CASE Y52

Members:
PJB Burns

Tribunal:
Administrative Appeals Tribunal

Decision date: 14 October 1991

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PJB Burns (Member)

The matters in dispute in these references are whether certain items qualify for the allowance of depreciation under sec. 54 of the Income Tax Assessment Act 1936 (``the Act'').

2. The applicants are beneficiaries in a trust which in partnership with a second trust owns storage facilities constructed on a property owned by the partnership in a town in Northern Victoria. The partnership leases the premises to a company associated with the applicants and which conducts the storage business.

3. In its return of income for the year of income ended 30 June 1989 the partnership claimed an allowance for depreciation in respect of the items set out below and requested a ruling as to their eligibility under sec. 169A(2) of the Act.

                                          Cost           Depreciation
                                           $                  $
      Roller doors                       18,202             1,207
      Water tapping                         884                59
      Electrical fittings                 4,750               315
      Amenities (toilet fittings)           931                62
                                        --------           -------
                                TOTAL    24,767             1,643
                                        --------           -------
      

4. The Commissioner of Taxation (``the Commissioner'') advised the applicant that the depreciation claimed was not allowable but allowed an additional deduction of $225 in respect of qualifying building expenditure under the provisions of sec. 124ZF to 124ZK of the Act. This left an amount of $1,643 - $225 i.e. $1,418 depreciation attributable to the

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ATC 462

abovementioned items. The disallowance of the amount of $1,418 increased the distribution from the partnership to each of the trusts by $709. The distribution to each of the applicants from their family trust was amended and the taxable income of each applicant was increased by $354 in rounded figures. Each of them lodged objections and on the disallowance of those objections requested reference to the Tribunal. The two matters were heard together.

5. At the hearing the applicants were represented by Mr J. Gonsalves of the accounting firm Messrs Pannell Kerr Forster and the Commissioner was represented by an officer of the Australian Taxation Office. The only witness called was W, one of the applicants.

6. In addition to the documents provided under sec. 37 of the Administrative Appeals Tribunal Act 1975 a plan of the storage complex and photographs of various views of the doors and taps were tendered in evidence.

7. In his evidence W stated that the premises comprised a unique set of storage units which were completed in March 1989 and have been in use in the business since that time. He said that there were 49 roller doors concerned in the claim and two solid doors installed at each storage unit. Each of these doors is operated manually. In addition there is a motorised roller door operated by electric power mounted at the entrance to the complex and access is obtainable by clients who use the storage facilities by means of a coded card which activates the door mechanism. When the door is opened in the night-time sensors operate security lighting.

8. In appearance the storage units are like garages with roller shutter doors fitted. They are set in rows and are protected by a security wall which surrounds the perimeter of the property. The doors of the storage units are secured by padlocks the keys of which are held by customers. In accordance with local council regulations taps and toilet facilities are provided in a separate room which forms part of the building complex. There are also taps set in aisle between the storage units.

9. Conduits to take electrical wiring to each of the storage units have been installed but none of the occupiers has used this facility to connect either light or power to the unit which they hire. There is also electrical wiring installed to operate security lighting and the security door mounted at the entrance to the complex.

10. The allowance of the depreciation claim falls for consideration under sec. 54 of the Act. Section 54(1) allows a deduction for depreciation:

``54(1)... of any property, being plant or articles owned by a taxpayer and used by him during that year for the purpose of producing assessable income, and of any property being plant or articles owned by the taxpayer which has been installed ready for use for that purpose and is during that year held in reserve by him shall, subject to this Act, be an allowable deduction.

54(2) In this section, `plant' includes -

• (a)... machinery, implements, utensils and rolling stock;
• (b)...
• (c) plumbing fixtures and fittings... where those fixtures and fittings are provided principally for the use, for personal purposes, of persons employed by him in that business or for the care of children of those persons.''

