Lockhart J

Wilcox J
Hill J

Full Federal Court

Judgment date: Judgment handed down 24 April 1991

Lockhart J

The taxpayer, Robert John Cooper, is a professional footballer who played with the Western Suburbs District Rugby League Football Club. He claimed as deductions under s. 51(1) of the Income Tax Assessment Act 1936 (``the Act'') the expenditure incurred by him for the purchase of additional food and drink which he consumed, on the ``instructions'' of his coach, in order to maintain an ``optimum playing weight'' of about 16½ stone and thus retain his strength to break the opponents' defensive line in First Grade Rugby League Football. He played with the Club as a forward.

The Commissioner of Taxation disallowed the deductions claimed by the taxpayer for the cost of the additional food for the years ended 30 June 1980, 1981 and 1982. The taxpayer objected to the disallowance and the objections were referred to a Taxation Board of Review which allowed the taxpayer's objections [reported at 86 ATC 290]. The Commissioner appealed to the Supreme Court of New South Wales. The appeal was heard by Hunt J. who dismissed the appeal [reported at 90 ATC 4580]. The Commissioner appealed to this Full Court from the Supreme Court's judgment.

Hunt J. dismissed the Commissioner's appeal on two grounds. First, his Honour held that the appeal was incompetent because it involved no question of law. His Honour said that no question of law is involved where some principle of law was either necessarily applied by the Board in arriving at its decision or merely implicit or assumed in that position; the question must be one which was involved in the Board's decision and he referred to
Boyded (Holdings) Pty Limited v FC of T, 82 ATC 4236 at 4239; (1982) 13 ATR 127 at 130. His Honour found that there was no question of law involved in the Board's decision in this case. He said the question whether a particular set of facts comes within the terms of a statutory definition which uses words according to their common understanding is one of fact not of law

ATC 4398

and referred to
Australian Gas Light Co. v Valuer-General (1940) 40 SR(NSW) 126 at 137-8 and
Hope v The Council of the City of Bathurst 80 ATC 4386 at 4389; (1980) 144 CLR 1 at 7-8. His Honour noted a concession in argument that the case involved a question of fact and degree (
FC of T v Forsyth 81 ATC 4157 at 4164; (1980-1981) 148 CLR 203 at 215), that no submission was made to the Board of ``no evidence'' and that the Board did not rule upon that question expressly or by implication: cf
Lombardo v FC of T 79 ATC 4542 at 4545-4546; (1979) 10 ATR 310 at 314.

The second ground on which his Honour dismissed the Commissioner's appeal was that the food and drink purchased by the taxpayer was additional to that which he ordinarily consumed; that it was consumed, not to sustain the taxpayer because his ordinary consumption of food did that, but to ensure that he was able to derive a substantially greater income from that which he would otherwise have been able to derive because payments made to First Grade players are considerably higher than those made to players of lower grades. His Honour found that the outgoing was directly related to gaining that additional assessable income and that the essential character of the expenditure was to gain additional assessable income. His Honour relied on
Lunney v FC of T (1958) 11 ATD 404 at 412; (1957-1958) 100 CLR 478 at 497 and held that the expenditure was incurred pursuant to a contractual obligation to do so and not merely because the taxpayer had been ``encouraged'' to incur it, as the Commissioner contended. His Honour compared
FC of T v Hatchett 71 ATC 4184 at 4187; (1971) 125 CLR 494 at 499. He held that the claim was a deduction allowable under the first limb of s. 51(1) of the Income Tax Assessment Act 1936 as expenditure incurred in gaining the taxpayer's assessable income.

The evidence before the Supreme Court consisted of the evidence given to the Board of Review (including oral evidence of the taxpayer), which was tendered by consent, two additional affidavits of the taxpayer and certain brief oral evidence of the taxpayer. Hunt J. accepted the taxpayer's evidence in its entirety.

I shall briefly state the relevant facts. The taxpayer was during the relevant years of income under a contract with the Western Suburbs District Rugby League Football Club, made on 22 December 1979, to play for it in the Sydney Major Premiership Competition during the 1980 and 1981 seasons together with a ``club option'' for the 1982 season. Under the contract the taxpayer agreed (by clause 1) to:

``... do everything necessary to get and keep himself in the best possible condition so as to render the most efficient service to the Club and will carry out all the training and other instructions of the Club through its responsible officials.''

