Case H18

Judges: JL Burke Ch
RE O'Neill M

CF Fairleigh QC

Court:
No. 1 Board of Review

Judgment date: 9 April 1976.

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C.F. Fairleigh Q.C. (Member): In his return of income for the year ended 30 June 1973 the taxpayer, who is employed in the Australian Taxation Office, claimed a deduction as follows: -

         Education expenses

      University of N.S.W.

      Fees..............................$321

      Text books..........................77

      Typing costs (for essays)............8

      Stationery, etc.....................11

      Brief case..........................27
    

Education expenses are claimed under sec. 51 being necessarily incurred in the production of assessable income.

      Travelling expenses

      36 miles per week

      for 28 weeks plus

      108 miles for exam and

      laboratory sessions =

      1,116 miles @ 12.7c per

      mile for 4 cylinder car..........142

      Bridge tolls and train

      fare ............................ 11

      Photocopying ....................  4

      Study desk ...................... 39

      Fluorescent study lamp .......... 22

                                      ----

                                      $662

                                      ----
    

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ATC 137

2. The Commissioner adjusted the income as returned by increasing the taxable income by $262 (thus allowing only $400) and the adjustment sheet contains notations to the effect that ``self-education'' has been adjusted to the maximum allowable. The taxpayer objected thereto and the Commissioner decided to disallow the objection. The decision of the Commissioner was referred Board for review.

3. Some discussion arose during the hearing of the case whether the claim for $262 should be dealt with primarily under sec. 51(1) or under sec. 82JAA. The facts in para. 2 hereof indicate that the Commissioner allowed $400 pursuant to the exercise of a discretion under sec. 82(1). Furthermore a paragraph in the letter of objection is ``that under sec. 51 travelling expenses are also allowable and the claim does not fall for consideration under sec. 82JAA''. The allowance of $400, in any event, is almost absorbed by university fees $521 and text books $77 and such outlays are predominantly for education and so fall naturally within sec. 82JAA. The taxpayer received a reimbursement in the year in issue for some university fees but the case proceeded on the basis that this does not reduce the quantum of his claim. The objection makes no reference to depreciation (sec. 54). However the parties agreed that the study desk and study lamp should be dealt with by the Board in accordance with sec. 54 and that the brief case should be regarded as a replacement. Thus the issues are principally dependent on sec. 51(1). Quantum is in issue in respect of mileage relevant to a sec. 51(1) claim although the rate charged per mile is not challenged, nor is the amount expended on bridge tolls and train fares. Quantum is not in issue for the other items referred to in para. I hereof.

4. The most recent authoritative statement on a claim to deduct expenditure incurred in travelling from the place of employment to a college to attend lectures (an accountancy course) is that of Helsham J. in F.C. of T. v. White 75 ATC 4018. His Honour said that the solution of the problem depends upon an analysis of the decisions in F.C. of T.v. Finn (1961) 106 C.L.R. 60 and F.C. of T. v. Hatchett 71 ATC 4184; (1971) 125 C.L.R. 494. Thereupon he proceeded to make that analysis and concluded: -

``As a result of the decision in the two cases it seems to me possible to say that expenses incurred in pursuing studies associated with employment will qualify as allowable deductions under sec. 51 when it can be said that those studies are part and parcel of the employment, which means that the expenditure is incurred in the process of carrying out the employee's duties, or, even if they are not such, they can be seen to have a direct effect on income. Where that cannot be seen, I think it will be difficult to establish the necessary connection between the study activity and the employment so as to give study expenses the character of outgoings incurred in gaining or producing the income derived from the employment....it is not enough, as was said by Menzies J. in Hatchett's case, that the course of study relevant to his employment pursued by an employee should be likely to enable him the better to carry out his work and hence to obtain promotion, even if encouraged by his employer. It is not saying anything different if the situation be that without undertaking a course of study encouraged by the employer a person may not be able to improve his position in his employment....there is in my view no reason why activities of a person seeking to gain, or in gaining qualifications for the first time, may not be so closely associated with his employment as to have the necessary connection between expenditure on study and the earning of assessable income.... Where the relationship between the expenses incurred in education and the earning of income is so close as to enable expenditure properly to be called an outgoing incurred in gaining or producing the income it is difficult to see how it can be an outgoing of a private nature or how one can assess the extent to which it might be such.''

5. It is of some significance that Helsham J. in White's case set out some of the evidence of the employer commencing thus:

``Was it a condition of his employment with the firm that he undertook the accountancy course at the technical college? No, but we would have expected him to have done some studies to try and further his position with us.''

