Case J35

Members:
AM Donovan Ch
RK Todd M

Tribunal:
No. 2 Board of Review

Decision date: 23 June 1977.

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A.M. Donovan (Chairman) and R.K. Todd (Member): In addition to occupying a full time salaried position, the taxpayer conducts a farm on which sheep and cattle are depastured and on which he keeps pigs intensively housed. He submitted his returns for the years ended 30th June, 1974 and 1975, on the basis that 90% of the use to which two motor vehicles

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were put was for business purposes, in consequence of which that proportion of the relevant running expenses and depreciation was claimed to be deductible. The Commissioner allowed 20% only of the operating expenses claimed in the first year and the like proportion of those expenses and depreciation in the subsequent period. The quantum of these items properly deductible is the only question for the Board's decision.

2. On the farm is the house which the taxpayer occupied. To conduct the farm it was necessary for him to live there, or at least nearby, in order to deal with the crises that arose from time to time, to afford protection to stock and plant and, in particular, to give to the pigs the attention which they constantly required. This work made such substantial demands on the taxpayer's time that he was absent overnight only on two occasions during the period with which we are concerned.

3. Throughout this period the taxpayer worked for the same employer, but a change occurred in the place where he performed his duties. The places were several miles apart but, by coincidence, both were the same distance from his farm. One or other of the two vehicles was used by the taxpayer to travel between the farm and his place of employment, and it is the costs applicable to these journeys over which the taxpayer and the Commissioner are in dispute.

4. The deductibility of the costs of travel between home and a place of employment or business was considered in
Lunney v. F.C. of T. (1958) 11 A.T.D. 404 where at p. 405 Dixon C.J. said the issue was:

``... whether the fares paid by ordinary people to enable them to go day by day to their regular place of employment or business and back to their homes are deductible expenses allowable against the assessable income earned by the employment or business.''

It was held by majority that the costs were not deductible. The taxpayer recognised the effect of this decision but sought to distinguish his position from that under consideration by the Court in a number of ways.

5. Referring to the above quoted passage, the taxpayer said that he was not an ``ordinary'' person in that, inter alia, for the reasons mentioned, he was required to live on the farm, that the piggery was by law required to be located away from buildings and roads and that his life away from his city job was subordinated to his work on the farm. None of these matters applied to the appellants in Lunney's case, but they do not in any way affect the application of that case to the taxpayer if the travel undertaken by him is to be seen as being really that between home and the place where the tasks of his salaried position were performed.

6. Relying on considerations very much of the same kind, the taxpayer said that in his case there was really no element of choice as to where he lived. In so saying, no doubt he had in mind the explanation that Denning L.J. gave in
Newsom v. Robertson (1953) 1 Ch. 7, of how in earlier days when most people lived where they worked a decision to live elsewhere was regarded as giving to the cost of travel between the two places a non-deductible character. Nevertheless, the decision in Lunney's case did not turn on this point and the absence of choice as to the location of one's home does not provide a basis for distinguishing that decision.

7. We understood the taxpayer to suggest also that since it was necessary for him to live on the farm for the reasons mentioned, the cost of travelling to and from work had in any event a deductible character. This element of necessity was adverted to by Williams, Kitto and Taylor JJ. in Lunney's case (supra) at p. 412-3, where they said:

``The question whether the fares which were paid by the appellants are deductible under sec. 51 should not and, indeed, cannot be solved simply by a process of reasoning which asserts that because expenditure on fares from a taxpayer's residence to his place of employment or place of business is necessary if assessable income is to be derived, such expenditure must be regarded as `incidental and relevant' to the derivation of such income. No doubt both of the propositions involved in this contention may, in a limited sense, be conceded but it by no means follows that, in the words of the section, such expenditure is `incurred in gaining or producing the assessable income' or `necessarily incurred in carrying on a business for the purpose of gaining or producing such income'. It is, of course,

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beyond question that unless an employee attends at his place of employment he will not derive assessable income and, in one sense, he makes the journey to his place of employment in order that he may earn his income. But to say that expenditure on fares is a prerequisite to the earning of a taxpayer's income is not to say that such expenditure is incurred in or in the course of gaining or producing his income.''