The contract gave to the Club the right to determine the contract forthwith if the taxpayer failed to discharge his obligations or if he was guilty of disobedience (clause 7). He was entitled to a ``signing on'' fee of $9,000 for seasons 1980 and 1981. Additional payments were to be made to him for each match, which varied in amount according to the particular grade in which he played and the results of each match (clause 3). A win when playing in First Grade paid five times the amount for a win in Reserve Grade. Substantial additional payments were to be made if the taxpayer was chosen to represent Australia or New South Wales.

When the taxpayer commenced playing in First Grade (some years before the first of the relevant years of income) he noticed that he lost weight from the beginning of the pre-season training which continued throughout the season. This coincided with the increased time which he was obliged to spend on training. He trained with the team three nights a week and he tried to train by himself on a further two nights a week. He found that after commencing at 17¼ stone, he would finish the season just under 15 stone. This weight loss affected the taxpayer's ability as a forward. It resulted in loss of strength which in turn diminished his ability to break the opposing team's defence line. That was the task expected of him, and such ability was important to his effectiveness as a forward and to the retention of his position in First Grade. His Honour found that if the taxpayer's ability to barge through his opponent's defensive line was reduced because of his loss of weight the taxpayer would have been dropped from First Grade (he was never in fact dropped from First Grade) and if he was so dropped his income derived as a professional footballer would be reduced by 80% until he was promoted back into First Grade if and when this were to happen. His Honour found

ATC 4399

that the loss of weight would accordingly have been directly responsible for the reduction in assessable income derived by the taxpayer as a professional footballer.

On 12 October 1979 the taxpayer's coach gave him the following ``instructions'' in writing:

``12 October 1979

Mr R Cooper

3 Yara Close


Dear Bob,

Now that the season has ended and in preparation for next year's season I would like you to follow the instructions below from this date:


Ensure that you maintain your reflex speed and endurance by playing squash at least once, preferably twice per week, all year round.


Attend a Gym, either locally or at Wests League Club, to build up your physique and strength, preferably once per week.


As you have a tendency to lose weight which affects your playing ability during the season, I want you to eat the following items each week in addition to your normal meals:

  • 1. 3 kilos of steak, only medium cooked.
  • 2. Potatoes at each meal, 1 kilo per week.
  • 3. Bread at each meal, at least three loaves per week.
  • 4. Beer is an excellent method of increasing weight, therefore at least 1 dozen cans per week.
  • 5. At least one glass of Sustagen per day.

General Exercise:

Ensure that for general conditioning you do as much running as possible.

I appreciate that the above will involve you in extra expense but I am sure that you will be recompensed by the Club when your contract comes up for renewal.



The taxpayer gave evidence before the Board that he understood he was under an obligation to do what Mr. Masters said.

The taxpayer made estimates of the cost of the purchase of the additional food and drink consumed by him to carry out the instructions and they were $682, $751 and $640 for the three years of income respectively. The estimates were not challenged as to quantum by the Commissioner. The taxpayer was unable to relate specific amounts of money to the steak, potatoes, bread, beer and Sustagen purchased in addition to that which would otherwise have been purchased. He chose to eat a fourth meal each day, either during the afternoon or late at night, and said that he adhered as rigidly as possible to the ``instructions'' given by his coach.

Whether a question of law was involved in the appeal from the Board of Review to the Supreme Court has been considered by Hill J. in his reasons for judgment which I have read in draft form. I agree with him that more than one question of law was involved in the appeal and generally with his reasons in support of that conclusion. The Supreme Court therefore had jurisdiction to determine the appeal.

The substantial question in the case is whether the expenditure of the taxpayer on additional food and drink is deductible under s. 51(1) of the Act. As the taxpayer did not carry on a business it is only the first limb of the sub-section that can apply to confer the deduction. The primary question is therefore whether the expenditure was incurred in gaining or producing the taxpayer's assessable income. A related question arises whether the expenditure is nevertheless of a private or domestic nature and therefore excluded from deductibility by the concluding words of the sub-section.

