Case P46

Judges:
KP Brady Ch
JE Stewart M

Court:
No. 2 Board of Review

Judgment date: 17 June 1982.

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K.P. Brady (Chairman) and J.E. Stewart (Member)

In these references, the taxpayer is a bank manager who was transferred from capital city A to capital city B in September 1978. Upon his move to B, he and his wife occupied a Bank residence on a rent-free

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basis. Included in his group certificates for the years of income ended 30th June, 1979 and 1980, were amounts for the value of board and quarters provided by his employer. The latter year's group certificate included an amount of $1,625, whilst the earlier year reflected a proportionate amount of that figure, viz. $1,312. (We were informed by the Commissioner's representative that the above values were in accordance with the Australian Bank Employees Union Award.)

2. In compiling his taxation returns for those years, the taxpayer did not include the above amounts in his assessable income but incorporated schedules in his returns, in the same format for each year, detailing reasons why the arrangement for his accommodation in B had no value to him. Notwithstanding that submission, the Commissioner increased the amounts of taxable income by the amounts detailed above, on the basis that they represented assessable income pursuant to sec. 26(e) of the Assessment Act. Also, the Commissioner contended that in making the assessments he had paid proper attention to the provisions of sec. 26AAAA in their effect upon sec. 26(e), and therefore the former section could not be implemented further so as to reduce the value of the benefit included by him in the taxpayer's assessable income.

3. At the hearing, the taxpayer did not dispute that sec. 26(e) provides for the assessment of the value of a benefit resulting from quarters being provided by an employer. What he did contend, however, was that there was no benefit to him in the particular circumstances surrounding his occupancy of the Bank's residence.

4. Before setting out the taxpayer's arguments, it is convenient to examine the terms of sec. 26(e) and its attendant provision, sec. 26AAAA. Section 26(e), to the extent it is relevant, states as follows:

``The assessable income of a taxpayer shall include -

...

• (e) the value to the taxpayer of all allowances, gratuities, compensations, benefits, bonuses and premiums allowed, given or granted to him in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by him, whether so allowed, given or granted in money, goods, land, meals, sustenance, the use of premises or quarters or otherwise:''

Section 26AAAA, which was introduced as recently as 1980 but with application to assessments in respect of income of the year of income ended 30th June, 1978, and of all subsequent years, provides as follows:

``In determining, for the purposes of the application of paragraph 26(e), the value to a taxpayer of a benefit granted to the taxpayer in respect of or in relation to his employment, being a benefit by way of the grant of a lease or licence in respect of residential accommodation that is occupied by the taxpayer or by the taxpayer and his family, the Commissioner shall have regard to all relevant matters and, in particular, where -

• (a) the residential accommodation is situated in a place that is remote from a major centre of population;
• (b) it is customary for employers in the industry in which the taxpayer is employed to provide residential accommodation for their employees without charge or for a rent or other consideration that is less than the market value of the right to occupy the accommodation concerned;
• (c) the taxpayer has no reasonable alternative other than to occupy the residential accommodation by reason of the unavailability on reasonable terms and conditions of suitable alternative residential accommodation (other than accommodation provided by or on behalf of his employer) within a reasonable distance from his place of employment;
• (d) the residential accommodation is of a higher standard than could reasonably be expected to be provided for the taxpayer or is of a larger size than is necessary to accommodate the taxpayer or the taxpayer and his family; or
• (e) any onerous conditions are attached to the lease or licence,

the Commissioner shall take that matter into account and make such reduction in

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the amount that would otherwise be the value to the taxpayer of that benefit as is appropriate in the circumstances.''

5. Thus, sec. 26AAAA directs the Commissioner to have regard to a number of factors which in their operation could render a seemingly beneficial arrangement for a taxpayer's accommodation less rewarding than might be the situation at first glance.

6. The ambit of sec. 26(e) has been examined by the Courts on a considerable number of occasions, particularly as regards whether or not the section only applies to receipts within the general conception of income. In
Donaldson v. F.C. of T. 74 ATC 4192, Bowen C.J. stated at p. 4205:

``So far as the words of the section are concerned, it seems to matter not whether the item would otherwise be of an income or capital nature according to ordinary concepts. There is little difficulty with meals. They operate in relief of the taxpayer's purse as well as his stomach. So too, I think, the use of premises or quarters, which also operate in relief of his purse and save him from having to pay rent, would be regarded as being of an income nature, at least in these days, if not eighty years ago. (cf.
Tennant v. Smith (1892) A.C. 150; 3 Tax Cas. 158.)''

7. The allusion to Tennant v. Smith is of interest because that case too was concerned with the occupancy of a Bank house. In the court of first instance, the Court of Exchequer (Scotland), it was held that the annual rental value of the residential portion of the premises occupied by the Bank's agent formed part of his income as a profit, perquisite or emolument under Sch. E of the U.K. legislation. That decision was subsequently unanimously reversed by the House of Lords on the general principle that the value of free residence provided for an employee or an office holder could not be treated as part of his income, there being no receipt of money, nor the capacity to convert the benefit into money. (Refer the judgment of the Lord Chancellor at pp. 164 and 165 and that of Lord Watson at p. 167 of the Tax Cases volume.)

8. Resulting from the Tennant v. Smith decision, it was considered for many years that income could only be constituted by money or something easily convertible into money. For instance, under the previous Assessment Act an employee was not liable in respect of an allowance for residence or quarters unless a specific deduction on that account was made from his salary or wages, or unless the employee had the right to let the premises and so convert the benefit into money. It would seem that the present sec. 26(e) was enacted to make such benefits taxable in circumstances when they were not convertible into money. The subsection stipulates that the benefit to be included in the taxpayer's assessable income shall be its value to him or her. Accordingly, the benefit's realisable value is irrelevant, and it is of no consequence that the benefit cannot be turned into money. As was said by this Board, as then constituted, in Case F18,
74 ATC 91 at p. 93:

``The value to a person of a benefit determined subjectively must surely be measured by the extent to which that person is better off by reason of having received it.''

