Case V103

PM Roach SM

Administrative Appeals Tribunal

Decision date: 1 July 1988.

P.M. Roach (Senior Member)

In this reference the applicant is but one of many clients of an accountant each of whom incurs substantial expense in travelling between his home and place of work. He sees that expense as a cost he incurs in earning his pay and, in company with most workers who incur expense, he does not understand why that expense has not been taken into account by the Commissioner in determining his liability to income taxation. However, he accepts that there is a general rule of taxation law proclaimed by the Courts which says that, in ordinary circumstances, the costs of travel between place of residence and place of work are not deductible for income tax purposes. That rule finds its highest and most authoritative expression for Australia in the decisions of the High Court of Australia in
Lunney v. F.C. of T.; Hayley v. F.C. of T. (1958) 100 C.L.R. 478 in which the High Court held that, in the circumstances of the two taxpayers whose affairs were under consideration, the cost of their travel between their places of residence and their places of work was not deductible. That was despite a strongly argued dissent on the part of McTiernan J. In that case it is also significant that Dixon C.J. said (inter alia) at pp. 485-486:

``These two cases stated raise a question of income tax law which has been accepted as settled for the last two generations. It is whether the fares paid by ordinary people to enable them to go day by day to their regular place of employment or business and back to their homes are deductible expenses allowable against the assessable income earned by the employment or business.

Both in Australia and in England the view has always prevailed that expenses of travelling from home to work or business and back again are not deductible. An explanation of how this came about in England is given by Denning L.J. in
Newsom v. Robertson ((1953) Ch. 7 at pp. 15-16).


Times have changed; the incidence of income tax greatly differs now in scope and weight from its incidence in the days when the law was settled; possibly, the justice of the traditional legal view is a little more open to question and certainly its financial significance supplies a motive for questioning it...

The question having been agitated it became necessary to turn to the Australian authorities by which it was settled long ago. It was surprising to find how few they were and that they depended rather upon their persuasive authority than their imperative character... but the whole course of English authority involves a like conclusion. To escape from the course of reasoning on which the decisions proceed requires the taking of refined and rather insubstantial distinctions. I confess for myself, however, that if the matter were to be worked out all over again on bare reason, I should have misgivings about the conclusion. But this is just what I think the Court ought not to do. It is a question of how an undisputed principle applies. Its application was settled by old authority long accepted and always acted upon. If the whole subject is to be ripped up now it is for the legislature and not the Court to do it.''

2. However, acceptance of the authority of the decisions in Lunney and Hayley does not immediately answer the applicant's queries because he sees marked differences between his circumstances and those of Lunney and Hayley. Lunney was a ship's joiner whose ordinary hours of work were from 7.45 a.m. to 4.30 p.m. daily Mondays to Fridays and who travelled daily from his home near Dee Why to Darling Harbour: a 22 kilometre journey by bus

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on the public transport system of Sydney. Hayley was a self-employed dentist who attended at his practice daily, ordinarily between the hours of 8.30 a.m. and 5.00 p.m., travelling 13 kilometres from his Strathfield residence to his Macquarie Street surgery by the electric train system of Sydney. The applicant's representative points to several differences:
  • (a) Lunney and Hayley had available to them a public transport system: the applicant had none;
  • (b) Lunney and Hayley lived in suburban Sydney and worked in the city: he lived and worked in the country;
  • (c) they attended at their workplace during hours of daylight, in periods which are the periods of work for most people: he ordinarily commenced work at 1.45 a.m.;
  • (d) Lunney travelled 22 kilometres each way by bus and Hayley travelled approximately 13 kilometres each way by train: but the applicant had to travel about 35 kilometres each way by private car; and
  • (e) for all practical purposes, there was no developed residential area closer than 35 kilometres to the applicant's place of work at the site of a coal mine in the country.

It is fair to say that any analogy with the circumstances of a London barrister choosing to live in suburban London rather than live over his chambers in that city (cf. Newsom v. Robertson (Inspector of Taxes) (1953) 1 Ch. 7: per Denning L.J. at p. 15) is not only remote but wholly inapt. However, in assessing any hardship to the applicant, one should not overlook the circumstance that few people in any large city would spend so little time travelling as he did to and from work.

