Federal Commissioner of Taxation v. Ballesty.Judges:
Supreme Court of New South Wales
Waddell J.: This is an appeal from the decision of Taxation Board of Review No. 1 upholding the respondent taxpayer's objection against the refusal of the appellant Commissioner to allow as a deduction certain travelling expenses incurred by him during the year ended 30th June 1971 in connection with the pursuit by him of his part-time occupation as a professional Rugby League footballer.
During the year in question the taxpayer was employed as a purchasing officer by the Eastern Suburbs Leagues Club Limited at Spring Street, Bondi Junction. He also played as a professional footballer with the Eastern Suburbs District Rugby League Football Club. Under an agreement made between the taxpayer and the Football Club the taxpayer was bound ``to the best of his ability and skill to 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''. He was to be paid a specified amount per match depending upon whether the result was a win, a draw or a loss. The taxpayer was bound to keep himself in the best possible condition and to carry out the training and other instructions of the club through its responsible officials. He was also bound to abide by and observe the constitution, rules and by-laws of the club and all the rules, regulations and by-laws of the N.S.W. Rugby Football League. The competition rules of the Football League provided for the general committee to fix the dates and grounds upon which matches were to be arranged. Matches were played either on the football club's home ground, the Sydney Sports Ground in Moore Park, or at the grounds of other clubs, such matches being known as ``away'' games. Training sessions which the taxpayer was required to attend were held during the part of the year in question at the Sydney Cricket Ground No. 2 and during part at the Sydney Sports Ground.
ATC 4183The Sydney Sports Ground is directly on the route which the taxpayer took from the two places where he lived during the year in question, namely at Concord West and at Strathfield, to the premises of the Eastern Suburbs Leagues Club Limited at Bondi Junction.
During the year the taxpayer used his car to travel to his employment with the Leagues Club each day. On the two or three nights a week on which he trained with the Football Club he travelled by his own car direct from the Leagues Club to the training grounds. His claim for motor car expenses in connection with these journeys was allowed as a deduction. He also used his car to travel home direct from the training sessions. His claim in respect of such travel was disallowed by the Commissioner and upheld by the Board by majority. The minority view was that such journeys were essentially a continuation of the taxpayer's return journey after his forward journey to his regular place of work at the Leagues Club. On match days the taxpayer travelled by car from his home to the ground where his team was playing and returned home by car after the conclusion of the game. The Commissioner allowed the taxpayer's claim in respect of travel from his home to matches in the cases where the matches were ``away'' games and disallowed the claim in respect of games at his home ground, the Sydney Sports Ground. Some of the ``away'' games were in fact played at the Sydney Sports Ground. The Board allowed the latter claim.
What is in issue in this appeal is, therefore, whether the taxpayer was entitled under sec. 51 of the Income Tax Assessment Act, 1936, firstly to deduct the expenses of travel by car from training sessions at the Sydney Sports Ground and the Sydney Cricket Ground No. 2 to his home and secondly, the cost of travel by car from his home to matches played on his club's home ground at the Sydney Sports Ground and of returning to his place of residence after the match.
A number of practical reasons have been advanced in the evidence to justify the necessity of the taxpayer travelling by car to and from training and to and from matches. On all occasions, whether training sessions or pre-season and premiership matches, the taxpayer took with him all his football gear, except in the case of matches when his club supplied the jersey. He carried his gear in a bag approximately 18" wide, 16" deep and 24" long. The weight of the bag and of the gear when dry varied between 12 lbs. and 15 lbs. for the pre-season and premiership matches and between 15 lbs. and 20 lbs. for training sessions. The bag and the gear when wet after training sessions and matches with perspiration or as a result of wet weather, was approximately twice as heavy. There were, according to the taxpayer, temperamental factors which were against travelling otherwise than by himself in his car. Before a match he had to be in a mental situation that he was prepared to give eighty minutes of total exertion to the best of his ability. This meant that he was inward and edgy and not himself and would have found it a disadvantage to have had to travel in company, either on public transport or with someone else in a motor vehicle. After a match he was more relaxed but still variable to change of moods. There were similar strains associated with travelling to training because of the rigour of the sessions and his apprehension that he might not get through them successfully. After training sessions he was generally exhausted, particularly in the earlier part of the season. It would have been impractical to use public transport because of the length of time required to get to and from matches or to and from training and, particularly in the case of matches, the possibility that some connection might be missed. But the biggest problem would have been for the taxpayer the contact with other people as he liked to put his mind on the game and not be bothered with someone recognising him and wishing to talk to him.
The taxpayer kept his football gear, which took up the greater part of a wardrobe, at his home. It was laundered and cleaned there by his mother three times a week. He started training some six weeks before the first training session of the season by himself at a local ground and also at a ground near his place of work at the Leagues Club.
The question at issue is, of course, whether the expenses of motor car travel claimed as above were, within the meaning of sec. 51, ``incurred in gaining or producing the assessable income''.
In a practical sense the expenditure in question was necessary for the proper performance by the taxpayer of his duties as a played for the club. In this sense the expenditure was a prerequisite to the earning of the income in question. But as was said in
Lunney v. F.C. of T. (1957-58) 100 C.L.R. 478, in the joint judgment of Williams, Kitto and Taylor JJ. at 499:
``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 characterised 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.''
It may also be said of the expenditure that it was ``incidental and relevant'' to the earning of the taxpayer's income from playing football for his club. The cases in which this expression has been used as a means of testing the application of sec. 51 to particular expenditures were summarised in Lunney v. F.C. of T. above, at 496-7. It is then said:
``Examination of these cases, however, readily shows that the expression `incidental and relevant' was not used in an attempt to formulate an exclusive and exhaustive test for ascertaining the extent of the operation of the section; the words were merely used in stating an attribute without which an item of expenditure cannot be regarded as deductible under the sections.''
