HP Stevens Ch
CF Fairleigh QC
No. 1 Board of Review
H.P. Stevens (Chairman) and C.F. Fairleigh Q.C. (Member): The taxpayer is a clerk employed by a public authority. In his return of income for the year ended 30 June 1976 the taxpayer claimed a deduction of $1,603 for ``Living expenses at (a country town) while earning income'' - and there is an annexure to the return as follows: -
``Last year I claimed an amount for my living expenses at (the country town) which was disallowed. I am convinced that this expense is a legitimate expense which should be allowed and accordingly I have included the exact amounts (I omitted insurance) which I incurred throughout the year. The 40 weeks for mileage was because I did have extended leave and while responsible for rent did not incur mileage expenses.
Naturally I expect this item to be disallowed again in which case I hope to appeal and fully explain the circumstances with a view to having this anomalous precedent corrected.''
2. The Commissioner adjusted the taxable income as returned by disallowing that claim and a notice of assessment issued accordingly. The taxpayer objected thereto and the Commissioner decided to disallow the objection so far as relates to that claim. That decision was referred to a Board for review. Because of a matter which has no present relevance the Board is concerned with a notice of amended assessment.
3. The parties agreed on certain facts as reduced to writing and these were supplemented by oral evidence of the taxpayer. In brief the position is as follows: -
- (a) The taxpayer's opportunities for promotion are restricted to positions available with the public authority and not those in the public service generally. For over 29 years he has been employed in a clerical division by the authority.
- (b) The authority offered to him (in a sense directed him to take) promotion to a position in a country town, about 250 kilometres from Sydney. At that time the taxpayer was living with his wife and children in his home in an outer Sydney suburb and he was working in the authority's head office in Sydney.
- (c) The taxpayer's wife was then working in Sydney; their eldest child was engaged in tertiary studies in Sydney, and another child was involved in studies at secondary school level at a point where the studies should not be interrupted. The consequences were that the family home had to be maintained in Sydney; and acceptance of the new position, whilst increasing the taxpayer's take-home pay, gave an overall lower financial reward, at least from a short-term viewpoint.
- (d) On 7 April 1975 the taxpayer took up his new position in the authority's country office, retaining that position until his return to head office in Sydney on 29 March 1977.
- (e) For the first four weeks of his stay in that country town the taxpayer had hotel accommodation (and received some allowance therefor from the authority; this precedes the period here in issue).
- (f) Throughout the whole of the period here in issue the authority made a cottage available to the taxpayer, initially at a rental of $9.30 per week, and later at a rental of $15.70 per week.
- (g) Throughout the whole of the period here in issue the taxpayer maintained his residence in the outer Sydney suburb where his wife and children continued to reside; and this was known to the authority.
- (h) Throughout the whole of the period here in issue the taxpayer did not receive any allowance from the authority whilst he held the position in that country town.
- (i) For a period of approximately six weeks during his term of duty in that country town (but not during the period at issue) the taxpayer was temporarily attached to a
ATC 283head office section and so lived in his home in the outer Sydney suburb for that time; and, as previously occurred, he commuted each day to head office.
- (j) The taxpayer did not receive any allowance from the authority whilst he held the temporary position for six weeks; although it offered, subject to a condition re non-liability for his personal possessions, to waive the rent on the cottage for six weeks. The condition was unacceptable to the taxpayer and so the authority's offer was rejected.
- (k) Whilst employed in that country town it was the taxpayer's normal practice to drive to it from his family home in the Sydney suburb each Monday morning and return to his family home each Friday evening. There may have been occasions when he drove directly from the country office to his Sydney home; and occasions when he drove directly from his Sydney home to the country office; so also there may have been occasions when he travelled on Sunday night rather than on Monday morning.
- (l) The taxpayer had extended leave during the year in issue and accordingly his claim based on mileage is in respect of 40 weeks of the year.
- (m) The Commissioner has not challenged the quantum of the outlay or mode of calculation.
