KP Brady Ch
JE Stewart M
No. 2 Board of Review
K.P. Brady (Chairman) and J.E. Stewart (Member)
The question raised for our decision in this reference is whether legal expenses of $103 incurred by the taxpayer in the year of income ended 30th June, 1979, in entering a defence against an alleged driving offence, is an allowable deduction under sec. 51(1) of the Act.
2. The taxpayer, an employee technician and area supervisor, was required to drive his employer-owned motor vehicle in the course of pursuing his income-producing activities. For that purpose he held at all material times a car driver's licence (obtained at his own expense) for which he had qualified some 32 years earlier. He drove constantly throughout his home State in his employment. He has not ever been convicted for any traffic offence.
3. While he was driving on his firm's business, he was booked and later charged with a driving offence. The taxpayer pleaded not guilty and appeared in Court with his solicitor to defend the charge. The prosecuting policeman did not appear on a second visit to the Court and the case was dismissed. The legal expenses in issue were incurred in defending the charges. The taxpayer's firm declined to pay the expenses or to reimburse him in respect of them.
4. The taxpayer's decision not to pay an ``on-the-spot'' fine and to defend the charge was a personal one. His decision was prompted by his desire to protect his unblemished driving record and to ensure that his licence was not threatened by the operation of the points demerit system under the traffic code. If the taxpayer had accepted and paid the ``on-the-spot'' fine, or if the charge had led to a conviction by the Court, his licence would not have been put in immediate jeopardy. However, he would have sustained two demerit points and would therefore have been exposed to a potentially greater risk of losing his licence by sustaining the required nine demerit points within a three year period. The taxpayer considered that the loss of his licence could lead to the loss of his job and of his income.
5. In his submissions that his claims should be allowed, the taxpayer relied upon the fact that he was driving a company car on company business when the alleged offence took place and upon the propositions that, in consequence, the expenses could only be ``... outgoings... incurred in gaining or producing'' his assessable income and that they could not therefore be outgoings ``... of a... private... nature...'' (sec. 51(1)). It also emerged from his submissions that he
ATC 254regarded himself as being the innocent victim of both the prosecuting policeman's actions and of the existing legal system and that therefore his taxation claims should be allowed in the interests of justice or equity.
6. It is well established that neither the Courts nor a Board of Review nor the Commissioner of Taxation can merely apply concepts of justice or so-called equitable constructions of the Income Tax Assessment Act for the purposes of reaching decisions in tax cases coming before them. We are bound therefore, subject to applying relevant principles which have emerged from decisions of the Courts, to adhere strictly to the words of the statute in arriving at our decision in the instant case which must also be based upon its particular facts. On the authorities therefore, we are not able to accept the taxpayer's invitation to have regard merely to concepts of justice or of equity in arriving at our decision.
7. On the evidence it is clear that the taxpayer's driver's licence, untarnished by breaches of the traffic code and kept current by his payment of the requisite periodic fees, provided him with the legal right to drive his car for both private and business purposes. He drove his car for both purposes. The right to drive attached to him personally because of the licence that he held. The right to drive for his employer did not originate in the grant to him of the licence; its origin was in his contract of employment that was entered into subsequently. The holding of a licence was a necessary prerequisite to his obtaining and maintaining that employment. The legal expenses directly concerned an alleged offence and were only indirectly concerned with his employment through the right under the licence to drive on business if he was required to do so. Those expenses were not directly related to his income-producing activities that were authorised by his contract of employment. The connection between the expenses and those activities was, to use the words of Menzies J. at p. 4186 in
F.C. of T. v. Hatchett 71 ATC 4184, ``problematical and remote'', and was not sufficiently proximate to characterise the expenses as being deductible.
8. On the evidence before us (in particular that which suggests that the police action to charge him was unwarranted), the expenses could not in our opinion be allowed on the basis that they concerned the kind of mischance, misfortune or casualty that is a natural or recognised incident of the taxpayer's occupation (see
Charles Moore & Co. (W.A.) Pty. Ltd. v. F.C. of T. (1956) 95 C.L.R. 344). Further, the expenses were not an ``essential prerequisite to the derivation of assessable income'' in the same way that the holding of a licence was or in the sense explained by the High Court in
Lodge v. F.C. of T. 72 ATC 4174. In that case the Court, in following its decision in
Lunney v. F.C. of T. (1958) 100 C.L.R. 478, disallowed expenditure as a deduction on the basis that (notwithstanding that it was an essential prerequisite) it was not ``incidental and relevant to the derivation of income'' so as to satisfy the criteria for deductibility under sec. 51(1) that were established by the Court in its earlier decision in
Ronpibon Tin N.L. and Tongkah Compound N.L. v. F.C. of T. (1949) 78 C.L.R. 47.
9. We should add that, in our opinion, the expenses in issue could not fall for deduction under the second limb of sec. 51(1) and that they were not of a capital or domestic nature. However, in applying the ``essential character'' test (see the cases of Lunney (supra) and
Handley v. F.C. of T. 81 ATC 4165), we are of the opinion that the expenses were essentially of a private nature, and therefore not deductible, in that they were primarily concerned to protect the taxpayer's right to drive a car (whether on business or for private purposes is not here relevant) and to preserve his unblemished driving record of many years standing. We see the taxpayer's concern to avoid any threat to his income-producing activities (while of great importance to him) as being of secondary importance to that basic concern. In arriving at our conclusion as to the nature of the expenditure, we have, with respect, been assisted by the following analysis which was made by Messrs. W.M. Owen (Chairman) and A.P. Webb (Member) (both formerly of this Board) at p. 216 in Case F37
(1955) 6 T.B.R.D. 214:
``The words `private or domestic' appearing in sec. 51 we take to be used in their ordinary natural signification and not in any technical sense. Without attempting an exhaustive definition of either variety of expenditure, losses or
ATC 255outgoings of a private nature we take to mean here losses or outgoings relating solely to the person incurring them as an individual member of society where that society is the society of human beings, e.g. travelling expenses incurred by a person to and from his place of employment (see particularly Case Q74
(1965) 15 T.B.R.D. 346). Losses or outgoings of a domestic nature we take to mean here losses or outgoings which relate solely to the house, home or family organisation, of the person incurring them, e.g. expenses paid by a person to a domestic to enable the former to carry on his or her own employment (Case M20
(1961) 12 T.B.R.D. 130).''
10. For the above reasons, we would uphold the Commissioner's decision on the objection and confirm the assessment in issue.