FC of T v COOPER

Judges: Lockhart J

Wilcox J
Hill J

Court:
Full Federal Court

Judgment date: Judgment handed down 24 April 1991

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Wilcox J

I have had the advantage of reading in draft form the respective reasons for judgment of Lockhart and Hill JJ., wherein the facts of the case are set out.

I agree with my colleagues that the Commissioner's appeal to the Supreme Court of New South Wales [reported at 90 ATC 4580] was competent. A question of law was involved, if only because the Board of Review made findings of fact which were not supported by the evidence. But, for the reasons given by Hill J., I also agree that the case is one within the fourth category identified by Bowen C.J. in
Lombardo v FC of T 79 ATC 4542 , namely that the circumstances of the decision was one where a particular set of facts had of necessity to be within or without the statute.

Turning to the substantial point in the case, the reasons of my colleagues each contain a comprehensive and erudite account of the leading cases on s. 51(1) of the Income Tax Assessment Act 1936. But, with respect, I find myself unable to accept their view that the application of the principles enunciated in those cases leads to rejection of the respondent's claim to deduct from his taxable income the cost of the food and drink prescribed by Mr Masters.

Both Lockhart J. and Hill J. point out that the classic test of deductibility under s. 51(1) is that usually associated with
Ronpibon Tin NL v FC of T (1949) 8 ATD 431 ; (1949) 78 CLR 47 ; namely ``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''. As noted by Hill J., this test 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 so as to refer to the connection between the loss or outgoing and the operations whereby the taxpayer gained, or sought to gain, assessable income. But, on either formulation, it seems to me that, upon the facts found by Hunt J. in the Supreme Court, the subject expenditure is deductible.

During the relevant taxation years the respondent was a professional footballer. He played in the First Grade competition, at which level he was able to earn significantly higher match payments than if he were relegated to Reserve Grade. Hunt J. accepted the respondent's evidence that he tended to lose weight during the training and playing season and that this weight loss diminished his ability to break the opposing team's line. His Honour found that this was ``the task expected of him in first grade; such ability was important to his effectiveness as a forward and to the retention of his position in first grade''. As his Honour also found [at 4582], if he was dropped from First Grade:

``... his income derived as a professional footballer would be reduced by 80% until he was promoted back into first grade. The loss of weight would accordingly be directly responsible for the reduction in assessable income derived by the taxpayer as a professional footballer.''

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ATC 4404

It was in this situation that the respondent incurred the subject expenditure. He did so on the advice of his coach, Mr. Masters. I agree with Hill J. that this fact is not critical; although it had obvious evidentiary importance in persuading both the Board of Review and Hunt J. of the link between the respondent's employment as a footballer and his consumption of a fourth meal each day.

Not many taxpayers would be able to satisfy a Board of Review or a Court that the consumption of a particular amount of food and beer was an incident of their employment. But the respondent did so. It seems to me to follow that he showed that the occasion of his expenditure on this additional food and beer was his employment as a footballer ( Ronpibon Tin ) and that the expenditure was connected with his operations as a professional footballer ( Charles Moore ). The respondent brought his expenditure on this food and beer into the same category as expenditure incurred by professional sportspeople on more usual ways of maintaining fitness for their sport - for example, physiotherapy or gymnasium fees - the deductibility of which would scarcely be doubted.

During the course of their submissions, counsel for the Commissioner compared the position of the respondent with that of other footballers who consumed, as a matter of course, a quantity of food equivalent to the respondent's amplified intake. Counsel said that it would be anomalous to allow the respondent to deduct the cost of part of his food when others in a like position were unable to take a similar course. But this submission ignores a critical element in the findings of Hunt J.: that this respondent consumed the extra food only because of his need to maintain his optimum playing weight and thereby safeguard his income. It is not to the point that other taxpayers, even other professional footballers, might incur similar expenditure for reasons not connected with their employment; and which, therefore, is not deductible from their taxable income.

Counsel for the Commissioner also said that the respondent was employed by his Club to play football, not to eat food. But, with respect, that is too simplistic an approach. A barrister is employed by a client to argue a case, not to read legal periodicals. Yet no one would doubt the deductibility under s. 51(1) of a practising barrister's subscriptions to the legal periodicals necessary to equip him or her to argue the case. Similarly, selecting a case of an employee-taxpayer, a chef is employed by a restaurant to cook food, not to wear clothes. But there is no question about the deductibility of a chef's expenditure on specialised clothing such as a chef's hat and uniform.

Counsel for the Commissioner placed considerable weight on cases in which the High Court has adopted the ``essential character'' test to determine deductibility. They referred in particular to
Lunney v FC of T (1958) 11 ATD 404 ; (1957-1958) 100 CLR 478 , a case involving the deductibility of the cost of travelling between a taxpayer's home and his place of work, and
Handley v FC of T 81 ATC 4165 ; (1980-1981) 148 CLR 182 and
FC of T v Forsyth 81 ATC 4157 ; (1980-1981) 148 CLR 203 , both cases involving the deductibility of expenses related to a barrister's home study. They submitted that, in the present case, the essential character of the expenditure was the nourishment of the taxpayer. Given that the respondent already consumed three meals a day and that the relevant expenditure was for a fourth meal directed to the maintenance of his optimum playing weight rather than his mere sustenance, I would not myself have chosen this description. But even if their description is correct, or if one substitutes some other description such as food and drink, does this mean that the claim must be rejected?

