CASE 49/94

Members:
SA Forgie DP

Tribunal:
Administrative Appeals Tribunal

Decision date: 21 September 1994

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SA Forgie (Deputy President)

The applicant has applied for review of a decision of the Deputy Commissioner of Taxation (``the Commissioner''), dated 18 October, 1993. That decision partially allowed an objection dated 19 February, 1993 against a notice of assessment issued in respect of the financial year ending 30 June, 1991.

2. At the hearing, the applicant was represented by Mr Wan, a chartered accountant, and the Deputy Commissioner by Mr McGill of Counsel. The documents lodged pursuant to section 87 of the Administrative Appeals Tribunal Act 1975 were admitted in evidence. In support of the applicant's case, a hire purchase agreement relating to his motor vehicle was admitted in evidence. A record of the distances between various destinations, a comparison of those distances and a weekly expense report/reimbursement claim kept by the applicant for a previous employer were admitted in evidence in support of the Commissioner's case. No oral evidence was given.

The issues

3. The application raised four areas of difference between the parties - whether home telephone expenses of $408, home office expenses of $326 and motor vehicle expenses of $10,310 should be allowed in full or in part and whether additional tax of $2,476.09 should be remitted in full or in part.

Consideration

Telephone expenses

4. At the hearing, Mr Wan did not specifically address the telephone expenses. The sum of $408 had been disallowed on the basis that it had been paid on 4 July, 1991 and so after the year of income with which I am concerned. Mr McGill submitted that the applicant has been taxed on a cash, rather than an accruals, basis and so should only be permitted to claim as a deduction amounts he has actually paid during the year. He referred to the High Court's judgment in
Commissioner of Taxes (S.A.) v Executor Trustee & Agency Co. of South Australia Ltd (1938) 5 ATD 98 at 133; (1938) 63 CLR 108 at 158. Mr Wan did not make any submission on this issue.

5. In the light of the submissions and on the basis that there is no evidence that the computations in the applicant's case are made on an accruals rather than a cash basis, I do not consider that the sum of $408 paid after the conclusion of the financial year should be allowed.

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ATC 431

Home office expenses

6. On the evidence, I find that the applicant was employed by a company as a sales representative in Queensland and northern New South Wales. From 1 July, 1990 to 30 September, 1990, the company shared an office with another organisation or with other organisations which do not play any part in these proceedings. That office provided secretarial services but did not have any storage area. The applicant was not required to perform any duties at the office on a regular basis as he visited the company's customers but was required to hold stock at his home. After 30 September, 1990, the company communicated with him at his home by way of either the telephone or by a facsimile machine which it provided.

7. The Commissioner had disallowed the applicant's claims for interest, rates, body corporate fees and insurance for the period 1 July, 1990 to 30 September, 1990 on the basis that the company operated its business from the office and not from his home. Mr Wan submitted that, during the three month period, the applicant had two offices. He submitted that the applicant was required to receive emergency calls at his home at all hours but did not point to any oral or written evidence on the particular point of the emergency calls.

8. In support of his case, Mr Wan referred to the case of
FC of T v Collings 76 ATC 4254 (Supreme Court of New South Wales). In that case, the taxpayer was a highly qualified computer consultant who supervised a major conversion of computer facilities for her employer and its customers. She was telephoned at any hour of the day or night and would use either a portable terminal connected from her home to the employer's computer by a telephone line or would travel to the office. She made several telephone calls and at least one extra trip every day including weekends.

9. The appeal concerned the disallowance of both home office expenses and travelling expenses as in this case. Rath J concluded:

