Federal Commissioner of Taxation v. CollingsJudges:
Supreme Court of New South Wales
Rath J.: This is an appeal by the Commissioner of Taxation from part of the decision of a Taxation Board of Review upholding the objection of the respondent against an assessment to income for the year ended 30th June, 1973.
The taxpayer claimed a deduction of $470.00 from her assessable income. This was made up of two sums, one of $50 for telephone expenses, and the other of $420 for car expenses. The Commissioner disallowed the whole claim, but the Board of Review allowed a deduction of $443, being $36 for telephone expenses and $407 for car expenses.
The appeal relates to both travelling and telephone expenses, but on the hearing of the appeal counsel for the Commissioner stated that the Commissioner accepted the Board's findings in relation to the telephone expenses. The remaining question for determination is whether the car expenses were properly deductible under sec. 51 of the Income Tax Assessment Act 1936 (as amended).
In respect of the car expenses, the taxpayer's claim for depreciation, insurance, registration, repairs and maintenance was based on a 50% estimate of business use; but her claim for petrol was based upon an estimated 4,500 miles business use as against a total mileage of 10,000. Her figures, appearing in the Commissioner's file, total under this head $444. The Board considered that the component items of the car expenses should be allowed upon the petrol use ratio of 4,500 to 10,000 miles, thereby reducing the deduction to $407. The Board also found that the taxpayer received $60 as a contribution to her car and telephone costs, and accordingly reduced the total deduction to $383.
The Commissioner claims not only that this deduction of $383 was not properly allowable upon the proper construction and application of sec. 51, but also that there was no evidence to support the finding in respect of the car expenses.
Counsel for the Commissioner submitted firstly, that the Board of Review was in error in concluding that travel to and from the taxpayer's home to her place of employment outside normal working hours qualifies for deduction, and, secondly, that there was no evidence to justify an allowance at the rate of 45% or an a mileage basis of 4,500, and that the apportionment was excessive.
The relevant part of sec. 51 is subsec. (1), which reads as follows: -
``All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such income, shall be allowable deductions except to the extent to which they are losses or outgoings of capital, or of a capital, private or domestic nature, or are incurred in relation to the gaining or production of exempt income.''
It was agreed that the evidence before the Board of Review should be treated as evidence on the appeal. Apart from certain facts agreed upon both before the Board and on appeal, there was no other evidence.
The taxpayer in the year to which the assessment relates was employed as a computer consultant on the management staff of Computer Sciences of Australia Pty. Limited. In the latter half of that year there took place a major conversion in the computer facilities which the company provided for its customers. In the periods from 1st November, 1972 to the end of December, 1972 and in February and March, 1973 the taxpayer was sent to the United States for training relating to the proposed conversion. In the period of January, and April, May and June, 1973, when the taxpayer was in Australia, she was engaged in the conversion. Her normal hours of work were from 8.30 in the morning to 5.30 in the evening, but she was on call for the remainder of the 24 hours of the day and on weekends. It was normal for her to receive telephone calls and give telephone advice to the workers at the office at any time of day or night. If she could not resolve the problem over the telephone she would return to the office from wherever she happened to be in order to get the computer working. She was accordingly on call at all times, both at home and at other places, cinemas and visiting and so on. She estimated that she made at least several phone calls and generally one extra trip per day, including weekends, to the office during this period ``to revive the computer''. She could not leave Sydney, and had to leave telephone numbers or ``film addresses'' (presumably cinema addresses) when she was not in the office or at home. The head office was at St. Leonards, and her home was at North Sydney.
In order to assist in diagnosing and correcting computer faults whilst at home, the taxpayer was provided by her employer with a portable terminal which connected to the computer through the telephone line. She estimated that she used the portable terminal on three or four occasions a week, though each occasion might require as many as ten telephone calls on the terminal. The telephone receiver is put into the terminal, and the operator then works from the terminal conversationally to the computer. If the problem could not be dealt with at home then the taxpayer was required to go to the office and, as she put it, ``resuscitate with better diagnostic means''. As she said, ``it is not easy to diagnose a computer over the telephone''.
This in substance was the taxpayer's evidence relating to the work she was called upon to do at home, and as to occasions when she made a journey from her home to the office additional to the normal daily journey. She gave further evidence as to the basis of her estimates of car expenses incurred on these extra journeys between the home (and other places where she might be) and the office. Her estimates of costs were based on an actual mileage of 10,000, an estimated mileage of 4,500 on these special journeys, and ``absolute figures'' for insurance, repairs, maintenance and depreciation. So far as the agreed facts have any relevance to the questions in this case they are sufficiently embodied in the preceding recapitulation of the facts.
The word ``business'' is defined in sec. 6 (unless the contrary intention appears) to include any profession, trade, employment, vocation or calling, but does not include occupation as an employee. In any case the alternative in sec. 51(1) ``in actual working can add but little to the operation of the leading words'' (
Ronpibon Tin N.L. and Tongkah Compound N.L. v. F.C. of T. (1949) 78 C.L.R. 47 at 56). Thus for present purposes the relevant words of sec. 51(1) are: ``All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income... shall be allowable deductions except to the extent to which they are losses or outgoings... of a... private or domestic nature.'' With regard to a similar provision in an earlier Income Tax Assessment Act, Latham C.J. made the following observation which is apposite in the construction of sec. 51:
``The phrase `losses and outgoings actually incurred in gaining or producing the assessable income' may, in relation to outgoings, be read as meaning that the outgoings must be an expenditure which has an effect in gaining or producing income, e.g., the purchase price of goods which are subsequently sold. But it is difficult to see how a loss, as distinct from an outgoing, can ever gain or produce income. On the contrary, a loss, as distinguished from an outgoing, simply and merely reduces income - or capital, as the case may be. In order to make the section intelligible it must, in my opinion, be read as meaning `losses and outgoings actually incurred in the course of gaining or producing the assessable income'''
Amalgamated Zinc (de Bavay's) Ltd. v. F.C. of T. (1935) 54 C.L.R. 295 at 303).
