Case V96

RK Todd DP

Administrative Appeals Tribunal

Judgment date: 17 June 1988.

R.K. Todd (Deputy President)

The applicant in this reference was, in the year of income ended 30 June 1986 (``fiscal 1986''), the relevant year of the claim, a shift supervisor. In that year he claimed inter alia a deduction under sec. 51(1) of the Income Tax Assessment Act 1936 (``the ITAA'') for rent and electricity expenses. These expenses were disallowed both on assessment and on objection.

2. In the year in question the applicant worked on an engineering and construction project in southern New South Wales. Prior to his commencement on this project in late 1984 he had lived in northern New South Wales and had worked for a large construction company in

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the area. That company posted him to southern New South Wales. At the time, he was told that he would be needed on the project for three to four months only, and his wife and children therefore continued to live in northern New South Wales. The project developed problems and the applicant actually worked on it for 28 months. On his arrival at the project he was not provided with any accommodation and he had to rent a three bedroom unit in a town close to the construction site. The cost of this rental accommodation in fiscal 1986 was $5,100. He did some filing work at his unit and stated that he was ``on 24 hour call seven days a week''. Often any problems which arose while he was at home in his unit could be solved over the telephone, but if there was a major problem the applicant would return to the construction site. It should be noted that the applicant was effectively forced to change employers after a short time on the project, as a result of a reorganisation that took place. A small drop in pay resulted.

3. In the relevant year the applicant also claimed $357 for electricity consumed in his unit. The amount claimed was 75% of the total bill. The applicant believed that this apportionment was appropriate on the basis of the time spent working at home which he stated was in the vicinity of six to eight hours per week.

4. The applicant was paid $3,513 in the relevant year as a travel, site and tunnel allowance. He claimed that this amount had been fully expended. Under the terms of an agreement that the applicant signed he was not paid a living-away-from-home allowance.

5. The applicant's representative argued that because the applicant had been forced to move location for the purposes of his employment he should be able to claim deductions for the cost of the rent and electricity. This argument was based on the fact that the applicant's family had stayed in northern New South Wales on the basis of his belief that the job was to last for only three to four months. He therefore had to pay rent twice: once for his family and once for himself. It was argued that the applicant was discriminated against by the Commissioner because his employer was not paying him a living-away-from-home allowance. The applicant's representative claimed that if the applicant had been paid such an allowance he would have been able to claim successfully a deduction for the cost of the rent. As stated above, the applicant submitted that the amount claimed for electricity was deductible because he used the unit to carry out some of the duties of his employment and because he was forced to move away from where he had originally lived with his family.

6. The Commissioner stated that in order to be successful the applicant had to succeed under the first limb of sec. 51(1) of the ITAA. It was contended by the Commissioner however that the expenditure did not fall within this limb, and furthermore that the expenditure should fall into the ``private or domestic nature'' exemption in sec. 51(1). In the Commissioner's submissions four cases were relied upon to establish general principles said to be applicable to this case:
Amalgamated Zinc (De Bavay's) Ltd. v. F.C. of T. (1935) 54 C.L.R. 295;
Ronpibon Tin N.L. and Tongkah Compound N.L. v. F.C. of T. (1949) 78 C.L.R. 47;
Lunney v. F.C. of T. (1957-1958) 100 C.L.R. 478; and
Lodge v. F.C. of T. 72 ATC 4174; (1972) 128 C.L.R. 171. The Commissioner's representative stated that in order for an expense to be deductible under sec. 51(1) of the ITAA it is not enough that the expense ``was an essential prerequisite of the derivation of... income'' or that it ``was incurred for the purpose of earning assessable income'' (Lodge at ATC p. 4176; C.L.R. p. 175). The Commissioner relied on the following passage in De Bavay's case (at p. 309):

``The expression `in gaining or producing' has the force of `in the course of gaining or producing' and looks rather to the scope of the operations or activities and the relevance thereto of the expenditure than to purpose in itself.''

7. It was further contended that the applicant could only succeed if he could establish that the expenditure claimed was ``part and parcel'' of carrying out the duties which related to his employment. The Commissioner's representative argued that the expenditure on rent and electricity was not shown to have been incurred in the course of the applicant's duties as a supervisor, notwithstanding that it may have been a prerequisite to earning his remuneration. The claimed expenditure was not incidental to the performance of duties which were ``part and parcel'' of his employment. Case C48,
71 ATC 222 was relied upon. In this

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case a member of a musical group decided to play with the group in another city for a minimum of three months. He ended up staying away for 12 months and claimed deductions for motel accommodation en route to the new city and for rent during the engagement there. The claims were disallowed. It was further argued by the Commissioner that no consideration should be given to the fact that it was impractical for the applicant to move his family to the environs of the construction site. On this point the Commissioner relied on Case K29,
78 ATC 281. The No. 3 Board of Review held in that case that an employee of an authority, who accepted a promotion which necessitated his living in a country town away from his family, was not able to claim, inter alia, for rent and electricity expended while working in the country town. This was so despite the fact that it was impractical for his family to follow him. The representative of the Commissioner also submitted that on the evidence the applicant had a new employer at the site after the execution of a site agreement. In finding accommodation proximate to his employment, he was therefore obtaining, rather than performing, his employment. As authority for this proposition the cases of
F.C. of T. v. Maddalena 71 ATC 4161 and Case H45,
76 ATC 411 were relied upon. I disagree with this particular submission because at the beginning of his employment with the project the applicant continued to work with his original employer.

