Tourapark Pty Ltd v FCT

[1982] HCA 18

HIGH COURT OF AUSTRALIA

Gibbs C.J., Mason, Murphy, Aickin and Wilson JJ.

TOURAPARK PTY. LTD. v. FEDERAL COMMISSIONER OF TAXATION

(1982) 149 CLR 176

23 April 1982

Income Tax (Cth)

Income Tax (Cth)—Deductions—Investment allowance—Eligible property—Property acquired for use by taxpayer wholly and exclusively—Caravans for tourist park—Licences granted to occupy caravans—Whether grants of right to use property—Income Tax Assessment Act 1936 (Cth), ss. 82AA(a)(ii)(C), 82AG(1)(b).

Decisions

1982, April 23.
The following written judgments were delivered: -
GIBBS C.J. This appeal from the Full Court of the Federal Court raises for consideration a short question as to the construction of certain provisions of the Income Tax Assessment Act 1936 (Cth) ("the Act") as in force in respect of the income year ended 30 June 1977. (at p179)

2. During that year of income, the appellant, the taxpayer, occupied land at Canberra on which it carried on a business described as that of a tourist caravan and camping park. On the land he provided accommodation in caravans and motel units. The caravans, which were specially made for use as stationary caravans in caravan parks, sat on concrete blocks, although their wheels remained attached, so that they were capable of being moved to other sites. They were connected to the electricity supply and the water supply. A customer requiring accommodation in a caravan would, on payment of the requisite amount, be given the key to a particular caravan, and a document in the form of a receipted account which bore at the foot the words "The licence subject to conditions noted on back hereof", and on the back a statement by the customer that he agreed that the money paid to the taxpayer conferred on the customer a licence to occupy the caravan, subject to the conditions set out. Those conditions are immaterial, and in any case it is unlikely that they were brought to the notice of most customers. However it is clear that each customer was granted a licence for a consideration, and that the licence carried with it a right to occupy the caravan and to make use of communal facilities, such as lavatories, laundries, a swimming pool and parking space. It is right to say, as the taxpayer's counsel submitted, that the business of the taxpayer could properly be characterized as that of conducting a caravan park; it was not a business of merely letting caravans or granting licences to use the caravans otherwise than as units of the caravan park. (at p180)

3. The taxpayer claimed an investment allowance under Subdivision B of Div. 3 of Pt III of the Act in respect of the acquisition of certain of the caravans in the relevant year. Under s. 82AB of the Act a taxpayer who incurred expenditure of a capital nature "in respect of the acquisition or construction by him of a new unit of eligible property in relation to which this Subdivision applies" was, subject to conditions immaterial for present purposes, entitled to be allowed as a deduction from his assessable income a percentage of the amount of that expenditure ascertained in accordance with that section. "Eligible property" is defined in s. 82AQ(1) of the Act to mean (inter alia) "plant or articles within the meaning of section 54" and it is common ground that the caravans fell within this description, and that an allowance under s. 82AB - the investment allowance - was payable if the caravans were eligible property in relation to which Subdivision B applied. That question depends upon the proper construction of ss. 82AA and 82AG(1) which are in the following terms: Section 82AA

"Subject to the following provisions of this Subdivision, this Subdivision applies in relation to a unit of eligible property acquired or constructed by the taxpayer that is - (a) in the case of any taxpayer, for use by the taxpayer wholly and exclusively - (i) in Australia; and (ii) for the purpose of producing assessable income otherwise than by - (A) the leasing of the eligible property; (B) the letting of the eligible property on hire under a hire-purchase agreement; or (C) the granting to other persons of rights to use the eligible property; or (b) in the case of a taxpayer being a leasing company, for use wholly and exclusively - (i) in Australia; and (ii) for the purpose of producing assessable income, by another person to whom the taxpayer has, on or after 1 January 1976, leased the eligible property under a long-term lease agreement that was entered into by the taxpayer in the course of carrying on business in Australia and was so entered into by the taxpayer and the other person at arm's length."