Shortly after this passage it is pointed out that in Ronpibon Tin N.L. and Tongkah Compound N.L. v. F.C. of T. it was said ``in brief substance, to come within the initial part of the subsection it is both sufficient and necessary that the occasion of the loss or outgoing shall be found in whatever is productive of the assessable income or, if none be produced, would be expected to produce assessable income''. The question, then, in this case is, what is the essential character of the expenditure itself, can it be said that the occasion of the expenditure is to be found in the activities of the taxpayer which were productive of the income in question.
The substance of the case for the Commissioner is that the expenditure in question was incurred to enable the taxpayer to commence the operations by which he earned the income in question and not in or in the course of earning that income. Reliance is placed on Lunney v. F.C. of T., above;
F.C. of T. v. Maddalena 71 ATC 4161; (1971) 45 A.L.J.R. 426;
Lodge v. F.C. of T. 72 ATC 4174; (1972) 128 C.L.R. 171, esp. at ATC 4175; C.L.R. 174. Reference is also made to a number of English decisions in which it is said, as is the case, the same kind of distinction is made.
Horton v. Young (1972) Ch. 157;
Taylor v. Provan (1975) A.C. 194;
Pool v. Owen (1970) A.C. 244; and
Nolder v. Waters (1930) 15 T.C. 380.
There are two ways in which it is said for the taxpayer that the occasion of the expenditures here in question should be found in activities which were productive of the assessable income. The first relates to the practical necessity described above of travelling by motor vehicle to and from matches and training sessions. The taxpayer had under his contract with the football club a continuing obligation to ``do everything necessary to get and keep himself in the best possible condition so as to render the most efficient service to the club''. He was, therefore, it is said, under a contractual obligation to travel to and from training and matches in a way which would enable him to perform at his best; to fulfil this obligation it was necessary for him to travel in his own motor car; accordingly, the expenditures in question should be seen as having their occasion in an activity which was productive of the assessable income or, to use the words of the section, as having been incurred in gaining the assessable income. In my opinion this submission is sound. I accept the taxpayer's evidence that it was necessary for him to travel in his own vehicle to matches and to training sessions in order to produce his best form. I would except that the considerations upon which he relies to justify the use of his motor vehicle would be present in some form or other in most cases where a person earns income by engaging in high level sporting activity. The occasion of the expenditure was, therefore, the necessity to comply with the terms of his contract and to fit himself to make the best contribution he could to the winning of the match or to the success of the training sessions to or from which he was travelling.
The second way relied upon by the defendant is related to the circumstance that the taxpayer did not have a regular place of employment but travelled from his home as a
ATC 4185base of operations to the various places he was required to go pursuant to his contract. It is submitted that Lunney v. F.C. of T. was concerned only with the deductibility of the cost of travel between a taxpayer's place of residence and his regular place of work and with the earning of assessable income by means which had nothing to do with travel by the taxpayer, and does not state any principles upon which the present case should be decided. It is said that in the modern cases such as Horton v. Young, above, a more practical approach is taken in identifying the activities by which the taxpayer's income is earned and that there is nothing in cases cited for the Commissioner which is inconsistent with the submission, bearing in mind particularly that the English legislation is in narrower terms than sec. 51. It is submitted that once it is concluded that here the taxpayer's base of operations was his place of residence, the cost of travel between that and matches and training sessions is necessarily an expense incurred in gaining the assessable income.
In Lunney v. F.C. of T. the question was whether fares paid by the taxpayer in travelling day by day between his home and his regular place of employment or business were deductible expenses allowable against the assessable income earned by the employment or business. A long passage from the reasons of Denning L.J. in Newsom's case (1953) 1 Ch. at p. 17 is quoted with approval in the joint judgment of Williams, Kitto and Taylor JJ. In this passage, Denning L.J. says:
``A distinction must be drawn between living expenses and business expenses. In order to decide into which category to put the cost of travelling, you must look to see what is the base from which the trade, profession, or occupation is carried on. In the case of a tradesman, the place of his trading operation is his shop. In the case of a barrister, it is his chambers.''
(111 C.L.R. 500).
It is in this sense that it is submitted for the taxpayer that his base of operations is his home. In the joint judgment referred to the reason for the conclusion reached was expressed as follows:
``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 or 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.''
Lunney's case answers, decisively of course, the question whether in the circumstances there under consideration the occasion of expenditure on travel was an activity which was productive of the assessable income. It does not, I think, govern the answer to that question in the present case. Here the occasion of the expenditure is in travelling to a variety of places as required from time to time under the contract by the performance of which the taxpayer earned the assessable income. It is not, I think, a complete description of such expenditure to say that ``at the most, it may be said to be a necessary consequence of living in one place and working in another''. Although I do not find it an easy question to resolve, I think that on the whole the taxpayer should be regarded as having embarked upon the activities by which he earned the assessable income when he left his home to travel either to a match or to training and as continuing in those activities on his journey home. In this sense his place of residence should be regarded as his base of operations. If this view is correct, as I think it is, the occasion of the expenditures in question are to be found in an activity which is productive of the assessable income.
The reasons stated above apply equally to the expenditure on travel allowed by the Commissioner and to the expenditure disallowed. The Commissioner regarded expenditure on travel between taxpayer's regular place of work and training sessions and to and from ``away'' matches as deductible but not the expenditure here in question. However, in my view, no distinction should be drawn between these expenditures.
For the foregoing reasons it is my opinion that the expenditures here in question were deductible, accordingly, the appeal is dismissed. The assessment should be amended to allow the deduction here in question.