Case U182

Members:
PM Roach SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 2 October 1987.

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P.M. Roach (Senior Member)

For a period of approximately two and a half years, commencing during the year of income ended 30 June 1982, the applicant resided in Sydney with his wife and three children. They were all dependent upon him. They had all come from England. At the end of that period of residence the family returned to England and they resumed residence there. The issues arising on this reference flow out of the circumstance that, while the family lived in Sydney, his two younger children were enrolled in private schools and the applicant's Australian employer caused the school fees due by the applicant to be paid on his behalf.

2. In the year of income ended 30 June 1983, the only year in question, the fees so paid amounted to $4,066. In the view of the Commissioner the sum so paid constituted a "benefit" within the terms of sec. 26(e) of the Income Tax Assessment Act 1936 ("the Act") and the Commissioner considered that the "value to the taxpayer" of those benefits was the amount so paid. That being so, on 17 May 1984 the Commissioner issued an amended assessment increasing the taxable income of the applicant to $49,529. The applicant objected to the assessment. The issues as argued were:

• (a) whether any amount was assessable pursuant to sec. 26(e) of the Act and, if it was, was "the value to the taxpayer" $4,066 or some lesser sum; and, alternatively,
• (b) whether the amount so paid constituted a "living-away-from-home" allowance within the meaning of sec. 51A of the Act and, if so, to what extent (if any), a deduction should be allowed.

3. Prior to taking up his appointment in Australia the applicant was a senior executive working and residing in the United Kingdom. He and his family resided in London in a home which was subject to a mortgage in favour of the organisation with which he was employed. The organisation comprised a holding company and numerous subsidiaries, one of which was his employer in the United Kingdom: another was a company which was to become his Australian employer. The Australian employer was the Australian holding company for several subsidiary Australian companies.

4. In October 1981 the applicant agreed to accept appointment as managing director of the "(Australian) group of Companies". The arrangements which were made were that he

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would serve in Australia for up to five years on secondment. It was recognised that he might elect to remain permanently in Australia but, unless he decided to do so, he was to be re-employed in England with his then employer. In that event he and his family and their personal effects would be returned to the United Kingdom at no cost to himself or his family. The arrangements made included provision for a salary of $A41,000 per annum to be reviewed on the same basis as for United Kingdom staff (the salary to 30 June 1983 was $45,359); for, what the parties described as, "a representational allowance" of $2,000 per annum, a once-only "dislocation allowance" equal to 10% of annual salary, and a "living-away-from-home allowance" of $3,000 per annum; for the provision of "a suitable furnished house in Sydney... at a rent to be determined by the employer"; for continuance of U.K. pension scheme membership; for provision of a company car wholly at the cost of the employer excepting only petrol and oil costs for private use outside the Sydney metropolitan area; for reimbursement of all entertaining and travelling expenditure incurred for business purposes; for the employer to meet 75% of the cost of the applicant's private telephone; for the employer to meet the full cost of membership of one city club of the applicant's choice; and for the right in the applicant to have his wife - and, it would seem, his children - accompany him on his obligatory annual visit to the U.K., provided the cost was not to exceed the cost of two first-class air fares.

In addition, it was provided that "the Company will bear the cost of school fees for suitable private education of your children". It is only that aspect of the agreement which gives rise to any dispute. When the applicant presented his return of income he disclosed as assessable income both the "living-away-from-home allowance" and the representation allowance, claiming deductions for all but $104 of the former item.

5. Understandably, having regard to the amounts involved, the applicant did not return to Australia to give evidence. His representatives sought to have admitted into evidence an affidavit which was in part objected to on behalf of the Commissioner. The parts objected to in essence related to comments in the affidavit suggesting that in Australia private schools offered a superior standard of education than public schools; and that only private schools in Australia offer a standard of education equivalent to that of the standard of education provided free by the State schools in the United Kingdom which had been attended by the children. I declined to admit the affidavit in so far as it made such assertions. One consequence is that, having regard to such evidence as was admitted, I will make no findings as to why private schools and, more particularly, the private schools in question were chosen; or as to the comparative standards of any class of school in either country. Nothing in that circumstance will influence the outcome.

6. I first address the question of a "living-away-from-home" allowance. As to that, I am satisfied that the answer is clear. The amounts in question - I say nothing of the $3,000 claimed and allowed as such an allowance - did not constitute a "living-away-from-home" allowance within the meaning of sec. 51A of the Act. A man with wife and family is aptly said to reside where he has his settled or usual abode with them even though, from time to time, he leaves that place for the purpose of business or pleasure (
Levene v. I.R. Commrs (1926) 13 T.C. 486; cf. also
F.C. of T. v. Applegate 79 ATC 4307). Nothing in the evidence persuades me that it would be appropriate to describe the circumstances of the applicant as being temporarily absent from his English home while he was in fact residing for over two years in Australia in a settled place of abode with his family. I am supported in that conclusion by the circumstance that he was paid a "dislocation" allowance which, as I understand the evidence and arguments, was intended to compensate him on a "one-off" basis for the incidental costs which would attend the establishment of a new "home" in Australia as a substitute for the home formerly occupied in England. In those circumstances, I am satisfied that the school fees were not paid to compensate the applicant "for the additional expenses incurred... through having to live away from his usual place of abode". Accordingly, they do not constitute a "living-away-from-home" allowance. Having reached that conclusion it is not necessary to consider what amount, if any, it would have been reasonable to allow as a deduction

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pursuant to any provision of sec. 51A(2) of the Act.

