AM Donovan Ch
JD Davies M
GR Thompson M
No. 2 Board of Review
A. M. Donovan (Chairman): The taxpayer is employed as a pilot by a domestic airline and is a member and office holder of the Australian Federation of Air Pilots. In the last mentioned capacity, he addressed correspondence to the Commissioner obviously relating to the disallowance as deductions of all but $42 of the subscriptions paid by members to the Federation. The conclusions are inescapable that it was mutually agreed that the taxpayer's own affairs be used to challenge the disallowance and that this matter comes as a test reference.
2. Under Item 18 of his return of income for the year ended 30 June 1969, the taxpayer claimed a deduction of $90. In an annexure, the following explanation was given-
``Subscriptions paid to Australian Federation of Air Pilots to pay for activities that I would otherwise have to meet directly in the furtherance of my profession.
Subscription $109.00 Less A.M.P. Provident Cover 8.50 ---------- $100.50 Less 10% (as this could be used for capital) 10.50 ---------- $90.45'' (sic) ----------
Claims were also made for a premium of $120 paid to the Australian Federation of Air Pilots Mutual Benefit Fund, and for a premium of $9 for A.M.P. provident cover described above. In preparing the assessment, the Commissioner allowed only $42 of the subscription paid to the Federation and disallowed the other claims.
3. The objection against the disallowances, quite a lengthy document, so far as is relevant was in the following terms-
``The grounds on which I rely are as follows:-
A. The amount of $48.45 disallowed is not an outgoing of a capital, private or domestic nature but is part of a total expense of $90.45 necessarily incurred by me in gaining or producing my assessable income, calculated in accordance with the provisions of and allowable as a deduction under sec. 73(2) of the Act...
B. The said sum of $120 is an allowable deduction under sec. 51(1) of the Act, being an outgoing incurred in gaining or producing my assessable income and protecting me against the loss which would otherwise be sustained by me in the event of the loss of my D.C.A. licence to fly aircraft...
C. The amount of $8.50 is an allowable deduction under sec. 82H of the Act, being a premium for insurance on my life paid on my behalf to a group life assurance scheme (Policy No. G.A.12310) with the A.M.P. Society...''
Upon considering the objection, the Commissioner disallowed it in full but later amended the assessment to concede Ground B. His decision to persist in the disallowance of Grounds A and C is now before the Board for review.
4. In relation to the first item in dispute, the taxpayer's representative sought to address argument not only under sec. 73 but also under sec. 51. He relied on the words ``not an outgoing of a capital, private or domestic nature'' and ``necessarily incurred by me in gaining or producing my assessable income'', words which appear in sec. 51 of the Act as indicating that the ground was taken under that section. The difficulty with this submission is that Ground A is drawn in explicit, not general, terms. It refers specifically to sec. 73, and the form in which it is expressed is inconsistent with reliance on any other provision of the Act. Its construction is not greatly different from that of Grounds B and C, each of which relies on a particular section of the Act also identified by number. Furthermore, the tenor of the explanation which accompanied the taxpayer's return and the letter written in his capacity of an officer of the Federation both convey a preoccupation with the terms of sec. 73 to the exclusion of any other section. The objection does not, in my view, raise the question of deductibility under sec. 51. Particularly because this is a test reference, the Board's formal decision should be restricted to what the objection fairly raises. If it were otherwise, both parties would be placed in an invidious position in relation to any possible appeal from the Board's decision.
5. For the purposes of sec. 73, it is necessary for the taxpayer to bring his claim within the terms of the second paragraph. This provision is quite restrictive in its operation and requires an examination of the way in which the Federation applied the subscriptions received from members. If they were applied to an activity, the cost of which would have been deductible to the taxpayer himself, then pro tanto, the subscriptions payable by the taxpayer are deductible. In this regard, therefore, the objects of the Federation are material. They include the protection of the interests of the profession of air pilots, the elevation of the profession of commercial air pilots, the publication of a journal, the securing of preference of employment for members, the improvement of the terms and conditions of their employment, legal protection for them in industrial matters and many other objects. The Federation, in fact, interested itself in a number of matters, including the investigation of accidents, aircraft noise abatement, technical developments and (though not in the year of income) negotiating short term contracts with the airlines governing remuneration and working conditions of pilots. This very abbreviated reference to some of the many objects on which the Federation expended its funds shows that a substantial proportion are not activities the cost of which would have
ATC 329been deductible to the taxpayer had he undertaken them himself. For this reason, the claim to deduct 90% of the subscription under sec. 73(2) fails, and I am unable to determine any greater amount than $42 which would be allowable under that provision.
6. The other matter raised by the objection relates to the claim under sec. 82H to deduct the premium paid in respect of the group assurance policy. The contract of insurance is between the insurance company and the Federation and the premiums pursuant to the contract are payable by the Federation and were paid by it. These being the facts, on the authority of
Crowe's case, 100 C.L.R. 532, this claim also fails.
7. While it is my view the Commissioner's decision on the objection should be upheld, I think it proper in all the circumstances to express an opinion of what would have been the position if Ground A had been brought under sec. 51. The preliminary question for decision then would have been whether sec. 73 is an exclusive provision or whether it provides an alternative head of deduction to sec. 51. Consideration of this matter necessitates a brief reference to the previous Act. Shortly after
Gordon's case, 43 C.L.R. 456, in 1930, upheld the deductibility of a subscription paid to the Graziers' Association of N.S.W. under a provision which corresponded to the first limb of sec. 51, the Act as it then stood was amended. A new para. (ea) was included in sec. 25. The effect of so doing was to deny specifically a deduction in respect of subscriptions to an association unless the deduction was expressly allowable under any provision of the Act or the amount was paid in circumstances which generally correspond to those mentioned in sub-secs. (1) and (2) of the present sec. 73. In 1936, the form of the Act was recast so that it no longer contained a counterpart to the old sec. 25. It seems clear enough that sec. 73 was intended to continue the prohibition against deductions of subscriptions to associations except in the circumstances it described, but whether it achieved this end is another matter. Certainly, Boards of Review have, for a very considerable time, taken the opposite view and, if the matter is to be reconsidered, it must be left to the High Court to do so.
8. Gordon's case (supra) seems sufficient authority for the view that subscriptions paid by the taxpayer to the Federation are deductible under sec. 51. That case was decided in favour of the taxpayer by Dixon J. at first instance and unanimously by the Full Court upon appeal. The approach which it requires is succinctly described by Rich J. at p. 468, where he observed-
``The judgment under appeal lays emphasis on the fact that it is the disbursement by the taxpayer which has to be considered and not that of the Association, although the manner in which the Association expended its funds is relevant because it showed or tended to show the purposes for which the taxpayer laid out his money in paying his subscription.''
There is relevance between the taxpayer's membership of the Federation and his employment. The negotiation by the Federation of short term contracts with the taxpayer's employer, relating to remuneration and conditions of service, seem to me to provide sufficient nexus with the payment of his subscriptions to stamp them as relevant and incidental to the derivation of his income. On this view they fall within the first limb of sec. 51 and are deductible under that section. It is nothing in point in this context that other activities of the Federation are not of the type to permit deduction of the subscription under sec. 73(2).
9. If the matter were properly taken by Ground A of the objection, I would take the view that the disputed subscription was allowable in terms of sec. 51(1). For the reasons I have explained, however, I would uphold the Commissioner's decision and confirm the assessment before the Board.