KP Brady Ch
LC Voumard M
JE Stewart M
No. 2 Board of Review
K.P. Brady (Chairman); L.C. Voumard and J.E. Stewart (Members)
In these references, which concern the years of income ended 30th June, 1977, and 30th June, 1978, the taxpayer was employed in the Australian Taxation Office in the capital city of A. He also conducted a business in partnership with his wife on a property of approximately eight hectares, or 20 acres, at B, situated some 25 miles from A. He and his wife and their four children lived on the property.
2. The business in part comprised the breeding of pedigree goats, also coloured sheep for the production of wool for spinning. The spinning operation was conducted by the taxpayer's wife in the family home and the wool was either sold in that form or was made by her into garments for sale. Additionally, the partnership maintained poultry for breeding, and produced home-made cakes, biscuits and jams which were sold at a local market. The Commissioner conceded that a business was conducted by the partnership on the property.
3. The matter in dispute is the taxpayer's claim for expenses incurred in travelling daily between the property and the Taxation Office where he worked. The Commissioner has disputed the validity of the claim on the basis that the outgoings were not incurred in deriving the taxpayer's assessable income and were of a private nature, and the matter has come before this Board for review.
4. At the hearing the taxpayer appeared in person and gave evidence. He was not represented. The Commissioner was represented by one of his officers.
5. The subject matter of the dispute embraced two components: a proportionate amount of car expenses incurred in travelling from the taxpayer's property to an adjoining railway station and return, and train fares to and from the city. For the two years in issue, the items were:
1977 1978 $ $ Proportionate amount of car expenses 520 1,032 Train fares 226 347 ---- ------ $746 $1,379 ---- ------
The car expenses included normal running costs and repairs, and a claim for depreciation. The quantum was not contested by the Commissioner's representative.
6. The taxpayer claimed the above amounts under sec. 51(1) and 54 of the Assessment Act as outlays incurred in deriving his assessable income. More particularly, he stated that expenses incurred in travelling between two places of work have been held by Boards of Review to be specifically allowable. In support of that contention, he cited Case B9,
70 ATC 42, and Case B81,
70 ATC 374.
7. Putting to one side for the moment the taxpayer's claim for depreciation, which can be considered to be a peripheral matter, it is necessary for us to examine the words of sec. 51(1). That section, so far as it is relevant, provides as follows:
``All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such income, shall be allowable deductions except to the extent to which they are losses or outgoings of capital, or of a capital, private or domestic nature...''
It has been stated by the High Court that there are two criteria of deductibility described in the positive terms of the above provision (see
F.C. of T. v. Forsyth 81 ATC 4157 at p. 4161). These are commonly called the two limbs of the provision, viz.:
- • all losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income, and
- • all losses and outgoings necessarily incurred in carrying on a business for the purpose of gaining or producing such income.
The word ``business'' has a wider meaning than used in normal parlance, sec. 6 of the Act providing that:
```business' includes any profession, trade, employment, vocation, or calling, but does not include occupation as an employee;...''
In view of that extended meaning, it has been said that the second limb is intended to offer professional and other taxpayers not carrying on a business in its ordinary sense a benefit which would not otherwise be obtainable (see Hannan's Principles of Income Taxation, p. 291).
8. In the instant case, to the extent that the taxpayer allegedly incurred travelling expenses in earning his salary income as an officer of the Taxation Office, the first limb would seem to be the more relevant; on the other hand, to the extent that he allegedly incurred travelling expenses in carrying on a business on his property, the second limb would appear to be more material. However, in the case of
Ronpibon Tin N.L. v. F.C. of T. (1949) 78 C.L.R. 47 at pp. 56 and 57, it was stated by the High Court that the actual working of the second limb is little different to the first limb. In any event, we do not believe that in the circumstances which now face us the distinction has any real substance.
9. In the Ronpibon Tin case, the Court stated that for expenditure to form an allowable deduction as an outgoing incurred in gaining or producing assessable income it must be incidental and relevant to that end. The Court went on to reiterate what had been said in
Amalgamated Zinc (De Bavay's) Ltd. v. F.C. of T. (1935) 54 C.L.R. 295 at p. 303 that the words ``incurred in gaining or producing the assessable income'' mean in the course of gaining or producing such income.