``... the journeys to and from home were made necessary by the very nature of the employment and of the taxpayer's duties. The taxpayer here, as much as in Taylor v. Provan, had a `very special' employment (cp. p. 212). She was not really in a position similar to those `thousands of employees' that Lord Donovan referred to (in Owen v. Pook, p. 261) who have to be on stand-by duty at their homes and are required to obey a summons to cope with some emergency. It may or may not be that those `thousands of employees' cannot deduct the expenses of emergency travel; but the case of the present taxpayer is clearly different, for she was engaged upon a special assignment, and was continuously on duty, wherever she was. The taxpayer is not in this case choosing to do part of the work of her job in two separate places (cp. Lord Wilberforce in Taylor v. Provan, at p. 215). Unless she were to spend all her time in the office with the computer, she must have more than one place of work. Here is not the freedom of choice of a barrister who does some of his work at home (
Newsom v Robertson (1953) 1 Ch. 7). Her double work-location is not only not merely colourable, but the two places of work are a necessary obligation arising from the nature of her special duties (cp. Lord Simon, p. 222). The taxpayer's employer had gone to the expense of having the taxpayer specially trained in the United States so as to be capable of effecting and supervising the computer conversion. The employer had to have her, as a person so uniquely qualified, available at all times for the conversion. It seems to me that the circumstances of this case are closer to those of Taylor v. Provan than those of Owen v. Pook, and are thus more strongly in favour of the taxpayer (cp. Lord Salmon, p. 227). None the less the analogy with Owen v. Pook is close. When called at her home, the taxpayer immediately had the responsibility of correcting the malfunction in the computer. She might there and then diagnose the trouble, and provide the remedy; or she might decide that she would have to make the journey to the office, and if she took this course she was during the journey on duty in regard to the particular problem that had arisen. The circumstances of her case contrast sharply with the case of the airline pilot on call (
Nolder v. Walters 15 T.C. 380). In that case the expenses of the pilot's telephone were also disallowed, and here again there is a contrast between he pilot's use of the telephone and the use that the taxpayer in the present case makes of the telephone. Rowlatt J said (p. 388):

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ATC 432

`He has to be at the office, wherever he has to start from, and I think the telephone is in the same position. It is a mere question of communicating with him with a view to him coming to the office to do his duties, which begin when he gets there; and, of course, when I say the office I mean in this case the aerodrome; the place of employment. That is all it is, and it seems to me that both those heads are clearly outside the rule.'

In my opinion in this case the taxpayer's expenses in respect of her travelling between her home and work, outside the normal daily journey, were in the special circumstances of this case outgoings incurred in gaining or producing her assessable income, and were not of a private or domestic nature, and were accordingly allowable deductions under sec. 61 of the Income Tax Assessment Act 1936 (as amended).''

(page 4268)

10. Mr McGill argued that, during the three month period, the applicant used his home and his car only for the storage of the company's product. While this might entitle him to claim as a deduction any expenses specifically incurred by him in relation to that storage, it did not entitle him to claim items such as interest payments and body corporate fees. He referred to judgments of the High Court in
FC of T v Forsyth 81 ATC 4157 and
Handley v FC of T 81 ATC 4165.

11. In Forsyth, the High Court concluded that a claim for a deduction in relation to a part of a barrister's house used as an office had been rightly disallowed by the Commissioner. Although the barrister regularly worked at night, it found that he did so as a matter of convenience and not of necessity. He had chambers elsewhere and rarely saw clients or solicitors at home. The office was integrated into the rest of the house. The majority of the High Court found that the rent paid by the taxpayer did not have the essential character of an outgoing incurred in gaining or producing assessable income or necessarily incurred in carrying out the taxpayer's professional business.

12. The case of Handley also concerned a barrister who had a room in his house set aside principally as his study. He used the study for approximately 20 hours per week during 45 weeks of the year and had a total work commitment of 80-100 hours per week. The majority again found that the study was an integral part of the taxpayer's home and this was so despite the fact it was used predominantly for his professional work. It concluded that the payments for the home would be the same regardless of whether he used one room, as he did, or not.

13. Mr McGill drew a distinction between cases such as Forsyth and Handley and cases, such as those involving a doctor's surgery, in which a part of the house has been clearly separated for the purposes of a business or profession (see, for example, Case U65,
87 ATC 415). He also drew a distinction between cases such as Forsyth and Handley in which costs, such as interest and body corporate fees, relating to the maintenance and retention of the building itself were claimed and those in which costs, such as electricity costs, relating to the use of part of the building were claimed.

