Case W39

PM Roach SM

Administrative Appeals Tribunal

Decision date: 12 May 1989.

P.M. Roach (Senior Member)

The applicant is a lady now in her 44th year. She is a wife and mother. She has also pursued an academic career as a tutor and lecturer. Having graduated as a Bachelor of Arts in 1977 she continued her studies, initially with the aid of a Commonwealth Post-graduate Scholarship, and she put her talents to income-producing purposes. Her first income-producing engagement came as a part-time tutor in the relevant discipline. That was in the period 1980-1981. Two years later she worked for an unidentified period as a part-time teacher at a TAFE college. She was more actively engaged throughout the 1983 calendar year. She designed and taught a 12-week course intended for people wishing to retrain in the area of technology. She also designed, taught and examined in a university-presented course for adults wishing to qualify themselves for admission to undergraduate courses. Other activities included participation in university-sponsored community programs and TAFE adult literacy seminars. In the period 1 July 1983 to 31 December 1983, her university work had generated an income of $1,665 and her TAFE work an income of $2,816: $4,481. She did not resume income-producing activities until 1987.

2. During 1984 the applicant travelled overseas with her husband - also a university teacher - and their family. While in the United States of America she attended a four-day conference in relation to her special field of interest and while in the United Kingdom she attended a similar six-day conference. While in the United Kingdom she also enjoyed the privilege and benefits of access to some special collections at the University of Cambridge. Her attendance at conferences brought her into contact with other, more senior academics - an association which to some

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extent has continued since. I accept that she is known to some academics overseas. However, I think it would be going too far to say she has an international reputation in the sense in which that phrase is most commonly understood.

3. Upon returning to Australia she actively pursued her studies towards the degree of Doctor of Philosophy and took such teaching opportunities as came her way. Those efforts were rewarded when the degree was conferred in 1987. Her doctoral thesis is under consideration for publication overseas. However, it was 1987 before her efforts again came to be income-producing. She came to concurrently hold positions as a part-time lecturer or tutor with two universities and in 1988 and 1989 the same pattern was followed.

4. The question to be determined is whether in those circumstances the expenses of $514 and $280 incurred locally in attending the two conferences mentioned while overseas and while unemployed are such as to constitute allowable deductions for the purposes of sec. 51(1) of the Income Tax Assessment Act (``the Act''). In this instance no claim has been made for any expenses incurred in travelling overseas.

5. The case of the applicant is presented on the basis of an interpretation of the decision
F.C. of T. v. Finn (1961) 106 C.L.R. 60 said to have been adopted and applied by this Tribunal in recent cases. It emphasises passages from that decision such as those in which the Chief Justice said (at p. 64) that:

``It will be seen that the question involved in the case is of an important description. For it is indeed important that offers and employees engaged at salary in the exercise of a skilled profession should not be in a worse position in respect of the cost of better equipping or qualifying themselves in point of knowledge and skill than are those exercising the same profession as a calling remunerated in fees paid by clients or by the members of the public who, under whatever style, enlisted their services.''

(Emphasis added.)

and of Windeyer J. in which he said (at p. 70):

``The facts and considerations relevant to this case appear fully in the judgment of the Chief Justice. Generally speaking, it seems to me, a taxpayer who gains income by the exercise of his skill in some profession or calling and who incurs expenses in maintaining or increasing his learning, knowledge, experience and ability in that profession or calling necessarily incurs those expenses in carrying on his profession or calling. Whether he be paid fees by different persons seeking his skilled services from time to time, or be paid a regular salary by one person employing him to exercise his skill, matters not in my opinion.''

(Emphasis added.)

6. However, in my view, the argument passes too lightly over the passages which have been marked for emphasis in the extracts quoted. That is not to say that that problem has been overlooked by the solicitor for the applicant. The authority of cases such as the decision of the High Court of Australia in
F.C. of T. v. Maddalena (71 ATC 4161 - in which expenses incurred with a view to securing a new employment were held to be not allowable as having been incurred ``at a point too soon'') and of the Supreme Court of Victoria in
F.C. of T. v. Klan (85 ATC 4060 - in which expenses incurred overseas by a private school teacher in the course of seeking successfully to upgrade his teaching qualifications with overseas experience so as to secure a headmastership were held not to be expenses incurred in the course of deriving his assessable income) has been acknowledged.

