Federal Commissioner of Taxation v. Maddalena.

Judges: Barwick CJ

Menzies J
Windeyer J
Owen J
Walsh J

Court:
High Court (Full Court)

Judgment date: Judgment handed down 31 August 1971.

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Menzies J.: Although the argument of this case stated, arising out of an appeal by the Commissioner against a decision of the Taxation Board of Review in favour of the taxpayer, ranged over a wide field, the actual issue between the parties is one which, I think, fits into a narrow compass. The question is whether the taxpayer, who earns his living as an electrician and as a professional footballer, is entitled to deductions under sec.51 of the Income Tax Assessment Act of travelling expenses, and under sec.51 and sec.64A of the Act of legal expenses, incurred by him in seeking and obtaining a new contract with a new club to play football.

For some years up to and including 1966 the taxpayer played with the Western Suburbs Rugby League Football Club of Wollongong. During the 1966 season, while still playing with ``Wests'', as that club is called, he spent the money in question to obtain a contract with the Newtown District Rugby League Football Club of Sydney, ``Newtown'' as that club is called. He travelled to and fro from Wollongong to Sydney on a number of occasions for interviews with the officials of clubs with which he might play and he had the advice of a solicitor in the negotiation and settlement of a contract with the General Committee of Newtown. He claimed as deductions travelling expenses between Wollongong and Sydney to interviews and to see his solicitor and the solicitor's charges.

It is established that fares paid for travel between the taxpayer's residence and his place of work are not allowable deductions: Lunney v. F.C. of T. (1958-59) 100 C.L.R. 478. Upon this authority the Commissioner relied.

It is also established that the expenses of an employee on leave to travel in order to equip himself to do his work better are deductible:
F.C. of T. v. Finn (1961-62) 106 C.L.R. 60 . Upon this authority the taxpayer relied.

I accept the authority of both decisions but I do not regard either of them as providing a basis for proceeding further either in the restriction of, or the extension of, allowable deductions under sec.51. The first proposition, as was recognised in Lunney v. F.C. of T. (supra), may be somewhat anomalous and is to be explained by a long-standing line of decisions; the second proposition is one that was decided in F.C. of T. v. Finn (supra) as a conclusion from the particular facts of the case there under consideration. To my mind this appeal is concerned with an issue upon which neither of the cases cited has any substantial bearing.

I have no doubt that the occupation of a professional footballer vis-a-vis his club is an employee. As to this I differ, with respect, from the conclusion that commended itself to the Board of Review in the decision under appeal. The agreement made by the taxpayer with Newtown - which is, no doubt, typical of a professional footballer's agreement - is a contract of service whereby the player agrees to play football for the club and to do so ``well and faithfully and to the best of his ability and skill''. His obligation is to play for the club ``in any team and in any grade as to when and where he may be from time to time called on by the said club so to do''. He submits himself to carry out ``all the training and other instructions of the club through its responsible officials''. He also agrees ``to abide by and observe the Constitution, Rules and By-Laws of the Club in their entirety and to observe all rules directions or additional rules (if any) which may from time to time be made by the Club''.

It is unnecessary to consider afresh the various indicia that are to be looked for in determining whether a particular agreement does or does not create the relationship of master and servant, for here everything in the agreement points to the existence of that relationship, and I have fountd nothing of countervailing weight. Of course, in his career as a professional footballer, a player who is successful ordinarily moves from grade to grade and from club to club. His employment is part-time and it is common for a player to play football in representative teams as well as with his club. Thus, for instance, in the agreement between the taxpayer and Newtown it is provided that ``the player shall not be restricted or debarred from training and/or playing with any Australian Inter-State Combined Sydney Combined Country Group Inter Group or other representative team for which he may be selected''. When playing with such a representative team the player would not be playing as a servant of his club. Nevertheless, while training and playing with Newtown, I consider that he does so as a servant of that club. Furthermore, it is common knowledge that because a man is a successful professional he can

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ATC 4163

earn fees from advertising and other sources which, of course, form part of his assessable income. Nothing I say in this judgment bears upon expenditure to earn such fees. Here it is the agreement with Newtown that the taxpayer spent money to secure.

Does then the expenditure in question fall within the description of an outgoing ``incurred in gaining or producing'' his assessable income, or was it an outgoing ``necessarily incurred in carrying on a business''? I think not.

It is, I think, worthwhile looking at the taxpayer's earnings as an electrician to illustrate what I regard as the decisive difference to be observed here. Had the taxpayer claimed as a deduction the expenses of changing from one job to another as an employee electrician his outlay would not have been an allowable deduction. The expenditure would have been incurred in getting, not in doing, work as an employee. It would come at a point too soon to be properly regarded as incurred in gaining assessable income. Nor would the expenditure have been an outgoing in carrying on a business. There is a difference of first importance for present purposes between an electrician who seeks work as an employee and an electrician who seeks contracts to do work as a principal. In the former case the electrician would not have a business; in the latter he would. In the latter, therefore, what he spent to obtain contracts to do electrical work would be properly regarded as an outgoing of his business. There is, however, a clear distinction between the two cases.

What I have said about the taxpayer as an electrician is, I think, equally applicable to him as a professional footballer, and moneys spent to obtain a new employment are not allowable deductions for income tax purposes under sec.51. The claim for a deduction under sec.64A for legal expenses incurred ``in carrying on a business for the purpose of gaining or producing assessable income'' fails for the same reasons.

Accordingly, I think the Board of Review was in error and that the questions asked in the case stated should be answered ``No''.