14. Costs of the latter type were considered by the Full Court of the Federal Court in
FC of T v Faichney 72 ATC 4245. Mason J concluded that expenses incurred in heating and lighting a taxpayer's home were an expense having a business or employment character to the extent that they were incurred in providing that heating and lighting exclusively while he was engaged in his business or employment.

15. I have considered the evidence in light of the principles of these cases and of sub-section 51(1) of the Income Tax Assessment Act 1936 (``the Act'') which provides:

``All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such income, shall be allowable deductions except to the extent to which they are losses or outgoings of capital, or of a capital, private or domestic nature, or are incurred in relation to the gaining or production of exempt income.''

16. I find that the applicant's duties meant that he was ``mainly on the road''. He would call into the office to collect messages. The company would either send the goods directly to the customers or the applicant would deliver them. The goods were carried in special packaging and took up the entire boot and possibly the back seat of the car.

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ATC 433

17. On the evidence I also find that, before 30 September, 1990, the applicant stored goods at his home. There is no evidence that a particular part of the home unit was set aside for the storage of the goods or how frequently they were stored. I find that some at least were stored in the motor vehicle.

18. Mr Wan has submitted that he received emergency telephone calls. I find that he used his telephone at home for the purposes of the business. Whether or not they were for emergencies or not is not something on which I can make a finding for there is no evidence on that aspect from either the applicant or the company. I also find that he would call in at the office to receive his messages and find that on the basis of the notes of a conversation between an employee of the company and an officer of the Commissioner (T documents, page 97). Those notes are consistent with a letter written on behalf of the company to the Commissioner on 7 September, 1993 (T documents, page 98).

19. After the closure of the office, the only change was that telephone and facsimile enquiries would be directed to the applicant's home but customers were not seen there. The company provided him with a facsimile machine for this purpose. I find that on the basis of the notes of the conversation with the employee of the company and its letter.

20. This is not a case in which the applicant was obliged to have two places of work because of the nature of his duties. The goods were stored there but storage of some of the employer's goods does not of itself make that the place in which a person works or carries on his or her business. It may be an incident of the fact that he is employed or carries on a business but no more.

21. The applicant's use of his home telephone does not alter my view. His telephone expenses attributable to the business have already been accepted by the Commissioner as an allowable deduction. There is no evidence that the space used for storage and the space where the telephone was installed were in any way dedicated to the business and separated from the rest of the home unit. Nor was there any evidence that the body corporate fees and interest on the loan for the unit were in any way affected by the fact that the goods were stored on the premises or that the telephone was used for carrying out the company's business. No part of liability for the interest or the body corporate fees was necessarily incurred in the applicant's earning his income.

22. This case is distinguishable from Collings' case. While Rath J upheld a decision that the taxpayer had two places of work, he did so in the context of whether she should be allowed deductions for expenses incurred in relation to her use of the telephone and travelling expenses between her home and her work. The taxpayer's claim did not relate to the expenses related to her capital investment in her home and whether those expenses were necessarily incurred for the purpose of gaining her income. That is quite a different issue and is the issue considered in the cases of Forsyth and Handley.

23. In the applicant's case, I note that the Commissioner has, for the purposes of the deductions in relation to the applicant's telephone expenses, already allowed the applicant a deduction. His doing so is consistent with Collings' case. I am concerned with the different question of whether the expenses relating to the home unit itself have been necessarily incurred for the purpose of gaining his income and I find that they have not. Consequently, I will affirm the Commissioner's decision on that aspect.