The phrase ``incurred in gaining or producing assessable income'' in the first limb of s. 51(1) has been construed to mean incurred in the course of gaining or producing assessable income:
Amalgamated Zinc (De Bavay's)

ATC 4400

v FC of T (1935) 3 ATD 288; (1935) 54 CLR 295 per Latham C.J. at ATD 293; CLR 303 and Dixon J. at ATD 297; CLR 309;
W. Neville & Co. Limited v FC of T (1937) 4 ATD 187; (1936-1937) 56 CLR 290 per Dixon J. at ATD 196; CLR 305;
Ronpibon Tin NL v FC of T (1949) 8 ATD 431; (1949) 78 CLR 47 per Latham C.J., Rich, Dixon, McTiernan and Webb JJ. at ATD 435; CLR 56-57.

For expenditure to be an allowable deduction as an outgoing incurred in gaining or producing the assessable income, it must be incidental and relevant to that end; Ronpibon at ATD 435; CLR 56. This test of deductibility has been explained in subsequent judgments of the High Court, so that to be deductible the expenditure must be incidental and relevant in the sense of having the essential character of expenditure incurred in the course of gaining or producing assessable income. This formulation of the test has its origins in the joint judgment of Dixon C.J., Williams, Webb, Fullagar and Kitto JJ. in
Charles Moore & Co. (W.A.) Pty. Limited v FC of T (1956) 11 ATD 147 at 149; (1956) 95 CLR 344 at 351. It has been applied subsequently in cases which include Lunney v FC of T (1958) 11 ATD 404 at 412; (1957-1958) 100 CLR 478 at 497;
Handley v FC of T 81 ATC 4165 at 4171; (1980-1981) 148 CLR 182 at 194; FC of T v Forsyth 81 ATC 4157 at 4161; (1980-1981) 148 CLR 203 at 210;
John v FC of T 89 ATC 4101; (1988-1989) 166 CLR 417. The essential character test is also applied to determine if the expenditure is of a capital, private or domestic nature as these cases illustrate.

Outgoings incurred in gaining or producing assessable income and outgoings of a capital or domestic nature are not mutually exclusive; Ronpibon Tin at ATD 435; CLR 56; Forsyth, John at ATC 4105-4106; CLR 427. It was decided in John that there is no ``necessary antipathy between a loss or outgoing incurred in gaining or producing assessable income and a loss or outgoing of a private nature'': John at ATC 4108; CLR 431.

It is relevant to have regard to the terms and conditions of a taxpayer's employment in determining whether expenditure incurred by an employee satisfies the first limb of s. 51(1):
FC of T v Finn (1961) 12 ATD 348; (1961) 106 CLR 60 per Kitto J. at ATD 352; CLR 69; FC of T v Hatchett 71 ATC 4184; (1971) 125 CLR 494.

In Handley the taxpayer claimed portion of payments made by him of interest on moneys borrowed on the security of his house and of municipal and water rates assessed on the house and of premiums for fire insurance on the house, as deductions from his assessable income earned in the course of his profession as a barrister. It was the taxpayer's case that he used the study in his home predominantly for professional work in the evenings and at weekends, for example, working on briefs and preparing opinions. He claimed that the expenditure was referable to his income earning activities. The High Court, by majority, disallowed the claims for deduction on the ground that, notwithstanding that the study was predominantly used for the purpose of the taxpayer's profession, it nevertheless remained an integral part of the home and the relevant expenditure had the essential character of a private or domestic nature. The study was in the home and not separate from it, having no distinctive physical characteristics and was readily capable of other use for family purposes and was in fact used for non-professional purposes from time to time. The expenditure was therefore referable to the home. The same principles were applied in Forsyth's Case which also involved the use by a barrister of his study at home.

The study cases of Handley, Forsyth and the earlier decisions of
Thomas v FC of T 72 ATC 4094; (1972) 46 ALJR 397 and
FC of T v Faichney 72 ATC 4245; (1972) 129 CLR 38 turned essentially on the question whether the study was an integral part of the taxpayer's house and whether the expenditure related essentially to the house of which the study was but a part and not a distinct part. They are helpful for present purposes as examples of the application of the essential character test.

