Case S88

Judges:
KP Brady Ch
JE Stewart M
DJ Trowse M

Court:
No. 2 Board of Review

Judgment date: 22 October 1985.

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

The question requiring our attention in this reference is whether expenditure incurred by the taxpayer during the 1979 year of income comes within the definition of ``expenses of self-education'' as set out in sec. 159U(5) of the Income Tax Assessment Act 1936. If it does, then such outgoings, subject to an upper limit of $250, will be aggregated with other items of concessional expenditure in order to determine the taxpayer's entitlement to a rebate of tax in terms of the provisions contained in sec. 159N.

2. It seems that the taxpayer, a civil engineer employed by a State instrumentality for many years, cherished a life-long ambition to play the flute proficiently, and with that in mind he decided in about February 1979 to enrol in the subject of Flute I which formed part of a course conducted by the Council of Adult Education. At about that time he expended the following amounts, all of which related to the course:

                                               $

      Tuition fees                              43
      Purchase of flute and music              229
                                              ----
      Total                                   $272
                                              ----
          

It appears that the course consisted of three subjects, Flute I, Flute II and Flute III, and that advancement through the various stages was based on performance in class as opposed to the concept of separate examination. Whilst the completion of the course did not of itself result in the receipt of any formal qualification, it seems that some of the students undertaking the course progressed to the point of applying the knowledge so gained in passing examinations set by the Australian Music Examinations Board. Success in those examinations led to the issue of certificates which indicated the standard of achievement. Whilst it seems that the taxpayer completed the part-time course with the Council of Adult Education, he has not sought examination by the Australian Music Examinations Board, nor is he currently taking lessons towards that end.

3. The taxpayer explained his reasons for undertaking the course as being:

• • to fulfil his life-long ambition to play the flute;
• • the creation of an activity for his retirement years;
• • to teach children, and in that regard he made particular reference to his three daughters all of whom were still attending school and learning two musical instruments;
• • for his own personal satisfaction and relaxation.

4. In the consideration of those aspirations, it is appropriate to expand upon the taxpayer's evidence regarding the possibility of premature retirement and, in that regard, it is of relevance that in the year of income under review he was then aged 40. It seems that the taxpayer's employer, i.e. the State instrumentality, had previously brought into operation an early retirement plan for its employees and that with the assistance of long service leave the taxpayer could, subject to a reduction in pension entitlement, retire when he was about 53. Notwithstanding his inability to predict with any certainty whether he would exercise his rights in terms of the plan, it seems that the course was embarked upon with the notion of providing an interest and the accompanying option of establishing at some time in the future an alternative source of income, be it by giving

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lessons to students or as a member of a professional group. That attitude is best demonstrated by quoting the taxpayer's reply to the question ``Do you anticipate being a music teacher at some future point'':

``No, I think that is putting it too strongly. What I have said is that when I retire, I want to have the option of being a music teacher, should I decide to do so at that time.''

5. In the process of raising the taxpayer's 1979 assessment, the Commissioner decreased the total concessional expenditure to the extent of the $250 claimed under the heading of self-education expenses and which related to the outgoings incurred in connection with the flute and the lessons undertaken at the Council of Adult Education. Upon the disallowance of the resultant objection to that adjustment, the matter has come before this Board for review. The taxpayer appeared on his own behalf and gave evidence under oath. The Commissioner was represented by one of his officers.

6. For the taxpayer to succeed in his submission that the outgoings in question are rebatable for the purpose of calculating the concessional expenditure rebate under sec. 159N, the amount claimed must meet the requirements contained in the definitions ``expenses of self-education'' and ``prescribed course of education'' as set out in sec. 159U(5). Those definitions are as follows:

```expenses of self-education' means expenses necessarily incurred by the taxpayer for or in connexion with a prescribed course of education, but does not include expenses in respect of which a deduction has been allowed or is allowable to the taxpayer in respect of any year of income under any other provision of this Act;

`prescribed course of education' means a course of education provided by a school, college, university or other place of education and undertaken by the taxpayer for the purpose of gaining qualifications for use in the carrying on of a profession, business or trade or in the course of any employment;''

7. We observe that, as between the taxpayer and the Commissioner, there was no dispute that the expenditure had been incurred by the taxpayer nor that it related to the course engaged in by him during the 1979 year. Furthermore, it was accepted that the Council of Adult Education came within the expression ``school, college, university or other place of education''. The issue stems from the Commissioner's view that the absence of formal qualifications was detrimental to the taxpayer's case and that, in any event, the purpose of gaining the qualification was not sufficiently directed towards use in the carrying on of a profession, business or trade or in the course of any employment.

8. On those issues the taxpayer countered with the following contentions as to the correct interpretation of the two definitions:

• • The word qualifications should be related to the quality fitting a person or thing to do something rather than the formal piece of paper which does no more than evidence that one possesses that quality.
• • The condition of the purpose referred to in the definition of ``prescribed course of education'' is satisfied if it can be shown that the taxpayer's intention was directed to the gaining of a qualification.
• • The intended use of the qualification at some time in the future is totally irrelevant. All that is required is the creation of a situation whereby the taxpayer may at his option use the quality acquired at any time in the future in carrying on a profession, business or trade or in the course of any employment.

9. On the first of those submissions, we agree that the word qualifications is wide enough to embrace the attainment of accomplishments or skills as well as the obtaining of degrees and certificates. In reaching that conclusion, we have had regard to the meaning of ``qualification'' as set out in the Shorter Oxford English Dictionary and which, inter alia, includes such statements as: ``the distinctive quality of a person or thing; a quality, accomplishment, etc., which qualifies or fits a person for some office or function''.

10. We do not, however, accept the taxpayer's reasoning on the question of purpose. In our understanding, the qualification called for in the statutory definition must be seen to have as its purpose a use in the taxpayer's profession, business or employment. Notwithstanding the obvious lack of connection

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between the course and the taxpayer's present occupation as a civil engineer, that fact of itself is not in our opinion fatal to the claim. In our view, if the purpose of undertaking the course of education is clearly related to some future and yet identifiable professional, business or employment use, then the amounts so expended may still come within the definition of ``prescribed course of education''. This is not however such a case. It seems to us that, whilst the taxpayer may have held some expectation of using the skills so gained in the prescribed manner, such a likelihood remained too remote and uncertain. The qualification gained by the taxpayer in his playing of the flute may have led to its use in the carrying on of a profession, business or trade, or in the course of any employment; on the other hand, it might equally have not. The taxpayer was not able to show us that on the balance of probabilities it would be so used. Having regard to the evidence taken as a whole, we are left with the impression that the course in Flute I, II and III was undertaken for recreational and private reasons.

11. For the foregoing reasons, we uphold the Commissioner's decision on the objection and confirm the assessment before us.

Claim disallowed