The motor vehicle expenses

24. The effect of section 82KUA of the Act is that a deduction is not allowable in respect of a car expense incurred in the year of income unless documentary proof of the expense is obtained by the taxpayer. A ``car expense'' is defined in sub-section 82KT(1) to mean:

``... an outgoing incurred in connection with a car and, without limiting the generality of the foregoing, includes-

• (a) an outgoing incurred in connection with the operation of a car;
• (b) expenditure incurred in connection with borrowing money for the purpose of acquiring a car;
• (c) expenditure (other than a payment of principal or interest) incurred in connection with the discharge of a mortgage given as security for-
  • (i) the repayment of money borrowed for the purpose of acquiring a car; or
  • (ii) the payment of the whole or a part of the cost of acquiring a car;

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    ATC 434

• (d) in a case where a car is leased-
  • (i) expenditure incurred by the lessee in connection with the lease; and
  • (ii) without limiting the generality of subparagraph (i), expenditure incurred by the lessee for the preparation, registration and stamping of the lease, or of an assignment or surrender of the lease;
• (e) a payment of interest on money borrowed for the purpose of acquiring a car or on the outstanding balance of the cost of acquiring a car;
• (f) expenditure incurred for repairs to a car; and
• (g) depreciation in respect of a car,

but does not include-

• (h) such an outgoing incurred, such expenditure incurred, or such a payment made, in respect of travel outside Australia; or
• (j) a taxi fare or similar expense;''

25. The provisions of section 82KUA must be read with sections 82KUB and 82KUC. Section 82KUB relates to car expenses incurred in a log book year of income and section 82KUC to expenses incurred in a non log book year of income.