7. Rather what was argued for the applicant was that to establish the deductibility of expenses it is not necessary that a taxpayer should always be able to point to the derivation of income in the year in which expenditure is incurred (cf.
F.C. of T. v. Smith 81 ATC 4114; (1981) 147 C.L.R. 578); that it is not necessary that the applicant should make out a direct nexus between the incurring of the expenditure and any particular income, and that it is not necessary that any assessable income be actually generated as a result of the expenditure. As was said by Gibbs, Stephen, Mason and Wilson JJ. in Smith (ante at ATC pp. 4117-4118; C.L.R. pp. 585-586):

``The section does not require that the purpose of the expenditure shall be the gaining of the income of that year, so long as it was made in the given year and is incidental and relevant to the operations or activities regularly carried on for the production of income. What is incidental

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and relevant in the sense mentioned falls to be determined not by reference to the certainty or likelihood of the outgoing resulting in the generation of income but to its nature and character and generally to its connection with the operations which more directly gain or produce the assessable income.''

8. So much may be agreed. The argument, as then developed, is that as a scholar pursuing an income-producing career as an academic teacher she was entitled to claim the expenses incurred in pursuit of that career on the authority of Finn and that that entitlement is confirmed by decisions of this Tribunal such as Case T90,
86 ATC 1132, Case V1,
88 ATC 101 and Case V32,
88 ATC 285. As it is important that decisions of the Tribunal should be given respect by the Tribunal and also that inconsistencies should be avoided where they may, it is necessary to closely consider those decisions.

9. The decision in Case T90 (supra) was a decision of Deputy President, Dr Gerber, a Senior Member of the Tribunal as he then was, delivered extempore. It was a decision in which he declined to follow a unanimous decision of the No. 2 Taxation Board of Review reported earlier in the same year (Case T10,
86 ATC 169) notwithstanding that he considered the ``facts indistinguishable''. Case T90 concerned a person following a career in which she had worked intermittently as an itinerant locum pharmacist - a career which generated a level of taxable income little in excess of the taxable threshold. While unemployed - between jobs - she attended a conference in New Caledonia organised by the Pharmacy Guild of Australia, Queensland Branch. Dr Gerber found that [at p. 1133]:

``Her sole purpose in travelling to New Caledonia was to attend that conference, and it was common ground that the trip contained no recreational component which would justify an apportionment of the expenditure.''

The respondent Commissioner agreed that it was, indeed, an ``all or nothing'' case.

10. In para. 24 of his reasons for decision, Dr Gerber recorded that the submission had been put to him that her expenses would have been allowable if she had actually owned a chemist shop, but ``as a mere employee, and worse, not even in regular employment'' she was not so entitled. He went on to say [at p. 1135]:

``I shrink from being responsible for so eccentric a result. Just as nature abhors a vacuum, so presumptively, does the Income Tax Assessment Act. Doing a simple head count and going back to Finn in the original, I am satisfied that throughout the case, certainly in the decision of Mr Justice Windeyer, and in the dictum of the Chief Justice, appears the clear pronouncement that the Act makes no distinction between those officers and employees engaged at a salary in the exercise of the skilled profession, and those who are self-employed...

The matter is clearly one of considerable importance, not just to this taxpayer, but to others similarly placed.''

He concluded that:

``the expenditure... was in every relevant sense, incurred in the production of her assessable income.''

11. The case stands as clear authority for the proposition that it is not essential for deductibility that, when expense is incurred by a person who ordinarily derives income as an employee rather than as a self-employed person, the person be concurrently employed.

