AM Donovan Ch
GR Thompson M
RK Todd M
No. 2 Board of Review
A.M. Donovan (Chairman); G.R. Thompson and R.K. Todd (Members): This reference is concerned mainly with deductions claimed by the taxpayer to be referable to his travelling on week days between his home, some 20 miles distant from a capital city, and the place of his employment in the city, and between his home and a different place of employment, also in the city, at weekends. The taxpayer contends that throughout the relevant year he was engaged in commercial strawberry growing on land contiguous to his home.
2. In so far as the claim comprehends outgoings, it must satisfy sec. 51 of the Act if it is to succeed. The taxpayer's submission to the Board was that the costs of travelling between places of employment or business are acceptable as deductions under that provision, and since the travelling undertaken by him was of this character his claim should be admitted. A similar argument has been addressed to the Board on a number of recent occasions, and perhaps this opportunity should be taken of explaining in somewhat greater detail than has been done previously what we understand the position to be in relation to claims of this nature.
3. Naturally enough, the problem of the deductibility for income tax purposes of the costs of travelling between home and work arose in Great Britain long before it did here. When it first agitated the minds of those concerned, two general views were logically open to be taken. One was that such costs were connected with the taxpayer's residence because of its location in relation to the place of employment or business. The other was that it was connected with the derivation of the taxpayer's income at his place of employment or business because the travel was undertaken to enable him to perform there the activities which generated his income. It was explained in Newson v. Robertson (1953) Ch. 7 at pp. 15-16, that in the era when the problem was first considered a person had a choice of living near to or at a distance from his place of employment or business. Perhaps it was this circumstance that influenced the conclusion, but it was the first of the abovementioned alternatives that was adopted and it has since remained the traditional view. Whenever the question has been before the Courts in England, the relevant cases ``unanimously accept the view that (such expense) is properly characterised as a personal or living expense'', per Williams, Kitto and Taylor, JJ. in
Lunney v. F.C. of T. (1958) 100 C.L.R. 478 at p. 501. In the absence of a special legislative provision to the contrary, such a conclusion effectively denies a deduction in respect of the cost of the travelling.
4. The English view influenced the Australian attitude, and for a very long time it was unhesitatingly accepted that the cost of travelling between home and work was not a deductible outgoing. As a result, the question did not come before the High Court until 1958, when it was considered in two cases which were jointly heard and which are usually referred to as Lunney's case but which are reported as Lunney v. F.C. of T. and
Hayley v. F.C. of T., (1958) 100 C.L.R. 478. The relevant legislative provision for consideration on that occasion was sec. 51 in its present form. It is hardly necessary to observe that under the first limb of the section a deduction is provided in respect of outgoings ``incurred in gaining or producing the assessable income''. The second limb, although differently expressed, scarcely ever requires independent consideration because in ordinary circumstances it covers the same ground as the first
Ronpibon Tin N.L. v. F.C. of T., 78 C.L.R. 47 at p. 56). The section contains an express exclusion, of, inter alia, ``outgoings... of a... private or domestic nature''. The exclusion is hardly necessary for it is difficult to envisage circumstances where outgoings of the description mentioned in the exception would satisfy the positive limbs.
5. In Lunney's case (supra), by a majority of four to one, the High Court rejected any question of the deductibility of the cost of travelling between a taxpayer's residence and the place of his employment. Dixon C.J., one of the majority, observed at p. 485 that ``... in Australia... the view has always prevailed that expenses of travelling from home to work or business and back again are not deductible''. He said that if this state of affairs were to be changed it was for the Legislature and not for the Court to do so,
ATC 247and this was the basis of his decision to reject the claim. He added: ``I confess for myself, however, that if the matter were to be worked out all over again on bare reason I should have misgivings about the conclusion.'' There is not the slightest suggestion that the uneasiness referred to resulted in any way from the interpretation of sec. 51 which had been adopted by the Court. A fair inference to be drawn from his observation is that his Honour doubted the correctness of the process of reasoning which endowed the expenditure under consideration with the nature of a domestic, living or personal expense.