In the Ronpibon Tin N.L. case, referred to above, there are some frequently quoted passages relating to the construction of the leading words in sec. 51. The court, consisting of Latham C.J., Rich J., Dixon J. (as he then was), McTiernan and Webb JJ. delivered a single judgment, in which the following tests were formulated: -
``For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. The words `incurred in gaining or producing the assessable income' mean in the course of gaining or producing such income. Their operation has been explained in cases decided under the provisions of the previous enactments: see particularly Amalgamated Zinc (de Bavay's) v. F.C. of T. (54 C.L.R. 295 at pp. 303-304, 307, 309, 310) and
W. Nevill & Co. Ltd. v. F.C. of T. (56 C.L.R. 290 at pp. 300, 301, 305-306, 308)... In brief substance, to come within the initial part of the sub-section it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income or, if none be produced, would be expected to produce assessable income''
The principal matter for decision in that case was the extent to which administrative expenses of the taxpayer companies were deductible. Prior to the years of assessment the
ATC 4258principal income of the taxpayers had been derived from tin mining in Siam and Malaya, and some income had been derived from investments. The tin mining income had been exempt income, and the method of assessment at that time had been a percentage apportionment of the administrative expenses between exempt income and income from investments. During the war the mining activities came to an end by reason of enemy occupation, but the taxpayers maintained their administrative structures. In the years of assessment in question, which were after the mining operations came to an end, the Commissioner allowed as a deduction in respect of the income from the investments the same percentage as he had previously done. The taxpayers claimed that the whole expenditure should be allowed. After the cessation of the mining operations, the taxpayer went on fulfilling the duties imposed by company law, concerned themselves with the fate of the tin workings, held themselves in readiness to resume operations if and when fortune allowed, examined any local venture that might be proposed, and looked after the investment of their funds. In the court's view, except as regards the income from the investments, the subject of nearly all the other activities was a concern of capital. In these circumstances the court said that it was necessary to inquire to what extent the expenditure of the respective companies was incurred in gaining or producing the assessable income. ``The question'', the judgment proceeded, ``is how far was it incurred in the course of, how far was it incidental and relevant to, gaining or producing the assessable income'' (p. 58).
Criteria formulated in such special circumstances for the solution of the problem there presented are not necessarily capable of so readily providing a solution of a problem arising in different circumstances, such as are now before me. In Amalgamated Zinc (de Bavay's) Ltd. v. F.C. of T. (above) the problem was analogous to that in the Ronpibon Tin case. There the taxpayer had formerly carried on mining activities, but in the assessment year its only income was from investments. It remained liable however to contribute to a workers' compensation fund after it discontinued its mining business. The relevant phrase in the statute was ``losses and outgoings actually incurred in gaining or producing the assessable income''. I have already quoted from the judgment of Latham C.J. Starke J. said (p. 307): ``But in the present case the expenditure had nothing whatever to do with the appellant's income in the year in question. It was connected with an incidental to its mining operations, which had ceased long before the years in which the deduction is claimed''. Dixon J. said (p. 309): ``The expression `in gaining or producing' has the force of`in the course 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.'' Of the facts of the case he said (p. 310): ``What is important is the entire lack of connection between the assessable income and the expenditure. None of the assessable income arose out of the business in the course of which the taxpayer became liable to the charge. The sources from which the assessable income did arise included no operations in the course of which the payment was made. It was a payment independent of the production of income, not an expenditure incurred in the course of its production''.
In W. Nevill & Co. Ltd. v. F.C. of T. the judgments explore the relevance that an expenditure must have in a business in order to be deductible. The taxpayer company had introduced a system of joint management in place of management by a single managing director. Later an arrangement was made with the second managing director for his resignation in consideration of a money payment, partly in cash and partly in promissory notes payable over a period. A claim was made for deduction of the whole of the money payment in respect of the year in which the cash payment was made. The question was whether the payment was an outgoing ``actually incurred in gaining or producing the assessable income''. It was found by the trial judge that the system of joint management did not work out satisfactorily and that it tended to impair the efficient management of the business. He also found that the main object of the directors in making the resignation arrangement was to effect a saving of that managing director's salary and that at the same time the directors believed that the abolition of the system of joint control would tend to increase the efficiency of the company. Latham C.J. said (p. 301):
``No expenditure, strictly and narrowly considered, in itself actually gains or
ATC 4259produces income. It is an outgoing, not an incoming. Its character can be determined only in relation to the object which the person making the expenditure has in view. If the actual object is the conduct of the business on a profitable basis with that due regard to economy which is essential in any well-conducted business, then the expenditure (if not a capital expenditure) is an expenditure incurred in gaining or producing the assessable income. If it is not a capital expenditure it should be deducted in ascertaining the taxable income of the taxpayer.''
Rich J. held (p. 304) that ``the purpose of the whole transaction was to gain assessable income''. Dixon J. said (p. 305): ``it is necessary that the expenditure should have been incurred in gaining or producing the assessable income, that is, the assessable income of the given financial year or accounting period. This means that it must have been incurred in the course of gaining or producing the assessable income. It does not require that the purpose of the expenditure shall be the gaining or production of the income of that year. The condition the provision expresses is satisfied if the expenditure was made in the given accounting period and is incidental and relevant to the operations or activities regularly to the operations or activities regularly carried on for the production of income''. McTiernan J. said (p. 308) that the facts showed ``that the expenditure was incurred to adapt the managerial part of the company's organisation for making profits to conditions affecting its business and as such was incidental to its income-earning activities.'' The court allowed the expenditure to the extent that it was made in the year of the assessment.