Closer to the present case however is Lunney which held that fares paid by a taxpayer travelling day by day from his home to his place of employment and back again was not a deductible expense under s. 51(1). In Lunney, Dixon C.J. said at ATD 405; CLR 486:

``I confess for myself, however, that if the matter were to be worked out all over again on bare reason, I should have misgivings about the conclusion. But this is just what I think the Court ought not to do. It is a question of how an undisputed principle

ATC 4401

applies. Its application was settled by old authority long accepted and always acted upon. If the whole subject is to be ripped up now it is for the Legislature and not the Court to do it.''

In their joint judgment Williams, Kitto and Taylor JJ. said at ATD 414; CLR 501, after referring to a number of English decisions:

``No doubt the legislative provisions which required consideration in these cases were not identical with s. 51, but the process of reasoning by which they were decided consistently rejects the notion that expenditure incurred by a taxpayer in order to travel from his home to his place of business is, in any sense, a business expenditure or an expenditure incurred in, or, in the course of, earning assessable income. Indeed they go further and refuse assent to the proposition that such expenditure is, in any relevant sense, incurred for the purpose of earning assessable income and unanimously accept the view that it is properly characterised as a personal or living expense. This view agrees with that which we, ourselves, entertain. Expenditure of this character is not by any process of reasoning a business expense; indeed, it possesses no attribute whatever capable of giving it the colour of a business expense. Nor can it be said to be incurred in gaining or producing a taxpayer's assessable income or incurred in carrying on a business for the purpose of gaining or producing his income; at the most, it may be said to be a necessary consequence of living in one place and working in another. And even if it were possible - and we think it is not - to say that its essential purpose is to enable a taxpayer to derive his assessable income' there would still be no warrant for saying, in the language of s. 51, that it was `incurred in gaining or producing assessable income' or `necessarily incurred in carrying on a business for the purpose of gaining or producing such income'.''

Lunney's Case accorded with a well established view in the English Courts that for a person to live away from his place of employment or business is a matter referable to his private choice or domestic necessity. This process of reasoning has been much criticised and said to be illogical (see, for example, Handley per Stephen J. at ATC 4170-4171; CLR 192-193 and
FC of T v Maddalena 71 ATC 4161 at 4162).

Lodge v FC of T 72 ATC 4174; (1972) 128 CLR 171 Mason J. denied a deduction of expenditure incurred by a taxpayer consisting of payment of nursery fees for her infant daughter whilst she was at work. His Honour held that child care expenses, because of their essential character, are not incurred in gaining or producing the assessable income of the taxpayer. He said at ATC 4176; CLR 175-176:

``The expenditure was incurred for the purpose of earning assessable income and it was an essential prerequisite of the derivation of that income. Nevertheless its character as nursery fees for the appellant's child was neither relevant nor incidental to the preparation of bills of cost, the activities or operations by which the appellant gained or produced assessable income. The expenditure was not incurred in, or in the course of, preparing bills of cost.''

See also with respect to child care expenses:
Martin v FC of T 84 ATC 4513.

These are the relevant principles to apply in determining the deductibility of the taxpayer's expenditure in this case. The application of s. 51(1) gives rise to difficulty in some cases because there is a large variety of factual situations to which it may apply. The deductibility of expenditure on food, clothing and housing poses difficult questions. In one sense expenditure on food is always relevant to the derivation of income because a person must eat to enable him to live and therefore to work. Obviously that alone is not a sufficient connection with the earning of assessable income to permit a deduction. On the other hand a person whose business is the publication of a food guide may buy and taste food in the course of his business, so there is a clear nexus between the expenditure and the derivation of income. The cases that lie in between the two extremities give rise to the difficulty and this case is one of them.

The question whether the additional expenditure of the taxpayer is deductible under s. 51(1) cannot be answered simply by a process of reasoning that, because expenditure of this kind is a prerequisite to the earning of the taxpayer's assessable income (in the sense that it is necessary if assessable income is to be

ATC 4402

derived), it must be incidental and relevant to the derivation of income. It does not follow that such expenditure is incurred in or in the course of gaining or producing the income. The deductibility of the expenditure depends upon determining the essential character of the expenditure itself and not upon the fact that, unless it is incurred, the taxpayer will not be able to engage in the activity from which his income is derived.

