Hyde v. Federal Commissioner of Taxation

French J

Federal Court

Judgment date: Judgment handed down 14 March 1988.

French J. (ex tempore)

This is an appeal by a taxpayer against the disallowance by the Commissioner of Taxation of a claim for child minding expenses incurred in the financial year ended 30 June 1987. The amount of expenses so claimed in the taxpayer's return for that year totalled $3,640. However, he conceded at the hearing of his appeal, that he can only produce documentary evidence of payments totalling $2,850 and so reduces his claim for deduction to that amount.

The facts of the case fall within a narrow compass and are not in issue. The taxpayer is a married man with a child now aged three years. In 1986 and 1987 he was engaged in full-time employment, as he still is, by Aherns (Suburban) Pty. Limited. He was paid a salary of $34,484.99 from which taxation instalments totalling $10,035.99 were deducted.

He and his wife live in Balga and she too was engaged in full-time employment from 1 September 1986. Prior to that time she was attending a secretarial school, and I accept for present purposes that that was a substantially full-time commitment.

The taxpayer has pointed out that in order to maintain a place at the child minding centre to which they sent their child, he had to pay on the basis that a place was reserved throughout the whole of the period so that if there were occasions on which the child was kept at home because either or both of the parents were on holiday, the money still had to be paid in order to keep the place open for the rest of the year.

His domestic arrangements involved him leaving for work every day between 7 a.m. and 7.30 a.m., usually with his wife. His hours of work fell between 8.30 a.m. and 5.30 p.m. He or his wife usually collected the child between 5.15 p.m. and 5.30 p.m. At his place of employment there was no provision for child minding and the same pertained to his wife's place of employment.

It is evidently the fact, and is accepted by the Commissioner, that the taxpayer's expenditure on child minding was necessary to enable him to undertake the employment from which he derived his assessable income in the year ended 30 June 1987.

The taxpayer's claim is supported by a receipt for $2,850 from the child minding centre concerned.

By reference to subsec. (1) of sec. 51 of the Income Tax Assessment Act:

``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

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incurred in relation to the gaining or production of exempt income.''

The nature of his income gaining activity not being the carrying on of a business, the preliminary question that arises is whether the expense concerned is incurred in gaining or producing his assessable income.

I think the position is clear so far as the present state of the authorities is concerned. The leading case is
Lodge v. F.C. of T. 72 ATC 4174; (1972) 128 C.L.R. 171. That case involved a taxpayer who derived income through preparation of bills of costs for firms of solicitors. For most of the tax year she carried out work at her home. She expended $647 in nursery fees for her infant daughter during that time.

The purpose of the expenditure, it was accepted, was to enable her to perform her work and to perform it efficiently. In spite of this, it was held by Mason J. that no right to a deduction had arisen. Although the purpose of the expenditure was to gain assessable income, it did not take place in or in the course of preparing bills of costs. Further, it was of a private or domestic nature.

In particular at ATC p. 4176; C.L.R. p. 175, having referred to the statements of a general nature in joint judgments of the High Court in
Ronpibon Tin N.L. and Tongkah Compound N.L. v. F.C. of T. (1949) 78 C.L.R. 47 at pp. 56 and 57, and
Lunney v. F.C. of T. (1957-1958) 100 C.L.R. 478 at p. 497, his Honour said:

``In the light of the authoritative observations concerning sec. 51(1) made by this Court in its earlier decisions I have no alternative but to arrive at the conclusion that the appellant's claim in this appeal cannot succeed. The expenditure was incurred for the purpose of earning assessable income and it was an essential prerequisite of the derivation of that income. Nevertheless its character as nursery fees for the appellant's child was neither relevant nor incidental to the preparation of bills of cost, the activities or operations by which the appellant gained or produced assessable income. The expenditure was not incurred in, or in the course of, preparing bills of cost.''

His Honour went on at ATC p. 4176; C.L.R. p. 176 to express the view that:

``... the expenditure in question was of a `private or domestic' nature and for that reason is excluded by sec. 51(1).''

He made it clear that his view was consequential upon his earlier conclusion that the expenditure fell outside the general provisions of the subsection and that there was, accordingly, no relevant reason for holding it to be other than private or domestic expenditure on the care of the taxpayer's child.

The Full Federal Court confronted the issue again in
Martin v. F.C. of T. 84 ATC 4513. The question again, in that case, was the entitlement of a taxpayer to a deduction from her assessable income of expenses incurred by her with kindergartens in caring for her child while she was at work.

Her claim to a deduction had been rejected in the Supreme Court of New South Wales and she appealed to the Full Federal Court. It was accepted, for the purposes of the case, that the placing of her child in a kindergarten and the incurring of expenses thereby was a prerequisite to her employment. It was not suggested that any other course was open if she were to take on any of the three jobs which she had an opportunity to take on. However, the Full Court went on to say at p. 4515:

``But it is clear, at least since Lunney, that such a consideration is not of itself sufficient to attract the operation of subsec. 51(1). And it was for that reason that in Lodge Mason J. rejected the taxpayer's claim. The character of the expenditure in that case was found by his Honour to be neither relevant nor incidental to the particular work upon which Miss Lodge was engaged.

In our view the same considerations operate to preclude acceptance of the taxpayer's claim in the present appeal. The expenditure incurred in kindergarten fees was a prerequisite to the taxpayer's employment in the sense that it allowed her to take on the jobs in question. But there was nothing about the expenditure which was relevant or incidental to the work which she was engaged to perform. The expenditure was not incurred in, or in the course of, performing the work for which she was employed, that of a steno secretary.''

It would be a mistake to elevate these cases which turn on their own facts to a statement of

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general principle that there could never be a situation in which child minding expenses are deductible; however, to be deductible they would have to answer the description of being ``incurred in gaining or producing the assessable income'' and would have to fall outside the category of expenditure of a ``private or domestic nature''.

In my opinion, the facts of this case do not allow me to characterise the expenditure which the taxpayer has incurred as being expenditure incurred in gaining or producing the assessable income. The rejection of that characterisation is based upon distinctions which have been accepted by the Full Court and, to that extent, the distinction which is so made is binding on me; and before that by a Justice of the High Court in Lodge's case reflecting well-established principles in the earlier decisions of Lunney and Ronpibon. One can accept that the taxpayer may well feel some sense of grievance at the fact that the expenditure cannot be claimed as a deduction, but as the courts have said on occasions before today, the answer to that grievance will not be found in the courts but in changing the law and that is a matter for the legislature. For those reasons the appeal must be dismissed.


1. The application will be dismissed.

2. The applicant is to pay the respondent's costs of the application.

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