Cam v. Federal Commissioner of Taxation.
Members:McGarvie J
Tribunal:
Supreme Court of Victoria
McGarvie J.: This appeal against an assessment of income tax is brought to the Court by Mr. Donald Cam, a taxpayer. In his return in respect of the year ending 30th June, 1974 Mr. Cam claimed a concessional deduction of $884.00 in respect of his four dependent children who were each then under the age of sixteen years. He also claimed a concessional deduction of $224,00 in respect of treatment by an orthodontist of three of the children. Later that claim was reduced by him to $221.00.
In the original assessment set out in the notice of assessment which was issued on 13th February, 1975 the Deputy Commissioner allowed only $442.00 in respect of the four dependent children, which is half of the amount claimed. On 5th July, 1976 the Deputy Commissioner issued an amended assessment in which Mr. Cam was allowed a further $182.00 as concessional deduction in respect of the four dependent children. The result is that his claim for this concessional deduction has been allowed to the extent of $624.00 and before me, Mr. Cam, who conducted his own appeal, submitted that he was entitled to the full amount claimed, $884.00.
The claim in respect of orthodontal treatment has been disallowed entirely and Mr. Cam submits that it should be allowed to the full extent of the $221.00 now claimed.
On 6th February, 1970 a maintenance order was made by the Magistrates Court at Box Hill in which Mr. Cam was ordered to pay his wife $15.00 per week for her maintenance and $20.00 for the maintenance of the children, a total of $35.00. At a later stage, without any further Court order, Mr. Cam increased to $38.00 the weekly amount which he paid to his wife as maintenance.
The material before me indicates that Mr. Cam has not had any normal access to the children since July, 1972. On 27th August, 1973 divorce proceedings came before this Court and a decree nisi was made. There is before me a copy of minutes of proposed orders and evidence that ancillary orders to the effect of those set out in the minutes were made by the Court. The petitioner, Mrs. Cam, was given custody of the four children and access by Mr. Cam to them was reserved. Mr. Cam was ordered to make weekly payments to a total of $50.00 per week for the maintenance of the four children. The first payment of the maintenance was to be on 3rd September, 1973. Mrs. Cam's claim for maintenance for herself was dismissed and the Court sanctioned a deed which gave Mrs. Cam rights in lieu of her rights to maintenance for herself and her rights to a settlement of property.
The material before me indicates that under the terms of this deed Mr. Cam paid his former wife $20,000.00. Except for some initial delay in maintenance payments which was not due to the fault of Mr. Cam, he has complied with his obligations under the Court order. Mr. Cam told me that by an injunction of this Court he is restrained from molesting his former wife.
The basic submission which Mr. Cam makes is that the maintenance of $50.00 per week which he paid in respect of the children from 27th August, 1973 was more than adequate to cover their maintenance including the cost of the orthodontal treatment. He puts it that the order of this Court should be treated as having made an assessment of the cost of the children's maintenance at that time as being $50.00 per week. He argues that the Commissioner should have treated the order of the Court as an authoritive [sic] determination of the cost of the children's maintenance and should have approached the claims for concessional deductions on the basis that the $50.00 per week covered the children's maintenance including the orthodontal fees. He submitted that I should approach the issues on this appeal in the same way.
The claim for concessional deduction in respect of the dependent children depends on sec. 82B of the Income Tax Assessment Act 1936-1974. The section provides that the amount of deduction allowable for children under the age of sixteen years is $260.00 in respect of one child and $208.00 in respect of each other child. In claiming $884.00, Mr. Cam claimed the full amount of the deduction allowable in respect of the four children.