F.C. of T. v. Green (1950) 81 C.L.R. 313 the Court comprised Latham C.J., McTiernan, Webb, Fullagar and Kitto JJ. and the judgment of the court was delivered by Latham C.J. The taxpayer, who resided in Brisbane, derived his income from directors' fees, from supervising a pharmacy in Brisbane, from rentals of five shops, one at Cairns and four at Townsville, and from dividends and mortgage interest. One of his claims was for a deduction for part of the expenses of travelling to Townsville and Cairns to inspect, supervise and generally look after the rented shops. The journeys were made annually, apparently from his residence in Brisbane. The taxpayer managed his own affairs and maintained a properly equipped office at his residence. The court, in allowing the deduction, said that the expenditure, a deduction of which was claimed, was incurred in relation to the management of the income-producing enterprises of the taxpayer, and that it was immaterial that there might be a difficulty in holding that the taxpayer was carrying on in a continuous manner an identifiable business of some particular description. It was observed that sec. 51 is not limited to deductions from income derived as being the proceeds of a business. The section is a general provision relating to deductions claimed in relation to expenses, losses or outgoings incurred in gaining or producing any income whatever and not merely income derived from a business (p. 319).
Earlier in the judgment it was said (pp. 317-318):
``It is not enough in order to establish a right to a deduction to show that it was proper or reasonable for the taxpayer to make the expenditure which he claims as a deduction. For example, it is perfectly reasonable and proper for a taxpayer to incur living expenses and many expenses of a private or domestic nature, but such expenditure is excluded from deductibility by the final words of the first sub-sec. of sec. 51. Thus, as has been stated in the course of argument, a taxpayer cannot deduct ordinary living expenses. It is true that such expenses are necessarily incurred if any income is to be earned or otherwise derived, but such expenses would be incurred whether income was earned or otherwise derived or not.''
The passage just quoted from Green's case would not lend support to a view that travelling expenses between home and the place of work were not deductible under sec. 51. Such expenses are not to be classified as ``ordinary living expenses'', nor are they incurred whether income is earned or not. This observation is pertinent, because of the division of opinion in
Lunney v. F.C. of T. (100 C.L.R. 478) on the question of the deductibility of the expenses of travelling between home and the place of work.
In Lunney's case (above) the court consisted of Dixon C.J., McTiernan, Williams, Kitto and Taylor JJ. Thus only two members (Dixon C.J. and McTiernan J.) had sat in the Ronpibon case, Dixon C.J. had, equally with Latham C.J. been an architect of the reasoning
ATC 4260upon which the Ronpibon case was based, in particular that the words ``incurred in gaining or producing the assessable income'' mean in the course of gaining or producing such income, and that the expenditure, to be deductible, must be incidental and relevant to gaining or producing the assessable income. McTiernan J. also had sat in Nevill's case and Amalgamated Zinc (de Bavay's) Ltd. v. F.C. of T. (above).
Lunney's case was heard with Hayley's case. Lunney, a ship's joiner, claimed as deductions the expenses of travel between his residence and the office of his employer. Hayley, a dentist practising on his own account, claimed as deductions the expenses of travel between his home and his surgery. It was held (McTiernan dissenting) that in neither case were the expenses deductible, Williams, Kitto and Taylor JJ. delivered one joint judgment in both cases. The joint judgment stresses as the criterion the ``essential character'' of the expenditure. At the outset there is a passage which is of particular significance as stressing (rightly, in my respectful opinion) the difficulty of formulating any general criteria. After stating the provisions of sec. 51(1) the judgment proceeds:
``The language is simple enough and, in the main, little difficulty is encountered in recognizing those items of business expenditure which qualify as deductions. But in the nature of things it has been impossible to devise, as a substitute for the words of the section, a simple formula which will readily and precisely mark the limits of the operation of the section. Yet, in the course of dealing with individual cases, it has been necessary to devote particular attention to the words `in gaining or producing the assessable income' and `incurred in carrying on a business for the purpose of gaining or producing such income' and to attempt to express precisely what those words mean.''
After referring to the criteria in the Ronpibon case, and earlier cases, the judgment proceeds (p. 497):
``In the context in which they have been used the expressions relied upon by the appellants have been intended as a reference, not necessarily to the purpose for which an item of expenditure has been incurred, but, rather to the essential character of the expenditure itself.''
Later it is said (pp. 498-9):
``The question whether the fares which were paid by the appellants are deductible under sec. 51 should not and, indeed, cannot be solved simply by a process of reasoning which asserts that because expenditure on fares from a taxpayer's residence to his place of employment or place of business is necessary if assessable income is to be derived, such expenditure must be regarded as `incidental and relevant' to the derivation of such income. No doubt both of the propositions involved in this contention may, in a limited sense, be conceded but it by no means follows that, in the words of the section, such expenditure is `incurred in gaining or producing the assessable income' or `necessarily incurred in carrying on a business for the purpose of gaining or producing such income'. It is, of course, beyond question that unless an employee attends at his place of employment he will not derive assessable income and, in one sense, he makes the journey to his place of employment in order that he may earn his income. But to say that expenditure on fares is a prerequisite to the earning of a taxpayer's income is not to say that such expenditure is incurred in or in the course of gaining or producing his income. Whether or not it should be so characterized depends upon considerations which are concerned more with the essential character of the expenditure itself than with the fact that unless it is incurred an employee or a person pursuing a professional practice will not even begin to engage in those activities from which their respective incomes are derived.''
The court had been referred to a number of English cases, and with reference to these the judgment states (p. 501):
``No doubt the legislative provisions which required consideration in these cases were not identical with sec. 51, but the process of reasoning by which they were decided consistently rejects the notion that expenditure incurred by a taxpayer in order to travel from his home to his place of business is, in any sense, a business expenditure or an expenditure incurred in, or, in the course of, earning assessable income. Indeed they go further and refuse assent to the proposition that such expenditure is, in any relevant sense, incurred for the purpose of earning assessable income and unanimously accept
ATC 4261the view that it is properly characterized as a personal or living expense. This view agrees with that which we, ourselves, entertain. Expenditure of this character is not by any process of reasoning a business expense; indeed, it possesses no attribute whatever capable of giving it the colour of a business expense. Nor can it be said to be incurred in gaining or producing a taxpayer's assessable income or incurred in carrying on a business for the purpose of gaining or producing his income; at the most, it may be said to be a necessary consequence of living in one place and working in another. And even if it were possible - and we think it is not - to say that its essential purpose is to enable a taxpayer to derive his assessable income there would still be no warrant for saying, in the language of sec. 51, that it was `incurred in gaining or producing the assessable income' or `necessarily incurred in carrying on a business for the purpose of gaining or producing such income'.''
