Case Q80

Judges:
KP Brady Ch
JE Stewart M
DJ Trowse M

Court:
No. 2 Board of Review

Judgment date: 9 September 1983.

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K.P. Brady (Chairman), J.E. Stewart and D.J. Trowse (Members)

This reference relates to a claim made by an employee taxpayer for a deduction of wages paid to his spouse during the 1980 financial year. The amount paid was $1,300, and the question requiring our decision is whether that outgoing is allowable in terms of sec. 51(1) of the Income Tax Assessment Act.

2. The taxpayer was, at all times during the 1980 year, employed by a shire council as a town clerk, and in that position was regarded as being the council's chief administration officer. His salary was determined by reference to the Local Government Officers' (Western Australia) Award, 1970, and it appears that such remuneration was related to the stipulated level of revenue collected by the Shire.

3. In conjunction with the carrying out of his duties as town clerk, the taxpayer also accepted the following voluntary appointments:

• (i) Chief Fire Control Officer.
• (ii) District Co-ordinator of Voluntary Emergency Service.
• (iii) Committee Member of Tourist Information Centre.

The taxpayer contended that it was considered common practice for town clerks, located in rural areas, to be involved in those extra community-type activities as, in his opinion, it resulted in a better overall administration of the affairs of the Shire. There was, however, no compulsion on the taxpayer to accept those additional positions, and it was adduced from evidence that the salary paid by the Shire would have remained the same had he declined to act in those ancillary roles.

4. It seems that the taxpayer's average working day extended beyond the normal standard hours of 8.30 a.m. to 5.30 p.m. as set out in the award, and it was his submission that a town clerk, performing all of the functions attaching to the previously mentioned positions, would experience difficulty in effectively carrying out all of the duties without the assistance of a spouse. The taxpayer was not paid overtime for excess hours worked, although it appears that an additional week of annual leave was granted by way of compensation.

5. The taxpayer employed his wife as an assistant throughout the whole of the 1980 year at a weekly rate of $25, and in return she rendered the following services:

• (a) Taking phone messages, and on a few occasions initiating action in emergencies by contacting pre-selected members of the community.
• (b) Operating a base radio, located at council chambers, in the event of emergencies occurring at weekends.
• (c) In the absence of her husband, attending evening meetings of volunteer groups, and acting as minute secretary.
• (d) Planning and organising civic receptions and other like events.
• (e) Typing confidential council letters, said to have happened twice during the year under review.

The amount of $25 was calculated by estimating the weekly hours of employment at between four and five and then applying the award rate of salary payable to a senior clerical officer. The wage was paid for the whole of the year, despite the fact that the taxpayer and his spouse enjoyed in the year in issue an overseas holiday extending over a period of eight weeks. All household accounts were separately paid by the taxpayer, and the amounts received by the wife were deposited into her own bank account.

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ATC 411

6. It appears that the salary paid to the taxpayer by the Shire was fixed without regard to the duties being performed by the wife, nor did the taxpayer ever seek reimbursement from his employer for the outgoings so incurred.

7. The taxpayer, to succeed, must bring his claim under the provisions contained in sec. 51(1), and in particular the first limb, recognising that the definition of business in sec. 6 excludes his occupation as an employee, and thus the second limb is not available for consideration. The first limb of that section states that all losses and outgoings to the extent to which they are incurred in gaining or producing the assessable 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. The question in this reference is whether it can be said that the wages of $1,300 paid to the wife were incurred in gaining or producing the salaried income received from the council and, if so, are they nevertheless excluded as being expenditure of a capital or private nature.

8. Whilst appreciating the divergence between English and Australian tax law in certain areas, we think it appropriate to refer to the English case of
Jardine v. Gillespie (1907) 5 T.C. 263, as it sets the scene, to some extent, for the formation of our final decision. In that case it was held that voluntary contributions made by a clergyman towards the stipend of his assistant, and also a payment for a replacement minister, were not expenses incurred by him necessarily in the performance of his duties as a clergyman. The following comments of Lord Kinnear at p.268 are noteworthy:

``... I think that the duty of a clergyman referred to in this statute is quite plainly the personal performance of the duty required of him by the law and practice of his Church in return for the emoluments of his benefice. The two things are put over against one another in the clause. In the first place you are to tax his profits, fees, or emoluments, and in the second place you have to deduct the expenses necessarily incurred by him in performing his duty. It seems to me clear enough that that must mean the duty which he has to perform, and by which he earns the emoluments which are the subject of taxation.

...

Now, I think that is decided in the case of
Lothian v. Macrae [(1884) 2 T.C. 65], and the ground of judgment was simply this, that since what the statute allows is the deduction of expenses incurred in the personal performance of his duty by the minister himself, it is impossible to say that money paid by him in order to get somebody else to perform a part of his duty is an expense incurred by him in performing his duty himself.''

9. The following passages from the judgment in
Amalgamated Zinc (De Bavay's) Ltd. v. F.C. of T. (1935) 54 C.L.R. 295 at pp. 303 and 309 demonstrate the legal interpretation of the phrase ``incurred in gaining or producing the assessable income'':

``The phrase `losses and outgoings actually incurred in gaining or producing the assessable income' may, in relation to outgoings, be read as meaning that the outgoings must be an expenditure which has an effect in gaining or producing income, e.g., the purchase price of goods which are subsequently sold.''

- per Latham C.J.

``The expression `in gaining or producing' has the force of `in the course of gaining or producing' and looks rather to the scope of the operations or activities and the relevance thereto of the expenditure than to purpose in itself.''

- per Dixon J., as he then was.

In the present matter, we do not consider that the wages paid to the wife had an effect in the gaining or producing of the salaried income received by the taxpayer, nor can it be said that the expenditure was incurred in the course of gaining or producing such income. Our conclusion is that the claim fails for those reasons.

10. For the sake of completeness, we also express the opinion that the outgoings, totalling $1,300, were of a private nature and, in that regard, we refer to the decision of No. 3 Board in Case M55,
80 ATC 366 There, the taxpayer was a medical

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ATC 412

technologist, employed by a company providing pathology services. A term of his appointment required him to be on call after business hours one week in every three. If he happened to be out on a call, the taxpayer's wife would take telephone messages for him as relating to his after hours duties. To compensate her for that inconvenience, the taxpayer paid her $20 per week and claimed the annual cost of $1,040 as a tax deduction against his salary income. The Members of the Board formed the opinion that the payment was of a private nature, and disallowed the claim. In giving his reasons, Dr. Beck (Member) said at p. 368:

``If an employee pays another party to render some of the services for which the employee is paid this expenditure is not a cost of deriving the income. It can be regarded as a cost of lightening the work load, of gaining time off, of filling a gap in the employee's competence or, as perhaps is the case here, of rendering service beyond that which he is being paid for, and all expenditure of this kind is private and hence specifically excluded by sec. 51.''

11. In the current case, it appears that the duties undertaken by the wife exceeded those in Case M55, but that factor of itself does not, in our opinion, change the nature of the arrangement which remains essentially a private one.

12. For the above reasons, the Commissioner's decision on the objection must be upheld and the assessment before us confirmed.

Claim disallowed