6. The joint reasons of Kitto, Williams and Taylor JJ. were fully and carefully expressed. They are sometimes spoken of as if they introduced a new dimension in the interpretation of sec. 51, but that was not so. Their Honours pointed out that in the long line of cases in which was explained the meaning of sec. 51 and of the provisions which it replaced, the expressions used by the High Court have to be understood as not referring to outgoings generally, but only to outgoings of a ``business'' character. They characterised the expenditure of travelling between home and work as ``a personal or living expense'' (see p. 501). In this they adopted the traditional attitude, but it was a conclusion arrived at from extraneous considerations and not from an interpretation of the provisions of sec. 51 itself. Once this view was taken, the outgoings were effectively put in one of the categories of exclusion from deduction mentioned in the section and it could not then be seriously suggested that bearing this character the expenses were capable of falling within either of the two limbs which provide for deductibility. Perhaps the greatest significance of the joint reasons lies in the observation that merely because an expenditure is a prerequisite to the earning of income it does not follow that for the purposes of sec. 51 it was incurred in gaining or producing that income.
7. Travelling between places of concurrent employment stands in an entirely different light and the cost thereof, at least in ordinary circumstances, satisfies the test of sec. 51. Since there is no question of travelling to and from home, the relevant cost easily escapes the taint of a private, personal or domestic expense and its character as a ``business'' expense may be recognised. It is true that such an expense is not incurred in performing the duties at either place of employment for which remuneration is received. Nevertheless (to use phrases which appear in
Amalgamated Zinc (de Bavay's) Ltd. v. F.C. of T. (1935) 54 C.L.R. 295, and
W. Nevill & Co. Ltd. v. F.C. of T. (1937) 56 C.L.R. 290) it can be seen to be incurred ``in the course of gaining or producing'' the sum of the income and to be ``incidental and relevant'' to the derivation of the total income. In this regard, sec. 51 is susceptible of a wider interpretation than has been given to its English counterpart.
8. The question which next arises is what difference, if any, results from the taxpayer's residence being located at one of the places of income production. As long ago as 1947, in Case 27,
12 C.T.B.R. 259, Mr. Gibson dissented from his colleagues in deciding that the cost incurred by a taxpayer in travelling some six or seven times per year from a city where he lived and where he arranged the lending of money to his farm about 200 miles away was a deductible expense. On the approach explained in the joint reasons in Lunney's case (supra), his decision involved two separate steps; the first that the cost involved had the required ``business'' character and was not of a personal, private or domestic nature, and the second that, having a ``business'' character, it had the required degree of relevance to the derivation of income to satisfy the positive limb of the section. Mr. Gibson's conclusion was vindicated by the decision of the Full High Court in
F.C. of T. v. Green (1950) 81 C.L.R. 313. There, the Court had to consider, inter alia, the deductibility of the cost of an annual trip undertaken by the taxpayer from Brisbane where he lived and derived income to a locus of income production in Northern Queensland where his tenanted properties were situated. Although it was not specifically adverted to, the inference to be drawn from the facts is that the journeys commenced and finished at the taxpayer's residence. The claim was
ATC 248allowed. What is perhaps significant is that the Court felt able to deal with the matter without reserving its decision.
9. In Case 27,
12 C.T.B.R. 259, Mr. Gibson said at p. 267 -
``..... If a taxpayer lives at a place where his presence is required from time to time for the purpose of engaging in income producing activities, his expenses of travelling between that and any other place where his presence is required for similar purposes not only are incurred in gaining or producing his income but also should not be held to be of a private nature.....
I base these views upon what I think is a proper interpretation of Section 51(1), a provision in respect of which no judicial decision has (so far as I can find) been given which is in any way to the contrary.''
This observation was expressed as one of general application. It involved again the conclusion that none of the travelling could be regarded as being of a personal, private or domestic nature. As we have observed earlier, this was a view which as a matter of reasoning was open. It was tenable because at the time it was expressed there was no binding Court decision to the contrary. The latter position was changed by the decision in Lunney's case (supra) which now requires the view that (to use the words of Dixon C.J. at p. 485) the costs incurred ``by ordinary people to enable them to go day by day to their regular place of employment or business and back to their homes'' are a personal or living expense and not deductible under sec. 51. To this extent it is necessary to read down the above quoted passage from Mr. Gibson's decision. Subject to this limitation, however, the approach adopted by him appears, with respect, to be correct. It is supported by the observations of Dixon C.J. in Lunney's case, and by the unanimous decision of the Full High Court in Green's case (supra).
