The impact of this case on ATO policy is discussed in Decision Impact Statement: Frisch and Commissioner of Taxation (2007/4517-4521).

FRISCH v FC of T

Members:
J Block DP

Tribunal:
Administrative Appeals Tribunal, Sydney

MEDIA NEUTRAL CITATION: [2008] AATA 462

Decision date: 4 June 2008

J Block (Deputy President)

Part A - preliminary and background

1. The objection decision under review in this matter is an objection by the Applicant against a private ruling issued by the Respondent on 22 January 2007.

2. The Applicant was represented by Mr D Russell QC and Mr D Raphael of counsel instructed by Johnson Winter & Slattery, solicitors, while the Respondent was represented by Mr D Bloom QC and Ms K Deards of counsel, instructed by the Australian Government Solicitor.

3. The Tribunal had before it the T documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975; it also received written submissions by the parties together with volumes of case reports and legislation.

4. The scheme in respect of which the ruling was sought is set out at T pp33-34 under the heading "The scheme that is the subject of the ruling", as follows:

"You are a final year student in Social Science and Law.

You have a disability.

You are permanently confined to a motorised invalid chair for mobility.

You have limited motor skills and a mild speech impediment.

You have limited ability to type, turn pages, find files and arrange your desk.

You have previously dictated your school and university notes, essays, projects and exams to an assistant.

During your studies administrative assistance was provided to you by family members and/or a family funded administrative assistant.

You commenced employment on 4 December 2006 in a temporary position as a Legal Clerk at the NSW Attorney-General's Department.

Your job involves the use of a computer, telephone and other information technology equipment.

Your employment will cease on 23 February 2007.

You will continue with your studies from February to the end of 2007.

On completion of your studies you will be working as a lawyer.

You have employed an administrative assistant for three months to type; to write notes, memos and papers that you dictate; to retrieve, move and open files; to photocopy documents; to arrange your desk and equipment; to get you coffee and lunch; and to provide one hour per day of personal care assistance. The personal care consists of assistance with toileting, and occasionally with eating and dressing.

You have incurred expenses in advertising for and training the administrative assistant.

You pay the assistant an hourly wage.

You pay a 9% superannuation levy to an accredited superannuation fund on behalf of your assistant.

You have incurred workers compensation insurance expenses in relation to the employment of your assistant.

You do not receive an allowance or reimbursement from any person or organisation in relation to the expenses incurred in regards to your administration assistant.

Your medical practitioner has not recommended the use of an administrative assistant.

This ruling is given on the basis of the facts stated in the description of the scheme as set out above. Any material variation from these facts (including any matters not stated in the description above and any departure from these facts) will mean that the ruling will have no effect. No entity will then be able to rely on this ruling as the Commissioner will consider that the scheme has been implemented in a way that is materially different from the scheme described."

5. It will be noted that during the period 4 December 2006 to 23 February 2007, the New South Wales Attorney-General (who is referred to in these reasons as "the AG") employed the Applicant on a temporary basis as a legal clerk.

6. A ruling was sought by the Applicant not only in respect of the year ending 30 June 2007 but also in respect of the years ending 30 June 2008 to 30 June 2011, both years inclusive (which together with the year ending 30 June 2008, are collectively referred to as "the relevant years"), on the basis that after completing her legal studies at the end of 2007, the Applicant would thereafter obtain work as a lawyer. It will be noted then that the ruling sought was to an extent prospective.

7. On 21 December 2006, the Respondent sought additional information, set out at T pp19-20 under the heading "Information required", as follows:

"1. Please confirm that Ms Frisch is currently not employed. When does Ms Frisch expect to commence employment?

2. Please provide a list of duties that the administrative assistant would perform for Ms Frisch in her employment.

3. Will Ms Frisch receive an allowance or a reimbursement from anyone in relation to expenses she will incur in regards to the administration assistant? If so, please provide full details including who will pay Ms Frisch the money, how much she will receive, will she receive the payment for a specific purpose (for example, homecare assistance only) and how will the payment be administered (for example, will Ms Frisch be required to submit a claim form after incurring the expense)?

4. Is the use of an assistant by Yael [sic] recommended by a legally qualified medical practitioner?

If you are not able to provide the information by 18 January 2007 please phone the contact officer listed below. If you do not supply the required information by the due date the Commissioner may decline to make your private ruling."

8. On 4 January 2007 Mr Jack Frisch provided an answer to that request for additional information (T pp25-26) as follows:

"1. Employment
Ms Frisch commenced working on the 4^th of December in a summer clerkship that will last till [sic] 23^rd February after which she will resume university studies before seeking employment at the end of 2007.

