Case N94

Judges:
JR Harrowell Ch
BR Pape M

Court:
No. 1 Board of Review

Judgment date: 6 November 1981.

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J.R. Harrowell (Acting Chairman)

The taxpayer in this reference was in receipt of $874 in unemployment benefits for the period 26 February 1979 to 25 June 1979. In his return of income for the year ended 30 June 1979 he claimed a deduction of $855 for air travel ($533), accommodation ($150) and sundries ($172).

2. The Commissioner by notice of assessment dated 28 September 1979 disallowed the taxpayer's claim.

3. The taxpayer lodged an objection dated 30 October 1979 and that objection included the following grounds:

• • the amounts claimed were incurred in the process of earning taxable income;
• • according to Pt. VII, sec. 107, subsec. (1)(c) of the Social Services Act 1947-1973 any person who ceases to actively seek employment is no longer eligible to receive unemployment benefits;
• • the dearth of job opportunities in the State in which he lived made it necessary to approach prospective employers interstate and this gave rise to the air travel and accommodation costs incurred;
• • in addition to those costs he incurred a wide range of expenses in maintaining contact with potential employers including such costs as stationery, postage, telephone, photocopying and travelling costs (bus, ferry, tram, train and car expenses).

4. The Commissioner disallowed the objection and the matter is now before this Board.

5. The quantum of the claim was not in dispute. The taxpayer spent $855 in the course of seeking a position in line with his tertiary qualifications - Bachelor of Economics and Master of Business Management. He not only sought interviews in his home State but also travelled to the capital cities of three other States during the year ended 30 June 1979.

6. The taxpayer appeared in person. He was employed from 1 July 1978 until 7 February 1979 when his services were no longer required. The circumstances of the termination of his employment in no way affected his right to seek unemployment benefits and so are not relevant to this matter. The benefit commenced on 26 February 1979 and between that date and 30 June 1979 he was aware that there was some requirement under the Social Services Act 1947-1973 for him to seek employment in order to continue to receive unemployment benefits. To put the matter beyond doubt he wrote the following letter to the Department of Social Security on 1 June 1979:

``I would like to know whether one must actively seek employment in order to be eligible for unemployment benefits. If this is so would you be so kind as to quote the relevant section of the Social Services Act.

Furthermore if I were to cease actively seeking employment would the Department of Social Security be obliged to terminate any receipt of unemployment benefits.''

7. A director from the Department replied to that letter on 11 July 1979 in the following terms:

``I refer to your enquiry dated 1 June 1979 in respect of the requirement of actively seeking full-time employment to be eligible to receive unemployment benefit.

Part VII, Section 197 (sic), Sub-Section c of the Social Services Act 1947-1973 states that a person who:

• satisfies the Director-General that he -
  • (i) is unemployed and that his unemployment is not due to his being a direct participant in a strike;

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  • (ii) is capable of undertaking, and is willing to undertake, work which, in the opinion of the Director-General, is suitable to be undertaken by that person; and
  • (iii) has taken reasonable steps to obtain such work,

  shall be qualified to receive an unemployment benefit.'

Therefore, if a person was to cease actively seeking full-time employment, they do not meet part (iii) of the above and would no longer be eligible to receive unemployment benefit.

I trust this satisfies your enquiry.''

8. A witness appeared for the Commissioner who was a manager of an office of the Department of Social Security. In evidence he outlined the procedures within the Department relating to the original application for unemployment benefits and the need to make subsequent applications every fortnight for continuation of the benefit. These applications for continuation are made out on a form bearing the identification of SU19B. During the relevant year the form made no special reference to efforts made to obtain work. However the main purpose of that form was to bring to the notice of the Department any changes in circumstances particularly if the recipient of the benefit had commenced paid employment or was now carrying on a business, trade or profession. In August 1979 the form was amended to include a space where the applicant was required to detail the efforts he had made to obtain work since his last application. The Department of Social Security, through its delegated officers, has the power to review an applicant's efforts or lack of efforts to obtain employment or work. If after due enquiry the Director-General, through a delegated officer, was not satisfied with the findings the unemployment benefit normally would be stopped.

9. The manager testified that where the Commonwealth Employment Service or the Professional Employment Office found a vacant position which seemed to match the unemployed person's experience and qualifications an interview was arranged and a travel warrant made out if that was necessary. An unemployed person, in fulfilling the requirement to actively seek employment whilst receiving the benefit was not expected to incur expenditure travelling long distances, such as interstate, to achieve that end.

10. The taxpayer argued that the unemployment benefits received by him during the relevant year fell within the terms of sec. 25(1) and were taxable in his hands. Under sec. 107 of the Social Services Act 1947-1973 the payment of the benefit was conditioned upon efforts being made by the taxpayer, which satisfied the Director-General, to seek work. Therefore in his view the undisputed costs incurred by him, which are the subject of this reference, were incurred in gaining or producing that assessable income and were deductions under sec. 51(1). If he failed to satisfy the Director-General by not making sufficient effort or by making no effort at all to obtain work the unemployment benefits being paid to him would cease.

11. The taxpayer did not dispute the proposition that expenditure incurred to obtain employment did not come within the terms of sec. 51(1) as expenditure giving rise to the income later derived from that employment (
F.C. of T. v. Maddalena 71 ATC 4161 ) Any relationship between the cost of seeking a position and income subsequently derived from that position formed no part of the taxpayer's argument. His argument was simple - he incurred the expenditure claimed in order to derive the unemployment benefit. In his view the continuance of the payment of that benefit was subject to an express condition (by statute) that he take reasonable steps to obtain work and what he does to that end satisfies the Director-General.

12. This struck me as quite a novel approach. Normally a deduction under sec. 51(1) relates to expenditure incurred with the fond hope that it will give rise to the receipt of assessable income. Here the expenditure is incurred for the purpose of bringing that income to an end. Further, that same expenditure is incurred to enable the receipt of that income to continue.

13. The amount received as an unemployment benefit is not exempt from income tax in the hands of the recipient and

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so it is assessable under sec. 25(1). To be eligible the recipient must be unemployed and so the benefit is not paid under any express or implied condition of employment. As its name implies it is a benefit paid to an unemployed resident of Australia to enable that person to subsist during the period of unemployment. Quite obviously its payment should cease once that person gains employment or if, in the opinion of the Director-General, that person is not taking reasonable steps to obtain work suitable to be undertaken by him.

14. In my opinion this reference concerns two entirely separate matters not involving sec. 51(1). The first is the payment of the benefit to assist the taxpayer whilst he was unemployed. The second matter is the need to find a job of work. Most of us on ceasing to be employed must set about seeking re-employment. The cost to find a suitable position is not a deduction under sec. 51(1) or any other section of the Act for that matter re Maddalena (supra) . In my opinion such a cost does not become a deduction because the taxpayer receives an unemployment benefit to tide him over his period of unemployment. In this reference during the relevant period covered by the benefit the taxpayer was neither employed nor was he carrying on business and so his opportunities to incur a deduction in terms of sec. 51(1) were very limited indeed. In my opinion the costs claimed by the taxpayer were not incurred to gain or produce unemployment benefits they were incurred to bring that income to an end.

15. I uphold the Commissioner's decision on the objection and I would confirm the 1979 assessment before the Board.