Bhatti and Commissioner of Taxation

[2016] AATA 24

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(Decision by: Senior Member G Lazanas)

Bhatti
and Commissioner of Taxation;

Tribunal:

Member:
Senior Member G Lazanas

Subject References:
TAXATION AND REVENUE
income tax
deductions
employee
work-related travel expenses
self education expenses
home office expenses
occupancy costs
running costs
objection decision relating to income tax set aside and matter remitted to Commissioner
administrative penalty
whether failure to take reasonable care
question of remission
objection decision relating to administrative penalty affirmed

Legislative References:
Taxation Administration Act 1953 - s14ZZK; Sch 1 s 284-75; Sch 1 s 284-90; Sch 1 s 298-20
Income Tax Assessment Act 1997 - s6-5; s8-1; s900-15; s900-20; s900-30; s900-105; s900-110; s900-115; s900-195; s995-1

Case References:
Commissioner of Taxation v Day - (2008) 236 CLR 163
Commissioner of Taxation v Finn - (1961) 106 CLR 60
Commissioner of Taxation v Payne - (2001) 202 CLR 93
Federal Commissioner of Taxation v Forsyth - (1981) 148 CLR 203
Handley v Federal Commissioner of Taxation - (1981) 148 CLR 182
Re Ovens and Commissioner of Taxation - (2009) 75 ATR 479
Ronpibon Tin NL & Tong Kah Compound NL v Federal Commissioner of Taxation - (1949) 78 CLR 47

Other References:
Explanatory Statement to A New Tax System (Goods and Services Tax) Amendment Regulation 2012 (No.1)
Australian Oxford Dictionary, 2nd edition. Oxford University Press, Print Publication Date: 2004. Current Online Version: 2012

Hearing date: 28 August 2015
Decision date: 22 January 2016

Sydney

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Decision by:
Senior Member G Lazanas

REASONS FOR DECISION

INTRODUCTION

1. Ms Agata Bhatti, an accountant, is in dispute with the Commissioner of Taxation with respect to amended assessments issued to her in May 2014, following a compliance review of her income tax returns for the years ended 30 June 2012 and 30 June 2013. The dispute is about deductions claimed by Ms Bhatti in respect of work-related travel expenses, self education expenses and other work-related expenses including home office expenses. The Commissioner disallowed these deductions and also issued Ms Bhatti with an assessment of administrative penalty for failure to take reasonable care with respect to compliance with taxation laws.

2. Ms Bhatti objected to the amended assessments. The Commissioner allowed the objection in relation to income tax in part by allowing some of the deductions. After the Tribunal proceedings were commenced by Ms Bhatti in November 2014, and following the provision of more information, the Commissioner allowed further deductions. At the hearing on 28 August 2015, both the Commissioner and Ms Bhatti made even further concessions narrowing the issues for determination by the Tribunal. Subsequently, at the Tribunal's direction, the Commissioner filed and served a table summarising the amounts still in dispute and Ms Bhatti agreed the table was accurate.

3. The question for the Tribunal is whether the Commissioner's objection decisions are correct. As the Commissioner made numerous concessions, Ms Bhatti has succeeded in showing that the amended assessments issued to her with respect to the years ended 30 June 2012 and 30 June 2013 were "excessive" (as required under the terms of former s 14ZZK(b)(i) of the Taxation Administration Act 1953 (Cth) (TAA)). As to the balance of the deductions still in dispute, I have decided to allow a few of them. However, for the reasons set out below, I have decided not to allow the vast majority of the deductions that Ms Bhatti claimed. I also agree with the Commissioner's decisions regarding penalties.

THE ISSUES BEFORE THE TRIBUNAL

4. The only substantive tax issues which remained for resolution following the various concessions made by the parties are whether Ms Bhatti is entitled to deductions for:

(a)

work-related travel expenses in the amount of $2,212.50 for the 2012 income year;

(b)

self education expenses in the amount of $3,121 for the 2012 income year, and $248.09 for the 2013 income year; and

(c)

other work-related expenses being predominantly home office expenses in the amount of $6,976 for the 2012 income year, and $3,571.77 for the 2013 income year.

