Case U91

RK Todd DP

Administrative Appeals Tribunal

Judgment date: 16 April 1987.

R.K. Todd (Deputy President)

The applicant taxpayer is a senior Commonwealth public servant who held a permanent substantive position in a State office of his department. Due to managerial problems in that office, his superiors determined that he should leave that office and return to central office in Canberra. Although he could not be forced to move, he was given what one of his superiors, Mr X, described in evidence as "an offer he could not refuse".

2. As there was no position vacant in Canberra, a position was created for the applicant so as to ensure that he could transfer at the same level as that which he had held in the State office. The applicant stated that he had said in discussions with senior officers that while he would agree to the transfer he believed that he "should not be penalised financially by the move".

3. At the time of the transfer, the applicant owned a house in the State capital and a house in Canberra. The house in Canberra had been purchased at a time when he had held a previous position in Canberra before moving to the State office. It had been leased to tenants when the applicant had moved to the State office. As he was returning to Canberra

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permanently he decided to sell the house in the State capital.

4. A real estate agent whom the applicant consulted suggested that the house be auctioned, and an auction was held but was unsuccessful. The house was however sold within a week by private treaty to a person who had not attended the auction. The Public Service did not reimburse the applicant the $742.50 for the costs and expenses of the unsuccessful auction, and the applicant claimed this amount as a deduction under sec. 51(1) of the Income Tax Assessment Act 1936. The claim was rejected both initially and upon objection, and the applicant now appeals to the Tribunal for review of the decision on the objection.

5. It was argued by the applicant that "as the expenditure was incidental and relevant to the gaining or producing of the taxpayer's assessable income being salary as a Public Servant there is no need to look to the categories of outgoings of capital, or of a capital, private, or domestic nature, or incurred in relation to the gaining or producing of exempt income. Once an item is characterised as revenue expenditure it is deductible".

6. The applicant submitted that his "salary was payable as remuneration for everything comprised in or incidental to his service such as moving to meet the needs of his employer in reorganizing the leadership in [the State capital]". It therefore followed, he contended, that as the transfer was at the direct request and to the benefit of his employer, it was within the scope of the duties which "the employer required of him as a Public Servant".

7. While the evidence is clear that the applicant's employer required him to transfer to the central office, the evidence of Mr X was not that the move would be at no expense to the applicant, but that the applicant should receive all of the appropriate allowances. This did not include the cost of the abortive auction. The Tribunal is however of the view that whether or not the employer would defray the expense in question is not conclusive in deciding whether the auction costs were incurred in the gaining or producing of assessable income or whether they were of a private or domestic nature.

8. In Case B18,
70 ATC 78, which concerned bank employees who were transferred interstate and who claimed inter alia as deductions the costs incurred in selling their houses, Mr G.R. Thompson (Member) at p. 87 stated:

"12. The problem with which the Board is concerned, it seems to me, is one stage more remote from the income producing process than the payment of fares from home to place of employment, for here the items in question relate to the disposal of one home base and the acquisition of another. This takes the task of equating the losses or outgoings claimed by the taxpayer, and now under objection, with the process of gaining or producing assessable income out of the realm of mere difficulty into the area of impossibility. Deductibility under either limb of sec. 51(1) is thus denied without turning to the express exception of `losses or outgoings of capital, or of a capital, private or domestic nature' to be found in that section.

13. If it were necessary to consider that exception, and it were necessary to describe the essential nature of commission and stamp duties relating to the sale and purchase of family homes, one could not find a more apt adjective than `domestic', for the Shorter Oxford English Dictionary includes the following meaning to that word: `Of or belonging to the home, house or household; household, home, family'."

While the applicant submitted that cases such as this (as well as Case G4,
75 ATC 14) could be distinguished on the footing that the expense which he incurred was contemporaneous rather than a prerequisite, I refer to and adopt Case B18 and the reasoning set out above.

9. In support of the Commissioner's contention that the expense was of a private or domestic nature is the evidence of Mr X that the department did not require him to sell his house.

10. Extensive submissions were also put by the applicant on whether the tail, as the applicant called it, of sec. 51(1) was in fact an exemption or "rather a contradistinction placed in the statute by Parliament for emphasis as an example of the type of expense which will not usually be allowed". In support of this submission he cited
F.C. of T. v. Hatchett 71 ATC 4184; (1971) 125 C.L.R. 494,
F.C. of T. v. Forsyth 81 ATC 4157 and
Handley v. F.C. of T. 81 ATC 4165. Even accepting the submission on this point of interpretation as put

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by the applicant, the Tribunal finds that it is not within what Menzies J. described in Hatchett at ATC p. 4186; C.L.R. p. 498 as "a rare case where an outgoing incurred in gaining assessable income is also an outgoing of a private nature".

11. On either view of the meaning of the tail of sec. 51(1), the expenses claimed are not, in my opinion, deductible and I therefore express no opinion as to which view is correct.

12. In the result I am compelled to find that the costs and expenses of the abortive auction were not incurred in gaining or producing assessable income and were of a private or domestic nature.

13. Unfortunately the applicant became a victim of a ruling that while his employer would have reimbursed him the costs of the auction had it resulted in a successful sale, it would not so do where the sale did not result from the auction. But the tax law does not in my opinion offer any means whereby this circumstance can be ameliorated.

14. For the reasons given above the Tribunal affirms the objection decision under review.

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