INCOME DEDUCTIONS FOR TAXATION

Hawke's Bay Herald-Tribune, Issue 48, 12 March 1937, Page 6

INCOME DEDUCTIONS FOR TAXATION

■Own Correspondent.)

Depreciation Allowable on Farm Dwellings PORANGAHAU CASE

(By Telegrapft-

WELLINGTON, This Day. Depreciation upon a farm-dwelling is allowable in aseessing the amount of taxable income provided the dwellingi can be regarded as part of the incomeproducing asset. although the dwelling might have been unoccupied during the period .or part of, the taxation period. .This is the judgment of Mr Justice Smith .delivered in the Supreme Court yesterday in .the case of Cyril 1'aul Hunter, of Akitio, sheep-farmer, and Thomas Percy Hunter, of Porangahau, eheepfarmer, against the Commissioner of Taxes. The question to bo decided was whether depreciation on the sheep station was allowable during eaeh of the years ended on June 30, 1931, and .Tune 30, 1935. "In the ordinary course^ a trader's private residence is not exclusively employed in the production of his assessable income, hut it appears that a sheep-farmer's house has heen regarded in a different light," said his Honour. "The view has been taken that the house on a sheep-farm or run is, when it is oocupied by those who control and direct the sheep-farming operations, a necessary, part of the whole producing asset. Premises and Marthinery. "Upon this basis. the question arises whether the house loses its character as a producingi agent wheniver it oeases to be occupied by the sheepfarmer or his managers or agents, even though the cessation of use be but tempdrary. It was contended for the commissioner that if the house is not occupied at all, during any * partieular income year, by some person engaged in the work of producing income from the farm, the house cannot be said to be exclusively used for the purpose of producing assessable income. On the other hand, it was contended that' if this test were applied to the premises it should also be applied to the implements, utensils or machinery} and that if that were done, curious results would ensue. "A farmer, for example, might use his tractor and ploughs only once in every third year, but they would ncvertheless remain part of h'is farm equipment, would require to be maintaiued and "would depreeiate. A manufacturer migbt be unable to use part of his machinery in a partieular year Lecause of a failure of supplies of raw materials due to a strike or civil disturbance in a foreign country, "So long as the implements and machinery do remain, , in a business sense, a part of the whole producing asset for the timo being, they are entitfed to an allowance for depreciation. In other words, the production of assessable income for any year 'is the jncome arising from that which constitutes, when viewed from a business standpoint, the whole producing asset for the time being, whether individual parts of the plant are actually used in a partieular year or not. I think that the same oualification must apply to 'premises.' Question of Vacancy "As I have said, the dwelling-house of a sheep-farmer on his sheep-farm has been regarded as part of the premises exclusively used in the production of his assessable income. Is, then, a temporary cessation of actual use sufficient to take the house out of the category of such premises? That question must be resolved by considering whether, from a business standpoint, the house stili belongs to the whole asset exclusively engaged in the production of the assessable income. No doubt, 'if th« house Jfc let to a third party, it is effcetively separated from the whole producing asset, and there may be various circumstances which show an eSective separation. On the other hand, they may show nothing more than a temporary cessation of actual use not amounting to an effective separation. Unless, in a business sense, the exislence of that separation is established, I think that the house remains a part of the whole asset exclusively engaged in the production of assessable income and is entitled to an allowance for depreciation. "I am not aware of the circumstances under which the house remained unoccupied by those engaged in the work of the farm during the years ended on June 30, 1934, and June 30, 1935. It does not appear to me from the case stated that the relation of the house to the sheep-farm has been considered in the way I have indicated, and the only answer which I think should be given at the present stage is that if, when viewed from a business standpoint, the house be duly found to have remained during the years in question, or eitlier of them, a part of tho whole producing asset, then depreciation is allowable against the income of any such year in such amount as tho commissioner thinks just. If, on the contrary, it is not so found, tlien no depreciation is allowable.'1' . Interest on Death Duties On queations coneerning payment for interest on money borrowed to pay death duties his Honour ruled that such payraents could not be deducted from the income of an estale in assessing the income tax payable by that estate. This decision arose in the case of the Hunter Estate and also in the case arising from the claims of the Publie Trustee as executor for the will of the late Robert Hannah of Wellington. His Honour held the imposition of death duties upon the capital assets was in no way legally connected with the . question whether the estate was producing or was capable of producing an assessable income. The duties wouhl be imposed whether it was so or not. And the direct purpose of the pavment of interest on money borrowefl to pay those duties was not to produce assessable income, but to relieve the capital assets of a hurdon imposed on them without relation- to thoir ,:income--pro-dueing capacity as such. i