Frankcom v. Federal Commissioner of Taxation.

Kaye J

Supreme Court of Victoria

Judgment date: Judgment handed down 25 November 1982.

Kaye J.

The respondent, the Commissioner of Taxation, when making an assessment of tax relating to the income derived by the appellant for the year ended 30th June, 1980 disallowed three items of expenditure claimed by him as deductions. Subsequently, the respondent disallowed the appellant's objection to the assessment. This appeal against the decision of the respondent came before the Court at the request of the appellant under sec. 179 of the Income Tax Assessment Act 1936.

The appellant was admitted to practice as a barrister of the Supreme Court of Queensland on 13th April, 1965. He is a Stipendiary Magistrate for the State of Queensland, having been appointed on 1st October, 1973. During the 1980 year of income, he was assigned to sit in the Brisbane Central Court at North Quay, to which he travelled from his home at Mt. Cotton, some 30 to 35 kilometres distant.

In his income tax return the appellant claimed under Sch. 33 a deduction of $2,443 as expenditure incurred in earning income. By an attachment to the return, he provided the following particulars of the four items claimed:

      Allowance as Judicial Officer
      (5%) - as agreed between the
      Chief Justice of Australia and the
      Commissioner of Taxation                    1,653
      Expenses for Australian
      Magistrates' Conference at
      Melbourne - 13th to 16th June,
      1980 - accommodation and meals
      ($162.70); travelling expenses
      ($315.40)                                     478
      Dry-cleaning of Court attire                   72
      Entertainment calculated at $5 per
      week for 48 weeks                             240''

The respondent disallowed the claims made by the appellant, save for the sum of $478 incurred attending the Australian Magistrates' Conference. The appellant, in his Notice of Objection against assessment, claimed reduction of the assessment by allowance as a deduction from his assessable income of the amount of $1,653 as a judicial allowance, being an amount equal to 5 per cent of his gross salary. He did so on twelve enumerated grounds, although on the hearing of the appeal Mr. Beaumont, counsel for the appellant, relied upon a general ground that the claim should have been allowed unvouched in the same fashion as allowed for Judges and other Magistrates at the figure of five per cent of gross salary. An alternative ground identified eight ``areas of expenditure justifying allowance'' of his claim.

In delivering reasons for setting aside a subpoena duces tecum ad test. served upon the respondent, I referred to a letter dated 17th November, 1981 written by Mr. G. Thompson, a barrister of Brisbane, who described himself as ``acting for 63 Magistrates in Queensland in connection with their application to obtain the judicial allowance of five per cent of their gross income unvouched as a round figure deduction''. The letter, marked ``private and confidential'', was addressed to the respondent. Because the appellant's claim is based on the alleged existence of a judicial allowance, it is necessary to refer to the contents of Mr. Thompson's letter. Mr. Thompson stated:

``This allowance, as you will recall, resulted from an agreement between the Commissioner and the Chief Justice of Australia some years ago.

It is our understanding that this concession is granted to High Court Judges, Supreme Court Judges, and District Court Judges, in their capacity as judicial officers.

It is thought that there could be no doubt that Magistrates answer the description of judicial officers. Accordingly my clients regard as an anomaly the present position whereby they do not obtain this special allowance in accordance with the abovementioned agreement.

It is known also that some Judges receive a special allowance in addition to the judicial allowance now sought by my clients. Again you will be aware that some officers of other Tribunals obtain a special allowance.''

In a letter dated 16 February, 1982 the respondent, referring to the suggestion that Magistrates in Queensland should be allowed a similar deduction for incidental expenses as allowed to Judges by unvouched deductions

ATC 4602

of five per cent of their remuneration, advised Mr. Thompson:

``Following the receipt of your letter I arranged for a review to be undertaken of income tax returns lodged by magistrates throughout Australia. Apart from isolated instances the average level of expenditure claimed by magistrates in States other than Queensland and South Australia was to the order of 2% of their remuneration. In these circumstances it will be apparent to you that I would not be justified in acceding to your suggestion.