The problem about the ``essential character'' test, of course, is that it tends to beg the critical question. Everything depends upon the ambit of the facts selected for inclusion in the description of essential character; so that the making of that selection predetermines the outcome of the case. Take the instance of a taxpayer visiting another city for business purposes. The taxpayer incurs expenditure for meals at his or her hotel. On one view, the essential character of the expenditure is the sustenance of the taxpayer. Such a purpose has no connection with the derivation of assessable income; other than in the broad sense - irrelevant because it is applicable to everyone - that one must eat to live and, therefore, to work and to earn assessable income. However, the expenditure may also be characterised as being the cost of sustenance incurred by the taxpayer because of his or her absence from

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ATC 4405

home on business. The difference between the two characterisations is that the latter takes account of the occasion of the expenditure. When this characterisation is adopted, a work-connection immediately appears and a deduction is granted. So in the present case. If one characterises Mr Cooper's expenditure merely as food and drink, there is no nexus with the earning of assessable income; the claim must fail. If, on the other hand, the occasion of the expenditure is considered, it is seen as being for the additional food and drink necessary to maintain an optimum playing weight, and so safeguard the respondent's First Grade status and earnings. The nexus with assessable income becomes clear.

I think that it is misleading simply to characterise the respondent's expenditure as being for food and drink and to say, therefore, that the claim must fail. The whole of the relevant circumstances must be looked at in order to determine whether the expenditure was incurred in gaining assessable income.

I turn to the question whether the expenditure is disqualified from deductibility because it was of a private nature. In
John v FC of T 89 ATC 4101 at 4108; (1988-1989) 166 CLR 417 at 431 , Mason C.J., Wilson, Dawson, Toohey and Gaudron JJ. remarked that they saw no ``necessary antipathy between a loss or outgoing incurred in gaining or producing assessable income and a loss or outgoing of a private character'', a position foreshadowed by some of the Justices in Handley and in Forsyth. But, to the best of my knowledge, it remains true, as was asserted in 1985 by Professor Parsons in ``Income Tax in Australia'' at para. 8.2, ``that there is no case in which an expense has been found to be incurred in gaining assessable income, but has been denied deduction as a private or domestic expense''. At paras. 8.7 and 8.8 Professor Parsons said:

``8.7 An excluding function for the private or domestic exception would require the adoption of a view that expenses that are private or domestic are to be denied deduction, however relevant to the derivation of assessable income they may be. This would in turn require the defining of private or domestic expenses in terms that do not let in considerations of relevance to the derivation of income. Such a view may be possible, but it would make little sense. Eating, drinking, clothing oneself, sleeping and enjoying shelter would be prime candidates for categorising as matters that are absolutely private or domestic - absolutely in the sense that they are such whatever their relevance to income derivation. If they are so categorised it would follow that the cost of the business lunch, the cost to the actor of refreshments taken in actual performance of the Mad Hatter's Tea Party ( Templeman J in
Caillebotte v Quinn) [1975] 1 WLR 731 at 733 ), the costs of meals and accommodation incurred by a commercial traveller while travelling on business, and the costs of protective clothing incurred by a taxpayer working in industry are not deductible.

8.8 There is no doubt a need to protect the base of the income tax against a too-ready allowance of deductions which may reduce the base to a point where the income tax becomes a tax on income saved. An imaginative mind will find some relevance to income derivation in any expense. Eating sustains a taxpayer's ability to work and derive income, and to this extent the expense of eating is always relevant to the derivation of income. The law must insist that there be a `sufficient' connection between an expense and income derivation, and sufficiency imports questions of degree which must always leave rook for judgment. But it is preferable to live with the questions of degree, than to attempt via notions of matters that are absolutely private or domestic, or `essentially' private or domestic in the language of Forsyth and Handley, to maintain restraint in the allowance of deductions.''

It is interesting to note that, in the present case, the Commissioner allowed Mr. Cooper's claims to deduct from his assessable income the costs which he incurred in complying with Mr. Masters' advice about building up his strength and fitness by attending a gymnasium. But he baulked at the claim to deduct the cost of the food and beer consumed to build up his weight and sought to justify this position on the basis that food was an essentially private expenditure. Perhaps the Commissioner thought that, as all taxpayers eat but not all taxpayers attend a gymnasium, the food claim offered a greater threat to the tax base. But, whilst I can understand the Commissioner's

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ATC 4406

caution, as it seems to me his position is both illogical and unnecessary. For most taxpayers, gymnasium fees will also be a private expenditure. In the respondent's case, as the Commissioner conceded in allowing the deduction, this was not so; the expenditure was linked to his employment. Unless there is something special about food, so that expenditure on food is always and necessarily a private expenditure, the same position ought logically to be taken in connection with the food claim. And, as the examples given by Professor Parsons demonstrate, there is nothing special about food. As to the necessity for the Commissioner's position, it seems to me that the facts of this case are most unusual. There would be very few taxpayers indeed who could make good a claim, if it were submitted to proper scrutiny, that their expenditure on home-consumed food and drink was connected to their employment.

It seems to me that, on the facts found by Hunt J., the subject expenditure was not a private expenditure.

I would dismiss the appeal.