88 ATC 906
PM Roach SM
Administrative Appeals Tribunal
Judgment date: 9 September 1988.
P.M. Roach (Senior Member): The applicant is one of the justices of the Family Court of Australia. (Hereafter I shall refer to the applicant as ``the Judge''.) The Judge is one of many judges of that Court who, in consequence of their service to the community in that capacity, have had their lives, and the lives of their families and those residing with them, put at risk. Some of those persons have been murdered. Those murders, and other actual and threatended violence, forced upon the Government and the community recognition of the dangers during 1984. The risk to the justices in many places was so grave that the Government committed substantial community resources to the protection of the justices and their families. Security advisers in Government service travelled, investigated, advised their superiors and made recommendations to the justices at public expense. Duress alarm systems were installed in the homes of the judges and maintained at public expense. Security systems were installed in and about the courts and, as appropriate, staff were appointed in the operation of those system and supported at public expense. Transport by chaufffeur-driven Commonwealth cars, attended as appropriate by police escorts, were provided for justices at public expense. Standing police guards, involving two officers on a 24-hour per day and 365-day per annum basis, were maintained in the homes of justices at public expense. As the risk to life was substantial and as it was generally accepted that that was a risk arising from status as a Justice of the Family Court, and from the rendering of service to the community as one of the justices of that Court, it is not surprising that the community in whose interests the risk was encountered should have borne the costs involved in minimising that risk.
2. But there proved to be financial limits to the concern of the community, as manifested through the Department of the Attorney-General. Resources of personnel, be they police officers, or drivers, or technical advisers, or administrators, the cost of whose services was already reflected in State or Commonwealth Departmental budgets and which must have involved a cost to the community well in excess of $100,000 per annum per justice seem to have been no problem. But when it came to the matter of providing for the costs of establishing the physical and electronic security systems, in addition to the duress alarm system, which had been recommended to the justices by the Commonwealth for installation, the Commonwealth determined to limit its contribution to those costs to $1,000 per judge.
3. In due course the department was to contend that:
``In arriving at that decision the following points were taken into account:
- · Judges were, or should have been, aware of a degree of risk when they accepted appointment;
- · it is not appropriate to provide reimbursement for permanent home improvements which would constitute a capital gain for the owner;
- · doubt existed about a basis for distinguishing Family Court Judges from other VIPs, such as Ministers of the Crown, who do not receive any financial assistance towards security measures provided at their residences.''
4. The Judge strongly protested the accuracy of the first point and might equally have protested the other points. As yet no Minister of the Crown has been murdered in this country.
5. Departmental sources also contended that ``several judges have been successful in claims for expenditure above the amount reimbursed to be accepted as a deduction for taxation purposes''. The information may have been correct. But if the claims had been allowed in error, the allowance of them cannot assist the applicant. The Commissioner, like everyone else, can make mistakes, but, like others, he is not bound to repeat them. (I note that, although the decision in Case T20 (cf. post) had not been delivered when that comment was made, the decision in Frankcom v. F.C. of T. (cf. post) had been.)
6. One result of the recommendations made by the Attorney-General's Department was that a remotely monitored duress alarm system with push-button switches to be monitored 24 hours per day, was installed on the basis that ``the total capital and running costs of the system will be borne by this Department which will also arrange for its installation and maintenance''. Also, in accordance with the recommendations made by advisers to the department, physical, electrical and electronic
88 ATC 908
security systems were also installed, but on the basis that:
``reimbursement of one-half of costs, to a maximum of $1,000, incurred in the provision of physical security improvements in accordance with recommendations by the Department at your private residence. Reimbursement will be made on a once-only basis on production of original receipts (which are required for audit purposes), together with a brief statement of the work performed.''