In this last quoted passage there is a conviction which contrasts with the other judgments in the case. Dixon C.J. said (p. 485) that both in Australia and in England the view has always prevailed that expenses of travelling from home to work or business and back again are not deductible. He refers to some early Australian cases, and says that the views in these cases remained unquestioned until the case before him. He then proceeds (p. 486):
``The relevant provisions of the English Income Tax Acts are not in the same terms as those of the Australian law, but the whole course of English authority involves a like conclusion. To escape from the course of reasoning on which the decisions proceed requires the taking of refined and rather insubstantial distinctions. 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. But this is just what I think the Court ought not to do.''
It thus seems reasonably clear that Dixon C.J. did not regard the criteria laid down in the Ronpibon case as necessarily involving a negative answer to the question whether travelling expenses between home and work are deductible; in particular, such an answer is not required by the construction of the words ``incurred in gaining or producing the assessable income'' as meaning in the course of gaining or producing such income. The following passage from the judgment of McTiernan J. brings out the distinction between his dissenting view and the view expressed in the joint judgment (p. 490):
``In my opinion it is an unduly narrow construction of the initial part of sec. 51(1), in the case of an employment, to confine its operation to expenditure made by the taxpayer within the bare physical or temporal limits within which he performs his work or labour and to disregard any expenditure made outside those limits even though it has a necessary relation to the purpose of earning income for which the taxpayer carries on the employment. It is shown by the stated case that the taxpayer could not in the circumstances under which he was situated earn any assessable income by his employment without incurring the cost of travelling which he claims to be an allowable deduction. I cannot see the difference in principle between an expense incurred in gaining income and one incurred necessarily for the purpose of gaining it.''
F.C. of T. v. Maddalena (71 ATC 4161; 45 A.L.J.R. 426) Menzies J. referred to the proposition that fares paid for travel between the taxpayer's residence and his place of work are not allowable deductions. He accepted the authority of Lunney's case, which established this proposition, but said of the proposition (at ATC p. 4162: A.L.J.R. p. 426) that it ``may be somewhat anomalous and is to be explained by a long standing line of decisions''. Barwick C.J. and Owen J. agreed with the reasons of Menzies J. in that case, and Windeyer J. agreed with his judgment (ATC pp. 4162, 4163; A.L.J.R. pp. 426, 427), and the remaining judge (Walsh J.) appears also to have agreed with the reasons of Menzies J. on the relevant part of the case (ATC p. 4164; A.L.J.R. p. 428). It does not follow of course that those other justices considered that the proposition established by Lunney's case might be ``somewhat anomalous''; but that decision was relied upon by the Commissioner, and figured prominently in the case, and it would be reasonable to suppose that if any justice had a firm contrary opinion he would have so indicated even though the question of whether the principle of Lunney's case was anomalous or not was strictly not relevant to the case before the court.
It seems to me that the proposition that expenses of travel between the taxpayer's residence and his place of work are not
ATC 4262allowable deductions under sec. 51 has its basis in a specific viewpoint that such expenses are of a private nature, and not in any compulsion of the words ``incurred in gaining or producing the assessable income'' or in any of the criteria formulated for applying those words in particular cases. That such expenses are essentially of a private nature has derived from a view that a man's choice of a home in a location different from his work is a decision relating to his private living. The historical origins of this view, and the anomalies inherent in it, are explained by Denning I.J. (as he then was) in
Newsom v. Robertson ((1953) 1 Ch. 7 at p. 17). The relevant passages are quoted in the joint judgment in Lunney's case (100 C.L.R. at p. 499-500) and are referred to by Dixon C.J. (at p. 485).
Thus the question in the present case resolves itself into whether a principle, that appears to grounded in history rather than in reason, should be extended to a case such as the present when a business element is present in the journey from home to work, if not from work to home. I am not concerned with those normal daily journeys that have their sole relation to a person's choice of his place of residence; I am concerned with journeys which begin as a result of performance of the duties of the employment at the taxpayer's home. The journey from home to the office is undertaken, not to commence duty, but to complete an aspect of the employment already under way before the journey commences. The journey home again has not this same character, but it might be looked upon as the completion of a process that began when the taxpayer whilst at home (or perhaps elsewhere, such as at a cinema) was called upon to resolve some problem of malfunction of her employer's computer. On the other hand, the taxpayer was free to choose her place of residence (provided, at all events, that it was in Sydney), and to the extent that her expenses of travel reflect her exercise of that choice it is arguable that they are personal living expenses, and that there is no difference in principle between the ordinary and special journeys. The leading English case supporting that argument is
Ricketts v. Colquhoun (1926) A.C. 1. The material words under the Income Tax Act were those which provided that, if the holder of an office is ``necessarily obliged to incur... the expenses of travelling in the performance of the duties of the office'' the expenses so ``necessarily incurred'' may be deducted from the emoluments to be assessed. The facts were that the Recorder of a provincial borough, who was a barrister residing and practising in London, claimed to deduct from the amount at which the emoluments of his office had been assessed for the purposes of income tax certain travelling expenses incurred by him in travelling from London to the borough and back. It was held by the House of Lords that the deduction was not allowable. Viscount Cave L.C. said (at pp. 4-5):.
``In order that they may be deductible under this rule from an assessment under Schedule E, they must be expenses which the holder of an office is necessarily obliged to incur - that is to say, obliged by the very fact that he holds the office and has to perform its duties - and they must be incurred in - that is, in the course of - the performance of those duties. The expenses in question in this case do not appear to me to satisfy either test. They are incurred not because the appellant holds the office of Recorder of Portsmouth, but because, living and practising away from Portsmouth, he must travel to that place before he can begin to perform his duties as Recorder and, having concluded those duties, desires to return home. They are incurred not in the course of performing his duties, but partly before he enters upon them, and partly after he has fulfilled them. No doubt the rule contemplates that the holder of an office may have to travel in the performance of his duties, have to be performed in several places in succession, so that the holder of them must necessarily travel from one place to another.''
