Commissioner of Taxation v BHP Minerals Ltd [1983] FCA 139

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY

ON APPEAL FROM A SINGLE JUDGE _OF THE SUPREME COURT OF VICTORTA (COMMONWEALTH TAX NO. 147)

These are appeals from decisions of the Supreme Court of Victoria, constituted by Jenkinson J. when he was a Judge of that Court. His Honour upheld objections by B.H.P. Minerals Limited ("the taxpayer") to income tax assessments for the years ending 31 May 1977 and 31 May 1978. The Commissioner of Taxation had disallowed deductions claimed by the taxpayer under s.122D and s.122DB of the Income Tax Assessment Act 1936 ("the Act"). Those provisions deal with various forms of "allowable capital expenditure" and periods over which, for tax purposes, deductions for the expenditure may be spread. "Allowable capital expenditure" is defined in s.122A(1) of the Act, of which the

"122A.(1) For the purposes of this Division, allowable capital expenditure of a taxpayer is expenditure of a capital nature incurred by the taxpayer, being -

The phrase "housing and welfare" 1s defined in s.122(1)

'housing and welfare', in relation to a taxpayer, means -

(a) residential accommodation provided by the taxpayer at, or at a place adjacent to, the site of prescribed mining operations carried on by the taxpayer, being accommodation provided for the use of employees of the taxpayer employed for the purposes of the operations of the taxpayer on that site or operations of the taxpayer connected with those operations, or for the use of dependants of such employees; and

(b) health, education, recreational or other similar facilities, or facilities for the provision of meals, provided by the taxpayer at, or ata place adjacent to, the site of prescribed mining operations carried on by the taxpayer, being facilities that -

(i) are provided principally for the welfare of such employees or of dependants of such employees; and

(ii) are not conducted for the purpose of profit-making by the taxpayer or any other

person, and includes works carried out directly in connexion with such accommodation or facilities, including works for the provision of water, light, power, access or communications;".

"Prescribed mining operations" are defined in s.122(1):

"'Prescribed mining operations' means mining operations on a mining property in Australia for the extraction of minerals, other than petroleum, from their natural site, being operations carried on for the purpose of gaining or producing assessable income;".

The central facts are in short compass. The taxpayer carried on coal-mining operations on a mineral lease in central Queensland, at a mine called the Gregory Mine. There were three separate mines, all open-cut, on the eastern portion of the mineral lease. For convenience I shall refer to the three in the singular, as a mine. The taxpayer incurred expenditure in providing residential accommodation for its employees at two towns, Capalla and Emerald. Capella was 38 km ina direct line and 50 km by road from a point to the north-east of the mineral lease, in what was called the industrial area, through or to which employees went when travelling to or from their workplace. Emerald was 47 km in a direct line, and 60 km by road from the

The question is whether the residential accommodation was "at a place adjacent to the site of prescribed mining operations". The learned Judge was of the view that the accommodation in both cases satisfied this test and he allowed

provided by the appellant for its employees at, or at any one of several places within a few kilometres of, the site of its maining operations at the Gregory Coal Mine."

It is reasonably clear that the nature of the countryside surrounding the mine and for many kilometres from it was such that the necessary houses, and ancillary services, could have been established on it. Most employees travelled to and from work on buses provided by the taxpayer, the journey from Capella taking about 35 minutes and that from Emerald about 45

The submissions of the appellant recognise that the word "adjacent" is one of imprecise meaning, and that questions of degree are involved in applying it. It is nevertheless submitted that the conclusions of the learned Judge were not justified in

the circumstances of the case. What were claimed to be specific

errors in his reasons for judgment were also pointed to.

The deduction is given for housing established for employees operating a mine. It is one of the few instances where capital expenditure on such an item is allowed as a deduction. Expenditure incurred before 18 August 1976 can be written off over the lesser of twenty five years or the anticipated life of the mine (s.122C and s.122D) and that incurred between 18 Auqust 1976 and 1 May 1981, over the lesser of five years or the anticipated life of the mine (s.122DA and s.122DRB). There is a

section analagous to the general balancing charge provision

(s.59) dealing with the event of disposition (s.122K).

It is noteworthy that the location of the housing 1s an ingredient of the requirements, notwithstanding the concurrent requirements of purpose, and nature of user. A deduction 1s not allowed simply because the housing is for the mine employees, and the mine is producing assessable income. Considering the terms of the definitions already referred to, and those of s.122A, the emphasis on the location of the housing is plainly regarded as important. It would seem to me to reinforce the other requirements and to ensure that the taxpayer will not obtain some collateral benefit (see Federal Commissioner of Taxation v. Broken Hill Pty. Co. Limited (1969) 120 C.L.R. 240 at 242 and 244, per Kitto J.).

