Case H18
Judges:JL Burke Ch
RE O'Neill M
CF Fairleigh QC
Court:
No. 1 Board of Review
J.L. Burke (Chairman): In his return of income for the year ended 30 June 1973 the taxpayer, an assessor in the Sydney office of the Australian Taxation Office, claimed a deduction of $662 under sec. 51(1) of the Income Tax Assessment Act 1936-1973 in respect of expenses incurred in connexion with his pursuit of a part-time Bachelor of Commerce course at the University of New South Wales. The claim is summarized hereunder:
University fees.......................$321
Text books..............................77
Typing costs (essays),
stationery and photo copying..........23
Travelling expenses (car)..............142
Bridge tolls and train fares............11
Brief case..............................27
Desk....................................39
Fluorescent lamp........................22
2. The Commissioner in making his assessment allowed a deduction of $400 being the maximum then prescribed for self-education expenses (sec. 82JAA). The taxpayer objected on the ground that the whole of the expenses were allowable under sec. 51. In the objection sec. 54 of the Act was not adverted to but it is conceded by the representative of the Commissioner that if the case is decided in principle for the taxpayer the deduction allowable in respect of the last three items in the above summary falls for consideration under the depreciation provisions of the Act.
3. In sec. 82JAA ``expenses of self-education'' were defined to mean ``expenses necessarily incurred by the taxpayer for fees, books and equipment in connexion with a prescribed course of education but does not include expenses in respect of which a deduction has been allowed or is allowable to the taxpayer in respect of any year of income under any other provision of this Act''. As the Commissioner has already allowed a deduction of $400 the question of whether sec. 51(1) should have been applied to this amount rather than sec. 82JAA is somewhat academic. (But see now the amendments effected by Act No. 117 of 1975 under which, in effect, the first $250 of self-education expenses is rebatable rather than deductible under sec. 51(1) - new sec. 82A(1) and sec. 159U.) The question of substance for the Board to decide is whether the expenses to which the taxpayer was subjected were outgoings incurred in gaining or producing the taxpayer's assessable income so that the assessment should be amended to allow deductions under sec. 51 and sec. 54 of the Act in respect of that part of the expenditure which exceeds the amount of $400 already allowed by the Commissioner.
4. The taxpayer accepted appointment in the Taxation Office as a Clerk (Class 1) on 10 November 1969 and in October 1970 applied for acceptance in an Assessing School ( infra ) but was not accepted as he was not studying an approved course at the tertiary level. With a view to gaining acceptance at a subsequent
ATC 132
school the taxpayer enrolled in the Faculty of Commerce at the University of New South Wales at the commencement of the 1971 academic year.5. The Departmental Assessing Schools of the type referred to in the preceding paragraph are conducted over a period of ten days at the end of which those attending are tested by written examination and, if successful, are given a period of training in practical assessing before being appointed Assessor Grade 1. The Departmental circular calling for applicants for the Schools specifies that ``Intending applicants should be currently undertaking a course of tertiary studies which, upon completion, will satisfy the qualification prescription governing advancement to positions of Assessor, Grade 4 and above.'' Applicants are required to give details of tertiary studies as under: -
``(i)Name of course, when commenced and manner in which study is being pursued. State name of university or college etc. being attended, or name of correspondence institute.
(ii) Details and respective dates of any subjects passed.
(iii) Details of current studies.''
6. It is clear that an applicant not currently embarked on a prescribed tertiary course had virtually no chance of being accepted for the Schools. Of the 620 selected for Schools over the period November 1971 to August 1975 only two applicants were technically ``non-studiers'' and there were special circumstances in each case.
7. The taxpayer stated that the Departmental officer who had acted as chairman of the selection committee when he was chosen for the October 1971 School ( infra ) told him, in answer to a question put to him by the taxpayer when he was preparing his case for presentation to this Board, that an applicant for entry into the School who was not at that time engaged on an approved course of tertiary study, would not even be granted an interview. The officer who represented the Commissioner before the Board was given the opportunity of calling a Departmental witness to qualify the taxpayer's statement, and after an adjournment she stated that ``... it is admitted that the undertaking of a course of study is a requirement for entry into the assessing schools themselves... it was tantamount to being a requirement - I think an implied requirement would be the word I seek.''
8. For present purposes the assessing branch structure may be described as under: -
Class of returns
Assessor, Grade 1 - ) Salary earners and individuals with investment income
Assessor, Grade 2 - )
Assessor, Grade 3 - Businesses, professions and primary producers
Assessor, Grade 4 - Partnerships, trusts, estate duty, gift duty
Assessor, Grade 5 - Companies
Assessor, Grade 6 - Control of team of company assessors Special class
companies.