The practice that applies to judges dates back to 1970. It arose out of the concern of the then Commissioner, Sir Edward Cain, at the disparity which existed and which seemed to be growing in the deductions allowed to the various State judges for unvouched expenses. The problem had its origins to a large extent in the different levels of remuneration prevailing not only in the various States but also in jurisdictions within States and in the fact that not all of the governments specifically remunerated their Judges for incidental expenses. Judges themselves had difficulty in reconciling various amounts allowed as deductions. In the result Sir Edward Cain concluded that it would be appropriate to allow to judges an unvouched deduction for incidental expenses to the extent of the greater of any allowances received or 5% of their remuneration.''

The only evidence of a judicial allowance was the description of a practice applying to Judges which the respondent made in his letter. More particularly, there was no evidence before the Court of an agreement concerning such an allowance made between the Chief Justice of the High Court and the Commissioner of Taxation, notwithstanding assertions to the contrary contained in the letter dated 5th February, 1982 by the President of the Stipendiary Magistrates' Association, Queensland, to the respondent.

The taxable income of a taxpayer is the amount remaining after deducting all allowable deductions from his assessable income (sec. 6(1) of the Act). By sec. 51(1) it is provided, in so far as relevant for the present appeal:

``All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable 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...''

The case advanced on behalf of the appellant was that the practice applied to Judges of deducting five per cent of gross income as an allowable deduction, unsupported by vouchers of expenditure, ought to be applied to Magistrates. It was accepted by Mr. Beaumont that the judicial allowance is deductible only under sec. 51. Counsel submitted that the practice of allowing unvouched deductions ought to be extended by the respondent to Magistrates by reason of the fact that they, like Judges, are judicial officers. It was further said that Magistrates and Judges perform the same duties and therefore there is no justification for excluding the appellant and other Magistrates from the benefit of a judicial allowance.

Whether the respondent was required as a matter of law, however, to allow the appellant's claim for unvouched expenditures depends upon the nature of the so-called judicial allowance. By sec. 8 the Commissioner is charged with the general administration of the Act. For that purpose he is enabled to do what is necessary to give effect to the provisions of the Act. Thus for administrative purposes it may be expedient for the Commissioner as well as for a taxpayer that particular forms of expenditure incurred by the latter in gaining his assessable income should be allowed without supporting documentary verification. This may occur in cases where taxpayers deriving income from the same vocation, trade or profession are likely to incur similar expenses which are recognised as common to their vocation, trade or profession, but which are not conveniently capable of confirmation by records or documents. In respect of those items of expenses or outgoings the Commissioner may adopt a policy or a practice. From the contents of the respondent's letter of 16th February, 1982 to Mr. Thompson, it is clear that the course followed by Sir Edward Cain to which the respondent referred was an administrative act.

ATC 4603

The Commissioner's decision whether to extend a practice concerning outgoings or expenses incurred in gaining assessable income to particular groups of taxpayers is one which is, therefore, an administrative one. That administrative policy or practice, however, has no force of law. A taxpayer is not entitled as a matter of law to be brought within the practice if the Commissioner has denied to him the benefits or advantages of it. The taxpayer's right to allowance of expenditure as a deduction is derived from sec. 51(1). Furthermore, the practice followed by the Commissioner in respect of other taxpayers, being merely the result of a policy decision, does not operate as an estoppel against the operation of the statutory provision from which the right to an allowable deduction is derived: cf.
Maritime Electric Company Ltd. v. General Dairies Ltd. (1937) A.C. 610 at p. 620;
F.C. of T. v. Executor Trustee & Agency Company of South Australia Ltd. (1938) 63 C.L.R. 132 at pp. 133 and 135; and
F.C. of T. v. Wade (1951) 84 C.L.R. 105 at p. 117.

For these reasons the appellant's claim to be allowed a deduction by way of a judicial allowance cannot be sustained.

In the alternative, the appellant claimed as deductions several items of expenditure which arose out of or were consequential to his office as a Magistrate. Those expenses, falling under eight headings, would not have been incurred by him if he were not a Magistrate.

