KL Beddoe SM
Administrative Appeals Tribunal
K.L. Beddoe (Senior Member)
The question at issue is whether certain expenses incurred by the applicant in connection with the relocation of her place of employment are allowable deductions within the terms of subsec. 51(1) of the Income Tax Assessment Act. The amounts in dispute total $490 according to the notice of objection but it appears that the amounts in dispute are in fact the following:
$ Motor vehicle costs 322 One night's accommodation 20 Rail freight charges 48 ---- $390 ----
2. Subsection 51(1) reads as follows:
``(1) All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such 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, or are incurred in relation to the gaining or production of exempt income.''
Ronpibon Tin N.L. v. F.C. of T. (1949) 78 C.L.R. 47 at pp. 56-57; 8 A.T.D. 431 at pp. 435-436, the High Court made the following general statement in relation to the subsection:
``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 the assessable income' mean in the course of gaining or producing such income. Their operation has been explained in cases decided under the provisions of the previous enactments: see particularly
Amalgamated Zinc (de Bavay's) Ltd. v. Federal Commissioner of Taxation (1935) 54 C.L.R. 295 at pp. 303-304, 307, 309-310, 3 A.T.D. 288 and
W. Nevill & Co. Ltd. v. Federal Commissioner of Taxation (1937) 56 C.L.R. 290 at pp. 300-301, 305-306, 308; 4 A.T.D. 187.
Notwithstanding the differences in other respects in the present provision, the expression `incurred in gaining or producing the assessable income' has been left unchanged and bears the same meaning. In brief substance, 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.''
4. This application proceeded on the basis of facts agreed between the representatives of the applicant and the respondent and in the absence of the applicant.
5. During the year ended 30 June 1982 the applicant was a schoolteacher employed by the Education Department at a school located in a small town in North Queensland. For reasons which are not known to the Tribunal the applicant received a new posting to a school in Brisbane some time in November 1981.
6. To take up this new posting the applicant was required to travel from the North Queensland town to Brisbane some time in January 1982 and in fact did so by driving to Brisbane in a motor car. It was not established who owned the motor car. Total distance travelled by car was 1,876 km at an estimated cost of $322. I infer that this amount was incurred by the applicant as the respondent's representative did not seek to convince me otherwise.
7. The applicant also paid $20 for one night's accommodation at Mackay.
8. Although the applicant travelled by car and, I presume, carried in the car certain of her possessions, she also found it necessary to consign personal items and educational goods by rail to Brisbane. The cost of the rail freight was $48.
9. No contribution was received from the Education Department towards the travel and freight costs incurred by the applicant. I infer from this that the transfer was a voluntary transfer in the sense that the applicant applied to the Education Department for transfer to Brisbane. I also infer that once the Education Department had directed that the applicant transfer to Brisbane she was obliged by the terms of her employment to do so.
10. The respondent's representative conceded that the applicant was in receipt of an annual salary from the Education Department. It was not established that the transfer resulted in the applicant deriving additional income. I infer that the transfer did not change the applicant's conditions of employment generally or her salary in particular.
11. By consent the respondent's representative addressed first and relied on a series of decisions which, with one exception, were not in point.
12. I will deal with those decisions seriatim.
13. In Case 36
(1945) 12 C.T.B.R. Reprint 446 the Board of Review held that removal expenses incurred by a clergyman in connection with taking up his appointment to a bishopric were not deductible. It will be apparent that this decision is readily distinguishable from the
ATC 1145present application which does not involve a new appointment but rather a transfer of location of an existing appointment. This is made clear by the dicta of Mr R.R. Gibson (Chairman) at pp. 447-448.
14. The next case relied on involved a factual situation very similar to Case 36.
Friedson (Inspector of Taxes) v. Glyn-Thomas (1922) 8 T.C. 302 is sufficiently explained in the following dicta of Sankey J. (as he then was) at p. 305:
``This gentleman's duty as a curate was a duty to act as a curate in the Parish of St. Michael, Edmonton. It is perfectly true that in order to take up his duties he had to go there; but I do not think it is possible to say that the expense of removal in order to get there was an expense necessarily incurred in the performance of his duties. There is all the difference in the world between an expense which you have to incur in order to go to a place in order to take up your duties, and an expense incurred in the performance of your duties. I do not think it is possible to say that this is a sum of money which was necessarily incurred in the performance of his duties.''
