P Gerber SM
Administrative Appeals Tribunal
Dr P. Gerber (Senior Member)
The taxpayer in this application (T), an airline pilot now aged 48 years, decided in 1983 to accept an attractive retirement package from one of the two major airlines by which he was employed.
2. In order to be able to continue to derive some income from commercial flying, T decided to enrol in a flying course offered in the United States which would give him endorsement for a particular aircraft much in use in what was referred to as "corporate contract flying".
3. T successfully completed the course, returned to Australia and engaged in some sporadic corporate contract flying.
4. In issue is the deductibility of the costs of the course. Quantum is not in dispute.
5. Unfortunately for this taxpayer, I have concluded that, in the present state of law, his claim cannot succeed. When all is said and done, T's position is no different from, say, that of a medical student who wants to deduct the cost of his medical studies from his income once he qualifies as a doctor. The answer to such a claim is that the expenditure comes at a point too soon to qualify as an outgoing "incurred in gaining or producing the assessable income" (cf.
F.C. of T. v. Maddalena 71 ATC 4161 at p. 4163 per Menzies J.). The fact that T already possessed a current commercial licence is, in my view, irrelevant. In the result, I find this case governed by the law as set out by Ormiston J. in
F.C. of T. v. Klan 85 ATC 4060; viz. that the so-called "perceived connection" between an expenditure and the derivation of future income is not, by itself, sufficient to qualify the expenditure as a deduction. Section 51(1) of the Income Tax Assessment Act - like the charismatic churches - insists on strict obedience to an occult ritual to produce a result which defies scientific explanation. Thus, had T undertaken his additional training whilst still employed by his former airline, the impugned expenditure would have qualified as an allowable deduction. So be it. In short, to come within the purview of sec. 51(1), the cost of better qualifying oneself in point of knowledge or skill must be undertaken either in a current and relevant employment (cf.
F.C. of T. v. Finn (1961) 106 C.L.R. 60) or during the subsistence of an associated business undertaking (cf.
F.C. of T. v. Highfield 82 ATC 4463).
6. In a well researched address, Mr Clough, of learned counsel for the applicant, valiantly sought to extricate himself from the eccentricities of the law as set out above by relying on
F.C. of T. v. Kropp 76 ATC 4406 and Case T78,
86 ATC 1094, the latter being a decision of this Tribunal.
7. In Kropp the facts are adequately set out in the headnote:
"The taxpayer, a chartered accountant, resigned his employment with an Australian firm of accountants (Price Waterhouse) and went to work in Canada for two years with an affiliated but autonomous firm. He was then re-employed by the Australian firm with a promotion and an increase in salary. The evidence showed that the taxpayer intended to make his career in accountancy with the Australian firm, and that the major purpose of going to Canada was `to gain additional experience and to keep abreast of current developments in the audit sphere'. The Australian firm pursued a policy of encouraging its staff to travel overseas at their own expense."
After an exhaustive analysis of the law, Waddell J., in finding for the taxpayer, concluded that - sub specie aeternitatis -
ATC 959"each case must, of course, depend upon its own particular circumstances". The decision is readily explicable, either on the basis that a resignation undertaken in circumstances where the resigner could anticipate "with considerable confidence" being re-employed by the same employer at an increased salary is not really a "resignation" strictu sensu, or on the more theological approach that Price Waterhouse & Co., wheresoever situate, is one and indivisible. Neither view is relevant to the facts now before me. Again, Case T78, like Kropp, is a "one off" decision which depends on its own peculiar facts.
8. This case is clearly not without its difficulties, not least of which is the problem of reconciling the earlier decisions in this area. I would feel more confident of the correctness of the result if The Australian Tax Review had vigorously attacked the line of cases exemplified by Klan and reached the opposite conclusion.
9. Doing the best I can in the present state of uncertainty, the Commissioner's decision on the objection must be affirmed.