26. Section 82KTG sets out the circumstances in which a year of income is a log book year of income. I do not need to explore those circumstances for, even if I assume that the applicant comes within one or more of them, and that I am concerned with a log book year of income, paragraph 82KUB(c) which is the relevant paragraph in this case, is predicated on a taxpayer's having maintained log book records and odometer records. What are ``log book records''? ``Log book records'' are defined in sub-section 82KT(1) in the following terms:

```log book records', in relation to a car held by a taxpayer, in relation to a period, means a daily log book or similar document in which, in respect of each journey:

• (a) that is undertaken in the car during the period in the course of producing assessable income of the taxpayer; and
• (b) that the taxpayer, or a person acting on behalf of the taxpayer, chooses to record in the document for the purposes of demonstrating the pattern of use of the car during the period;

and entry setting out particulars of:

• (c) the date on which the journey began and the date on which it ended;
• (d) the respective odometer readings of the car at the beginning and end of the journey;
• (e) the number of kilometres travelled by the car in the course of the journey;
• (f) the purpose or purposes of the journey;
• (g) the name of the person, or the names of the persons, driving the car on that journey;
• (h) the date on which the entry is made; and
• (j) the name of the person by whom the entry is made;

is made in the English language at, or as soon as reasonably practicable after, the end of the journey, and that, in relation to each such entry so made, is signed, at the time when the entry is made, by the person who made the entry;''

27. The records kept by the applicant relate to the months of September, October and November, 1990. They show the places visited on the journey and the number of kilometres claimed to be the distance travelled. They do not show the day of the month on which the journeys were undertaken, the odometer readings, the purpose or purposes of the journeys, the name of the person driving the car on that day, the date on which the entry was made or the name of the person who made the entries. There is a signature at the foot of each of the three pages and I am prepared to find that it is the applicant's signature. There is no evidence, however, that the entries were made as soon as reasonably practicable after the end of the journeys shown. In view of these omissions, I am unable to find that the three pages represent log book records for the year of income ending 30 June, 1991.

28. As the applicant has not maintained a log book for the year ending 30 June, 1991, that year cannot be a log book year of income. I find, therefore, that none of the circumstances referred to in section 82KUB applies in this case for the year of income ending 30 June,

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ATC 435

1991. This means that reference must be made to section 82KUC.

29. The effect of section 82KUC is that, where the year is not a log book year, a deduction is not allowable in respect of a car expense in respect of the current year of income unless odometer records have been maintained by the taxpayer and there have been log books records kept in a previous year of income. This follows from the requirements in that section that the taxpayer must keep odometer records in relation to the car for the holding period and must also specify the percentage estimated by the taxpayer to be the underlying business percentage applicable to the car (i.e. the nominated business percentage as defined in sub-section 82KT(1)). The percentage specified by the taxpayer must bear one of a number of relationships to the percentage specified in the last log book year.

30. What is meant by ``odometer records'' is set out in sub-section 82KT(1) where it is provided that:

``... in relation to a motor vehicle, in relation to a period, means a document:

• (a) in which particulars of:
  • (i) the odometer reading of the motor vehicle at the commencement of the period or, if the first use of the motor vehicle in the course of producing assessable income of the taxpayer occurred during the period, at the commencement of that use;
  • (ii) the odometer reading of the motor vehicle at the end of the period or, if the last use of the motor vehicle in the course of producing assessable income of the taxpayer occurred during the period, at the end of that use;
  • (iii) if paragraph 82KTJ(1)(b) applies with effect from a particular date - the odometer readings of both the replacement car and of the original car referred to in that paragraph, as at that date;
  • (iv) the respective dates on which the entries are made; and
  • (v) the name of the person, or the names of the respective persons, by whom the entries are made;

are entered in the English language, and that is signed by the person or persons referred to in subparagraph (v), at, or as soon as reasonably practicable after, the respective times to which those odometer readings relate; and

• (b) in which particulars of the make, model and, if the motor vehicle has an internal combustion engine, the engine capacity (expressed in cubic centimetres) of the motor vehicle or, if paragraph 82KTJ(1)(b) applies, of both the replacement car and the original car referred to in that paragraph, are entered in the English language;''

31. There is no evidence that the applicant kept odometer records as set out in this definition or that he ever kept a log book in relation to his car expenses. Consequently, the provisions of section 82KUC are not applicable. As the provisions of both sections 82KUB and 82KUC are not applicable, it follows that the applicant cannot rely on the provisions of section 82KUD to calculate the amount of the deduction allowable in respect of the car expenses he incurred during the year of income.

