Case Q49

KP Brady Ch

JE Stewart M
DJ Trowse M

No. 2 Board of Review

Judgment date: 14 June 1983.

K.P. Brady (Chairman), J.E. Stewart and D.J. Trowse (Members)

This reference relates to a claim for motor vehicle expenses incurred during the 1979 year by a taxpayer in travelling from one place of employment to another. He resided and worked on his father's dairy farm and was concurrently employed by a State government authority as a crane operator. It was the taxpayer's contention that the costs of travel between the two points were allowable deductions in terms of the provisions of the Income Tax Assessment Act.

2. The taxpayer had worked on his father's farm for reward since leaving school in 1970, and his duties consisted of milking and other general activities, including:

  • Cartage of livestock to market places.
  • Collecting fodder, veterinary supplies and dairy requisites.
  • Taking items of plant to repairers and picking up same.

It was adduced from evidence tendered that the use of the taxpayer's motor vehicle in carrying out these tasks was an agreed condition of the employment.

3. Prices received for dairy produce declined drastically prior to and during the 1979 year. The reduction in the employer's income was such that he could only manage a wage payment of $1,248 to his son, i.e. the taxpayer, during the period in question. The taxpayer obtained a position with the government authority in order to supplement his income. He was employed in this capacity throughout 1979 and received a salary of $12,603 plus an allowance of $1,617. The taxpayer, at the same time, continued on with the employment on the farm and said that this decision was made because of his father's poor state of health and also the financial inability to afford the level of wages required to engage outside labour.

4. As a crane operator the taxpayer was required to commute on separate occasions to three localities, all of which were considerable distances from the farm property. He maintained a record of mileage covered during the year and gave evidence which disclosed:

      Travel from home to place of
        employment and
        return .........................  20,580 miles
      Private running ..................   4,660 miles
        Total mileage:                    25,240

5. The taxpayer's daily programme for the whole of the year reads as follows:

      Monday to Friday inclusive, and also Sunday:

                4.30 a.m. - 6.00 a.m.- Milking
            7.30 a.m. - 4.00 p.m. - Operating crane
                5.30 p.m.- 7.30 p.m. - Milking

            5.00 a.m. - 11.30 a.m. - Milking and general farm work
                12.30 p.m. - 5.00 p.m. - Participating in sport
                        5.30 p.m. - 8.00 p.m. - Milking

Also during the calving season, which commenced in March and terminated in September, the taxpayer arose at 1.00 a.m. to check the condition of the cows. If a cow was down and having trouble, he would awaken his father and jointly they would assist in the delivery.

6. The taxpayer, in his 1979 return, claimed a deduction of $2,820 under the heading of cost of travel between two places

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of employment. The Commissioner, in issuing the assessment, disallowed the claim in total and indicated in the explanatory note that the outgoings were of a private nature. The objection to that assessment also contained the following additional revised information regarding the expenditure incurred on travel during the year:
      Petrol and servicing                          2,927
      Registration and 3rd party insurance            180
      Comprehensive insurance                         186
      Depreciation                                  1,755
      Business proportion 20,580/25,240 x 5048 =   $4,116

The taxpayer requested that the claim in question be altered from $2,820 to $4,116. The Commissioner disallowed the objection and the taxpayer, being dissatisfied with the decision, requested that the matter be referred to a Board of Review. The Commissioner, in the statement required in accordance with reg. 35(1), expressed the opinion that no part of the $4,116 claimed in respect of motor vehicle expenses and depreciation was allowable under the provisions of sec. 51(1), 53 and 54 of the Act.

7. Evidence presented at the hearing indicated that on regular occasions some of the farm duties were carried out in the course of travel to and from work. These functions, which the taxpayer regarded as a condition of his employment, consisted of the cartage of livestock to market, the collection of fodder, veterinary supplies and dairy requisites, and the delivery and collection of plant requiring repairs. The stock cartage, which occurred at least once per week during the calving season, was performed by attaching the employer's trailer to the taxpayer's car. The loaded trailer was towed to and left at the market place by the taxpayer en route to his second place of employment. On the return journey that afternoon the trailer, then empty, would be hitched to the car and returned by the taxpayer back to the farm. Stock fodder, including bags of pellets and veterinary supplies, were collected from various centres by the taxpayer throughout the whole of the year. The frequency of these pickups was, it seems, two or three times a week. The transportation by the taxpayer of machinery requiring repairs and also spare parts took place according to evidence once per fortnight. The taxpayer stated that the distances relating to these continuing activities were 8,232 miles, i.e. 40 per cent of the mileage travelled between places of employment.

8. The amount claimed in the return for depreciation of the motor vehicle had been calculated on the basis that the unit purchased in a previous year had been used for the whole of the period under review. This in fact was not the situation. A changeover had been transacted in October 1978, and thus the depreciation figure of $1,755 required correction. Agreement had been reached between the Commissioner and the taxpayer that the overall claim for depreciation in respect of both vehicles should be $1,920 for the 1979 year. It will therefore be seen that the amount representing the combination of motor vehicle expenses incurred and the depreciation is $5,213, i.e. $5,048 minus $1,755 plus $1,920. That total provides us with a unit cost per mile of 21c.

