AM Donovan Ch
RK Todd M
LC Voumard M
No. 2 Board of Review
A.M. Donovan (Chairman); R.K. Todd and L.C. Voumard (Members): The point at issue in this reference is whether expenses incurred in gaining pre-selection and endorsement by a major political party, thereby becoming the successful candidate to represent it at a subsequent election for a seat in the House of Representatives, constitutes expenditure incurred ``in being elected a member, or in contesting an election for membership, of the Parliament'' which is therefore deductible under sec. 74 of the Income Tax Assessment Act.
2. The facts were agreed, and the following statement of them is taken from the agreed statement tendered at the hearing:
``(a) In December 1974, nominations to contest the House of Representatives electorate in the Federal Division of... as... Party candidate were called by the State Executive of the... Party of Australia...
(b) For all practical purposes, endorsement by a major political party is a pre-requisite to election as a Member of the House of Representatives.
(c) On 18th December 1974, the taxpayer's nomination, accompanied by a cheque for the nomination fee of $30 prescribed in the constitution of the Party, was lodged with the Executive Director of the Party.
(d) In January 1975, the taxpayer arranged for the printing of pre-selection letters and the cost of $76 was paid by him on 3rd April 1975. One of those letters was sent to every delegate to the Federal Electorate College for the seat of..., to each member of the State Executive and to each... Party Member of Parliament in his State to promote his candidature for Party pre-selection.
(e) The pre-selection ballot was held in March 1975, with the result that the taxpayer narrowly missed Party endorsement. However, the endorsed candidate subsequently withdrew and the Party again called for nominations for pre-selection.
(f) At the pre-selection ballot held on 3rd November, 1975, the taxpayer was successful in gaining pre-selection and, at the meeting of the State Executive of the... Party held on... November, 1975, his endorsement was confirmed.
(g) Writs for the election were issued on 14th November, 1975, and called for nominations to be forwarded by 28th November, 1975. His formal nomination for the Federal Division of... was lodged during the week beginning on 17th November, 1975. At the general election held on 13th December, 1975, the taxpayer was the successful candidate for Member for... and was so declared at the
ATC 426declaration of the poll held on 23rd December, 1975 on which date the Writ was returned by the Divisional Returning Officer.
(h) In his return of income for the year ended 30th June, 1975, the taxpayer claimed a deduction for $106 being:Nomination Fee $30 Pre-selection letters $76.''
The Commissioner disallowed the claim and the subsequent objection on the ground that no part of the pre-selection expenses of $106 met the requirements of sec. 74.
3. Section 74 has recently been considered by Board of Review No. 1 in Case F62
74 ATC 365. The taxpayer in that case had unsuccessfully contested an election so that his position more appropriately fell to be considered under that limb of the section related to ``contesting an election'', nevertheless, both parties in the present reference relied on that decision to some extent to support their respective claims. The members of the Board were not all of one mind, but each made comments that are relevant to the present issue. Thus, in rejecting a proposition that the test for sec. 74 purposes was whether the expenditure concerned was outlaid by the taxpayer in an endeavour to be or with the aim of being elected to parliament, Mr. Burke (Chairman) said in para. 6 of his reasons: ``In my opinion the test so proposed is far too wide. In the case of a prospective candidate seeking pre-selection by a major party his ultimate aim is election but the expenses of being preselected would not, even on a liberal reading of the section, seem to qualify as expenses in actually `contesting' an election''. Or, we might add, in being elected.
4. Mr. R.E. O'Neill (Member) dismissed as too narrow the Commissioner's contention that, whether considering a successful candidate who is elected, or an unsuccessful candidate who contests an election, the only expenditure allowable is that which at the earliest is incurred after the issue of a writ for an election and before the return of the writ. This was based on the proposition that there can be no ``election'' for sec. 74 purposes until a writ therefor has been issued, and hence ``contesting an election'' cannot commence until that event has taken place. In Mr. O'Neill's view, expenditure satisfies sec. 74 ``if it is primarily or principally incurred for the promotion of his (i.e. the taxpayer's) interests as an intending candidate for the next definite election that is within his knowledge and contemplation'' (para. 14). But even on this view the fact that until his pre-selection was announced the taxpayer had no right to campaign in his party's name led Mr. O'Neill to reject a claim to deduct expenses incurred before pre-selection. And although Mr. Fairleigh rested his decision in the Commissioner's favour on a narrower point, para. 8 of his reasons contains a clear inference that pre-selection expenses do not in his opinion fall within sec. 74.
