Adelaide Racing Club Incorporated v Commissioner of Taxation

[9]

The Club has, as I have said, a large membership; in 1962 it numbered 956. These members pay an annual subscription which entitles the member to a member's ticket and two ladies' tickets. The holder of a member's or of a lady's ticket is entitled to enter any part of the course without payment of an entrance charge and to use the members' stand and a parking area. In addition a member may purchase for ten shillings a visitor's "privilege" ticket which permits him to take a non-member onto the course and into the members' stand on the race day for which it is issued. Members of the public who are not members of the Club or holders of ladies' or "privilege" tickets, are admitted to the course and the public stands on payment of entrance charges. They are not admitted to the members' stand. Facilities for betting, both on the totalizator and with bookmakers, are provided for members and for the public, as are refreshment rooms. In the members' stand there are refreshment rooms and a number of totalizator windows and to these members of the Club and holders of ladies' tickets and "privilege" tickets alone have access. All persons who use the refreshment rooms in the members' stand pay for their food and drinks. Bets by persons in the members' stand may be made with "rail" bookmakers who have their stands at the boundary of the members' stand and are able to do business with those in the stand and those outside it. The members' stand contains a room from which is operated all the totalizators on the course and, in that stand, there are broadcasting facilities used by broadcasting stations to broadcast the races to persons on the course and to listeners throughout the State. The Club's revenue is derived from many sources of which I mention some only. It includes, of course, the subscriptions paid by members (which are not part of the Club's assessable income) and the entrance charges paid by non-members. It includes also lump sum payments made by caterers for the right to sell liquor and food in the refreshment rooms on the course and fees paid by broadcasting stations for the right to broadcast the races. Under the Lottery and Games Act, 1936-1965 S.A. a betting turnover tax is imposed upon bookmakers which is paid to the Betting Control Board and out of the taxes so collected the Club receives a proportion from the Board. By the same Act a tax on winning bets is imposed and the Club receives a proportion of this from the Board, as it does also in the case of totalizator bets. Yet another source of revenue consists of nomination and acceptance fees paid to the Club by all those, members or non-members, who wish to race their horses.

[10]

Apart from the annual subscriptions paid by members, part of the Club's revenue comes directly or indirectly from members who attend its race meetings. The evidence shows, for example, that during the year ending 30th June 1960 the betting transactions by members with bookmakers represented about sixteen per cent of the total bets laid on the course and the Club's proportion of the Betting Turnover Tax and the Winning Bets Tax in that year amounted to nearly £63,000. In the same year, nomination and acceptance fees paid by members amounted to over £3,000. In the following year, members' bets represented about eighteen per cent of the bets laid with bookmakers on the course and about six per cent of the bets made on the totalizator. In that year the Club's share of the Betting Turnover Tax, the Winning Bets Tax and of the totalizator receipts amounted to over £67,585 and £3,147 was paid by members in nomination and acceptance fees. In the year ending 30th June 1962, about thirteen per cent of the total amount bet with bookmakers on the course came from members and they provided six per cent of the total amount of the bets made on the totalizator, the amount received by the Club from the Betting Control Board being £64,740. Nomination and acceptance fees received from members amounted to £3,251. The evidence shows also that about ten per cent of the caterer's total receipts was taken in the members' stand. The percentages I have mentioned are necessarily approximate. For example, the estimate of the percentage of the caterer's receipts coming from members is based upon the figures for the refreshment rooms in the members' stand and these rooms are used by holders of ladies' and "privilege" tickets. The estimate of the members' proportion of betting transactions is based upon the volume of business done at the totalizator windows in the members' stand and with "rails" bookmakers by persons in that stand, and in each case those betting would include holders of ladies' and "privilege" tickets. As against that, it is reasonable to assume that on occasions members take refreshments and make bets with bookmakers and on the totalizator when they are outside the members' stand and on other parts of the course.

[12]

The next question to which the Board addressed itself was whether the land on which the improvements were made was "used for the purpose of producing assessable income". On that the majority of the members of the Board took the view that, on its true construction, s. 88 (2) applied only where the production of assessable income was the sole purpose for which the land was used. They thought, however, that it was not necessary to look at the leased land as a whole but that regard might be had to each portion of the land upon which an improvement stood to ascertain whether that particular portion was used solely for the purpose of producing assessable income. If it was so used they considered that s. 88 (2) permitted a deduction to be made in respect of the expenditure on the improvements made on it. With this in mind they considered the improvements in respect of which the Club claimed a deduction and divided them into two classes. The first consisted of the new members' stand, the alterations to the five-furlong course and the new steeplechase fence; the second of the removal and re-erection of the old members' stand to which thereafter the paying public had access. The several parcels of land on which the improvements falling into the first class stood were, they thought, used for more than one purpose, one of which "related to members from whom the Club directly received no assessable income, the other one related to the paying public from whom the Club did derive assessable income". Accordingly, they considered that expenditure on improvements falling within the first class was not within s. 88 (2) since they were used for several purposes only one of which was the production of assessable income. They were of opinion, however, that the expenditure on the removal of the old members' stand to another part of the course and its use thereafter by members of the paying public met the requirements of the sub-section because the portion of the land on which the re-erected stand stood was then used solely for the purpose of producing assessable income. To that extent they varied the assessments. The third member of the Board considered that the Club was entitled to a deduction of the appropriate proportion of the expenditure on all the improvements effected. He was of opinion that "the land was occupied by the taxpayer as an integral whole and the particular portions of land upon which the improvements were made were not occupied and used separately from the remainder of the leased land". He did not accept the proposition that the words "used for the purpose of producing assessable income" required that the use should be exclusively for that purpose.

