Case H37

Members: JL Burke Ch
RE O'Neill M

CF Fairleigh QC

Tribunal:
No. 1 Board of Review

Decision date: 6 September 1976.

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C.F. Fairleigh Q.C. (Member): In his return of income for the year ended 30 June 1971 the taxpayer (a senior lecturer with a permanent position at a State university) claimed a deduction of $58 for the return air fare from his home town to Canberra and for $832 accommodation expenses for a period of nine weeks whilst he worked in Canberra for a Commonwealth Government Department during the university long vacation, December 1970 - February 1971. The Commissioner adjusted the income as returned by disallowing that claim. The taxpayer objected thereto and the Commissioner decided to disallow the objection. That decision was referred to a Board for review.

2. The taxpayer's duties at the university were to teach students in a particular discipline and to undertake research related to his field of study. Permission to undertake employment with the Commonwealth in Canberra from 14 December 1970 to 9 February 1971 had been granted by the university because the work to be carried out was related to his sphere of study. Specifically the university granted him ``special leave (with pay)'' in order to undertake the work in Canberra. As he continued to be an employee of the university he received the usual periodic salary payments from the university during the long vacation. Furthermore he said that he was still ``at the call'' of the university during the long vacation and was required by it during that period to carry out some duties, e.g. to read and supply for the assistance of the university selection committee a written review of a manuscript by an applicant for a lecturing position at the university; also the taxpayer was not absolved from carrying out during the long vacation ``ordinary university duties, such as lecture preparation for the following year''.

3. At all relevant times the taxpayer had his family home in the same town as is the university, some few hundred kilometres from Canberra. He rented accommodation for himself at Canberra. The Commissioner conceded the quantum of the claim after the taxpayer had given some evidence particularizing it. Nonetheless there is some significance in the way in which the claim for expenditure on accommodation was computed, viz.: -

• (a) an allowance of $13 a day seemingly as the equivalent of the then current university allowance when one in his position was required to stay overnight in some other town by reason of carrying out his work for the university ($13 x 64 = $832); or
• (b) rent on a unit in Canberra at an actual outlay of $30 a week for nine weeks and cost of three meals a day at $1.50, $3.00 and $4.50, i.e. $63 a week - total $837.

4. So far as it is relevant the taxpayer concedes that on the forward journey he proceeded from his residence directly to the airport in his home town and on the return journey he proceeded from that airport directly to his residence. Although not explicitly set out

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it seems also that at Canberra he would proceed on the forward journey directly from the airport to the place where he had temporary accommodation and similarly on the return journey.

5. Prior to the matter being referred to a Board the taxpayer sent to the Commissioner a letter which contains a carefully reasoned explanation why he submits that his claim should be allowed. In his address to the Board the taxpayer rested his case on that letter. In deference to the care taken by the taxpayer in analysing the elements of his claim. I propose to direct my attention to his submissions rather than to earlier decisions of Boards; those decisions do not have any standing as precedents though, of course, there is a desirability for uniformity in the application of principles of law.

6. The taxpayer said in his letter to the Commissioner that -

• ... the ``course of gaining income'' is not, as you insist, a course of events where a chronological sequence is essential, but rather a course of action where intention and purpose are essential. Actions are undertaken ``in the course of gaining income'' if they are necessary for the production of income or calculated to produce income.

However the Board is bound to apply judicial pronouncements as for example by Helsham J. in
F.C. of T. v. White 75 ATC 4018 at p. 4020 viz.: -

• ... It is not enough that the expenditure is a prerequisite to earning the assessable income in the sense that the particular income could not be earned without such expenditure.

See further discussion of ``the element of necessary relationship'' by Helsham J. in
F.C. of T. v. McCloy 75 ATC 4079 at p. 4081 ; also
Lunney and Hayley v. F.C. of T. (1957-1958) 100 C.I.R. 478 . In
Amalgamated Zinc (De Bavay's) Ltd. v. F.C. of T. (1935) 54 C.I.R. 295 at p. 309 Dixon J. said:

• The expression ``in gaining or producing'' has the force of ``in the scope of gaining or producing'' and looks rather to the scope of the operations or activities and the relevance thereto of the expenditure than to purpose in itself. Purpose in itself may be the criterion expressed by the word ``for'' which occurs in the correlative prohibition contained in sec. 25(e) ( scil. money not wholly and exclusively laid out or expended for the production of assessable income - as in the repealed Income Tax Assessment Act ).

