Case V131

RK Todd DP

Administrative Appeals Tribunal

Judgment date: 18 August 1988.

R.K. Todd (Deputy President)

The applicant in this reference is an officer of the Royal Australian Air Force (``the RAAF''). In the year of income ended 30 June 1986 (``fiscal 1986''), he claimed inter alia a deduction under sec. 51(1) of the Income Tax Assessment Act 1936 (``the Act'') for travel expenses to and from work. This claim was disallowed both on assessment and on objection to the extent that it exceeded an allowance that was provided, as set out below. In fiscal 1986 the applicant was levied the Medicare levy for one half of the year. His objection against this was unsuccessful and he now seeks review of this decision and of the decision to disallow his claim for travel expenses.

2. In the relevant year in question the applicant lived in a capital city of Australia but worked at an RAAF base which was situated over 40 kilometres away. He was forced to live off the base because he is married and there were no married quarters available at that time. As there was no adequate public transport available to get to get the base he had to drive his car to and from the base each day. His employer provided him with an allowance known as the Isolated Establishment Transport Allowance (``IETA''), to cover some of the costs incurred by him, but it was far from adequate. The applicant claimed that he incurred $6,356 in the year in question but his allowance only amounted to $1,681. For some reason known only to those who determine, or to those who oversee the determination, of these things, it had not been seen fit to increase the allowance since November 1979. The Commissioner allowed the applicant a deduction of $1,681 being the value of the allowance.

Travel expenses

3. The applicant argued that he should be entitled to a deduction for the expenditure incurred in travelling to and from work over and above the allowance paid because the allowance was so inadequate. The expenses incurred far exceeded what would be considered normal travel to and from work. He argued that he was compulsorily posted to the base and that he therefore had no say as to where he was sent. As there was no accommodation available at or near his workplace he had to live in the major city. In his submissions the applicant sought to rely on Case J21,
77 ATC 193 in which an army officer was refused a deduction for the expense of travel to and from an army base in an adjacent town. Importance was placed by the applicant on the fact that in that case the taxpayer was ``encouraged'' to live off-base whereas in the present case the applicant had to live off-base. I do not however find that factor to be significant.

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4. The Commissioner argued that no expenditure on travel between home and work is allowable because it is not incurred in producing assessable income and is of a private nature. Reliance for this proposition was placed on the decision of the High Court in
Lunney v. F.C. of T. (1957-1958) 100 C.L.R. 478. It was further submitted that the amount of the allowance was correctly included as assessable income under sec. 25(1) or 26(e) of the Act.

5. In the present case the Commissioner allowed a deduction to the extent of the allowance provided. It was submitted by the Commissioner that in the past a deduction has been allowed to the extent of the allowance provided, relying upon Case S1
(1966) 1 T.B.R.D. In that case a school teacher was paid a ``forage allowance'' for the cost of travel to and from school. It was there decided that while the allowance was assessable income, the taxpayer was entitled to a deduction to the value of the allowance. The Commissioner stated that if the reasoning in Case S1 is correct then the applicant should be allowed a deduction but only to the extent of the allowance.

6. In the present case, notwithstanding that the applicant was forced to live a great distance from the air force base because no married quarters were available, I must decide the general issue of deductibility of expenses incurred in travel between home and work against him. In my opinion the matter has been conclusively dealt with by the High Court in Lunney's case. At p. 501 the following was said by Williams, Kitto and Taylor JJ.:

``Expenditure of this character is not by any process of reasoning a business expense; indeed, it possesses no attribute whatever capable of giving it the colour of a business expense. Nor can it be said to be incurred in gaining or producing a taxpayer's assessable income or incurred in carrying on a business for the purpose of gaining or producing his income; at the most, it may be said to be a necessary consequence of living in one place and working in another. And even if it were possible - and we think it is not - to say that its essential purpose is to enable a taxpayer to derive his assessable income there would still be no warrant for saying, in the language of s. 51, that it was `incurred in gaining or producing the assessable income' or `necessarily incurred in carrying on a business for the purpose of gaining or producing such income'.''

For recent examples of cases that have followed Lunney see Case U156,
87 ATC 908, Case V103,
88 ATC 664 and Case V111,
88 ATC 712.

7. It is nevertheless my respectful opinion that it would be appropriate for the doubts expressed by Dixon C.J. in Lunney's case at p. 485 to be revived to the extent of consideration being given to the question whether the principles expounded in Lunney's case should necessarily be applied beyond what may conveniently be referred to as ``commuter travel''. Where the travel between home and work is substantial, and/or at irregular hours, and/or not on regular days, and/or involves travel to or from different places of work at the beginning and end of the day (see
F.C. of T. v. Wiener 78 ATC 4006), and in other unusual circumstances it seems to me that serious thought could now be given to the question whether the long-established principles should continue to be applied across the board to every form of travel between home and work. May not such extraordinary travel be characterised, in appropriate cases, as being part and parcel of the work? The question in Lunney's case was a limited one. As stated by Dixon C.J. at p. 485 it was ``... 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''. So stated, it does not seem to me that the decision in Lunney's case would have to be treated by a superior Court as authority compelling a conclusion of non-deductibility in cases more complex than that stated by Dixon C.J. But the present is not the strongest of cases for the contemplation of a new approach, and in any event in my opinion it is only a court that could embark upon such contemplation. The weight of decisions, including those of the Taxation Boards of Review and now of this Tribunal, has been such that the Tribunal would be unwise to, and would expose an applicant to the risk of an adverse and costly result on appeal if it did, go down the somewhat adventurous road that would be involved.