3. In addition, the applicant points to the circumstance that the industrial award which determined his remuneration package provided that:

``Travelling Allowance

7A. To defray the cost of travelling to and from a colliery or establishment an allowance of $6.48 per attendance at work shall be paid to an employee by his employer.''

4. The applicant's difficulty in understanding the situation was not made easier by the circumstance that there had been made available, at least to his accountant, a statement circulated by a branch of the Federated Engine Drivers and Firemen's Association of Australasia. It was in the form of a photocopy of a letter from an Acting Assistant Commissioner of Taxation to the Secretary of the Union, reproduced on paper showing the logo of the Union. In addition, it bore in bold print an endorsement, preceding the text, bearing the words:


It is appropriate to say immediately that, like many headlines, the endorsement gave a misleading impression of the substance of the Commissioner's letter.

5. The body of the letter (which was dated 14 May 1987) read:

``I refer to your letter dated 4 March 1987 in which you sought clarification of the taxation treatment of travel allowances paid to building industry workers.

It has been a long standing policy of this Office that allowances such as those payable to your members are not subject to the deduction of tax instalments. By way of explanation such exemptions are granted in cases where:

  • (a) the employee can be reasonably expected to incur expenditure of an amount at least equal to the amount of allowance paid;
  • (b) the allowance can be reasonably expected to be expended for the purpose for which it is paid; and
  • (c) the expenditure to which the allowance relates can reasonably be expected to be deductible on assessment.

Any previous approvals to pay allowances free of tax instalments are still current; there is no requirement for employers to re-apply to the Commissioner of Taxation to pay allowances free of tax instalments.

On the point of claiming tax deductions in respect of these allowances, the Treasurer announced in his Press Release, No. 115, dated 29 October 1986, that allowances provided to employees for fares or other travel costs, where:

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  • (a) paid pursuant to an award, and
  • (b) not higher in amount than was payable pursuant to an award as at 29 October 1986

will be removed from the substantiation provisions of the income tax laws.

I trust that this information is of assistance.''

6. On superficial reading, it might be thought that what the Commissioner was saying was that, if an employee who was in receipt of a travelling allowance expended the allowance for the purpose for which it was paid, the amount of that expenditure would be deductible. But, on more careful reading, it is clear that that is not so. In short form, what the letter was saying in the second paragraph was that, if the Commissioner thought that employees would be entitled to a deduction for travelling expenses, then an exemption could be granted which would relieve the employer of the obligation to take the amount of any travelling allowance into account in determining the tax instalments to be deducted on account of the employee. Strictly construed, it was not saying that, if the employer received such an exemption certificate, a deduction equal to the travelling allowance would be allowed to each employee. The distinction was not likely to be obvious to union members, or readily recognised as fair and reasonable. In so far as the letter referred to ``the substantiation provisions of the income tax laws'' it has no relevance to the year of income under review.

7. Recognising that there are some circumstances in which the expenses of travelling between place of residence and place of work are deductible (cf. the recent decision of the Federal Court of Australia in
F.C. of T. v. Genys 87 ATC 4875), in order to determine the application of the present applicant it is necessary to make findings as to his circumstances. He was employed at a coal mine in New South Wales. Although employed there throughout the year of income ended 30 June 1986, his claim relates only to a period from 19 January 1986 to 30 June 1986 during which he received $706 as a travel allowance, pursuant to the relevant industrial award, ``to defray the cost of travelling to and from (the) colliery... (for each) attendance at work...'' He was required to be in attendance from approximately 1.30 a.m. to 9.10 a.m. With one exception, on each occasion he travelled in his sedan, a vehicle having a 1,500 cc capacity motor. (The exception was an occasion when his journey was interrupted when his vehicle struck and killed a cow. He was able to use a phone at a nearby farmhouse to report to his employers. At that point he was instructed to have a taxi collect him and deliver him to the mine site. The expense of that journey was borne by his employers. His understanding was that the cab fare for such a journey was of the order of $35.) In all, his evidence was that in that period he travelled 11,600 kilometres on such travel. It was common ground that, according to the established practices of the Commissioner (not invariably followed cf. Case U25,
87 ATC 196), if any claim for travelling expenses had been made and was allowable the Commissioner would probably have allowed it at the rate of 22.8 cents per kilometre.

