Case J3

Judges:
MB Hogan Ch
N Dempsey M
P Gerber M

Court:
No. 3 Board of Review

Judgment date: 21 December 1976.

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M.B. Hogan (Chairman): I have had the advantage of reading the decision prepared by my colleague, Mr. Dempsey and I adopt the findings of fact set out in his decision. For the reasons which I set out in the following paragraphs, I prefer to base my decision on the ``narrower ground'' defined by Mr. Justice Helsham in the case of
F.C. of T. v. White 75 ATC 4018 .

2. In White's case (supra) at p. 4020, Mr. Justice Helsham set himself the problem of analysing the decisions in
F.C. of T. v. Finn (1961) 106 C.L.R. 60 and
F.C. of T. v. Hatchett 71 ATC 4184 , to ascertain from them what will, in any particular case, determine whether an expenditure is or is not an outgoing incurred in gaining or producing income from his employment.

3. Dealing with Finn's case (supra) , he stated in relation to expenditure incurred on an overseas trip devoted to the study of architectural matters that ``... his (Finn's) purpose (was) to improve his capacity to do the work for which he was paid and to further his chances of promotion.'' He went on to observe that the reasons for the decision in Finn's case could be attributed to two grounds which he described in the following manner -

``The first and narrower ground is that the trip and expenses connected with it was and were simply part and parcel of his employment, taken and incurred during and as part of his job, and, I suppose one could add, what one could clearly see as being an activity appropriate to the office held.''

``The second or wider ground for the decision is that expenses incurred by a taxpayer for education that will equip him as a better employee to carry out the duties of his employment and will further his prospects of advancement in that employment and so increase his income can be outgoing incurred in gaining or producing his income.''

4. Turning to analyse the decision of Menzies J. in Hatchett's case in the light of his observations as to the two grounds for decision in Finn's case , his Honour concluded in the first place -

``I do not think that what I have termed the narrower basis for the decision in Finn's case can be applied to support the decision in Hatchett's case , for I do not consider that the study undertaken and the expenditure incurred could be said to be part and parcel of the employment of the taxpayer in the way it was in the former case; rather was the study undertaken by the school teacher

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ATC 40

study activity ab extra which would better equip the taxpayer to carry out the duties of his employment and so further his prospect of advancement in that employment.''

His Honour went on -

``And looked at in this light I consider the basis of decision in Hatchett's case is clear. So far as concerns the Teacher's Higher Certificate, the effect of the study activity which involved the expenditure is clear and demonstrable - the obtaining of the certificate had a direct and immediate result in increasing income; the certificate was obtained and the expenses incurred in obtaining it were therefore outgoing incurred in gaining or producing income. In the case of the University fees, the activity in which they were incurred had no such clear effect upon the taxpayer's income, nor could any effect in future be predicted; there was no perceived connection as his Honour put it, between the outgoing and the income.''

5. As a final summary of his views on the grounds for decision in the two cases, his Honour concluded -

``As the result of the decision in the two cases, it seems to me possible to say that the expenses incurred in pursuing studies associated with employment will qualify as allowable deductions under sec. 51 when it can be said that those studies are part and parcel of the employment which means that the expenditure is incurred in the process of carrying out the employee's duties, or, even if they are not such, they can be seen to have a direct effect on income. Where that cannot be seen, I think it will be difficult to establish the necessary connection between the study activity and the employment so as to give study expenses the character of outgoing incurred in gaining or producing the income derived from the employment.''

6. How then may these observations be applied to the facts of the present case? The case of
F.C. of T. v. Maddalena 71 ATC 4161 as Mr. Dempsey has pointed out, establishes that the relationship between a professional footballer and his club is that of employee/employer which is certainly enough to bring the full weight of Helsham J.'s observations to bear in this case.

7. The evidence settles quite clearly that the coach's ``method of training was to spend most of the time at training, training nights, in basic skill work and we (the players) had to get in condition ourselves''. In reply to a question, the taxpayer established that in relation to the contract and instructions, the coach expected each player to arrive at the start of the season and at all times during the season with the level of fitness that he (the coach) required. I accept from the evidence that the playing of squash was a form of conditioning required by the coach in order to ensure consideration for selection as a player. The evidence is clear that those who were not fit were not considered for selection. It seems to me then that it is not straining interpretation to include that the expenditure on self-conditioning in this particular case is expenditure on activities which are part and parcel of the taxpayer's employment, which, of course, as Helsham J. has pointed out means that the expenditure is incurred in carrying out the employee's duties. In the light of the evidence, I cannot accept the submission made on behalf of the Commissioner that the expenditures in question were expenditures preliminary to entering upon an income earning activity or that they were expenditures of a private or domestic nature.

8. Having found so much, I do not find myself called on to consider the question of whether the expenditures in question can be seen to have a direct effect on the taxpayer's income.

9. I would therefore direct that the taxpayer's assessment be amended to allow a deduction of $384 in respect of expenditures embraced under the heading of Squash Expenses in the taxpayer's return of income.

10. In reaching this decision, I have given attention to the arguments written and oral put by the Commissioner's representative in which an attempt was made to draw an analogy between the expenditure in Hatchett's case on University fees and the expenditure in this case. In Hatchett's case , the University fees were paid with the encouragement and even the assistance of the employing department; in this case, however, the evidence establishes that the playing of squash was a part of a conditioning programme directed by the coach and undertaken by the taxpayer to honour his obligation under his contract with the club to -

``...do everything necessary to get and keep himself in the best possible condition so as

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to render the most effective service to the Club and carry out all the training and other instructions of the Club through its responsible officials.''

That seems to me to establish that the expenditures were in Mr. Justice Helsham's phrase ``incurred during and as part of his job'' and to establish the ``perceived connection'' of Menzies J., in Hatchett's case .