Case R24

Judges: HP Stevens Ch

BR Pape M
TJ McCarthy M

Court:
No. 1 Board of Review

Judgment date: 15 March 1984.

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B.R. Pape (Member)

In these references the taxpayer was at all material times employed with a company limited by guarantee which carried on the business of providing public entertainment through the performance of opera. It was alleged by the taxpayer in his objections against the assessments of income for the years ended 30 June 1978, 1979 and 1980 that the following items of expenditure were allowable deductions under sec. 51(1) of the Act:

                             1978             1979         1980

                           $       $       $         $       $         $

Taxable income per return        9,694            12,520            11,957

Add Items in Dispute

Motor vehicle expenses    334                               628

Parking fees               80                               332

Subscriptions 
&
 tickets   564                               450

Records                   101                                36

Florist                    90                                 -

Entertainment             247                                 -

Overseas travel         2,046                             1,536

Clothing expenses         -                62                 -

Dry cleaning expenses     -      3,462     30          92     -      2,982

                        ------  ------     --     -------  ------   -------

Taxable income per

  assessments                  $13,156            $12,612          $14,939

                                ------            -------          -------
    

The taxpayer's representative did not press the claim made by the objection against the 1979 assessment. Later, it was further conceded that the claim in respect of the subscriptions and tickets and records for the 1978 year should be reduced by one-half. It being conceded that one-half was of a private nature.

2. The taxpayer commenced employment with the company as from 28 March 1977. His commencing salary was $12,000 plus $2,500 per annum car and entertainment allowance. He was employed as the associate director of publicity and was to work with the marketing director of the company. It appears from the taxpayer's evidence that both of these persons were responsible for the sales of the company. However, the taxpayer was responsible for the actual running of the box office and the handling of the ``talent''. He said it was a matter of maintaining personal relationships with as many of the media representatives in each city in which the company was performing. The evidence establishes that the expenditure which was required to be met in the course of performing the taxpayer's duties was invariably reimbursed to the taxpayer.

3. The taxpayer's returns of income show that this car and entertainment allowance was described as an ``internal tour allowance'' $2,650 (1978), of which a corresponding amount was claimed as a deduction (tour allowance fully expended). In the 1980 year it was described as ``Travel and Entertainment'' $2,600. Insofar as the 1978 year of income is concerned it was not contested by the Commissioner that this amount had not been fully expended. For the 1980 year of income, the Commissioner disputes the amount in excess

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of the allowance. This amount appears to have been computed as follows:

                                   $         $

      Allowance received                   2,600

         Less Motor Vehicle

         Expenditure

         (70% claimed)

         including depreciation

         and repairs             2,668

         Entertainment             560     3,228

                                 -----     -----

      Amounted disputed                     $628

                                           -----
      

4. By a letter dated 21 February 1979 the company wrote to its administrative staff who were permanent employees outlining the terms and conditions on which the employee was employed and setting down each employee's responsibilities. Paragraphs 2 and 3 of this letter were as follows:

``I therefore now write to confirm that the company employs you as public relations officer with the following duties. You are responsible to the commercial manager for all front of house arrangements in Sydney (excluding on-stage announcements); ticketing in Sydney and supervision of (staff member) in conjunction with another staff member, and other staff members. You are responsible for liaison for press and media in conjunction with (staff member); relations with subscribers (ticket problems, special priority arrangements, and seat allocations) and liaison with the box office for all ticket matters.

You receive a salary of $16,500 together with air fares and the appropriate current rate for subsistence if and when you are required to work away from Sydney. Alterations to these subsistence rates will be promulgated from time to time. Termination of your employment will be subject to three months notice on either side to be given in writing by you to the company's office or by the company to your home address. Your salary will be increased at regular intervals when variations are determined by the Arbitration Commission.''

5. I will now deal with each of the items of expenditure set out in para. 1.

(a) Motor Vehicle Expenses:

During the 1978 year of income the taxpayer claimed that he needed his car to perform part of his duties. He testified that on occasions he took various artists, who were currently performing on behalf of the company, to radio and television interviews and other interviews with the media using his own vehicle. In some instances he was reimbursed for this expenditure and in others he was not. The claim of $334 in respect of the 1978 year was 50% of the expenditure incurred. He was unable to specify the mileage travelled by the vehicle during the relevant years nor was he able to specify with any accuracy as to the percentage used for his private activities. It would appear that his private activities would have been substantial bearing in mind that he lived some 65 miles from Sydney and travelled to Sydney on the average of four days per week. I would find that the expenditure claimed was in some part reimbursed by the company for which the taxpayer was unable to specify an amount. Moreover, I am not satisfied on the balance of probabilities that 50% was private expenditure in 1978 nor 30% in 1980. I might add that the claim for depreciation was not covered by the respective notices of objection.

