RA Layton DP
DJ Trowse M
BC Lock M
Administrative Appeals Tribunal
R.A. Layton (Deputy President), D.J. Trowse and B.C. Lock (Members)
These matters come before us by way of review of decisions made by the Commissioner of Taxation to disallow claims for motor vehicle expenses under sec. 51(1) of the Income Tax Assessment Act 1936 ("the Assessment Act").
2. At the hearing, with the consent of the parties, we consolidated the applications for review by three taxpayers in respect of the income tax year ending 30 June 1984, and in two instances we consolidated claims in respect of the income tax year ending 30 June 1985. At the hearing, the applicants were represented by one of their number, Mr S, and Miss L. Dona appeared as counsel for the respondent. Also at the hearing, we had before us a very clear and concise statement of facts and further, Mr S gave oral evidence.
3. At all relevant times, the applicants in these references were employed by a division of (company) which was involved in the provision of tugboat facilities to ships in the ports of Port Adelaide, Port Giles, Port Stanvac, Ardrossan and Klein's Point. Mr A and Mr P were engaged as tugboat seamen whereas Mr S carried out the duties of a tugboat engineer. All three had encountered a refusal of claims made in their various income tax returns for expenditure incurred in travelling between their homes and places of employment.
4. The quantum of their claims was not challenged by the respondent. The terms of employment applicable to the applicants are governed by the Tugboat Industry Award 1982, one of the clauses of which relates to the provision of transport where employees are required to work outside standard times. It seems that, where an employee is required to commence duties before 7 a.m. or finish after 9 p.m. on a week day, he is entitled to receive a car allowance if, on those occasions, he uses his vehicle for travel to or from work. The allowance is calculated at the relevant time at 28.5 cents per kilometre. A similar entitlement arises when employees are required to work on Saturdays, Sundays or public holidays.
5. The applicants were required to be on-call 24 hours a day for 14 consecutive days and were then given leave for seven consecutive days. A schedule handed to the Tribunal by Mr S (Exhibit A1) was a record of his starting and finishing times over a period of four months this year. It was tendered as a sample of the unusual hours required of the applicants by their work. Of the 114 trips to and from work, 50 of them attracted the car allowance and the hours were indeed erratic. On the occasions of such out-of-hours travel, the applicants used their cars to travel either from home to places of employment or the reverse. It is agreed that the applicants' duties for which they received wages did not commence until their arrival at the nominated place of work and ceased upon their departure from work.
6. The amounts claimed for motor vehicle expenses in the years in question are as follows:
Mr A $328 in 1984 and $350 in 1985 Mr P $936 in 1984 Mr S $818 in 1984 and $912 in 1985
7. The above figures coincide with the amounts of car allowance received by the applicants from their employer and which had been brought to account as assessable income in their respective income tax returns. That the motor vehicle allowances paid by the employer to the applicants are assessable income is clear from the provisions of sec. 25 and para. 26E of
ATC 910the Assessment Act and that matter is not challenged by the applicants.
8. The applicants submit that these outgoings are related to the gaining of assessable income and, by inference, that they qualify for deduction under sec. 51(1) of the Assessment Act. Furthermore, they contend that such expenditure is not of a private nature.
9. The applicants based their submission on the following grounds, which were very capably put forward by Mr S:
- (1) the fact that they were paid an allowance by their employers for their car travel pursuant to their award which was regarded as assessable income pursuant to the Assessment Act;
- (2) their erratic working schedule in combination with the absence of suitable public transport and the need to be on call at short notice;
- (3) the contradiction between, on the one hand, their car allowance being included as assessable income and, on the other hand, the Commissioner, in spite of that income connection, refusing to allow it as a contra deduction from their income;
- (4) that in the case of Mr S, the Commissioner had apparently, for 15 years prior to 1984, allowed such deductions, but had refused it in the years 1984 and 1985. Further, it was alleged that other employees had been allowed claims similar to the ones presently being rejected in those years;
- (5) that the car allowances for each of them were different as the applicants lived at varying distances from their place of employment and were called on duty on different occasions;
- (6) the applicants claimed that the facts of their cases indicated an exception, and that other cases decided by the High Court and the Boards of Review which had rejected car allowances could be distinguished on that basis.
10. The relevant provisions of the Assessment Act for the purposes of this application for review are the provisions of sec. 51(1), which is expressed in the following terms:
"All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable 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..."