5. In addition, there is the issue of whether the administrative penalty imposed on Ms Bhatti for failure to take reasonable care was correct. If so, should the penalty be remitted?

THE FACTUAL BACKGROUND AND EVIDENCE

6. The following findings of fact are based on the evidence of Ms Bhatti, including the written evidence of Ms Bhatti filed with the Tribunal, her oral evidence at the hearing, the T-Documents, as well as additional documents produced pursuant to a summons issued by the Tribunal at the request of the Commissioner to Ms Bhatti's former employer.

7. Ms Bhatti was employed as a full time senior financial accountant with GlobeCast Australia Pty Ltd, a company which provides broadcast services. She worked with GlobeCast from May 2006 until August 2012 when she resigned to look after her two infant children. GlobeCast was a subsidiary of Orange (formerly France Telecom) at that time and had sales offices in over 15 countries. GlobeCast's head office was located at Artarmon and Ms Bhatti lived a few suburbs away in a two bedroom apartment with her family.

8. Ms Bhatti claimed that her employer, GlobeCast, required her to perform work outside business hours from home. She said that she worked from home most evenings. Ms Bhatti had provided a letter from GlobeCast's CEO dated 16 June 2014 addressed to the Australian Taxation Office which stated that "[i]f required, Mrs Bhatti would perform works [sic] outside standard business hours from home to deal with international clients due to time zone differences and this formed part of her contractual remuneration". Ms Bhatti said she was unable to get any more specific confirmation of her working from home arrangements because she said the company had undergone significant personnel changes since she left. Also, according to Ms Bhatti, the former finance manager of GlobeCast had signed a confidentiality agreement when she was retrenched which prohibited her from saying anything about the company. Furthermore, Ms Bhatti said she was unable to locate other GlobeCast work colleagues who could have vouched for the frequency of her work from home. I find that it is very unlikely Ms Bhatti regularly worked after business hours from home for her employer. There was simply no independent evidence to this effect and Ms Bhatti's own evidence was too vague.

9. On 15 June 2012, Ms Bhatti wrote to the finance manager at GlobeCast asking whether she would be allowed to work from home one day per week from 25 July 2012. She said that the main reason for her request was that she was unable to find a day care facility for her baby on Wednesdays as no one else in the family was available to look after their daughter from July 2012. She stated that she had a "company provided laptop which allows me access to my computer on my desk at work" and "[m]y incoming phone calls could be directed to my mobile number". An internal email exchange later on the same day between Ms Bhatti's manager (GlobeCast's finance manager) and her superior with the subject heading "Request for Flexible Working Arrangement - Agata Bhatti" confirms that GlobeCast agreed to the arrangement as it was unlikely to "have any unfavourable impact on productivity and, or efficiency." In mid to late August 2012, not long after this flexible work arrangement started, Ms Bhatti resigned from GlobeCast.

10. Ms Bhatti stated that she made herself available from home after she resigned from GlobeCast for queries in relation to the transition of her role to another employee, however, there was no independent evidence of precisely what this entailed and Ms Bhatti's oral evidence was also vague on this aspect. She said that it only involved ad hoc phone calls.

11. Throughout the 2012 and 2013 income years, Ms Bhatti undertook studies to maintain her certified practising accountant status and was also studying for her Masters of Taxation. She said, and I accept, that she was committed to her continuing professional development. However, there was no evidence of the workshops that she claimed to have attended, including where the workshops were held, and how many and on what days she attended. Ms Bhatti said she also studied at home and occasionally viewed webinars.

12. In October 2011, Ms Bhatti went on a trip to Italy and Poland with her family. Her return airfare to Europe was paid for by GlobeCast and during the course of these proceedings the Commissioner accepted that the three days spent in Rome were work-related and he allowed 50% of the expenses claimed for meals and accommodation. Ms Bhatti did not dispute the balance of those claims and it is unnecessary in those circumstances for me to review those deductions. However, Ms Bhatti continued to dispute her deductions for work-related travel expenses in the amount of $2,212.50 for the 2012 income year. These expenses related predominantly to her travel from Rome to Krakow and Krakow to Frankfurt which she had paid for. She had also claimed deductions for various fares and parking fees which she says were to travel to the Sydney central business district to attend workshops.

