Handley v Commissioner of Taxation (Cth) [1981] HCA 16

High Court of Australia Stephen, Mason, Murphy, Aickin and Wilson JJ. Handley v Commissioner of Taxation (Cth) [1981] HCA 16

ORDER Appeal dismissed with costs.

Cur. adv. vult.

The following written judgments were delivered:—

1981, April 1 Stephen J.

Section 51 (1) of the Income Tax Assessment Act 1936, as amended, is the general provision which determines what losses and outgoings incurred by a taxpayer shall be allowable deductions. Because it must deal with items of expenditure of many and varied kinds it is expressed in very general terms. It has been said that its "language is simple enough and, in the main, little difficulty is encountered in recognizing those items of business expenditure which qualify as deductions" — Lunney v. Federal Commissioner of Taxation [1] .

1. (1958) 100 C.L.R. 478, at p. 496.

However, perhaps because of the very simplicity of its language, difficulties have been encountered in cases involving what have been called home office expenses. Expenditures of this nature, associated with portion of taxpayers' dwellings used to a greater or lesser extent for business or professional purposes, have, when claimed as deductible, been variously treated and the principles involved and the distinctions drawn between various such expenditures have not always been immediately apparent.

The expenditures claimed as deductible by the present taxpayer, a barrister, are in the nature of home office expenses. They concern a room in his home, regularly used by him as a study for some twenty hours a week for about forty-five weeks a year. The existence of this room, suitable for use as a study, was regarded by him as an essential feature affecting his decision to purchase the house. The room is only used infrequently for purposes other than as a study, but it does provide a means of access to a patio which the family use occasionally. The expenditures consist of interest on moneys borrowed on the security of a mortgage over the premises and applied in their purchase, municipal and water rates and fire insurance premiums, all in respect of the premises. In each case one fifteenth of the total expenditure has been claimed, that being the proportion of the floor area of the house which is occupied by the study. The Commissioner allowed claimed deductions in respect of electricity and house cleaning charges apportioned in respect of the study and no question arises as to them, but he disallowed these other claimed deductions. Their disallowance was upheld by a Board of Review.