8. As a deputy manager at the mine, he had obligations to maintain statutory records and other records as to production and work performance required by his employers. It was his ordinary practice to carry those record books in a steel toolbox (with lid and handle) having dimensions of some 45 cm by 30 cm by 15 cm. A steel container was preferred because it provided the best type of protection for conditions underground. As required, it was his practice to leave the critically important original of each statutory report and also the originals of other reports in the rough shed provided for the use of deputy managers near the pit head, or to place such records in the under-manager's office nearby. Instead of leaving the metal box in the deputy manager's room, which had no security facilities and which was at all times open because the mine worked on a three-shift basis, he carried the toolbox with him. He also carried his meal in it.

9. In every relevant practical sense it was necessary for the applicant to incur the expenses he did in travelling to and from work. It is also clear that the travel in which he engaged was in all respects routine travel between his residence and place of work by a regular route according to a settled time pattern, although one in which the hours of travel might change should a change in shift occur. Further, I observe that if the circumstances of the travel undertaken after 18

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January 1986 had qualified the expenses incurred for deductibility, then the entirety of the travel undertaken during the year was allowable. That means that, if the expenses of travel undertaken from 19 January 1986 had been allowable and the Commissioner had applied his proclaimed cents per kilometre basis for assessing the loss and outgoing, the amount allowable would have been $2,644.80 (11,600 kilometres over 145 days - working 6 days per week - at 22.8 cents per kilometre). If the applicant had worked only a further 110 days in the financial year the total claim allowable would have been of the order of $4,600. However, the claim to deductibility is not strengthened - or weakened - because the applicant did not claim all to which he might have been entitled.

10. Neither the circumstance that the applicant travelled by car rather than public transport; that he so travelled by necessity rather than choice; that he travelled at unusual hours; that he travelled some 35 kilometres each way; that in practical terms no residential accommodation was available in any significantly less distance from his place of work; that he travelled in the country; nor that, for reasons of personal convenience, he chose to store his box of records in his car rather than elsewhere, alter the character of the travel involved. In the words of Williams, Kitto and Taylor JJ. in Lunney at pp. 498-499:

``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 his income. Whether or not it should be so characterised depends upon considerations which are concerned more with the essential character of the expenditure itself than with the fact that unless it is incurred an employee or a person pursuing a professional practice will not even begin to engage in those activities from which their respective incomes are derived.''

(emphasis added)

Further, there is nothing in the circumstances of the case which would bring it within any of the exceptional categories such as have been recognised in Genys (ante) and many other cases. Accordingly, I must conclude that no part of the expense incurred in travelling is allowable as a deduction pursuant to sec. 51(1) of the Income Tax Assessment Act 1936 (``the Act'').

11. However, there are two further matters which call for consideration: matters which did not arise for consideration in Lunney and Hayley. One is an argument that, whenever a taxpayer receives an allowance in money which is brought to account as assessable income, he is thereby entitled to a deduction in the same amount. The second contention is that, since sec. 26(e) of the Act only made assessable ``the value to the taxpayer'' of the allowance received, it is only to the extent to which the amount received exceeds the amount expended in relation to the allowance which is to be brought to account as assessable income. If the first argument were to succeed, then the correct presentation of the applicant's return required that he acknowledge the allowance as assessable income and claim the deduction. That is the course he followed. The second argument would result in the situation in which no assessable income would be acknowledged and no deduction claimed.

12. In my view it is convenient to address those issues as if they were one. The allowance received by the applicant was money: accordingly, its ``value'' was equal to the sum of money received, namely $706. Accordingly, it is that sum which constituted assessable income. Having so found, it follows that, if a deduction is to be allowed it must be founded in some provision of the Act which qualifies the expenditure as deductible.

