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FC of T v COOPER

Members: Lockhart J
Wilcox J

Hill J

Tribunal:
Full Federal Court

Decision date: Judgment handed down 24 April 1991

Hill J

The appellant, the Commissioner of Taxation, appeals from the judgment of the Supreme Court of New South Wales ( Hunt J.) [reported at 90 ATC 4580] dismissing an appeal brought by the Commissioner of Taxation from a decision of a Board of Review in favour of the respondent, Robert John Cooper [reported at 86 ATC 290], allowing Mr. Cooper's objections to assessments of income tax in the years of income ending 30 June 1980, 1981 and 1982 respectively.

The reasons of the Board of Review were delivered on 2 June 1986, shortly before the abolition of Boards of Review, and the conferral of a new right of appeal to the Administrative Appeals Tribunal in respect of objection decisions of the Commissioner. Accordingly, appeal lay to the Supreme Court of a State, provided a question of law was involved: s. 196(1) of the Income Tax Assessment Act 1936 (Cth) (``the Act''). Following the repeal of s. 196 of the Act by Act No. 48 of 1986, including the repeal of sub-s. (5) of that section, which conferred a further right of appeal by leave to this Court from a decision of the Supreme Court, an appeal now lies to this Court as of right:
Pettigrew v FC of T 90 ATC 4124 .

The facts

The reasons of the Board, constituted by the Chairman (Mr. Beddoe), Dr. Gerber and Dr. Beck, were brief. At issue was the right of Mr. Cooper to a deduction under s. 51(1) of the Act for expenditure, admittedly incurred by him, upon food and drink over and above his normal expenditure on these items. No question of quantum arose. The sole question, on the facts of the case, was whether the expenditure was deductible under that sub-section. Section 51(1) of the Act provides:

``51(1) All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such income, shall be allowable deductions except to the extent to which they are losses or outgoings of capital, or of a capital, private or domestic nature, or are incurred in relation to the gaining or production of exempt income.''

Although some additional evidence in the form of two short affidavits was given in the Supreme Court (they were not the subject of cross-examination) the evidence in the Supreme Court otherwise consisted of a tender by consent of the transcript of Mr. Cooper's evidence in the Board of Review. That evidence, as will be apparent, was not detailed and the additional affidavits in the Supreme Court added little to it.

Mr. Cooper, in the years of income, was a professional footballer, engaged by the Western Suburbs District Rugby League Football Club (``the Club'') pursuant to a contract with that Club made on 22 December 1979, to play during the seasons 1980 and 1981, with what the contract described as a ``Club option''. The remuneration payable under the contract was in the form of a signing-on fee for each year, plus match payments which varied depending upon whether Mr. Cooper was selected to play in First Grade, Reserve Grade or in the Under-23 Grade, qualified for representative selection, as well as the results of the games in which he played.

The contract in clause 1 provided, inter alia:

``... The Player shall do everything necessary to get and keep himself in the best possible condition so as to render the most

ATC 4407

efficient service to the Club and will carry out all the training and other instructions of the Club through its responsible officials.''

Mr. Cooper played with the Club as a forward. The evidence was that he would start a playing season with a weight of 17 ¼ stone and after spending the season in matches and training, the latter involving training with the team three nights a week, and by himself a further two nights a week, he would finish the season weighing just 15 stone. This weight loss affected his ability as a forward and resulted in a loss of strength, which in turn diminished his ability to break the opposing team's line, and this put in danger both his effectiveness as a forward and his retention in the First Grade team.

In evidence in the Board of Review he said:

``... I found that... my optimum playing weight was around about sixteen to 16 ½ stone... I had a lot more strength. I could bust a line a lot better. But once I got around the fifteen stone mark I found that I did not have that ability to break the line. That extra stone seemed to make a hell of a lot of difference in regard to my strength... if you did not play first grade... your earning capacity was limited. And that is the reason. I just wanted to keep my weight on.''

Although in fact Mr. Cooper was never dropped from the First Grade team (the reasons of the Board of Review erroneously indicate that he was) it may be accepted that there was a risk of that happening, and a consequent risk that the income he derived as a professional footballer could be reduced by up to 80 per cent until he was reselected to play First Grade.