Although the word "adjacent" does not carry a precise meaning, it does not have an elastic meaning, to be adapted to circumstances according to some standard of reasonableness, or convenience. In the present case, what is required is a "place" adjacent to the site. "Place" plainly does not refer to some established or designated place, but rather the contrary. In ordinary experience, mines tend to be in relatively undeveloped areas. The statutory alternative to being "adjacent to" is to be "at" the mine. The word "at" has a reasonably precise meaning. It was, as it seems to me, intended that housing which could not

properly be described as "at" the mine, but was adjacent thereto,

would be included. It would be strange if one were permitted to jump from something which was "at" to something forty or fifty kilometres away. It is indeed difficult to find the purpose of a requirement that the housing be "adjacent to", if it is permitted

to be fifty or so kilometres away, and over open land.

I have derived some assistance from the meaning which has been given to the word "adjacent" in construing Crown land legislation in the State of New South Wales. In Doak v. Hay and Another (1933) 12 L.V.R. 1 Pike J. was tentatively of the view that areas of land separated by one and three quarter miles were not adjacent to each other (at p.5). Hardie J., in Parsons v. Hearney and Churchill v. Hearney, both at (1955) 34 L.V.R. 55, decided that areas of land respectively seven and fourteen miles distant from other areas were not adjacent to those other areas. The cases concerned applications to add land in the Armidale and Coonamble Land Districts to existing conditional leases and purchases pursuant to secns. 163 and 164 of the Crown Land Consolidation Act 1913. The land was required to be within or to adjoin or be adjacent to the external boundaries of the existing holdings. In the two latter decisions, Hardie J. concluded that:

». the Legislature was dealing with cases where a@ parcel or remnant of Crown land was within the boundaries of an existing holding or was contiguous to it, or, if not contiguous in the strict sense, was very close nearby." (at p.62)

The emphasis is mine. The words "very close" seem to me to provide as adequate a guide to the meaning of "adjacent" as can be found. The statutory context in the present case is against a

I note that in Waratah Gypsum Pty. Limited v. Federal Commissioner of Taxation (1965) 112 C.L.R. 152, McTiernan J. at

162, referred to distances of two, three, and nine miles as trivial in remote and isolated places. However, whilst his Honour was considering s.122 of the Act, he did not apply that proposition to the meaning of the word "adjacent". To my mind, the fact that the mine and the towns were in Central Queensland does not admit that their relative proximity can bring them within the meaning of "adjacent" as that word is used in

s.122(1). I do not find weight in the appellant's further submission that the learned Judge was wrong in declining to take

VICTORIA DISTRICT REGISTRY ) NO. VG 142 OF 1982 ) )

ON APPEAL FROM THE SUPREME COURT OF VICTORIA (COMMONWEALTH TAX NO. 147)

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

ON APPEAL FROM THE SUPREME COURT OF VICTORIA (COMMONWEALTH TAX NO. 147A)

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

TOOHEY and LOCKHART JJ. These are two appeals from a judgment of the Supreme Court of Victoria (Jenkinson J.), heard together by consent.

The Court held that certain expenditure of a capital nature incurred

by B.H.P. Minerals Limited ("the taxpayer") in the years of income ended 31 May 1977 and 31 May 1978 was on residential accommodation provided by the taxpayer at a place adjacent to the site of prescribed mining operations carried on by it at the Gregory Coal Mine in the Bowen Basin, Queensland, being accommodation provided for the use of the taxpayer's employees employed for the purposes of its operations on that site. It was therefore an allowable deduction in each year of

The question for determination is whether that residential accommodation was provided by the taxpayer "at a place adjacent to the site of" its mining operations within the meaning of that expression

in the definition of "housing and welfare" in sub-s. 122 (1) of the

Income Tax Assessment Act 1936 ("the Assessment Act").