Section 82AG(1)

"This Subdivision does not apply, and shall be deemed never to have applied, in relation to property acquired or constructed by a taxpayer, not being property that, in the case of a taxpayer being a leasing company, the taxpayer has leased to another person, if, before the expiration of 12 months after the property was first used, or installed ready for use, by the taxpayer - (a) the taxpayer disposed of the property or the property was lost or destroyed; (b) the taxpayer leased the property, let the property on hire under a hire-purchase agreement or otherwise granted a right to another person to use the property; or

(c) the taxpayer used the property outside Australia or for a purpose other than the purpose of producing assessable income." (at p181)

4. There is no doubt that the caravans were acquired by the taxpayer for use by the taxpayer wholly and exclusively in Australia, and for the purpose of producing assessable income. The taxpayer was not a "leasing company" (an expression defined in s. 82AQ(1) to refer to certain banking and finance companies). Clearly the caravans were neither leased to the customers nor let on hire to them under a hire-purchase agreement. They were therefore property to which the subdivision applied unless they were acquired by the taxpayer for the purpose of producing assessable income by the granting to other persons of rights to use the eligible property (s. 82AA(a)(ii)(C)) or unless, even if not so acquired, within twelve months after their first use or installation ready for use the taxpayer granted a right to other persons to use them (s. 82AG(1)(b)). The questions that arise under s. 82AA and s. 82AG are the same - in the circumstances mentioned, did the taxpayer, by allowing a customer to occupy a caravan pursuant to a licence for reward, grant to the customer a right to use the caravan within the meaning of those sections? (at p181)

5. On behalf of the taxpayer it was frankly conceded that the customer was given a right to use the caravan in one sense of the words. This concession is obviously correct. However it was submitted that the taxpayer nevertheless itself continued to use the caravans for the purpose of producing assessable income. This also is correct. "A person who owns land may be said to use it for his own purposes notwithstanding that he permits someone else to occupy it, even under a lease": Ryde Municipal Council v. Macquarie University (1978) 139 CLR 633, at p 638 ; although the owner does not put his land to "active, personal use", he may use it by making it available for use by others (1978) 139 CLR, at p 647 . In the present case the customer would put the caravan which he occupied to active, personal use, but the taxpayer still used the caravan as plant forming part of the caravan park for the purpose of producing assessable income. It was then submitted that the intention to be discerned from Subdivision B is that "rights to use" under s. 82AA(a)(ii)(C) are only such rights as exclude the use by the taxpayer of the property as plant. The intention, it was said, is that a taxpayer who himself uses the property as plant for the purpose of producing assessable income is entitled to the allowance, ever if someone else is granted a right to use it, but a taxpayer who merely derives rental income from it is not. Put in another way, it was said that if the use made by the taxpayer of the property is for the purpose of producing assessable income by leasing the property, by letting it on hire under a hire-purchase agreement, or by granting to other persons rights to use it (in the ordinary sense of those words), that does not mean that the subdivision does not apply, unless the taxpayer is thereby deprived of the active use of the property. In other words, it was sought to read s. 82AA(a)(ii) as though the words "thus depriving the taxpayer of the active use of it" were added to it. In the alternative, it was submitted that the words following the words "otherwise than by" in s. 82AA(a)(ii) applied only to cases where the leasing, letting or granting of a right to use the property is the only use made by the taxpayer; that is to say, if, although the property was leased etc., the taxpayer uses it in some other way, the property remains property to which the subdivision applies. (at p182)