On 12 October 1979, Mr. Cooper's coach, Mr. Roy Masters, issued to him on the letterhead of the Western Suburbs District Rugby League Football Club, a letter in the following terms:

``Dear Bob,

Now that the season has ended and in preparation for next year's season I would like you to follow the instructions below from this date:

Fitness:

Ensure that you maintain your reflex speed and endurance by playing squash at least once, preferably twice per week, all year round.

Strength:

Attend a Gym, either locally or at Wests League Club, to build up your physique and strength, preferably once per week.

Weight:

As you have a tendency to lose weight which affects your playing ability during the season, I want you to eat the following items each week in addition to your normal meals:

  • 1. 3 kilos of steak, only medium cooked.
  • 2. Potatoes at each meal, 1 kilo per week.
  • 3. Bread at each meal, at least three loaves per week.
  • 4. Beer is an excellent method of increasing weight, therefore at least 1 dozen cans per week.
  • 5. At least one glass of Sustagen per day.

General Exercise:

Ensure that for general conditioning you do as much running as possible.

I appreciate that the above will involve you in extra expense but I am sure that you will be recompensed by the Club when your contract comes up for renewal.

Regards,

ROY MASTERS''

Mr. Cooper understood the letter to impose upon him an obligation to do as Mr. Masters said. As a result, he incurred expenditure over and above the expenditure for his normal consumption of food and drink. The evidence in the Board of Review, or for that matter the Supreme Court, does not suggest that he followed Mr. Masters' prescription precisely. He said that he ate an additional meal a day, although unless his normal diet consisted of potatoes and bread at each meal, this was not what Mr. Masters' letter required. It may, however, be accepted in general terms at least, that he complied with Mr Masters' prescription.

ATC 4408

There was no dispute that the amounts claimed represented a reasonable estimate of the expenditure he incurred additional to the expenditure on his normal diet.

The decision of the Board of Review

The Board of Review found the expenditure to be deductible within s. 51(1). It suggested that Mr. Cooper suffered from a rare condition known as ``a weight loss problem''. If this was intended as a serious comment, there was no foundation for it in the evidence. The tone of the reasons of the Board is somewhat flippant, and not particularly illuminating. The Board referred to Mr. Cooper as having an inbuilt error of metabolism. Again, there was no foundation for this comment in the evidence. The reasons of the Board, brief as they may be thought to be, are to be found in paras. 3 and 4 and are expressed as follows [at 291]:

``3. Given that this taxpayer seems to suffer from some inbuilt error of metabolism which requires substantially more food than the amount consumed, on average, by other professional footballers, I am not persuaded that this additional food assumes the characteristics of a `meal' strictu sensu as opposed to being part and parcel of the process by which he earns assessable income. This taxpayer is like a badly tuned racing car burning an excessive amount of fuel. It would seem that some fine tuning with the carburettor will fix the problem, but that is a job for an A-grade mechanic, not the Commissioner for Income Tax. Whilst there may not be many taxpayers fortunate enough to be able to consume a carton of beer each week and toast the Commissioner's good health with every can, this taxpayer is one of them.

4. In the result, I find that the claimed outgoing is not of a private or domestic nature so as to introduce the exclusionary provisions of sec. 51(1). Evidence was given that the claimed outgoing was calculated on estimated cost of the various food items claimed in the relevant years and no serious challenge was mounted on quantum.''

The appeal to the Supreme Court: was a question of law involved?

From the Board's decision, the Commissioner appealed to the Supreme Court. For that Court to have jurisdiction, it was necessary, pursuant to the then s. 196(1), that a question of law be involved in the appeal: cf s. 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth), which now confers a right of appeal from the Administrative Appeals Tribunal only ``on a question of law''. For relevant purposes, there are two essential distinctions between these provisions. The first, is that it was necessary under s. 196(1) merely that a question of law be involved. It was not material whether that question was decided correctly:
FC of T v. Sagar (1946) 71 CLR 421 at 423 ;
Krew v FC of T 71 ATC 4213 at 4215; (1971) 45 ALJR 324 at 325 . Second, once a question of law was identified as being involved, the appeal to the Supreme Court operated as a rehearing on both fact and law, rather than as now merely an appeal confined to the question of law on which the appeal is based:
Ruhamah Property Co. Limited v FC of T (1928) 41 CLR 148 at 151 ;
FC of T v Miller (1946) 8 ATD 146 at 151; (1946) 73 CLR 93 at 103-104 ; Krew v FC of T (supra) at ATC 4216; ALJR 326 and cf
Waterford v The Commonwealth (1986-1987) 163 CLR 54 at 77 per Brennan J.

