Case U113

Members:
RK Todd DP

Tribunal:
Administrative Appeals Tribunal

Decision date: 19 May 1987.

R.K. Todd (Deputy President)

This is a review of objection decisions of the respondent Commissioner of Taxation. The applicant's claims relate to two years of income, namely the years ended 30 June 1983 and 1984 respectively. The terms of the decision to which the taxpayer objected can only, in the circumstances, be explained by setting out the history of the returns, of the assessments that were issued, and of the decisions made on objections that were lodged by the applicant.

2. In the 1983 year, item 29 of the return ("Other expenditure incurred in earning your income") included the statement: "Self-education expenses (attachment 1) 532". Attachment 1 stated, inter alia:

"Self-education expenses

As a training officer it is essential to maintain and continually keep abreast of new developments in training and development skills. This fact is recognised by my employer who granted me paid leave to commence the Graduate Diploma in Social Communication Course at... College in January 1983. The following expenses were necessarily incurred:

                                            $
      Portion of rent applicable to
      home study                           165
      Lighting and heating of home
      study                                 16
      Motor vehicle expenses               408
      Books
        "Freedom to Learn"                  18
        "Self-directed Learning"             8
        Student fees                        41
        Residential fees                   126
                                          ----
                            Total:        $532
                                          ----
              

1. One room is exclusively set aside as a study. It represents ⅙ of total floor area. Total rent is $90 per week. Claim: ⅙ X $90


ATC 678

X 22 weeks X ½ share = $165. Note that this amount and a further $85 has been excluded from the total to satisfy the provisions of section 82A.

2...."

3. The sum of $532 set out as the total of the figures in the column set out in the return is not $532 as stated, but $782. The explanation of the sum of $532 is that given, namely that from $782 the applicant subtracted $165 and then $85 (a total of $250). The logic of this exercise, and the assumptions underlying it, are discussed below. What is important is that, whether or not the applicant was right in the basis of her calculations, what she claimed was a deduction, and not that any sum was a rebatable amount under the law as it then stood.

4. The next step in the story was that shown in an adjustment sheet that accompanied the assessment:

      "Self-education expenses reduced
      from $532 to $367 as it is not
      considered that rent is an
      expense of self-education           $165."
            

The figure $367 can be reached in the following manner:

                                          $
      Total of amounts referred to
        in return                        782
      Less claim re rent                 165
                                         ---
                                         617
      Less $250 under sec. 82A           250
                                        ----
                                        $367
                                        ----
          

5. For reasons which will appear, these figures would, in my opinion, represent the applicant's correct entitlement to a deduction, but the explanation in the adjustment sheet was as puzzling as the way in which the claim was set out in the return.

6. In her objection the applicant stated, so far as relevant:

"That the definition of expense of self-education contained in section 159U includes rental of home study. As an external student undertaking a prescribed course of education I have necessarily incurred the expense. It is respectfully pointed out that necessarily incurred as contained in the definition does not imply that only inescapable expenditure may be rebated. It is sufficient that the expenditure is of a kind that it is considered reasonable to incur in connection with self-education."

7. It will be seen that at this point the applicant introduced what I regard as a red herring, namely the provisions of sec. 159U of the Income Tax Assessment Act 1936 ("the ITAA") as it stood at the relevant time. Section 159U made expenses of self-education as defined a rebatable amount for the purpose of calculating the applicant's concessional expenditure rebate under sec. 159N. In order to make effective a claim to such a rebate, it was necessary that the applicant's total qualifying concessional expenditure exceed a stipulated threshold amount, for it was only to the extent of such excess that such a claim could be effective.

8. To complete the history of the 1983 year, the reg. 35(1) statement furnished to the Board of Review and thus to this Tribunal, the reference having been referred to a Board and then transferred to this Tribunal, while purporting to deal with both the 1983 and 1984 year gave as the Commissioner's reasons for disallowing the claim the following:

"Rental expenditure of $165 claimed as self-education expenses is not deductible under section 159U as the expense was not necessarily incurred by the taxpayer for or in connection with a prescribed course of education.

Alternatively the expense is not deductible under s. 51(1) because:

  • (a) the expenditure was not incurred in gaining or producing assessable income;
  • (b) the expenditure is an outgoing of a private or domestic nature."

9. I do not understand what sec. 159U has got to do with it. The applicant had made no claims or assertions, nor had the respondent, about any question of rebatability. No doubt because she had insufficient concessional expenditure to reach the required threshold, the applicant had not filled in the concessional expenditure claim which would have needed to be included in the return if she had. "Rebatability" is irrelevant.