5. The only other decision mentioned was one given by Board of Review No. 3 and reported as Case H33
(1976) 76 ATC 285. The only relevance to the present reference is the qualified endorsement by Mr. F.E. Dubout (Chairman) of the statement made by Mr. O'Neill in para. 14 of his reasons quoted above; the qualification he made was that he did not necessarily agree with Mr. O'Neill's view as to the period of time before an election within which the expenses must be incurred in order to qualify for deduction (see para. 3 of Mr. Dubout's reasons).
6. In order to bring his pre-selection expenses within sec. 74 the taxpayer in this reference invited the Board to regard pre-selection and endorsement as but one incident in the course of an entire series of connected events culminating, in his case, in the declaration of the poll formally declaring his success. He suggested that the test to apply was that expenditure, otherwise relevant, was deductible under sec. 74 if incurred after the individual concerned actively begins campaigning with a specific goal in view. He accepted that in certain circumstances this could bring in expenditure incurred prior to pre-selection, adding that once one begins to seek pre-selection he makes it clear that his specific aim is to seek election, and that expenditure incurred from then on should qualify. There are difficulties in accepting this. Unless one fixes a definite event - for example, the lodging of a nomination for pre-selection - such a test could give rise to much uncertainty because, after all, is it necessarily by one act and no other that one demonstrates a definite commitment to the attainment of a specific goal of election to Parliament? Again, such a test could produce the result that whereas the expenditure of a successful candidate at the pre-selection stage, if it otherwise qualified, would be deductible under sec. 74, that of an unsuccessful candidate for pre-selection, or even of a
ATC 427successful candidate for pre-selection who for some reason did not contest the election (such as the candidate by whom the present taxpayer was narrowly defeated in the March 1975 pre-selection ballot) would not. The uncertainties and anomalies that would follow the adoption of a test of this nature cause us to reject it.
7. The Commissioner's representative argued that the expenses in question were incurred prior to pre-selection and in relation to pre-selection; hence they bore an insufficient relationship to any election, and fell outside sec. 74. He added that ``campaign expenses'' could not come within the section unless they were directed to the electorate at large, but this test did nothing to answer the question: How does one recognise a campaign?
8. Various tests have thus been suggested, for example the ``three-months'' period adopted by Mr. Burke, and the issue of the writs as contended for by the Commissioner, in Case F62 (supra). But in our opinion the best view is that pre-selection expenses, even if the pre-selection occurs close to election day, do not constitute expenditure incurred ``in being elected a member, or in contesting an election for membership, of the Parliament'', and hence do not fall within sec. 74.
9. It is no doubt perfectly true that, save in the case of independent candidates, the process of pre-selection is a necessary pre-requisite to an election campaign, be that campaign in the end successful or unsuccessful. It is quite another thing to say that expenditure incurred in relation to the process of pre-selection is incurred ``in being elected'', or ``in contesting an election''. The process of pre-selection, it seems to us, both in its essential character as well as in point of time, stands outside the process of election itself. While the decisions dealt with a different statutory provision, our reasoning in this case is we think consistent with the decisions in
Lunney v. F.C. of T. (1958) 100 C.L.R. 478;
Lodge v. F.C. of T. 72 ATC 4174; (1972) 128 C.L.R. 171; and
F.C. of T. v. Maddalena 71 ATC 4161.
10. In the circumstances it is probably more piquant than usual to make the not unfamiliar observation that if our view of the meaning of the section is thought to be too narrow, one remedy available is the correction of the matter by Parliament itself. We have certainly had, as have the other Boards of Review, not a little difficulty in determining the intention of Parliament as expressed in sec. 74.
11. It follows that, despite the fair manner in which the taxpayer framed his claim and the attractiveness of the way in which he conducted his case before the Board, we would uphold the Commissioner's decision on the objection and confirm the assessment.
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