32. That brings me to section 82KW, which provides for two other and alternative methods of calculating a deduction for car expenses. Section 82KW sets out the first of those methods and relates to the situation in which the car has been used for the purposes of producing income for distances greater than 5,000 kilometres. Insofar as it is relevant, it provides that:

``(2) Subject to this Subdivision, where a taxpayer elects that this subsection apply in relation to a car in relation to a year of income-

• (a) subject to paragraphs (b) and (ba), the amount of a deduction allowable to the taxpayer under this Act in respect of a car expense that relates to the car and was incurred by the taxpayer during the year of income shall be 33⅓% of the amount of the deduction that, but for this Subdivision, would have been so allowable in respect of the expense if the car had, throughout the year of income, been used by the taxpayer exclusively in the course of producing assessable income of the taxpayer;
• (b)...

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  ATC 436

• (ba) a deduction is not so allowable in respect of any other such expense unless documentary evidence of the expense is obtained by or on behalf of the taxpayer; and
• (c) sections 82KUA, 82KUB, 82KUC and 82KUD and paragraphs 82KZA(1)(b) and (3)(e) do not apply, and shall be deemed never to have applied, in relation to the taxpayer in relation to such an expense.''

33. The first question that arises is whether the car concerned in these proceedings ``was owned by, or leased to, a taxpayer during a period (in this section called the `holding period') during a year of income''. A copy of a hire purchase agreement in relation to the car was admitted in evidence at the hearing (Exhibit A). I find that the hire purchase agreement was entered into between the applicant and the Australian Guarantee Corporation Limited for a period of 18 months. The agreement was dated 29 July, 1988 and there were to be 30 payments with the first payable one month from the date of the hiring. This meant that the final payment was due on 29 January, 1991, which was part way through the applicant's year of income.

34. Pursuant to the Hire Purchase Act 1959 (Qld), a hire purchase agreement grants a hirer a right in equity in respect of the goods comprised in the hire purchase agreement based on the amounts paid or consideration given by the hirer under the agreement (sub-section 1(5) of the Hire Purchase Act 1959). The agreement does not give the hirer ownership of the goods and, while he may enjoy exclusive possession of the goods while he meets his commitments under the hire purchase agreement, his arrangement is different from that of a lessor and so he cannot be said to be leasing the goods subject to the agreement.

35. It follows that I find that, during the year of income, the applicant owned the car from 29 January, 1991 to 30 June, 1991 but neither owned nor leased it for the period 1 July, 1990 to 28 January, 1991.

36. When this became apparent at the hearing, Mr McGill submitted that the outcome was that the applicant would be entitled to a deduction of five-twelfths of 33⅓% of the amount of the deduction that would otherwise have been allowable. I have had some difficulty with this submission as I am unable to find a provision for apportionment in sub-sections 82KW(1) and (2) and I am not able to find any provision for apportionment relating to those sub-sections.

37. Do the sub-sections apply in this case when the applicant has owned his car for part of the year only? It seems to me that it does and that he is entitled to the benefit of it for the whole of the year of income. Sub-section 82KW(1) refers to the car's being owned or leased during the holding period. The applicant's car certainly satisfies that provision. Paragraph 82KW(1)(a), which is the applicable paragraph in this case, makes no reference to the holding period but speaks of its travelling for more than 5,000 kilometres in the year of income.

38. The provisions of paragraph 82KW(1)(b), which is not applicable, are also expressed by reference to the year of income and not to the holding period. Sub-section 82KW(2) also refers to the deduction which would have been allowable in the year of income and is not limited to the holding period. The only reference to the holding period comes in sub- paragraph 82KW(2)(b)(i) where a deduction may be allowable if odometer records are maintained for the holding period. Sub- paragraph 82KW(2)(b)(ii), however, specifies an alternative method for deducting fuel or oil expenses and that is that the taxpayer obtain documentary evidence. This time, there is no reference to the holding period.

39. I have concluded that the applicant must, as he has, establish that he owns the car for a period during the financial year and that, once he has met that criterion, is entitled to take the benefit of sub-sections 82KW(1) and (2) for the whole of the year of income. I am reinforced in this view by the provisions of sub-section 82KW(3) which sets out the second alternative method of calculating deductions which may be allowable.

40. Sub-section 82KW(3) provides that:

``Subject to this Subdivision, where a taxpayer elects that this subsection apply in relation to a car in relation to a year of income-

• (a) unless paragraph (b) applies - the taxpayer is entitled in respect of the year

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  ATC 437

  of income to a deduction of an amount equal to 12% of-
  • (i) in the case of a car owned by the taxpayer - the cost of the car to the taxpayer; or
  • (ii) in the case of a car leased to the taxpayer - the market value of the car at the time when the lease was entered into by the taxpayer;
• (b) if, throughout a particular period, or particular periods, during that year of income, the car was neither owned nor leased by the taxpayer - the taxpayer is entitled in respect of the year of income to a deduction of the amount ascertained in accordance with the formula

                                A (365 - B),
                                -----------
