Case J3

Judges: MB Hogan Ch

N Dempsey M
P Gerber M

Court:
No. 3 Board of Review

Judgment date: 21 December 1976.

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N. Dempsey (Member): This reference concerns an objection against an assessment based on income earned in the year ended 30th June, 1974 and in that year the taxpayer concerned was full time employed by a Leagues Club as an accountant and he was also under contract to the associated District Rugby Football League Club to play football for it.

2. He included as income in his return for the year ended 30th June 1974 the gross amounts he received from each of the sources referred to and he claimed various items as deductions under the heading ``Expenditure''. The items claimed comprised various items used in playing the game and in the training sessions and its upkeep, travelling expenses between his place of employment and football fields, including training, competition matches, etc., the cost of massage $30 and finally $384 being the cost of playing squash. In support of the claim for the cost of playing squash, he stated that players were ordered by the coach to play squash three times a week as part of their general training to speed up their reflexes for football.

3. In raising his assessment the Commissioner disallowed in full the claims of $30 for massage and $384 the cost of playing squash. Taxpayer lodged an objection but the objection only related to the amount claimed and disallowed in respect to the cost of playing squash. His objection was disallowed and taxpayer has now appealed to the Board.

4. In his objection, taxpayer stated inter alia: ``I have no interest in squash as a game and have only undertaken it in consequence of a directive from the coach of the `A' Rugby League Football Club as an essential part of my training as a player for that club and for no other personal reason''.

5. A copy of the agreement between the taxpayer and the Club was tendered in evidence and Clauses 1, 4, 5 and 6 of this agreement appear very relevant to the matter at issue. These clauses read as follows:

• Clause 1. ``The Player hereby agrees with the Club that he will during the 1973 and 1974 playing season(s) of the N.S.W. Rugby Football League well and faithfully and to the best of his ability and skill play the game of Rugby League football for the Club in any team and in any grade as to when and where he may be from time to time called on by the said Club so to do. The Player shall do everything necessary to get and keep himself in the best possible condition so as to render the most efficient service to the Club and will carry out all the training and other instructions of the Club through its responsible officials.''
• Clause 4. " In consideration of the Player faithfully observing and performing the stipulations and agreements herein contained the Club hereby agrees that they will pay to the Player: -
• A playing fee of four thousand dollars each year plus the following match payments:

        First Grade
  
  
  
        Win                     Two hundred dollars
  
        Draw                    One hundred dollars
  
        Loss                    Fifty dollars
  
  
  
        Reserve Grade
  
  
  
        Win                     Forty dollars
  
        Draw                    Thirty dollars
  
        Loss                    Twenty dollars
  
  
  
        Third Grade
  
  
  
        Win                     Ten dollars
  
        Draw                    Seven dollars
  
        Loss                    Five dollars
  "
                

• Clause 5. ``Should the club require the Player's services for the 1975, 1976 playing seasons on the terms and conditions stated above, the Player shall accept such re-engagement by the club for the said term of two years.''
• Clause 6. ``If at any time during the currency of this Agreement the Player shall fail to discharge his duties either with regard to attendance or playing in any fixture arranged by the Club and in which he shall have been requested to play or shall be guilty of disobedience or misconduct on the field of play or at training or shall be guilty of any misconduct or mode of living which in the opinion of the Club

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  Committee shall make him less fit to serve the Club or shall fail to observe and perform this Agreement or any stipulation herein contained then the Club shall have the right to determine the Agreement forthwith by giving the Player written notice to this effect.''

6. It is clear from Clause I of the agreement that it is obligatory for the taxpayer ``to get and keep himself in the best possible condition so as to render the most efficient service to the Club and will carry out all the training and other instructions of the Club through its responsible officials''. It is also clear from Clause 4 that apart from the playing fee which is fixed, the amount of receipts from match payments can vary depending in the first instance on the grade in which the taxpayer plays and in the second instance the degree of success. The prospects of re-engagement under Clause 5 is undoubtedly influenced by the match performances and if these are not good, then it is reasonable to assume the club would not require the services for latter years. Under Clause 6 a player can have his agreement cancelled if he fails to obey instructions relating to his training programme.

7. Taxpayer submitted an example of the training programme which each player is required to carry out and it is clear from this programme that it is variable depending on the needs of each particular player. To illustrate, a player, such as a ``winger'', is expected to carry out different conditioning exercises than a player who is a ``forward''.