It is often a question of fact whether a particular expenditure was one which was incurred in gaining or producing assessable income. The criteria to be applied when deciding whether an expenditure falls within the section have been described authoritatively in various ways. Underlying the several descriptions is the requirement that there must be a close nexus between the expenditure claimed and the activity of gaining or producing assessable income. This was described by Menzies J. in
F.C. of T. v. Hatchett 71 ATC 4184 at p. 4187; (1971) 125 C.L.R. 494 at p. 499 as a ``perceived connection''. The requirement for a close connection between the expenditure claimed and the activity of gaining or producing assessable income emerges from the following passages in the judgment of the Court in
Ronpibon Tin N.L. and Tongkah Compound N.L. v. F.C. of T. (1949) 78 C.L.R. 47 at pp. 56, 57 and 58:

``For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. The words `incurred in gaining or producing assessable income' mean in the course of gaining or producing such income.''

At p. 57 their Honours continued:

``In brief, to come within the initial part of the subsection it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income or, if none be produced, would be expected to produce assessable income.''

Again at p. 58, referring to the particular expenditure under consideration, their Honours said:

``The question is how far was it incurred in the course of, how far was it incidental and relevant to, gaining or producing the assessable income.''

See also
F.C. of T. v. Finn (1961) 106 C.L.R. 60 at pp. 66-68 per Dixon C.J.

The character of expenditure indicates the purpose for which it was incurred. Its essential character will reveal either whether the expenditure was incurred as a precondition or prerequisite to gaining assessable income, or whether it was relevant and incidental to the activities from which assessable income was gained. It is necessary to distinguish between the forms of expenditure, because it is only the latter which is an allowable deduction under sec. 51(1);
Lunney v. F.C. of T. (1958) 100 C.L.R. 478 at pp. 498-499 per Williams, Kitto and Taylor JJ.: and
Lodge v. F.C. of T. 72 ATC 4174 at p. 4176; (1972) 128 C.L.R. 171 at pp. 175-176 per Mason J.

It follows that such expenditures as were relevant and material to the discharge of the appellant's duties of his office as a Magistrate were allowable deductions from his assessable income. The onus of proof, on the civil standard, lay upon him. In addition it was necessary for him to prove that the expenditures, although incurred in gaining or

ATC 4604

producing his assessable income, were not losses or gains of capital, or of a capital, private or domestic nature.

I turn now to the several items of claimed expenditure and for this purpose I follow the headings under which the same were set out by the appellant in his Notice of Objection.

(a) Official functions, receptions and dinners not of a private nature

The appellant claimed that, by reason of his office as a Magistrate, he was required by invitation to attend several official functions, and that there were certain expenses associated with his attendances. Understandably he was unable to produce documents supporting proof of payments of those expenditures. However, the respondent did not challenge the appellant's verification of having incurred the expenses and the amounts claimed.

At the invitation of the Bar Association of Queensland and the Queensland Law Society, and at the request of the Under-Secretary for Queensland and the Chief Magistrate, the appellant attended an ecumenical religious service to mark the opening of the 1980 law year held in St. John's Cathedral. Accordingly his attendance was associated with the discharge of the duties of his office as a Magistrate. At the conclusion of the service, he made a contribution of $20 towards the Cathedral building fund. Evidence did not establish whether all who attended made a similar contribution or otherwise. I assume that, if he had not made a contribution, he might have experienced some personal embarrassment, and that his contribution was made out of good conscience. Nevertheless, regardless of his laudable motives, he was not obliged by the duties of his office to make a contribution. It was made by him gratuitously and for personal considerations, and therefore it was of a private nature. Falling within the exception, his contribution was not an allowable deduction.

On four further occasions of a social nature the appellant was put to expense as a consequence of his attendances. Because of similarities between them, it is convenient to consider the functions together.

He attended a luncheon given by the Bar Association in honour of Lord Scarman, who addressed the guests. They included Judges, Magistrates and members of the legal profession. Invitation was by subscription of $25 which the appellant paid.

The Bar Association and the Law Society were hosts of a cocktail party given in honour of Judges, Magistrates and their wives. Again, invitation was subject to a subscription of $50 per couple. The appellant and his wife attended and he paid the required subscription. Because of a practice of not driving his motor car after having taken alcoholic drink, the appellant and his wife travelled to and from the place of the reception by taxi, for which he paid $30.