9. The prescribed qualification for advancement to Grade 4 Assessor specified in the Departmental circular (Assessing Schools) referred to in para. 5 ( supra ) is that set out in successive determinations under sec. 53 of the Public Service Act requiring of the promotee so far as is material, that: -
``(a) He has completed a course of training in accountancy being a course recognised by the Board as a course appropriate for the efficient discharge of the duties of the office; or
(b) he has passed in such subjects of a course in accountancy or law at a recognised educational institution as are, in the opinion of the Board, appropriate for the efficient discharge of the duties of the office; or
(c) he has other qualifications which, in the opinion of the Board, are appropriate for the efficient discharge of the duties of the office:''
10. On the recommendation of the Commissioner of Taxation the Public Service Board in December 1971 omitted Assessor Grade 4 from the list of positions to which the determination applied but, in acknowledgment of the importance of academic qualifications
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for satisfactory progression through the assessing grades, it was decided to include in the formal duty statements of both Grade 3 and Grade 4 Assessors that ``Training in accountancy or law is highly desirable'' for the positions.11. The duty statements of the six assessing grades which were tendered in evidence emphasize the increasing complexity of assessing tasks which fall upon assessors as they move from grade to grade. At the apex of the assessing structure the duties of the Assessors Grades 5 and 6 clearly demand the accountancy (or equivalent) qualifications which the Public Service Board had deemed it appropriate to prescribe as a prerequisite for promotion thereto. I illustrate by quoting in full the duties of a Grade 5 Assessor as set out in the formal Duty Statement: -
``Duty No.
1. Assess income tax returns lodged by companies and in the process of assessment -
- (a) examine returns to detect schemes for tax avoidance and submit to team leaders those cases in which schemes are evident or suspected;
- (b) obtain by correspondence, telephone or outdoor enquiry, additional information regarding items appearing in or omitted from returns; and
- (c) determine the liability of private companies to additional tax under Div. 7 of the Income Tax Assessment Act .
2. Prepare submissions on objections and complaints against assessments and amend assessments where necessary.
3.
- (a) Advise amounts to be retained in respect of tax on royalties and assess royalties paid.
- (b) Examine returns lodged by associations; determine whether a deduction is allowable to a taxpayer for subscriptions made.
- (c) Examine returns relating to liquidations, receiverships, reduction of capital, etc. and authorise the issue of relevant clearances.
- (d) Ascertain the source of dividends paid by companies; calculate the proportion of a dividend which is not assessable income to a shareholder.
- (e) Interview representatives of companies in relation to returns, assessments and requests for information.
4. Conduct outdoor audits of company records and returns.
5. Participate as a member of a team in the assessment of income tax returns lodged by companies classified in a special class.''
12. The taxpayer in the present reference applied for and was accepted into the Assessing School which was held in November 1971 and was appointed an Assessor Grade 1 (Class ⅔ ) on 16 December 1971. Although at the time of his appointment as an Assessor the taxpayer was an Acting Clerk (Class ⅔ ) in the Inquiry Section of the Department the appointment was a promotion in the sense that he was placed permanently on the Class 2\s?\3 level and, as his subsequent Departmental history establishes, he was instanter put in the position from which, subject to satisfactory performance of duties and subject to the qualification barrier applying to Assessor Grade 5 and beyond, he could move through the assessing grades with consequential increases in salary. His Departmental moves were as under: -
17.4.72 Assessor Grade 2
26.2.73 Acting Assessor Grade 3
16.8.74 Acting Clerk (Class 5),
Personnel
7.10.75 Assessor Grade 4
The taxpayer said that he applied for the move into the Personnel Section in August 1974 partly because it involved a rise in class and partly to gain further experience. He was told at the time that, if he wanted to, he could transfer back to the assessing branch. He was, in fact, directed by the administration to take up the Grade 4 position in October 1975.
13. The taxpayer's progress through the Bachelor of Commerce degree course is indicated in the following table: -
1971 Accounting Pass
Economics I Fail
1972 Economics I Pass
Commercial Law I Pass
1973 Quantitive Methods A Pass
Accounting
&
Financial
Management IIA Pass
Quantitive Methods B Pass
Accounting
&
Financial
Management IIB
In the second semester of 1975 he sat for the papers in Accounting IIIB and Economics IIC (repeat from 1974) but the results of the examination were not known at the time of the hearing.
14. The taxpayer's evidence was that the brief case which cost $27 was purchased in February 1973 to replace a worn out bag and was used exclusively to carry books and papers to and from the university. The desk and lamp were owned by him throughout the year and were located in his bedroom in the two-bedroomed flat which he shared with another person. The desk and lamp were used solely in connexion with his studies.
