Administrative Appeals Tribunal
R.N. Purvis J. (Presidential Member)
The applicant taxpayer in this review is an employee of the respondent Commissioner. He is an inspector.
In the year ended 30 June 1983 and whilst so employed, the applicant involved himself in a course on communication, clear self-expression, and work organisation. The cost to the taxpayer was $1,650 and this outgoing he claimed as an allowable deduction in the year of income.
In his notice of objection against the assessment the taxpayer alleged:
- • that the course undertaken contained essential features which would assist the taxpayer in carrying out his responsibilities as a taxation officer more efficiently and effectively, thus, ultimately leading to career promotion and increased income;
- • that the taxpayer's position within the Department entails constant contact with Australian taxpayers face to face and over the telephone. Accordingly, it is submitted, that the course undertaken is essential to the taxpayer to carry out his work;
- • that the course did not lead to further or new qualifications nor was it undertaken at a recognised tertiary institution;
- • that, accordingly, it is submitted, that the expense was necessarily incurred in deriving assessable income and therefore deductible in terms of sec. 51(1) of the Act.
It was claimed on behalf of the taxpayer at the hearing that his motive in undertaking the course was to enable him to better perform his functions at work, to enhance his chances of promotion and lead to increased salary. He derived, it was said, new concepts for teaching and training, this he translated into a training package "New Concepts for an Inspection Training Package".
The applicant is a tax office inspector and had been so employed with the respondent for a period of about ten years.
The course that the taxpayer undertook was not openly recommended or encouraged by the
ATC 617respondent. It was not necessary to his work but it was, according to the applicant, important to him that he undertook it.
The taxpayer had become aware of the course and the organisation conducting it through a friend, a travel agent, who herself had enrolled in it. The course attended by the applicant, and in respect of which the claim is made, related to communication, being of service, and break through. The "break through" course extended over some six months and was designed to improve self-esteem, working with other people, and achieving a person's potential. It entailed abseiling and meditation. The occupations of those who enrolled were many and varied, "garbos - bus drivers - doctors" and a tax officer. "Stress management" had a high priority as a theme of the course, not, however, related exclusively to the work environment. A person's diet and state of mind were addressed. The aim was in part to help a student prove to himself that he could cope with situations as they presented themselves to him.
Generally the course was designed to render a student a "better person". It related to "body language", the awareness of others and an appreciation of ways of handling interviewees, this from the way a person sits, stands, holds his hands or whatever.
The taxpayer said that he entered upon the course with the intention of improving himself, obtaining promotion in the tax office and attaining a higher salary.
Prior to his commencing upon the course the taxpayer said that he had become aware of the following:
- (a) As an inspector he was mainly working on his own. He needed to be "self-motivated" to effectively do his work.
- (b) To be successful when interviewing, an inspector had to be brief and resourceful; he had to organise his material and be efficient.
- (c) Reports to his superiors at the tax office had to be explicit.
- (d) It was desirable, in his opinion, to have a section in the tax office directed to training staff personnel.
- (e) To obtain promotion and a higher income, he would need to himself engage in an improvement course.
As a consequence of his having attended and undergone the rigours of the course, the applicant said that he:
- (i) felt more self-motivated;
- (ii) felt more confident in conducting interviews;
- (iii) believed that the course had assisted him in being able to carry on his work in a "better fashion", he felt able to communicate with others on topics that they were often not willing to discuss;
- (iv) felt more aware of himself and others, his self-esteem had increased - he felt more of an "all-round" individual;
- (v) felt that his relationship with "people at work and socially" improved and that whilst he had become divorced from his wife during the period, that even this he had been able to handle "more easily". He was able to cope with everyday situations;
- (vi) felt that he would be more able to cope with stressful situations, both on his own and with others.
A short time after completing the course the taxpayer produced a document entitled "New Concepts for an Inspection Training Course". The material in the document was not all of his conception, he did utilise material of which he had become aware in his class dealing with communication. He approached his manager at the tax office indicating that he would be happy to prepare appropriate material to get a training course in operation. The document above mentioned was the sequel. A few weeks after the taxpayer handed the document to his superior a supervisor's training section was started and the applicant was put in charge of it and asked to write material for the program.
The taxpayer said that the ideas set forth in his own document were incorporated by him into the training program. He does not say, however, that the supervisor's course of the respondent was derived from the self-transformation course. In about September 1983 the applicant was promoted and he became a full-time training officer in the general inspection section of the respondent.
Section 51(1) of the Income Tax Assessment Act
The claim made by the applicant is pursuant to the provisions of sec. 51(1) of the Act. So
ATC 618far as it is relevant to these reasons, the section provides:
"51(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."
