Case T90

P Gerber SM

Administrative Appeals Tribunal

Decision date: 28 October 1986.

Dr P. Gerber (Senior Member)

In this case, the applicant is an itinerant pharmacist. Her sole involvement with the pharmacy business is as a locum tenens, that is, she deputises for other pharmacists during their absences, and, indeed, has done so for many years. Since graduating in 1967, the applicant worked first as a relieving pharmacist, she then managed a pharmacy for some 18 months, after which she worked in London and then came back to work as a pharmacist at the Mater Hospital in Brisbane.

2. Since that time - and that goes back some 10 years or so - the applicant has worked intermittently as a locum, mainly for personal reasons: initially, because of her mother's temporary incapacity, and, since then, as a matter of choice. The applicant frankly conceded that if she wanted additional work as a locum, there would be no difficulty in obtaining that kind of work.

3. Indeed, in any one year, it would seem that her income from acting as a locum rarely exceeds the taxable threshold, and, in the year now under review, which is the 1982 tax year, her income from the various appointments to pharmacies, amounted to some $4,694. The only other income from sources unconnected with her work as a locum came to $1,573.

4. In the year now under review, the applicant attended a conference in New Caledonia, which was organised by the Pharmacy Guild of Australia, Queensland Branch. Her sole purpose in travelling to New Caledonia was to attend that conference, and it was common ground that the trip contained no recreational component which would justify an apportionment of the expenditure.

5. The respondent Commissioner agreed that it was, indeed, an ``all or nothing'' case. ``All'' being $875 made up of $700 for travel and accommodation, and $175 being the registration fee. The respondent Commissioner disallowed the claimed expenditure in toto on the basis that it fell outside the so-called first limb of sec. 51 subsec. (1).

6. The second limb of that section was submitted by the Commissioner to have no application since the applicant was not engaged in business.

7. The applicant, on the other hand, submits forcefully that she was at all times self-employed, a view based largely on the fact that whenever she took charge of a pharmacy, she was left in sole charge, and not subject to any supervision. I cannot accept that argument as correct, and the respondent's submission that the applicant was at all relevant times an employee in the legal sense is, in my opinion, undoubtedly correct.

8. In so far as I once concluded in Case R46,
84 ATC 378 to the effect that a professional locum was in the business of locuming, I now accept that I was wrong.

9. Be that as it may, I adhere to what I said on that occasion to the extent that I concluded that a locum tenens engaged by a pharmacy is an employee of the business, not an independent contractor, and this is true, no matter what test one applies to determine whether or not a contract of service has been created as a matter of law.

10. This was clearly established by a long line of cases, one of the most recent being
Zuijs v. Wirth Brothers Pty. Ltd. (1955) 93 C.L.R. 561, a case which emphasised yet again that the reality of ``control'' or the ``possession of special skills'' as tests of determining whether or not a person is an employee for, say, purposes of vicarious liability or entitlement to workers' compensation, have long since been superseded by what Lord Denning once felicitously termed the ``organisation test''.

11. In short, there can be no doubt that on each occasion this applicant assumes charge of a pharmacy, she is, and remains, an employee during the duration of that agreement. This, therefore, excludes the application of the

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second limb of sec. 51. Is this necessarily fatal to the outcome of this application?

12. The Commissioner relied on a number of decisions, beginning with
Finn's case (1961) 106 C.L.R. 60 and concluding with a recent decision of Taxation Board of Review No. 2, Case T10,
86 ATC 169 a case in which that Board decided unanimously on facts indistinguishable from those presently before me to the effect that a distinction seems to have evolved between claims of employees and those engaged in a business or self-employed professionals.

13. Somewhat embarrassingly, that Board cited an observation of my own in Case S37,
85 ATC 320 in support for that contention. To the extent that Tribunals have, indeed, made such a distinction over the last decade or so, the observation is undoubtedly correct; it remains to determine whether it is soundly based in law.

14. It is a safe rule of thumb that when in doubt, one should refer back to the original source material. The fons et origo of all overseas travel cases is that of Finn; for good measure, it is also the only Full High Court pronouncement on the subject.

15. The Commissioner's representative very properly referred me to that case and sought to distinguish it. The facts are too well known to need recapitulating. In Case N24,
81 ATC 131, I took the opportunity of re-examining both the decision in Finn's case and the post-Finn position as I perceived it at that time.

16. It seems to me that the time has come to do so yet again. In the preamble to his decision in Finn, the learned Chief Justice had this to say at p. 64:

``It will be seen that the question involved in the case is of an important description. For it is indeed important that officers and employees engaged at a salary in the exercise of a skilled profession should not be in a worse position in respect of the costs of better equipping or qualifying themselves in point of knowledge and skill than are those exercising the same profession as a calling remunerated in fees paid by clients or by the members of the public who, under whatever style, enlist their services.''

His Honour goes on to say, by way of qualification:

``But as the legislation stands such cases cannot, unfortunately, be determined by any very broad proposition of law. For the issue must be whether the expenditure was incurred in gaining or producing the assessable income and, although the meaning and application of this phrase have been elucidated judicially, and perhaps may be further so elucidated, in the end the decision often will depend on the facts of the given case.''

