Case H18

Judges: JL Burke Ch

RE O'Neill M
CF Fairleigh QC

Court:
No. 1 Board of Review

Judgment date: 9 April 1976.

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R.E. O'Neill (Member): The facts are contained in the reasons given by my colleagues with whose common conclusion I agree. For the purpose of making a few observations I treat the sums claimed as being in three groups: (i) Fees and textbooks ($398), (ii) Car expenses $142, train fares $5, bridge toll $6, stationery, typing and photocopying $23, and (iii) Desk, lamp and brief case ($88). Accepting that the expenditure on fees and textbooks has already been allowed under sec. 82JAA, the basic question is whether expenditure incurred by the taxpayer in pursuing his tertiary studies is within the first positive limb of sec. 51(1) as being expenditure incurred in gaining or producing his assessable income.

2. In the area of deductibility of what are colloquially spoken of as self-education expenses the leading case is
F.C. of T. v. Finn (1961) 106 C.L.R. 60 ; 12 A.T.D. 348 . The element most relied on by the Court to support allowing a deduction in that case was substantively that Finn's ``study tour'' was undertaken for the purpose of fitting himself more surely for promotion. None of the learned judges saw as a necessary element either an immediate increase in income or a positive assurance, under the terms of employment, of future increase as a result of the ``study tour'': see per Mr. Dubout, Chairman of Board No. 3, in para. 8-12 of his reasons in Case D1,
72 ATC 1 .

3. In F.C. of T. v. Hatchett 71 ATC 4184; (1971) 125 C.L.R. 494 a school teacher claimed (a) a sum paid in connexion with a thesis submitted to gain a teacher's higher certificate, and (b) university fees in the Faculty of Arts. The higher certificate carried a higher salary without change of status and enabled future progression beyond the grading otherwise available to him. A university degree was necessary for appointment as headmaster or deputy headmaster of a secondary school but otherwise had no bearing on his future status or salary. Menzies J. allowed the claim as in (a) but not that as in (b). The higher certificate brought an immediate increase in salary but ``Any relationship between any assessable income of the taxpayer and the payment of university fees is problematical and remote. Having regard to the taxpayer's lack of success in passing university exams it is not possible to find affirmatively that there exists any connexion between the payment of university fees in 1967 and the earning of assessable income at any time in the future'' (ATC 4186; C.L.R. 496-497). From the decision in Hatchett and his Honour's discussion therein of Finn it seems to follow that for education expenses to be allowable under sec. 51(1) there must be a clearly discernible connexion either with income actually received or with a tangible prospect of income improvement.

4. That conclusion accords, I think, with the approach of the Supreme Court of New Zealand. In
Player v. Commr. of I.R. (1973) 1 N.Z.L.R. 689 ; 3 A.T.R. 419 Perry J. allowed

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ATC 136

under a provision practically identical with sec. 51, a tax officer's claim to deduct expenses incurred in studying for accountancy qualifications. Having cited Finn and Hatchett and Board of Review decisions his Honour said: ``I have found the decisions of assistance in shaping my approach to the issues here particularly because of the recognition by the Court of the effect of additional qualifications on the gaining of future income and with the possibility of promotion in mind'' (A.T.R.421). In
Dobbs v. Commr. of I.R. 74 ATC 6001 , after discussing Finn, Hatchett and Player at pp. 6004-5, Cooke J. said at p. 6005: `` Perry J. (in Player ) said: `These decisions, all of a persuasive value only, show that where the expenditure can be definitely and closely related to promotion - that is to say - where the qualification is a necessary step to a defined area of promotion, then the Courts have been willing to allow it as a deductible item. But where the study merely has the effect of improving the taxpayer in his present employment, and even although it may enhance his chance of promotion, then it has not been allowed.'... I must own to some doubt as to whether such a clear-cut distinction can be justified. In many cases self-education expenditure would not be strictly necessary for promotion but would help both that object and the performance of the existing duties. Finn's case is an example.''

5. In F.C. of T. v. White 75 ATC 4018 Helsham J. concluded from his review of Finn and Hatchett that self-education expenses will qualify under sec. 51 ``when it can be said that those studies are part and parcel of the employment, which means that the expenditure is incurred in the process of carrying out the employee's duties, or, even if they are not such, they can be seen to have a direct effect on income'' (p. 4022). As sec. 51 looks rather to the purpose of expenditure than to its effect I think that the alternative test suggested by Helsham J. is to be understood as meaning that there should be, as I have put it in para. 3, a clearly discernible connexion between either income actually received or a tangible prospect of income improvement and the studies giving rise to the expense claimed: see para. 24-28 of my reasons in Case G65,
75 ATC 474 . In para. 15 of his reasons the Chairman demonstrates beyond doubt the clear connexion that exists in this case between the taxpayer's studies and his prospects of income improvement.

6. On the foregoing basis the taxpayer's claim under sec. 51 is correct in principle. The claim to deduct $23 for stationery is therefore allowed. It was conceded for the Commissioner that if the Board decided in principle in the taxpayer's favour then he is entitled to deduct expense attributable to running his car from the office where he worked to attend evening lectures at the university, but that the car running expenses from his home in the morning and from the university to his home in the evening are excluded from deduction by
Lunney v. F.C. of T. (1958) 100 C.L.R. 478 ; 11 A.T.D. 404 . I accept that concession and submission and agree with the quantum of deduction ($45) for travelling expenses as calculated by my colleagues.

7. I accept the evidence that the desk, lamp and brief case were used exclusively for study purposes. Depreciation is therefore to be allowed in respect of those items. The brief case was bought during the year to replace a worn out hand bag and I assume that its cost would be allowed in accordance with general practice as a replacement.