Case Q99

MB Hogan Ch

P Gerber M
GW Beck M

No. 3 Board of Review

Judgment date: 21 October 1983.

M.B. Hogan (Chairman); Dr. P. Gerber and Dr. G.W. Beck (Members)

The taxpayer in this reference is a sales representative working on a salary and commission basis. He uses his car in the course of his employment to visit clients of his employer. These trips frequently involved long-distance journeys into the country. It was on one of these trips that an incident occurred which resulted in a summons being issued alleging the commission of serious driving offences which, if proven, could well have resulted in the taxpayer losing his driving licence for some considerable period. In the event, the charges were dismissed. Indeed, on the taxpayer's version of events, it would seem that the proceedings came close to a malicious prosecution. However,

ATC 492

we do not believe that anything turns on this. The claim presently before us is for $167, being the costs incurred in defending the above charges. The Commissioner disallowed the claim on the ground that it was not an expenditure incurred in gaining or producing the assessable income.

2. Whilst it is true that in order to earn income, this taxpayer must travel by car, and in order to travel by car he requires a licence, this is not sufficient, in our opinion, to make the cost of defending that licence an expenditure which is incidental and relevant to the derivation of income (cf.
Lunney v. F.C. of T. (1958) 11 A.T.D. 404; (1958) 100 C.L.R. 478). The case is readily distinguishable from such cases as
Charles Moore & Co. (W.A.) Pty. Ltd. v. F.C. of T. (1956) 11 A.T.D. 147; (1956) 95 C.L.R. 344, where the taxpayer, who carried on the business of departmental store, was robbed of the daily takings on the way to the bank. In holding that the loss was incurred in gaining or producing the assessable income, the Full High Court cited with approval the decision of Rich J. in
F.C. of T. (N.S.W.) v. Ash (1938) 5 A.T.D. 76; (1938) 61 C.L.R. 263, where his Honour stated (at A.T.D. p. 81; C.L.R. p. 277):

``There is no difficulty in understanding the view that involuntary outgoings and unforeseen or unavoidable losses should be allowed as deductions when they represent that kind of casualty, mischance or misfortune which is a natural or recognized incident of a particular trade or business the profits of which are in question. These are characteristic incidents of the systematic exercise of a trade or the pursuit of a vocation.''

Again, in Case A32,
69 ATC 181, this Board, as then constituted, allowed a public accountant whose business it was to prepare tax returns, to deduct from his own assessable income the additional tax imposed upon clients whose returns were lodged outside the prescribed period and which the accountant had personally paid out of his own pocket, on the basis that the liability fell upon the taxpayer as a risk incidental to the carrying on of his professional business. Here, even if it were thought that the risk of prosecution for traffic infringements were indeed ``a risk incidental to the carrying on'' of the activities of a commercial traveller, it seems to us that the cost of defending the right to drive a car is essentially an expenditure of a private nature. Thus a distinction must be drawn between the use of the car, and the right to drive it (if it is indeed a ``right'' as opposed to a privilege, as to which we make no pronouncement). The cost incurred here in preserving that right cannot be apportioned between ``private'' and any component possessing the requisite character of an outgoing incurred in gaining or producing the assessable income. We have therefore concluded that the claimed costs must be regarded as an outgoing of a private or domestic nature and therefore excluded from deduction by the exception to sec. 51.

3. We are comforted in the knowledge that Board of Review No. 2 came to a similar conclusion in Case P55,
82 ATC 253 where the facts were not materially different from the facts of this case. As the late Mr. F.E. Dubout, the then Chairman of this Board observed in Case A80,
69 ATC 432 at p. 433:

``In a case where the facts were materially indistinguishable from those of a case decided previously by another Board, I think it would be true to say that this Board would be loath to come to a different decision, unless, in a field not covered by higher authority, there were compelling reasons to adopt a different view as to the interpretation of a statutory provision, or if there were decisions of higher authority, it appeared that they had been misconstrued by the other Board.''

There are no compelling reasons why this Board should not follow the reasoning of Board of Review No. 2 in the afore-mentioned case, on facts clearly being in pari materia.

4. For the above reasons we would uphold the Commissioner's decision on objection.

Claim disallowed

This information is provided by CCH Australia Limited Link opens in new window. View the disclaimer and notice of copyright.