13. With reference to the overseas travel expenses, Ms Bhatti claimed that the airfares were deductible because she went to a one day training course in Krakow on the subject of "difficult customers and debt collecting". She said this related to her work because she would "keep up to date with developments" and "gain promotional opportunities". Ms Bhatti had no receipts, diary notes, or course materials from the course. When questioned about how she found out about the course and paid for it, Ms Bhatti said her father who lives near Krakow had seen it advertised in a local newspaper and he had suggested it to her. She also said that she paid for the course in cash on the day of attendance.

14. I was not persuaded that Ms Bhatti attended any course in Krakow. There was no evidence to corroborate Ms Bhatti's version of events and even her employer did not have any knowledge of her attending any course in Poland. This is evident from email correspondence dated 1 August 2011 produced under the summons issued to GlobeCast where no mention is made of Ms Bhatti attending any work-related course, although her travel to Poland was canvassed. She said "now that my mother is her [sic] in Sydney, we no longer have to spend so much time in Poland" and "we would prefer to fly directly to Rome and make our way to Krakow". I infer from this that Ms Bhatti travelled to Poland to visit her family including her father who resided there.

LEGISLATIVE FRAMEWORK AND PRINCIPLES

15. The key taxation provisions relevant to this case are the general deductibility provisions as well as the substantiation provisions.

16. Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) relevantly provides as follows:

8-1 General deductions

(1) You can deduct from your assessable income any loss or outgoing to the extent that:

(a)

it is incurred in gaining or producing your assessable income; or

(b)

it is necessarily incurred in carrying on a *business for the purpose of gaining or producing your assessable income.

(2) However, you cannot deduct a loss or outgoing under this section to the extent that:

...

(b)

it is a loss or outgoing of a private or domestic nature; or

... [original emphasis]

17. Section 6-5(1) of the ITAA 1997 provides:

Your assessable income includes income according to ordinary concepts, which is called ordinary income. [original emphasis]

18. "Business" is defined in s 995-1 of the ITAA 1997 as follows:

business includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee. [original emphasis]

19. The issues in this case turn on s 8-1(1)(a) and whether a particular "loss or outgoing" was "incurred in gaining or producing ... assessable income". Paragraph (b) of s 8-1(1) does not apply as Ms Bhatti was an employee and not carrying on a business.

20. It is well settled that incurred "in" gaining or producing means incurred "in the course of" gaining or producing assessable income. In Ronpibon Tin NL & Tong Kah Compound NL v Federal Commissioner of Taxation (1949) 78 CLR 47 (Ronpibon), the High Court explained at 57:

it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income or, if none be produced, would be expected to produce assessable income.

21. In Commissioner of Taxation v Payne (2001) 202 CLR 93 (Payne) at [11], the High Court rephrased the issue in s 8-1(1)(a) of the ITAA 1997 as involving the following question: "is the occasion of the outgoing found in whatever is productive of actual or expected income?"

22. In Commissioner of Taxation v Day (2008) 236 CLR 163 (Day), the majority of the High Court said:

That no narrow approach should be taken to the question of what is productive of a taxpayer's income is confirmed by cases which acknowledge that account should be taken of the whole of the operations of the business concerned in determining questions of deductibility. [footnote omitted]

23. Work-related expenses such as self education expenses and home office expenses are general deductions and deductible under s 8-1 of the ITAA 1997 where the principles governing their deductibility are satisfied. I will briefly set out below the relevant principles and cases that have considered the issues in respect of work-related self education expenses and home office expenses. This is followed by an outline of the basic statutory provisions regarding the substantiation rules for work expenses.