The effect of subsec. (4)(c) of sec. 82B is that where a taxpayer is one of two or more persons who contribute to the maintenance of a dependent child, the amount allowed to the taxpayer shall be such part of the relevant amount ``as, in the opinion of the Commissioner is reasonable in the circumstances''. Mr. Cam submits that it is reasonable in the circumstances that he be allowed the whole of the amounts relevant to
ATC 4063
the children. He suggested that I should infer that he had been allowed only 70.8 percent of the relevant amounts. Dr. Spry, who appeared for the Commissioner on the appeal, informed me that on his instructions, Mr. Cam had been allowed 50 percent of the relevant amounts in respect of the period to the 3rd September, 1973 and from that date when the increased amount of maintenance became payable, he had been allowed 75 percent of the relevant amounts.Dr. Spry submits, and I accept his submission, that sec. 190 of the Act places on the appellant the burden of proving that the assessment is excessive. Dr. Spry also submits that it would not be enough to enable Mr. Cam to succeed for him to satisfy me that it is reasonable in the circumstances that he be allowed a greater amount than was allowed by the Commissioner. On Dr. Spry's submission that would be enough to enable Mr. Cam to succeed before a Board of Review which may re-exercise all the powers of the Commissioner (see sec. 193). He submits that on an appeal the position is different from that on a review. He contends that on this appeal to the Court, Mr. Cam could only succeed if he showed that there was invalidity involved in the formation by the Commissioner of the opinion referred to in sec. 82B(4). Dr. Spry referred me to
Avon Downs Pty. Ltd. v. F.C. of T. (1949) 78 C.L.R. 353 and in particular to the judgment of Dixon J. at p. 360. He submitted that the Commissioner's decision on the amount to be allowed as a deduction must stand unless it is shown that in forming his opinion, the Commissioner failed to discharge his exact function according to law. To show such a failure by the Commissioner, he contended that it would be necessary to demonstrate in some such way as is mentioned by Dixon J., that the Commissioner had fallen into error in forming his opinion. Dr. Spry referred me also to
Moreau v. F.C. of T. (1926) 39 C.L.R. 65;
Australasian Jam Company Pty. Ltd. v. F.C. of T. (1953) 88 C.L.R. 23;
F.C. of T. v. Brian Hatch Timber Company (Sales) Pty. Ltd. 72 ATC 4001; (1972) 128 C.L.R. 28 and
Kolotex Hosiery (Australia) Pty. Ltd. v. F.C. of T. 75 ATC 4028; (1975) 132 C.L.R. 535. On the basis of that authority I consider this submission of Dr. Spry to be correct.
It is clear from the decision in F.C. of T. v. Brian Hatch Timber Company (Sales) Pty. Ltd., mentioned above, that it is necessary for me to consider on the background of the material before the Commissioner when he made the assessment, whether he fell into error in forming his opinion. The only evidentiary material before me is the Commissioner's file omitting some folios which were agreed not to be relevant and an affidavit by Mr. Cam and exhibits to that affidavit. Dr. Spry, for the Commissioner, foreshadowed at an early stage that difficulties of proof would play a prominent part in the appeal. He indicated that as Mr. Cam appeared in person, the Commissioner would be taking no technical stance upon the placing of evidence before the Court.
As the appeal proceeded it became apparent that Mr. Cam faced substantial submissions that the material before the Court was inadequate to enable him to succeed on either of the issues in the appeal. I indicated to Mr. Cam that to meet the submissions regarding deficiencies of evidence, he may desire to take the course of giving oral evidence himself, of calling his former wife as a witness or of having placed before the Court the material which was before the Commissioner when he formed his opinion. Mr. Cam told me that he did not think that he had relevant information which he could give in oral evidence beyond that in his affidavit. As to calling his former wife Mr. Cam expressed concern that to serve her with a subpoena would involve him in a breach of the injunction not to molest her. I told him that I thought that if he desired to do so, it would be possible for him to subpoena his wife to give evidence without any breach of the injunction. Mr. Cam indicated that he did not think that the calling of his former wife as a witness would in the circumstances assist his case.
As to having placed before the Court the material which was before the Commissioner, it appeared from discussion with counsel that part of the material before the Commissioner would in the ordinary course have been material provided by Mr. Cam's former wife in support of a claim for allowance of concessional deductions. It appeared that there may have been a contest before me whether, in view of sec. 16 of the Act, which precludes disclosure of information, the information provided by Mr. Cam's former wife to the Commissioner could properly be placed before the Court in this appeal. I indicated to Mr. Cam that it was open to him to argue that he was entitled to have placed
ATC 4064
before the Court all the material which was before the Commissioner. Mr. Cam said that in view of the small sums of money at issue in the appeal and the further time which would be taken in arguing that question, that was not a course which he desired to take.I turn to consider whether the material before me shows that the Commissioner fell into some error in the course of forming his opinion that it was reasonable in the circumstances that Mr. Cam be allowed only $624.00 of the $884.00 claimed in respect of the dependent children. On this appeal, it is the assessment as reduced by the amended assessment dated 5th July, 1976 which is to be considered (sec. 191). I look to see what the evidence before me shows to have been the material before the Commissioner on 5th July, 1976. In doing this, I am entitled to draw and do draw reasonable inferences from the material before me. I am satisfied that that material, the substance of which I now summarise, was before the Commissioner at the relevant time.