10. Can it be said of the instant case that the expenses incurred by the taxpayer in driving from his property of a morning to the neighbouring railway station, and from there catching a train to the city and returning to the property in the evening, were incurred in the course of gaining his salary or partnership income?
11. The issue touches upon a large number of taxpayers and, because people have been travelling to work in ever-increasing numbers ever since the steam locomotive took over from the horse-drawn buggy, the matter of deductibility of travelling expenses has exercised the attention of the Courts on a significant number of occasions over a considerable span of years.
12. Nearly a hundred years ago, in the case of
Cook v. Knott (1887) 2 T.C. 246, Pollock B. and Hawkins J., sitting as Judges in the Queen's Bench Division, had cause to examine whether expenses incurred by a solicitor in travelling from his home to perform legal duties in a neighbouring town were deductible. The Court there held that no deduction was available to the taxpayer as he incurred the expenses not in the performance of his duties but because he chose to live where he did.
13. The same basic reasoning was applied by the House of Lords in
Ricketts v. Colquhoun (1926) A.C. 1, and by the Court of Appeal in
Newsom v. Robertson (1953) 1 Ch. 7.
14. Whilst the legislative provisions under which the above cases were decided are not identical with sec. 51 of the Australian Income Tax Assessment Act, it came to be accepted in this country that the cost of travelling between home and work was not a deductible outgoing. It was not until 1958 when the case of
Lunney & Hayley v. F.C. of T. was decided (ref. (1958) 100 C.L.R. 478 that judicial authority of the High Court on the issue was available. In that case, the High Court by a majority of four to one rejected any question of the deductibility of the cost of travelling between a taxpayer's residence and the place of his employment. In a joint judgment, Kitto, Williams and Taylor JJ. stated that sec. 51 of the Assessment Act provided for deductibility of outgoings of a ``business'' character only. They categorised the expenditure of travelling between home and work ``as a personal or living expense'' because it was incurred as ``a necessary
ATC 33consequence of living in one place, and working in another'' (see p. 501). They also stated that merely because an expenditure could be regarded as a prerequisite to the earning of income, it did not follow that for the purposes of sec. 51 it was incurred in gaining or producing that income.
15. The taxpayer in the hearing before us argued that his home was essentially a place of business and only in an ancillary way was it his residence and that of his family. Stemming from that proposition, he contended that the decision in Lunney's case was not relevant to his situation because he did not so much leave his home of a morning to travel to his place of employment as leave a place of business. Was that in fact so, and even if it were, is it a valid argument?
16. It was of course possible for a cottage-type industry to be carried on at the property by a partnership comprising the taxpayer and his wife without the taxpayer being directly engaged in that business. However, he stated in his evidence that he worked on the property ``from a minimum of 20 hours per week during the winter months to approximately 35 hours per week in summer when we have daylight'', and that his tasks included purchasing and managing the livestock comprising some ten sheep and five goats, maintaining the equipment, fences and sheds, packaging and transporting the goods for sale, and preparing all accounts of the business. We therefore consider that not only was a business conducted on the property but the taxpayer was involved substantially in carrying on that business. We therefore find as a fact that the taxpayer did leave a place of business when he set out each day to travel to his place of employment. We now turn to examine the legal issues that stem from that conclusion.
17. One of the leading cases requiring examination is that of Pook v. Owen (1970) A.C. 244. The following facts were either proved or admitted in evidence. The taxpayer, Dr. Owen, was in practice as a general medical practitioner working at his residence at Fishguard, a town in Wales. Additionally he held a part-time appointment at a hospital at Haverfordwest situated some 15 miles from his home. Under the terms of his appointment he was involved in emergency cases only and was on stand-by at, prescribed times. During those times he was required to be accessible by telephone. On receipt of a telephone call from the hospital he would give instructions for treatment of the patient, for example, to prepare him or her for an operation. Usually he then set out immediately for the hospital by car. Sometimes he advised treatment by telephone and then awaited a further report. Not every telephone call resulted in a visit to the hospital. Sometimes the telephone call was received when he was out on his medical rounds and not thus necessarily at his house. His responsibility for a patient began as soon as he received a telephone call.
18. Under the terms of his appointment, the taxpayer received from the hospital part of his expenses incurred in travelling between his home and it, and he claimed the balance as wholly and necessarily incurred in the duties of his office. The basis of his claim was that his duties commenced when he received a telephone call from the hospital, and that the journeys to and from the hospital were wholly and necessarily undertaken in the performance of his duties.