The Commissioner's appeal to the Supreme Court of New South Wales was met with a submission that the appeal was incompetent because no question of law was involved, a submission upheld by Hunt J. Before his Honour, the Commissioner identified two questions of law said to have been involved. These questions were stated by Hunt J. as follows [at 4581]:

``The first is said to have been that raised by any claim for an outgoing of a private nature under sec. 51(1), as discussed by the High Court in
John v F.C of T. 89 ATC 4101 ; (1989) 166 C.L.R. 417 . The second question of law is said to have been that involved in the application of sec. 51(1) to the facts of this particular case.''

The Commissioner's submissions were dealt with by Hunt J. in the following passage:

``It was conceded by the Commissioner that the Board did not in fact deal with either question of law, but it was submitted that both were necessarily involved in every case such as the present. I do not agree. There is no necessary antipathy between an outgoing incurred in gaining assessable income and

ATC 4409

one of a private nature: John v. F.C. of T. at ATC p. 4108; C.L.R. p. 431. No question of law is involved where some principle of law was either necessarily applied by the Board in arriving at its decision or merely implicit or assumed in that decision; the question must be one which was actively involved in the Board's decision:
Boyded (Holdings) Pty. Ltd. v F.C of T. 82 ATC 4236 at p. 4239; (1982) 13 A.T.R. 127 at p. 130 . That was not the case here. Moreover, the question whether a particular set of facts comes within the terms of a statutory definition which uses words according to their common understanding is one of fact, not of law:
Australian Gaslight Co. v. Valuer-General (1940) 40 S.R. 126 at pp. 137-138 ;
Hope v. The Council of the City of Bathurst 80 ATC 4386 at p. 4389; (1980) 144 C.L.R. 1 at pp. 7-8 . It was eventually conceded in argument that the present case, like so many of them involved a question of fact and degree (
F.C of T. v. Forsyth 81 ATC 4157 at p. 4164; (1981) 148 C.L.R. 203 at p. 215 ), and that no submission of `no evidence' had been made to the Board and ruled upon by it either expressly or by implication: cf.
Lombardo v. F.C. of T. 79 ATC 4542 at p. 4546; (1979) 10 A.T.R. 310 at p. 314 .

The Commissioner's appeal is therefore incompetent, and it must be dismissed upon that basis.''

With respect, I do not agree. In my opinion, more than one question of law was involved in the appeal. First, there was the matter of the findings of fact made by the Board, which had no foundation in the evidence. So few were the facts narrated by the Board in a judgment that was just over a page of typing, it must be assumed that the matters set out by the Board as facts, loomed large in the Board's reasons. There can be no doubt that a question of law would be involved where there is no evidence upon which the Board could have reached its decision. It goes without saying that in such a case it is unnecessary for any submission to have been made to the Board, for the case is one where the Board has itself fallen into error in its reasons.

In Lombardo v FC of T 79 ATC 4542; (1979) 40 FLR 208, Bowen C.J., set out a number of cases where a question of law will be involved, albeit without attempting an exhaustive summary. His Honour said (at ATC 4545-4546; FLR 212):

``1. If it was expressly raised and the Board made a ruling on it as a relevant factor in its decision;

2. If it is obvious from the decision or transcript of the case that the Board in arriving at its decision has misunderstood the law in some relevant particular;

3. Technical words had necessarily to be construed before the statute could be applied;

4. Where a particular set of facts had of necessity to be within or without the statute;''

The present case falls, in my opinion, within the fourth test suggested by his Honour.

There is a long line of authority that a question of law will be involved in any case where the facts are not in dispute and the only question is whether the case necessarily falls within or outside the statute:
FC of T v Western Suburbs Cinemas Limited (1952) 9 ATD 452 at 453; (1952) 86 CLR 102 at 104 ;
Inland Revenue Commissioners v Alexander von Glehn & Co. Ltd. (1920) 12 TC 232 at 242 per Warrington L.J.;
Bean v Doncaster Amalgamated Collieries Ltd. (1946) 27 TC 296 at 307-308 per du parcq L.J.;
Rolls-Royce Limited v Jeffrey [1962] 1 All ER 801 at 802-803 per Viscount Simonds;
Farmer v Cotton's Trustees [1915] AC 922 at 932 per Lord Parker of Waddington, quoted with approval by Latham C.J. in FC of T v Miller (1946) 8 ATD 146 at 147; (1946) 73 CLR 93 at 97; and by Fullagar J. in
Hayes v FC of T (1956) 11 ATD 68 at 70; (1956) 96 CLR 47 at 51 . The rationale for this view is particularly apparent in a case where, only one conclusion being open on the facts, the Board arrives at a different conclusion. Since the facts were not in dispute, it follows that the Board must have applied some wrong principle of law, albeit that it has not stated the principle upon which it has relied.