The facts are not in dispute and may be briefly stated. The Gregory Coal Mine is located about 375 kilometres from the coal shipping port of Gladstone. The deposits lie on the western edge of the Bowen Basin which contains the principal coking coal producing mines in Queensland. The mine is an open cut coal mine. The relevant mining lease (M.L. 259) was granted in November 1977. Mining operations commenced later. Long term sales contracts have been signed with a number of countries including Japan and South Korea. Although nothing appears to turn on it, the site of mining operations was agreed by the parties as being in the north-eastern corner of the

The residential accommodation which 1s the subject of the appeals is in the towns of Capella and Emerald. Capelia 1s west and a little north of the site of the mining operations, in a direct line about 30 kilometres from the site and by road about 50 kilometres. Emerald is south and somewhat west of the site of the mining operations, 1n a direct line about 47 kilometres from it and by road

about 60 kilometres. Emerald is on the Capricorn Highway. Capella and Emerald are linked by the Gregory Highway. A road from Capella to

the mine was improved by the taxpayer. It constructed a road froma point on the Gregory Highway about 15 kilometres north of Emerald to the mine and improved the surface of the Gregory Highway. The taxpayer provides transport by bus between the mine and the residential accommodation in the two towns for its employees. The bus journey between the site of the mining operations. and Capella takes about 35 minutes and between that site and Emeraid about 45 minutes. The two towns are linked also by a railway line and a railway

runs from the coast to Emerald and beyond to western Queensland.

Before the taxpayer provided residential accommodation in the two towns, the population of Capella was about 360 and the population

of Emerald about 3,160. When the residential accommodation was provided by the taxpayer no other township was as close to the site of

the mining operations as either Capella or Emerald. Most of the land surrounding the mining tenement was occupied for grazing or cropping

The learned primary Judge held that residential accommodation could have been provided by the taxpayer for its employees at, or at any one of several places within a few kilometres of, the site of the mining operations at the Gregory Coal Mine, but that such an enterprise would have involved the construction of a township by the taxpayer on unimproved land or on farmland and the provision of services appropriate for a small country town. There was evidence that the expenditure required to construct a new township would have exceeded the aggregate of the cost of providing the residential accommodation in Capella and Emeraid and making and improving roads between each town and the mine, and that when the decision was taken by the taxpayer to site the houses in those two towns the taxpayer

considered that the economic feasibility of establishing the mine was

The primary Judge referred to the reasons prompting the taxpayer to provide accommodation at Capella and Emerald rather than build a new town but only because evidence on these matters had been led before him. His Honour's view was that these considerations were not relevant to a determination of whether accommodation had been provided adjacent to the mine site and neither counsel for the Commissioner nor the taxpayer sought to argue that in this respect his

The scheme of the relevant Division, Division 10, of the Assessment Act requires some analysis. It has been the policy of successive Australian Governments to encourage the prospecting for and winning of certain metals and minerals and, accordingly, special concessions have been given in the Assessment Act to persons carrying on mining operations upon mining properties in Australia, by enabling them to deduct from their assessable income capital expenditure which

""(1) For the purposes of this Division, allowable capital expenditure of a taxpayer is expenditure of a capital nature incurred by the taxpayer, being -

(a) expenditure in carrying on prescribed mining operations, including expenditure

{ii) on buildings, other improvements or plant necessary for the carrying on by the

(iii) in providing, or by way of contribution to the cost of providing, water, light or power for use on, or access to or communications with, the site of prescribed mining operations carried on, or to be carried on, by the taxpayer; or

Section 122 is an interpretation section and contains a

definition of the expression "housing and welfare" in these terms:

"*housing and welfare', in relation to a taxpayer, means -

(a) residential accommodation provided by the taxpayer at, or at a place adjacent to, the site of prescribed mining operations carried on by the taxpayer, being accommodation provided for the use of

employees of the taxpayer employed for the purposes of the operations of the

taxpayer on that site or operations of the taxpayer connected with those operations, or for the use of dependants

(b) health, education, recreational or other similar facilities, or facilities for the provision of meals, provided by the taxpayer at, or at a place adjacent to,

the site of prescribed mining operations carried on by the taxpayer, being facilities that -

(1) are provided principally for the welfare of such employees or of dependants of such employees; and

(ii) are not conducted for the purpose of profit-making by the taxpayer or any other person,

Other sections in the Division provide a method of spreading the deductions over the estimated life of the mine or a_ period of years, whichever is the less. Section 122E provides an alternative basis for the deduction in fuli in the year in which 1t is incurred of

allowable capital expenditure other than expenditure on housing and

Where deductions have been allowed under Division 10 in respect of property of the taxpayer which, in the year of income, has been disposed of, where the aggregate of the sum of the deductions allowed and the consideration receivable in respect of the disposal of the property exceeds the total expenditure of a capital nature of the taxpayer in respect of the property, so much of the amount of the excess as does not exceed the sum of those deductions shall be included in the assessable income, and, where the total expenditure

exceeds that aggregate, the excess shall be an allowable deduction (s. 122K).