6. It can be inferred that his Honour considered and rejected the word ``condition'' when he composed the passage which contains

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ATC 138

the phrase ``part and parcel of the employment''. Doubtless that phrase serves to add a mark of emphasis, as do other idiomatic expressions such as ``lock, stock and barrel'' and ``bag and baggage''. There are articles in journals ( Australian Tax Review June 1975 Vol. 4 p. 122; The Chartered Accountant in Australia 1975 Vol. 45 p. 17) in which the phrase as used by his Honour is taken to mean ``condition''. I would regard ``condition'' in a context such as presently arises as meaning no more than a term express or implied (cf.
E.M.I. (Australia) Ltd. v. F.C. of T. 71 ATC 4112 at p. 4118) . See also the sense in which ``condition'' is used by Dixon C.J. in Finn's case at p. 67: -

``In the fourth place it was all done while he was in the employment of the Government earning his salary and acting in accordance with the conditions of his service. He was in fact complying with the desires, and so far as going to South America was concerned with the actual request of the Government. His journey abroad and what he did while in Europe, as well as in South America in the following year of income, was therefore in a correct sense incidental to his employment and most relevant to it.''

Perhaps it does not advance the argument by introducing another word but I am inclined to think that a requirement of the employer that a course of study be undertaken whether express or as an implied term (in the usual meaning of not being distinctly stated but reasonably to be understood) is sufficient to meet the test which Helsham J. has expounded.

7. Helsham J. has indicated in White's case that the employee is entitled under sec. 51(1) to a deduction for travelling expenses from his place of employment to the college at which he attends lectures and for other expenses incurred in pursuing studies associated with employment (whether it be a first or higher qualification) where it is shown that -

• (i) the expenditure is incurred in the process of carrying out the employee's duties; or
• (ii) the studies can be seen to have a direct effect on income; or as a more general proposition.
• (iii) where the connexion between the study activity and the employment is such as to give study expenses the character of outgoings incurred in gaining or producing the income derived from the employment.

His Honour has held that it is not enough to prove that -

• (a) without undertaking a course of study encouraged by his employer a person may not be able to improve his position in his employment; or
• (b) the course of study pursued by an employee and relevant to his employment is likely to enable him the better to carry out his work and hence to obtain promotion, even if encouraged by his employer, or, in other words, that without undertaking a course of study encouraged by the employer a person may not be able to improve his position in his employment.

8. The clearest cases falling within (i) are those of the trade apprentice and the solicitor's articled clerk. Each is indentured to pursue a course of study which is part of the process of carrying out the work which generates his income. There is in those two instances of employment plus studies an inevitability of connexion which is absent in, say, the case of a clerk (without articles) who works in a solicitor's office and studies law. White's case makes it necessary to say that even though a ``connexion'' can be seen when a clerk in an accountant's office chooses to study accountancy subjects that fact of itself does not entitle the clerk to a deduction under sec. 51(1) for expenditure arising from the pursuit of those studies. The proposition in (iii) - which includes the particular instance in (ii) - cannot be so readily exemplified although the limited nature of the employer's evidence in White's case is a pointer to what Helsham J. has decided is essential under (ii) and (iii) and, more particularly, the claim for a deduction will fail if the evidence amounts to no more than is set out in (a) and (b). The head of claim (i) is not an entirely separate matter from the general proposition (iii) and in my appreciation of the reasoning of Helsham J. there is some overlapping in the statement of these grounds.

9. The Commissioner conducts a school for theory and practice in which junior officers are trained so that they may be competent to undertake the work of making assessments of income tax. There is a course of some ten days' training. The officer must pass an examination on theory before he can gain entry to the practical school and this is also dependent on availability of position in the practical school. Completion of the course at the school is

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ATC 139

followed by an examination concerned largely with the resolution of practical problems. Success in that examination does not mean that the officer has been selected for permanent entry into the assessing branch and he is first placed on probation or in an ``acting'' position and then, of course, only if there is a vacancy. From November 1971 to August 1975, 620 persons were selected from many applicants to undergo the course of practical and theoretical training in the school. Everyone selected was, at the time of selection, engaged in a standard accountancy or law course or the like with two exceptions: one person selected in mid 1973 had completed three stages of his Commerce Diploma Course but had suspended his studies temporarily due to domestic reasons and shortly afterwards recommenced and completed that course in 1974; the other person selected in February 1974 (i.e., immediately before the commencement of the academic year) was recognized by the Department as having outstanding potential and though not actively engaged in studies in February 1974 commenced studying for the Commerce Diploma immediately afterwards. Of the 620 selected as aforesaid, the ``rejects'' from late 1971 to August 1975 were 86 in respect of theory and 42 in respect of practical matters. Training in this school is essential for those employees who seek the promotion associated with doing even the less complicated types of assessments. The personnel officer's notice inviting applications for this school uses the subjunctive mood, i.e., ``applicants should be currently undertaking a course...'', however it appears to be generally understood to be stating an absolute prerequisite.