7. I now proceed to a consideration of sec. 26(e) of the Act, which provides:

"26. The assessable income of a taxpayer shall include -

• (e) the value to the taxpayer of all allowances, gratuities, compensations, benefits, bonuses and premiums allowed, given or granted to him in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by him, whether so allowed, given or granted in money, goods, land, meals, sustenance, the use of premises or quarters or otherwise;
  • Provided that..."

It is common ground that the proviso has no relevance.

8. When the applicant moved to Australia from the United Kingdom it was no doubt true that in financial terms the move would be a mixed blessing if the family were to maintain the standard of living they had known and not increase it. It is probably true to say that in Australia travelling costs for the family would have been increased because of longer distances; but that heating costs would have been reduced because of climate. Determining the lie of the balance after all factors were taken into account goes beyond what is necessary for the purpose of determining this reference. But it is at least clear that, at least in the perception of the applicant, one major disadvantage in the move was to be experienced in providing for the education of two of the children. That consideration was sufficiently significant to be specifically addressed in the financial arrangements made between employer and employee. One result was that over and above the salary to be paid and independently of the provision of services such as use of motor vehicle, entertainment allowances, telephone subsidy, club membership and the like, provision was made for the payment of school fees by the Australian employer. That payment was to be effected by or on behalf of an Australian employer in respect of an employee resident in Australia rendering services in Australia to his employer in Australia. Throughout the year of income in every sense the applicant was a resident of Australia although he was a former resident of the United Kingdom on secondment to the Australian "group" and a person who was always likely to return to the United Kingdom - as in fact he later did. In those circumstances, I have no doubt that the action of the employer in effecting payment of the school fees for which the applicant had become liable by reason of enrolling his children at the school, did confer a relevant benefit on the applicant. For that reason I am satisfied that, to the extent of "the value to the taxpayer" of those benefits, the Commissioner is entitled to succeed.

9. In considering "the value to the taxpayer" of the benefit, the Commissioner contends that it is appropriate to consider the matter in a wholly Australian context. The Commissioner's representative submits that the matter should be viewed on the basis that the applicant, as an Australian resident and employee, had chosen to enrol his children in private schools with the consequence that he became liable for the payment of school fees and that he benefited to the value equal to the amount of those school fees by reason of them being paid on his behalf by his employer. On the other hand, for the applicant, it is contended that there was no advantage to him arising out of the arrangement in that, prior to his Australian appointment, he had not incurred any obligation to pay fees and that the effect of the arrangement was merely that it ensured that he was able to ensure the continuation of a standard of education comparable to, but not better than, that which they had known in the United Kingdom where that standard of education had been provided without expense to him. Accordingly, the applicant contends that the benefit was without value to him inasmuch as it did not contribute at all to any improvement in his financial position.

10. I am of the opinion that the argument for the Commissioner is to be preferred. In my opinion, when the applicant determined to take up an appointment in Australia and to reside here for the duration of that appointment, he accepted all that went with it: the climate and the fauna; the distances and the scenery; the warmer winters and the blowflies of summer; and the entire social complex including the medical, educational and taxation systems. In my view the question of "the value" of the benefit has to be assessed in that context; and in

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that context "the value" was the amount paid on behalf of the applicant by his employer.

11. In considering the reference, it is appropriate to consider the reliance placed by the applicant upon Taxation Ruling IT 2177 dated 23 July 1985. The ruling was not advanced as something in the way of a definitive statement of the law binding upon the Tribunal, but rather as supporting an argument that, even by his own standards, the Commissioner had erred in making the particular assessment, and further, as indicating that the correct interpretation was that contended for by the applicant. In that ruling the Commissioner recognised "bona fide scholarship scheme benefits" as lying outside the scope of sec. 26(e). He also referred to another circumstance which:

"arises in the specific situation where a payment, however made, is designed to compensate an employee for additional expenditure incurred by reason of transfer to a remote locality in the course of employment. Such a payment will not represent a benefit in terms of para. 26(e) where it is clear that it is made to alleviate necessary additional expenses of education caused by the relocation of employment and the remoteness of the locality from acceptable educational facilities."

For the Commissioner, it was contended that the phrase "remoteness of the locality" could not be aptly used to describe Sydney. I doubt that any Londoner would agree. After all, Sydney is as remote from, say, Melbourne as that city is from Sydney. But "remoteness" per se is not the test proposed by the ruling. The question is not whether the two places of employment are remote from each other but rather whether a place to which a person is newly appointed is remote "from acceptable educational facilities". By that standard I am not persuaded that the consideration which occasioned any additional expense was remoteness.

12. I affirm the determination of the Commissioner upon the objection.