                                    365
                

  • where-
    • A is the amount of the deduction to which, if this paragraph did not apply, the taxpayer would, by virtue of paragraph (a), have been entitled in relation to the car in respect of the year of income; and
    • B is the number of days in that period, or the total number of days in those periods, as the case may be; and
  • (c) a deduction is not allowable, and shall be deemed never to have been allowable, to the taxpayer under this Act in respect of a car expense that relates to the car and was incurred by the taxpayer during the year of income.''

41. As with sub-sections 82KW(1) and (2), sub-section 82KW(3) also turns on whether the taxpayer owned or leased the car. This time, however, the sub-section specifically recognises that there may be a period during the year when the taxpayer neither owned nor leased the car. It makes specific provision for that by giving a formula, the effect of which is to apportion the deduction between the period during which the car was owned or leased and the period during which it was not.

42. When taken with the fact that Parliament has specifically limited the amount of the deduction allowable in sub-section 82KW(3) but has chosen not to do so when a similar situation arises in the situations covered by sub- sections 82KW(1) and (2), I have concluded that I should give those two sub-sections their ordinary meaning as I have set out in paragraph 39 above.

43. Despite that conclusion, sub-sections 82KW(1) and (2) will not apply unless the applicant's car has travelled more than 5,000 kilometres in earning his assessable income. The Commissioner has conceded that issue and, on that basis together with the evidence that the applicant is a representative whose area covers Queensland and northern New South Wales, I find that, in the course of producing assessable income, he has travelled in his car for distances totalling a distance greater than 5,000 kilometres. This means that this method of deduction may be used.

44. The applicant, however, has not maintained any odometer records for the car and has not produced any documentary evidence in relation to the fuel and oil expenses he has incurred. Consequently, he is unable to take advantage of the provisions of paragraph 82KW(2)(b) in relation to his fuel and oil expenses. He has produced receipts for his car insurance and repairs and they appear at folios 73 to 91 of the T documents. He has satisfied, therefore, the provisions of paragraph 82KW(2)(ba) in regard to those expenses.

45. At the hearing, the hire purchase agreement for the car was produced (Exhibit A). It shows that the cost price for the car was $16,330 and we accept that figure as the cost price. I have not calculated the amount which would be the allowable deduction for depreciation as I am not concerned with precise calculations at this stage. I would observe, however, that in calculating the depreciation it should be noted that the applicant owned the car for the period after he had paid out the hire purchase agreement i.e. for approximately 153 days (see paragraphs 39 and 35 above and paragraph 46 below). He is entitled to claim depreciation only for the period in which he owned it. The depreciation would need to be taken with the costs of the car's insurance and repairs which have been conceded by the Commissioner to total $3,971 (T documents, folio 5). As paragraph 82KW(1)(a) states that he is entitled to a deduction which is 33⅓% of the amount he would otherwise have been able to claim if 100% were attributable to business use, he would be entitled to a minimum deduction of $1,323.67.

46. The applicant would also be entitled to a deduction if the provisions of sub-section

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ATC 438

82KW(3) were applied to his situation. I have not calculated that for precisely the amount of the deduction but it would be in the order of 42% of 12% of the original cost of the car to the applicant (i.e. $16,330) for he would have owned it for approximately 153 days of the year. The amount allowable as a deduction when calculated this way would be less than the amount calculated under sub-sections 82KW(1) and (2). When sub-section 82KY(2) is applied, this means that the applicant, who has not made an election, is entitled to the greater deduction.

47. In relation to the remainder of the sum of $10,310 claimed for car expenses, I have considered section 82KZAA which provides relief from substantiation requirements in certain circumstances. Sub-section 82KZAA(1) is relevant and it provides:

``Where:

• (a) a taxpayer claims to have incurred an expense during a year of income; and
• (b) having regard to:
  • (i) the nature and quality of evidence that the taxpayer has available to substantiate the claim; and
  • (ii) special circumstances affecting the taxpayer, including, but not limited to, the following:
    • (A) the extent to which the taxpayer attempted to comply with the substantiation sections;
    • (B) whether the taxpayer's failure to comply with the substantiation sections was inadvertent or deliberate;
• the Commissioner, in the course of reviewing the claim after the making of the assessment of the taxpayer's taxable income of the year of income, is satisfied that:
  • (iii) the expense was incurred by the taxpayer during the year of income; and
  • (iv) it would be unreasonable for the substantiation sections to apply in relation to the taxpayer in relation to the expense; and
• (c) the Commissioner's review is undertaken:
  • (i) of the Commissioner's own motion; or
  • (ii) in considering an objection against the assessment of the taxpayer's taxable income of the year of income; or
  • (iii) in considering whether to make an amendment of the assessment of the taxpayer's taxable income of the year of income in response to a request made by the taxpayer before the commencement of this section;

the substantiation sections do not apply in relation to the taxpayer in relation to the expense.''