10. The determinations of the delegate of the Public Service Board (sec. 53 of the Public Service Act 1922 as amended) on various dates (e.g., 19 November 1968 and 29 June 1971) were -

``that an officer shall not be transferred or promoted to an office specified (in a schedule) unless the officer possesses such qualifications and complies with such conditions as are specified (in a schedule).''

The schedule refers in the left hand column to several positions; those of present significance for the first four numbered paragraphs being Assessor Grade 5, 6 and for the last four numbered paragraphs Assessor Grade 4. The right hand column of the schedule is as follows: -

``1. He has completed a course of training in accountancy being a course recognised by the Board as a course appropriate for the efficient discharge of the duties of the office; or

2. He has passed in such subjects of a course in accountancy or law at a recognised educational institution as are, in the opinion of the Board, appropriate for the efficient discharge of the duties of the office; or

3. He has other qualifications which, in the opinion of the Board, are appropriate for the efficient discharge of the duties of the office; or

4. On (a specified date), or at any previous time, he was the occupant of, or had performed the duties of, an office in the Taxation Branch, Department of the Treasury, being:

• (i) an office specified in the first column of this Schedule; or
• (ii) one of the undermentioned offices -
  • Assessor, Grade 4
  • Indoor Examiner
  • Investigation Officer, Grade 2; or
• (iii) an office the previous designation of which was varied to a designation referred to in (i) or (ii) above.''

``1. He has completed a course of training in accountancy being a course appropriate for the Board as a course appropriate for the efficient discharge of the duties of the office; or

2. He has passed in such subjects of a course in accountancy or law at a recognised educational institution as are, in the opinion of the Board, appropriate for the efficient discharge of the duties of the office; or

3. He has other qualifications which, in the opinion of the Board, are appropriate for the efficient discharge of the duties of the office; or

4. On (a specified date), or at any previous time, he was the occupant of, or had performed the duties of, one of the offices in the Commonwealth Taxation Office, Department of the Treasury specified in the first column, or an office the previous

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ATC 140

designation of which was varied to one of those designations.''

11. It is apparent from a joint statement by the Commissioner and the Public Service Board and bearing date 1 December 1971 that the primary qualification envisaged is one of accountancy and that those who wish to study law rather than accountancy can do so without their promotional prospects being adversely affected. The taxpayer's course of study had been approved by the Department. These determinations do ``no more than determine the qualifications an officer must possess in order to be eligible for promotion to certain positions. The ultimate choice between eligible officers is made on the basis of relative efficiency and where an officer possesses full accountancy or legal qualifications this is naturally given considerable weight in the selection process''. Thereupon the joint statement sets out the Commissioner's conclusion as to ``the more natural and appropriate level at which to insist on academic qualifications as a prerequisite for promotion''. To some extent that is reproduced in the schedule (para. 10 hereof). It is emphasized in material (joint statements of the Commissioner and the Public Service Board and Department circulars) that there is a ``Barrier for Transfer or Promotion to Positions in the Technical Areas''. From time to time the barrier has been set at a certain level determined in the light of experience and the best interests of both the administration and the staff having regard to the degree of complexity in the type of returns to be assessed and the investigation work to be undertaken and similar matters. For example there is in evidence one of those circulars bearing date 8 February 1971 from the Personnel Officer and it is as follows: -

``In an office circular dated 6 January 1971, reference was made to the suspension of the barrier prescriptions for advancement of unqualified officers to positions of Assessor, Grade 4, Indoor Examiner, or Investigation Officer, Grade 2 until 1 July 1971.