The taxpayer did not, at the relevant time, carry on a business (sec. 6(1)). The outgoing would need to have been incurred in the gaining or producing of his assessable income for it to be an allowable deduction.
John Fairfax & Sons Pty. Ltd. v. F.C. of T. (1958-1959) 101 C.L.R. 30 at p. 40 Fullagar J. in dealing with the above-mentioned section and when referring to the two categories contained in it being mutually exclusive said that the first category, which is that with which I am concerned in this review "is directed to expenditure incurred in the actual course of producing assessable income... It is, primarily at least, concerned with expenditure voluntarily incurred for the sake of producing income...".
F.C. of T. v. Finn (1961) 106 C.L.R. 60 at p. 69 Kitto J. said:
"... It is, I think, a correct application of the terminology of s. 51 to say that he was engaged in `gaining' that salary [as an architect with the Public Works Department of Western Australia] whenever and so long as he acted in the fulfilment of his office; for the salary payable was his remuneration for everything comprised in or incidental to his service.
The respondent incurred the expenditure during a period of leave, and in carrying out activities beyond any which had been or could lawfully have been specifically required of him by the Government. But it was nevertheless in my opinion incidentally to the proper execution of his office and not otherwise that he engaged in those activities. For the office was of a kind which by its nature made incumbent upon the occupant much more than the performance of set duties at set times. Its professional status implied an obligation of progressive acquaintance with a living and developing art. It was therefore, I think, plainly incidental to the office that the respondent should avail himself of such opportunities as might arise to add... even if also in his own interests, to his knowledge and understanding of architectural achievements and trends..."
Finn's case was clearly one in which the expenditure was incurred in the practice of carrying out the duties which gave rise to the assessable income. (See
F.C. of T. v. White 75 ATC 4018 at p. 4021.) It may be thought that this was not so in the subject case.
Magna Alloys & Research Pty. Ltd. v. F.C. of T. 80 ATC 4542 at p. 4550 Brennan J. when discussing Finn's case said that Dickson C.J. there implied that a taxpayer's motive or purpose may be material when evaluating the conclusions which might be considered to govern the character of the expenditure in question. He used the phrase (at p. 67) "so far as motive or purpose is material". His Honour continued by saying that the evidentiary effect of a taxpayer's state of mind is to be distinguished from the objective purpose of expenditure incurred. At pp. 4551-4552 he said:
"Given a sufficient identification of what the expenditure is for and the character and scope of the taxpayer's income-earning undertaking or business, the question whether expenditure is incurred for the purpose of carrying on a business or for the purpose of gaining or producing assessable income does not depend upon the taxpayer's state of mind. The relationship between what the expenditure is for and the taxpayer's undertaking or business determines objectively the purpose of the expenditure. In cases to which a reference to purpose is required or appropriate, objective purpose will be found to be an element in determining whether expenditure is incurred in gaining or producing assessable income or in carrying on business. If the purpose of incurring expenditure is not the gaining or producing of assessable income or the carrying on of a business, the expenditure cannot be said to be `incidental and relevant' to gaining or producing assessable income or carrying on business; or to be incurred `in the course of gaining or
ATC 619producing' assessable income or of carrying on a business; nor can the undertaking or business be seen to be `the occasion of' the expenditure."
In further discussion of the requirement that the claimed outgoing be "necessarily" incurred in carrying on a relevant business Deane and Fisher JJ. in Magna Alloys (supra) at p. 4557 said that the requirement does not in the relevant context mean that the outgoing must be either "unavoidable" or "essentially necessary". Nor does the word "necessarily" import a requisite of logical necessity. What is required is that the relative expenditure be appropriate and adapted to the needs of the business carried on for the purpose of earning assessable income (see
Ronpibon Tin N.L. and Tongkah Compound N.L. v. F.C. of T. (1949) 78 C.L.R. 47 at pp. 55-56). Their Honours continued (p. 4558) by stating that:
"It is clear from the authorities that there are circumstances in which the subjective purpose or motive of the taxpayer will be of little assistance in determining whether an outgoing was necessarily incurred in carrying on a business... The subjective purpose or motive of a taxpayer either in incurring an outgoing or in engaging in an activity which attracts liability to make the outgoing is not however irrelevant to the question whether the outgoing was necessarily incurred in carrying on the relevant business... [p. 4559]... To the extent that the subjective element is relevant, what is important in the case of a voluntary outgoing is the identification of the advantage or advantages which the outgoing was intended to achieve on behalf of the taxpayer regardless of whether that advantage or those advantages were seen as the direct result of the outgoing or as indirectly flowing therefrom or of whether the pursuit of them should be seen as `purpose' or as `object' or as `motive'..."