15. I come now to
Ricketts v. Colquhoun (Inspector of Taxes) (1926) A.C. 1; 10 T.C. 118. Although the decision in this case might be said to be the genesis for a line of Australian authorities the Commissioner's representative did not rely on the Australian cases. Rule 9 in Sch. E was the relevant statutory provision in that case. It read:
``If the holder of an office or employment of profit is necessarily obliged to incur and defray out of the emoluments thereof the expenses of travelling in the performance of the duties of the office or employment, or of keeping and maintaining a horse to enable him to perform the same, or otherwise to expend money wholly, exclusively and necessarily in the performance of the said duties, there may be deducted from the emoluments to be assessed the expenses so necessarily incurred and defrayed.''
16. That provision should be contrasted with the less restrictive rule which applied in respect of expenses laid out for the purposes of a trade, profession, employment or vocation as was done by Pollock M.R. in the Court of Appeal (1925) 1 K.B. 725; 10 T.C. 118 at p. 123.
17. The House of Lords decided that the travelling expenses incurred by the appellant barrister in his capacity as Recorder of Portsmouth were not incurred in the course of performing his duties as Recorder but before the appellant entered upon those duties and after he had fulfilled those duties. The test applied by the House of Lords is not the test enunciated by the High Court of Australia in the Ronpibon case (para. 3). However, as Ricketts v. Colquhoun was followed by the High Court in
Lunney v. F.C. of T. (1957-1958) 100 C.L.R. 478; 11 A.T.D. 404, it is necessary that I deal with Lunney's case in due course.
18. Case B18,
70 ATC 78 is a decision of Taxation Board of Review No. 2. The case involved claims by two bank officers for deductions in respect of various expenses incurred in transferring from one locality to another locality in accordance with the requirements of their employer. The expenditure in question related to expenses incurred in buying and selling houses, replacement of furnishings and other expenses incurred in the disposal of one home and the setting up of another home. The Board held that the expenses were not incurred in the course of gaining or producing assessable income being too remote from the income-producing process.
19. While the conditions of employment of the two bank officers were such that they may be transferred from place to place from time to time and therefore somewhat similar, I infer, to the conditions of employment of teachers employed by the Queensland Education Department, the decision of the Board does not deal with travel and freight charges incurred on transfer and is therefore of little assistance in this application.
20. The remaining authority cited by the Commissioner's representative is Case L8,
79 ATC 52. This is a decision of Taxation Board of Review No. 1 and involved travel, accommodation and removal expenses incurred by a municipal engineer upon taking up an appointment with a municipal authority. The Board confirmed the Commissioner's disallowance of the expenditure as a deduction on the authority of the decision of the High Court in
F.C. of T. v. Maddalena 71 ATC 4161; 45 A.L.J.R. 426 where Barwick C.J. stated at ATC p. 4162; A.L.J.R. p. 426:
``The cost to an employee of obtaining his employment does not form an outgoing incurred in the course of earning the wages payable in the employment.''
As Menzies J. said at ATC p. 4163; A.L.J.R. p. 427, the expenditure was incurred ``at a point too soon to be properly regarded as incurred in gaining assessable income''. The Board's decision was concerned with expenses incurred in taking up a new appointment and is not therefore relevant to the facts of this application.
21. That disposes of the authorities relied upon by the respondent.
22. The applicant's representative did not cite authorities but in a succinct address he sought to persuade the Tribunal that there should be a return to the plain meaning of subsec. 51(1). Although no authorities were cited the representative had obviously considered the leading authorities. I do not think that he was seeking to show that any authority binding on this Tribunal was wrongly decided, rather he was seeking to cut a swathe through the accumulated verbiage which has developed in respect of subsec. 51(1).
23. In considering the relevant authorities I turn firstly to Lunney v. F.C. of T. (supra) mentioned earlier. The majority decision of the High Court was analysed in detail by Rath J. of the Supreme Court of N.S.W. in
F.C. of T. v. Collings 76 ATC 4254. I need do no more than quote his Honour's analysis to show that the decision does not apply to the facts of this application. His Honour said at pp. 4259-4261:
``In Lunney's case the court consisted of Dixon C.J., McTiernan, Williams, Kitto and Taylor JJ. Thus only two members (Dixon C.J. and McTiernan J.) had sat in the Ronpibon case, Dixon C.J. had, equally with Latham C.J. been an architect of the reasoning upon which the Ronpibon case was based, in particular that the words `incurred in gaining or producing the assessable income' mean in the course of gaining or producing such income, and that the expenditure, to be deductible, must be incidental and relevant to gaining or producing the assessable income. McTiernan J. also had sat in Nevill's case and Amalgamated Zinc (de Bavay's) Ltd. v. F.C. of T.