The taxpayer relied on the fact that the taxpayer's coach said in his letter of 12 October 1979:

``As you have a tendency to lose weight which affects your playing ability during the season, I want you to eat the following items each week in addition to your normal meals...''

He also relied on his evidence that he thought he was obliged to follow what his coach said.

These are relevant considerations, but they are not determinative of the question of the deductibility of the expenditure. If it were determinative of the deductibility there would be an avalanche of letters of this kind to employees in many fields of income earning activities.

Also, the status of the letter as an ``instruction'' is itself doubtful. Such letters between employers and employees would not be difficult to arrange and this one is no exception. Counsel for the Commissioner drew our attention in argument, without objection, to the fact that the taxpayer was represented before the Board of Review by his brother, an accountant, who in opening the taxpayer's case to the Board frankly said:

``Many years ago, about 1979, my brother and I were sitting down - I used to have an accounting practice and I used to do tax returns for a number of people including my brother. One day we were sitting down and he was telling me about how his coach, who at that stage was Roy Masters, Western Suburbs Rugby League Club, was saying that he had a lot extra above his normal meals and I said to him, `Well, look if you can get that in writing signed, by Roy Masters, then I'll have a - I'll prepare a claim for the extra above your ordinary meals'.''

For myself I would not interpret the letter as an ``instruction'' to consume additional food and drink. The coach's concern was obviously that the taxpayer maintain a weight appropriate for a forward. It is doubtful if he cared how this was done by the taxpayer, whether by consumption of food and drink or working-out at the gym or the taking of medicines or otherwise, provided that it was consistent with approved practices within Rugby League. The prescription of the menu was simply the means which the coach perceived as [the] best way of ensuring the maintenance of the taxpayer's weight. Also the letter left it to the discretion of the taxpayer as to how and when he consumed the extra victuals. He chose to do so by eating a fourth meal each day.

However, I am content for the purposes of this appeal to take the letter at its face value. Even if the letter is treated as an ``instruction'' to the taxpayer to eat the additional food and drink prescribed in it there is no necessary nexus between the instruction and the playing of football by the taxpayer. His activity as a professional footballer did not include the consumption of additional food and drink.

The expenditure here was on food and drink additional to the staple diet of the taxpayer. The evidence is unclear as to what the taxpayer's customary consumption of food and drink was, but it would be surprising if it did not include meat, potatoes, bread and beer. A mere increase in the quantity of the consumption of those items appears to me to be a tenuous nexus with the taxpayer's activity of playing professional football. Nor is there any suggestion that the taxpayer suffered from any medical condition which caused him to lose weight.

In one sense the taxpayer consumed the additional food and drink for the purpose of deriving income as a professional footballer, just as employees incur expenditure on fares in travelling between their homes and places of employment.

Food and drink are essential to sustain life. Diet, metabolism and the propensity to put on weight varies from person to person. The quality and quantity of food and drink consumed by professional footballers doubtless varies considerably from one to another. Some would maintain their desired weight by eating more than others. Some would not have

ATC 4403

difficulty in maintaining weight by eating less than others. It would be a curious result if some professional footballers obtained a deduction for expenditure on basic items of food and drink and others did not because the former chose to consume more than the latter, whether pursuant to an ``instruction'' of their coaches or not.

The taxpayer incurred the expenditure on additional food and drink for the purpose of increasing his weight and thus to play professional football and earn assessable income. But its character as the cost of additional food and drink is neither relevant nor incidental to the training for and playing of football matches, which is the activity by which he gained assessable income. The expenditure was not incurred in or in the course of that activity. The taxpayer was paid money to train for and play football, not to consume food and drink. His income producing activities did not include the consumption of food and drink.

In my opinion the taxpayer's expenditure on additional food and drink was not incurred in gaining or producing his assessable income and is therefore not deductible from his assessable income during the relevant years of income.

Furthermore, for the reasons already given I would regard the expenditure as being of a private nature and therefore within the exclusionary limb of s. 51(1).

I would allow the appeal with costs. I would set aside the orders of the Supreme Court and substitute an order that the appeal by the Commissioner be allowed with costs.

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