In June and November, 1979 he, accompanied by his wife, attended dinners given by the Queensland Stipendiary Magistrates' Association, paying on each occasion a subscription of $50 for the dinner and $24 for taxi fares.

The total amount expended by the appellant attending those four functions was $253.

It was submitted on behalf of the appellant that, notwithstanding each function was of a social nature, his attendances were by reason of his office as a Magistrate and in fulfilment of his duties as a Magistrate. I was invited to assume - and for these purposes I do assume - that he was expected to attend. Yet such as assumption is not conclusive of the character of the payments. The evidence did not establish that it was part of the duties of the Magistrate, as required by the scope and terms of his appointment, that he should attend gatherings of members of the legal profession and of his brother Magistrates either to honour and to listen to visiting judicial dignitaries or to meet with Judges, other Magistrates and members of the legal profession for social purposes.

It is beyond question that it was by reason of his office as a Magistrate that he was invited to those functions. However, those invitations were extended to the appellant as a courtesy; it was a privilege connected with his judicial office to be the recipient of invitations for social functions of that nature and to attend such functions.

ATC 4605

In the absence of evidence of the objects of the organisation, it is permissible to assume from its name that the Stipendiary Magistrates' Association is concerned to provide, inter alia, facilities for the sharing of common interests of Magistrates. One form of activity by which it does so is biannual dinners. The pleasure of those events was no doubt enhanced by the presence of his wife and of the wives of other Magistrates. Yet it was not suggested that the duties of a Magistrate necessitated membership of the Association, still less his attendance at the dinners. The appellant's attendance was no more than a social benefit, which he enjoyed as a result of his office. Looked at objectively, his appointment did not require him to participate in social activities arranged by fellow Magistrates for his and his wife's enjoyment.

I do not accept that the attendances for which he expended approximately $250 were incidental and relevant to the appellant gaining his salary; moreover, such expenditures were clearly of a private nature.

(b) Conferences and seminars

During the 1980 year of income, the appellant attended two seminars which were concerned with the duties which he was required to perform. The topics discussed at the seminars were the purpose and operation of community service orders and matters relating to family law. His attendance, together with other Magistrates, was at the request of the Attorney-General.

Again, on Friday afternoons, weekly conferences of Magistrates were held, when they were informed of and discussed recent judgments of superior Courts relating to matters within their jurisdiction. Information gained by the appellant as a result of those conferences no doubt assisted him in the performance of his judicial duties.

At the conclusion of each seminar and weekly conference, refreshments and drinks were available for those who attended. The appellant paid his share of the costs of the refreshments which were available at the seminar, and $6 each week for refreshments which were provided after the weekly conferences.

The appellant's attendances at the seminars and weekly conferences were in the course of his duties as a Magistrate and required of him. However, his partaking of refreshments after those professional meetings, although incidental to his attendances, were of a social and private nature. It follows that they were not allowable deductions.

(c) Entertainment

The appellant claimed sums totalling $565 by way of expenses incurred entertaining various persons during the relevant tax year. Of this sum, he expended $40 entertaining interstate and country Magistrates who called at the Brisbane Central Court. He contributed $40 towards a Christmas function when Magistrates entertained District Court Judges. On one occasion, after a dinner given by his Association, he paid $5 for drinks which he purchased for the Chief Judge of the Family Court and the Judge's Associate.

The hospitality extended by the appellant on those occasions was a gracious act of hospitality extended by him to his and his fellow Magistrates' guests. However, the evidence did not provide a proper basis for implying that his duties as a Magistrate necessitated him performing the functions of a host by providing drinks and refreshments in those circumstances. It follows that those expenses were of a private nature.

Each week during the 1980 year of income, the appellant met with other Magistrates, Industrial Commissioners, Crown Law officers and barristers for luncheon and drinks in one of a number of private clubs. On those occasions they discussed matters of law as well as other shared interests.