10. When we get to the 1984 year, the claim took a somewhat different form. Leaving out some irrelevant material, it was as follows:


ATC 679

"Self-education expenses

The following expenditure was incurred in undertaking the Graduate Diploma in Social Communication Course. Refer to last year's return for further details:

                                            $
      Residential fees and
      subscriptions                      250.00
      Student fees                        40.00
      Light and heating of home
      study                               46.00
      * Rent of home study               250.00
      Text books                          43.75
      Motor vehicle expenses
        (a)  . . .                       503.10
        (b) . . .                         68.80
      Pens and stationery                 16.00
                                      ---------
                                      $1,217.65
      Less $250 per sec. 82A             250.00
                                      ---------
                                        $967.65
                                      ---------
              

*Total expenditure on rent = $5,200 X ½ share X ⅙ area = $433. Note that $250 representing rent of home study has been claimed under sec. 159U. Thus no portion of the excess over $250 in the above claim of $968 is expenditure of a private nature."

11. Pausing there, it is apparent that while the "actual" expenditure on rent of the home study was $433, only $250 was "claimed". Accepting for the moment the applicant's analysis, this can only have been, as the statement in the last sentence of the extract just quoted indicates, on the basis that the difference between $250 and $433 ($183) represented an expenditure of a private or domestic nature. The applicant's representative at the hearing as good as conceded this and, in my opinion, such a concession would be clearly correct. But this, of course, exposes a logical flaw to which I shall return later. The $250 is no different in character, so far as being "private or domestic" is concerned from the $183. The taxpayer's treatment of the $250, that is to say bringing it within the totality of the claim and then withdrawing it again, cannot change its character.

12. The adjustment sheet for the 1984 year stated:

"Self-education expenses reduced from $968 to $718 as it is not considered that rent is an expense of self-education."

13. In her objection in relation to the 1984 year the applicant stated, so far as relevant:

"That an amount of $250 representing my share of rent of a home study is an expense of self-education as defined in sub-section 159U(5) of the said Act. The balance of self-education expenses ($968) is therefore allowable under sub-section 51(1) because the provisions of section 82A have been satisfied i.e. the amount claimed under sub-section 51(1) is not greater than the amount by which the net amount of expenses of self-education exceeds $250 and no part of the amount claimed under sub-section 51(1) represents expenditure of a private or domestic nature or is otherwise not allowable under sub-section 51(1)."

14. The reg. 35(1) statement, purportedly covering both years, although it referred only to the figures for the 1983 year, has already been set out in para. 8 above.

15. The relevant facts are as follows: In July 1982 the applicant and her husband moved from a two-bedroom home unit to a three-bedroom town house because the applicant intended to commence a course of external study, her husband was currently undertaking part-time studies, and it was considered that a third bedroom was needed for use exclusively as a study. The amount of the deduction claimed was one-twelfth of the rent, being one half, her husband having claimed half, of the estimated proportion of the floor area of the house taken up by the study. The same fraction of the rent was claimed when they moved to another rented house in December 1983. The applicant said that she used the room in question for her study program about every second evening. She read set texts, made notes, read lecture notes and prepared assignments. She also used libraries at weekends.

16. The provisions of the ITAA in force at the relevant times that were referred to in argument were as follows:

"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


ATC 680

a capital, private or domestic nature, or are incurred in relation to the gaining or production of exempt income."

"82A(1) Where a deduction is, or but for this section would be, allowable to the taxpayer under section 51 in respect of a year of income in respect of expenses of self-education, the deduction, or the aggregate of the deductions, so allowable to the taxpayer in respect of those expenses shall not be greater than the amount by which the net amount of expenses of self-education exceeds $250.

  • (2) In this section -
    • ...
    • `expenses of self-education' means expenses necessarily incurred by the taxpayer for or in connexion with a prescribed course of education."

"159U(1) Where -

  • (a) the taxpayer has, in the year of income, paid expenses of self-education;
  • ...

the total amount of those first-mentioned expenses of self-education shall be treated, for the purposes of section 159N, as a rebatable amount in respect of that year of income.

...

(5) In this section -

  • `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;..."

17. I have already said that I do not understand why sec. 159U was referred to by either side. It seems to have come on to the scene because it refers to expenses of self-education and contains a definition thereof, the opening portion of which reflects the definition of the same expression in sec. 82A. But that section, which was repealed by Act No. 123 of 1985, had no part to play other than in the context of a claim for a rebate of tax. There was no such claim here. In analytical terms, the position, as far as the assessment of this applicant was concerned, was at the relevant times the same as if sec. 159U had already been repealed. The question is one of the interaction of sec. 82A, which contains its own definition of expenses of self-education, with sec. 51. As far as sec. 159U was concerned, this problem of interaction with deductibility was dealt with by the exclusionary portion of the words of the definition in sec. 159U of "expenses of self-education". Where rebatability is not in issue, the interaction problem is satisfied by the mutual effect of sec. 82A and 51. Section 159U can in this case be put aside as irrelevant.