10. We have endeavoured to explain the reasons which on our understanding of the matter compel the conclusion that the cost of travelling of the type considered in Lunney's case must in every instance be rejected as a deduction, even if at the place of the taxpayer's residence he has also a place of income production. To hold otherwise would involve the view that the cost of such travelling is not a private, personal or domestic expense, and that cannot be done because of the High Court's pronouncement. As Menzies J. observed in
F.C. of T. v. Maddalena 71 ATC 4161 at p. 4162, it may be that the proposition that Lunney's case recognised was ``somewhat anomalous'', but that does not detract from the authority of the decision as a precedent.
11. We do not pretend that the view expressed coincides with all decisions given by Board of Review, although it is certainly consistent with most, including Case F31,
74 ATC 177. Regrettably, it would not appear to be consistent with the decision in Case B9, 70 ATC 42, and while we are deeply conscious of the desirability of all Boards adopting a consistent attitude in matters coming before them, we are of the opinion that for the reasons mentioned we are compelled to come to the conclusion mentioned.
12. To support his submission to the Board, the taxpayer devoted some time to evidence concerning the growing of strawberries on part of about two acres of land adjoining his home. For most of the year these activities were undertaken on his own account and, on his argument, constituted the carrying on of a business. The Commissioner's representative opposed this view. He conceded, however, that from the beginning of May in the year in question when the taxpayer entered into a partnership agreement with two others to grow strawberries on the same land, business activities were being conducted thereon. Without deciding the matter, we proceed on the basis that throughout the year the taxpayer was engaged either alone or in partnership in the commercial growing of strawberries at the place where he resided.
13. The actual claims in dispute involve in part bus fares totalling $107 in respect of travel between the taxpayer's home and the office in the city where he was employed on week days. For the reasons mentioned, this claim is not deductible under sec. 51 of the Act.
14. The balance of the disputed claim represents a proportion of the running expenses and depreciation of the taxpayer's
ATC 249car. It was established at the hearing that the vehicle travelled a total of 12,285 miles during the subject year, of which 803 miles related to purely business purposes.
15. To the extent of 4,144 miles the car was used solely for the purpose of travel between the taxpayer's home and place of employment on week days, and the relevant outgoings fail to satisfy sec. 51 for the same reason as does the claim for bus fares. To the extent of 2,816 miles the car was used solely for travel between the taxpayer's home and his place of employment at weekends. This place was situated in the same city as and perhaps no more than one mile from his main place of employment. This travelling is indistinguishable in nature from the travel to and from his week-day employment, and the relevant costs have to be treated in the same way.
16. To the extent of 1,760 miles travelled before the commencement of the partnership and 441 miles afterwards, the car was used for what was referred to as a ``dual purpose''. The journeys in question were without exception between the taxpayer's home and one or other of his places of employment. The duality of purpose was regarded as lying in the fact that on these occasions the taxpayer performed some function in relation to his business, the full extent and nature of which remained in some doubt. In some instances he carried in the car with him two or three punnets of fruit for sale to his fellow workers. On other occasions he attended to some business matter en route to or from the city or while he was in the city. These business activities can hardly be regarded as providing in any real sense a purpose for the car journey which was undertaken to get the taxpayer to or from work. The most that can be said is that the taxpayer took advantage of being in the city or passing some particular place to do something in connection with the growing of strawberries. In relation to the purpose of the journeys, these activities seem no more than accidental and we would not ordinarily regard them as conferring any different character on the journeys from what they would otherwise bear. In our view the costs associated with these journeys have much the same character as the outgoings in connection with the other car journeys to and from the taxpayer's work place. However, in the course of the hearing the Commissioner's representative conceded that one-half of the costs of the journeys totalling 441 miles might be treated as being deductible. Despite our reservations as to whether the evidence given supported the making of this concession, we are prepared to give effect to it.
17. The only remaining matter concerns depreciation of the car. In the circumstances under consideration, sec. 54 allows a deduction for depreciation when the vehicle was used ``for the purpose of producing assessable income'', and sec. 61 permits apportionment of the deduction otherwise allowable when it was used only partly for this purpose. In the light of what has already been said, the car was used for and to the extent of the required purpose when its use qualified the relevant outgoings as a deduction under sec. 51. The question of depreciation therefore requires no independent consideration.
18. In summary, therefore, the taxpayer's claim for bus fares must fail. His claim for car expenses and depreciation succeeds to the extent of $74. This figure represents the same proportion of the total car expenses and depreciation amounting to $881 as the sum of 803 miles travelled for purely business purposes and 221 miles in respect of which the concession was made bears to the distance of 12,285 miles travelled by the car.
Claim allowed in part