Their Honours in the clearest possible terms reject any suggestion that, merely because the expenses in question had to be incurred if the taxpayer's income from his job was to be derived, they were on that account deductible.

8. If that decision was not to be distinguished for the reasons mentioned, the taxpayer argued against its application to his circumstances on entirely different grounds. Fundamentally what was submitted depended on the view that the cost of travelling between two businesses or two places where income producing activities are conducted is deductible. It was said firstly that the house on the farm which the taxpayer occupied was in fact a place of business because stock medicine and veterinary products for use on the farm and books and records relating to it were kept there. In fact, the house, or at least some part of it, was where the taxpayer himself lived and where his wife and children lived. He and they resided nowhere else. Quite simply, the house was his home and it cannot otherwise be characterised. Nor did it lose that character because it had to be located on the farm for the purposes abovementioned. That it was necessary for the taxpayer to live there is accepted, but that that necessity changed the home into a place of business is insupportable.

9. Next it was said that in fact when the taxpayer arose in the morning he went from the house to feed and care for the pigs. When that work was finished, he proceeded directly and without returning to the house to his job in the city. On returning in the evening he attended first to the pigs and only when this task had been attended to did he go to the house. The taxpayer submitted with some persuasiveness that in fact his travelling was for this reason between a place of business and a place of employment, that in consequence it was not of the type referred to in Lunney's case and that the relevant costs were deductible. The fact that the taxpayer worked on his farm immediately prior to setting out on his journey to work and immediately after returning therefrom does not, in our view, alter the character of the journeys. They were in a very real sense journeys between his home and his place of salaried employment, and on the authority of Lunney's case the relevant costs of operating the vehicles are not deductible.

10. For the reasons abovementioned, we take the view that when the taxpayer used either of the vehicles for the purpose simply of transporting himself from the farm to his place of employment (and this use amounted to 50% of the total mileage travelled each year), the relevant costs do not satisfy sec. 51 of the Act and are not deductible.

11. On some occasions when travelling to and from work the taxpayer carried in the vehicle ``large farm items or stock''. We understood this description to embrace items such as fodder, bales of wool and livestock. 20% of the total mileage of the vehicles related to use of this kind. It is perhaps true to say that on these occasions the vehicle served a dual purpose, one associated with the farming activities, the other related to the private purpose of getting the taxpayer to and from work. The proper approach may well be to resort to apportionment of the relevant expenses since one satisfies and one fails to satisfy the requirements of sec. 51. In all the circumstances, however, with some hesitation we have taken the view that the business character of these trips was so considerable and the private nature so incidental that the relevant costs are wholly deductible.

12. There were other occasions, comparatively few in number, when on the trip between the farm and his place of employment the taxpayer carried ``small farm item''. The exact nature of these items was not explained, but ``a pound of nails'' was given as a representative example. We are quite unable to conclude that because of this circumstance the character of these trips was altered from what it otherwise bore, and we find that the relevant cost is not deductible.

13. It was conceded by the parties that 15% of the total use of the vehicles was undeniably for business purposes and 10% for private purposes. The relevant proportions of the expenses are therefore deductible and not deductible respectively.

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14. For the reasons mentioned, we conclude that 35% of the use of the vehicles in each of the years was for purposes which qualify that proportion of the relevant expenses in the first year and that proportion of the expenses and depreciation in the later year as deductible. As mentioned earlier, 20% of the total disputed items has already been allowed by the Commissioner. The taxpayer is therefore entitled to further deductions of $97 and $119 in relation to the operation of his motor vehicles.

15. In reaching this decision, we have not thought it necessary to deal separately with the question of depreciation of the vehicles in the 1975 year. They were used only partly for the purpose of producing assessable income, and by reason of sec. 61 of the Act only a part of the depreciation otherwise allowable may be deducted. That proportion is the same as the proportion of running expenses allowable under sec. 51. It was conceded by the Commissioner's representative that a part of the taxpayer's objections directed against an entirely different aspect of the assessments should be allowed. As the result of this concession, he is entitled to a further deduction of $170 in each year.

16. The assessments should be amended accordingly.

Claims allowed in part