9. The crucial question then becomes - how much has the employee saved in his own pocket through accepting the benefit? In the situation before us, the taxpayer asserts that he was no better off because the value to him of the benefit was nil. In support of that contention, he advanced the following arguments:

• (1) He received no financial gain in living rent-free in the Bank's house because he continued to own and maintain his house at A. That was necessary, he contended, because of the relatively short period (four years) of his appointment in B.
• He asserted too that he and his wife always intended to move back to A, as to them their house there was always their home. Stemming from that intention they left many of their possessions there when they moved to B and had their adult son occupy the house in a caretaker capacity on a rent-free basis.
• (2) Resulting from his transfer to B, he lost his claim for tax rebate for the rates payable on the house because of his inability to comply with the tests prescribed in sec. 72(1B)(b) of the Assessment Act.

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• (3) As a further consequence of his move to B, he asserted that the general maintenance and up-dating of the house was neglected.
• (4) Whilst in a legal sense he could have refused to accept the appointment, he contended that it would have been politically unwise within the Bank for him to do so.
• Also, he asserted that he had no real choice in securing alternative accommodation to the residence that the Bank offered. The Bank house had been occupied by various managers for over a period of 20 years, and renting alternative accommodation would not have been well received by his employer. Also, purchasing a house in B was not economically feasible in view of the relatively short period that he would be stationed there.

10. To rebut those arguments where appropriate, the Commissioner's representative called an expert witness, a valuer. He stated that he had inspected the property on 17th June, 1981, following upon a request made of him to provide a market rental value of the property for the years of income in issue, also a discounted market rental value in accordance with sec. 26AAAA. He described the house as being of 169 sq. metres (or approximately 19 squares), in fair to good condition, and possessing four bedrooms with a large living area and situated in an extremely good residential area some four kilometres from the Bank. He considered its market rental value to be as follows:

      1979 --  $3,900 per annum, or $75 per week.
      1980 --  $4,160 per annum, or $80 per week.
      

11. In taking the various factors detailed in sec. 26AAAA into account, he considered that the matter of remoteness of the residence from a major centre of population did not appertain, nor was the taxpayer subject to any onerous conditions in regard to his occupancy. For instance, the evidence revealed that the Bank's alarm system was connected not with the residence but with the office of a security company, and no demands were placed on the manager to act as a caretaker of the property. That situation may be contrasted with that which appertained in Case N14,
81 ATC 72 where the use of the taxpayer's residence for church purposes was viewed as an onerous aspect of the taxpayer's occupancy. Accordingly, the valuer ruled out the factors detailed in subcl. (a) and (c).

12. On the other hand, he considered that the fact that the taxpayer had little choice in obtaining alternative accommodation because of the Bank's practice in making its own residences available was relevant, as was the fact that the house was probably too large for the taxpayer's requirements.

13. Of minor relevance only, he considered, was the element of need to accept the Bank's accommodation because of limitations on suitable alternative accommodation convenient to the taxpayer's place of employment. After weighing up all of the above factors, the valuer considered it appropriate to discount the above market rental values by $20 per week. Accordingly, he considered the value to the taxpayer of the rent-free accommodation to be $55 per week or $2,860 per annum for 1979, and $60 per week or $3,120 per annum for 1980.

14. Section 26AAAA requires the Commissioner to take into account all relevant matters in determining the value of the benefit and not just those detailed in subcl. (a) to (e). In that regard we would dispute his contention that the taxpayer could equally have rejected the appointment as accepted it. From that proposition the Commissioner's representative argued that the move to B was a matter of personal choice, and therefore not a factor to take into account as required by the section. We would tend to support the contrary view that, whilst a choice existed from a legal point of view, it would have probably been unwise as regards his relations within the Bank not to have accepted it. However, in all the circumstances of the taxpayer's own situation, we consider the point to be relevant but of no substantial significance.

15. We are unable to accept the taxpayer's basic argument that he derived no financial gain from the accommodation arrangement. The fact that he permitted his son to occupy his own home in A was a private matter, and thus not a factor to consider in determining the value of a benefit for purposes of sec. 26(e). The decision of this Board, as then

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constituted, in Case E42,
73 ATC 354, lends support to that finding. In other words, the taxpayer cannot validly argue that he suffered a loss as a consequence of his move, when it was his own act in permitting his son to occupy his home rent-free that gave rise to the loss. Likewise, his inability to claim a tax rebate for his rates was a private matter. His additional argument that he suffered a detriment through the inability to update his house through his absence in B is altogether too vague and tenuous for us to entertain it due to the lack of specific evidence adduced in that matter.

16. We are of the view that the value of the benefit to the taxpayer in this sort of situation is the annual rental value of the property after adjustment is made by the Commissioner for such of the factors outlined in sec. 26AAAA as might militate against assessment on the full value. We consider that the Commissioner has properly applied his mind to the prescribed matters and that the amount of discount of $20 per week as computed by the valuer is adequate. Accordingly, we consider the adjusted weekly rental values of $55 in 1979 and $60 in 1980 to be eminently realistic. Bearing in mind that the value that has been brought into the taxpayer's assessable income approximates only $31 per week, we feel that he has been most fairly treated. The Commissioner stated at the hearing through his representative that he has no desire to increase the assessable values to those determined by the valuer; the evidence of that expert witness was adduced only to demonstrate that the true value of the benefit was in excess of the amounts included as assessable income. That being the situation, we consider that the Commissioner's decisions on the objections should be upheld and the assessments confirmed.

Claims disallowed