18. My conclusion as to the irrelevance of sec. 159U may, on one view, seem inconsistent with some of what was said by Mr H.P. Stevens (Chairman) in para. 5 of the decision of the Board of Review (No. 1) in Case R62,
84 ATC 454. But it is noted that in that case the taxpayer apparently was able to claim rebatable amounts to the required extent. I further note that Mr P.M. Roach (Member), with whom Mr T.J. McCarthy (Member) agreed, dealt with the matter without reference to sec. 159U and in line with the approach which I have adopted above.

19. Before sec. 82A can operate, the question must be decided whether "a deduction is, or but for this section would be, allowable to the taxpayer under section 51". As previously stated, the taxpayer here as good as conceded that the expenditure in question was of a private or domestic nature, and even if no concession had been made, I would have found that the expenditure should be so characterised. On this footing the expenditure was not allowable as a deduction under sec. 51, and no question under sec. 82A arises. What is of course exposed is that what the taxpayer was trying to do was to avoid the effect of the $250 "excess" provision contained in sec. 82A, and thus to boost the quantum of the admittedly allowable deductions under sec. 51 by making it appear that the question was not one under sec. 82A with its $250 "excess" at all, but rather was a question under sec. 159U, a provision which was not concerned to set what in the world of insurance would be called an "excess" for deductibility under sec. 51 but rather was concerned to provide an upward limit of $250 for qualifying concessional expenditure: Cf. Case U45,
87 ATC 320, where the applicant


ATC 681

unsuccessfully claimed, inter alia, that travel expenses should be "allowed" under sec. 159U even though not allowable under sec.51 because of their private or domestic character, and that they should be first taken into account for rebate purposes so as to maximise the amount allowable under sec.51.

20. On this footing the matter in my opinion ends there. I think it proper, however, in the circumstances to consider the matter also on the basis of the primary question posed by sec. 51, namely whether the expenditure in question was incurred in gaining or producing assessable income, or was necessarily incurred in carrying on a business for the purpose of gaining or producing such income. As to the latter, this does not reopen the old debate that took place in relation to the deductibility of expenses of ballet lessons and purchase of encyclopaedias, and which was dealt with in a number of cases before Boards of Review which were mentioned in argument before me: See in particular Case G1,
75 ATC 1; Case G64,
75 ATC 463. The question in that case was whether the phrase "necessarily incurred" in sec. 82J in relation to education expenses should have the meaning given to it in relation to sec. 51 of "clearly appropriate or adapted for": See
Ronpibon Tin N.L. v. F.C. of T. (1949) 78 C.L.R. 47. The view taken by the majority of the Board of Review in Case G1 appears to be supported by the judgment of Sangster J. in
Pearce v. F.C. of T. 79 ATC 4195. But as the question presently before me is one arising under sec. 51 this point need not be pursued.

21. This case must therefore be decided in accordance with what is now a long list of cases heard before Boards of Review and Courts. Chief of these now are the decisions of the High Court in
F.C. of T. v. Forsyth 81 ATC 4157 and in
Handley v. F.C. of T. 81 ATC 4165. Each of those cases involved a claim by a barrister in respect of the maintenance of a "home study". Barristers, of course, for the purposes of sec. 51, carry on a business for the purpose of producing assessable income. Their case was stronger than that of the present applicant. In each case the claim ultimately failed before the High Court. Those cases were decided both on the footing that the claimed expenditure was found to be of a private or domestic nature (thus supporting the virtual concession made in this case) and also on the footing that the expenditure did not have the essential character of an outgoing incurred in gaining or producing assessable income or of having been necessarily incurred in carrying on a business: See in particular the judgments of Wilson J. in both of the cases referred to. It is fair to say that in future such a claim would, in the light of these authorities, seem very hard to make out unless the taxpayer can mount a case similar to that mounted in
Swinford v. F.C. of T. 84 ATC 4803, in which the taxpayer, a television scriptwriter, had no other place of work and carried out her income earning activities from her flat, in which she had dedicated a spare bedroom as a room in which to carry on her writing activities. The present applicant cannot possibly gain support from this decision.

22. The applicant relied on Case A20,
69 ATC 122 in which the taxpayers, who lived 23 miles from Parkes, took a lease of a flat in town to accommodate their children from Monday to Friday during school term. In that case, however, the expenditure was found to fall within sec. 82J of the ITAA as it then stood since it was incurred, the Board found, "to enable the children to pursue, in the only manner practicable, their full time education". This decision is, however, of no relevance, since the critical question here is, as I have said, one arising under sec. 51(1).

23. The expenditure in question not being allowable under sec. 51(1), the objection decisions under review must be affirmed.


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