She is currently paying for an administrative assistant out of pocket, hoping that tax deductibility will offset this cost, but accepting the possibility that it will not. She is willing to take this risk and pay for the administrative assistant out of pocket and thereby reduce her take-home pay considerably because she believes that the experience of the summer clerkship is invaluable and because of her commitment to working rather than being unemployed or underemployed.

2. Duties of Administrative Assistant
The administrative assistant is basically performing the role that legs, hands and fingers play for able-bodies legal clerks and lawyers. The duties of the administrative assistant include the typing and writing of notes, memos and papers that Ms Frisch dictates directly to the administrative assistant; retrieving, moving and opening files; photocopying; arranging the desk and equipment on the desk; getting coffee and lunch and any other task that assists her to complete her responsibilities. A copy of the contract between Ms Frisch and the current administrative assistant is enclosed. In this contract, one hour per day is set aside for personal care assistance.

[…]

3. Reimbursements and Allowances
Ms Frisch is receiving no allowance or reimbursement from any person or organisation in relation to expenses incurred in regards to the administration assistant.

Ms Frisch receives the Mobility Allowance in relation to the extra travel expenses incurred as a result of her disability, but this is independent of her need for an administrative assistant.

4. Need Assessment
No legally qualified medical practitioner has recommended the use of an administrative assistant because the need is self-evident and no medical practitioner has been asked to make the assessment. Medical practitioners have however assessed her as being eligible for the Mobility Allowance, for GST-exemption on a motor vehicle, and for a Mobility Parking Permit. I am quite confident that any occupational therapist would assess her as needing an administrative assistant, but more critically, I am certain any future employer would identify an administrative assistant as an essential requirement.

9. There was no oral evidence before the Tribunal. I propose (as will be noted later in these reasons) to assume that she did complete her studies and that she did thereafter obtain employment as a lawyer.

10. The precise nature of the scheme was referred to in clause 4 of the Respondent's submissions as follows:

"4. The private ruling made by the Commissioner is limited in its application to a specified "scheme" (s 359-5 of the Taxation Administration Act 1953 ("TAA")). The scheme to which this ruling relates is specified at T6-33 and 34. The Applicant was, at the time of her ruling application, a final year law student. It was stated in the ruling application that on completion of her studies the Applicant would work as a lawyer. She has a disability that has permanently confined her to a wheelchair. Her limited motor skills and mild speech impediment limit her ability to type, turn pages, find files and arrange her desk. Between 4 December 2006 and 23 February 2007 the Applicant was employed as a summer clerk at the NSW Attorney-General's Department. She employed an assistant for three months to type, write notes, memos and papers dictated by her, to retrieve, move and open files, to photocopy documents, to arrange her desk and equipment. The assistant was also responsible for getting lunch and coffee for the Applicant, and for assisting her with one hour per day of personal care, consisting of toileting, eating and dressing."

11. In respect of her engagement of an assistant while working for the AG, and with the consent of the AG, the Applicant entered into a written contract dated 24 November 2006 with Ms Antonia Hopkins ("Ms Hopkins") set out at T pp27-28 as follows:

"I am pleased to offer you the position as my assistant over the coming three months. The terms of employment are as follows:

• Period of employment: 4 December 2006 to 23^rd February 2007 excluding the two weeks from 23^rd December 2006 to 7^th January 2007

• The assistance will involve a minimum of 25 hours per week and a maximum of 40 hours per week.

• You will be employed on a casual basis.

• The terms of the award will be covered by the Clerical and Administrative Employees (State) Award (135) Classification Grade 3, for which the hourly wage is $18.90 per hour.

• Because the position will involve up to one hour of personal care assistance each day, one hour of the daily pay will be at a rate of $19.71, which is the award wage under the Social and Community Services Employees (State) Award (783) for a Community Services Worker Grade 2 in their third year of employment.

• A 9% Superannuation levy will be credited to an accredited superannuation fund of your own choosing at the end of the period of employment.

• You will be expected to fill in a time sheet for the week ending on Fridays, and you can expect that the agreed pay will be credited directly into your bank account not more than 3 days after the timesheet is given to me or emailed to me.

• The position can be terminated with two weeks notice to be given in writing by either party.

• Duties: The tasks involved in the position will mainly involve those Clerical and Administrative tasks which will help me perform my duties as a Legal Clerk at the NSW Attorney-General's Department. These tasks will include typing, filing, photocopying, arranging the desk and equipment on the desk, taking notes that I dictate orally, getting me coffee or lunch and any other task that assists me to complete my responsibilities.

• In addition, you will be expected to help me with up to 1 hour per day with personal care.

Could you please confirm your acceptance of the terms outlined above […]"

Part B - relevant legislation, the ruling and certain related matters

12. It is convenient to gather in this Part B the legislation, which is relevant for the purposes of this decision. In the first instance, I include ss 359-5, 359-20 and 359-60 of Schedule 1 (and not the first schedule as referred to in certain submissions furnished to the Tribunal) to the Taxation Administration Act 1953 ("the TAA") as follows:

"359-5 Private rulings

(1) The Commissioner may, on application, make a written ruling on the way in which the Commissioner considers a relevant provision applies or would apply to you in relation to a specified *scheme. Such a ruling is called a private ruling.

