Case H32

Judges:
FE Dubout Ch

N Dempsey M
P Gerber M

Court:
No. 3 Board of Review

Judgment date: 27 July 1976.

F.E. Dubout (Chairman): This reference results from the disallowance by the Commissioner of a claim by the taxpayer, in her return for the year of income ended 30th June, 1974, to deduct an amount of $51.00, said to be the cost of replacing stockings damaged at her place of employment. The taxpayer was, during the year of income, employed as a typist-clerk.

2. In her return, the taxpayer stated that there had been damage and replacement of stockings at the rate of two pairs per week. Half this damage, it was said, occurred at work in contact with filing cabinets, desks and other furniture. On the basis of a cost per pair of 99 cents, this half attributable to work gave rise to the claim for a deduction of $51.00. The statement in the return differs quite substantially from the taxpayer's oral evidence, according to which five pairs of stockings were damaged each week. Of these five pairs, three were damaged at work, and two in the course of travelling to and from work.

3. Confronted with this inconsistency, counsel for the taxpayer was more or less compelled to make his submissions on the basis that at least to the extent of one pair of stockings per week, the need for replacement arose out of damage which occurred at work. It also emerged at the hearing that during the year of income, the taxpayer had actually attended at the office and worked for a total of only 46 weeks. Having regard to the requirement of sec. 190(b), viz., that ``the burden of proving that the assessment is excessive shall be upon the taxpayer'', I would have some doubt as to whether, on the evidence adduced, the taxpayer has established that she should be entitled to deduct at least $46 (i.e. 46 x 99 cents) if her claim succeeded in principle. Since I am of the opinion, however, that the outgoings in this case are not deductible in character, I do not find it necessary to decide whether, in general, it is open to a Board of Review to allow deductions upon some principle of ``minimum entitlement'', and if so, what would be such minimum entitlement in the present case.

4. The claim is brought under sec. 51, and accordingly it is necessary for the taxpayer to show that the expenditure was incurred in gaining or producing her assessable income. It would be an interminable task to review even the High Court decisions involving sec. 51, let alone the myriad decisions of the Boards of Review. If I simply refer to the expressions ``in the course of gaining or producing the assessable income'' and ``it must be incidental and relevant to that end'', they will at once be recognised as the classical tests or criteria which the High Court has adopted in determining the deductibility of outgoings under sec. 51. When the taxpayer concerned is an employee, as is the case in the present reference, then it seems to me that what has been said about deductibility in the leading cases amounts to this: if the expenditure is to qualify for deduction under sec. 51, it must have been incurred in performing those very acts and operations which by its nature the taxpayer's employment requires of him, and it


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must be incidental and relevant to the performance of those acts and operations.

5. In one sense of the words ``in the course of'', it is true that the taxpayer did incur expenditure, viz., for the replacement of stockings, in the course of carrying out her duties. That is the sense in which the words convey the notion of something happening within a particular period of time. But merely because the need for an expenditure arises during the seven or eight hours of the working day, it by no means follows that that expenditure will qualify for deduction under sec. 51. Nor does it necessarily profit a taxpayer to show that a particular expenditure had to be made as a matter of compulsion e.g. the point taken for the taxpayer in the present case that the employer directed that stockings be worn.

6. Referring to the decision of their Honours Williams, Kitto and Taylor JJ. in the case of
Lunney v. F.C. of T. (1958) 100 C.L.R. 478, Mason J. in
Lodge v. F.C. of T. 72 ATC 4174, said at p. 4176:

``The decision denied the notion that an expense was incidental and relevant to the derivation of income merely because it was necessary in that sense. The decision turned rather upon a view of the character of the expenditure incurred. This approach to sec. 51(1) is founded largely on the presence of the word `in' in the principal parts of the sub-section.''

I am not aware of any decision since Lodge's case (supra) in which it has been suggested that, in considering the deductibility of outgoings, one may dispense with that interpretation of the word ``in'' in sec. 51(1) according to which it is to be given the force of ``in the course of''.

7. In the opinion of Mason J., in Lodge's case (supra), the significance of the word ``in'' in sec. 51(1) is appropriately illustrated by
Halstead (H.M. Inspector of Taxes) v. Condon (1970) 46 T.C. 289, a decision on a question arising under Schedule E to the Income Tax Act 1952. His Honour, at p. 4176, 72 ATC, noted that the relevant English provision was more narrowly expressed than sec. 51(1), in that it gave an employee an entitlement to a deduction if he was necessarily obliged ``to expend moneys wholly exclusively and necessarily in the performance'' of the duties of his employment (Income Tax Act 1952, Schedule 9, para. 7). Notwithstanding the difference between the English and Australian statutes, however, his Honour thought it appropriate to quote from the decision of Megarry J., and I repeat hereunder the quoted passage, which appears at pp. 292-293 of 46 T.C.: -

``The Commissioners considered and distinguished
Bowers v. Harding (1891) 1 Q.B. 560; 3 T.C. 22 on the ground that an alternative course of action was there open to the taxpayer, whereas here the taxpayer had none. That case, however, deals only with the word `necessarily'. There is still the word `in', governed as it is by `wholly' and `exclusively'. Even if one accepts the highest degree of inevitability in what the taxpayer did, in no conceivable sense can the expenditure be said to have been incurred by him `in' the performance of his duties: it had nothing to do with the way in which he performed his functions as a clerk to the Borough Council.''

8. I think that the taxpayer in the present case is in a similar plight, as regards substantiating her claim. True it is that damage occurs to her stockings during her hours of duty, but that has really nothing to do with the procedures and methods relating to the performance of her duties as a typist-clerk. Every employed person, to a greater or lesser degree, wears out his clothing in the course of carrying out his duties; in the taxpayer's case it is the fragility of the garment which leads to such frequent need for replacement. Although they were made against the background of a different statutory test, I think certain remarks of Vaisey J. in
Lomax v. Newton 34 T.C. 558 are indicative of the kind of difficulty which confronts the taxpayer in the present case. I refer to the remarks of his Honour at p. 562, where he said:

``An expenditure may be `necessary' for the holder of an office without being necessary to him in the performance of the duties of that office.''

9. It would be no exaggeration, I think, to say that in the turmoil of day-to-day living, expenditure on the acquisition of stockings is an example par excellence of private expenditure. In quite a number of instances, Boards of Review have seen, in the peculiar circumstances of the case, certain factors which would justify the removal of expenditure, on various items of clothing, from the category of


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private expenditure, and thus from the exclusory words of sec. 51(1). I am unable in the present case to see that the taxpayer's expenditure on stockings is anything other than private expenditure, and whether that conclusion be consequential upon my earlier conclusion that the expenditure was not one incurred in gaining or producing the assessable income, or whether it be arrived at independently, the end result is in each case equally fatal to the taxpayer's claim.

10. I would accordingly disallow the taxpayer's objection and confirm the Commissioner's assessment, which is in fact an amended assessment, as another small item of claim pursued in the objection has been allowed by the Commissioner.


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