Decision impact statement
Lenten v Commissioner of Taxation
Venue: Administrative Appeals Tribunal
Venue Reference No: 2007/0415-0416
Judge Name: Dr Gordon Hughes
Judgment date: 9 April 2008
Appeals on foot:
No.
Impacted Advice
Relevant Rulings/Determinations:
Subject References:
income tax
allowable deduction
self-education expenses
teacher
overseas travel
newspapers
Précis
Outlines the Tax Office's response to this case which concerned whether the costs incurred by an employee teacher in respect of overseas travel and the purchase of newspapers and magazines were deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 97)
Decision Outcome:
Partially Adverse
Brief summary of facts
The applicant was employed as an Assistant to the Principal of a high school in Victoria between 2003 and 30 June 2005. In 2005, he was also appointed as the head of the Studies of Society and the Environment (SOSE) faculty at the school for that year. The appointment to this position led to an increase in income.
The applicant used unpaid leave to visit various places in Asia, Europe and the UK from July to October 2004 accompanied by his wife. The trip consisted of general package tours and self guided visits to places mainly of historical interest and significance. The applicant was not formally required by the high school to undertake the trip, and did not attend any professional conferences or lectures or visit any schools on the trip.
During the 2005 income year, the applicant purchased daily newspapers and occasional magazines before school for the asserted primary purpose of taking cuttings to be used to provide students with writing tasks.
For the 2004 income year, the applicant claimed a deduction of $9,309 for work related travel expenses in respect of his overseas trip. For the 2005 income year, the applicant claimed a further deduction of $5,000 in respect of his overseas trip and $200 for the purchase of newspapers and magazines.
The Commissioner argued before the Tribunal that the expenses incurred on the overseas trip were essentially of a private nature and did not have a sufficient connection with the activities by which the applicant earned his income as an Assistant to the Principal during 2004, nor was there any evidence to show that the applicant received his appointment to the SOSE faculty in 2005 as a result of undertaking the trip.
Issues decided by the court
The Tribunal decided that 75% of the overseas travel expenses incurred by the applicant were deductible under section 8-1 of the ITAA 97. The Tribunal was satisfied that the expenses not only directly contributed to his professional skill and knowledge, but also directly led to his advancement within the school as head of the SOSE faculty. The Tribunal decided that the dominant purpose of the travel was to improve the applicant's knowledge and skills as a teacher and to enhance his promotional opportunities at the school. The Tribunal also found that the travel enabled the applicant to support his colleagues in developing the curriculum mandated by the State government (paragraphs 28 and 32). It was also found that a minor element of the travel would have been of a recreational character, for which a 25% reduction was appropriate (paragraphs 35 to 37).
The Tribunal decided that 15% of the purchase cost of the newspapers and magazines was deductible under section 8-1 of the ITAA 97. While the Tribunal was satisfied that the applicant used the publications to take clippings for use in his teaching activities, it considered that he would have simultaneously taken the opportunity to absorb the content for private purposes (paragraphs 44 and 45).
Tax Office view of Decision
The Commissioner considers that the decision is able to be viewed as being consistent with established general principles of deductibility under section 8-1 in relation to expenses incurred by employees. The Tribunal noted that 'each case must be considered on its own peculiar facts', referred to the decision in Commission of Taxation v Finn (1961) 106 CLR 60, and stated that '... Factors taken into account by the High Court included the extent to which the taxpayer's [sic] increased his knowledge as a result of the travel and whether that proved decisive in his subsequent career advancement; the extent to which his increased knowledge was recognised and valued by his colleagues; the extent to which the knowledge gained was necessarily incidental to the taxpayer's work; and the extent to which the expenses related to the acquisition or enhancement of skills relevant to the taxpayer's work.' The Tribunal found on the evidence that the applicant satisfied the criteria for deductibility as identified by the High Court in Finn, and that the applicant's 'dominant purpose' in undertaking the overseas travel was work related.
The Commissioner initially lodged an appeal from the decision of the Tribunal to the Federal Court, but withdrew the notice of appeal after considering further legal advice.
The Tribunal's acceptance of the applicant's 'dominant purpose' in undertaking his overseas travel determined the outcome of this case. Any appeal against a decision which depends on the evidence of a witness should consider the Full Federal Court decision in FC of T v Nixon (1980) 30 ALR 400. At page 406 the Court endorsed two principles expressed in Powell and Wife v Streatham Manor Nursing Home (1935) AC 243 and quoted the following from pp. 265-6:
'First it is clear that in an appeal of this character, that is from the decision of a trial judge based on his opinion of the trustworthiness of witnesses whom he has seen, the Court of Appeal "must, in order to reverse, not merely entertain doubts whether the decision below is right, but be convinced that it is wrong ....". And secondly the Court of Appeal has no right to ignore what facts the judge has found on his impression of the credibility of the witnesses and proceed to try the case on paper on its own view of the probabilities as if there had been no oral hearing.'
We think that what the Court identified as relevant principles for an appeal from a decision of a trial judge would be equally relevant to an appeal from a decision of the Administrative Appeals Tribunal. We have concluded that on an appeal in this case we would not be able to show that the Tribunal's conclusion, 'which was founded upon direct evidence which [the Member] was entitled to accept, was plainly or manifestly wrong or that there was no adequate basis for it in the evidence before him' (Nixon at p 406).
Administrative Treatment
Amendment Requests
Taxpayers who consider that they are entitled to a self-amendment of an income tax return or assessment because of the decision in this case should notify the Commissioner of their intention to amend by either completing a "Request for amendment of income tax return for individuals" or notifying the Commissioner in writing.
Taxation Objections
Taxpayers requesting an amendment to an assessment should also preserve their dispute rights by lodging an objection.
Taxpayers who wish to lodge a taxation objection to an assessment should notify the Commissioner of their intention to object by either completing an "Objection form" or notifying the Commissioner in writing.
For further information and for access to an online form to notify the Commissioner, visit the Tax Office website at www.ato.gov.au.
Implications on current Public Rulings & Determinations
None
Implications on Law Administration Practice Statements
None
Court citation:
[2008] AATA 281
2008 ATC 10-017
71 ATR 862
Legislative References:
Income Tax Assessment Act 1997
8-1
Case References:
Ronpibon Tin NL v FC of T
(1949) 78 CLR 47
[1949] ALR 785
FC of T v Finn
(1961) 106 CLR 60
[1962] ALR 173
Lunney v FC of T; Hayley v FC of T
(1958) 100 CLR 478
[1958] ALR 225
FC of T v Hatchett
(1971) 125 CLR 494
71 ATC 4184
2 ATR 557
Griffin v FC of T
(1986) 18 ATR 23
86 ATC 4838
Case S12
85 ATC 165
(1985) 28 CTBR (NS) 131
FC of T v Nixon
(1980) 80 ATC 4297
30 ALR 400
10 ATR 891
Powell and Wife v Streatham Manor Nursing Home
[1935] AC 243