His Honour concluded that the impugned expenditure in that case, a case like this one, involving overseas travel expenses, was, indeed, incurred in gaining or producing the assessable income after enumerating four indicia: (i) the increased knowledge made advancement more certain; (ii) the employee's motive for undertaking the trip was to secure advancement; (iii) his employer regarded the study tour of importance in at least one project in hand; (iv) the trip was undertaken whilst the appellant was in the employ of the Government, earning his salary and acting in accordance with the conditions of his service.

17. If one were to apply any of these indicia or criteria to this case, one would have to conclude that they do not apply to the applicant who, at the relevant time, was not in employment, and in no sense could it be maintained that her undertaking the study tour would in any sense lead to her advancement in her chosen lifestyle as a locum tenens.

18. It was put to the applicant by the Crown whether she saw this trip as a prerequisite to her obtaining jobs as a locum, and the applicant frankly conceded that it did not. In a strict sense, therefore, one must view the observations of the learned Chief Justice in Finn's case as, technically, obiter dicta, albeit dicta from so august a source cannot be lightly disregarded.

19. Kitto J. concurred with the decision of the Chief Justice, adding that even if the prospects of promotion were put aside, enough would remain to entitle the appellant to succeed. His Honour concluded that the appellant held an office of a kind which, by its nature, made incumbent upon the occupant much more than the performance of set duties at set times. He held that the professional status of that office implied an obligation of progressive acquaintance with a living and developing art.

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20. Windeyer J., likewise, concurred with the decision of the Chief Justice, stating at p. 70:

``Each case of this sort must depend on its own facts. The facts and considerations relevant in this case appear fully in the judgment of the Chief Justice. Generally speaking, it seems to me, a taxpayer who gains income by the exercise of his skill in some profession or calling and who incurs expenses in maintaining or increasing his learning, knowledge, experience and ability in that profession or calling necessarily incurs those expenses in carrying on his profession or calling. Whether he be paid fees by different persons seeking his skilled services from time to time, or be paid a regular salary by one person employing him to exercise his skill, matters not in my opinion. Moreover, it would surely be wrong to assume that the Crown is so indifferent to the professional attainments of those whom it employs that their rights and prospects in its service are not affected by the true measure of those attainments. That was not so in this case. Outgoings incurred for the genuine purpose of acquiring or maintaining knowledge and skill in a vocation do not become an outgoing `of a private nature' simply because the taxpayer got pleasure and satisfaction in increasing his knowledge and attainments.''

21. As I read the decision of Windeyer J., the mere fact that a taxpayer is in employment, as distinct from being self-employed, can have no bearing on the character of the expenditure if it is incurred for purposes of increasing his learning knowledge, experience, and ability in that profession or calling.

22. In the case I mentioned before, Case N24, I strove valiantly to attempt to reconcile all the exegeses which had been engrafted onto Finn in a jungle of single instance.

23. It is no disrespect to that great Judge, Mr Justice Menzies, to suggest that the first act of apostasy occurred in,
F.C. of T. v. Hatchett 71 ATC 4184; (1971) 125 C.L.R. 494 and that generations of lawyers have attempted to reconcile the irreconcilable. It is therefore not surprising that the result is confusion. The instant case is a good example.

24. Thus it was solemnly urged upon me that if this pharmacist had actually owned a chemist shop, that is, was engaged in the business of an apothecary attending refresher courses, such expense would be an allowable deduction. But because she is a mere employee, and worse, not even in regular employment, the expense of maintaining her professional competence was not incurred in gaining or producing her assessable income.

25. I shrink from being responsible for so eccentric a result. Just as nature abhors a vacuum, so, presumptively, does the Income Tax Assessment Act. Doing a simple head count and going back to Finn in the original, I am satisfied that throughout the case, certainly in the decision of Mr Justice Windeyer, and in the dictum of the Chief Justice, appears the clear pronouncement that the Act makes no distinction between those officers and employees engaged at a salary in the exercise of a skilled profession, and those who are self-employed. To the extent that single instance decisions have sought to depart from what I perceive to be a clear line of authority I do not consider myself bound to follow them in view of the fact that Finn's case is a pronouncement by the Full High Court on this matter and, given the hierarchy of our court system, one which is binding on this Tribunal.

26. The matter is clearly one of considerable importance, not just to this taxpayer, but to others similarly placed.

27. Perhaps it might have been advisable if I had reserved this decision as distinct from handing it down ex tempore. However, I see the issues so clearly that I do not believe that anything would be gained by reserving a case which I consider involves a professional person updating her skills, albeit one engaged in employment.

28. I am satisfied on the evidence that this applicant's commitment to work as a pharmacist goes beyond that of a mere hobby, and once I find that she is, indeed, engaged professionally in her chosen occupation, it is not for the Commissioner to determine the extent to which that commitment must be exercised.

29. In the result, I conclude that the expenditure of $875, being incurred in attending a refresher course in New Caledonia, was, in every relevant sense, incurred in the production of her assessable income. The decision under review is set aside. I am

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comforted in the knowledge that if I am in error. I will undoubtedly be corrected on appeal.

Claim allowed


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