Federal Commissioner of Taxation v. Lacelles-SmithJudges:
Supreme Court of New South Wales
Waddell J.: During the year ended 30th June 1973 the taxpayer was an assessor in the Sydney office of the Australian Taxation Office. In his return of income for that year he claimed a deduction of $92 under sec. 82JAA of the Income Tax Assessment Act, 1936-1973 being a balance in respect of fees paid for a part-time Diploma course in Commerce and textbooks and stationery used for that course. The gross amount expended by him was $262
ATC 4163but an amount of $170 for fees was refunded or refundable by his employer. In addition to this expenditure the taxpayer had incurred travelling expenses of $11 in travelling by bus from his place of employment to the Technical Institute where he was pursuing the course. In his return he claimed this expense as a deduction under sec. 51(1) of the Act. The Commissioner allowed the deduction of $92 but disallowed the deduction of $11. The taxpayer objected and his objection was upheld by Taxation Board of Review No. 1. [Case H17,
76 ATC 122] The Commissioner now appeals from the decision of the Board.
The taxpayer, who had passed His Higher School Certificate at matriculation level at the close of the 1970 academic year, accepted employment as a records clerk in the Taxation Office in early February 1971. With the intention of staying in the Department for the foreseeable future, he enrolled in the Commerce course in order to apply, when the opportunity arose, for inclusion in one of the Income Tax Assessing Schools which he knew the Department organised from time to time.
He was accepted into the school held in November 1971 and, having passed the tests involved, was appointed Assessor, Grade 1 on 16 December 1971. This was a promotion in rank with an increase in salary - he had moved from Clerk, Class 1 to Clerk, Class 2/3. His subsequent appointments were:
17 April 1972: Acting Assessor, Grade 2 26 February 1973: Acting Assessor, Grade 3 6 February 1975: Acting Assessor, Grade 4
When he applied for inclusion in the Assessing School in September 1971 the taxpayer had completed the autumn semester course in Financial Accounting and had sat for examinations in Business Law A in which he had gained a distinction and in Logic and Methodology in which he had passed. He passed Financial Accounting and Principles of Management at the end of the year but failed in Business Law B. The taxpayer continued with his course during 1972, 1973 and 1974 passing in the following subjects: Management Accounts I, Data Processing, Statistics, Economics I, Business Law B, Economics II, Company Law, Administrative Psychology and Taxation. He sat for and failed Commercial Programming three times and also failed Management Accounts II. Because of these failures he was excluded from the course at the end of 1974 and at the time of the hearing before the Board was not engaged in any tertiary course.
This appeal was heard together with the appeal in F.C. of T. v. Smith and involves the same question of law and submissions on behalf of the Commissioner. Reference should be made to the judgment delivered in that appeal for a description of the requirements of entry into a Departmental Assessing Course, the qualifications prescribed for promotion to the various grades of assessor, the duties of assessors of the various grades and the relationship between studying a course of the kind here in question and the prospects of advancement as an assessor in the Department. The principles of law set out are applicable to this appeal.
In the present case the taxpayer's successful commencement of the Commerce Diploma Course led to his being selected for an Assessing School and to his promotion to the position of Assessor, Grade 1 with an increase in salary. This was a reasonably certain consequence of his commencement of the course and the expenditure thereby incurred was clearly, in my opinion, incurred in gaining the assessable income. Thereafter, his continuance of the course must be regarded as likely in all probability to have led to promotion as an assessor with consequent increases in salary provided he was successful in the course and performed his departmental duties satisfactorily. In fact, he was promoted to Acting Assessor Grade 3 with an increase in salary in the year of income in question and during the 1975 tax year was promoted, again with an increase in salary. For present purposes it is irrelevant that he has now discontinued the course. When he commenced it it was reasonable to suppose that his pursuit of the course would lead to the promotions and increases in salary which he has gained. It was part of the circumstances of his employment that it was necessary for him to spend the money on pursuing the course which he did in order to earn greater income in the future.
In these circumstances there seems to me to be a clear connection between the expenditure claimed as a deduction and the earning of the assessable income. The appeal is, therefore, dismissed.