Lords Atkinson, Buckmaster and Carson agreed. Lord Blanesburgh also agreed, and in a separate judgment stressed the objective character of the rule. He said (p. 7):
``the language of the rule points to the expenses with which it is concerned being only those which each and every occupant of the particular office is necessarily obliged to incur in the performance of its duties - to expenses imposed upon each holder exnecessitate of his office, and to such expenses only... In other words, the terms employed are strictly, and, I cannot doubt, purposely, not personal but objective: the deductible expenses do not extend to those which the holder has to incur mainly and, it may be, only because of circumstances in relation to his office which are personal to
ATC 4263himself or are the result of his own volition.''
It will be observed that the only expenses that may be deducted under the English provision are those which relate to the emoluments of a particular office, and not to the assessable income generally. Thus in applying the principle of Ricketts v. Colquhoun (above) to sec. 51(1) of the Income Tax Assessment Act, London would be regarded as the Recorder's place of residence, and Portsmouth the place where he was employed. On the English authorities it would not be a material difference in the present case to regard the plaintiff as on call at her home (
Nolder v. Walters (1930) 15 T.C. 380 esp. at pp. 386-7). Other differences are that in the present case the taxpayer has at her home the portable terminal which in accordance with the terms of her employment she uses at home in the performance of her duties, and that she makes a decision at her home to go into the office where the computer is only after working at home on the problem that has arisen. These latter differences are of a type that has been considered in the later English cases of
Owen v. Pook (1970) A.C. 244 and
Taylor v. Provan (1975) A.C. 194; (1974) 3 W.L.R. 394. Those cases had not been decided at the time of Lunney v. F.C. of T. (above), and they have introduced significant qualifications to the rigidity of Ricketts v. Colquhoun (above).
In Owen v. Pook (above) the principal facts were as follows. The taxpayer was in practice as a general medical practitioner at his residence at Fishguard. He held part time appointments with the South West Wales Hospital Management Committee as (i) obstetrician and (ii) anaesthetist at the Pembroke County War Memorial Hospital at Haverfordwest, which is 15 miles from Fishguard. There was a scarcity in the area of persons qualified to do this work. Under the terms of the appointment he was on stand-by duty at the following times: (i) as an obstetrician - one weekend a month; (ii) as anaesthetist - on Monday and Friday nights and one weekend a month. During these periods he was required to be accessible by telephone. All his work in connection with these appointments was concerned with emergency cases at the hospital. On receipt of a telephone call from the hospital he gave instructions to the hospital staff (e.g. to prepare the patient for an operation). Usually he then set out immediately to the hospital by car. Sometimes he advised treatment by telephone and then waited a further report. Not every telephone call resulted in a visit to the hospital. Sometimes the telephone call was received when he was out on his medical rounds and not thus necessarily at his house. His responsibility for a patient began as soon as he received a telephone call. Under the terms of his appointment the taxpayer received part of his travelling expenses between his residence at Fishguard and the hospital, and he claimed the balance as wholly, exclusively and necessarily incurred or expended in the duties of his office. There was a further question as to whether the payments by the hospital of part of the travelling expenses were ``emoluments'' of his office, but it is unnecessary to consider that part of the case.
The commissioners for revenue held that the taxpayer's duties commenced at the moment when he was first contacted by the hospital authorities, and that thereafter his travelling expenses to and from the hospital were deductible as being wholly, exclusively and necessarily incurred or expended in the duties of his office under his agreement with the hospital authorities. On appeal Stamp J. held that the expenses were not incurred exnecessitate the taxpayer's office but were personal to the taxpayer himself since he chose to live 15 miles away from the hospital. This decision was affirmed by the Court of Appeal (Diplock and Edmund Davies I. JJ: Lord Denning M.R. dissenting), and reversed by the House of Lords (Lords Guest. Pearce and Wilberforce: Lords Donovan and Pearson dissenting).
Lord Donovan and Lord Pearson could see no distinction between the case before them and Ricketts v. Colquhoun (above). Lord Donovan said (p. 260): ``The expenses must be such as any holder of the employment would be bound to incur. It is not enough that they are incurred because the employee happens or chooses to live some distance from his work'' Lord Pearson said (p. 264): ``These journeys are made by him on the way to his employment and in returning from it. They are not made in the course of his employment or in the performance of his duties therein.''
The majority view was that the taxpayer carried out the duties of his employment in two places, namely at the hospital and at his home Lord Guest said (pp. 256-7):
``In Ricketts v. Colquhoun there was only one place of employment, Portsmouth. It was not suggested that any duties were
ATC 4264performed in London. In the present case there is a finding of fact that Dr. Owen's duties commenced at the moment he was first contacted by the hospital authorities. This is further emphasized by the finding that his responsibility for a patient began as soon as he received a telephone call and that he sometimes advised treatment by telephone... There were thus two places where his duty is performed, the hospital and his telephone in his consulting room. If he was performing his duties at both places, then it is difficult to see why, on the journey between the two places, he was not equally performing his duties... It follows that he had to get from his consulting room to the hospital by car to treat the emergency. The travelling expenses were, in my view, necessarily incurred in performance of the duties of his office.''
Lord Pearce considered Ricketts v. Colquhoun (above) ``very unsatisfactory both in its result and in its reasoning'' (p. 258). On the facts he said (p. 258):
``It was as a doctor practising in Fishguard that the appellant was appointed to his stand-by duties. He was to stand-by in Fishguard. In Fishguard on the telephone he undertook his responsibilities to the patient and the hospital and no doubt he discussed the symptoms and made various arrangements as to what should be done by way of alleviation in the half hour which must elapse before he could arrive... If anyone asked him en route what he was doing, he would probably say truthfully that he was on hospital duty.''