6. However these submissions are put, they require a departure from the ordinary and natural meaning of the words of the sections. Although the taxpayer retains a right to use the caravans, and does in fact use them, it nevertheless grants to each customer a right to use them. Even if it were to be admitted that the provisions of s. 82AA are rendered ambiguous by the use of the words "wholly and exclusively", the words of s. 82AG(1) are perfectly plain; their effect is that if, within the time mentioned, the taxpayer has granted a right to another person to use the property, the subdivision does not apply in relation to the property. The argument of the taxpayer seeks to modify these words by adding to them words such as "and has not himself at the same time used the property as plant". There is no context that requires this departure from the ordinary meaning of the sections; on the contrary, the context suggests that no such gloss as is suggested on behalf of the taxpayer should be put upon them. By s. 82AG the right to the investment allowance is lost not only if, within twelve months after the property was first used, or installed ready for use, by the taxpayer, the taxpayer leased the property, let it on hire under a hire-purchase agreement or otherwise granted a right to another person to use it, but also if the taxpayer disposed of the property, or the property was lost or destroyed, or the taxpayer used the property outside Australia or for a purpose other than the purpose of producing assessable income. The right to the allowance may also be lost if the taxpayer does any of those things after the expiration of the twelve months, if the Commissioner is satisfied that when the property was acquired or constructed the taxpayer intended to do any of those things after becoming entitled to a deduction: see s. 82AH. No provision is made for any apportionment if, for example, the taxpayer granted to another a right to use the property for a short time only, or if for a short time only the taxpayer used the property for a purpose other than the purpose of producing assessable income. The provisions of these sections may be contrasted with those which in certain circumstances allow a leasing company to transfer the whole or part of a relevant deduction to a lessee, but only if the lessee used the property for the purpose of producing assessable income: see ss. 82AA(b), 82AD, 82AG(3)(B), 82AH(3), (4). All these provisions support the view that (except in the case of leasing companies) the Parliament intended that the allowance should not be deductible unless the taxpayer kept both the property and the exclusive right to use it, and did use it only for the purpose of producing assessable income. (at p183)

7. Counsel for the taxpayer in the course of argument gave a list of examples of property in respect of which it was said that if the Commissioner's construction of the Act is correct, a taxpayer would not be entitled to the investment allowance. The list included self-service petrol bowsers at service stations, automatic lockers at transport terminals, lifts and escalators and aircraft and buses. It is unnecessary to consider whether it would be correct to say that a taxpayer grants to another person a right to use property of the kind mentioned in the examples, and undesirable to do so since the question may fall for decision in other cases. However, if the conclusion is that the allowance is not payable in respect of property of that kind, the result is neither absurd nor unjust. It is apparent that the investment allowance is made available for the purpose of encouraging particular behaviour which the Parliament regarded as desirable, namely, the expenditure of money on certain plant which (except in the case of leasing companies) is intended to be used and is in fact used by the taxpayer himself wholly and exclusively for the production of assessable income and which others have no right to use. The Parliament attached conditions to the right to the allowance, no doubt with a view to preventing the right being used simply as a means of tax avoidance, and no reason appears why the words imposing the conditions should be given any other than their ordinary and natural meaning. (at p183)

8. A final argument advanced on behalf of the taxpayer was that a limited meaning should be given to the words of s.82AA(a)(ii)(C) and to the corresponding words of s.82AG(1)(b), since if those words were given the widest meaning of which they are capable they would render the reference to leasing and letting on hire unnecessary. It is true that the words "the granting to other persons of rights to use the eligible property" would on one view be wide enough to include leasing and letting on hire. It is clear however that those words include other transactions as well and are not limited to the grant of a right to use which results from the grant of a lease or from a letting on hire. The words "granting to other persons of rights to use the eligible property" would not naturally be used to describe a lease or letting, and if the words of (A) and (B) had not appeared in s.82AA(a)(ii) it might well have been argued that the words of (C) were inapt to refer to a lease or letting on hire. However even if leases and letting on hire would fall within the ordinary meaning of the words of (C), that would not support the taxpayer's argument that the words which refer to the grant of a right to use the property should be restricted to a grant which deprives the taxpayer of the active use of the property or is made in circumstances where it is the only use which the taxpayer makes of the property. There is simply no other provision in the Act which suggests that words should be read into the Act in this way, and the suggested construction involves mere speculation as to the intention of the Parliament. (at p184)