It is common for persons engaged in the same trade, profession or employment to meet at lunch or outside working hours over drinks. The nature of their work brings them together and perhaps provides opportunity for them to discuss sporting and other mutual interests. Expenses incurred on those occasions relate to the taxpayer's employment only by reason of the circumstance that they have a common employment or means of livelihood. The expense of $10 per week claimed by the appellant arising out of those luncheons with

ATC 4606

his colleagues was of that nature. Therefore, having no relevance to the performance of his duties, it was a purely personal one.

(d) Clothing

The appellant possesses and possessed six suits which he wears and wore only for the purpose of his appearances as a Magistrate sitting in his Court. During each week of the 1980 year of income one of his suits, because of its soiled condition, required to be dry-cleaned for which he paid $4.24. He claimed that the total sum of $204 which he expended during the relevant year for dry-cleaning of his suits was an allowable deduction.

There is nothing about a Magistrate's occupation which requires him to wear outer clothing designed to meet exceptional hazards or circumstances. His suits are conventional clothing, appropriate and available for use both while sitting as a Magistrate as well as on other occasions. It was observed that, when giving evidence before this Court, he presented himself in a lounge suit. It is tempting to reflect that there are other occasions when, notwithstanding the more temperate climatic conditions of the City of Brisbane, he might have need for a lounge suit.

In any event, it was not shown that there was anything peculiar about the appellant's working conditions or duties which caused his suits to become soiled, or which caused his suits to be more susceptible to soiling than those of others involved in sedentary occupations. Whatever form of outer wear he might choose to wear while sitting in his Court, there would be a need to launder or dry-clean it and whether he wears suits or informal garments, the costs of cleaning or laundering is but one of his ordinary daily living expenses. The amounts incurred for dry-cleaning of his suits were therefore an expense of a private nature.

(e) Travelling

In addition to normal sittings of the Court, the appellant was required on six Saturday mornings during the relevant tax year to preside at sittings of the Brisbane Central Court to deal with persons arrested and not admitted to bail.

He lived on a farming property in an area where there is no public transport available for travel to the Court. Consequently he used his own motor vehicle to travel to and from Court on those Saturday mornings.

Twice during the year, on the instructions of the Chief Magistrate, the appellant conducted sittings of the Magistrates' Court at Cleveland. On those occasions he travelled 15 kilometres from his home to Cleveland using his own motor car. The total cost of travel from his home to the Central Court and Cleveland Court and return, calculated at the rate of 15.5c per kilometre, was $79.

It is settled law that expenses of travel between the taxpayer's home and his place of work or business are not allowable deductions under sec. 51(1); Lunney v. F.C. of T. (supra) at p. 478. The rule is based upon the accepted notions that the taxpayer's place of residence is his personal choice, and that while travel to his place of employment is a prerequisite to gaining his assessable income, expenditure of such travel is not incurred in or in the course of gaining or producing his income. The circumstances that the appellant had no other means of reaching the Central Court on Saturday mornings and the Cleveland Court, and that Cleveland Court was not his regular place of employment, do not alter the essential character of the expenses incurred in travelling on those occasions. Travel was then from his place of living to a place of employment for the purposes of performing his duties, and the expenses of such travel were not incurred in the performance of his duties.

Mr. Beaumont pointed out that if the appellant had been required to travel from his usual place of employment, namely the Central Court, to the Cleveland Court, expenses so incurred by him would be allowable and that therefore there was a lack of logic in denying deductibility of such expenses only because the journey took him from his home to the Cleveland Court. However, allowance of travelling expenses from his usual place of employment to Cleveland Court would depend upon whether the proper conclusion on the facts was that those expenses were incurred by reason of or in the pursuance of the expressed or implied terms of his engagement as a Magistrate; cf.
Burton v. F.C. of T. 79 ATC 4318 at p. 4322 per Smith J.

ATC 4607

(f) Home security

The appellant claimed $76 being the total cost of fitting security locks to windows and external lighting to the house which he and his family occupy. He took the course of adding those fittings and appliances because of threats to burn down his home made by an anonymous telephone caller, and because of threats to his own person addressed to him by, it seems, a dissatisfied litigant. Knowledge of shootings within the precincts of this Court and the shooting of a Family Court Judge, which he gained from the media, also moved him to take these measures for the protection of his family and himself.

