Case Q122

Judges:
KP Brady Ch
JE Stewart M
DJ Trowse M

Court:
No. 2 Board of Review

Judgment date: 16 December 1983.

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

This reference relates to a claim made by a senior teacher in the employment of the State Education Department for deduction pursuant to sec. 51(1) of the Income Tax Assessment Act of expenditure incurred in travelling to China during the year of income ended 30th June 1978.

2. The cost of that trip was disallowed by the Commissioner on the bases that it was not incurred in gaining the taxpayer's assessable income and that it represented expenditure of a private nature. For similar reasons, a claim made for the cost of a briefcase was also disallowed. Grounds of objection as regards the latter item, however, were withdrawn at the hearing. Accordingly,

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the sole item before us for review was the cost of the overseas trip and attendant expenditures, and these were:

      Air fares to and from
        Hong Kong, travel                         $
      within China, and
        accommodation                           1,450
      Purchase of charts, souvenirs,
        books, etc., made overseas
        for use in classroom work                 140
      Purchases of slides whilst overseas
        for use in classroom                       99
                                               ------
                                               $1,689
                                               ------
          

3. At the time of making the trip, the taxpayer had been a teacher for some 20 years. For the three years immediately prior to the trip, he had been teaching at P Primary School where approximately 75% of the children were of ethnic background. It seems that the taxpayer went on the trip as a means of improving his teaching skills, particularly in the matter of relating to South East Asian children, thereby improving his promotional prospects. It seems further that the tour was organised by the State Teachers' Union and was said to cater specifically for primary school teachers. The taxpayer tendered an itinerary giving comprehensive details of the places visited in China, but in cross-examination he revealed that it was a copy of a document given to him by the travel agency prior to making the trip and had been subsequently varied considerably by the Chinese authorities. Suffice it to say that the tour party of approximately 24, almost all of whom were teachers, departed for Hong Kong on 20th August 1977, and returned to Australia some two weeks later on 4th September, after visiting numerous primary schools, pre-school centres, factories and communes in such main cities as Kwangchou, Hangchou, Shanghai and Pekin.

4. Upon returning to Australia, the taxpayer resumed his teaching duties at P and taught there for the balance of the calendar year 1977. At the opening of the school year in 1978, he took up the position of principal at W School, which appointment had been gazetted in approximately May 1977, some few months before he went overseas. He told us that an increase in salary accompanied that promotion, also the receipt of a principal's allowance. In the following year, 1979, he received a reclassification to special class vice principal upon his transfer to S School. It seems that S was a large school, and it can be surmised that the size of its enrolment attracted the more senior classification which, we were told, was a class above that of principal first class which had been the taxpayer's designation whilst at W. Despite the higher status, his salary remained unchanged. Some few years later, in 1983, it would seem that the taxpayer was appointed principal of his present school at T, which appointment represented a further promotion and was accompanied by an increase in salary.

5. The taxpayer contended that the expenditures claimed were properly deductible under sec. 51(1) because they represented outgoings incurred in gaining his assessable income, and were not of a capital, private or domestic nature. He pointed to the fact that he had gone before a teacher's assessment panel in 1978 when he had taken the opportunity to advise the panel of his trip to China, and shortly afterwards he had obtained a rise in status upon transferring to S School at the beginning of 1979. He conceded that no increase in salary went with the change in status, but he argued that it was a reclassification which accorded him an increase in seniority. In its turn, that rise in seniority made him more eligible to gain a future promotion carrying with it extra salary. And we have seen that he did in fact obtain promotion (and increased salary) upon taking up the position at T at the beginning of 1983. In the light of the above, can it be said that his income was affected by the overseas tour; in other words, was there ``a perceived connection'' (to adopt the words used by Menzies J. in
F.C. of T. v. Hatchett 71 ATC 4184 at p. 4187) between the expenditures claimed and his assessable income?

6. In
F.C. of T. v. White 75 ATC 4018, Helsham J., after reviewing the two key cases dealing with the deductibility of study expenses associated with employment, viz.
F.C. of T. v. Finn (1961) 106 C.L.R. 60, and Hatchett's case (supra), stated at p. 4022:

``As the result of the decision in the two cases it seems to me possible to say that

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ATC 734

expenses incurred in pursuing studies associated with employment will qualify as allowable deductions under sec. 51 when it can be said that those studies are part and parcel of the employment, which means that the expenditure is incurred in the process of carrying out the employee's duties, or, even if they are not such, they can be seen to have a direct effect on income.''

7. In the instant case we do not consider that the expenditure in dispute was incurred by the taxpayer in carrying out his duties. The tour was conducted under the auspices of the State Teachers' Union and was timed to coincide with the school term holidays. The taxpayer conceded that there was no requirement by the Education Department that he undertake the tour. It seems that the taxpayer was encouraged to make the trip by his principal and doubtless the school benefited from the knowledge acquired by him whilst in China, but those matters have been held by the Courts to be irrelevant in gauging deductibility (see Hatchett (supra) at p. 4187). A material factor causing the High Court to rule in Finn that the cost of the taxpayer's overseas trip was deductible was that part of his study tour was made at the request and at the expense of his employer. That situation, as we have seen, did not appertain in the instant case; the taxpayer undertook the trip very much as a matter of his own volition.

8. Also, there is no evidence that the trip had a direct effect on his income. The taxpayer stated that he felt that the trip had stood him in good stead and had helped him in his career (pp. 11 and 12 of the transcript) but the weight, if any, that the assessment panel gave to the trip remains problematical. True it is the taxpayer, subsequently to the trip, obtained a reclassification in 1979, and a promotion in 1983 (and here we must ignore the promotion as principal at W, as it was made prior to the trip), but there is nothing to suggest that they were induced by the trip which was made, it will be recalled, in August 1977; in our view it would be straining credulity too far to suggest otherwise.

9. Accordingly, we consider that no connection has been established by the taxpayer between his outlay in making the trip and the earning of his assessable income, and his claim for deduction of the amount of $1,450 must therefore fail.

10. In regard to the claim for the cost of charts, souvenirs and books, the taxpayer's evidence indicated that at least part of the expenditure, certainly that spent on souvenirs, was of a private nature. Because no details were furnished as to the amounts expended on the various main components, the taxpayer has not satisfied the onus of proof imposed on him by sec. 190(b) and his claim for deduction of the amount of $140 must fail. On the other hand, he was able to satisfy us that the slides were used primarily as a teaching aid; we therefore consider that the amount of $99 is properly deductible under sec. 51(1).

11. Before making the necessary Order, we would make mention of a further matter that arose at the hearing. When asked when he paid for the tour he stated:

``I would probably have booked in late May and I would have paid by the end of June 1977.''

If in fact that were the true position, the amount of $1,450 would have been incurred in the 1976/77 year of income, and not in the year of income in issue (1977/78), and so would have been claimable only in the earlier year. After giving the above answer, the taxpayer stated that he was really not sure when he paid the amount and the matter remained in doubt. Because of the view we take that the fares are not deductible under sec. 51(1), it is not necessary for us to take the matter further, other than to express the view that the taxpayer had not discharged the onus placed on him by the statute as regards that particular outgoing.

12. For the above reasons, we find that the amounts in issue were properly disallowed by the Commissioner, with the exception of the amount of $99 which we consider to be properly deductible under sec. 51(1), and we direct that the assessment be amended to give effect to this decision.

Claim allowed in part