9. The relevant questions of law in the stated case, and the answers which the Federal Court gave to them, were as follows:
"(iii) Were the aforesaid caravans, units of property acquired by the taxpayer for use wholly and exclusively by the taxpayer for the purpose of providing assessable income otherwise than by -
(a) the leasing of such units; or (b) the granting to other persons of rights to use such units within the meaning of s.82AA(a)(ii)(A) and (C) respectively of the said Act?"

Answer - No "(iv) Did the taxpayer lease the aforesaid caravans or otherwise grant a right to another person to use the caravans within the year of income after the caravans were first used by the taxpayer within the meaning of s.82AG(1)(b) of the said Act?"

Answer - Yes, in that it granted to other persons rights to use the caravans.

These answers were correct and the appeal should be dismissed. (at p184)

MASON J. I would dismiss this appeal for the reasons given by Gibbs C.J. (at p185)

MURPHY J. I agree with the Chief Justice. The appeal should be dismissed. (at p185)

AICKIN J. This is an appeal from the Full Court of the Federal Court upon a challenge by the appellant taxpayer to an assessment of income tax under the Income Tax Assessment Act 1936 (Cth) as amended ("the Act") in respect of the year of income ended 30 June 1977. (at p185)

2. In that year the appellant carried on the business of a tourist caravan and camping park on land in Canberra. On that land it provided caravans and motel units which were available to members of the public wishing to occupy them and for which they paid a charge. The caravans were mounted on concrete blocks but retained their wheels and were capable of being moved from one site to another. They were connected to an electricity supply and a water supply. The customers paid a stated amount per day and were provided with a key to a particular caravan. The customers were given by the appellant a document in the form of a receipt which stated "This licence subject to conditions noted on back hereof". It is not material to the present case to determine whether the conditions which were in fact set out on the back of the document formed part of the contract between the appellant and the customer and we are therefore not concerned with the problems of the ticket cases. However, it is clear that each customer was in fact granted a licence to occupy a caravan and to make use of the communal facilities which were provided on the site, e.g. lavatories, laundries, etc. The issue with which the appeal is concerned is whether the appellant was entitled under sub-div. B of Div. 3 of Pt III of the Act to an "investment allowance" in respect of certain caravans acquired in the year of income. (at p185)

3. The relevant provisions of the Act are ss.82AA, 82AB and 82AG(1), which provisions were as follows:

"82AA. Subject to the following provisions of this Subdivision, this Subdivision applies in relation to a unit of eligible property acquired or constructed by the taxpayer that is - (a) in the case of any taxpayer, for use by the taxpayer wholly and exclusively - (i) in Australia; and (ii) for the purpose of producing assessable income otherwise than by - (A) the leasing of the eligible property; (B) the letting of the eligible property on hire under a hire-purchase agreement; or (C) the granting to other persons of rights to use the eligible property; or (b) in the case of a taxpayer being a leasing company, for use wholly and exclusively - (i) in Australia; and (ii) for the purpose of producing assessable income, by another person to whom the taxpayer has, on or after 1 January 1976, leased the eligible property under a longterm lease agreement that was entered into by the taxpayer in the course of carrying on business in Australia and was so entered into by the taxpayer and the other person at arm's length. 82AB.(1) Subject to this Subdivision, where - (a) on or after 1 January 1976, a taxpayer has incurred expenditure of a capital nature (in this section referred to as 'eligible expenditure') in respect of the acquisition or construction by him of a new unit of eligible property in relation to which this Subdivision applies; (b) the eligible expenditure exceeded $500; (c) the eligible expenditure was incurred - (i) in respect of a unit of property acquired by the taxpayer under a contract entered into on or after 1 January 1976 and before 1 July 1985; or (ii) in respect of a unit of property that was constructed by the taxpayer and the construction of which commenced on or after 1 January 1976 and before 1 July 1985; and (d) the unit of property was first used or installed ready for use before 1 July 1986, there shall be allowed as a deduction from the taxpayer's assessable income of the first year of income during which that unit was eigher used for the purpose of producing assessable income, or installed ready for use for that purpose, an amount (in this section referred to as the 'relevant amount') ascertained in accordance with the following provisions of this section. . . . 82AG.(1) This Subdivision does not apply, and shall be deemed never to have applied, in relation to property acquired or constructed by a taxpayer, not being property that, in the case of a taxpayer being a leasing company, the taxpayer has leased to another person, if, before the expiration of 12 months after the property was first used, or installed ready for use, by the taxpayer - (a) the taxpayer disposed of the property or the property was lost or destroyed; (b) the taxpayer leased the property, let the property on hire under a hire-purchase agreement or otherwise granted a right to another person to use the property; or