A great deal of attention was devoted in argument before us to the meaning of the expression "...or at a place adjacent to, the site of prescribed mining operations carried on by the taxpayer...", and in particular to the meaning of the word "adjacent". The Assessment Act does not define "adjacent". The Oxford English Dictionary defines the word as:-

contiguous, bordering. (Not necessarily touching though this is by no means precluded.)..."

"Lying near, close or contiguous; adjoining; neighbouring: a field adjacent to the main road..."

In Mayor of Wellington v. Mayor of Lower Hutt £1904] A.C. 773

the Judicial Committee of the Privy Council considered the meaning of

the word "adjacent" ain the context of s. 219 of the New Zealand

Municipal Corporations Act 1900 which empowered the construction of bridges by municipal councils and provided that in certain circumstances the local authority of an adjacent district should contribute to the cost. Sir Arthur Wilson, who delivered the opinion

proximity would justify the application of the word

It is of some help to consider the meaning of synonyms such as "neighbouring", "adjoining" and "contiguous". "Neighbouring" is perhaps the broadest of these concepts and suggests that things are close to each other. "Adjoining" suggests a closer relationship than "neighbouring", generally connoting places being connected or in contact. "Contiguous" suggests to us a greater degree of connection

between elements, requiring that they touch or contact each other.

Interestingly, Collins English Dictionary, Australia edition edited by G.A. Wilkes, defines "contiguous" as "physically adjacent".

"Adjacent" is a word that is capable of a broad connotation. It can suggest a relationship like that indicated by "neighbouring"; but it can also be used in a sense akin to "contiguous". We do not think any useful purpose is served by dwelling too long on the dictionary definitions of the word "adjacent" or synonyms as ultimately the inquiry is to determine the meaning of the word in the context in which it appears, in this case sub-s. 122 (1) of the Assessment Act. However, the first task must be to determine the ordinary meaning of the word and then see if that meaning needs to be displaced or

qualified in some way by the context in which it appears.

One approaches the task of defining the word "adjacent" with the knowledge that Division 10 in which it appears gives legislative expression to the Australian Government's policy to encourage the search for and winning of metals and minerals and thus affords special concessions to the mining industry. Mining operations are conducted in this country in many and diverse areas, some in well settled areas such as Cessnock or Ballarat and others in vast and uninviting tracks of uninhabited land. Large mining operations are conducted at places as far distant and apart as Gove, Weipa, Groote Eylandt, Kalgoorlie, Mt. Isa, Broken Hill and Ballarat, to mention but afew. Parliament has determined that it is in the national interest that taxation incentives are given to those persons who risk large sums of capital to win minerals and often wait a long time before gaining any appreciable return. The allowable capital expenditure includes not only expenditure on the actual carrying on of the activities of extracting minerals but also expenditure in preparing sites for the mining operations, on buildings and other improvements or plant necessary for the carrying on of the mining operations, in the provision of water, light or power for use on or access to or communications with the site of the operations, and on housing and

In our view the inquiry as to the definition of the expression "at a place adjacent to, the site of prescribed mining operations..." calls for a broad approach and not one that is narrow

or pedantic. It must be as good for Gove or Mt. Isa as for Ballarat

or Cessnock, as good for outlying and remote regions as for closely settled ones. The expression 1s not one which is capable of a precise or uniform meaning. But whatever meaning is assigned to it, it must be one that can apply to all areas in which mining operations are conducted by taxpayers in Australia. Indeed, counsel for the Commissioner expressly disavowed that "adjacent" in the context of para. 122 (1) (a) connotes contiguity in the sense of requiring actual physical common boundaries between the site on which mining operations

are conducted and the place at which the residential accommodation is

An ordinary and natural meaning of the word "adjacent" is "near" or "close". We think it is in this sense that the word is used in para. 122 (1) (a). It does not necessarily import the notion of side by side placement between the place at which the residential accommodation is provided and the site of the prescribed mining operations. Residential accommodation must be provided either at the site of the mining operations or at a place nearby. Indeed, even for the residential accommodation to be provided at the site of the mining operation it is not necessary in our view that it exists physically on the site itself; it is sufficient that it abuts the site or is almost side by side with it. There may be good reasons why residential accommodation is not provided on a site of mining operations itself, for example, the risk of subsidence of underground mines. But to be provided at a place adjacent to the site of mining operations does not require contiguity or abutment. Nor does 1t necessarily require very close proximity. It is sufficient that 1t 1s near or close to the

We do not attach any particular significance to the presence of the word "place" in para. 122 (1) (a). It was probably used by the draftsman as a matter of style to draw a distinction between the actual site of the mining operations itself and somewhere else. Hence,

It becomes a question of impression and fact in each case

whether the residential accommodation provided by the taxpayer is ata

place adjacent to the site of the prescribed mining operations.