Lunney's case was heard with Hayley's case. Lunney, a ship's joiner, claimed as deductions the expenses of travel between his residence and the office of his employer. Hayley, a dentist practising on his own account, claimed as deductions the expenses of travel between his home and his surgery. It was held (McTiernan J. dissenting) that in neither case were the expenses deductible. Williams, Kitto and Taylor JJ. delivered one joint judgment in both cases. The joint judgment stresses as the criterion the `essential character' of the expenditure. At the outset there is a passage which is of particular significance as stressing (rightly, in my respectful opinion) the difficulty of formulating any general criteria. After stating the provisions of sec. 51(1) the judgment proceeds:
- `The language is simple enough and, in the main, little difficulty is encountered in recognizing those items of business in expenditure which qualify as deductions. But in the nature of things it has been impossible to devise, as a substitute for the words of the section, a simple formula which will readily and precisely mark the limits of the operation of the section. Yet, in the course of dealing with individual cases, it has been necessary to devote particular attention to the words `in gaining or producing the assessable income' and `incurred in carrying on a business for the purpose of gaining or producing such income' and to attempt to express precisely what those words mean'.
After referring to the criteria in the Ronpibon case, and earlier cases, the judgment proceeds (p. 497):
- `In the context in which they have been used the expressions relied upon by the appellants have been intended as a reference, not necessarily to the purpose for which an item of expenditure has been incurred, but, rather to the essential character of the expenditure itself'.
Later it is said (pp. 498-499):
- `The question whether the fares which were paid by the appellants are deductible under sec. 51 should not and, indeed, cannot be solved simply by a process of reasoning which asserts that
ATC 1147because expenditure on fares from a taxpayer's residence to his place of employment or place of business is necessary if assessable income is to be derived, such expenditure must be regarded as `incidental and relevant' to the derivation of such income. No doubt both of the propositions involved in this contention may, in a limited sense, be conceded but it by no means follows that, in the words of the section, such expenditure is `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'. It is, of course, beyond question that unless an employee attends at his place of employment he will not derive assessable income and, in one sense, he makes the journey to his place of employment in order that he may earn his income. But to say that expenditure on fares is a prerequisite to the earning of a taxpayer's income is not to say that such expenditure is incurred in or in the course of gaining or producing his income. Whether or not it should be so characterized depends upon considerations which are concerned more with the essential character of the expenditure itself than with the fact that unless it is incurred an employee or a person pursuing a professional practice will not even begin to engage in those activities from which their respective incomes are derived.'
The court had been referred to a number of English cases, and with reference to these the judgment states (p. 501):
- `No doubt the legislative provisions which required consideration in these cases were not identical with sec. 51, but the process of reasoning by which they were decided consistently rejects the notion that expenditure incurred by a taxpayer in order to travel from his home to his place of business is, in any sense, a business expenditure or an expenditure incurred in, or, in the course of, earning assessable income. Indeed they go further and refuse assent to the proposition that such expenditure is, in any relevant sense, incurred for the purpose of earning assessable income and unanimously accept the view that it is properly characterized as a personal or living expense. This view agrees with that which we, ourselves, entertain. 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'.'
In this last quoted passage there is a conviction which contrasts with the other judgments in the case. Dixon C.J. said (p. 485) that both in Australia and in England the view has always prevailed that expenses of travelling from home to work or business and back again are not deductible. He refers to some early Australian cases, and says that the views in these cases remained unquestioned until the case before him. He then proceeds (p. 486):
- `The relevant provisions of the English Income Tax Acts are not in the same terms as those of the Australian law, but the whole course of English authority involves a like conclusion. To escape from the course of reasoning on which the decisions proceed requires the taking of refined and rather insubstantial distinctions. I confess for myself, however, that if the matter were to be worked out all over again on bare reason, I should have misgivings about the conclusion. But this is just what I think the Court ought not to do.'