24. The principles regarding the deductibility of work-related self education expenses are relatively straightforward. Self education expenses are deductible where the expenses have the necessary connection with the income earning activities of the taxpayer. For example, expenses on work-related courses or overseas study tours for keeping up to date and/or resulting in or likely to result in an increase in your income from your current employment are ordinarily deductible. See, for example, the case of Commissioner of Taxation v Finn (1961) 106 CLR 60.

25. The principles relating to the deductibility of expenses with respect to home offices are not as straightforward. They are explained in a number of cases that have come before the Courts and the Tribunal which are directly relevant to how I have approached the issues in this proceeding. Those cases include Handley v Federal Commissioner of Taxation (1981) 148 CLR 182 (Handley), Federal Commissioner of Taxation v Forsyth (1981) 148 CLR 203 (Forsyth) and Re Ovens and Commissioner of Taxation (2009) 75 ATR 479 (Ovens). It is noted that Handley and Forsyth were heard by the same High Court bench and concerned taxpayers who were barristers carrying on businesses. The decision of Member Frost (as he then was) in Ovens is helpful in articulating the position with respect to employees.

26. In summary, the general proposition which emerges from those cases is that expenses which relate to the use or ownership of a home, such as interest on mortgage repayments, rent, repair costs, rates and insurance premiums, have a private or domestic character and are normally not allowable deductions because the part of the house used for business (or, in the case of employees, for work) purposes does not mean that it ceases to be part of the taxpayer's home. On the other hand, expenses relating to the use of facilities within the home such as electricity charges, cleaning costs and the cost of repairs on items of furniture in the office may be deductible. In his public ruling Taxation Ruling TR 93/30 Income tax: deductions for home office expenses (TR 93/30), the Commissioner refers to these two broad categories of expenses as "occupancy expenses" and "running expenses", respectively, and it is convenient to adopt the same expressions here.

27. In Handley, a barrister claimed certain deductions for various home office expenses. The High Court, by a majority, disallowed claims for mortgage interest payments, council rates and insurance premiums (that is, his occupancy expenses) on the basis that the outgoings were still of a domestic nature even if incurred in earning assessable income: Handley at 196. Wilson J held, as follows, in Handley at 201-2:

... The appellant is a barrister who in addition to his city chambers maintains a study in his residence... There was no physical separation of the study from the remainder of the house, it being adjacent to the living room. Its use for other than professional purposes was infrequent and intermittent. The taxpayer claimed to deduct ... a proportion of the interest paid under a mortgage upon his home, and of municipal and water rates and of insurance premiums in respect of the premises...

In my opinion, the appeal cannot succeed. The room used as a study does not cease to be part of the taxpayer's home merely because as a matter of convenience he uses it for professional purposes for twenty hours per week during forty-five weeks of the year. It is true that in choosing for purchase in 1969 this particular residence as a home for himself and his family the taxpayer was influenced by the fact that there was in it a room which he considered to be suitable for use by him as a study. But it remained essentially part of his home. The payments for mortgage interest, rates and insurance premiums were of a kind which in the circumstances of this case cannot be apportioned between home and office expenses. They related to the building and/or land as a whole, and are not affected in any way at all by reason of the fact that the taxpayer performs professional work on the premises. They would remain the same whether or not he worked at home.

... I conclude that no part of the outgoings possess the requisite character of outgoings incurred in gaining or producing assessable income, nor are they necessarily incurred in carrying on the taxpayer's profession. In any event, I believe that they must be regarded as outgoings of a capital, private or domestic nature, thus coming within the exception...(emphasis added)

28. A similar conclusion was reached by the majority of the High Court in Forsyth, where the taxpayer, another barrister, had paid licence fees as "rent" to his family trust which owned the family home, for the use of a home study. It was there held by Mason J (as he then was) at 207 that the "artificial arrangements" did not distinguish the case from the principles in Handley and no deduction was allowed for occupancy expenses. Murphy J stated (also at 207), that the arrangement did "not negate the domestic nature of the expenditure".

