Pincus J

Federal Court

Judgment date: Judgment handed down 19 November 1991

Pincus J

This is an appeal by a forestry officer employed by the Queensland Government in relation to his income tax assessment for the year ended 30 June 1990. The issue concerns the appellant's expenses associated with a transfer required by his employer, from Bundaberg to Maryborough. Most of the expenses associated with the transfer were met by the employer, but there was a shortfall of $855 and it is the deductibility of that sum which is the issue in the case. The claim for a deduction is made

ATC 4984

under s. 51 of the Income Tax Assessment Act 1936 (``the Tax Act''), the terms of which I shall not set out.

The appellant has worked for the Queensland Forest Service as a professional forester for 20 years. During that time, he has worked in the Warwick district, at Byfield near Yeppoon, at Gympie, at head office in Brisbane, at Dalby, at Atherton in North Queensland, at Brisbane head office again, at Bundaberg and most recently at Maryborough. Apart from that to Bundaberg, none of these transfers was made at the appellant's request.

In particular, the transfer in question, from Bundaberg to Maryborough, was not sought by the appellant. A transfer was, however, inevitable because, owing to a reorganisation, the position which the appellant had at Bundaberg ceased to exist. The appellant had no choice but to accept the transfer. Section 24 of the Public Service Management and Employment Act 1988 (Q.) reads as follows:

``An officer of the public service who is transferred from one office to another by his being duly appointed to an office as holder of which he will be entitled to a level of salary not less than his existing level of salary, shall accept the transfer unless he establishes to the satisfaction of the chief executive concerned reasonable grounds for not accepting the transfer.

If the officer indicates his refusal of the transfer and fails to establish to the satisfaction of the chief executive concerned reasonable grounds for his not accepting the transfer, the chief executive may direct the officer to accept the transfer and to attend for work in the office to which he has been so appointed.''

There appears to have been no prospect of the appellant's establishing ``reasonable grounds for his not accepting the transfer'', within the meaning of s. 24. His evidence is that had he not accepted it, he might have been retrenched. Section 28 of the Public Service Management and Employment Act 1988 reads as follows:

``Where the Governor in Council is satisfied that -

  • (a) the services of an officer of the public service can no longer be gainfully utilized in the office held by the officer because the office has become redundant;
  • (b) it is not practicable to retain or redeploy the officer; and
  • (c) the redundancy arrangements approved by the Governor in Council have been complied with in relation to the officer,

he may terminate the services of the officer by way of retrenchment in accordance with those redundancy arrangements.''

Bundaberg and Maryborough are connected by a fairly good road and are about 114 kilometres apart. Although it might be possible in theory to reside in Bundaberg and go to work daily in Maryborough, the case was conducted on the sensible assumption that as a practical matter it was necessary for the appellant to live in or near Maryborough after transfer. The appellant is married with three children, the eldest of whom is nine years old. The largest expense he incurred was in relation to temporary board and lodging; his family lived in temporary accommodation from 17 November 1989 to 28 April 1990. The appellant also incurred expenses in insuring his furniture and effects, installing a telephone in his Maryborough house and transporting his furniture and effects. The claim is made up as follows:

                                   Cost       Reimbursement       Shortfall
Temporary board and lodging        1051            711               340
Insurance on furniture and effects 1210           1050               160
Telephone installation costs         79             -                 79
Private vehicle transfer
(114 km @ 38.2)                      43             23                20
Hire of rental truck to tfer furniture from temp.
accom. to perm. accom.              201              -               201
Fuel for rental truck                55              -                55
                                   ----            ----              ---
                                   2639            1784              855

ATC 4985

It is not suggested that any of the expenses were directly connected with the appellant's work. The argument is that since he had to change the location of his residence because of the requirements of his work, the costs of that move should be deductible.

The question is one involving a claim for a deduction of part of what might be regarded as, prima facie, private expenses. There is, perhaps, a tendency to restrict deductibility in the relevant area along lines which may not be able to be defended in strict logic. A taxpayer may be able to relate a substantial proportion of his or her living expenses, with varying degrees of plausibility, to the earning of income. It may well be true of a person engaged in hard manual labour that he or she needs to ingest more food to do the work than does a clerk; cf.
FC of T v. Maddalena 71 ATC 4161; (1971) 45 A.L.J.R. 426. The expenses a city white-collar worker incurs in buying clothing are likely to be greater than those he or she would incur if working from home; cf.
Mallalieu v. Drummond (Inspector of Taxes) [1981] 1 W.L.R. 908. Even expenses on recreation may well be, in part, related to the necessity of keeping fit, mentally and physically, for remunerative work. It may be that the courts have, to some extent, bowed to the necessity of a degree of arbitrariness about the lines drawn, so that the administration of the tax laws shall not become impractically difficult: see for example
Bowers (Survevor of Taxes) v. Harding [1891] 1 Q.B. 560 at 564 per Pollock B. and
Handley v. FC of T 81 ATC 4165 at 4174; (1980-1981) 148 C.L.R. 182 at 198.