Lord Wilberforce said (p. 262):
``It agree with the Revenue's contention that the mere fact of being on stand-by duty is not enough; if this were all, Dr. Owen would be in the same position as the airline pilot who was held (rightly in my opinion) not to come within the rule in Nolder v. Walters 15 T.C. 380; this was just a case of a person having to travel to his place of work. Nor, in my opinion, is the mere fact sufficient that he might be called upon, or might volunteer, to give some professional advice on the telephone before setting out. There are persons, who hold positions of importance, who carry their responsibility with them wherever they are; they, too, may be called to their offices after working hours and may give instructions or advice before departure. But this does not mean that they have more than one working place (cf. Newsom v. Robertson (1953) Ch. 7). What is required is proof, to the satisfaction of the fact finding commissioners, that the taxpayer, in a real sense, in respect of the office or employment in question, had two places of work and that the expenses were incurred in travelling from one to the other in the performance of his duties.''
Referring then to the facts, Lord Wilberforce went on (pp. 262-3):
``Given that the appointment related to emergency cases, it was of the essence of his duties that he should give immediate, and correct, advice the moment he was contacted, and that he should form a decision whether to set off at once, to wait for further information, or to take no further action. In the event of his deciding to go at once to the hospital, I cannot appreciate why he was not thereafter travelling on the duty of his office: he was travelling not to his work but on his work.''
The distinction did not appeal to the dissenting judges. Lord Donovan said (p. 261):
``I do not think these facts establish the contention of two places of employment at all. In a very real sense almost every general medical practitioner is on stand-by duty for emergency cases, and is in fact available on the telephone. And almost every such practitioner will, if necessary, give preliminary instructions concerning the patient to anyone who summons him by telephone. There are also thousands of employees in other walks of life who have to be on stand-by duty at their homes and are required to obey a summons to go to their factory or offices to cope with some emergency. If this is to mean that they all have two places of employment I see no reason why all of them should not be entitled to claim travelling expenses between their homes and their places of work.''
Lord Pearson said (p. 265):
``But I do not think it can reasonably be said that there are two places of employment. His only place of employment is at the hospital. Because for his own purposes - purposes other than the hospital employment - he chooses to live away from Haverfordwest he has to be summoned to the hospital and has to come
ATC 4265from a distance and so make a car journey. Also because he lives for his own purposes at a distance from Haverfordwest he may have usually to give advice on the telephone as to the interim treatment of the patient until he arrives at the hospital. If immediate advice on the telephone is required, it could be given equally well from a home in Haverfordwest. It is not part of the duties of his hospital employment to live in Fishguard, and the journeys are not made in performance of his duties in the employment. In my view, the principle established in Ricketts v. Colquhoun is applicable in this case.''
Taylor v. Provan (1975) A.C. 194 the House of Lords was called upon to analyse the ratio decidendi of Owen v. Pook (above). Lord Wilberforce was the only member of the House of Lords who sat on both appeals. The taxpayer in Taylor v. Provan was a resident of Canada. He made a specialty of takeovers and mergers in the brewing industry. In the accounting years in question he was a director of English brewing companies with the special assignment of effecting mergers and amalgamations. He was not paid for his work, but was reimbursed for his air fares between Canada and the United Kingdom. His duties were mainly performed in Canada, but the nature of his work made necessary personal visits to breweries in the United Kingdom. The revenue commissioners were not satisfied that the taxpayer's office in Canada was or should be regarded as a place of work for the purpose of his special assignment, and concluded that the travelling expenses in question arose not from the nature of the taxpayer's office but from circumstances personal to himself. On appeal Pennycuick V.C. held that, although the taxpayer could have carried out his special assignment exclusively in the United Kingdom, his contract of employment expressly contemplated his having two places of work and for this reason held that the travelling expenses were deductible. This decision was reversed by the Court of Appeal, and the decision of that court was reversed by the House of Lords (Lords Reid, Morris of Borth-y-Gest and Salmon; Lords Wilberforce and Simon of Glaisdale dissenting).
In all the speeches the authority of Ricketts v. Colquhoun is accepted; and all of them apply Lord Cave's test that, in order that travelling expenses should be deductible, they must be expenses which the taxpayer, as holder of an office (or as an employee), is obliged to incur by the very fact that he holds the office (or has the employment) and has to perform its duties (207 CD, 211 E, 215 GH, 221 DE, 225 GH). The differences between the majority and minority judgments (as was also the case in Owen v. Pook) turned not upon principle, but upon the proper inference to be drawn from the stated facts. Lord Reid said (p. 208):
``It was not enough that the appellant contracted to do most of his work in Canada, and would not have taken the employment otherwise. It was impossible for the companies which contracted with him to get the work done by anyone else. That I regard as the essential feature. That made it necessary that these travelling expenses should be incurred, and that is what is required to satisfy the rule.''
Lord Morris said (p. 211):
``If his duties were such that some of them were to be performed in Canada (or Nassau) and some of them (perhaps consequentially or by way of continuation) were to be performed in the United Kingdom it seems to me to follow that his journeys to and from the United Kingdom were made necessary by the very nature of his office or employment and of his assigned duties.''
Lord Salmon said (p. 225):
``It seems to me that logically the first question must be were the travelling expenses incurred in the performance of the duties of the office or employment? If they were not, they cannot be deducted and that is the end of the matter, for if they are not so incurred they cannot be necessarily so incurred. If, however, the travelling expenses were incurred in the performance of the duties of the office or employment, that is not the end of the matter for the taxpayer would then also have to show that he was necessarily obliged so to incur the expenses before he could deduct them. It has long been generally accepted that, under the rule, a man's expenses of travelling to his work are not deductible; only his expenses of travelling on his work are deductible, for these alone are incurred in the performance of the duties of his employment. It is also well settled that if a man has several places of work, travelling between them constitutes travelling on his work.''
Later he said (pp. 226-7):
``In my view, the decision in Ricketts v. Colquhoun (1926) A.C. 1, does no more than confirm the proposition that `in the performance of the duties' must be given a strict interpretation and does not mean `in order to enable the duties to be performed'. Expenses incurred in travelling to work are not deductible. This decision has been so long accepted and acted upon that it would be difficult to alter it except by legislation.''