It is a different question, of course, and one of fact only, if the issue is whether, a number of results being open, a particular result arrived at was correct, for in such a case the matter is one of degree only.

ATC 4410

There are, as Hunt J. observed, also cases where it has been held that the meaning of an ordinary English word or phrase used in a statute is a question of fact, and the question whether a particular set of facts comes within the description of such a word or phrase, will also be a question of fact:
FC of T v Broken Hill South Limited (1941) 6 ATD 167 ; (1941) 65 CLR 150 ; Australian Gas Light Co. v The Valuer-General (1940) 40 SR (NSW) 126 at 137;
Hope v The Council of the City of Bathurst 80 ATC 4386 at 4389; (1980) 144 CLR 1 at 7 ;
Brutus v Cozens [1973] AC 854 .

It may be thought that these two principles are in conflict and that the judgment of Mason J. in Hope casts doubt on the first principle. However, a careful perusal of his Honour's judgment makes it clear that this is not so, as his Honour's discussion (at ATC 4389; CLR 7-8) of the judgment of Kitto J. in
NSW Associated Blue Metal Quarries Limited v FC of T (1955-1956) 11 ATD 50 ; (1955-1956) 94 CLR 509 reveals. The Associated Blue Metal Case concerned the question whether certain activities of the taxpayer were ``mining operations upon a mining property'' within the meaning of s. 122 of the Act. That, as Kitto J. observed, involved a mixed question of fact and law. As Mason J. observes (at ATC 4389; CLR 8), Kitto J. went on to explain why this was so in the following passage:

``First it is necessary to decide as a matter of law whether the Act uses the expressions `mining operations' and `mining property' in any other sense than that which they have in ordinary speech.''

Kitto J answered that question in the negative and noted that the common understanding of ordinary words is a question of fact. He then continued (at ATD 52; CLR 512):

``The next question must be whether the material before the Court reasonably admits of different conclusions as to whether the appellant's operations fall within the ordinary meaning of the words as so determined; and that is a question of law... If different conclusions are reasonably possible, it is necessary to decide which is the correct conclusion; and that is a question of fact...''

Although, as Mason J. observed in Hope, the meaning of the word ``business'', if used as an ordinary English word, is a question of fact, where the issue was whether on the facts as found, any conclusion was open other than that the activities of Mr. Hope amounted to a business, a question of law was, in the view of Mason J., involved.

The case before us is a case where all the facts are known and undisputed. The issue of law raised is whether any conclusion is open other than that the expenditure incurred by the applicant was an allowable deduction under the section. That question is a question of law.

Counsel for the Commissioner also submitted that the Board misapplied the law in that it had dealt only with the non-private nature of the outgoings, without determining whether the outgoings incurred came within the first limb of the sub-section. Thus, it was said, there was necessarily a question of law involved in the decision, namely, one of construction of the Act and the relation of the positive and exclusory limbs of s. 51(1). It is true that the reasons of the Board were brief and that it did not elaborate on the first limb of the sub-section, but it cannot be assumed that the Board overlooked it. Further, it would seem that before the Board, no issue as to the first limb arose, the argument being centred on the exclusory limb of the sub-section. Although the question of the construction of s. 51(1) is obviously a question of law, the relationship of the first limb of the sub-section to the exclusory limb of it was not, in the present case, a matter involved in the Board's decision.

It is a prerequisite of jurisdiction that the question of law as identified be really and not colourably involved:
Fisher v DFC of T (1966) 40 ALJR 328 ; Lombardo (supra) at ATC 4547; FLR 215 per Franki J. As Toohey J. pointed out in Lombardo, where the Board does not expressly refer to the question of law it is necessary that the decision at least ``imply or entail the question'' so that (at ATC 4550; FLR 219):

``If a perusal of a Board's decision shows that some step, although not expressly referred to, must have been taken by the Board in arriving at its conclusion, that matter was involved in the decision. And if the matter, on examination, is shown to be a question of law, then a question of law will have been involved.''