15. In the present case it is clear that the taxpayer enrolled in the Faculty of Commerce with the specific purpose of being admitted to the ranks of assessors via the Assessing School. Although his appointment as an assessor did not bring with it an immediate increase in salary it confirmed him in the salary range in which he was then acting and, more than that, being in the assessing range, promotion in rank and advancement in salary was reasonably assured subject to satisfactory performance of duties. The course of study which gave rise to the expenditure in question can thus be seen as having a direct effect on the assessable income of the taxpayer to the extent necessary to meet one of the alternative tests suggested by
Helsham
J. in
F.C. of T.
v.
White
75 ATC 4018
. But I take the view that the taxpayer is entitled to succeed on the broader ground that on the facts of the case there is a clear nexus, a ``perceived connexion'' to use the words of
Menzies
J. in
F.C. of T.
v.
Hatchett
71 ATC 4184
;
(1971) 125 C.L.R. 494
, between the outgoing and the taxpayer's assessable income. The connexion is to be seen in the requirement that a taxation officer be committed to a course in accountancy (or an acceptable alternative) before getting his foot on the first rung of the assessing ladder through admission to an Assessing School; it is to be seen in the positive requirement by the Public Service Board that accountancy qualifications (or an acceptable alternative) be obtained as a condition for promotion to Assessor Grade 5 and thence to the top of the assessing ladder; it is to be seen in the specification in the duty statements of Assessors Grades 3 and 4 that training in accountancy or law is highly desirable; it is to be seen in the obvious necessity for accountancy qualifications to successfully carry out the duties of an assessor handling, at the end of the line, company returns with financial statements, prepared by accountants, annexed thereto. It is not to the point that in the lower assessing grades the job could be performed by one not qualified in accountancy; nor is it to the point that not every subject in the course being pursued by the taxpayer could be related to the assessing tasks carried out by the taxpayer, year by year, and, in particular, in the year of income in question. In my view the assessing field should be looked at as a whole and so viewed the connexion between the course of study undertaken by the taxpayer and his present and prospective duties as an assessor is established to the extent necessary to justify the conclusion that outgoings which are truly incidental to that course should be held to satisfy the positive requirements of sec. 51(1). On the basis of this finding it should not be held that such outgoings were to any extent of a private nature. See per
Menzies
J. in
Hatchett's case (supra)
at p. 4186 ATC; p. 498 C.L.R.
16. The taxpayer, who lived in a southern suburb, attended the university on two nights a week for 28 weeks during the year in question. On those days when evening lectures were scheduled the taxpayer used his car in the following way. For that part of the year when he was located in the city he travelled by car to Redfern where he parked, travelled to and from the city by train, used his car to get to lectures and thence home. When he was transferred to North Sydney he was able to park in the basement of the office building but otherwise his movements were the same. He estimated his weekly mileage at 36 miles (home to city - 8 miles; city to university - 5 miles; university to home - 5 miles) which, for 28 weeks plus 108 miles involved in attending exams and laboratory sessions (6 round trips of 18 miles), gives a total of 1,116 miles. The amount of $142 was arrived at by applying a standard cost of 12.7 cents per mile. The item of $11 includes approximately $6 for bridge tolls on those evenings when the taxpayer went direct from North Sydney to the university.
17. I would hold that the train fares and car expenses (except the direct expense of getting
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from office to university) are to be classified as the cost of getting to and from work and accordingly, on the application of the decision inLunney v. F.C. of T. (1958) 100 C.L.R. 478 , no deduction is allowable in respect thereof. This case is to be distinguished from that of the footballer in Case G66, 75 ATC 486 (at present subject to appeal) where a majority of this Board held that when the taxpayer went to training after finishing work in his ordinary full-time job, what would otherwise have been his journey home from his day-by-day occupation was substantially interrupted so that when he went home from training he was travelling within the scope of his activities as a footballer. Here, on the finding I propose that the expense related to the taxpayer's self-education was incurred in the course of his employment as a taxation assessor, the trips home from the university take on the character of journeys home from a regular place of employment.
18. I would, in the light of the findings indicated in para. 15 and 17 of these reasons, uphold the taxpayer's claims as under: -
- (i) Deductions under sec. 51(1) to be allowed in respect of:
-
- (a) Typing costs, stationery and photocopying - $21 (on the footing that the balance of $2 thereof has already been included in the deduction of $400 allowed by the Commissioner).
- (b) Travelling expenses - $45 made up of car expenses $39 (62 trips of 5 miles from office to university) plus $6 for bridge tolls.
- (ii) Deductions under sec. 54 at the appropriate rates to be allowed in respect of the desk and fluorescent lamp and on a replacement basis for the brief case used in connexion with the taxpayer's studies.
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