Case W101

ET Perrignon SM

Administrative Appeals Tribunal

Decision date: 29 March 1989.

E.T. Perrignon (Senior Member)

In this case the applicant claims to be entitled to deduct from his income for the year ended 30 June 1984 the sum of $9,497.56 made up of an amount of $7,450 paid to a credit card company for air fares and $2,047.56 for legal fees. The claim in respect of air fares was reduced during the hearing to $6,800.

2. The applicant had been the employee of a company for many years. In about 1974 he had applied for a corporate credit card which was issued to him as the cardholder. The card was taken out at the request of the company because the applicant was required from time to time to travel overseas on company business and it was convenient for him to use the card for travelling and accommodation expenses whilst overseas. Just prior to April 1982, the company directed him to charge to the credit of the card the fares for overseas air travel of three of the company's executives. He had not been directed to do this before. When he signed for the fares he understood that the company would pay the account. At that time he knew that the company was short of ready cash but he had no idea that it was about to go into receivership. In April 1982 receivers were appointed of the company's assets and in June 1982 he was dismissed from the company's service.

3. The applicant was unaware when he took out the credit card that the company and he became jointly and severally liable for debts incurred by the use of the card. It appears that when the credit card company found itself unable to recover the cost of the air fares from the applicant's employer company, it sought repayment from the applicant. He resisted payment to the point where the credit card company obtained a judgment against him and sought to have his home sold. It was only then that he paid the credit card company. Legal fees amounting to $2,047.56 were incurred by him in his efforts to resist such payment. He was unable to recover anything from the company, or, except for $650 paid to him by one executive, from the three executives whose fares he had paid.

4. I regard the applicant as a truthful witness and in my opinion his evidence has sufficiently established the facts set out above. The question for decision therefore is whether the deduction claimed by him is properly allowable under sec. 51(1) of the Income Tax Assessment Act 1936 as amended.

5. I am of the opinion that the outgoings in question were not incurred in the course of gaining or producing the applicant's assessable income. However relevant and incidental such expenses might have been to the production of the company's income, I do not think that they can properly be regarded as relevant and incidental to the production of the applicant's income. From the point of view of the applicant, such expenses were more in the nature of a loan to the company than an expense incurred in the gaining of his income.

6. I am therefore of the opinion that the expenses in question are not deductible from the applicant's assessable income. The claim in respect of legal expenses must, I think, suffer the same fate. It is unnecessary, in the circumstances, to consider the argument which was submitted on behalf of the Commissioner, that the expenses were not deductible in the 1984 year since the taxpayer's employment with the company had by then ceased: See
Amalgamated Zinc (de Bavay's) Ltd. v. F.C. of T. (1935) 54 C.L.R. 295;
Hooker Rex Pty. Ltd. v. F.C. of T. 88 ATC 4392 at p. 4400; cf. Case V115,
88 ATC 733 at pp. 736-737.

7. The appeal is therefore disallowed and the decision of the Commissioner is affirmed.

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