In Boyded (Holdings) Pty Limited v FC of T 82 ATC 4236, Mahoney J.A. (at 4239)

ATC 4411

suggested that it was not sufficient if a principle of law was necessarily implied or that it was implicit or assumed in the decisions such as would give rise to an issue of estoppel. Rather, it seems that his Honour was of the view that the question of law be an ``active'' and not a ``passive'' one. No doubt what his Honour had in mind, was a case such as the present, where the parties had chosen to run the case solely on the basis of the exclusory limbs of s. 51(1) and subsequently it was sought to argue the Board had necessarily applied a view as to the relationship between the two limbs, to which its attention had not been drawn at all.

However, in the present case, there are at least two questions of law involved in the appeal, and accordingly the Supreme Court of New South Wales had jurisdiction to determine it. The decision to the contrary by Hunt J. must be set aside.

The decision of the Supreme Court on deductibility

It is necessary, then, to turn to the substantial issue in the case.

In the Supreme Court, Hunt J. emphasised that the claim of Mr. Cooper was for the additional food he ate, not for the food which he ordinarily consumed to sustain him. He said [at 4583], that the additional food was consumed:

``... to ensure that he was able to derive five times the income which he would otherwise have been able to derive. The outgoing was directly related to gaining that additional assessable income. The taxpayer spent more in order to earn more. The essential character of the expenditure in question was to gain additional assessable income:
Lunney v. F.C. of T. 11 A.T.D. 404 at p. 412; (1958) 100 C.L.R. 478 at p. 497 . It was not the remote connection for which the Commissioner contended. It was incurred pursuant to a contractual obligation to do so, and not merely because the taxpayer had been `encouraged' to incur it, as the Commissioner contended: cf
F.C. of T. v. Hatchett 71 ATC 4184 at p. 4187; (1971) 125 C.L.R. 494 at p. 499 .''

His Honour concluded:

``The outgoings in question in the present case were incurred in gaining the taxpayer's assessable income and, in the circumstances, they were by their nature excluded from the category of private or domestic outgoings.''

The relation of the positive limbs of s. 51(1) to the exclusory limb relating to private expenditure

To be deductible under s. 51(1), a loss or outgoing must satisfy the tests contained in what are often referred to as the ``positive limbs'' of the sub-section, and be not excluded from deductibility by the exclusory limbs. It was early suggested that private and domestic expenses were, by their very nature, excluded from deductibility as not being outgoings incurred in gaining or producing assessable income, or necessarily incurred in carrying on a business for that purpose: J.P. Hannan, Principles of Income Taxation, Law Book Company of Australasia Pty Limited 1946 at 306. This view of the law, so far as it is related to the exclusion of outgoings of a domestic nature, was found to be misconceived in
Handley v FC of T 81 ATC 4165 at 4170; (1980-1981) 148 CLR 182 at 191-192 per Stephen J., at 194 per Mason J., and in FC of T v Forsyth 81 ATC 4157 at 4164; (1980-1981) 148 CLR 203 at 216 per Wilson J. Notwithstanding the reservation expressed by Wilson J. in Forsyth (at ATC 4164; CLR 216), with whose judgment Mason J. agreed, as to whether the same could be said about outgoings of a private nature, the High Court in John v FC of T 89 ATC 4101 at 4108; (1988-1989) 166 CLR 417 at 431, made it clear that there was no necessary antipathy between a loss or outgoing incurred in gaining or producing assessable income, and a loss or outgoing of a private nature. Thus, it is necessary to first consider, in respect of any loss or outgoing, whether it falls within one or other of the inclusory limbs, and if it does, to then proceed to consider whether the loss or outgoing is of a private nature.

In the present case, Mr. Cooper was an employee of the Club:
Buckley & Ors v Tutty (1971) 125 CLR 353 ;
FC of T v Maddalena 71 ATC 4161 ; (1971) 45 ALJR 426 ;
Adamson v West Perth Football Club Inc. & Ors (1979) 39 FLR 199 at 228 . Accordingly, it is necessary to consider only the first limb of s. 51(1) as the taxpayer does not carry on any business.

ATC 4412

Was the expenditure incurred in gaining or producing the assessable income?