He is the tenant of the property on which the house stands. The expenditures for the additions to the house were made once and for all, and enured for the benefit and protection of the appellant's place of residence. Those circumstances rendered the expenditure of a capital nature in the economic sense,
John Fairfax & Sons Pty. Ltd. v. F.C. of T. (1959) 101 C.L.R. 30 at pp. 51 to 55 and F.C. of T. v. Hatchett (supra) at ATC p. 4186; C.L.R. p. 497. Being also for the protection of his home and members of his family, the expenditures were of a private or domestic nature. It follows that the expenditures fell within the proviso to sec. 51(1) and therefore the claim under this head was properly disallowed.

(g) Home office

One of the six rooms of the appellant's home is and has been used by him as an office or study. It is furnished with a desk and table. During the 1980 tax year, the appellant brought home from his library in the Law Courts' chambers books from which he made researches of the Law and prepared reserved decisions. This he did in his study at times varying from every evening of a working week to once a fortnight. The study was also available for use, and it was used, by his children for the preparation of their homework. Basically, however, it was used by him for his researches and preparation of his reserved decisions.

For those purposes the appellant used electric power, and he claimed $80 being one-sixth of the total amount of $480 paid by him for electricity supplied to the household for the 1980 tax year. A further claim for one-sixth of the insurance premium, paid for cover for the whole of the house, was abandoned by the appellant in the course of counsels' final addresses.

Apart from binding authority, it is my opinion that expenditures incurred by the appellant for the provision of lighting to the study in his home while used by him for research and preparation of reserved decisions was expenditure incurred in gaining his assessable income. My opinion is based upon acceptance that such expenditure was relevant and material to the discharge of the duties of his office as a Magistrate. Those duties included study of the law at least in so far as applicable to cases for his decision. Although he did not expressly verify the fact, I would infer that some cases required his consideration and determination outside normal Court hours because other duties precluded him from doing so during ordinary working hours. Although he might have prepared his reserved judgments outside Court hours in his chambers in the Court, practical considerations would render it more convenient for him, as well as perhaps for the Court staff, that he should do so in his own home. Notwithstanding the absence of evidence concerning this matter. I would accept that it may well be that if a Magistrate were required to perform all his decisions during normal Court hours, there would be unacceptable delays in the disposal of the Court business. I would conclude that the essential character of the expense of providing lighting for the discharge of those duties in the Magistrate's home study is an outgoing incurred in the manner prescribed by sec. 51(1), and that such expense is not of a private or domestic nature.

On behalf of the appellant it was contended that
F.C. of T. v. Faichney 72 ATC 4245; (1972) 129 C.L.R. 38 is binding authority consistent with this opinion. In that case Mason J. was concerned with, inter alia, payments for lighting and heating of his study made by an employee scientist who, because he could not perform all his work during ordinary working hours, used his study in his home for that purpose. At ATC p. 4250; C.L.R. p. 45 his Honour said:

``It may be acknowledged that expense incurred in the provision of light and

ATC 4608

heating in the taxpayer's home is normally an expense of a private or domestic nature, dissociated from the gaining or production of assessable income. However, to the extent to which the expenditure is incurred in providing light and heating for the taxpayer exclusively whilst he is engaged in work from which he derives income it may be said to be an expense having a business or employment character. By reason of that circumstance it is not an expense of a private or domestic nature. If, however, the light and heating are provided, not exclusively for the taxpayer's benefit whilst he is working, but also for the members of his family, the expenditure continues to have a private or domestic character and to that extent falls within the exception to sec. 51(1).

... It is enough that light and heating was provided in the study whilst the taxpayer was working on matters which fell within the scope of his employment. In that respect the expenditure differs from costs incurred in providing the study, for in that case what is provided retains its essential character as part of the taxpayer's home.''