8. It was argued by the Commissioner that even if the expenses claimed by the applicant fall within the parameters of the first limb of sec. 51(1) of the ITAA, his claim should still fail because the expenditure was of a private or domestic nature and therefore excluded from deductibility. The Commissioner drew support for this contention from
F.C. of T. v. Faichney 72 ATC 4245; (1972) 129 C.L.R. 38 in which it was stated at pp. 44-45: ``... the examples of expenditure of a private or domestic nature which leap to the mind are those which could not conceivably be incurred in gaining assessable income, e.g. the expense of private entertainment or rent paid for the taxpayer's dwelling-house''. Reliance was also placed on Case U49,
87 ATC 337 at p. 339 where Mr B.J. McMahon (Senior Member) stated: ``The fact that he maintained his principal establishment for the housing of his family does not change the character of the moneys paid for his accommodation and sustenance elsewhere. They continue to be private and domestic. Furthermore in this case they are not relevant to the earning of assessable income.''

9. On the question of the claim for the cost of electricity the Commissioner's representative submitted that the apportionment was somewhat questionable.

10. I agree with the Commissioner's submission that the amounts claimed, which are the subject of this review, are not deductible. These amounts were not incurred ``in the course of gaining or producing the assessable income'', although they were essential to earning that income. In that sense, the expenditure in question is not unlike the cost of travel to and from work. Claims for such travel have always been rejected: see Lunney.

11. Furthermore, even if it was arguable that the expenditure fell within the first limb of sec. 51(1) of the ITAA, then the amounts would be caught by the exemption in that subsection relating to amounts which are ``private or domestic'' in nature. This conclusion is clearly supported by Faichney (supra),
Handley v. F.C. of T. 81 ATC 4165 and
F.C. of T. v. Forsyth 81 ATC 4157. The fact that it is inconvenient to take one's family to a new work location, thus necessitating the maintenance of two domestic residences, is a problem of a private nature. The difficult situation arose out of circumstances germane to the applicant's personal situation and not out of those related to his job. Section 51(1) and the cases thereon provide no assistance to the applicant in this matter. Perhaps in the circumstances his employer(s) should have provided him with a living-away-from-home allowance (or an amount for relocation costs). However they did not, and it is therefore not relevant to consider the tax effect of the provision of such an allowance.

12. The above principles apply not only to the claim for rent but also to the claim for 75% of the applicant's electricity costs in the year in question. I would have thought it consistent with the argument put forward by the applicant's representative, in relation to his changing residences, that the whole amount incurred for electricity would have been claimed. However this was not the case. Although the point was not fully argued before

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me, I believe that it is necessary to determine whether the applicant could succeed in his claim for electricity costs on the grounds that the cost was incurred in relation to a home office. This point was discussed by Mason J., as he then was, in Faichney. At ATC p. 4250; C.L.R. p. 45 the following was said:

``It may be acknowledged that expense incurred in the provision of light and heating in the taxpayer's home is normally an expense of a private or domestic nature, dissociated from the gaining or production of assessable income. However, to the extent to which the expenditure is incurred in providing light and heating for the taxpayer exclusively whilst he is engaged in work from which he derives income it may be said to be an expense having a business or employment character. By reason of that circumstance it is not an expense of a private or domestic nature.''

13. While the decisions in Handley and Forsyth declined to allow taxpayers deductions for mortgage interest, rates, rent, insurance or repairs relating to their home offices, neither case had to decide whether home office electricity costs were deductible and therefore, with respect, Faichney remains good law on this point.
Frankcom v. F.C. of T. 82 ATC 4599 tends to support this view (at p. 4609):

``in an appropriate case, the cost to a taxpayer of the supply of electricity to a room used in his home for the performance of professional duties or activities which he is unable to carry out in ordinary working hours, may be an outgoing incurred in gaining his assessable income, and it may not be of a capital, private or domestic nature... In the circumstances where the study is used exclusively by the taxpayer for the purposes of discharging the duties of his appointment, or of his employment, or the conduct of his professional services, no problem arises.''

At p. 4610:

``It follows, in my opinion, that any costs incurred in supplying those facilities... would be required to be excluded from any apportionment of the total cost thereof.''

14. The facts disclosed here do not reveal whether the applicant had to carry out his work at home apart from having to be ``on call'' or whether he used a particular room exclusively for his work. On the facts as presented there is no way in which an apportionment could be made. On the basis that the applicant did not dedicate any part of the unit as a work station, it is in fact hard to see what evidence could have been given to permit such an apportionment, and I therefore am not suggesting that there was a failure to present relevant evidence. Since however the evidence does not allow me to determine what proportion of the costs pertained to the applicant's work use, and as the onus of proof was borne by him, I am not able to find for the applicant on this point.

15. For the reasons given above the objection decision under review is affirmed.

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