Given that s. 51(1) is intended to apply over an extensive range of factual situations, it is expressed in language which is both simple and general. The concepts enshrined in the sub-section have been elaborated upon over many years by the High Court. They are conveniently summarised in the judgment of Lockhart J. in
FC of T v Total Holdings (Aust.) Pty Ltd 79 ATC 4279 ; (1979) 43 FLR 217 and more recently again by the Full Court of this Court in
FC of T v Riverside Road Pty Ltd (in liq) 90 ATC 4567 at 4573-4576; (1990) 23 FCR 305 at 311-314 . It is unnecessary to repeat what is said there. What is important is that the concept enshrined in the first limb of the sub-section, is one of the deductibility of working expenses.

It should be noted at the outset that the sub-section does not express the right to a deduction in terms of outgoings incurred to earn income, although of course many outgoings which are incurred will, of their nature, represent expenditure which has been outlaid to enable a taxpayer to derive income. An obvious example is interest on moneys borrowed for income-producing purposes.

One reason why the sub-section is not so expressed is that there will be many cases where the outgoing incurred may relate not to the year of income in which the outgoing is incurred, but to an earlier or later year. The words ``the assessable income'' as used in the sub-section, refer to the assessable income of the taxpayer generally, without division into annual accounting periods:
AGC (Advances) Limited v FC of T 75 ATC 4057 at 4066; (1974-1975) 132 CLR 175 at 189 per Barwick C.J. and ATC 4070-4071; 196-197 per Mason J. Another reason is that no income might be derived at all as a result of an outgoing being incurred. A good example is the case of
FC of T v D.P. Smith 81 ATC 4114 ; (1980-1981) 147 CLR 578 , where the payment of a premium by an employee on a loss of income policy in the event of sickness or accident, was held deductible, irrespective of the fact that no income might ever be derived under the policy.

The true principle, which seems to have had its initial formulation in
Amalgamated Zinc (De Bavay's) Limited v FC of T (1935) 3 ATD 288 at 297; (1935) 54 CLR 295 at 309 , but which is usually attributed to the decision of the High Court in
Ronpibon Tin N.L. v FC of T (1949) 8 ATD 431 at 436; (1949) 78 CLR 47 at 57 , is as follows:

``In brief substance, to come within the initial part of the subsection it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income or, if none be produced, would be expected to produce assessable income.''

This statement of principle was reformulated in
Charles Moore & Co. (W.A.) Pty. Limited v FC of T (1956) 11 ATD 147 at 149; (1956) 95 CLR 344 at 351 and thereafter cited with approval in FC of T v D.P. Smith (supra) at ATC 4117; CLR 585 in the following terms:

``What matters is their [i.e. the loss or outgoing] connection with the operations which more directly gain or produce the assessable income.''

(emphasis added)

It will often, therefore, be necessary to analyse with some care what the operations or activities are that are regularly carried on by the taxpayer for the production of income, and to determine whether the outgoings (or where relevant the losses) are incidental and relevant to those operations or activities.

In some cases, the outgoing in question may precede the income-producing operation or activity, so that it comes at a point too soon to be incidental and relevant to that activity. A clear example of such a case is the expenditure found not to be deductible by the High Court in FC of T v Maddalena (supra), by a footballer who had incurred expenditure on travel to Sydney to negotiate with a metropolitan club, to which he desired to move from his former Wollongong club, and legal expenses in negotiating the new contract. That expenditure was incurred in getting work, rather than doing it. In other words, the expenditure did not itself qualify as a ``working expense''.

Although the disallowance of expenditure of a taxpayer in travelling to and from work may be thought to be ``somewhat anomalous'' and is to be explained by a long-standing line of decisions ( Maddalena (supra) at ATC 4162; ALJR 427), the decision of the High Court in Lunney v FC of T (1958) 11 ATD 404; (1957-1958) 100 CLR 478 may also be justified on the basis that the connection between the

ATC 4413

outgoing and the income-producing activity is lacking as the judgment of Williams, Kitto and Taylor JJ. demonstrates (at ATD 414; CLR 500-501). Lunney's Case is of importance, however, for two other reasons. First, it emphasises that the question of deductibility has to be decided by reference to the essential character of the expenditure. The essential character of expenditure on travel to and from work is not itself that of a business or working expense, and for that reason the claim to deductibility must fail. Second, the Court emphatically rejected an argument that an outgoing is deductible because it is a sine qua non of deriving assessable income, an argument having some parallel with the argument of the respondent in the present appeal ( Lunney at ATD 412-413; CLR 498-499):

``The question whether the fares which were paid by the appellants are deductible under s. 51 should not and, indeed, cannot be solved simply by a process of reasoning which asserts that because expenditure on fares from a taxpayer's residence to his place of employment or place of business is necessary if assessable income is to be derived, such expenditure must be regarded as `incidental and relevant' to the derivation of such income. No doubt both of the propositions involved in this contention may, in a limited sense, be conceded but it by no means follows that, in the words of the section, such expenditure is `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'. 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.''