48. Mr Wan submitted that the applicant had been led to understand that the Commissioner would be happy to accept records in the form in which he had produced them for the three months. This understanding had arisen, Mr Wan said, when there had been discussions between the applicant and the Commissioner's officers in a previous year. The applicant did not give oral evidence about this matter. Mr McGill submitted that certain records relating to car expenses had been accepted in a previous year as part of a settlement and had no other relevance.

49. The records submitted in relation to the earlier year (Exhibit 9) were weekly expense reports the applicant had kept for a previous employer. In relation to his car, they show the odometer readings each Friday night and Monday morning, the petrol costs and the number of kilometres travelled each week for business. Those earlier records are far more detailed than the records maintained by the applicant in relation to the current year of income. In light of that, it is difficult to see how he can be said to have been led to understand that the latest records he has maintained would be adequate. In the absence of any other evidence about the matter, I am unable to find that there was a basis for any understanding the applicant might have had in relation to the maintenance of documentary evidence in relation to car expenses. The applicant's understanding cannot in these circumstances amount to special circumstances within the meaning of sub-section 82KZAA(1). As there are no other circumstances which have been argued to be special, I find that the ameliorating provisions of that sub-section are not applicable in this case.

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ATC 439

Additional tax and penalty

50. The additional tax has been imposed and, following the Commissioner's amended assessment, amounted to $2,476.09 (T documents, folio 101). This was said in the statement prepared for the T documents to be imposed ``at 30% culpability plus an additional 5% culpability for lack of co-operation'' (T documents, folio 8).

51. Mr Wan submitted that 30% is the maximum penalty for carelessness set out in paragraph 41 of the Commissioner's Income Tax Ruling IT 2517. Mr McGill submitted that it is appropriate in view of the quality of the records maintained by the applicant and his lack of co-operation with the Commissioner. He submitted documents setting out the distances between the destinations shown on the applicant's records (Exhibits 2 and 3).

52. No evidence was presented to contradict the evidence in the records of distances. I prefer the distances stated in those records, which have been certified to have been measured and which accord with commonsense, to those distances stated in the applicant's records, which I find to have been generously overstated. In view of the paucity of the information contained in the records and their lack of legibility, I find that they have been carelessly prepared.

53. Those records must be considered with the other documentary evidence which has been supplied. Taking it all into account, I consider that additional tax for carelessness of 30%, which is at the maximum recommended rate in the schedule of paragraph 41, is not justified. On the other hand, the record keeping does not reveal trivial or minor carelessness justifying 15%. In all the circumstances, I consider that a mid range of 20% is the appropriate penalty.

54. Without hearing from the applicant, it is more difficult to determine whether or not he did not co-operate with the Commissioner as he should have. I do, however, have the material in the T documents. That shows that the Commissioner first wrote to him requesting further information on 12 October, 1992. He was asked to return a substantiation sheet by 9 November, 1992. He did not do so and an officer of the Commissioner telephoned a person described as his ``agent'' on 27 November, 1992. Although a message was left, the call was not returned. The officer telephoned again on 30 November, 1992 and was promised the documents by the end of the week. The documents had not arrived by 14 December, 1992 and so the applicant was advised that an amended assessment would be issued when the Commissioner wrote to him on 16 December, 1992.

55. A notice of objection was lodged on 19 February, 1993. The Commissioner wrote requesting documentary evidence on 24 May, 1993. A reply was requested within 21 days. An officer telephoned the agent on 23 June, 1993 and was told the applicant was in Sydney for a few days. The officer told him there would have to be a reply within the next two weeks. The Commissioner wrote to the applicant on 11 July, 1993 advising that he had failed to supply the information requested in its letter of 24 May, 1993. Two telephone calls with the agent followed and the information promised by 30 July, 1993. The information was provided in a letter of 2 August, 1993.

56. In view of the history of the matter and in the absence of any explanation by the applicant, I consider that additional tax of 5% for lack of co-operation is justified.

57. For the reasons I have given, I

• 1. set aside the decision under review; and
• 2. remit the matter to the Commissioner to calculate the amount of tax and additional tax payable by the applicant for the year of income ending 30 June, 1991 in accordance with the following directions:
  • (1) home telephone expenses of $408 are not an allowable deduction;
  • (2) home office expenses of $326 are not an allowable deduction;
  • (3) the amount of deduction allowable to the taxpayer in respect of car expenses is to be calculated on the basis of sub- sections 82KW(1) and (2) of the Income Tax Assessment Act 1936 and on the basis that the expenses for insurance and repairs amounted to $3,971 and the cost price of the car was $16,330; and
  • (4) the culpability component of the additional tax is payable at the rate of 20% for carelessness and a further 5% for lack of co-operation.