Mr. Young, counsel for the respondent, submitted firstly that two subsequent High Court decisions, to which I shall shortly refer, render Faichney no longer authoritative, and secondly that Mason J. in Faichney limited the situation in which expenditure for light and heating might fall within sec. 51(1) to one in which the study in his home was used exclusively by the taxpayer. In support of his first submission, Mr. Young contended that, although it was not expressly overruled, the decision in Faichney is inconsistent with the reasons which led the majority of the High Court to the conclusions in
F.C. of T. v. Forsyth 81 ATC 4157; (1981) 55 A.L.J.R. 340 and
Handley v. F.C. of T. 81 ATC 4165; (1981) 55 A.L.J.R. 345 that particular home expenses of barristers in those cases were not allowable deductions. It is necessary therefore to consider the relevant facts relating to each of the appeals.

In Forsyth the taxpayer was a barrister. He and his wife were the trustees of a family trust which owned a house used by them and their children as their home. The taxpayer paid a weekly fee to his wife and himself, as trustees, for his use and occupation of a room together with ancillary space and facilities, which he used as a study in connection with his professional practice. Wilson J., delivering the leading majority judgment with which Mason J. agreed, rejected the contention that payments of the fee were incidental or relevant to the gaining of assessable income. His Honour's reasons for doing so were expressed at ATC pp. 4163-4164; A.L.J.R. p. 344 in the following passage:

``In my opinion, an important question is the relationship of the study and ancillary space to the house as a whole. There would appear to be complete integration, with no suggestion of any physical exclusivity. The study is indistinguishable from other rooms in the private living area of the house, and is so placed to the taxpayer's bedroom that he finds it convenient to keep his clothes in the study and use it as a dressing room. The ancillary space for a desk, where the taxpayer often works, is downstairs at the side of the living room. It would seem to be intimately related, in a physical sense, to the life of the family. These matters are not decisive in themselves. Other features of the arrangement are relevant though, again, not decisive. The taxpayer maintains chambers in the city. There is no compulsion for him to work at home, as was the case with the part time lecturer in
Banks [78 ATC 6001; (1978) 2 N.Z.L.R. 472]. Like many professional people, he finds it convenient to do so. The professional activity he engages in at home is mostly research and reading, presumably not requiring the services of a secretary. Resort to the house by clients and/or solicitors for the purpose of professional conferences is apparently so infrequent as to be immaterial.

As I have said, in the last resort the question is one of fact and degree. Having regard to all the circumstances, I conclude that it is not open on the facts of this case to find that the outgoings in question were incurred in gaining or producing the assessable income, or were necessarily incurred in carrying on the taxpayer's professional business. The home was not

ATC 4609

his business premises. It was not open to be described, with any show of reality, as his base, or one of his bases, of operations, to use the term adopted by the Court of Appeal in
Newsom v. Robertson [(1953) 1 Ch. 7]; cf. Lunney [supra], at p. 500; Horton v. Young, (1972) 1 Ch. 157. The outgoings were therefore neither incidental nor relevant to the gaining of assessable income.''

His Honour continued that if the proper conclusion on the facts were that the fee was an outgoing incurred in the gaining of assessable income, then being of a domestic nature it would be excluded from deductibility by the proviso.

There are two observations to be made concerning Wilson J.'s reasons for judgment in connection with the decision of Mason J. in Faichney. Firstly, it is noteworthy that Wilson J. stated that some of the matters relating to the use made of the study by the taxpayer were not decisive in themselves. The Court was concerned only with payments of a fee for use and occupation of a room which was completely integrated with the entire household. Secondly, that his Honour did not intend it to be understood that he disagreed with the decision in Faichney appears from the following further passage in his judgment at ATC p. 4165; A.L.J.R. p. 344:

``It may be that the opinion that I have expressed could lead me in a proper case to a different conclusion with respect to the cost of lighting and heating to that reached by Mason J. in Faichney [supra]; on the other hand, it may be said at once that there would seem to be a closer connection between such costs and the gaining of assessable income than is the case with the payment of rent in this case. The question must be as to the application of the exception. In any event, the general character of outgoings for lighting and heating was not canvassed before us, and I prefer to say nothing directly about them.''