11. The words "incurred in gaining or producing the assessable income" mean "incurred in the course of gaining or producing such income" (
Amalgamated Zinc (de Bavay's) Ltd. v. F.C. of T. (1935) 54 C.L.R. 295 at p. 303) and require the outgoings to be "incidental and relevant to that end" (
Ronpibon Tin N.L. v. F.C. of T. (1949) 78 C.L.R. 47 at p. 56).
12. The leading authority on the deductibility of expenditure incurred in travelling to or from one's place of employment is the judgment of the High Court in
Lunney v. F.C. of T. and Hayley v. F.C. of T. (1957-1958) 100 C.L.R. 478. In reaching its decision that such outgoings will not qualify for deduction, the Court made the following statements which we consider relevant to the matter under consideration. At pp. 498 and 499, the Court stated:
"The question whether the fares which were paid by the appellants are deductible under s. 51 should not and, indeed, cannot be solved simply by a process of reasoning which asserts that because 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 such income."
And further, at p. 501;
"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 s. 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'. The questions in the cases stated should be answered in the negative."
13. The applicants endeavoured to distinguish the facts in Lunney and Hayley (supra) on the basis that those cases concern taxpayers who worked more commonly accepted hours and more regular hours and, in addition, were not paid an allowance by their employers. That difference certainly exists, however, these cases set out the parameters and principles to be applied to all cases concerning the interpretation of "incidental and relevant" to the gaining or producing of income, and are not restricted solely to the facts which arose in those cases.
14. In our view, the lack of suitable public transport, the erratic hours and times of their employment, the method of calculation of their allowance and the on-call nature of their employment do not, of themselves, transform the character of the outgoing to the type required in terms of sec. 51(1) of the Assessment Act.
15. It was accepted that the duties required of the applicants commenced upon arrival at work and ceased upon departure from that place and, with that in mind, the contention that the outgoings associated with the travel were incidental and relevant to the production of assessable income must be rejected. The expenditure was incurred in getting to and from work and had no direct relationship to the duties required of them as either seamen or, in the case of Mr S, the duties of a marine engineer.
16. Furthermore, in dealing with the applicants' contention that the circumstances of their case were special or exceptional because the car allowance was paid to each of them as a variable lump sum dependent on their needs for travel pursuant to their award, Case R22,
84 ATC 212, a decision of Board of Review No. 2, and Case B78/84, an unreported decision of Board of Review No. 3 delivered on 14 June 1984, both disallowed such allowances notwithstanding that similar variable allowances were being paid by the employer.
17. The fact that a travel or motor vehicle allowance of a particular kind is paid to a taxpayer by his employer does not of itself impress an outgoing related to that allowance with any greater degree of deductibility than it would have if no such allowance had been paid. It is the character or nature of the outgoing itself, without regard to the nature of any allowance received, which determines whether it is an outgoing that properly falls for deduction under the provisions of the first limb of sec. 51 of the Assessment Act.
18. With regard to the applicants' claim that like claims had been allowed to them in previous years, this can have no bearing on our considerations. The case of
Sugar Loaf Colliery Ltd. v. Commr of Taxes (Qld) (1940) 5 A.T.D. 378, is authority for the proposition that if the Commissioner wrongly construes the law in the assessment of a particular year, he is not bound by such misconstruction in the assessment of a subsequent year. In the case of Mr S, it would seem that he has been lucky to have received an advantage over the previous 15 years which the Assessment Act and its interpretation by the High Court would have disallowed.
19. Regarding the further point that other employees may still be receiving deductions for their costs of travel, we can only say that it is possible that their fact situations were different or, more probably, that they too may have obtained deductions in error to their advantage.
20. For these reasons, we conclude that the expenditure in question was not incurred in the gaining of the applicants' assessable incomes and accordingly no deduction is permitted. In any event, we see the incurring of the outgoings as being a necessary consequence of
ATC 912living in one place and working in another and, as such, they represent expenditure of a private or domestic nature. We are fortified by the knowledge that in Case B78/84 (supra), having a fact situation identical to these cases, the Board of Review reached the same conclusion.
21. Finally, we would add that the decisions in Lunney and Hayley (supra) do not stand as authority for the proposition that the costs of travel between home and work never qualify for deduction. The decisions in
F.C. of T. v. Collings 76 ATC 4254 and
F.C. of T. v. Weiner 78 ATC 4006 provide ample evidence that in certain circumstances, outgoings of this general description may be allowed. However, those circumstances are not apparent in these references. Collings (supra), for example, concerned journeys which began as a result of the performance of the duties of employment at the taxpayer's house. That situation is far removed from that which is under consideration here.
22. For the above reasons, therefore, we disallow the claims by the applicants and affirm the respondent's decisions under review.