Case K39

Judges:
AM Donovan Ch
RK Todd M
LC Voumard M

Court:
No. 2 Board of Review

Judgment date: 30 June 1978.

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A.M. Donovan (Chairman); R.K. Todd and L.C. Voumard (Members): The question raised by this reference concerns the deductibility of expenditure incurred by the taxpayer on a trip of some three weeks duration, made to Indonesia in January 1976. The claim has to be considered in the light of sec. 51 of the Income Tax Assessment Act 1936. In the course of that consideration, it will be necessary to refer to the circumstances in which the trip came to be made, what activities the taxpayer undertook while in Indonesia, and the relationship between those activities and the income derived by him as a school teacher employed by the Education Department of South Australia.

2. Having completed a B.Sc. degree, with a major in mathematics, and gained a Diploma in Education, the taxpayer was appointed a teacher at X High School. His classification was that of ``Teaching Assistant, Secondary''. Initially he took classes in mathematics only, at various levels, but later he taught some elective subjects as well. His main duties, however, continued at all relevant times to be the teaching of mathematics.

3. During 1975 he became aware that the Australian Federation of Teachers was organising study tours to different countries. He discussed with a colleague who had undertaken two similar trips whether such a trip would be ``worth pursuing, so far as education purposes were concerned'', and decided to undertake a trip to Indonesia. Of the cities mentioned in connection with this trip, he selected Jogyakarta which, he told us, was ``the cultural and educational centre of Indonesia''.

4. The trip, involving a group of teachers, covered the period between 2nd and 24th January, 1976. In his income tax return for the year ended 30th June, 1976, the taxpayer claimed a deduction of $626, being his expenses of making the trip. Rather oddly, the claim was made under the heading ``Conference Expenses'', and the return included the statement that the trip ``was conducted under the auspices of the South Australian Education Department''. This was not correct, but while in other circumstances such a misstatement could raise questions under sec. 170(3), nothing turns on it in this reference. The Commissioner initially disallowed the claim in full, but on objection the claim was allowed in part, on a basis not readily apparent, to the extent of $89. The disallowed portion of the expenditure, $537, is the subject of this reference.

5. The taxpayer gave evidence that he felt that by going to Indonesia he would ``gain valuable overseas experience in another system of education'', and that when he returned and applied for a position as, say, a senior master, such overseas experience would stand him in good stead compared with an applicant who had not had such experience. The group's activities in Indonesia were based on an itinerary set down by the Indonesian authorities. Visits were made to a number of schools - High Schools, Teacher Training Schools and Vocational Schools - in the Jogyakarta area, where the taxpayer and other group members observed the teaching methods used by Indonesian teachers. In some cases there were discussions with those teachers. The group attended dancing and gymnastic displays which were given by Indonesian students. In addition, the taxpayer made a classroom contribution by teaching English on some occasions, and by ``supplementing information (about Australia) the pupils received from their (own) teacher''. The taxpayer had but a limited knowledge of the Indonesian language, and as the pupils' knowledge of English was likewise limited, these sessions presumably proceeded in a somewhat halting manner.

6. We have no doubt that the taxpayer devoted a great deal of time to the pursuit of the activities listed. His schedule was a very full one, and virtually the only free time occurred on Sundays. There were thus only limited opportunities for sightseeing.

7. After returning to Australia, the taxpayer resumed his previous teaching duties at X High School. His main duties remained

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the teaching of mathematics, although he did volunteer to assist, in his ``off-lesson'' time, in presenting a course in the Indonesian language that X High School made available in 1977. He also continued to teach some elective subjects the school offered. He did not seek promotion within the Education Department, and his teaching classification remained ``Teaching Assistant, Secondary''. He did apply, but without success, for four positions in the teaching area, although he gave the impression that by this time he had decided that his real interests lay outside classroom teaching, and centred more on what he described, without elaboration, as ``the research side of education''. In mid-1977 he applied for and was granted one year's unpaid leave beginning in February 1978; his intention was to visit India during this period.