It thus seems reasonably clear that Dixon C.J. did not regard the criteria laid down in
ATC 1148the Ronpibon case as necessarily involving a negative answer to the question whether travelling expenses between home and work are deductible; in particular, such an answer is not required by the construction of the words `incurred in gaining or producing the assessable income' as meaning in the course of gaining or producing such income. The following passage from the judgment of McTiernan J. brings out the distinction between his dissenting view and the view expressed in the joint judgment (p. 490):
- `In my opinion it is an unduly narrow construction of the initial part of sec. 51(1), in the case of an employment, to confine its operation to expenditure made by the taxpayer within the bare physical or temporal limits within which he performs his work or labour and to disregard any expenditure made outside those limits even though it has a necessary relation to the purpose of earning income for which the taxpayer carries on the employment. It is shown by the stated case that the taxpayer could not in the circumstances under which he was situated earn any assessable income by his employment without incurring the cost of travelling which he claims to be an allowable deduction. I cannot see the difference in principle between an expense incurred in gaining income and one incurred necessarily for the purpose of gaining it'.''
24. His Honour upheld the decision of Taxation Board of Review No. 3 to the effect that travel expenses incurred by a computer consultant outside normal working hours were deductible. The case is not comparable on the facts with the facts in the present application but is instructive because of the analysis of the authorities by his Honour.
25. Other relevant authorities in the Australian context are
F.C. of T. v. Vogt 75 ATC 4073;
F.C. of T. v. Ballesty 77 ATC 4181;
F.C. of T. v. Wiener 78 ATC 4006 and
Burton v. F.C. of T. 79 ATC 4318. However, none of the factual situations involved in those decisions is akin to the facts of this application and they really represent application of the principles enunciated by the High Court to the particular factual situations. Those decisions do, however, reinforce my view that the Commissioner was wrong in this case. I have also considered the High Court decision
Green v. F.C. of T. (1950) 81 C.L.R. 313; (1950) 9 A.T.D. 142. While that case also involved travel between North Queensland and Brisbane the factual similarity stops at that point.
26. My researches have failed to locate a case directly comparable with the present application bearing in mind that the applicant was travelling on transfer in her existing employment rather than travelling to take up a new appointment (cf. F.C. of T. v. Maddalena (supra)).
27. I can do no more than adopt the words of Lord Wilberforce, stated in the context of U.K. law but equally relevant to the position in Australia, in his speech in
Taylor v. Provan (1975) A.C. 194 at p. 215 as follows:
``To do any job, it is necessary to get there: but it is settled law that expenses of travelling to work cannot be deducted against the emoluments of the employment. It is only if the job requires a man to travel that his expenses of that travel can be deducted, i.e. if he is travelling on his work, as distinct from travelling to his work. The most obvious category of jobs of this kind is that of itinerant jobs, such as a commercial traveller. It is as a variant upon this that the concept of two places of work has been introduced: if a man has to travel from one place of work to another place of work, he may deduct the travelling expenses of this travel, because he is travelling on his work, but not those of travelling from either place of work to his home or vice versa. But for this doctrine to apply, he must be required by the nature of the job itself to do the work of the job in two places: the mere fact that he may choose to do part of it in a place separate from that where the job is objectively located is not enough.''
28. In my view this principle applies irrespective of the frequency of such travel (cf. F.C. of T. v. Green (supra)).
29. The applicant should succeed in respect of the costs of her travel from North Queensland to Brisbane including the cost of overnight accommodation incurred in the course of that trip.
30. Turning to the amount of $48 for rail freight charges, these charges were incurred in respect of ``personal items and educational
ATC 1149goods''. The educational goods were, I infer, in the nature of educational aids commonly acquired and used by schoolteachers in the course of their profession. To the extent that the freight charges relate to the educational goods I would accept that the charge was incurred in the course of gaining the applicant's assessable income. To the extent that the charges relate to personal items the charges are expenditure of a private nature not incurred in the course of gaining assessable income.
31. No basis of apportionment has been suggested to the Tribunal. I think justice will be achieved if I attribute 331/3% of the freight charges to the educational goods. I would therefore allow a deduction of $16 in respect of freight charges.
32. The Commissioner's decision on the objection will be set aside and the objection allowed in part by allowing deductions of $342 for travel expenses and $16 for freight charges.
Claim allowed in part