11. The evidence established that the items were owned by the applicants and they were used by them during the year of income for the purposes of producing assessable income i.e. lease payments received from the lessee.

12. The Tribunal was referred to a number of well known cases which are set out below:

• 
  Yarmouth v France, (1887) 19 QBD 647
• 
  J. Lyons & Co. Ltd. v the Attorney-General, [1944] Ch 281
• 
  Jarrold (Inspector of Taxes) v John Good & Sons Ltd., [1963] 1 WLR 214
• 
  Macsaga Investment Co. Ltd. v Lupton (Inspector of Taxes), [1967] Ch 1016
• 
  Broken Hill Proprietary Company Limited v F.C. of T., (1968) 15 ATD 43; (1967-1969) 120 CLR 240
• 
  Wangaratta Woollen Mills Ltd. v F.C. of T., 69 ATC 4095
• 
  IRC v Barclay Curle & Co. Ltd., (1969) 1 All ER 732

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  ATC 463

• 
  Imperial Chemical Industries of Australia and New Zealand v F.C. of T., 70 ATC 4024
• 
  ICI Australia Ltd. v F.C. of T., 71 ATC 4253
• 
  F.C. of T. v I.C.I. Australia Limited, 72 ATC 4213
• 
  Dixon (Inspector of Taxes) v Fitch's Garage Ltd. (1975) 3 All ER 455
• 
  Macquarie Worsteds Pty. Ltd. v F.C. of T., 74 ATC 4121
• 
  Carpentaria Transport Pty. Ltd. v F.C. of T., 90 ATC 4590

13. The principles which emerge from those cases are well established and in Carpentaria Transport Pty. Ltd. v F.C. of T. (supra) which was an appeal from a decision of this Tribunal (Case W18, 89 ATC 223) Davies J. referred with approval to comments by Mahoney J. in Macquarie Worsteds Pty. Ltd. v F.C. of T. (supra) where he said at p. 4125:

``To be plant, a thing of the kind here in question must be more than mere setting for the taxpayer's operations; but if it is, the question still remains whether its relationship to the operations is such that it should be held to be within the meaning of the term.

...

Where the question has been whether buildings, structures or the like, or parts of them, constitute plant, the process of decision appears generally to have been, not of deriving the decision merely by deduction from a verbal formal or test, but of deciding whether the function performed by the thing is so related to the taxpayer's operations or special that it warrants it being held to be plant. There does not appear to have been evolved any formula of words to describe the relationship exhaustively.''

Roller doors

14. In my view the manually operated roller doors located at each of the storage units do not perform any function with regard to the taxpayer's operations as to make them being held to be plant. I do not accept the proposition that manually operated doors used in this complex could be considered to be machinery and therefore qualify as plant under the definition in sec. 54(2) of the Act.

15. The situation in respect of the motorised roller doors is different and it is noted that Davies J. in the Carpentaria Transport case (supra) referred the matter back to the Tribunal to consider whether motorised roller doors were machinery. However he expressed no opinion on that aspect.

16. I consider that the power unit and attachments which operate the motorised door qualify as plant but should be considered as separate items to the door. Although the point was raised with the applicant it was not pursued by him and no evidence was provided in support of that proposition or of the separate cost of the power equipment. Accordingly, the Tribunal is in no position to make a decision in respect of that aspect.

17. Apart from the power attachments the motorised doors are in all other respects the same as the manually operated doors and for reasons similar to those discussed earlier do not qualify as plant.

Water tapping, electrical conduits and wiring

18. These items form part of the general equipment of the building and serve no special purpose with regard to the applicant's activities of leasing the premises to the lessee, refer ICI case (supra). As a result depreciation is not allowable in respect of those items.

Amenities, (toilet fittings)

19. As these items do not fall within the requirements of sec. 54(2)(c) of being plumbing fixtures and fittings provided principally for the personal use of business staff or their children they are not plant and do not qualify for allowance of depreciation, refer ICI case (supra).