended assessment now before this Board was issued on 30 May 1978.

3. In 1974 the taxpayer, who appeared in person, was employed by a company in the United Kingdom which dealt with meat packers in Australia. That year he was sent to Australia to set up an Australian office to liaise with the Australian clients. The principal business of the Australian company was to act as buyer and trader in meat products for export to overseas countries, principally Germany, where the group's head office was situated.

4. He was employed as the manager and a director of the Australian company. His duties involved him in constant contact with meat producers, packers and shippers in Australia. Apart from his salary of $8,640 for that year he was paid an entertainment allowance of $1,200. In the relevant year he was the company's only employee.

5. The taxpayer appeared in person. He informed the Board that he had no vouchers or receipts to tender in support of his claim. Instead he based his argument on a schedule he had lodged with his notice of objection. This schedule set out the names of leading meat packing companies and shipping companies. Against each set of names he set out the number of times they were entertained, the approximate amounts expended and the place of entertainment.

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ATC 507

The estimated cost of each occasion ranged between $8 and $12. The schedule disclosed a total estimated outgoing of $1,414 against the $1,200 claimed. In evidence he said that this estimated sum had been met by him personally. In addition he entertained clients to luncheons about once or twice a month at a cost per occasion ranging between $25-$40. The costs of those functions were reimbursed by his company.

6. He was questioned on this schedule in detail by members of the Board and the Commissioner's representative. I accept the evidence of the taxpayer. From it emerged the following facts. The purchase of meat for export was a highly competitive trade. The Australian meat packers were in a position where their custom had to be sought by small buyers such as his company rather than vice versa. In the opinion of the taxpayer his company, a newcomer to the Australian scene, had to establish a close personal and regular contact with representatives of the packers of various classes of meat and with the companies which shipped that meat. Some packers were entertained only twice or four times in a year. On the other hand a packer specialising in the export of veal was entertained about once per week. The occasion and place was generally arranged by the taxpayer beforehand and it took place in various hotels and clubs which he named. From his evidence I would accept that it was an implied condition of his employment that he entertained representatives of his employer's clients in this manner and that the amounts so expended were not of a private or domestic nature.

7. The Commissioner's representative could not give the Board details of the basis the Commissioner adopted to arrive at the figure $442 allowed by him. Therefore the Board has before it that amount and the amount of $1,200 claimed by the taxpayer. In my opinion the taxpayer has shifted the evidentiary burden of proof to the Commissioner. In the absence of any evidence in rebuttal from the Commissioner and on the balance of probabilities the taxpayer succeeds.

8. I would uphold the objection of the taxpayer and would amend the amended assessment by allowing the balance of $758 claimed for entertainment expenses.