12. The solicitor for the applicant argues that the decision in Case V1 (supra), a decision of Senior Member Beddoe, is to the same effect. In that case an employed music teacher was awarded an international scholarship. She terminated her employment with her employer-institution; then travelled overseas on her scholarship and also to undertake further studies; and only then returned to Australia to commence a new employment with a new institution. She claimed, and was not allowed, deductions for expenses incurred in relation to her overseas studies: expenses incurred while she was unemployed. The employment taken up on her return had been negotiated before her departure overseas, although the employer-employee relationship was not documented and did not come into existence contractually until her return from overseas. None the less Mr Beddoe was able to find that:

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``It is clear from the evidence that from early 1980 the Applicant had an understanding with the college that she would be appointed and the College was merely awaiting her return from overseas before formalising the appointment.''

13. Senior Member Beddoe was pressed to follow the decisions in Maddalena ante and Klan ante. As to the former, he said [at p. 106]:

``It is clear enough, in the context of the present application, that if the applicant had undertaken the courses of study for the purpose of qualifying herself for the appointment at the College then the relevant outgoings would have been incurred in getting work as an employee; it would have come at a point too soon to be regarded as incurred in gaining assessable income. However, the facts of this case show objectively that the purpose for undertaking the course of study was to improve the applicant's knowledge of music teaching methods. I am satisfied that the decision in Maddalena's case does not apply to the facts of this application.''

As to the decision in Klan he said:

``In deciding this application I need go no further than say that Klan's case is clearly distinguishable from the facts of this case. Mr Klan incurred the travel expenses for the purpose of obtaining employment in Britain and thereby deriving exempt income. A secondary purpose was to undertake research in Germany. The expenditure was incurred in getting work to earn exempt income. These considerations do not apply in the present application.

The present application is not one to which Klan's case applies because it does not concern expenditure incurred for the purpose of getting work. The applicant was at all relevant times a teacher of music (albeit an unemployed teacher of music while she undertook the courses) and she applied for and undertook the courses in Europe for the purpose of increasing and updating her knowledge as a music teacher. In undertaking the Kodaly course she had no other purpose. That undertaking the course assisted her in obtaining a position at the College does not disqualify the expenditure from being deductible.''

The decision in Case V32 (supra) was given in quite different circumstances. It was also given by Dr Gerber. The taxpayer was a lady who for many years had been involved in the dramatic arts. In earlier years she had been extensively employed for modest rewards as a radio actress. Then for some years she derived a minimal income from production work. Then followed a more financially rewarding period in which her income was principally derived from the theatre. What income (if any) was derived in the next two years or so was not disclosed. But expenses were incurred in studying radio drama techniques with the BBC. The course was of twelve weeks duration and was specially oriented to experienced producers. During that year her dramatic talents generated a modest income but, as I understand it, not during the period of the courses. Her claim was allowed.

14. In so far as the decisions in Case T90 and Case V1 and Case V32 merely illustrate the point that deductibility of an expense is not to be automatically denied because there is not a concurrent entitlement to the derivation of income, I completely agree with them. Further, in so far as they merely constitute findings of fact made in particular circumstances on the evidence presented, I have no reason to disagree with any of them.

15. But none of the decisions suggest to me that in the circumstances of this applicant, it could be said in any meaningful sense that the expenses in question were incurred ``in the course of'' deriving her assessable income. At the time the expenses were incurred she was neither deriving assessable income nor did she stand in prospect for many months to come of deriving any assessable income. The earliest at which she might have come to derive assessable income was the next academic year following her return to Australia. In the event that was not to be, but that is not a matter of great moment. If this applicant were to succeed it would in fact require the Tribunal to construe sec. 51(1) of the Act as if it provided that a person who incurs expenses in maintaining or increasing his learning, knowledge, experience and ability in his profession or calling is entitled to an allowable deduction whether he gains income by the exercise of that calling or not and whether the expense is incurred in the

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course of his income-producing activities or not. It is quite clear that any such construction is unsound. It finds no support in either Finn or Smith.

16. The determination of the Commissioner upon the objection under review shall be affirmed.

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