[15]

I agree with the submission of counsel for the Club that it is the land as a whole that is to be considered in determining whether it is used for the purpose of producing assessable income. The question then arises whether it is necessary, under s. 88 (2), that the production of assessable income should be the sole purpose for which the land is used. I think the provision should not be construed so narrowly. The sub-section does not speak of the "sole" or "exclusive" use for the purpose specified and, in my opinion, it should not be construed as though it did. It is, I think, at least sufficient if use for the production of assessable income is the chief purpose for which the land is used (Commissioners of Inland Revenue v. Forrest [1] ) and that requirement is, as it seems to me, fulfilled in the present case. During the relevant periods, the land was used for the purpose of conducting race meetings and this is the first of the objects for which the Club was formed (see Rule 2 (a) of the Rules of the Club). Those meetings are intended to and do in fact attract the attendance of large numbers of the public who pay for admission to the course and for the use of its facilities and in that way contribute in large measure to the Club's revenue. It is true that that part of the total revenue which comes from the subscriptions of members is not assessable income but the proportion is a relatively small one. For example, in the year ending 30th June 1962, members' subscriptions amounted to £9,560 out of a total revenue of £182,572, and to deny that, for that reason, the main purpose for which the land is used is that of producing assessable income seems to me to be unreal. It is true also that one of the objects for which the Club was formed was to promote the improvement of horse-breeding and horse-racing but that seems to me merely to emphasize the primary importance of the Club's income-producing activities. Without them, the other purposes for which the Club was formed would fail. I am of opinion, therefore, that the land demised, looked at as a whole, was used for the purpose of producing assessable income and that this was the chief purpose for which it was used. Leaving on one side, for the moment, the improvements to the five-furlong course, I am of opinion that the Club is entitled to the benefit of s. 88 (2) in respect of the expenditure incurred by it during the relevant years on the improvements effected by it on the course.

[17]

The remaining question to be determined is, as I have said earlier, raised only in the case of the appeal direct from the Commissioner. It relates to the way in which the Commissioner apportioned the Club's expenditure for the year ending 30th June 1962 in relation to its assessable and non-assessable income for that year. A similar question was raised in the cases before the Board of Review and was decided against the Club but the notices of appeal to this Court in those cases relate only to the Board's decision on the matters arising under s. 88 (2). In making his assessment for the year under review the Commissioner treated an amount of £9,687 of the Club's revenue as not being part of its assessable income since it represented the amount of members' subscriptions paid in that year together with a small sum derived from the sale of race cards to members. In treating these two items as not being part of the Club's assessable income the Commissioner acted in accordance with the principle applied in cases such as Bohemians Club v. Acting Federal Commissioner of Taxation [1] ; Carlisle and Silloth Golf Club v. Smith [2] ; New York Life Insurance Company v. Styles [3] , and of this the Club naturally makes no complaint. The Commissioner went on to make a dissection of the Club's expenditure which, if I have understood the figures accurately, totalled £172,960. Of that amount he treated £2,249, described by him as "Direct Expenses", as having been wholly and exclusively expended on account of members on items such as wages of gatekeepers at the entrance to the members' stand, the cost of cleaning that stand and the printing of members' badges and ladies' tickets. This amount he disallowed as a deduction since it was not incurred in producing assessable income. Of the balance of the expenditure, amounting to £170,711, he treated £22,080 as having been incurred exclusively in the production of assessable income in that it was used to provide facilities and amenities for members of the public and therefore was wholly deductible. He regarded the balance remaining, namely £148,631, as having been expended partly for the purpose of producing assessable income and partly for the purpose of producing non-assessable income. In order to apportion this amount and ascertain the figure allowable as a deduction from assessable income, he applied the following formula:

Adelaide Racing Club Incorporated v Commissioner of Taxation - [1964] HCA 57 - HCA 1964 case summary — Zoe

At a glance

Court

Decision date

Before

Source

Judgment (21 paragraphs)

Parties