19. The Crown contended that the taxpayer's place of employment was the hospital at Haverfordwest, and that in travelling to and from the hospital the taxpayer was not performing the duties of his office; he was simply travelling to his work.
20. The case ultimately went on appeal to the House of Lords which by a majority reversed the decision of the Court of Appeal and found for the taxpayer. Lord Guest, as one of the majority, was able to distinguish Dr. Owen's fact situation from that which appertained in Ricketts v. Colquhoun (supra), which was the main authority relied upon by the Crown. He stated at p. 256:
``In Ricketts v. Colquhoun there was only one place of employment, Portsmouth. It was not suggested that any duties were performed in London. In the present case there is a finding of fact that Dr. Owen's duties commenced at the moment he was first contacted by the hospital authorities. This is further emphasised by the finding that his responsibility for a patient began as soon as he received a telephone call, and that he sometimes advised treatment by telephone. It is noteworthy that under
ATC 34section 19(b)(3)(iv) of his terms and conditions of service, the hospital is referred to `where his principal duties lie'. There were thus two places where his duty is performed, the hospital and his telephone in his consulting room. If he was performing his duties at both places, then it is difficult to see why, on the journey between the two places, he was not equally performing his duties.''
Lord Wilberforce, in concurring with those views, said at p. 262:
``Given that the appointment related to emergency cases, it was of the essence of his (the taxpayer's) duties that he should give immediate and correct advice the moment he was contacted and that he should form a decision whether to set-off at once, to wait for further information or to take no further action. In the event of his deciding to go at once to the hospital, I cannot appreciate why he was not thereafter travelling on the duty of his office; he was travelling not to his work but on his work''
21. Some five years later, the House of Lords again had cause to examine the question of deductibility of travelling expenses in the case of
Taylor v. Provan (1975) A.C. 194. In that case the taxpayer was a Canadian citizen residing in Canada. He was a specialist in arranging takeovers and mergers of companies engaged in the brewing industry. For the years of income in question, 1961-2 to 1965-6, he was a director of a number of English brewery companies having the special function of expanding the group by effecting mergers and amalgamations. He was not paid for his work, but was reimbursed for his air fares incurred in travelling between Canada and the United Kingdom. He performed the greater part of his duties in Canada, but the nature of his work required him to visit breweries in the United Kingdom. The revenue authorities were not satisfied that the taxpayer's office in Canada should be regarded as a place of work for the purpose of carrying out his special tasks. Accordingly, they concluded that the travelling expenses in question arose not from the nature of the taxpayer's office but from circumstances personal to himself. On appeal by the taxpayer, the court of first instance held that, although the taxpayer could have carried out his special assignments exclusively in the United Kingdom, his contract of employment expressly contemplated his having two places of work, and for that reason held that the travelling expenses were deductible.
22. That decision was reversed by the Court of Appeal, and in its turn the Appeal Court's decision was reversed by a three to two majority in the House of Lords, Lords Reid, Morris of Borth-y-Gest and Salmond finding that the taxpayer was necessarily obliged through the very nature of his employment to travel between Canada and the United Kingdom, and incur the expenses claimed as deductible. The Court analysed the decision of Ricketts v. Colquhoun and Pook v. Owen with Lord Reid summarising the ratio decidendi of each of those cases in the following terms (see p. 208):
``Ricketts decided that if the place where a man resides is his personal choice, he cannot claim with regard to expenses made necessary by that personal choice. If the holder of an office or employment has to do part of his work at home, the place where he resides is generally still his personal choice. If he could do his work equally well wherever he lived then I do not see how the mere fact that his home is also a place of work could justify a departure from the Ricketts' ratio.
I do not find it easy to discover the ratio decidendi of Pook's case. But that does not diminish the authority of the decision. I am sure that the majority did not intend to decide that in all cases where the taxpayer's contract requires him to work at home he is entitled to deduct travelling expenses between his home and his other place of work. Plainly that would open the door widely for evasion of the rule. There must be something more.
I think that the distinguishing fact in Pook's case was that there was a part-time employment and that it was impossible for the employer to fill the post otherwise than by appointing a man with commitments which he would not give up. It was therefore necessary that whoever was appointed should incur travelling expenses...