A determination under sec. 53 of the Public Service Act 1922-1968 concerning this matter has now been promulgated in Gazette No. 8 of January 1971 and states as follows: -

Designation of Office                 Qualifications and Conditions



Assessor, Grade 4            *1. *He has completed a course of training in

Indoor Examiner                   accountancy being a course recognised by

Investigation Officer             the Board as a course appropriate for the

Grade 2; or                       efficient discharge of the duties of the

                                  office; or



                               2. He has passed in such subjects of a

                                  course in accountancy or law at a

                                  recognised educational institution as are

                                  in the opinion of the Board, appropriate

                                  for the efficient discharge of the duties

                                  of the office; or



                              3.  He has other qualifications which, in the

                                  opinion of the Board, are appropriate for

                                  the efficient discharge of the duties of

                                  the office; or



                              4.  He has been, on the thirtieth day of June

                                  1971, or at any previous time, the

                                  nominal occupant of one of the offices in

                                  the Commonwealth Taxation Office,

                                  Department of the Treasury, specified in

                                  the first column, of this determination.



                                  *   This determination will have effect on

                                      and from 1 July 1971.''
          

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ATC 141

12. In December 1971 the position of Assessor Grade 4 was omitted from the list of positions to which the sec. 53 determination applies for reasons such as the raising of entry standards for academic courses, the minimum period for completion of such courses and the need for the not academically qualified employee to be eligible for promotion based on efficiency. Nonetheless stress was placed on the importance of academic training for the position not only of Assessor Grade 4 but also Assessor Grade 3.

13. The evidence is sufficient in my opinion to lead to the conclusion that the taxpayer has established his claim under the heads set out from the judgment of Helsham J. in White's case (para. 7 hereof). As mentioned in para. 8 hereof I find some common area in grounds (i), (ii) and (iii) (para. 7 hereof). I conclude that the evidence as set out herein entitles the taxpayer to succeed on all three grounds. As there is nothing in the other evidence which detracts from the conclusion which I have reached I do no more than draw attention to some aspects of it.

14. I regard it as of no consequence that the accountancy studies in a particular year have little if anything to do with the work being carried out by the taxpayer in the assessing section of the Department during that year, or for that matter in the immediately ensuing years. The subjects to be taken, even where options are permissible, are set by the Institute, the University, or other such authority without regard to the particular work being carried our by public servant. One might hazard a guess that the theory of any trade subject is well ahead of the practical work being carried out daily by an apprentice and that theory surpasses the limited activities of any employer. An articled clerk who pursues the set course will most likely receive tuition in many aspects of law which do not fall within the general work carried out by his master and it would be impracticable to suggest that there should be any coincidence between the studies he pursues in a certain year and the work which he is then, or at any future time, expected to carry out for his employer. Doubtless some articled clerks are carrying out practical work long before they have received any or any adequate schooling in the theory. An extreme case is that the universities have never reached a uniform decision whether Jurisprudence should be taught as one of the first subjects for the primary degree or as one of the last, or perhaps as a post graduate study. Thus I do not consider the ``duty statement'' as having any real importance on the issue.

15. I regard success or failure in a particular year of study as being of peripheral relevance. In some special instances, a lassitude in pursuing studies or high failure rate may be material evidence on the question in issue as in Hatchett's case (supra) . There is nothing in the present case which makes it necessary to consider such matters. This appears to me to be so on general principle and also because if the assessment is issued expeditiously after the close of the financial year (as usually occurs for employees' assessment) the result of the current academic year will not be known when the assessment has to be made; if there has been a failure in a preceding academic year or a recommencement of studies in a current academic year after a lapse of some years, either fact in itself would not necessarily displace the weight of other evidence which I regard as establishing the claim for a deduction.

16. Whether the employer reimburses the employee for any part of his outlay is not a matter within the tests laid down by Helsham J. and so is not determinative of the issue although it is not entirely without materiality.

17. Since leaving school late in 1969 the taxpayer has been employed in the office of the Deputy Commissioner of Taxation, Sydney. As is customary he commenced with comparatively junior grade clerical work. In 1971 he entered upon the course for the degree of Bachelor of Commerce at the University of New South Wales (Kensington, Sydney). A dominating reason for doing so was that he would thereby be one of those to be considered by the Taxation Department for acceptance in the school which it conducts to train employees in theory and practice so that they may be competent to undertake the work of making assessments of income tax. He completed the Department course successfully and ``moved into assessing grade 1 on 16 December 1971''. His advancement took place in the course of time so that he was undertaking the work of an acting assessor in matters of increasing complexity from the practical point of view and was required to have an ever widening knowledge of accountancy and taxation matters. He also occupied other positions which did not require the same expertise as the work of assessments. Obviously there would

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ATC 142

still be many matters beyond the competence of one of his age and experience. The main drive of his activities was assessment work. At the time of the hearing of the reference he had not completed his Commerce course and he had not reached the level in the Department where there was a barrier to promotion as arises from the aforesaid determinations of the delegate of the Public Service Board (sec.53 of the Public Service Act 1922 as amended).