The question of the allowability of education expenses there referable to the occupation of the taxpayer as a teacher was considered in
F.C. of T. v. Hatchett 71 ATC 4184 where at p. 4187 Menzies J. dealt with the second of the items of expenditure there the subject of consideration, namely, university fees. His Honour said:
"The university fees paid were paid with the encouragement of the department [State Education Department]; it contributed towards them. This, however, is not, of itself, enough to bring the fees within sec. 51. Enlightened employers often encourage employees to improve their bodies and their minds, and assist them to do so. Such encouragement is not, of itself, enough to warrant the deduction of outgoings for these purposes. The test to be applied is a more stringent one, namely were the outgoings incurred in gaining assessable income?
Here I am not dealing with the general question whether the payment of university fees can ever afford a deduction from assessable income; I am dealing with the particular question whether the fees paid by the taxpayer in the circumstances already stated are deductible. As I have said, I am not able to find any connection between the payment of fees and the assessable income of the taxpayer beyond the circumstance, which I take to be self-evident, that a teacher who has pursued university studies is likely to be a better teacher than if he had not done so and is therefore more likely to obtain promotion within the department. In my opinion this general consideration is not enough to make the fees deductible; there must be a perceived connection between the outgoing and assessable income..."
The question here at issue was also considered in F.C. of T. v. White 75 ATC 4018. At p. 4021 Helsham J. said that expenses incurred by a taxpayer for education that better equip him as an employee to carry out the duties of his employment and further his prospects of advancement in that employment and so increase his income can be outgoings incurred in gaining or producing his income. His Honour having referred to Finn's case (supra) and Hatchett's case (supra) at p. 4022 said:
"As the result of the decision in the two cases it seems to me possible to say that 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. Where that cannot be seen, I think it will be difficult to
ATC 620establish the necessary connection between the study activity and the employment so as to give study expenses the character of outgoings incurred in gaining or producing the income derived from the employment."
His Honour continued by saying that it is not enough that the course of study relevant to employment pursued by an employee should be likely to enable the employee the better to carry out his work, and hence obtain promotion even if this be encouraged by his employer.
Conclusions to be drawn
From the facts that have been set forth earlier in these reasons, a number of conclusions can be drawn directly relevant to whether the expenditure on the course was incurred in gaining or producing the assessable income. They are:
- (a) the course was undertaken voluntarily by the applicant;
- (b) the course was designed to assist those who felt in need of motivation and purpose in life, to improve the student's self-esteem, to make him a better person within himself;
- (c) the course was available to any who applied and presumably who were compatible with the other students;
- (d) the applicant enrolled in the course and remained so;
- (e) the course was rewarding to the applicant and rendered him the more able to cope with stress. It made him, so he said, a better investigator, more innovative and confident.
On behalf of the taxpayer it was submitted that by reason of his having undergone the course he was the better able to discharge his present duties. The evidence does not support this submission. He was indeed given an additional task to perform and he was promoted, but there was no evidence linking the taking of the course with his capacity to perform the additional task. Indeed, the taxpayer expressly stated in his evidence that he did not know whether he would or would not have been able to put together an investigating officer's program before he undertook the course. His case was not to the effect that the program derived from the course. He was, he said, "a better person and one aspect of this extended to his work".
It was further said on behalf of the applicant that he had become a more capable tax officer, able to assess truth and falsity. There was not any objective evidence to this effect. It was said that consequent on the course he hoped for promotion, "job satisfaction", "work enrichment", and a pay increase.
However, in the present case I am not able to say that the expense incurred in pursuing the self-motivation course as claimed was such as to have a sufficient nexus with his employment so as to qualify as an allowable deduction under sec. 51 of the Act.
It cannot be said that the studies comprised in the course were part and parcel of the employment, nor were they incurred in the process of carrying out his duties as an employee of the respondent. Nor could it be seen that they would have a direct effect on his income.
Thus, the necessary nexus between the study activity and the employment, so as to give the study expenses the character of outgoings incurred in the gaining or producing of income derived from employment, is missing.
It is not enough as I have already indicated, that the course of study relevant to the employment pursued by an employee, "should be" likely to enable the employee the better to carry out his work, and hence obtain promotion. This be it even if encouraged by the employer.
Relevance to performance of duties there might be, but this is not enough.
Accordingly, I do not consider that the expenses claimed by the taxpayer referable to the course undertaken by him fall within the meaning of sec. 51(1) of the Income Tax Assessment Act and I would, accordingly, disallow the application for a deduction.
I reject the application for a deduction in relation to the expenses claimed and confirm the assessment.
The assessment of the respondent Commissioner is confirmed.