8. As was mentioned earlier, the Commissioner allowed a deduction to the

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applicant to the extent of the allowance provided by his employer. While it is doubtful whether the applicant should be allowed such a deduction on the basis of the decisions in Case U156, Case V103 and Case V111, I do not understand the Commissioner to have sought the exercise by the Tribunal of its power to refuse the applicant this deduction, a deduction already allowed by the Commissioner.

Medicare levy

9. The next issue for determination is whether or not the applicant should have been levied for the Medicare levy in fiscal 1986. The relevant sections of the Act are sec. 251R, 251S, 251T and 251U in Pt VIIB. The relevant parts of sec. 251R are as follows:

``251R(3) Subject to sub-sections (4), (5) and (6), a person shall be taken to have been a dependant of another person for the purposes of this Part during any part of the year of income in which -

  • (a) the first-mentioned person was a resident of Australia;
  • (b) the first-mentioned person was -
    • (i) the spouse of the other person;
    • ...
  • (c) the other person contributed to the maintenance of the first-mentioned person.

(6) For the purposes of paragraph (3)(c), a person shall be taken to have contributed to the maintenance of another person during any period during which the person and that other person resided together, unless the contrary is established to the satisfaction of the Commissioner.''

10. Section 251S(1)(a) states that, subject to Pt VIIB, the Medicare levy shall be paid at the relevant rate by resident taxpayers each year. Section 251T, however, then states that a person who is a ``prescribed person'' during the entire year of income does not have to pay the levy. For the applicant's purposes, a ``prescribed person'' for a particular period is defined in sec. 251U(1)(A) to include inter alia a ``person... entitled to free medical treatment during the whole of that period... by reason that the person was a member of the Defence Force...''. A person will not, however, be a prescribed person during a particular period unless every person who was a dependant of that person is to be taken to have been a prescribed person for the purposes of Pt VIIB of the Act. Where this is the case that person will only be a prescribed person for one half of the year of income. This is the effect of sec. 251U(2) and (3). The effect of these sections, therefore, is that the applicant, who is married to a non-prescribed person, must pay Medicare levy of one-half of the amount otherwise payable in the year in question unless he can establish to the satisfaction of the Commissioner that, even though he and his wife lived together in the year in question, he did not contribute to her maintenance.

11. The Commissioner referred to Taxation Ruling IT 2365 in arguing that the applicant was liable to the levy. The relevant part of this Ruling is para. 11 which states:

``It is open to persons living together to prove that they have not contributed to the maintenance of each other by providing evidence establishing beyond doubt that each was self-supporting. Generally, the starting point in such an exercise would be a detailed record of actual household expenses and the amount contributed by each person. Normal domestic sharing arrangements, e.g. a common account to which each person contributes and which is used to meet joint expenses, is not ordinarily sufficient to establish that one person has not contributed to the maintenance of the other.''

12. The applicant, however, submitted that he did not believe that the nature of a marriage allowed for the possibility of spouses not contributing to each other. He said that he and his wife did not separately purchase and consume their grocery requirements. They also did not keep ``actual household expenses and the amounts contributed by each person'' as he believed was required by the Commissioner. The applicant believed that a proper test of dependency ``should be whether either individual could support themselves on the wage they earn''. In his case his wife earned $16,558 in the year in question, which far exceeds that level of income where the spouse rebate ceases.

13. Unfortunately for the applicant I must reject his claim for total exemption from payment of the Medicare levy. As the Act now

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stands where the applicant lives with his wife the applicant bears the onus of proving that he did not contribute to the maintenance of his wife. In a normal marriage, as appeared to exist here, I do not know how it can be said there was no contribution to the other spouse. In any case the applicant has not provided the Tribunal with any evidence that establishes that no contribution was made to the maintenance of his spouse.

14. As was pointed out by the applicant, the provisions in question may be fair where the Defence Force employee's spouse has no separate income because otherwise nobody would be paying the Medicare levy for the spouse. In the case of spouses who do work, however, the provisions seem unfair in that not only does the spouse pay the full Medicare levy attributable to her but the Defence Force employee also pays a levy of one half of the amount that he would otherwise pay. In effect, therefore, Medicare levy is being paid one and a half times. In Case U18,
87 ATC 180 per Dr P. Gerber, Senior Member as he then was, stated that this situation is ``tantamount to a form of double tax'' (at p. 180). These sentiments were echoed by Mr P.M. Roach, Senior Member, in Case V106,
88 ATC 684. What must be particularly galling to the serviceman is that he receives no benefit personally from the Medicare levy, as he receives free medical treatment from the RAAF.

15. I believe that this applicant must feel reasonably aggrieved at the present state of affairs, but as things stand there is nothing that this Tribunal can do other than to affirm the objection decision under review.

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