7. Implementation of the latter recommendations was to cost the Judge a large sum: and moneys had to be borrowed for the purpose. The Judge claimed that a portion only of that expenditure related to ``security connected with my employment''. Unlike the justice whose claim to a deduction for the moneys expended was considered and disallowed in Case T20,
86 ATC 211, the Judge only claimed to depreciate the capital expended. That claim was based on the following expenditure:
Gates and steel security fencing
providing for car access 1,126
Telescopic activators 2,140
Other fencing with security
Wrought iron security
screen doors 478
Wrought iron security
window grilles 465
Electric bell at security
Deadlocks and padlocks to
perimeter gates and doors 73
Security letter box 13
8. In addition, the Judge purchased a guard dog at a cost of $250; a kennel ($102); and a trampoline bed for the dog ($72). (The dog, Victor, was aged four months at the commencement of the 1985 year of assessment. Perhaps, like the geese of ancient Rome, Victor was initially more highly regarded for his sensitivity than his aggression.)
9. In December 1985 assisted by a tax agent, a chartered accountant, the Judge prepared and submitted to the Commissioner an income tax return for the year of income ended 30 June 1985. In that return the Judge acknowledged judicial salary as income; and acknowledged having received as assessable income a travelling allowance and $3,850 which would have constituted an ``expenses of Office'' allowance. But the applicant did not bring either of the latter amounts to account as increasing taxable income. Each was stated to have been ``fully expended''. Although the ``expenses of office allowance'' was excluded from account as having been ``fully expended'', deductions were claimed for professional subscriptions $170 (fully allowed); other subscriptions $233 (fully allowed); conference costs $1,389 (fully allowed); clothing and dry cleaning costs $285 (not allowed); professional indemnity insurance $175 (wholly allowed). Expenses which related to or were incidental to the provision of security at the home of the Judge ($4,620) were also disallowed.
10. Having treated only $7,966 of the expenditure on security systems and their installation as related to ``security connected with my employment'', the claims to deductions of $4,520 (excluding a mathematical error of $100) were calculated as follows:
$ $ $
Expenditure on installation 7,966
Less expected reimbursement 1,000
Depreciation at 20% of $6,966
Interest on borrowings (say 15% on $7,966 [sic]) 1,392
88 ATC 909
$ $ $
Dog $250 at 20% 50
Kennel $102 at 33% 34
Trampoline bed $72, 50% 36
Veterinary fees 352
Training and registration 22
Food and chemist supplies 520 1,014
Security system power and replacement globes 411
Standing police guard:
Winter heating 379
Tea, coffee, milk 250 659
Technically the claims made by the Judge may be considered as falling into several distinct categories. I shall address them in turn.
11. Section 54(1) of the Income Tax Assessment Act 1936 (``the Act'') provides for the allowance of a deduction for depreciation in respect of ``any property, being plant or articles owned by a taxpayer and used by him... for the purpose of producing assessable income...''. Whether the real estate on which the moneys were expended was owned only by the Judge so as to constitute the equipment as equipment owned by the Judge was not challenged on behalf of the Commissioner. That being so, I shall treat it as a matter not being in dispute in these proceedings.
As the evidence stands before me I am satisfied that for the most part what is said to constitute ``plant or articles'' within the meaning of sec. 51 of the Act does not fall in that category of exceptional cases illustrated by
Wangaratta Woollen Mills Limited v. F.C.of T. (1969) 119 C.L.R. 1 such as to render that which is an integral part of the freehold property and of the structures erected on it for permanent use (such as a residence) to be depreciable as ``plant or articles''. I now turn to the exception.
Depreciation: telescopic activators
12. No detailed evidence was presented but, according to my understanding, the activators were affixed to the structures in order that they might carry out the function for which they were designed. In that sense they had a function distinct from the building itself. Accordingly, in my view, to the extent to which the activators were used ``for the purpose of producing assessable income'' as required by sec. 54(1) of the Act, a claim is allowable. Such a claim is subject to the operation of sec. 61 of the Act which must be applied where ``the use of any property by the taxpayer has been only partly for the purpose of producing assessable income...''.