Section 51 of the Tax Act permits apportionment of expenses; it does not require that the deduction claimed shall have been incurred wholly or exclusively in earning income. But to require estimation of the proportion of each taxpayer's living expenses which should properly be attributed to the purpose of earning income may seem to place a burden on those responsible for making the tax system work. While one may question the orthodoxy, as a matter of statutory construction, of reading s. 5.51 down because of perceived administrative difficulties, it seems hard to rationalise the cases in this area in any other way. The general rule that the costs of daily travel between one's home and one's work are not deductible is an example: it is hard to see why the costs of a journey to work should give rise to no deduction whatever if the place from which one is travelling happens to be one's home rather than another place of work. The rule in
Lunney v. FC of T (1958) 11 A.T.D. 404; (1957-1958) 100 C.L.R. 478 may appear to have a reasonable operation in some circumstances, but often has not. Suppose a person makes a living by getting casual employment here and there. The cost of travelling about looking for such work, as well as the cost of travelling from home to perform it, may be quite a significant proportion of the sum earned. At the other end of the scale, the refusal of a deduction for the travelling expenses of a taxpayer who chooses to live in some haven remote from work and to travel by an expensive means may seem more defensible, at least according to some ideas of justice.

The present case is one in which the problem falls in the same general category as Lunney, in that it has to do with movement which is associated with work, but associated as well with the taxpayer's home. The question is whether the rule in Lunney should be extended to the costs of moving one's home in response to the changing necessities of work. There is a connection between the expenditure and the work, but is it the sort of connection which marks a deduction?

From the leading judgment in Lunney, that of Williams, Kitto and Taylor JJ., it may be seen that the principal point was that their Honours thought the expenditure was merely a prerequisite to the earning of income, but that the ``essential character of the expenditure itself'' had to be considered (A.T.D. 413; C.L.R. 499); I do not find application of the expression just quoted to be of great practical use. The expenditure there was also described as a ``personal or living expense'' and it was said that its ``essential purpose'' was not the earning of income (A.T.D. 414; C.L.R. 501).

In each of the Handley v. FC of T and
FC of T v. Forsyth cases 81 ATC 4165 and 4157; (1980-1981) 148 C.L.R. 182 and 203 respectively, deductions claimed by a barrister in respect of a home study were disallowed. These cases seem to me of particular importance, because it was common ground that the use of each taxpayer's house was partly referable to the earning of income. One view, favourable to the taxpayer, was simply expressed by Stephen J.:

ATC 4986

``... the advantage sought to be obtained by the outgoing can only be enjoyed by use: whether or not there exists a sufficient relationship between this outgoing and the income-earning activities of the taxpayer is therefore best determined by looking to the use to which the home study was put. If on examination more than one use is disclosed, it will mean only that this is a case for apportionment.''

(ATC 4169; C.L.R. 190)

But Mason J. (as his Honour then was) rejected that view on the ground that the study was physically just a part of the taxpayer's home and was ``used only for professional work that can be done at home'' (ATC 4171; C.L.R. 194). Murphy J. thought that no deduction could be allowed because the expenditure would not have been incurred had the taxpayer not wished to spend some time with his family rather than in chambers (ATC 4173; C.L.R. 196). His Honour also appeared to adopt the suggestion that no deduction could be allowed unless the part of the home in question was ``in a real sense a place of business'' (ATC 4173; C.L.R. 197); but the implication that an author could be within this principle suggests that his Honour gave a broad meaning to ``place of business''. Wilson J. used the notion of essentiality (ATC 4175; C.L.R. 201).

In the Forsyth case, Wilson J. set out his views at greater length. His Honour was concerned to emphasise the ``complete integration'' of the study into the house, the fact that the barrister was not compelled to work at home and that the home was not ``business premises'' (ATC 4164; C.L.R. 215).

Martin v. FC of T 84 ATC 4513; (1984) 2 F.C.R. 260, the Full Court of this Court rejected a claim by a taxpayer for expenses incurred in arranging for the care of her child during working hours. The essence of the reasoning is, I think, in the following passage:

``The expenditure incurred in kindergarten fees was a prerequisite to the taxpayer's employment in the sense that it allowed her to take on the jobs in question. But there was nothing about the expenditure which was relevant or incidental to the work which she was engaged to perform. The expenditure was not incurred in, or in the course of, performing the work for which she was employed, that of a steno secretary.''

(ATC 4515; C.L.R. 262)

As to the last sentence, it has to be kept in mind that it is not essential that the expenditure coincide in time with any remunerative work: see for example
FC of T v. Finn (1961) 12 A.T.D. 348; (1961) 106 C.L.R. 60 and
FC of T v. Smith 81 ATC 4114; (1980-1981) 147 C.L.R. 578.

It appears to me to follow from a consideration of Lunney, as well as the authorities on home studies and child-minding, that expenditures on one's domestic or family arrangements are, prima facie, not within s. 51. I can see nothing in the present case to take the matter outside this general principle. That is so even where the expenditures have an undoubted causal connection with the earning of income, because they are incurred in going to work or spent on the part of the home in which one works or spent on one's family to enable one to work. It is true that some of the decisions below appellate level are hard to reconcile with the principal authorities: see for example
FC of T v. Coleman 78 ATC 4355; (1978) 8 A.T.R. 809. But it appears to me to be preferable to follow the leading cases; on that basis, with some regret, I have arrived at the conclusion that the taxpayer's appeal cannot succeed and it will be dismissed, but without costs.

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