Case B68

Judges: AM Donovan Ch

JD Davies M
GR Thompson M

Court:
No. 2 Board of Review

Judgment date: 7 October 1970.

---

J.D. Davies (Member): In his income tax return for the year ended 30 June 1969, the taxpayer, a salaried commercial airline pilot, claimed, as deductions from his assessable income, $90, being ``Subscriptions paid to Australian Federation of Air Pilots to pay for activities that I would otherwise have to meet directly in the furtherance of my profession'', $9, being a further amount of the subscription paid to the Federation by the taxpayer and appropriated by it to a group assurance scheme, and $120, being a contribution paid by him to a mutual benefit fund operated by the Federation. In his assessment, save that he allowed $42 of the subscription paid to the Federation, the Commissioner disallowed these deductions and they became the subject of objection and, in due course, of this review. At the hearing, the taxpayer's representative

---

ATC 330

stated that he did not wish to proceed with the objection in so far as it related to the $120 paid to the Federation's mutual benefit fund as, subsequent to the request for reference, this item had been allowed by an amendment to the assessment.

2. Membership of the Federation is not compulsory for commercial air pilots and membership thereof does not directly assist the taxpayer in his employment. However, the objects of the Federation are, amongst other things -

``(a) To protect and further the interest of the profession of Air Pilots, and to safeguard and improve the interest and rights of members of the Federation.

(b) To secure the elevation of the Profession of Commercial Air Pilots, and to improve the terms and conditions of their employment.

(c) To take any lawful action deemed desirable for the benefit and advancement of Members subject to approval of the Executive Committee.

(d) To afford legal protection for its members in Industrial Matters, or other matters specifically authorised by the Executive Committee.

...

(q) To prescribe and enforce a Code of Ethics to ensure and maintain ethical standards in the Profession of Air Pilots.''

In carrying out these and its other associated objects, the Federation maintains an office, publishes a journal, promotes the standing, remuneration and conditions of employment of commercial air pilots, interests itself actively in industrial disputes and concerns itself with air safety, with accident investigation and with members' vocational problems. It also provides certain insurance and assurance facilities. The vast majority of commercial air pilots in Australia are members of the Federation. The annual subscription payable by a full member is 1% of his gross salary, including certain allowances, and includes the sum appropriated by the Federation in respect of the life assurance cover on its members. In the year under review, the taxpayer was a member of the Federation and paid the subscription mentioned in his return.

3. The deductibility of subscriptions paid to associations is a matter to be considered under the provisions of both sec. 51(1) and sec. 73 of the Income Tax Assessment Act. Section 51(1) permits the deduction of outgoings to the extent to which they are incurred in gaining or producing assessable income or are necessarily incurred in carrying on a business for that purpose, except to the extent to which they are outgoings of a capital or private nature, and sec. 73(2) permits a deduction of subscriptions where the association carries out an activity of such a nature that, if carried out by the taxpayer on his own behalf, its expense would be an allowable deduction to him. The terms of both sections are, of course, more complex than I have stated, but I think that I have given sufficient of the gist of them for the purpose of these reasons. In making his assessment, the Commissioner allowed to the taxpayer a deduction of $42, the lesser of the two amounts which sec. 73(2) provides and the maximum amount provided by sec. 73(3). I think no further deduction can be allowed under sec. 73. Sub-secs. (1) and (3) of that section are inapplicable and sub-sec. (2) is of little assistance for the activities of the Federation were, for the most part, of relevance to the commercial flying industry generally rather than the taxpayer's own income earning activities in particular. They can hardly be regarded as activities of such a nature that, if carried out by the taxpayer on his own behalf, they would be the subject of allowable deductions to him.

4. The issue turns then, so far as the taxpayer is concerned, on the deductibility of the sum claimed pursuant to the provisions of sec. 51(1). Two decisions are of particular significance when deductibility under this section is examined. In the first, Case B8
70 ATC 38 , Mr. Thompson and I said -

``The taxpayer, a private company, carries on a building construction and engineering business and has found it convenient to be a member of two trade organisations, one of which, a builder's association, `promotes the interests of the building industry, protects the rights and furthers the interests of members, opposes legislation which is unjust or which places unfair restrictions on the activities of building contractors, maintains and improves conditions of contract and conditions of tendering, maintains a fair standard of workmanship in the industry, promotes better relationships between employers and employees, encourages and preserves skill in the industry, promotes favourable trade relations with all public authorities, suppliers and manufacturers and secures for members the advantages of

---

ATC 331

unity of action'. This association issues many useful publications to its members, negotiates industrial disputes and conditions, gives advice and maintains a building display centre. For membership in the association, the taxpayer paid in the year ended 30 June 1966, a subscription of $836 and in the year ended 30 June 1967, a subscription of $1,582. These amounts were allowed to the taxpayer as deductions from its assessable income but we do not know under what section of the Act the Commissioner acted. It was not put to the Board by the Commissioner's representative, however, that sec. 73 of the Act provided a code which inferentially excluded deduction of subscriptions under sec. 51(1) of the Act. We agree with this view. Not only have Board decisions -
8 C.T.B.R. 34 Case 34 and
13 C.T.B.R. 33 Case 33, 276 - supported it, but the terms in which sec. 73 are expressed appear inadequate, or at least unhappily restrictive, to express a code of deductibility of subscriptions, levies and contributions. We take the view, then, that, in the problem before us, we need not concern ourselves with the provisions of sec. 73, but may look to deductibility under sec. 51(1) of the Act of the sums claimed.''

