Re: Applicant and Commissioner of Taxation

Unreported 3 February 1995 AAT

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(Decision by: Mr K L Beddoe (Senior Member))

Applicant
And: COMMISSIONER OF TAXATION, Respondent; QT94/45; Re: 9989

Tribunal:

Member:
Mr K L Beddoe (Senior Member)

Decision date: 3 February 1995

Brisbane

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Decision by:
Mr K L Beddoe (Senior Member)

REASONS FOR DECISION

By notice dated 1 December 1993 the applicant had objected against an assessment of income tax made by the respondent in relation to the year of income ended 30 June 1993 . The respondent disallowed the objection and notified that disallowance by notifying an objection decision on 7 January 1994 . That resulted in an application for review to this Tribunal which was lodged in the Tribunal on 7 March 1994 .

2. The issue raised by the notice of objection is whether an amount of $1,458 said to have been spent by the applicant in relation to 18 visits to a therapist named Paul Gibney of Ballow Chambers, Wickham Terrace, Brisbane, is an allowable deduction within the terms of section 51 of the Income Tax Assessment Act 1936 ("the Act"). So far as is relevant subsection 51(1) provides a deduction for losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income, except to the extent to which those losses or outgoings are of capital or of a capital, private or domestic nature.

3. At the hearing of the matter the applicant was represented by her accountant and Ms C Holmes, instructed by the Australian Government Solicitor, appeared for the respondent. The documents filed in the Tribunal pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 were put into evidence before the Tribunal as the T documents. Certain other documents were also marked as Exhibits 1, 2 and 3. Oral evidence was given by the applicant.

4. Document T2 is the notice of objection lodged in the Australian Taxation Office. It is relevant to set out the notice in full as to its text as follows:

"We hereby object to the above assessment because the Commissioner has not considered the deductibility of expenses incurred during the year ended 30 June 1993 . These expenses; which are described as consultation fees, are, we believe, deductible pursuant to S51(1) of the Income Tax Agents Association (as amended) (sic).

The facts in this case are as follow. Our client is the headmistress of a State Primary School. Her duties are particularly onerous and she is the only female Headmistress in her region.

She is a professional educator and had attained Head of School status before age 35.

During 1992/93, [the applicant] found herself in a number of very stressful situations. By March 1993, she was doubting her own abilities to do her job. She needed help and sought it.

The Department of Education provides a counselling service for this type of situation but many choose to go to private agencies for a variety of reasons and this is totally acceptable to the Department. They even publish a list of some of these agencies.

My client used the services of a therapist named Paul Gibney of Ballow Chambers 121 Wickham Terrace Brisbane.

The total cost involved was 18 visits at $81.00 each ie $1458.00. Receipts and full documentation are available.

In March, [the applicant] applied for stress leave via Workers Compensation. Her case was examined and leave was granted . . .

The stress was clearly job related and recognized as such by the Workers Compensation Board.

We submit that the consultation fees are also work related, recognized and accepted by her employer (we have departmental evidence to support this) and are therefore fully deductible against her 1993 income.

Would you please consider this matter further.

If you have not made contact with us within sixty (60) days, we will formally request a reference to the Administrative Appeals Tribunal."

5. Exhibit 1 is a poor photocopy of a statement provided by the applicant in relation to a claim for workers' compensation. It is a handwritten document written by the applicant in which she sets out in considerable detail her duties as a school principal and also a number of incidents which arose at her school which had a distressing effect upon her including an unprecedented attack of asthma. The statement includes details of visits to a psychiatrist, a general practitioner, Dr Gibney, two psychologists, a chiropractor, and a chiropractor/naturopath. All of these visits are within the period 3 March 1993 to 21 June 1993 . The applicant describes the treatment as involving counselling, acupuncture, chiropractic manipulation and massage, dietary advice and use of asthma sprays when required. She also describes having attended various lectures and workshops dealing with stress, time management, assertion skills, communication skills, resolving conflicts and managing personal anger, and also improving interpersonal skills. It was not suggested in the statement, nor has it been suggested to me, that any of these skills courses were involved in the sessions with Dr Gibney.