29. In Ovens, the Tribunal approached the issue of the deductibility of home office expenses claimed by the taxpayer, an employee, by focusing on "the occasion of the expenses - the reason they were incurred". This approach was coherent with numerous cases referred to and relied on regarding the general deductibility of expenses, including Day, Handley and Forsyth. The Tribunal decided at [48] and [51], as follows, in relation to "occupancy costs" and "running costs":

[48] ... It was not by reason of his working in the home office so as to earn income that Mr Ovens incurred the various items of expenditure described as "occupancy costs". Those items of expenditure - in their entirety - were incurred by reason of his and his wife's ownership of the home. They were incidents of home ownership, ... Mr Ovens is not entitled to a deduction for "occupancy costs".

...

[51] That brings me to the "running costs". These are items of expenditure, the occasion of which is indeed the work that Mr Ovens undertook in his home office. It is by reason of his working in the home office that he would switch on the gas heater in that area. It is by reason of his working in the home office that he would turn on the lights, and consume electricity through the use of the various items of electronic equipment that he had deployed in that room. It is by reason of his working in the home office that he incurred that part of his home contents insurance expenditure that related to the equipment in his office.

30. Turning to the substantiation requirements, Division 900 of the of the ITAA 1997 sets out the rules in respect of "work expenses" which are defined in s 900-30 to mean "a loss or outgoing you incur in producing your salary or wages". Section 900-15 relevantly provides:

900-15 Getting written evidence

(1) To deduct a *work expense:

(a)

it must qualify as a deduction under some provision of this Act outside this Division; and

(b)

you need to substantiate it by getting written evidence.

Subdivision 900-E tells you about the evidence you need.

31. Subdivision 900-E is directed towards the written evidence required for the purposes of s 900-15. Section 900-105 explains that the legislation provides for a set of rules for getting written evidence to substantiate deductions and that the rules that can be used depend on the type of expense. Section 900-110 provides that there is no time limit for getting written evidence of an expense (unless the expense is recorded by the taxpayer in specified situations), "[b]ut until you get written evidence of it, you are not entitled to a deduction for the expense". Section 900-110(2) further provides that if "when you lodge your *income tax return for the income year you have good reason to expect to get written evidence of the expense within a reasonable time, you can deduct the expense without actually getting the evidence. But if you don't get the evidence within a reasonable time, your entitlement to the deduction ceases..."

32. Section 900-115 sets out a number of rules in relation to written evidence from a supplier, which covers any type of expense except the decline in value of a depreciating asset. Section 900-115 relevantly provides, as follows:

900-115 Written evidence from supplier

...

(2) You must get a document from the supplier of the goods or services the expense is for. The document must set out:

(a)

the name or business name of the supplier; and

(b)

the amount of the expense, expressed in the currency in which it was incurred; and

(c)

the nature of the goods or services; and

(d)

the day the expense was incurred; and

(e)

the day it is made out.

(3) There are 2 exceptions to these requirements:

(a)

if the document does not show the day the expense was incurred, you may use a bank statement or other reasonable, independent evidence that shows when it was paid;

(b)

if the document the supplier gave you does not specify the nature of the goods or services, you may write in the missing details yourself before you lodge your *income tax return for the income year.

...

33. Some other specific rules relevant to substantiation of expenses are discussed further below.

IS MS BHATTI ENTITLED TO CLAIM DEDUCTIONS FOR WORK-RELATED TRAVEL EXPENSES?

34. As noted at [14] above, I am not satisfied that Ms Bhatti attended a course in Poland. Accordingly, she is not entitled to claim deductions for her travel in and out of Krakow and any related incidental expenses nor for the amount supposedly spent on the course. Based on my finding, it is strictly unnecessary to consider Ms Bhatti's submission in relation to the substantiation rules, however, it is possible to deal with her argument briefly. Ms Bhatti stated in her Statement of Facts, Issues and Contentions that "the trip was only 4 days and for that reason no diary is required" for substantiation of the expenses. I agree with the Commissioner's submission that to the extent Ms Bhatti was seeking to rely on s 900-20 of the ITAA 1997 as not having to substantiate her travel expenses, that provision does not assist her because her travel involved her "being away from [her] ordinary residence for 6 or more nights in a row". She was away in total for 22 nights. I also agree with the Commissioner's submission that there is no reason to construe s 900-20 as only applying where a taxpayer was away from their ordinary residence for six or more nights 'for income producing purposes'. That phrase does not appear in s 900-20 which is how Ms Bhatti suggests the provision should be interpreted. I prefer the Commissioner's construction of s 900-20.