8. He was asked about the relationship between his activities in Indonesia and his teaching duties in Australia. Putting the most favourable construction on answers that were sometimes rather vague, his evidence seemed to involve these propositions. First, there was the possibility that having travelled overseas his prospects of gaining employment outside or promotion within the Education Department might be enhanced. In fact, he did not seek promotion. Secondly, his trip had enabled him to tell the students taking the Indonesian language course at X High School of his experiences in Indonesia. Thirdly, having gained information about Indonesian teaching methods, he was able to compare those methods with Australian methods. Finally, when asked specifically how, when part of his trip involved him in teaching English in Indonesian schools, the expenses associated with that aspect of the trip could be said to be relevant to the derivation of his income in Australia, he explained that it was necessary to look at the trip as a whole because ``the whole overseas experience, as such, is vital for any further job application''. No further details were given.

9. These propositions, taken singly or in combination, do not establish the necessary connection between the expenses of the trip and the derivation of the taxpayer's assessable income. It follows that his claim must fail.

10. This is not to say that a trip such as that undertaken by the taxpayer can never benefit the technical skills of those who undertake it. Rather the reverse. In this context it is worth repeating what this Board said in Case J68
77 ATC 572 at p. 576: ``It can be accepted that a teacher is better for having had a wide experience. Almost any experience, almost any acquisition of knowledge, almost anything that contributes to his own development will enable him to contribute something in turn to the development of his students both academically and as social beings. But much the same can be said of any professional person. The wider a person's general knowledge and the greater his development as a person, the better able he is to exercise his technical skills, but this is not to say that expenses incurred in gaining the experience and knowledge of this kind are expenses incurred in gaining his income.''

11. The factors just mentioned do not bring a claim such as the present within sec. 51. As far as presently material, that section permits the deduction of outgoings ``incurred in gaining or producing the assessable income'', provided of course that they are not outgoings of a private nature. On the view that we take, it is unnecessary to consider whether the expenditure should be classified as of a private nature, for we are satisfied that it was not incurred in gaining or producing the taxpayer's assessable income in the sense in which sec. 51 is to be understood.

12. The expression ``incurred in gaining or producing'' must be understood as meaning ``incurred in the course of gaining or producing'' (
Amalgamated Zinc (de Bavay's Ltd. v. F.C. of T. (1935) 54 C.L.R. 295). In considering the degree of relevance required in order that expenditure may be regarded as so incurred, the Courts have suggested various phrases. In
Ronpibon Tin N.L. v. F.C. of T. (1949) 78 C.L.R. 47, it was said that the outgoing had to be ``incidental and relevant'' to the production of income. In
Lunney v. F.C. of T. (1957-58) 100 C.L.R. 478, the joint judgment of Williams, Kitto and Taylor JJ. stated that the outgoing required ``a business character''. Menzies J. in
F.C. of T. v. Hatchett 71 ATC 4184; (1971) 125 C.L.R. 494, preferred the expression ``perceived connexion'', while in
F.C. of T. v. White 75 ATC 4018, Helsham J. adopted the phrase ``part and parcel''. Although useful, such expressions cannot be regarded as substitutes for the provisions of the Act itself, and it is to those provisions that one must return. The knowledge and experience that the taxpayer gained from his trip to Indonesia undoubtedly assisted in his personal development, but

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expenses of such personal development are vastly different from expenses that are connected with the carrying out of the activities which give rise to his income. The former cannot be regarded as incurred in the course of gaining or producing a taxpayer's assessable income.

13. There was another argument addressed to the Board, to the effect that the trip enabled the taxpayer to maintain his status as a teacher, and was vital for the purposes of future job applications. If this meant that the visit was likely to further the taxpayer's prospects of advancement, whether within or without the Education Department, and that the expenditure was for that reason sufficiently connected with the derivation of assessable income, the answer is that the evidence did not establish any connection. It is not enough that an overseas trip might perhaps improve the employee's prospects of promotion in his present employment, or the possibility of him gaining a better appointment elsewhere. There must be a real connection between the expenditure and his assessable income. See the discussion in
F.C. of T. v. Smith 78 ATC 4157.

14. We have not discussed the various Board decisions to which the taxpayer's representative referred us because, although helpful, they are only examples of situations where the requirements of the Act have or have not, as the case may be, been satisfied. We should say, however, because there seems to have been some uncertainty about it, that the test of deductibility under sec. 51 in the case of an employee is not a different test from that applied where the taxpayer is self-employed. That is made clear by the High Court in Ronpibon Tin N.L. v. F.C. of T. (supra).

15. For the reasons given, we would uphold the Commissioner's decision on the objection and confirm the amended assessment dated 21st April, 1978.

Claim disallowed