Case F16

Judges:
FE Dubout Ch
GR Thompson M
N Dempsey M

Court:
No. 3 Board of Review

Judgment date: 19 September 1973.

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F.E. Dubout (Chairman): In his return for the year ended 30 June 1971, the taxpayer claimed a deduction for an amount of $630.52, being his expenses of travelling from Australia to Great Britain. This claim having been disallowed by the Commissioner, and the taxpayer being dissatisfied with the decision of the Commissioner on the subsequent objection, the matter now comes before this Board. In addition to the above amount of $630, there originally remained as a subject of dispute a further item of $25 for sundry expenses. At the hearing the Commissioner's representative conceded that a deduction should be allowed for the said amount of $25 so the disposal of that item becomes a mere formality.

2. The taxpayer is a legally qualified medical practitioner, and is a member of the Royal Australian College of Surgeons. Until

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his resignation in late 1970, he occupied a position as medical registrar and lecturer in an Australian University, his actual location of duty being in a surgical unit at a public hospital. At the end of November 1970, the taxpayer left Australia, accompanied by his wife and three children, with the intention of residing in Great Britain for a period of approximately three years.

3. Before he went overseas, the taxpayer sold his house and his car to provide funds for the overseas trip. A power of attorney was given to a person who would be responsible for attending to certain investments which were located in Australia, and for lodging the taxpayer's income tax returns. At the time of his departure from Australia, the taxpayer's intention was to work in England for approximately three years and study the latest developments in his profession, thereby gaining valuable experience in this particular field. Arrangements had been made prior to his departure regarding his employment in the United Kingdom and he had completed the necessary registration formalities to enable him to practise there as a surgeon.

4. It was the taxpayer's intention to return to Australia about the end of 1973, and he was hopeful that he would then be able to obtain a position in the academic field similar to, but of a higher status than, that which he held at the time of his departure. After he had terminated his employment with the University, the taxpayer held no office of employment in Australia, and carried on no business in this country. He had been given no undertaking by the University that he would be re-employed in a higher position, or at all, on his return to Australia.

5. As the taxpayer was still in Great Britain when the reference was heard, he did not appear in person and the facts as outlined above were presented to the Board in a statement of agreed facts. In addition to those facts, oral evidence was given by the taxpayer's father. He was able to tell the Board that the taxpayer, although residing overseas had retained his membership of various medical societies and professional bodies. When the father visited Great Britain, the taxpayer then indicated (August 1972) that his intention was to return to Australia as soon as a suitable job was available. After a very brief period in casual employment the taxpayer obtained a position in Great Britain in a teaching hospital attached to a University. It appears that the income which the taxpayer derives in Great Britain is taxed in that country.

6. In opening his address, the taxpayer's representative summarised very concisely the argument in support of the taxpayer's claim, and I propose to paraphrase his opening remarks. The taxpayer was a surgeon and a highly qualified medical academic at the time he left for England in late 1970. He went overseas not to gain higher degrees, but primarily and expressly to obtain as much experience as he possibly could in his occupational field. Having acquired additional experience and expertise overseas, positions of higher standing would be open to him in Australia and he would be able to earn a greater amount of income here. The taxpayer's representative relied principally upon the decision of the Full High Court in
F.C. of T. v. Finn , (1961) 106 C.L.R. 60 . In his submission, the fact that the taxpayer did not immediately derive any benefit (i.e. benefit as regards receipt of assessable income) from the subject expenditure did not exclude the taxpayer's claim from the ambit of the decision in Finn's case.

7. Although the expenditure was incurred for fares and incidentals, and not directly in any educational process or professional training course, the claim in its nature falls for consideration in the class which has commonly been referred to as ``self education expenses''. In addition to Finn's case (supra), the High Court also had occasion to deal with the matter of self education expenses in the case of
F.C. of T. v. Hatchett 71 ATC 4184 , which was decided by Menzies J. It is clear, from observations made in both of the abovementioned cases that a taxpayer claiming a deduction for expenses of this kind does not have to show that the productive effect of the expenditure is necessarily to be seen or expected in the then current year of income. In Finn's case, Dixon C.J. said at p. 68: ``The better view,

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however, is that sec. 51 as now drawn does not in either limb require a rigid restriction to the gaining or production of assessable income of the current year.'' To a like effect are the remarks of Menzies J. in Hatchett's case (supra) at p. 4186: ``It is now beyond doubt that, in considering this question, consideration must be given to assessable income of future years as well as that of the year in which the outgoing occurs.''