Lord Wilberforce said (p. 215):
``The relevant word for the purpose of this case is `necessarily'. It is a word which has a long history of interpretation and application. It does not mean what the ordinary taxpayer might think it should mean. To do any job, it is necessary to get there; but it is settled law that expenses of travelling to work cannot be deducted against the emoluments of the employment. It is only if the job requires a man to travel that his expenses of that travel can be deducted, i.e. if he is travelling on his work, as distinct from travelling to his work. The most obvious category of jobs of this kind is that of itinerant jobs, such as a commercial traveller. It is as variant upon this that the concept of two places of work has been introduced: if a man has to travel from one place of work to another place of work, he may deduct the travelling expenses of this travel, because he is travelling on his work, but not those of travelling from either place of work to his home or vice versa. But for this doctrine to apply, he must be required by the nature of the job itself to do the work of the job in two places; the mere fact that he may choose to do part of it in a place separate from that where the job is objectively located is not enough. The case of Owen v. Pook (1970) A.C. 244 brought out this distinction. The basis of the decision of the majority in that case (the minority holding the opposite) was that the nature of the office, or employment, of part-time anaesthetist and obstretrician required the doctor to work partly at his surgery and partly at the hospital.''
Lord Simon said (p. 220):
``What Ricketts v. Colquhoun decided, therefore, was that, for expenses to be deductible, they must be the necessities of the office itself, so that it is the nature of the office which necessarily obliges the office holder to incur them; and that it is immaterial that they are necessary in regard to the circumstances of the individual concerned, however special - or even, I may add, unique - those circumstances may be.''
Later (222), referring to Lord Wilberforce's test in Ricketts v. Colquhoun, that what is required is proof ``in a real sense'' that the taxpayer had two places of work, Lord Simon said:
``When my noble and learned friend said `in a real sense' he meant, I think... not only that the double-work location must not be merely colourable, but also that the two places of work were a necessary obligation arising from the very nature of the office or the employment itself and not from the circumstances of the particular person appointed or employed.''
The English cases have been concerned with the construction and application of a rule providing that travelling expenses may be deducted from the emoluments of an office or employment if the holder of the office or the employment is ``necessarily obliged'' to incur the expenses ``in the performance of the duties of the office or employment''. In some judgments stress is laid on the words ``necessarily obliged''; in others on the words ``in the performance of the duties of the office or employment''; but the consensus of opinion is that the expense of travelling between work and home has not the requisite connection with the employment to be deductible. Section 51(1) of the Income Tax Assessment Act 1936 does not in its leading words (with which I am concerned) use the word ``necessarily''; and in the alternative case, where the word does occur, ``probably it is intended to mean no more than `clearly appropriate or adapted for''' (Ronpibon Tin N.L. v. F.C. of T. 78 C.L.R. 47 at 56). Notwithstanding the verbal differences, it is clearly established that the principle of the English decisions, at all events prior to Owen v. Pook (1970) A.C. 244, is applicable to both the leading words and the alternative in sec. 51(1) (Lunney v. F.C. of T. 100 C.L.R. 478 at 501). The reason appears to be in the similarity of the concepts in the leading words and the alternative in sec. 51(1) to that in the English rule, rather than in the equation of the words in the exception in sec. 51(1), namely ``losses or outgoings... of a... private or domestic nature''
ATC 4267with the exclusion under the English rule of expenses related to the taxpayer's present circumstances (though no doubt the possibility of the equation was not overlooked). The leading English case at the time of the decision in Ronpibon Tin N.L. v. F.C. of T. was Ricketts v. Colquhoun (1926) A.C. 1, and it was a possible view of that case that travelling expenses would never be deductible where any element personal to the taxpayer was present. Such a rigid view of the case is no longer tenable following the decisions of the House of Lords in Owen v. Pook (above) and Taylor v. Provan (1975) A.C. 194; and it is reasonable to approach the construction of sec. 51(1) in the light of these later cases. Those cases establish that if a man has several places of work, travelling between them constitutes travelling on his work, even if one of the places of work is also his place of residence. The same principle can, I think, be found in F.C. of T. v. Green (81 C.L.R. 313). In Owen v. Pook it was irrelevant that Dr. Owen carried on his private practice at his residence, and that his residence was a place of work in that sense. Under the English rule the expenses of his hospital appointment were deductible from the emoluments of that appointment only, and were not referable to his assessable income generally (see, on this point, Lord Pearce at p. 258 G-H). Thus Dr. Owen's two places of work were his home and the hospital, in respect of his hospital appointment. So far as that appointment was concerned, the hospital authorities did not require him to work at home; all they required was his availability on call. In the result his travelling expenses would obviously have been deductible if he had lived 30, instead of 15 miles from the hospital. Thus the quantum of the expense was related to his choice of a place to live, and not to any exigency of his appointment. In Owen v. Pook Lord Wilberforce referred to the difficulty that the hospital had in finding suitable men (p. 263); but that fact was not mentioned in the other majority judgments; nor was it essential to Lord Wilberforce's own decision. As Lord Simon said in Taylor v. Provan that would in any case not be a sufficient circumstance ((1975) A.C. at 222 H cp. 208 AB). Similarly in Taylor v. Provan, though the taxpayer's position may have been unique, his place of residence was his choice, not his employers', but this did not prevent his place of residence being regarded as a place of work, notwithstanding the fact that his employers would have readily accepted his performance of all his duties in Great Britain.
In Ricketts v. Colquhoun Lord Blanesburgh had said (p. 7):
``the language of the rule points to the expenses with which it is concerned being only those which each and every occupant of the particular office is necessarily obliged to incur in the performance of its duties.''
Having regard to the later cases, this does not express the law if it is taken as meaning that the personal circumstances of the taxpayer are never relevant. As Lord Wilberforce said in Owen v. Pook (at p. 263):
``Now, I would entirely agree that rule 7 is drafted in an objective form so as to distinguish between expenses which arise from the nature of the office and those which arise from the personal choice of the taxpayer. But this does not mean that no expenses can ever be deductible unless precisely those expenses must necessarily be incurred by each and every office holder. The objective character of the deductions allowed relates to their nature, not to their amount.''