In Handley the taxpayer, who was also a practising barrister, regularly used as a study for his professional purposes a room of the home jointly owned by him and his wife. He claimed as an allowable deduction a proportion of the expenditures incurred in respect of the entire premises arising out of the payment of interest on a mortgage, municipal and water rates, insurance premiums, cleaning costs and electricity charges. Again the majority of the High Court held that, as the study was an integral part of the whole house, the expenditures were not incurred in gaining assessable income, and that the essential character of the expenditures were of a capital, private or domestic nature. Wilson J. stated that he reached this conclusion for the same reasons stated by him in Forsyth. It is significant that the Court's decision did not extend to the electricity charges and house-cleaning costs which had been allowed by the Commissioner. At ATC p. 4172; A.L.J.R. p. 349, Mason J., after agreeing with the judgment of Wilson J. made the following observation about his decision in Faichney:

``There is no occasion for me here to re-examine that part of the decision in Faichney that resulted in the allowance of expenditure incurred by the taxpayer for light and heating whilst he was working in his study at home. At the time it seemed to me that a distinction, albeit a fine one, could justifiably be made between expenditure incurred in connection with the acquisition of the study as part of the home and expenditure not so incurred, but necessarily incurred in the course of engaging in revenue earning activities which the taxpayer undertook in his study. As I say, that question does not presently arise.''

I, therefore, consider that, in an appropriate case, the cost to a taxpayer of the supply of electricity to a room used in his home for the performance of professional duties or activities which he is unable to carry out in ordinary working hours, may be an outgoing incurred in gaining his assessable income, and it may not be of a capital, private or domestic nature. There is, however, a qualification to this conclusion. In the circumstances where the study is used exclusively by the taxpayer for the purposes of discharging the duties of his appointment, or of his employment, or the conduct of his professional services, no problem arises. Where other members of the household use the room for their own purposes in addition to the taxpayer for his professional ones, the situation would fall outside what was described by Mason J. at ATC p. 4250;

ATC 4610

C.L.R. p. 45 in Faichney as the provision of ``light and heating for the taxpayer exclusively whilst he is engaged in work from which he derives income''. This was the second submission made by Mr. Young in connection with those expenses. By the use of the word ``exclusively'', Mason J. made clear, in my opinion, that expenditures for lighting and heating must be for only such amounts as were incurred by the taxpayer in gaining or producing his assessable income. It follows, in my opinion, that any costs incurred in supplying those facilities whilst others used the study, or while the taxpayer used the study for other purposes, would be required to be excluded from any apportionment of the total cost thereof.

In this appeal I find that during the 1980 year of income the appellant incurred expenditure for lighting of his study in the discharge of his duties as a Magistrate. I also find that the study was used from time to time by his children for the preparation of their homework. It follows that to apportion one-sixth of the total cost of electricity supplied to the household as that portion used by the taxpayer for the duties of his judicial office could not be properly made. Furthermore, the state of the evidence does not enable me to find what proportion of the costs were attributable to the appellant's exclusive use.

The onus of proof resting on him, it follows that the appellant failed to make out his claim for expenses connected with his home office.

(h) Miscellaneous

The appellant claimed $104 being his estimate of the total amount of contributions made by him to collections conducted by members of the Court's staff in the Court building during the 1980 tax year. Those collections were for gifts on special occasions to staff members, such as marriages, transfers, promotions, retirements and the like, as well as for selected charities. The need for him to make contributions arose from requests made by staff members to him to do so, which he found difficult to refuse. It would seem therefore that some contributions were made by him in order to preserve harmonious and friendly relations with those persons employed in the Court, while others were made by him out of a sense of moral obligation to do so.

The making of those contributions, however, was neither relevant nor incidental to gaining his assessable income. It could not be said that it was a term either express or implied of his appointment as a Magistrate that he should make such contributions. The expenditures were collateral to the duties required of him in his office as a Magistrate. Furthermore, the essential character of his contributions was private and social and therefore fell outside the ambit of sec. 51(1).

For the foregoing reasons, I conclude that the Commissioner properly rejected the taxpayer's objections to his assessment. It follows that the appeal will be dismissed.

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