JR Gibson SM
Administrative Appeals Tribunal
J.R. Gibson (Senior Member)
The decision of the Tribunal on the application for review in this matter was given on 2 May 1988. It was to have been accompanied by reasons given orally but, as it was apparently not possible for representatives of the parties to attend, no oral reasons accompanied it. These reasons for decision are now given in writing pursuant to a request made by the respondent on 12 May 1988.
2. The applications were for review of decisions of the Commissioner of Taxation disallowing objections by the applicant to assessments to income tax on income for the years of income ended 30 June 1984 and 30 June 1985. The basis of the objections was that the Commissioner had failed to allow the applicant's claims for deductions totalling $5,974 from assessable income of the year ended 30 June 1984 and totalling $2,445 from the assessable income of the year ended 30 June 1985 for expenditure which the applicant claimed was deductible under sec. 51(1) of the Income Tax Assessment Act 1936.
3. The applicant is a qualified teacher and since 1978 has been employed by the New South Wales Department of Education as a primary and infants school teacher. In 1982 he was chosen by the Department to take part in a teacher exchange program involving teachers from New South Wales and Canada, and during the whole of the calendar year 1984 he taught at a school in British Columbia while a teacher from that school taught at the school at which the applicant had been teaching in Sydney.
4. In his returns of income for the years ended 30 June 1984 and 30 June 1985 the applicant claimed the amounts referred to as having been expended in travelling to and from Canada for the purpose of the exchange and in travelling and other expenses incurred while in Canada relating to attendances at seminars, visits to schools and purchases of educational material.
5. The applicant gave oral evidence at the hearing and there were also received into evidence the formal documents forwarded to the Tribunal by the Commissioner, copies of the income tax returns, documents relating to the teacher exchange program and documents relating to the applicant's experience and qualification as a teacher.
6. One of the documents in evidence was a copy of the Education Gazette dated 16 September 1982. The Education Gazette is an official publication, published fortnightly during school term, for the information of officers and employees in the teaching service of the New South Wales Department of Education. Included in the issue of 16 September 1982 was an invitation to teachers who wished to take part in the teacher exchange program for 1984 to make application for selection. The invitation specified that to be eligible teachers were to be permanent, certificated, aged between 25 and 45 years and having at least five years of service. Some groups were excluded, including those who had had overseas teaching experience. It was noted that the salary of a selected teacher would be paid by the Department, and that the exchange would not involve any disability in respect of salary, increments, seniority or other privileges; it was also stated that teachers selected would have to meet their own travelling expenses, accommodation costs and living expenses generally. The Gazette item further specified that the privilege of an exchange appointment would be granted on the basis that the teacher would return to duty in New South Wales immediately after completing the year of exchange service and that the selected teachers must agree to serve the Department for two years after their return;
ATC 579further, teachers would be required on their return to duty in New South Wales to furnish a report on their observations overseas.
7. Before the applicant left for Canada in December 1983 he and other teachers who were to proceed on exchange took part in an orientation program arranged by the Department of Education. He took with him to Canada a letter of introduction from the Director-General of Education, indicating that he would value any opportunity to investigate the latest trends in education in his field. The applicant duly carried out his duties in Canada. He taught at the school in British Columbia, took part in educational seminars in eastern and western Canada and visited schools in that country and in the United States. He took every opportunity to discuss education in the fields in which he taught and generally. He also acquired educational books, magazines and other publications which were not procurable or were too expensive to procure in Australia.
8. By virtue of the operation of the Double Taxation Agreement between Australia and Canada the applicant's income for his duty in Canada was taxed in that country and, therefore, exempt income under sec. 23(q) of the Income Tax Assessment Act 1936.
9. The applicant impressed as a person fortunate in living his profession, dedicated to teaching, and aspiring to reach the highest level in the teaching service. He was one of 43 teachers selected from about 1,300 applicants for the 1984 exchange program. I have no doubt that while in Canada he applied himself wholeheartedly to his teaching duties, to the acquisition of experience in education, both in particular subjects and generally, and to the gaining of broad experience of living and teaching in a foreign country.