35. Ms Bhatti is also not entitled to claim deductions for the various bus and taxi fares and parking fees in relation to local travel in Sydney. While she produced the originals of the prepaid weekly bus travel passes, parking fees and taxi fares at the hearing, she failed to demonstrate any relationship between the documents and any particular workshops or courses that she attended or any other work-related purposes. She did not keep a diary or timetable so as to reference the receipts to workshops or work events on any particular days or even the number of days per week. For example, in relation to her claim for the prepaid weekly bus travel passes (which cost $50 each), Ms Bhatti did not give any supporting details of when she travelled on buses to attend workshops or to undertake work errands. Accordingly, I was not satisfied that Ms Bhatti incurred these expenses in gaining or producing her assessable income. It follows that Ms Bhatti is not entitled to claim deductions for the disputed work-related travel expenses in the amount of $2,212.50 in the 2012 income year.

IS MS BHATTI ENTITLED TO CLAIM DEDUCTIONS FOR SELF EDUCATION EXPENSES?

36. As noted at [11] above, I accept that Ms Bhatti was studying and undertaking continuing professional development to maintain her accounting qualifications and to obtain her Masters of Taxation. It does not automatically follow, however, that Ms Bhatti is entitled to deductions for all the expenses that she claims to have incurred in relation to self education. The following categories of expenses and, where appropriate, amounts were still in dispute at the hearing after further concessions were made by both the Commissioner and Ms Bhatti. I set out below my decision and reasons with respect to each of these claims in the 2012 and 2013 income years, as indicated

(a)

Stationery - $258 - (2012 income year) - there was insufficient evidence to substantiate these claims and, accordingly, they are disallowed.

(b)

Telephone - $25 - (2012 income year) - there was insufficient evidence to substantiate a higher business usage as claimed by Ms Bhatti. The Commissioner had allowed a deduction for $100 out of a total claim of $125. Accordingly, this deduction is disallowed.

(c)

Postage - $71 (2012 year) and $191 (2013 income year) - there was insufficient evidence to substantiate these claims and, accordingly, they are disallowed. Other amounts of postage expenses were allowed by the Commissioner at the hearing.

(d)

iPad depreciation and repair - (2012 income year) - there was insufficient evidence to substantiate the higher business usage claimed by Ms Bhatti and I was not persuaded that it was exclusively used for work purposes even if Ms Bhatti had won another iPad in a work competition which was used for private purposes. The higher deduction claimed for depreciation is, therefore, disallowed but the lesser claim of $279 is allowed. The iPad repair costs were claimed as a deduction in the 2012 income year but were in fact incurred by Ms Bhatti in the 2013 income year after she ceased working. The deduction is disallowed as it was not incurred by Ms Bhatti in gaining or producing assessable income.

(e)

AMEX fee - $90 (2012 income year) - the independent evidence, namely, the statements indicated that the card was predominantly used for private purposes such as purchases at retail stores and supermarkets. Ms Bhatti argued that she had originally intended to separate out her business usage but as that had not worked out, she later cancelled it. This deduction is disallowed as it was not an expense incurred by Ms Bhatti in gaining or producing her assessable income.

(f)

'Computer' spectacle lenses - $50 (2012 income year) - the receipt does not show when the expense was incurred and, in addition, there was no independent evidence to confirm that these were special glasses suitable for computer use and not prescription glasses which are a private expense. As the receipt was deficient, and there was no other independent supporting evidence, the deduction is disallowed.