(b) Parking Fees:

These fees were allegedly incurred in parking the taxpayer's vehicle when he travelled to Sydney so that he would have it available close by, if required to take visiting artists and performers to interviews. I would disallow this claim as this was expenditure by the taxpayer which had the ``essential character'' of being incurred in getting to work rather than in doing work; see
Lunney's case (1958) 11 A.T.D. 404 ; (1958) 100 C.L.R. 478 .

(c) Subscription and Tickets:

The taxpayer testified that the expenditure incurred in subscribing to the company's performances and in attending various concerts was essential for him to keep abreast of the activities in the industry. For example, the company abandoned its previous policy of offering complimentary tickets to either its staff or the general public and therefore it was said it was necessary for staff members to pay for their own tickets. The evidence on this aspect of the taxpayer's objection is inadequate and I am unable to be satisfied that the expenditure was incurred in the course of gaining his salary. If anything, the evidence establishes that the expenditure was of a private nature.

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(d) Records:

This expenditure was incurred in purchasing gramophone records of the various performances which the company was planning to perform. Assuming for the moment that the expenditure was incurred for the purpose of producing assessable income it would in my view still not satisfy the requirements of deductibility under sec. 51(1) because it was capital expenditure.

(f) Entertainment:

I find that it was expected of the taxpayer during the course of his employment to entertain various people associated with his activities of publicising the company's business. He received an allowance from the company to assist in meeting this expenditure. However the difficulty with this claim is that he was unable to produce any evidence to support the amount spent.

(g) Overseas Travelling Expenditure:

(i) 1978: The taxpayer travelled overseas during his annual vacation and was away from Australia from Friday 5 May to Saturday 3 June. The company made a contribution of $300 to the taxpayer for the purpose of financing him to attend two theatre performances which were prices at $152 per seat. Neither this money was returned as assessable income nor a deduction sought for such expenditure. The taxpayer sought to have the trip financed at the company's expense, but this application was rejected. Whilst the taxpayer did visit theatres and met people during his trip to Athens, Rome, Venice, Munich, Paris, Toronto and New York which were related to his work activities, the evidence does not establish in my view that the expenditure was incurred as part of his contract of employment with the company. The evidence in my view shows that the company rejected any expenditure which might arise from it. Clearly the expenditure was of a private nature. What advantage did the taxpayer seek by incurring this expenditure? The advantage I think is found in the reason as to why the taxpayer became associated with the company in the first instance. That was to learn its business and to develop contacts in the industry both in Australia and, if possible, on a world wide basis so that eventually he would be able to establish his own business. At the time of the hearing this had in fact been done as he was the shareholder and director of two companies engaged in promoting show business people.

(ii) In the 1980 year of income the taxpayer claimed overseas travelling expenditure of $2,536 of which $1,000 was reimbursed to the taxpayer by the company. The expenditure claimed is represented by the following items:

                                             $

      Return air fare                      1,042

      Travellers cheques (re

        accommodation and travel,

        meals, business entertainment)     1,494

                                           -----

                                           2,536

         Less Amount reimbursed by

        employer                           1,000

                                          ------

      Amount claimed                      $1,536

                                          ------
      

On one view it could be said the company was prepared to finance the return air fare but was not prepared to finance the accommodation, travel, meals and business entertainment. The trip appears to have been from 12 October 1979 to 3 November 1979 to two large cities in the United States. The evidence does not establish whether or not the taxpayer was paid by his employer during the course of this trip but on the basis that the employer contributed $1,000 towards the trip it would seem that this may be so. The difficulty with the taxpayer's claim is not so much whether it satisfies in principle the first limb of sec. 51(1), but whether sufficient evidence has been adduced to establish that this money was in fact spent. I accept that travellers cheques were purchased for an amount of $1,493.81 and I am prepared to find that this money was spent for the stated purpose. I would allow this claim of $1,536 spent on accommodation, travel, meals and business entertainment in the United States.

6. Accordingly for the above reasons I would -

• (a) uphold the Commissioner's decisions in respect of the objections against the 1978 and 1979 assessments and confirm the assessments.
• (b) reverse the Commissioner's decision in respect of the objection against the 1980 assessment and amend and reduced amended assessment by further reducing the taxable income by $1,536.

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