8. He also gave evidence on oath, and such evidence was not challenged, that he was personally instructed by the coach to engage in the playing of ``squash'' as a means of improving and sharpening his reflexes. His evidence was to the effect that the coach considered that he was sluggish in movement and slow in reflex action. He was playing as a ``winger'' and these faults needed rectification. The coach instructed him to engage in playing basketball or squash as a means of overcoming the defects. He chose the latter as it was the more convenient and much easier to obtain one person as a playing partner than the number that would be required if he had chosen basketball. He stated that he enjoyed all his training activities but that he did not play squash socially.

9. Asked to indicate how the degree of fitness could affect his earnings he stated ``Obviously the better you play the more money you are going to get from the next contract, and the fitter you are the better you play. Your skills are better and everything about your play is better and because of that you are going to get more money later on, not only more money on the next contract, but for what it leads to later on''. Taxpayer did not advert to the fact which to me at least seems evident that if he did not attain and retain the degree of fitness required to play first grade matches, he would be dropped to lower grades and thus suffer an immediate reduction in income.

10. There is no doubt that the taxpayer is an employee of the League Club see
F.C. of T. v. Maddalena 71 ATC 4161 where, at p. 4162, Menzies J. said ``I have no doubt that the occupation of a professional footballer vis- á a-vis his club is as an employee.'' The question as to whether the deduction claimed in the case of this taxpayer should be allowed therefore falls to be decided under the first limb of sec. 51(1), i.e. whether the amount claimed is a loss or outgoing incurred in gaining or producing the assessable income.

11. The line of demarcation in matters of this type is indeed fine and both the High Court and the Supreme Courts have been faced with the problem in a number of cases. These cases have been brought together and dealt with in the recent decision of Waddell J. of the Supreme Court of New South Wales in
F.C. of T. v. Kropp 76 ATC 4406 .

12. In the course of his decision, Waddell J. at p. 4410 said:

``I think that it may be concluded from the differing reasons given by the members of the Court in
F.C. of T. v. Finn (1961) 106 C.L.R. 60 , that where a taxpayer incurs expense in maintaining or improving his qualifications in a way which is of distinct advantage to his work in the eyes of his employer (p. 67), or pursuant to an implied obligation of progressive acquaintance with a living and developing art (p. 69), the expenditure is incurred in gaining the assessable income. A similar conclusion was deduced by Helsham J. in
F.C. of T. v. White 75 ATC 4018 from Finn's case and Hatchett's case when he said that `expenses incurred in pursuing studies associated

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with employment will qualify as allowable deductions 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.'

The problem presented by the present case is that the expenditure in question cannot be said to have been incurred in any of the circumstances already mentioned as having been considered in the cases. The expenditure was made in the course of carrying out a plan to equip the taxpayer to earn a higher income in the future by acquiring the professional benefits to be obtained by employment in another country. In these circumstances in order to qualify as an allowable deduction there must be seen to be what Menzies J. called in Hatchett's case `a perceived connection between the outgoing and assessable income', (71 ATC p. 4187; 125 C.L.R. p. 499). The connection need not, of course, be between the outgoing and assessable income of the year in which the outgoing was incurred: Finn's case above, per Dixon C.J. at p. 68; Hatchett's case, above, at ATC p. 4186; C.L.R. p. 498. Whether there is such a perceived connection in any particular case is a matter of judgment informed by the criteria established by the cases.''

13. It seems from these remarks that if it can be shown that the expense can be shown to have been incurred as a result of an obligation imposed by the employer, (Finn's case), or in activities which are part and parcel of the employment, (Hatchett's case), then they are expenses incurred in the process of carrying out the employee's duties. To be allowable there must be a perceived connection between the outgoing and assessable income per Menzies J. in Hatchett's case, at ATC p. 4187; C.L.R. p. 499. It is not necessary that the connection be between the outgoing and assessable income of the year in which the outgoing was incurred Finn's case per Dixon C.J. at p. 68; Hatchett's case per Menzies J. at ATC p. 4186; C.L.R. p. 498.

14. Taxpayer's unchallenged evidence is that he incurred the expenses of playing squash, not because he personally desired to indulge in this game as a recreation, but because he was instructed by a club official, the football coach, to do so. In my opinion he has clearly demonstrated the connection between the expenditure and the assessable received by him from his professional football activities.

15. I would accordingly uphold the objection and direct that the assessment for the year ended 30th June, 1974, dated the 5th December, 1974 based on a taxable income of $11,547 be reduced by $384 and an amended assessment based on a taxable income of $11,163 be raised.