During the year ending 30th June, 1974 the four children of Mr. Cam and Mrs. Cam, his former wife, were living with Mrs. Cam. Mr. Cam had not had normal access to them since July, 1972. On 30th June, 1974 the eldest child was aged fifteen years and the youngest six. During the year ending 30th June, 1974 Mrs. Cam had been engaged in part-time employment doing nursing work. The orders for maintenance and the payment of maintenance referred to earlier in these reasons had been made. On the hearing of the divorce petition on 27th August, 1973 a deed of settlement had been signed by Mr. Cam and since then Mrs. Cam had received $20,000.00 for herself from him. At the hearing of the divorce petition the past records of events and proceedings were placed before the Court only in part or in broad outline. At some stage, after the maintenance order made on 6th February, 1970, Mrs. Cam had told Mr. Cam that the maintenance for the children was adequate when he had offered to pay their medical and dental expenses. There was before the Commissioner a statement by Mr. Cam that the $50.00 per week paid under the order made by the Supreme Court on 27th August, 1973 was more than adequate maintenance for the children and that his wife had continued her part-time work to further her own financial position.
I have summarised the more important parts of the material which I am satisfied was before the Commissioner at the relevant time. The information which I have summarised was contained in or is to be inferred from statements made by Mr. Cam which were before the Commissioner.
There is no evidence before me that there was no other material before the Commissioner at the relevant time nor has this been suggested.
The essence of Mr. Cam's submission was that the Commissioner fell into error in failing to give to the order of the Supreme Court the weight which it deserved. He submits that the Commissioner, having obviously proceeded on the basis that Mr. Cam's maintenance payments were only partly maintaining the children, has grossly differed from the assessment by the Supreme Court of the amount needed to maintain them. There is nothing before me to indicate that the order of the Supreme Court was made on the basis of an assessment by the Court that the total amount needed to maintain the children was $50.00 per week. The form of the minutes of proposed orders and the fact that the sanction of the Court to a deed was sought and obtained tends to show that the orders of the Court relating to ancillary relief were made in the terms of an agreed settlement between the parties settling all the outstanding issues between them in the proceedings.
Mr. Cam further argued that I should act on the basis that it was self evident that $50.00 a week was more than adequate to maintain four children of their then age, in the year ending 30th June, 1974. But even if it were permissible for me, for the purposes of this appeal, to make an assessment of the sum adequate to maintain the four children there is not sufficient in either of the material which was before the Commissioner or the material which is now before me to enable me to make such an assessment. It would be necessary to know much more about the needs and circumstances of the children; about the standard of living of the family; and about the amount of money which has been expended for their benefit. Accordingly I am not satisfied on either of the bases relied on by Mr. Cam that the Commissioner fell into error in forming his opinion. I am not satisfied that there was any other identifiable error of fact or law by the Commissioner in forming his opinion.
ATC 4065
As I am not satisfied that I have before me all of the material which was before the Commissioner, I am not in a position to infer that he could only have reached the conclusion which he did on the material before him if he had committed some error of fact or law. It is not necessary for me to determine the precise basis on which Mr. Cam was allowed a further $182.00 in respect of this concessional deduction on 5th July, 1976 and there is not material before me which would enable me to do so.
The result is that the appellant fails in the part of his appeal which relates to the concessional deductions in respect of the dependent children.
Dr. Spry told me that the Commissioner takes the view that under sec. 82B not more than the total amount allowable in respect of dependent children is to be allowed amongst two or more persons contributing to the maintenance of the children. From this it appeared to follow that in the event of the appellant obtaining in this appeal allowance for a larger part of the total amount allowable, the Commissioner would as a matter of administration and may be required as a matter of law to issue to Mrs. Cam a further assessment reducing the part of the total amount allowed to her. If this was a likely consequence of the success of this part of the appeal, it seemed to me that considerations of natural justice may require that Mrs. Cam be given an opportunity of being heard in the appeal. My conclusion on this part of the appeal makes further consideration of this question unnecessary.