I do not think that there was any departure from the ratio in Ricketts' case in deciding in favour of Dr. Owen. He contracted on the basis that he would continue to live at Fishguard and be paid expenses of travelling. He would not have contracted on any other basis. And it was impossible to find an appointee who was free to avoid incurring travelling expenses. I find nothing in Ricketts' which necessarily excludes such a case.
Turning then to the present case, I think that it is covered by Pook's case. It was not enough that the appellant contracted to do most of his work in Canada and would not have taken the employment otherwise. It was impossible for the companies which contracted with him to get the work done by anyone else. That I regard as the essential feature. That made it necessary that these travelling expenses should be incurred, and that is what is required to satisfy the rule.''
23. It is an interesting sidelight of Taylor v. Provan that it was only Lord Wilberforce of the Law Lords who sat both on that case and Pook v. Owen. Furthermore, in Pook v. Owen he was one of the majority who decided in favour of the taxpayer, but was one of the minority who decided against the taxpayer in Taylor v. Provan. However, since the decisions in both cases turned not upon principle but upon the proper inference to be drawn from the facts adduced in evidence, the following excerpt from his judgment at p. 215 is of persuasive authority:
``To do any job, it is necessary to get there: but it is settled law that expenses of travelling to work cannot be deducted against the emoluments of the employment. It is only if the job requires a man to travel that his expenses of that travel can be deducted, i.e. if he is travelling on his work, as distinct from travelling to his work. The most obvious category of jobs of this kind is that of itinerant jobs such as a commercial traveller. It is as a variant upon this that the concept of two places has been introduced: if a man has to travel from one place of work to another place of work he may deduct the travelling expenses of this travel, because he is travelling on his work, but not those of travelling from either place of work to his home or vice versa. But for this doctrine to apply, he must be requested by the nature of the job itself to do the work of the job in two places; the mere fact that he may choose to do part of it in a place separate from that where the job is objectively located is not enough''
24. In the case of
F.C. of T. v. Collings 76 ATC 4254, which, some 18 months after Taylor v. Provan was decided, came before the Supreme Court of New South Wales on appeal from a decision of the No. 3 Board of Review as then constituted, Rath J. carefully analysed the decisions in Pook v. Owen and Taylor v. Provan, as well as the leading cases as to the deductibility of travelling expenses decided prior to those two cases.
25. In Collings' case the taxpayer was a computer consultant whose employment required her to be on call 24 hours per day as regards the computer services which her employer company provided for its customers. It was usual for her to receive telephone calls, and give telephone advice to the office staff at any time of the day or night. If she could not resolve the problem over the telephone she would return to the office using her own car from wherever she happened to be in order to get the computer working. In her return of income for the year of income in question, she claimed a proportionate deduction for telephone costs, also for a portion of those car expenses which related solely to travel between home and work outside her normal daily journeys. The Board allowed both claims in principle, although it saw fit to vary the amounts of the claims.
26. Upon appeal, Rath J. made it clear that the taxpayer's claim for deduction of car expenses related only to that travel which was made outside her normal working hours. Because she was on call 24 hours a day seven day a week, he found that it was necessary for her incur travelling expenses. Thus the travel was made necessary by the very nature of her employment, and of her duties. Accordingly, he found that her situation was akin to that which appertained in Taylor v. Provan. Furthermore, he found that unless she were to spend all her time in the office with the computer she had to have more than
ATC 36one place of work, and that the consequential two places of work (her home and her office) were a necessary obligation placed upon her arising from the nature of her special duties. He therefore found that her travel expenses were properly deductible under sec. 51 as outgoings incurred in gaining her assessable income, and that those outgoings were not of a private or domestic nature.
27. Turning now to the present hearing, we ask ourselves: was the expense outlaid by the taxpayer incurred in the course of earning his assessable income? Our finding is that it was not. An examination of the cases where the taxpayers were successful in obtaining deduction for their travel expenses reveals that the travel was made necessary by the very nature of the employment. Because of the special nature of the taxpayers' duties, it could be said that they were travelling on their employment instead of to their employment. The outgoings were thus incurred in gaining or producing assessable income.
28. In Collings' case, Rath J. highlighted the special nature of the taxpayer's situation where he said at p. 4,262:
``I am not concerned with those normal daily journeys that have their sole relation to a person's choice of his place of residence; I am concerned with journeys which begin as a result of performance of the duties of the employment at the taxpayer's home. The journey from home to the office is undertaken not to commence duty, but to complete an aspect of the employment already under way before the journey commences.''