Similar considerations apply to childminding expenditure, as was pointed out by Mason J. in
Lodge v FC of T 72 ATC 4174 at 4176; (1972) 128 CLR 171 at 175-176 where his Honour said:

``The expenditure was incurred for the purpose of earning assessable income and it was an essential prerequisite of the derivation of that income. Nevertheless its character as nursery fees for the appellant's child was neither relevant nor incidental to the preparation of bills of cost, the activities or operations by which the appellant gained or produced assessable income. The expenditure was not incurred in, or in the course of, preparing bills of costs.''

Cases in the United Kingdom have taken a similar view, although on language which is different from that in the Australian Act. Thus, in
Norman v Golder (1945) 1 All ER 352 , expenditure incurred on medical expenses was held not to be deductible. Lord Greene M.R. said (at 354):

``It is quite impossible to argue that a doctor's bills represent money wholly and exclusively laid out for the purposes of the trade, profession, employment or vocation of the patient. True it is that if you do not get yourself well and so incur expenses to doctors you cannot carry on your trade or profession, and if you do not carry on your trade or profession you will not earn an income, and if you do not earn an income the Revenue will not get any tax. The same thing applies to the food you eat and the clothes you wear. But expenses of that kind are not wholly and exclusively laid out for the purposes of the trade, profession or vocation. They are laid out in part for the advantage and benefit of the taxpayer as a living human being.''

Similarly, in the United Kingdom, travelling expenses from work to home have been held not to be deductible:
Ricketts v Colquhoun [1926] AC 1 . In that case Viscount Cave said (at 4):

``The expenses in question... are incurred, not because the appellant holds the office of Recorder of Portsmouth, but because... he must travel to that place before he can begin

ATC 4414

to perform his duties as Recorder and, having concluded those duties, desires to return home. They are incurred, not in the course of performing his duties, but partly before he enters upon them, and partly after he has fulfilled them.''

The income-producing activities to be considered in the present case are training for and playing football. It is for these activities that a professional footballer is paid. The income-producing activities do not include the taking of food, albeit that unless food is eaten, the player would be unable to play. Expenditure on food, even as here ``additional food'' does not form part of expenditure related to the income-producing activities of playing football or training.

It would seem that the Supreme Court, and perhaps also the Board of Review, were influenced in arriving at the result they did, by the letter from Mr. Masters. Assuming that that letter was a direction lawfully given under Mr. Cooper's contract, it does not follow that the expenditure must be deductible. An employer may require an employee to travel to and from work by a particular mode of transport, but the fact that the employee is required, as a term of his employment, to incur a particular expenditure does not convert expenditure that is not incurred in the course of the income-producing operations into a deductible outgoing. If it did, then, no doubt, employers would be besieged by employees with requests that the employer should require the particular expenditure to be incurred. There may be cases where the fact that expenditure is required to be made assists an employee to show the relevant connection between the outgoing and the activities which produce assessable income, but the decision of the High Court in
FC of T v Finn (1961) 12 ATD 348 ; (1961) 106 CLR 60 , shows that there was no difference in the availability of a deduction for overseas travel expenditure, between those expenses which the taxpayer there incurred in travelling to South America at the request of his employer, and those which he incurred in travelling to Great Britain and Europe in his own vacation time. There was, in each case, the necessary connection between the expenditure and the taxpayer's income-earning activities as an architect.