(g)

Electricity charges - $200 (2012 income year) - Ms Bhatti did not prove the basis of this claim as there was no evidence of the total electricity charges incurred or the basis for the amount claimed as a deduction. Accordingly, this deduction is disallowed.

(h)

Depreciation on laptop - (2012 income year) - Ms Bhatti had purchased a laptop in 2009 for approximately $1,521 and claimed 25% of the cost on the basis of the straight line method. This deduction for depreciation is allowed as I was satisfied that Ms Bhatti used her laptop exclusively for work and self education purposes as she also had at least one other iPad.

(i)

Travel expenses - $1,000 (2012 income year) - Ms Bhatti produced a further 20 weekly bus travel passes (which cost $50 each) and claimed to have travelled to the Sydney central business district for workshops and courses. For the same reasons indicated at [35] above, namely, a failure to demonstrate the relationship between the expenses and any particular workshops or courses that she attended, I do not accept that these are deductible expenses.

(j)

Internet charges - $150 (2013 income year) - there was insufficient evidence to allow a deduction for this claim in circumstances where Ms Bhatti ceased employment in August 2012. The Commissioner had allowed a deduction for the two months of the 2013 income year in which Ms Bhatti was employed based on 50% business usage and I accept that was appropriate in the circumstances.

37. As noted above, for example, in [36 (a) and (b)], some of the deductions claimed for expenses were not substantiated in any way. Ms Bhatti claimed to have lost many receipts when moving house in May 2013 as some boxes with documents were lost or stolen. She submitted that the Commissioner should waive the substantiation requirements in the circumstances. Pursuant to s 900-195 of the ITAA 1997, the Commissioner may allow a deduction notwithstanding non-compliance with the rules in Division 900 if the nature and quality of the evidence satisfies him that the taxpayer incurred the expense and a deduction is allowable. The Commissioner was not satisfied and nor am I, based solely on the unsupported statements of Ms Bhatti. Accordingly, Ms Bhatti cannot rely on s 900-195.

IS MS BHATTI ENTITLED TO CLAIM DEDUCTIONS FOR OTHER WORK-RELATED EXPENSES?

38. Ms Bhatti claimed deductions for other work-related expenses. The amounts still in dispute following the hearing were $6,976 and $3,571 for the 2012 and 2013 income years, respectively. The bulk of these claims related to deductions for home office expenses, in particular, rent for a room in a two bedroom apartment that was apparently used solely for a home office for undertaking work for GlobeCast and work-related self education. There were also claims for deductions regarding running costs such as electricity charges, as well as for other work-related expenses.

39. I have decided that Ms Bhatti is not entitled to claim deductions in either the 2012 or 2013 income years for home office occupancy expenses. My decision is in accordance with the approach adopted by the High Court in Forsyth and Handley and this Tribunal in Ovens, discussed at [27] - [29] above. That is, Ms Bhatti was not incurring rent because work, if any, was being undertaken in the home office. The rent was a private expense for her occupation of the unit as her home.

40. In addition, I was also not persuaded that she was required by GlobeCast to work at home after hours. Ms Bhatti could adduce no independent evidence that she regularly worked from home. Even if she did work at home, on her own initiative, I find that this work was carried out on an infrequent and ad hoc basis. I am fortified in my conclusion by the fact that the contemporaneous correspondence between Ms Bhatti and GlobeCast when she applied for the flexible work arrangement on 15 June 2012 did not reference any ongoing work being performed by her at home.

41. The situation was slightly different in the 2013 income year. GlobeCast had agreed to a flexible work arrangement with Ms Bhatti whereby she was allowed to work at home one day per week. In those circumstances, I accept that the large bedroom in the unit was used as an alternative place of work. But that situation lasted from about 25 July 2012 to about the end of August 2012 when she resigned.