7. It is undisputable that for a period of nine weeks the taxpayer held two separate and distinct employments one of which was continuing before and after the period. The taxpayer asserts that the return air far was an expense incurred in travelling between two places of employment. Even if it were shown that the taxpayer on the forward journey proceeded from the university to the home airport and from the Canberra airport to the Commonwealth offices (and vica versa on the return journey) I would not see the case any differently. I do not regard the taxpayer as travelling between two places of employment because I do not accept his employment with the Commonwealth as commencing for the purposes of a deduction under sec. 51(1) (whatever may be the position for, say, ``workers' compensation'' for injury) until he begins at Canberra to do the work for the Commonwealth. As was said by Menzies J. in F.C. of T. v. Maddalena 71 ATC 4161 at p. 4163: ``The expenditure (was) incurred in getting, not in doing, work as an employee. It (came) at a point too soon to be properly regarded as incurred in gaining assessable income.'' Furthermore as it would seem that the taxpayer ceased to be employed by the Commonwealth upon (or immediately before) his departure from Canberra he cannot be said to be travelling between two places of employment when he undertook the journey from Canberra to his home town; nor was he travelling on his work (ct.
Taylor v. Provan (1975) A.C. 194 at p. 215; 49 T.C. 579 at p. 612 per Lord Wilberforce ). I would hold against the taxpayer on the claim to deduct the expenditure for air fares.

8. The taxpayer is correct in submitting that ``Courts have not established that living expenses are of a private nature regardless of circumstances''. In
Bentleys, Stokes and Lowless v. Beeson (H.M. Inspector of taxes) (1951) 2 All E.R. 667 where there was expenditure by a solicitor on a meal for his firm's clients and himself Roxburgh J. said: ``It seems to me that, on the evidence as included in the Case Stated, this transaction was one single transaction embarked on for business and professional purposes solely and exclusively. The partner who attended and lunched was an essential element in the transaction. The advice

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could not have been given and the fee could not have been earned if the partner had not attended and, obviously, if the partner has to attend and the client is to be given lunch, business would not be promoted if the partner should sit by eating and drinking nothing.'' Romer L.J. for the Court of Appeal ((1952) 2 All E.R. 82) said in respect of the single transaction in which the partner's lunch is an essential ingredient: ``We think that the judge's view on this point was clearly right, and inasmuch as no argument to the contrary was presented to this court we need not consider it further.'' It is apparent that Roxburgh J. made a finding on the facts and the Court of Appeal endorsed that finding but one cannot transmute that into a principle of law for application in other cases even where the legislation is similar. In 1965 the United Kingdom Parliament intervened to stop deductions of this kind because of the notoriety of ``expense-account living'' which offended against general notions of fiscal equity (
Fleming v. Associated Newspapers Ltd. (1971-1972) 48 T.C. 382 at p. 410 per Lord Simon of Glaisdale ).

9. The taxpayer says that the Commissioner's attitude towards living expenses involves two distinct points:

• (i) Living expenses must be incurred whether a person is gainfully employed or not. They are therefore not incurred exclusively in the course of gaining income and must be disallowed. (One should disregard the word ``exclusively'' in order to do justice to the argument of the taxpayer who, incidentally, is not associated with law or taxation in his field of study.)
• (ii) The rate at which a person incurs living expenses depends only on his personal choice and is in no way related to his employment.

The taxpayer then says that (i) is valid only if the person employed is not required by his employer to be absent overnight from his normal place of residence; or, should he be employed by more than one employer at the same time, if the location of a place of employment does not make it necessary for him to be absent overnight from his normal place of residence; otherwise the additional living expenses incurred while absent from his normal place of residence (net of savings in household costs due to his absence) are exclusively incurred in the course of gaining income and should not be regarded as being of a private nature. The taxpayer also says that point (ii) is irrelevant to the determination of whether expenses incurred under circumstances outlined in (i) should or should not be deductible as the amount of the claim has not been an issue.