13. Interest is only claimed in relation to the items sought to be depreciated under the foregoing categories. As to the amount of the claim, I observe that it is based upon the gross cost brought to account for depreciation purposes rather than then the net cost after bringing to account the $1,000 reimbursed. In my view, if anything is allowable under this heading, it is to be based upon the proportion which the amount allowable as depreciation bears to the net outlay of $6,966. Further, whether anything at all is allowable under this head will depend on deductibility in relation to the principal expenditure.
Depreciation: dog; kennel; and trampoline bed
14. The claim for depreciation in relation to the dog is unusual. However, imaginative though the claim may be, it is not manifestly unreasonable. In
Inland Revenue Commissioners v. Scottish and Newcastle Breweries Limited (1982) 2 All E.R. 230 Lord Wilberforce (at p. 232) said of the use of the word ``plant'' in fiscal and other legislation that:
88 ATC 910
``no ordinary man, literate or semi-literate, would think that a horse, a swimming pool, moveable partitions or even a dry-dock was plant, yet each of them has been held to be so: so why not such equally improbable items as murals or tapestries or chandeliers.''
- or, I add, a dog.
But the question for determination is not one which admits of being resolved by simple generalisations. It has to be determined by reference to sec. 54(1) of the Act. That section speaks of ``plant or articles'', and subsec. (2) in particular goes on to provide an extended definition of ``plant'' by providing:
``In this section, `plant' includes-
- (a) animals used as beasts of burden or working beasts in a business other than a business of primary production, and machinery, implements, utensils and rolling stock:''
Other provisions in the Divisions further extend the concept of plant in relation to particular taxpayers. If dogs are used to provide security for business premises against intruders, there is no reason in principle why they should not be considered as ``working beasts'' or ``plant'', as much serving the productive functions of the business as any piece of inanimate equipment. That being so, in my view there is no reason in principle why depreciation should not be allowed in relation to either the dog or the canine accessories. But, as with the telescopic activators, the claim must be determined after consideration as to whether there has been such a use as satisfies the requirements of sec. 54(1) of the Act and, if there has been, to what extent sec. 61 of the Act requires an apportionment of the claim.
The maintenance costs
15. In my view these claims can be grouped together even though, for certain purposes, it would be appropriate to distinguish the costs incidental to the provision of:
- heating, lighting and refreshment for the standing guard of police officers $659;
- continued feeding, maintenance and upkeep of the dog $894; and
- the other costs involved in maintaining and operating the security equipment $411.
The claims so made fall for consideration under the provisions of sec. 51(1) of the Act which provides for the allowance as deductions of losses and outgoings ``to the extent to which they are incurred in gaining or producing the assessable income or to the extent to which they are necessarily incurred in carrying on a business for the purpose of gaining or producing such income''. In the circumstances of the present case there is no suggestion that the Judge was ``carrying on a business'' so that it is only the former test which needs to be considered. If that test is satisfied then, as the expenses in question were neither losses or outgoings of capital nature nor were incurred in relation to the gaining or production of exempt income, the claims will be allowable unless the expenses in question are of a ``private or domestic nature''.
16. In seeking to apply the tests expressed in that section it is appropriate to first observe that nothing can be more obviously ``private'' than ensuring the continued existence of oneself as a person sound in mind and body; and nothing more ``domestic'' than matters pertaining to the privacy of a family household. On the face of it, therefore, the expenses in question were ``of a... private or domestic nature''. On the other hand, unlike many who maintain security systems at considerable expense in order to secure protection from thieves, rapists and other criminals, in this instance the need for security had a specific relationship to the income-earning activities of the Judge. That being so, the Judge was in a position similar to that of ministers of the Crown and Royal Commissioners protected under arrangements maintained in the interests of the community. The situation of the Judge is also similar to that of the individual citizen who, because of his attempts to publicly expose corruption, or that of a person protected under the ``witness protection'' program who is thought to have been a witness to crime, is at risk of being harmed by others. But then, too, the Judge's plight was not fundamentally different from the danger faced by some who suffer from broken matrimonial relationships.