(c) the taxpayer used the property outside Australia or for a purpose other than the purpose of producing assessable income. . . . " (at p187)

4. It is necessary also to refer to the definition of "eligible property" in s. 82AQ(1) which is defined to mean "plant or articles within the meaning of section 54" and it is not disputed that the caravans were "plant or articles" within that section. (at p187)

5. It was common ground that the caravans were acquired by the appellant for use by it wholly and exclusively in Australia and for the purpose of producing assessable income. It was also common ground that the appellant was not a "leasing company" within the meaning of that term as defined in s. 82AQ(1) and that the caravans were not leased to the customers nor let on hire to them under hire-purchase agreements. (at p187)

6. The only question is whether they were acquired by the appellant for the purpose of deriving or producing assessable income by "the granting to other persons of rights to use" them. On the facts of the present case the same question arises under both s. 82AA and s. 82AG because it is clear that from the outset the caravans were acquired for the purpose of producing assessable income in the form of the payments to be made to the appellant by the persons who occupied the caravans from time to time pursuant to the arrangements described. In the result both s. 82AA and s. 82AG deny the deduction in such circumstances. (at p187)

7. It was not disputed by the appellant that the customer was given "a right to use" the caravan in one sense of that term. It was however argued that the appellant continued to use the caravan for the purpose of producing assessable income. That is no doubt correct. Reliance was placed on the decision of this Court in Ryde Municipal Council v. Macquarie University (1978) 139 CLR 633, at p 638 , where it was said by Gibbs A.C.J. that "(a) person who owns land may be said to use it for his own purposes notwithstanding that he permits someone else to occupy it, even under a lease". In that sense the appellant undoubtedly used the caravans for the purpose of deriving assessable income by permitting customers to occupy them on payment of a charge. Indeed that was the very business which the appellant conducted on the caravan park. In another sense the customer also used the caravan for his own purposes just as a person may use a motel unit or a hotel room. In those cases also the person who owns and operates the motel or the hotel uses the building in the course of carrying on his business and derives assessable income therefrom. (at p188)

8. The argument presented on behalf of the appellant was that the relevant sections were concerned with "rights to use" which operated, or were such as, to exclude altogether the use by a taxpayer of the relevant property in the course of his business. It was argued that a taxpayer who uses the relevant property for the purposes of his business and thereby produces assessable income is entitled to receive the benefit of the investment allowance notwithstanding that someone else is granted a right to use that property. Thus it was said that only such rights to use as exclude the possibility of any use by the taxpayer, or any "active use" by the taxpayer, operate to exclude the taxpayer from his entitlement to the investment allowance. (at p188)

9. A somewhat similar argument was advanced by way of alternative, namely, that the exclusion operated only where the owner of the property did not use it in any other way or whether the leasing etc. was the only use made of the property by the taxpayer. (at p188)