10. The taxpayer's remark as to ``net of savings in household costs due to his absence'' is echoed in the Commissioner's submission that there was nothing in the nature of the employment at Canberra which called for excessive expenditure. This brings to mind what was said in
F.C. of T. v. Hatchett 71 ATC 4184 at p. 4186 by Menzies J.: -

• When sec. 51 denies the deduction of an outgoing of a capital nature it directs attention to what an outlay provides rather than to the source of what is outlayed. The same is true of outlays of ``a private and domestic nature''... It must be a rare case where an outgoing incurred in gaining assessable income is also an outgoing of a private nature. In most cases the categories would seem to be exclusive. So for instance the payment of medical expenses is of a private nature and is not incurred in gaining assessable income, notwithstanding that sickness would prevent the earning of income.

11. As the provision of food and drink by a taxpayer for his own consumption is prima facie of a private and domestic nature (whether consumed in his own residence or elsewhere) it seems to me that it must be a rare case where sec. 51 would not deny in toto the claim for a deduction in respect of the taxpayer's own refreshments so that relief could not be given under the apportionment provision in sec. 51 (i.e. ``except to the extent''...) whether based on an amount ``net of savings in household costs due to his absence'' or otherwise. On the other hand it seems to me that apportionment operates to allow the expenditure on refreshments for the client or customer, all other requirements being satisfied. Compare Latham C.J., Rich, Dixon, McTiernan and Webb JJ. in
Ronpibon Tin N.L. and Tongkah Compound N.L. v. F.C. of T. (1949) 78 C.L.R. 47 at p. 59 : -

• ... there are at least two kinds of items of expenditure that require apportionment. One kind consists in undivided items of expenditure in respect of things or services

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  of which distinct and severable parts are devoted to gaining or producing assessable income and distinct and severable parts to some other cause. In such cases it may be possible to divide the expenditure in accordance with the applications which have been made of the things or services. The other kind of apportionable items consists in those involving a single outlay or charge which serves both objects indifferently... With the latter kind there must be some fair and reasonable assessment of the extent of the relation of the outlay to the assessable income. It is an indiscriminate sum apportionable but hardly capable of arithmetical or rateable division because it is common to both objects...

12. Before leaving this point I think it desirable to direct attention to the fact that their Honours then referred to a practice of the Commissioner, arising from the exigencies of administration to provide his assessors with some fixed rule. Thereupon the joint judgment continues: -

• But it is a more or less arbitrary expedient to which it is scarcely possible to resort judicially when the Court is called upon to decide an appeal from an assessment. The Court must make an apportionment which the facts of the particular case may seem to make just... In making the apportionment the peculiarities of the cases cannot be disregarded.

Where the Board is deciding any such issue of fact inter partes I cannot see that it could proceed in a way in conflict with the way in which a court would proceed. Thus even if apportionment were available to the taxpayer on the basis submitted by him (i.e. taking into account net savings in household costs during his absence) it would be necessary to deny him this relief because he did not produce any facts on which to base apportionment and the Board cannot resort to a more or less arbitrary expedient (cf.
St. John's School v. Ward (1973-1974) 49 T.C. 524 at pp. 535 to 537 ).

13. The provision of overnight accommodation is not inevitably of a private and domestic nature when regard is had to the conditions under which some labour is carried out, e.g. in certain circumstances by some canecutters, shearers, railway linesmen, judges on circuit, etc. (cf. Taylor v. Provan per Lord Simon of Glaisdale (1975) A.C. at p. 221; 49 T.C. at p. 618). It will be a question for determination on the facts in each instance whether the outlay for the accomodation is of a private and domestic nature. Where it is held to be otherwise the question may then arise whether meals associated with the overnight stay cease to have the characteristics which they normally do have and take on the same character as the overnight stay itself. That this is a question dependant on the facts of each case is highlighted from a consideration of the question whether alcoholic beverages taken (and perhaps charged for) with the meal would necessarily have the same character as the meal which the taxpayer consumes. Certainly that would be so it the taxpayer's meal is held to be of a private and domestic nature, but the converse does not follow. Again, the same circumstances of employment may require two persons to remain overnight in a town distant from their own and they may dine together yet one may exercise his preference to wine and dine sumptuously and the other to have but a modest serving of plain food and a cup of tea. In the instant case it can be seen from para. 3(a) that the standard chosen by the taxpayer would be regarded by the university as appropriate as a total outlay but as that relates to quantum it has no relevance for the determination of the present question.

14. I would decide the present question by holding that the acceptance of this employment in a distant town for a fixed period of several weeks carries the implication that accommodation and meals in that town are a private and domestic matter for the employee.

15. Accordingly I would uphold the decision of the Commissioner on the objection and confirm the assessment.

Claim disallowed