10. There was no financial gain for him during the year of exchange and, as he mentioned, his salary was considerably less than that of his Canadian equivalent; further, of course, he had to meet the costs of travel to and from Canada. The applicant said that he had applied for exchange duty because of the greater experience he would obtain and because that experience would improve his prospects of promotion. No doubt it is true, as the applicant said in evidence, that the Department of Education would not be prepared to certify that the exchange experience of itself will result in promotion but it seems to me to be a matter of common sense that the addition of the overseas experience to his existing attainments (highly praised in an assessment in October 1983) must have improved his prospects of promotion. In fact he has not yet applied for promotion and he explained in evidence that he wished to wait until he felt he had solid ground to obtain promotion to a school in an area in which he wanted to work, where the competition for positions is strong.
11. The principal basis upon which it was submitted for the applicant that the expenditure the subject of the applications was incurred, not in gaining or producing exempt income in Canada, but in gaining or producing the assessable income in Australia, was that the expenditure was to enable him to get experience which would give him an advantage over others when it came to promotion in Australia. For the Commissioner it was submitted that, on the evidence, the deductions claimed by the applicant could not be brought within the area defined by the principles laid down by the High Court in
F.C. of T. v. Finn ((1961) 106 C.L.R. 60); that they were partly of a private nature and partly productive of exempt income and therefore denied deductibility by the excepting provisions of sec. 51(1).
12. The questions whether particular outgoings are deductible under sec. 51(1) as being incurred or producing the assessable income or are not deductible as being of a capital, private or domestic nature, or are not deductible because incurred in gaining or producing exempt income, are questions of fact and degree and require determination of the essential character of the expenditure. (
Lunney v. F.C. of T. (1957-1958) 100 C.L.R. 478;
F.C. of T. v. Forsyth 81 ATC 4157 at p. 4161; (1980-1981) 148 C.L.R. 203 at p. 210.)
13. Before proceeding further it is necessary to note that the amount of $317, being air fares from Seattle to Los Angeles, was included as an item in the total deduction claimed for both years of income, and the parties agreed that the deduction claimed for the year of income 30 June 1984 should be reduced by that amount. There are also some expenses claimed in that year, amounting to about $330, which seem clearly of a private nature. Accordingly, the amount of the deduction to be considered in
ATC 580that year of income is $5,327. It also appears to the Tribunal that some of the particular items of expenditure included in each year are referable in whole or in part to the production of the exempt Canadian income.
14. The applicant went to Canada as a member of the New South Wales teaching service and he has remained in that service. His salary in Canada was paid by his employer, the Department of Education. It seems probable that he was selected to take part in the exchange program because he was regarded as a teacher of promise and it is clear that the Department considered that the experience of teachers who went on exchange would not only benefit them but would also benefit the teaching service as a whole, and, of course, would benefit school pupils. In my opinion the applicant's teaching in Canada and the knowledge and experience in the field of education acquired by him therefore must be regarded as having been done and acquired as ``part and parcel of his employment''. (
F.C. of T. v. White 75 ATC 4018.) But for the fact that the income which he actually derived while in Canada was exempt from income tax in Australia, it seems to me that the essential character of the whole of the expenditure claimed as deductible (reduced as mentioned above) would be that of expenditure incurred in gaining or producing the assessable income. However, even though the applicant gained no increase in income during the year he was in Canada, he did derive income there and that income was exempt. From the applicant's point of view his expenditure in travelling to Canada and his expenditure there was worthwhile not because of the income he got in Canada, no more than he could earn in Australia, but for the benefits he would receive in relation to promotion when he returned to Australia. From the point of view of the Department of Education the experience in Canada would be of benefit when he returned. The applicant's exchange service was part of his employment and it follows, I think, that it is not possible to find that no part of the expenditure claimed was incurred in gaining or producing the income derived directly from that exchange service.
15. It is necessary, therefore, to apportion the expenditure between that part incurred in gaining or producing the exempt income and that part incurred in gaining or producing the applicant's assessable income generally. Section 51(1) contemplates that apportionment may be necessary where outgoings are only in part attributable to the gaining of assessable income. There are cases where exact division of items of expenditure is not possible and a broad approach is required. (
Ronpibon Tin N.L. and Tongkah Compound N.L. v. F.C. of T. (1949) 78 C.L.R. 47 at p. 59.) This is such a case. It appears to the Tribunal that it would be reasonable to regard about 25% of the expenditure claimed (adjusted as above) as having been incurred in gaining or producing exempt income.
16. On that basis the decision of the Tribunal was that the objection decisions to the subject of the applications should be varied to the extent that the taxable income of the applicant for the years of income ended 30 June 1984 and 30 June 1985 should be reduced by $3,995 and $1,834 respectively.