8. In the present reference, the taxpayer, in attempting to demonstrate that the subject expenditure was incurred in the production of assessable income, is, by the very nature of the case, restricted to showing a connection with the production of future income. The travelling expenses can have no connection whatsoever with the gaining or producing of the taxpayer's salary in Australia in the period from 1 July 1970 to December 1970. The element of futurity can therefore be seen as the very essence of the taxpayer's case.

9. Putting aside for the moment the taxpayer's stated purpose and intention in making the trip to Great Britain, the subject expenditure can be looked at from an entirely different viewpoint. From this viewpoint, one looks at the earlier rather than the later productive effect of the expenditure. On this approach, it was simply expenditure incurred to enable the taxpayer to take up employment in Great Britain. From that employment, the taxpayer would derive income which would almost certainly bear tax in Great Britain, and would therefore be exempt from tax in Australia. In those circumstances, the cost of fares could not qualify for deduction under sec. 51.

10. To that line of argument, the taxpayer's response would be that overseas employment as such, was not his principal objective. Overseas employment was only a means to an end. If one were to use the language of Kitto J. in Finn's case (supra) at p. 69, the taxpayer's professional status ``implied an obligation of progressive acquaintance with a living and developing art'' and overseas employment would provide just that progressive acquaintance.

11. Assuming however that the taxpayer's estimate of his period of absence from Australia proved to be accurate, the fact remains that there is a substantial break in the continuity of derivation of assessable income. The question which I think must then be asked is this: Does sec. 51, as interpreted for the purposes of Finn's case and Hatchett's case, permit a deduction in the 1971 year in respect of this expenditure, incurred in that year, where the productive result of the expenditure can not materialise before 1974, and if the taxpayer changes his plans, may not materialise for an indefinite time or at all? For reasons which I shall state hereunder, I think that that question has to be answered in the negative.

12. In both Finn's case and Hatchett's case, there was an office or position of employment which was continuing throughout the period when, in the first case, the taxpayer was pursuing his architectural studies overseas and in the second case, the taxpayer was studying for the Teacher's Higher Certificate. In each case, although the relevant expenditure was undertaken with an eye to enhancement of future income, the taxpayer was engaged in that very office or employment from which he could hope or expect to receive some additional remuneration commensurate with his professional attainments. As Kitto J. said in Finn's case, at p. 70: ``In my judgment, the respondent, in making the investigations and studies which he pursued during his period of leave, was acting within the scope of his office, and therefore in the gaining of his salary.'' In the present case, once he had terminated his employment with the Australian University, the taxpayer held no office which had any connection with the derivation of income assessable to tax under Australian law.

13. It is clear I think, that remoteness of expenditure either in time or in a chain of causation, from the derivation of income with which it is supposed to be connected, may disqualify the expenditure from deductibility under sec. 51. On the matter of remoteness of expenditure in the case of a trading company, I would refer to the judgment of Menzies J. in
John Fairfax & Sons Pty. Ltd. v. F.C. of T. 101 C.L.R. 30 , at p. 48 . Closer to the subject matter of the present reference are the remarks of Menzies

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J. in Hatchett's case, where his Honour said, at p. 4186: ``Any relationship between any assessable income of the taxpayer and the payment of University fees is problematical and remote.'' Then at p. 4187, his Honour said ``There must be a perceived connection between the outgoing and the assessable income.''

14. Surely it is equally true in the present case to say that any relationship between any assessable income of the taxpayer and the payment of the travelling expenses is problematical and remote. In my opinion, the relationship is so problematical and remote that it is not possible to say of the subject expenditure that it was incurred in gaining or producing the assessable income.

15. I would accordingly disallow the taxpayer's objection to the extent that it relates to the claim to deduct $630 for travelling expenses. To the extent that it relates to the item of $25 for sundry expenses, the objection is allowed by consent. The amended assessment should be further amended accordingly.