We then went on to consider and allow to the taxpayer, as deductions pursuant to the terms of sec. 51(1), further contributions made by it in the years to the builders' association referred to.

5. The second decision is that of
F.C. of T. v. Gordon , 43 C.L.R. 456 , in which case an annual subscription paid by the taxpayer, a grazier, to an association of persons and companies engaged or interested in pastoral pursuits was allowed as a deduction pursuant to the then terms of the Act which corresponded to the present sec. 51(1). It appears from the headnote of the report that the objects of the association were to prevent strikes, to maintain freedom of contract, to effect amicable settlement of disputes between members and their employees, to secure to members all the advantages of unity of action, to protect them in all matters affecting their interests, to undertake the engagement of labour required by members, to act in conjunction with other unions or associations of a similar nature in any part of Australia, to enable the association to amalgamate or affiliate with and to appoint representatives to any employer's union or association in Australia and to enter into any agreement with the employees of the association which might seem to be for the mutual benefit of both the association and such employees.

6. The Commissioner's representative sought to distinguish these decisions on the basis that the taxpayers therein were carrying on business while the taxpayer in this reference was a salaried employee who was not required to be a member of the Federation and who received his salary for the performance of his duties whether he was a member of the Federation or not. To my mind, however, no true distinction exists. The Federation served the interests of the taxpayer in the same way as the builders' association served those of the building construction company and the pastoralists' association served those of the grazier. The first limb of sec. 51(1) of the Act applies, of course, equally to all taxpayers however they earn their income and it was specifically pointed out by the Full High
Court in Ronpibon Tin N.L. & Anor. v. F.C. of T. , 78 C.L.R. 47 , at p. 56 , that the second limb of sec. 51(1) -

``... can add but little to the operation of the leading words, `losses or outgoings to the extent to which they are incurred in gaining or producing the assessable income'. No doubt the expression `in carrying on a business for the purpose of gaining or producing' lays down a test that is different from that implied by the words `in gaining or producing'. But these latter words have a very wide application and will cover almost all the ground occupied by the alternative.''

It may be noted also that Gordon's case was decided in favour of the taxpayer under the then terms of the Act which were stricter than the present firm limb of sec. 51(1) and did not include the alternative appearing in the second limb of that section.

7. In my opinion, the subscription to the Federation was paid by the taxpayer to secure advantages in his chosen vocation, the occupation by which he earned his assessable income. I think that the amount claimed is properly regarded as expenditure incurred in gaining or producing the taxpayer's assessable income, expenditure not of a private nature.

8. The deduction of the $9 is a different matter. The total subscription was apportioned by the taxpayer to separate off the $9 appropriated by the Federation towards the payment of a premium for a group life assurance cover. This $9 was claimed by the taxpayer to be a

---

ATC 332

deduction pursuant to the terms of sec. 82H of the Act. The premium paid by the Federation in the year was, however, paid by it to a mutual provident society in respect of a group life assurance policy taken out by it which provided one year term assurance of $2,000 in respect of nominated members. In my opinion, the decision of Fullagar J. in
Crowe v. C. of T. , 100 C.L.R. 532 , precludes the allowance of the deduction claimed. In that case, a partnership had effected four life assurance policies, one on each of the lives of its partners. The policies enured for the benefit of all four partners. The premiums were paid to the life assurance company by the partnership's bank, but each of the partners was debited in the books of the partnership with the amount of the premium paid on the policy on his life. His Honour held that the premium paid on the policy on the life of a partner was not an allowable deduction from the income of that partner pursuant to the provisions of sec. 82H because it was not paid by the taxpayer but was paid and payable by the partnership. Likewise, in the present reference, there was only one premium paid and payable under the group life assurance policy and that was a premium which was both paid and payable by the Federation, though the Federation recouped itself from the members' subscriptions. I think the taxpayer's claim in this regard must be disallowed.

9. I would, therefore, amend the Commissioner's assessment to the extent of allowing to the taxpayer a further deduction of $48 in respect of the subscription paid in the year of income ended 30 June 1969, save that the ground on which the taxpayer relied in his objection to support that deduction was that it was made allowable by terms of sec. 73(2). That sub-section, in my opinion, did not authorise the deduction. The Board has, unfortunately, no power to waive compliance with what appear to me to be the unduly restrictive provisions of secs. 185 and 190. Although the benefit of any doubt as to the grounds of objection must be given to a taxpayer, I think that, in this reference, the objection, though it is not entirely logical in its terms, does clearly specify deductibility under sec. 73(2) as the ground on which it relies to support its claim to deduct the $48. I must, in the circumstances, uphold the Commissioner's decision on the objection and confirm his assessment.