13. That is a view of the Act which I expressed in Case V39,
88 ATC 335, a case involving travel allowances paid by the Commonwealth to a member of the Federal Parliament. As the same principles are to be applied to members of the Parliament and to persons working underground in coal mines, I repeat what I then said:

``However, the provision by Government of a monetary sum of $1,904 stands on a different footing. The applicant received $1,904. It was paid to him to enable him to recoup in part expenses he had incurred. It came to him by virtue of his office and the value to him was not to be distinguished

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from the amount he received. In my view the allowance constituted assessable income just as surely as the `electoral allowance' (returned as assessable income by the applicant) constituted assessable income. Further, I am of opinion that, in the case of both allowances, that view of the matter will be without tax effect if the allowance merely enables a taxpayer to recoup expenditure which has been incurred and which is allowable as a deduction pursuant to the provisions of the Income Tax Assessment Act 1936 (`the Act'). That that is so is reflected in the way in which the applicant accounted for his electoral allowance in his return of income. He recorded the electoral allowance received ($15,869) as assessable income and, in his return under Item 39 `Deductions Relating to Allowances Included in Items 6(c), 6(d) and 6(f)', claimed the like amount as a deduction, stating:
  • `Electoral allowance fully expended on purpose for which it was given.'

The claim so made was allowed and the correctness of that was in no way in dispute before me. However, I merely observe that if, perhaps in his last term of office, a member of Parliament had chosen to expend no portion of the electoral allowance so granted to him, there would have been no entitlement to any income tax deduction in relation to that allowance. That view accords with the reasoning which led to the conclusion in Case U148,
87 ATC 868. In that case, a medium-distance truck driver, working in New South Wales, was required to be on the road in the course of his duty for up to 18 hours in any one day. On such days he partook of meals `on the road' and claimed a tax deduction for the expenses incurred in doing so. The Commissioner disallowed the claims on the basis that the meal expenses were private although, it seems, the matter would have been thought to be of no tax significance if that applicant had been fortunate enough to have received a travelling allowance from his employer and had used it to buy the meals. In my view that approach was fallacious. Such an allowance would have been assessable to the extent not expended on the purchase of meals for which a deduction would have been allowable to a person who received no such allowance. In my view the latter principle applies in the circumstances of this applicant.''

14. In my view, the answer to the claim of the particular applicant is clear and it must fail. It is so clear that a decision in this reference might have been delivered summarily. None the less, I chose to reserve my decision in order that these reasons might be set forth in writing. I did so because I am conscious that the applicant is but one of many clients of the same accountant employed at the same coal mine who are applicants to this Tribunal in relation to similar questions. (I say ``similar'' because I have no information before me as to whether any of them might be entitled to deductions. Each taxpayer is entitled to be assessed according to his circumstances. However, the reasons for decision in this case may be of some assistance to them.) I have also been aware that, in at least two States, there have been many applicants to the Tribunal who have been encouraged in the pursuit of such claims by their industrial union. I am also aware that the view seems to be widely held that, provided a sum of money received is described as an ``allowance'' in an industrial award or equivalent, the recipient is entitled to a tax deduction equal to the amount of the allowance, at least if the money is ``expended for the purpose for which it is paid'' (cf. the claim in Case U156,
87 ATC 908).

15. I am conscious that the many workers and others who initiated such claims in relation to the years 1985 and 1986 often will have similar claims arising in relation to the 1987 year and soon in relation to the 1988 year. That being so it is soon to be expected that many such applicants who have not yet had their claims considered and independently determined, will be faced with a demand that, to sustain their ongoing right to challenge the Commissioner's determinations in these matters, they will each be required to pay $240 for each year of assessment for which a review is sought. If there were only 1,000 such men in Australia, collectively they would be required to put at risk $240,000 for the first year in issue; rising to $480,000 for the second year; and rising thereafter by $240,000 per annum. The amount so risked could all be forfeited to the Commonwealth if, following one short hearing such as was held in this case, they all accepted the authority of an independent review such as this and then abandoned their claims.

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Hopefully these reasons will enable such potential applicants to make sound judgments as to whether to risk the substantial fees now required of anyone who seeks an independent review of a decision of the Commissioner.

16. The decision of the Tribunal will be that the determination of the Commissioner upon the objection under review shall be upheld.

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