29. The travel undertaken by the taxpayer in the instant case was not made necessary by the nature of his employment. When he left his property to travel to A each day he was simply travelling to work; he was not travelling in the course of his duties. Likewise when he travelled to his home of an evening, he was not travelling on work even though the probabilities were that he would work on partnership business once he arrived home. In his situation, the two income producing activities, viz. his employment at the Taxation Office and his involvement in the family partnership, were discrete; the taxpayer at no time contended that his work at his home in the evening represented a continuation of his work performed during the day. That aspect of his situation is in marked contrast to the situation which appertained in Pook v. Owen, Taylor v. Provan and Collings' case where the activity inducing the travel was an integral part of the one employment.
30. It seems to us that the taxpayer has misinterpreted judicial dicta enunciated in both Collings' case and Taylor v. Provan, to the effect that if a taxpayer has several places of work, travelling between them constitutes travelling on his work even in the event of one of such places being also his residence. That statement must be read within the context of the factual circumstances where it was made, for it is worth repeating that the terms of the employment of both Miss Collings and Mr. Taylor were special to them. Both taxpayers obtained deduction not because they were travelling between two places of work but because they were travelling on their work. Travelling between two places of work was not regarded by the respective Courts as grounds per se for deduction.
31. Accordingly, the fact that the taxpayer in the instant case derived income at the place where he happened to live does not take his situation outside the principle laid down by Lunney and Hayley. Paraphrasing what Dixon C.J. said in that case, the taxpayers' travel expenses were simply those of ordinary people outlaid to enable them to go day by day to their regular places of employment and to return to their homes.
32. In support of his arguments, the taxpayer cited to us a number of authorities and for clarification on the central issue, it seems appropriate to refer to them. In particular, the taxpayer placed considerable reliance on
Green v. F.C. of T. (1950) 9 A.T.D. 142. That case came before the High Court in 1950 following upon appeal by the Commissioner from the decision of Philp J. in the Supreme Court of Queensland. In that case the taxpayer lived in Brisbane and conducted an office at his home where he employed his daughter to work for him as his secretary and clerk. He included as assessable income in his return for the year ended 30th June, 1945, directors' fees paid to him by seven companies, rents from five shops at
ATC 37Cairns and Townsville, dividends from two companies, interest from mortgages and a payment received by him in recognition of services performed by him in helping to supervise a druggist's business while the owner was absent during the war. The income from the shop rentals was £1,850. He claimed a number of deductions against the above total income, but of sole relevance to the argument of the taxpayer in the present case was a claim of £15.15.6 for ``fair proportion only of travelling to Townsville and Cairns attending to my property interests there''.
33. The High Court agreed with the finding of Philp J. that it was reasonably necessary to inspect and supervise the rental-producing properties and held that the expenditure which was considered ``as barely enough to cover the railway fares'', was deductible under sec. 51.
34. We are of the view, however, that the fact situation of Green's case was dissimilar in material aspects to the taxpayer's situation and thus we do not regard it as helpful to him.
35. The taxpayer also referred us to
F.C. of T. v. Vogt 75 ATC 4073,
F.C. of T. v. Ballesty 77 ATC 4181 and
F.C. of T. v. Wiener 78 ATC 4006. We are not prepared to accept the taxpayer's view that those cases expanded the principles for deductibility of travelling expenses; rather we see them as having been decided very much on their own facts and therefore not of assistance to him.
36. As previously mentioned, the taxpayer also referred us to Case B9,
70 ATC 42 and Case B81,
70 ATC 374, where travelling expenses were allowed as deductions under sec. 51 by the No. 3 Board as then constituted. Since the time when those cases were decided, however, there has been a number of Board decisions voicing disapproval of the earlier decisions and a disinclination to follow them - refer Case F43,
74 ATC 245 at p. 248, Case N35,
81 ATC 186 at p. 187 and Case N44,
81 ATC 216 at p. 217. We can only take our stance with those latter references.
37. For the reasons mentioned, we consider that the taxpayer's claims for deduction of his vehicle's running costs in travelling from his home to work and return, and for deduction of the train fares are not deductible under sec. 51(1) or sec. 53 of the Act. For the same reasons, we consider that depreciation on the car is not deductible under sec. 54. Accordingly, we would confirm the assessments for the two years in issue.
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