- (n) The taxpayer's claim contains three elements: -
(i) Travelling between the country town and his Sydney residence 496 km return x 40 weeks at 4.5c per km $892.80 (ii) Rent paid to the authority in respect of the country cottage 26 weeks at $9.30 $241.80 26 weeks at $15.70 408.20 650.00 ------ (iii) Electricity account in respect of the country cottage 60.00 --------- $1,602.80 ---------
4. The basis of the difference between the parties is that the taxpayer sees no merit in the stress placed by the Commissioner on the choice which was open to the taxpayer in either having or not having his family living with him in the country town once he chose to accept the position there; and the Commissioner sees no merit in the stress placed by the taxpayer on the necessity of making the outlays here in issue when regard is had to the language of sec. 51(1) and the cases decided thereon. The taxpayer specifically rejects any suggestion that earlier decisions of any Board of Review constitute a precedent; of course, he is right in this. On the other hand the Board is bound to apply the principles which are to be found in decisions of the Courts. Furthermore the reasoning in other Board decisions can be of assistance.
5. The first matter for consideration is travelling expenses. The principle of Lunnev and
Hayley v. F.C. of T. (1958) 100 C.L.R. 478; 11 A.T.D. 404 is that whether a person has one job or two or more and whether he is an employee or is self-employed the expenditure on travelling between his place of residence and his place of work is prima facie characterized as a personal or living expense.
6. There are exceptions in respect of the self-employed, often dependent on the residence being also the place of business (e.g.,
F.C. of T. v. Green (1950) 81 C.L.R. 313 as construed by McTiernan J. in Lunney at p. 491; 409). There are also exceptions in respect of the employee and these principally turn on the question whether the outlays on travelling were incurred pursuant to the conditions (i.e., the terms express or implied) of the employment, viz.,
F.C. of T. v. Finn (1961) 106 C.L.R. 60, i.e., the ``four conclusions'' per Dixon C.J. and ``acting within the scope of his employment'' per Kitto J.;
F.C. of T. v. Ballesty 77 ATC 4181, i.e., the necessity to comply with the terms of the contract of employment;
F.C. of T. v. Kropp 76 ATC 4406, i.e., the underlying theme that a contract of employment although terminated in law was to be regarded as notionally subsisting and incorporating a provision that the taxpayer should travel overseas and gain experience there;
F.C. of T. v. Vogt 75 ATC 4073, i.e., expenditure on travelling to work incurred as part of the operations by which the taxpayer earned his assessable income;
F.C. of T. v. Smith 78 ATC 4157;
F.C. of T. v. Lacelles-Smith 78 ATC 4162, i.e., the circumstances of the employment were that it was necessary to spend money on travelling to earn greater money in the future. Similarly when the employee is engaged in employment of an itinerant nature the employee is entitled
ATC 284to a deduction for expenditure on travelling from the time of leaving home to attend the first of several places of work (
F.C. of T. v. Wiener 78 ATC 4006). So also where the journeys begin as a result of performance of the duties of the employment at the taxpayer's home (
F.C. of T. v. Collings 76 ATC 4254).
7. It is not possible to find anything in that line of authority which would enable the taxpayer to escape the net which is cast by Lunney and Hayley (supra) for the principle thereof clearly applies whether a taxpayer has one home or two. As to something which is done as a matter of personal convenience and not expressly or impliedly ``by reason of or in pursuance of a contract of employment'' see
Tan Keng Hong v. New India Assurance Co. (1978) 1 W.L.R. 297.
8. It cannot be said that this taxpayer's expenditure on travelling has a direct effect on income in the relevant sense (cf.
F.C. of T. v. Hatchett 71 ATC 4184; (1971) 125 C.L.R. 494, viz., the teacher's Higher Certificate resulted ipso facto in an automatic increase in salary (possession of the certificate carried with it a higher salary range immediately) but the university degree did not have that result).
9. The second matter for consideration is the outlay on rent for the cottage. In
F.C. of T. v. Faichney 72 ATC 4245 at p. 4249; (1972) 47 A.L.J.R. 35 at p. 37 Mason J. said: -
``There is no definition of the expression `private or domestic nature'. However the examples of expenditure of a private or domestic nature which leap to the mind are those which could not conceivably be incurred in gaining assessable income e.g. the... rent paid for the taxpayer's dwelling house.''
Therefore the second matter must also be determined against the taxpayer.
10. The final issue concerns the outlay on electricity for the cottage. This inevitably follows the decision as to rent. The only instances where claims for an outlay on electricity consumed in a residence have been allowed are where the claims have been in respect of a proportion attributable to a room in the residence being used at times for business purposes (Faichney supra).
11. The conclusion is that the expenditure on travelling, rent and electricity was private and domestic in character. It was not incurred by the taxpayer in the course of gaining or producing assessable income present or future.
12. The Commissioner's decision on the objection is to be upheld and the amended assessment is to be confirmed.