42. Ms Bhatti claimed a deduction in the 2013 income year (as in the prior 2012 income year) for 30% of home office running expenses, namely, electricity charges based on what she claimed to be the proportion of the unit's floor space occupied by the main bedroom used as a home office. For the reasons indicated in [39] - [40] above, the deduction claimed by Ms Bhatti for running expenses in the 2012 income year is not allowable. For the 2013 income year, the appropriate apportionment for home office running expenses is to be based on the correct amount of the floor area of the bedroom, which I find is 21 per cent. This was calculated on the basis of the floor plan of the unit showing the floor space of the main bedroom used as the home office as 14.4 sqm out of a total combined floor area of about 70sqm (being the internal area of the unit and the car space). The deduction should be further pro rated for the fact that electricity in the home office would have only been used for work purposes one day per week in a period of approximately six weeks, that is from about 25 July 2012 to the end of August 2012. This is a fair and reasonable approach in all the circumstances. I was not satisfied that any further deduction for electricity charges should be allowed for any use of the bedroom as a home office for self education.

43. The following other work-related expenses claimed by Ms Bhatti were still in dispute at the hearing. I set out below my decision and reasons with respect to each of these claims in the 2012 and 2013 income years, as indicated:

(a)

Newspapers - $165 (2012 income year) - as Ms Bhatti provided no evidence to prove that she incurred this amount, this deduction is disallowed.

(b)

Stationery - $146 (2012 income year) - as Ms Bhatti failed to provide documentary evidence to support the amount still in dispute, this deduction is disallowed.

(c)

Telephone charges - $520 (2013 income year) - I agree with the Commissioner's submission that as Ms Bhatti was not employed for ten months in this income year she is not entitled to claim a deduction for her telephone charges referable to that period (noting that 80% of her charges for the months of July and August 2012 have already been allowed as deductions).

(d)

Heater - $493 (2013 income year) - I agree with the Commissioner's submission that as the item cost $500, that is, more than $300, it has to be depreciated. Moreover, the amount referable is to the period of ownership during which she was working, that is, for a period of 26 days in the 2013 income year. Accordingly, the deduction for $493 is disallowed (noting that a minor deduction had already been allowed).

IS MS BHATTI LIABLE TO AN ADMINISTRATIVE PENALTY? IF SO, SHOULD IT BE REMITTED?

44. In relation to both the 2012 and 2013 income years, Ms Bhatti was assessed for an administrative penalty at the rate of 25 per cent of the shortfall amount for failure to take reasonable care in relation to compliance with taxation laws: s 284-75(1) and table item 3 in s 284-90(1) in Schedule 1 to the TAA.

45. Ms Bhatti objected to the penalty on the basis that she had not failed to take reasonable care but without elaborating on her assertion. She further sought remission of any penalty on the basis that she could not afford to pay any penalty as she was not working and was separated from her husband with two infant children to support. She also said that she could not afford advice in relation to preparing her income tax returns.

46. I was not satisfied that the Commissioner's decision with respect to the imposition of penalty was incorrect and should have been made differently: s 14ZZK(b)(ii) of the TAA. My conclusion is based on the fact that Ms Bhatti was working as a senior accountant at the relevant time. She had qualifications as a certified practising accountant and was also studying taxation subjects at a Masters level. A reasonable person would expect that professionals, especially those in the accounting profession, would exercise more care in their personal taxation returns. The Commissioner's counsel also rightly pointed out that Ms Bhatti lodged her tax return for the 2013 income year in August 2013 knowing that she was lacking the supporting records because they had been lost in May 2013. A reasonable person exercising reasonable care in respect of their taxation affairs would likely have been more circumspect with their taxation affairs.

47. There is no basis for the Tribunal to exercise its discretion pursuant to s 298-20(1) in Schedule 1 to the TAA to remit any part of the penalty. There is nothing unjust or harsh about the imposition of penalties in this matter, nor do Ms Bhatti's changed personal circumstances warrant remission.

CONCLUSION

48. For the reasons set out above, I have decided that the Commissioner's objection decision in relation to the amended assessments for the years ended 30 June 2012 and 30 June 2013 is set aside and the matter is remitted to the Commissioner to issue assessments in accordance with the Tribunal's reasons. I affirm the objection decision relating to the assessment of administrative penalty.