17. For the Judge it was acknowledged that the marital breakdown which puts the life of one partner to the relationship in jeopardy, sometimes fatally, bears no relationship to income-producing activities. On the other hand the common thread to all of those situations is
88 ATC 911
that it is the life of the individual which is put at risk. What would seem to be a principal distinguishing feature of these matters is that, in this instance, the community, which by its use of the services of the individual at risk exposes that individual to the risk, has declined to bear fully the expense of providing that measure of protection for the individual and his family which Government, on behalf of the community recommends.
F.C. of T. v. Forsyth 81 ATC 4157; (1981) 148 C.L.R. 203 and
Handley v. F.C. of T. 81 ATC 4165; (1980-1981) 148 C.L.R. 182 the High Court of Australia held that the costs incurred by barristers in maintaining family residences are entirely non-deductible because of their ``private and domestic'' character, notwithstanding their quite extensive use of the homes for income-producing purposes. In
Frankcom v. F.C. of T. 82 ATC 4599 the Supreme Court of Victoria held that claims by a stipendiary magistrate against whom threats had been made for deductions in relation to expenditure on security, locks and external lighting in his home were non-deductible on the basis that expenses so incurred were of a capital nature and because:
``being also for the protection of his home and members of his family, the expenditures were of a private or domestic nature.''
19. In Case T20 (ante) the No. 1 Board of Review reached the same conclusion in relation to a claim by another Judge of the Family Court to a deduction pursuant to sec. 51 of the Act. In the latter case, the question of depreciation raised in the present proceedings did not arise and, because the objection in that case did not raise any such contention, it was not open to the Board to consider relief in that regard. That, however, is a question which does explicitly arise in the present proceedings.
20. As a result it follows that, in so far as the expenses claimed are private in nature, as I find they are, no deduction can be allowed under the provisions of sec. 51(1) of the Act. Furthermore, before reaching that conclusion. I have particularly considered whether or not the expenses incurred in providing for the standing guard of police officers assigned to the protection of the Judge and the Judge's family should be so regarded. However, the circumstance that the Judge as a matter of common courtesy made some provision for the comfort and sustenance of officers whose lives were potentially at risk in the interests of the Judge's family, does not deflect me from the conclusion that the expenses were not incurred ``in the course of'' deriving the assessable income of the judge as a Judge of the Family Court of Australia and were not private in nature.
21. On the other hand, such a finding does not automatically preclude allowance of depreciation because in sec. 54 of the Act there is no automatic exclusion in relation to expenditure which is of a ``private or domestic'' character (
F.C. of T. v. Faichney (1972) 129 C.L.R. 43). Instead, sec. 61 provides that:
``Where the use of any property by the taxpayer has been only partly for the purpose of producing assessable income, only such part of the deduction otherwise allowable under section 54 or section 59 in respect of that property as in the opinion of the Commissioner is proper shall be an allowable deduction.''
That being so, questions which remain for consideration are whether the expenses incurred in relation to the telescopic activators and the dog claimed pursuant to sec. 54 of the Act were expenses incurred ``in the course of'' deriving the assessable income of the Judge as a judge of the Family Court of Australia. Having carefully considered the matter, and having regard to the principles expressed in
Amalgamated Zinc (de Bavay's) Limited v. F.C. of T. (1935) 54 C.L.R. 295 and I must conclude that the expenses in question were not so incurred. Adapting to the circumstances of this case the words used by Mason J. (as he then was) in characterising a working mother's child-minding expenses. I find that:
``The expenditure was incurred for the purpose of enabling the continued earning of assessable income and it was a consequence of the derivation of income as a Judge of the Family Court... but the expenditure was not incurred in, or in the course of, doing the work which generated that income''
Lodge v. F.C. of T. 72 ATC 4174; (1972) 128 C.L.R. 171).
22. Accordingly, the determination of the Commissioner upon the objection under review will be affirmed.