9. The taxpayer was not able to produce all of the invoices and statements relating to the outgoings incurred nor the record book in which mileage was entered. These had been disposed of some time after the preparation of the return and the objection. The taxpayer declared under oath that the expenses and mileage dissection as set out in the letter of objection were extracted from information then in his possession. This fact was confirmed by the taxpayer's accountant, who stated that he had verified details of the claim when preparing the objection. The taxpayer impressed us as being a witness of truth, and we are satisfied as to the quantum of the expenditure and the dissection of mileage.

10. The taxpayer, in order to succeed, must prove that the expenditure was incurred, and the relevant vehicles were used, in the production of assessable income and that the claims are allowable deductions in terms of sec. 51(1), 53 and 54. As the taxpayer was not carrying on a business as defined in sec. 6, the claim is limited to the first limb of sec. 51(1), which provides that:

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``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...''

Section 53 establishes that expenditure by way of repairs to plant used for the purpose of producing assessable income shall be an allowable deduction. Section 54 states that depreciation of plant used by a taxpayer for the purpose of producing assessable income shall be an allowable deduction. In determining a claim under these sections, one must seek out the connection between the incurring of the outgoing and the gaining of assessable income.

11. It was said in the case
Ronpibon Tin N.L. v. F.C. of T. (1949) 78 C.L.R. 47 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. It was further added that the words ``incurred in gaining or producing the assessable income'' mean in the course of gaining or producing such income. The question in the instant matter is whether the outgoings associated with the travel between places of employment, one of which was also his home, were incidental and relevant to the gaining of assessable income.

12. The deductibility of the costs of travel between home and a place of employment or business was considered by the High Court in
Lunney & Hayley v. F.C. of T. (1958) 100 C.L.R. 478. It was held by a four to one majority that outgoings of such a nature were not allowable. Part of the joint judgment of Williams, Kitto and Taylor JJ. at p. 501 reads:

``Expenditure of this character is not by any process of reasoning a business expense; indeed, it possesses no attribute whatever capable of giving it the colour of a business expense. Nor can it be said to be incurred in gaining or producing a taxpayer's assessable income or incurred in carrying on a business for the purpose of gaining or producing his income; at the most, it may be said to be a necessary consequence of living in one place and working in another. And even if it were possible - and we think it is not - to say that its essential purpose is to enable a taxpayer to derive his assessable income there would still be no warrant for saying, in the language of sec. 51, that it was `incurred in gaining or producing the assessable income' or `necessarily incurred in carrying on a business for the purpose of gaining or producing such income'.''

13. We have examined cases where taxpayers have been successful in obtaining deductions for the cost of travel between home and a place of employment, and it appears to us that the reason for those decisions is directly related to the special nature of the duties involved as a condition of employment. In those instances the taxpayers were said to be travelling on their employment as distinct from to their employment. The references of those cases are
Pook v. Owen (1970) A.C. 244,
Taylor v. Provan (1975) A.C. 194,
F.C. of T. v. Collings 76 ATC 4254,
F.C. of T. v. Green (1950) 9 A.T.D. 142 and
F.C. of T. v. Vogt 75 ATC 4073. This conclusion is best demonstrated by the statement made by Rath J. in Collings at p. 4262:

``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.''

In that case the taxpayer, who was a computer consultant, was required as a term of her employment to be on call 24 hours per day to provide advice on the computer operation. If a problem could not be solved over the phone, she would travel to the office of the employer in order to correct the malfunction. The claim for the motor vehicle expenses applicable to those additional trips was the subject before the Court. It was held at p. 4268:

``In my opinion in this case the taxpayer's expenses in respect of her travelling between her home and work, outside the normal daily journey, were in the special

ATC 241

circumstances of this case outgoings incurred in gaining or producing her assessable income, and were not of a private or domestic nature, and were accordingly allowable deductions under sec. 51 of the Income Tax Assessment Act 1936 (as amended).''

14. On those occasions, in the present case, when the taxpayer made uninterrupted journeys between home and places of employment, we conclude that the associated expenses incurred and the depreciation of the vehicles did not arise in the course of gaining or producing assessable income. He was doing no more than incurring outgoings in going day by day to his regular place of employment and back to his home. The taxpayer was travelling to work and not on work. No deduction is permitted by sec. 51(1), 53 or 54.

15. We consider, however, that the cost of travel attaching to those journeys where the taxpayer was using his vehicles to carry out certain of his farm duties falls into a different category. This reference relates to the distances covered whilst carting livestock, collecting fodder and various supplies, i.e. from farm to point of delivery and from collection point to farm. On those particular times, the taxpayer was not travelling to commence duty but rather to complete an aspect of his employment. He was travelling on work and not to work. It is recalled that the distances travelled on these activities totalled 8,232 miles and that the rate per mile was 21c, i.e. a cost factor of $1,729. Section 51(1) contemplates apportionment when the outgoing in issue is in part attributable to the gaining of assessable income and in part to some other end (see Ronpibon Tin N.L. case (supra) at p. 59). Accordingly, we hold that the costs of the taxpayer's travel to the extent of the aforesaid amount of $1,729 were incurred in the gaining or producing of his assessable income and were not of a private or domestic nature. The amount of $1,729 is therefore an allowable deduction in terms of the provisions of sec. 51(1), 53 and 54 of the Act.

16. For the above reasons, we direct that the assessment before us be amended to allow a deduction of $1,729.

Claim allowed in part

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