It is important to keep in mind that the deduction is given

to taxpayers for the provision of residential accommodation for their

employees employed for the purposes of the mining operations of the taxpayer on a particular site or operations of the taxpayer connected with those operations, or for the use of the dependants of such employees. It is unreal to say, as was submitted by counsel for the Commissioner, that because a small township could have been built closer to the Gregory Coal Mine to house the taxpayer's employees than either Capella or Emerald, the taxpayer is deprived of the deduction. The tax incentive afforded by Division 10 for "housing and welfare" was intended by the Legislature to operate realistically. It may in some cases be advantageous to a taxpayer to house his employees, who work in his mine, in neighbouring towns with consequent savings in cost, use of the town's facilities for the benefit of the employees and their families and general improvement of the amenities of life

and consequent benefit to the townspeople themselves. Considerations

of this kind call for a broad approach to the question of the

definition of the expression under consideration in this case.

The Commissioner invited the court to discern in various sections in Division 10 a policy that the intention of the Legislature was to provide a deduction for what was essentially capital expenditure, only when that expenditure might fairly be regarded as relating to wasting assets. In other words it was where accommodation and facilities were provided away from existing towns that they were unlikely to have any residual value beyond the life of the mine itself. Even if such a general policy can be discerned in Division 10, nothing in the language of the division precludes an existing town from being sufficiently close to the site of mining operations to be regarded as adjacent to that site. There are a number of illustrations of this throughout Australia. What emerges from the definition of "housing and welfare" is that the reference to "at, or at aplace adjacent to, the site of prescribed mining operations"

constitutes a limitation on the words that follow. It is not enough for a taxpayer to demonstrate that facilities have been provided for the use of employees, that is, that they have some purpose in

connection with mining operations. That is an essential but not a

The primary Judge's finding that the residential accommodation provided in the two towns of Emerald and Capella was

provided at places adjacent to the Gregory Coal Mine was attacked

primarily on the ground that his Honour, at one point in his reasons

for judgment, so it was said, approached the question from the standpoint that the distance by which towns are separated in the Central Highlands area of Queensland was a relevant question or gave undue weight to that consideration. We are not convinced that his Honour applied this test at all, but, even if he did, it played in our view a small part in the reasons for his conclusion which it is plain, upon the reading of the judgment as a whole, he would have reached

There was an alternative submission by the Commissioner, that if Capella was held to be adjacent to the mine site, it followed that Emerald could not be so adjacent. In our view this does not follow as a matter of logic or of fact. It is appropriate to ask of the accommodation provided at each town - was it provided at a place

adjacent to the mining site? The primary Judge's approach was to say that the provision of housing at a township closer to the coal mine

than Emerald tended against the conclusion that housing at Emerald was

within the statutory definition. However his Honour concluded :

"But the two towns were at the relevant time the only towns within a radius of 50 kilometres from the site of the mining operations at Gregory coal mine, and Capella was less than 10 kilometres closer to that site than Emerald. When regard is had to the distances by which towns and other places of habitation were separated one from the other in the Central Highlands district, I think that both Emerald and Capella are properly to be described, for the purposes of the definition, as places adjacent to the site of the mining operations at the Gregory coal mine".

Again, that approach and that conclusion were fairly open to

One other submission was made by counsel for the Commissioner which may be disposed of briefly, namely that there should be a new trial because his Honour failed to accede to the request of counsel for the Commissioner that he have a view of the relevant areas in the Bowen Basin. Counsel for the taxpayer opposed the view. His Honour said that if he felt it necessary at any time before he gave judgment to have a view to understand and evaluate the evidence, he would so inform the parties and undertake the view. Plainly his Honour did not think it necessary to have a view. It is essentially for the trial Judge to decide whether a view is necessary or not. That decision is a matter of practice and procedure, anda heavy burden rests upon a party who seeks to assert an error on the part of the trial Judge in declining to have a view. Nothing has been pointed to in this case to suggest that his Honour fell into error in this. respect. Indeed, there was a considerable body of evidence before his Honour in the form of maps, photographs including aerial photographs and other documentary evidence and oral evidence concerning the general topography and layout of the relevant area. At the end of counsel's submission it was still far from clear what it was said that his

Honour would have gathered from a view that he could not gather from

the material before him. There is no substance in this submission.

I certify that this and the thirteen preceding pages are a true copy of the Reasons for Judgment