It seems to me that, under sec. 51(1), where the question is whether travelling expenses between home and work are deductible, and the case is not the simple one of the regular daily journey, it is necessary to pose the question inherent in the words of the provision, without the preconceived limitation that the element of choice in the place of the taxpayer's residence necessarily requires the answer that no deduction is to be made. In the general language used in Ronpibon Tin N.L. v. F.C. of T. (78 C.L.R. at 57) it is proper to ask whether the expense is to be ``found in whatever is productive of the assessable income''; or in the more specific words of the later English cases, whether the expense was incurred in travelling on the taxpayer's work as distinct from travelling to and from his work. In the language of the joint judgment in Lunney v. F.C. of T. (100 C.L.R. at 501) the question is whether the expense was an expenditure incurred in, or, in the course of earning assessable income.
Much of the decisive language used in Taylor v. Provan seems apt to the case of the present taxpayer, who had her regular hours of work, and who additionally had to remain on call for the balance of the day. There were two separate and distinguishable facets of her
ATC 4268employment. On the one aspect she commuted regularly to her work; on the other she had a different set of functions, namely to be ready at call at all other times, night or day or on weekends to work at problems of malfunctioning of the computer, with the aid of such information as she could obtain on the telephone, and with or without the aid of her portable terminal. Lord Reid said (in Taylor v. Provan) that it was necessary, in Owen v. Pook, that whoever was appointed should incur travelling expenses. Similarly it would, in a practical sense, be necessary for any person on duty 24 hours a day seven days a week to incur travelling expenses. Adapting the words of Lord Morris (p. 211), the journeys to and from home were made necessary by the very nature of the employment and of the taxpayer's duties. The taxpayer here, as much as in Taylor v. Provan, had a ``very special'' employment (cp. p. 212). She was not really in a position similar to those ``thousands of employees'' that Lord Donovan referred to (in Owen v. Pook, p. 261) who have to be on stand-by duty at their homes and are required to obey a summons to cope with some emergency. It may or may not be that those ``thousands of employees'' cannot deduct the expenses of emergency travel; but the case of the present taxpayer is clearly different, for she was engaged upon a special assignment, and was continuously on duty, wherever she was. The taxpayer is not in this case choosing to do part of the work of her job in two separate places (cp. Lord Wilberforce in Taylor v. Provan, at p. 215). Unless she were to spend all her time in the office with the computer, she must have more than one place of work. Hers is not the freedom of choice of a barrister who does some of his work at home (
Newsom v. Robertson (1953) 1 Ch. 7). Her double work-location is not only not merely colourable, but the two places of work are a necessary obligation arising from the nature of her special duties (cp. Lord Simon, p. 222). The taxpayer's employer had gone to the expense of having the taxpayer specially trained in the United States so as to be capable of effecting and supervising the computer conversion. The employer had to have her, as a person so uniquely qualified, available at all times for the conversion. It seems to me that the circumstances of this case are closer to those of Taylor v. Provan than to those of Owen v. Pook, and are thus more strongly in favour of the taxpayer (cp. Lord Salmon, p. 227). None the less the analogy with Owen v. Pook is close. When called at her home, the taxpayer immediately had the responsibility of correcting the malfunction in the computer. She might there and then diagnose the trouble, and provide the remedy; or she might decide that she would have to make the journey to the office, and if she took this course she was during the journey on duty in regard to the particular problem that had arisen. The circumstances of her case contrast sharply with the case of the airline pilot on call (Nolder v. Walters 15 T.C. 380). In that case the expenses of the pilot's telephone were also disallowed, and here again there is a contrast between the pilot's use of the telephone and the use that the taxpayer in the present case makes of the telephone. Rowlatt J. said (p. 388):
``He has to be at the office, wherever he has to start from, and I think the telephone is in the same position. It is a mere question of communicating with him with a view to him coming to the office to do his duties, which begin when he gets there; and, of course, when I say the office I mean in this case the aerodrome; the place of employment. That is all it is, and it seems to me that both those heads are clearly outside the rule.''
In my opinion in this case the taxpayer's expenses in respect of her travelling between her home and work, outside the normal daily journey, were in the special circumstances of this case outgoings incurred in gaining or producing her assessable income, and were not of a private or domestic nature, and were accordingly allowable deductions under sec. 51 of the Income Tax Assessment Act 1936 (as amended).
In my view there is no substance in the further submissions that there was no evidence to justify an allowance at the rate of 45% or on a mileage basis of 4,500, and that the apportionment was excessive. The Commissioner relied upon the case of
Stone v. F.C. of T. (25 C.L.R. 389). Section 190 provides that on a reference or appeal the burden of proving that the assessment is excessive shall lie upon the taxpayer. In Stone's case Isaacs J. said (p. 392):
``The Commissioner is empowered and directed to assess a taxpayer, and he, it is assumed, does so after careful consideration, and with experienced aid, and with that general, practical and varied knowledge of business and affairs which he
ATC 4269must inevitably gain in the course of discharging his duties.''
These remarks seem to me to have little or no relevance to a case such as this where the Commissioner did not direct his mind to the taxpayer's estimates, because he considered that the expenses, whatever they might amount to, were not deductible in principle. In any event, as this is an appeal from a Board of Review by the Commissioner, it is for the Commissioner to show that the decision of the Board of Review is wrong (
Krew v. F.C. of T. 71 ATC, 4091 at 4093; 45 A.L.J.R. 324 at 326). I have previously referred to the evidence before the Board in relation to the taxpayer's estimates, and, in my view, on that evidence the Board was justified in coming to its conclusion.
I have mentioned that at the hearing counsel for the Commissioner stated that the Commissioner accepted the Board's findings in relation to the deductibility of the taxpayer's telephone expenses. Accordingly in my opinion the appeal should be dismissed.
I note that it was agreed that the costs of the appeal will be borne by the Commissioner in any event.
The appeal by the Commissioner from the decision of the Board of Review is dismissed.
It being agreed that the costs of the appeal be borne by the Commissioner in any event, I make no order for costs.
Usual order for the return of the exhibits.