6. Exhibit 2 is a collection of documents dealing in the main with the duties of primary school principals. The exhibit also contains another copy of the statement which is Exhibit 1 in these proceedings, and also contains certain other statements with which I will deal in some detail. The first is a letter to whom it may concern, by an Assistant Executive Director Studies, Metropolitan East Region, which is, in effect, a reference in relation to the applicant, with particular emphasis upon the employee assistance service provided by the Queensland Department of Education for its employees and designed to cater for both professional and personal counselling needs. In particular, paragraph 4 of that letter reads as follows:

"It is also recognised that a counsellor employed by the Department of Education is not necessarily the best person from whom to seek help and support. At times, it may be preferable and more beneficial for an employee to obtain outside counselling support, so that no one at the workplace is aware of the help being accessed. The confidential nature of such assistance is critical to ensuring optimum performance. The costs would be incurred totally by the employee when external support is sought."

7. Exhibit 2 also includes a statement to whom it may concern personal to the applicant and referring to the situation that existed at her school and, in particular, as to the requirements of leadership at the school which the author of the document thought to be highly stressful because of her particular situation, and also because of the situation that existed at the school and, in particular, a division in the school community as to the traditionalists and those with a more open approach to education. Exhibit 2 also includes a statement by a teacher, who I infer is a teacher at the same school as the applicant, which relates in some detail to various stressful situations encountered by the applicant during her initial period as a principal at the school. The statement was made for the purposes of the Workers' Compensation Board and seems to be directed to the question of whether or not the applicant was entitled to compensation in relation to stress condition because of the situation that existed at the applicant's school.

8. Exhibit 3 is a report by the applicant's general practitioner, which is addressed to the Workers' Compensation Board of Queensland and deals with conditions of difficult breathing and coughing, which are said to have started during a stressful phone call at work. The doctor certifies that he has diagnosed the applicant as having asthma, precipitated by the build up of stress with her work. He recommended that the symptoms would ease with stress counselling and for that purpose the applicant was referred to a psychiatrist.

9. The applicant's oral evidence before the Tribunal sought to paint quite a different picture. That oral evidence sought to establish that the applicant had attended the sessions with Dr Gibney for the purposes of developing her skills in relation to the problems which had arisen at her school and, in particular, for the purpose of discussing the problems as they arose with Dr Gibney so that she was better equipped to handle the various situations that arose in the school. In the course of that evidence-in-chief she referred to situations in particular that arose at the school including a difficult child who apparently had caused the applicant particular problems resulting in the child being expelled from the school and also situations that had arisen with teaching staff and parents of children at the school. Each of these situations, she said, were discussed with Dr Gibney so as to better equip her in her role as a principal.

10. During the course of cross-examination, the applicant said that she suffers from hypoglycaemia and also coughing and asthma. She said that she attended the psychiatrist because she needs to see a specialist for workers' compensation. In that regard she agreed that the basis of the workers' compensation claim was that she had stress related symptoms. She also agreed in cross-examination that she went to see Dr Gibney because of the various symptoms that she was suffering at the time and which formed the basis of her claim for workers' compensation.

11. In the course of cross-examination the applicant asserted that the sessions with Dr Gibney were in the nature of consultations in the context of persons who were employed by the Education Department to act as consultants, although she had said earlier in her evidence that in this case the arrangement between her and Dr Gibney was of a private nature and not a consultancy organised by the Education Department. In this context it is relevant to note that there is no material before the Tribunal from Dr Gibney including statements of account or any other documents which might describe the nature of the sessions that Dr Gibney had with the applicant. Nor was Dr Gibney called to give evidence. The fact remains therefore that the only evidence about the sessions with Dr Gibney is the applicant's evidence and there is nothing which would in any way substantiate the nature of, and for that matter the amount of the accounts paid to Dr Gibney. In that regard the respondent did not put the question of substantiation of the amount of $1,458 in dispute and seemed to be content to accept that that amount had been incurred.

12. In submissions the applicant's representative made it clear that the claim was made on the basis that the applicant had undertaken the sessions with Dr Gibney for the purpose of improving her people skills in her capacity as a principal of a primary school. He asserted in argument that there was no issue of stress therapy being provided by Dr Gibney, rather that Dr Gibney had assisted the applicant in the course of her work as a school principal and, in particular, situations which had been causing the applicant stress.

13. Ms Holmes relied on a number of authorities including what might be thought to be the traditional cases of Lunney v FC of T (1958) 100 CLR 478 , FC of T v Hatchett (1971) 125 CLR 494 and also referred to a number of other cases including FC of T v Cooper (1991) 29 FCR 177 and Norman v Golder (1945) 1 ALL ER 352.