Finally, reference should be made to one important feature of the present case. The expenditure in question was described throughout the appeal by counsel for Mr. Cooper as ``additional'' expenditure. The word ``additional'' was used in the sense of additional to Mr. Cooper's normal expenditure on food and drink. There was, however, no evidence to suggest that Mr. Cooper suffered some medical condition which caused him to lose weight. Nor was there any evidence of expenditure which other forwards might normally make on food and drink. It may well be the case, the evidence is silent on the matter, that the ordinary expenditure of Mr. Cooper on food and drink was considerably less than the ordinary expenditure on food and drink of other forwards. To allow to Mr. Cooper a deduction for expenditure, which may ordinarily be incurred by other players as part of their normal expenditure, merely because the food upon which the expenditure was outlaid is in excess of Mr. Cooper's normal food intake, seems illogical. Add to that the circumstance that Mr. Masters might, in a particular case, direct a player totally to discontinue the diet he ordinarily undertook and substitute for it a completely new diet, and it is obvious that the intervention of Mr. Masters should make no difference to the question of the deductibility of the expenditure.

I should say, although it does not affect the outcome of the present case, that there is much to be said for the view that the letter of Mr. Masters was not a prescription which Mr. Cooper was obliged to follow, but rather a suggestion as to the diet Mr. Cooper should undertake. If not, there would be a serious question arising as to Mr. Masters' power to direct Mr. Cooper to eat a particular diet, particularly between seasons, given that the contract between the Club and Mr. Cooper is a contract to play football in the football season.

In my view, the expenditure in question was not incurred by Mr. Cooper in gaining or producing his assessable income; it lacked the necessary connection with his income-producing activities.

Was the expenditure private expenditure?

The essential character test is relevant also to the resolution of the question whether an outgoing is excluded from deductibility as being of a private nature: Handley (supra at ATC 4171; CLR 194); Forsyth (supra at ATC 4161; CLR 210).

ATC 4415

For the Commissioner, it was submitted that, except in a rare case, the essential character of food was always private. Exceptions for the cost of entertainment (now excluded from deduction legislatively) and for meals taken while the taxpayer was away from home on a business activity, were acknowledged. It was submitted, however, that in each of these two cases, the occasion of the outgoings stamped them with the essential character of business expenses rather than being outgoings of a private nature. The present case, however, it was said, lacked the necessary factual background so to do.

For Mr. Cooper it was submitted that two matters stamped the essential character of the outgoings here in question as being business or working expenses: the first being the fact that Mr. Cooper was required to expend the money, and the second being the direct relationship that was said to exist between the outgoing and the assessable income. By way of analogy, it was said, that if a footballer needing bulk to play effectively in First Grade football was prescribed medication to that end, there would be little doubt that the cost of that medication would be a business expense and deductible under the first limb and not to be disallowed as private expenditure. The present expenditure was, so it was submitted, in no different position.

There is, of course, by necessity, considerable overlap between these submissions and the matters already discussed under the first limb of the sub-section. It need only be said that the fact that a taxpayer is obliged to incur expenditure by his employer, will not convert private expenditure into deductible expenditure. An example is
Blackwell v Mills [1945] 2 All ER 655 , where a taxpayer was required by his employer to prepare for a final examination for a degree. The taxpayer was given, by his employer, time off and the employer paid half the fees. It was held, nevertheless, that the taxpayer was not entitled to a deduction for what was, in essence, private expenditure. Nor will the fact that it is necessary to spend money to gain money, convert private expenditure into deductible expenditure, as the case of Norman v Golder (supra) demonstrates in respect of medical expenditure of a private nature.

Food and drink are ordinarily private matters, and the essential character of expenditure on food and drink will ordinarily be private rather than having the character of a working or business expense. However, the occasion of the outgoing may operate to give to expenditure on food and drink the essential character of a working expense in cases such as those illustrated of work-related entertainment or expenditure incurred while away from home. No such circumstance, however, intervenes here. In particular, the mere fact that Mr. Masters suggested or even directed Mr. Cooper to eat particular food, does not convert the essential character of the food as private into a working expense.

In my view, the expenditure in question fails to be deductible because its essential character remains private. The analogy with medication is not an apt one even if it be correct that such medication be deductible. The medication does not have the essential character of a private expense to start with.

In my view, the appeal should be allowed, and the respondent should pay the Commissioner's cost of it. The orders made by the Supreme Court should be set aside and in their place an order made that the appeal by the Commissioner of Taxation be allowed.

THE COURT ORDERS THAT:

1. The appeal be allowed.

2. The respondent, Robert John Cooper, pay the costs of the appellant, Commissioner of Taxation, of the appeal.

3. The orders made by the Supreme Court be set aside.

4. The appeal to the Supreme Court by the Commissioner of Taxation be allowed.

5. Leave be reserved to either party to restore the matter to the list on seven days' notice on the question of costs of the appeal to the Supreme Court.


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