I next consider the disallowance of the claim made in respect of the orthodontist's fees. This claim does not depend on the formation of an opinion or other state of mind by the Commissioner. The question then is whether on the material before me, I am satisfied that the appellant is entitled to the concessional deduction.
I am satisfied that in March, 1971 the amount of maintenance being paid by Mr. Cam was adequate to cover the medical and dental expenses of the children as well as the other aspects of their maintenance. Mr. Cam initiated the children's orthodontal treatment and paid the orthodontist for it until the time when he became liable to pay the maintenance of $50.00 per week under the order of the Supreme Court. From that time the children's mother paid the orthodontist for the treatment and during the year ending 30th June, 1974 her payments amounted to $221.00.
This claim for a concessional deduction depends on sec. 82F of the Act. Section 82F(1) provides that: ``An amount paid by the taxpayer as medical expenses in respect of a dependent shall be an allowable deduction''. Dr. Spry proceeded on the basis that payments to an orthodontist were medical expenses by virtue of cl. (b) or (c) of the definition of ``medical expenses'' under subsec. (3) of the section. Accordingly, there is no issue as to whether the orthodontal expenses are expenses which may be allowed under the section.
The Commissioner contested the appellant's claim by submitting that the amounts had not been paid to the orthodontist by the appellant or his agent and that this is required by the section. Mr. Cam contended that the payments to the orthodontist which he submitted amounted to payments equal to $4.25 per week, over the period, should be regarded as covered by the increased amount of maintenance paid when maintenance for the children was increased to $50 per week. I was told that the question raised by this issue is not one which is covered by authority.
I consider that in this case Mr. Cam does not launch an arguable claim unless he satisfies me that money which he paid as maintenance was used by his former wife to pay the orthodontist, or that part of his payments of maintenance was in respect of the orthodontal expenses, or that the amounts of his payments of maintenance were sufficient to cover all other aspects of the children's maintenance and to leave a surplus sufficient to pay the orthodontist's fees. On the evidence before me I am not satisfied as to any one of these things. There is no evidence which satisfies me as to the way in which the children's mother used the money received as maintenance during the year ending 30th June, 1974. There is nothing to show that any part of the maintenance payments was in respect of orthodontal or other medical expenses. In the absence of evidence about the needs and circumstances of the children, the expense of maintaining them and the standard of living of the family, I am not satisfied that after covering the other aspect of maintenance there was a surplus available sufficient to pay the orthodontist's
ATC 4066
fees. I do not regard the letter from Mrs. Cam to Mr. Cam, dated 26th March 1971, as providing real assistance on these questions. Between that time and the year ending 30th June 1974 there would have been significant changes in the needs of the children as they grew older and in the value of money.I am not to be taken as indicating an opinion that if I were satisfied of one or more of the things which I have mentioned the appellant would succeed in this part of his appeal. I am deciding no more than that in this case there is no factual basis which gives rise to a credible argument that the amounts paid to the orthodontist were paid by the appellant or his agent within the usual meaning of the word ``paid'', or were paid by the appellant within any extended meaning which could reasonably be given to the word ``paid''. It is not necessary for me to decide whether Dr. Spry's submission upon the limited operation of the section is correct.
The result is that the appellant fails in the other part of his appeal which relates to the concessional deductions in respect of orthodontal fees.
Accordingly, the appeal is dismissed.
At the conclusion of the argument of the appeal, the parties addressed argument to me as to costs. The Act draws a distinction between reviews by a Board of Review and appeals to the Court. Costs may not be ordered in the former, but may in the latter. I consider that there are no circumstances which justify a departure from the usual order that costs follow the event. However, the taxpayer, who set out to reduce his assessment by $666, when on 27th May 1975 he requested that his objection be treated as an appeal to this Court, did have his assessment reduced by $182, when the amended assessment issued on 5th July 1976. Bearing in mind the fact that the greater part of the Commissioner's costs would have been incurred after 5th July 1976, I consider it just that the costs which the appellant should be required to pay be reduced to 4/5ths of the Commissioner's costs.
ORDER:
The appeal is dismissed. I order that the Commissioner's costs of the appeal be taxed and that when taxed the appellant pay to the Commissioner four-fifths of the amount of his taxed costs.
This information is provided by CCH Australia Limited Link opens in new window. View the disclaimer and notice of copyright.