10. It was argued that the structure of s. 82AA and particularly the three sub-sub-pars, (A), (B) and (C), required such meaning to be attributed to sub-sub-par. (C) because otherwise the separate provisions in sub-sub-pars (A) and (B) were unnecessary as they would be embraced within sub-sub-par. (C) as being "the granting to other persons of rights to use the eligible property". I think it clear enough that the leasing of property or the letting of it on hire under a hire-purchase agreement does amount to "the granting to other persons of rights to use the eligible property". The natural meaning of the words in sub-sub-par. (C) embraces the content of sub-sub-pars (A) and (B). It may be that real property lawyers would not ordinarily use the words of sub-sub-par. (C) to describe a lease of land but this section is not dealing with land; it is dealing with chattels. I think it clear that sub-sub-par. (C) does embrace the whole of the content of sub-sub-par. (B) since both of the latter paragraphs are readily and accurately described as the granting to other persons of rights to use the property. That however is not enough to enable the appellant to succeed. (at p188)

11. There is no doubt a difference between sub-sub-pars (A) and (B) but each of them would in their ordinary meaning fall within sub-sub-par. (C). It seems to me that the purpose of sub-sub-par. (C) is to operate as a "drag net" provision to pick up any other right to use which might be devised or which might arise in the conduct of some particular kind of business. Thus the deftsman has progressed from the particular to the completely general. (at p188)

12. The distinction between sub-sub-pars (A) and (B) on the one hand and sub-sub-par. (C) on the other may perhaps have been intended to indicate that an arrangement which involved some other person having possession of the relevant property, which would be the case in both sub-sub-pars (A) and (B), was thought too narrow and that it was desirable to add a "catch all" provision in quite general terms to pick up cases where there is no grant of possession but there is a right to use. An example would be the grant of a right to enter an owner's premises and there use the owner's machine tools or other equipment, and the ingenuity of financiers and manufacturers might provide other examples. The fact that the words chosen turn out to be apt to embrace the whole of sub-sub-pars (A) and (B) as well as the wider area does not seem to me to warrant the reading down of sub-sub-par. (C). Moreover the attempt to devise a suitable form of reading down seems to me to fail. It may be said that both sub-sub-par. (A) and sub-sub-par. (B) do not, in their ordinary meaning, exclude the use of the relevant property by the taxpayer who is the owner of it. Such a taxpayer may properly be said to use his property by leasing it, just as a landowner may properly be said to use his property by letting it to a tenant; so also in the case of letting of chattels on hire under a hire-purchase agreement the owner does not part with his property until the property is ultimately acquired by the person who takes it on hire under such an agreement. Both are recognized means of using property for the purpose of deriving assessable income. (at p189)

13. It is not altogether easy to discern the purpose of the distinction between the kinds of property and the arrangements by which they may be used for the purpose of earning assessable income, or the reason for the overlap. I do not think that the fact that the section would involve the loss of the investment allowance in many cases of the ordinary but occasional use of articles and machinery falling within the definition of "eligible" property is a consideration which would warrant ignoring the plain meaning of the words used. It is true that the lending of eligible plant without any charge to a friend or business acquaintance for one day, or permitting such person to use such plant on the owner's premises for a day without charge, would appear to destroy the investment allowance. There would in such cases be a "right" to use, though the licence would be revocable. The making of a nominal charge on such an occasion would undoubtedly destroy the deduction. Likewise the use of eligible plant by the owner on some isolated occasion for a purpose which was not the derivation of assessable income would destroy the deduction. However the fact that these provisions pose risks for hobbyists and farmers, and may well induce an attitude of apparent selfishness is not a sound basis for departing from the plain meaning of the words; they are clear and unambiguous. The appellant's use of the caravans falls precisely within the ordinary meaning of sub-sub-par. (C). (at p190)

14. I would therefore dismiss the appeal. (at p190)

WILSON J. I would dismiss the appeal for the reasons given by the Chief Justice. (at p190)

Orders

Appeal dismissed with costs.