14. It is now trite to say that for expenditure to form an allowable deduction because it is an outgoing incurred in gaining or producing the assessable income, that expenditure must be incidental and relevant to the production of the assessable income. The words "incurred in gaining or producing the assessable income" contained in subsection 51(1) mean "in the course of gaining or producing that income" i.e. assessable income. To come within the positive limb of subsection 51(1), it is necessary that the outgoing should be found in whatever is productive of the assessable income or is likely to be productive of the assessable income.

15. It is necessary to determine the essential character of the outgoing so as to conclude as to whether it comes within the positive limb of subsection 51(1). The fundamental test is to be found in Lunney (supra) where at page 499, Williams, Kitto and Taylor JJ said:

"Whether or not it should be so characterised depends upon considerations which are concerned more with the essential character of the expenditure itself than with the fact that unless it is incurred an employee or a person pursuing a professional practice will not even begin to engage in those activities from which their respective incomes are derived."

16. Perhaps the most relevant authority here is the decision of the full Federal Court in FC of T v Cooper (supra) where the court held that expenditure incurred by a professional footballer on instructions from the footballer's coach which involved consumption of additional food and beverage so as to maintain optimum playing weight, was not expenditure incurred in gaining or producing the footballer's assessable income and is not therefore deductible. The Court held in that case that there was not the necessary connection between the footballer's income producing activities of playing football and the dietary requirements specified by that footballer's coach. Although the claim therefore failed on the grounds of insufficient nexus between the outgoings and the derivation of the assessable income, it also failed because the essential character of the outgoings there incurred remained of a private nature so that even if the Court had been able to find that there was sufficient nexus between the outgoings and the derivation of the assessable income the claim for deduction would still have failed because of the essential character of the outgoings being of a private nature.

17. In this case I am satisfied that the applicant incurred the fees paid to Dr Gibney because she was having difficulty with her work as a school principal and those difficulties were not only causing her stress but also causing her apprehension as to her professional capacity as a school principal. That was sufficient, and quite correctly so in my view, to justify her seeking assistance. Assistance of this nature was available to the applicant through the Education Department but she chose to go to a private source, albeit a source recommended by persons within the Education Department. I have no doubt, and I so find, that the applicant went to see Dr Gibney because she was concerned about her capacity to deal with the problems which were arising in her day to day work as a school principal. She was concerned, I find, because it reflected upon her professional capacity and also because it was having a deleterious effect upon her physical wellbeing. She was clearly concerned that she was getting into a stressful situation that she was unable to handle, and for which she needed guidance. I am satisfied, and so find, that the applicant was motivated by a number of contributing factors when she sought assistance but, primarily, she was concerned about the stressful situation that was arising in the school and over which she seemed to be unable to assert the necessary authority that she perceived she should be able to assert as a school principal.

18. There is a conflict in the evidence between the oral evidence given before this Tribunal, the statements of the accountant in the notice of objection and the statements made to the workers' compensation authority when the applicant sought compensation leave for her stress condition. Clearly she was attending for medical attention at that time and there seems to be a direct relationship between the medical circumstances and the circumstances which led the applicant to these sessions with Dr Gibney. However, I am satisfied, and I so find, that the applicant incurred the outgoings for both the reason that she sought to qualify herself as a better school principal and also because she sought to overcome the stress condition for which, in her perception, the situation at the school was responsible,.

19. The essential character of the outgoings in this case is expenditure incurred by the applicant to better equip herself in both a mental and a physical sense for her duties as a school principal. The outgoings had no connection with the applicant's day to day work as a school principal nor do they in any sense arise out of her duties as a school principal and therefore her income producing activity. Rather, the outgoings were incurred because of the perceptions of the applicant as to her own physical wellbeing and also as to her capacity as a school principal.

20. Relying upon the decision of the Federal Court in Cooper (supra), I am satisfied that the outgoings were neither relevant nor incidental to the applicant's income producing activity as a school principal. I am also satisfied that the applicant's income producing activities did not, in any sense, require her to incur the subject expenditure.

21. Even if I be wrong in relation to the nexus between the outgoings and the assessable income, and my finding that there is no nexus, I am satisfied that the outgoings are of such a nature as to be correctly characterised as private expenditure and therefore, even if the first positive limb of subsection 51(1) has been satisfied, which I do not find, I am satisfied that the outgoings are essentially of a private nature and are excluded from deduction within the terms of subsection 51(1).

22. For these reasons the decision under review will be affirmed.

I hereby certify that this and the preceding seven (7) pages are a true and correct copy of the Decision and Reasons of Mr K L Beddoe (Senior Member) in the matter of QT94/45 and COMMISSIONER OF TAXATION

L A Hope (Associate)