18. During the year in issue the taxpayer lived eight miles from the head office of the Taxation Department, Sydney, in a southerly direction. His home was five miles from the University of New South Wales. For some part of the year he worked in the Department's office on the North Shore and this explains the claim for outlays for bridge tolls. It is a matter of common knowledge that these tolls are collected only from those car drivers who travel across the bridge from north to south as the taxpayer would do in proceeding to the university. Usually he travelled to work by train as his home was close to the railway station. The only occasions during the week when he used his car for travelling to work were when he had to proceed after work (on two days a week for 28 weeks) to lectures at the university and a few additional days for laboratory sessions and examinations which were undertaken by him in the afternoon after attending for work in the morning. On these occasions it was customary for him (when working at head office) to leave his car near Redfern station. He travelled then by train from Redfern station to work and returned by train to that point at the end of the day's work. Then he proceeded to the university by his car. When working at the North Shore office and attending the university he drove his car across the Harbour Bridge and parked it in the area set aside for that purpose. The particulars of the claim for car mileage are as follows: -

         Lectures



      (i)    Home to city in

             morning                                   8 miles

      (ii)   City to university at

             end of day's work                         5   
"


      (iii)  University to home at

             end of lecture                            5   
"


                                                      --

                                                      18 miles

      18 miles twice a week for

      28 weeks =                                   1,008 miles



      Laboratory and examination sessions

      18 miles as above on six

      occasions                                      108   
"


                                                   -----

                                             Total 1,116 miles

                                                   -----
      

19. In my opinion the choice made by this employee to travel by his own car to the city on those days when at the end of his day's work he proposed attending the university for lectures does not enable him to escape the consequences of
Lunney and Hayley v. F.C. of T. (1957-1958) 100 C.L.R. 478 ; 11 A.T.D.404 . A consequence of the finding that the studies are ``part and parcel'' of the employment is that expenditure on any journey from his home to the university, if claimed, would be proscribed by Lunney's case . The exceptional circumstances of a ``base'' as discussed in Case G66,
75 ATC 486 at pp. 496-498 have no present application. It would not be of advantage to the taxpayer to regard the studies as a second job because Lunney's case applies where there are two separate employments as well as where the person for various reasons, perhaps overtime or midday meals, returns to his home in the course of the day's work.

20. I would rule that the taxpayer is not entitled to a deduction in respect of the outlay in travelling the eight miles from his home to the city (para. 18(i) hereof). The expenditure arising from the journey (para. 18(ii) hereof) from the city to the university at the end of the day's work is outside the principle of Lunney's case and so this claim is sustainable under sec. 51(1). Broadly speaking (and without overlooking the fundamental differences in the United Kingdom legislation) the principle applicable is similar to that set out in Taylor v. Provan (1975) A.C. 194 where the contract of employment contemplated that the appellant would have two places of work and so the claim is in respect of travelling in the course of the work. The taxpayer's claim as in para. 18(iii) hereof is not sustainable because that journey is essentially the return journey after the forward journey from his residence to the city to do his day's work. Lunney's case (supra) rules out the allowance for either journey. If there had been an increase in the distance travelled on the homeward bound journey because of the situation of the university in relation to the office where the day's work was done then I would regard the taxpayer as entitled to a deduction in respect thereof on the same principle as the allowance for the claim as in para. 18(ii) hereof. In these circumstances

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ATC 143

the mileage for which a deduction is allowable is lectures (5 x 2 x 28 = 280) and laboratory and examination sessions (5 x 6 = 30) 310 miles at 12.7 cents per mile, i.e., $39. The evidence also supports a claim for bridge tolls which I understand amount to $6. On some occasions the journey from the Taxation Office to the university was by train to Redfern and thence by car to the university (i.e., whilst he worked at head office). Although this is allowable under para. 18(ii) hereof it is impossible to quantify fares on the evidence as a monetary sum. Furthermore the car allowance at a constant five miles per journey may perhaps be overstating the road mileage from Redfern to the university if the road mileage from the North Shore office to the university is five miles.

21. The principle having been thus established in my view of the matter the taxpayer is entitled to deductions for all the other outstanding items in the appropriate way in the light of the concessions made by the Commissioner and set forth in para. 3 hereof. I would allow the objection to that extent and amend the assessment accordingly.

Claims allowed in part