(2) A private ruling may cover any matter involved in the application of the provision.

359-20 Private rulings must contain certain details

(1) A private ruling must state that it is a private ruling.

(2) A private ruling must identify the entity to whom it applies and specify the relevant scheme and the relevant provision to which it relates.

359-60 Objections, reviews and appeals relating to private rulings

(1) You may object against a private ruling that applies to you in the manner set out in Part IVC if you are dissatisfied with it.

(2) The ruling is taken to be a taxation decision (within the meaning of that Part).

(3) However, you cannot object against a private ruling if:

(a) there is an assessment for you for the income year or other accounting period to which the ruling relates; or

(b) the ruling relates to withholding tax or mining withholding tax that has become due and payable."

13. The Tribunal is bound in relation to an application of this nature to have regard to the scheme which was considered by the Respondent. However the Respondent, when he considers a scheme, is entitled pursuant to s 357-110(1)(b) of the TAA to make assumptions and the Tribunal standing in the shoes of the Respondent has the same power. Section 357-110(1)(b) of the TAA reads as follows:

"357-110 Assumptions in making private or oral ruling

(1) If the Commissioner considers that the correctness of a private ruling or an oral ruling would depend on which assumptions were made about a future event or other matter, the Commissioner may:

(a) […]

(b) make such of the assumptions as the Commissioner considers to be most appropriate."

14. Acting in accordance with s 357-110(1)(b) of the TAA, I make the following assumptions:

a. The Applicant did in fact complete her legal studies at the end of 2007;
b. The Applicant did in fact thereafter obtain employment as a lawyer and will during the relevant years continue to obtain employment as a lawyer;
c. During the relevant years the Applicant will be employed as a lawyer in a legal firm or as an "in-house" lawyer in government or the private sector; in particular in this context she will not during the relevant years become either a partner in a legal firm or practice for her own account in her own firm and she will not practice for her own account as a barrister;
d. The Applicant will, during the relevant years, enter into contracts with Ms Hopkins or others on terms similar to or analogous with the terms of the contract with Ms Hopkins referred to and quoted at paragraph 11 of these reasons.
e. During the relevant years, each relevant employer will consent to the Applicant entering into a contract with Ms Hopkins or others in the manner set out in the preceding subclause.

15. The private ruling, which is the subject of the objection decision, was issued as I have said, on 22 January 2007; there were five questions, all but one answered in the negative, as follows:

"1 Are you entitled to a deduction for expenses incurred in advertising for, training and paying wages to an administrative assistant?
No

2 Are you entitled to a deduction for workers compensation and superannuation expenses incurred in employing an administrative assistant?
No

3 Are you entitled to a medical expenses tax offset for the percentage of the expenses you have incurred in relation to the secretarial duties provided by your administrative assistant?
No

4 Are you entitled to a medical expenses tax offset for the percentage of the advertising, training and workers compensation expenses incurred in relation to the personal care provided by your administrative assistant?
No

5 Are you entitled to a medical expenses tax offset for the percentage of the salary and superannuation expenses incurred in relation to the personal care provided by your administrative assistant?
Yes"

16. I was informed that in respect of the questions referred to in the preceding clause, I need be concerned only with questions 1 and 2, but subject to the proviso that the Applicant's entitlement to a medical expenses tax offset (in respect of amounts paid to Ms Hopkins) might give rise to a negative inference in respect of the deduction sought.

17. Section 159P of the Income Tax Assessment Act 1936 ("the 1936 Act") is thus relevant; it reads in so far as it is relevant as follows:

"159P Rebate for Medical Expenses

(1) An amount paid by the taxpayer in the year of income as medical expenses in respect of himself or herself, or in respect of a dependant who is a resident, less any amount paid to the taxpayer or any other person, and any amount which the taxpayer or any other person is entitled to be paid, in respect of those medical expenses by a government or public authority or by a society, association or fund (whether incorporated or not) shall, for the purposes of this section, be treated as a rebatable amount in respect of that year of income.
[…]

(3A) Where:

(a) a rebatable amount is, or rebatable amounts are, applicable to a taxpayer in respect of a year of income; and

(b) that rebatable amount, or the aggregate of those rebatable amounts, exceeds $1,500;

the taxpayer is entitled to a rebate of tax in the taxpayer's assessment in respect of income of that year of income of an amount equal to 20% of the excess.

(4) In this section:
[…]

' medical expenses ' means payments:

[…]

(h) as remuneration of a person for services rendered by him as an attendant of a person who is blind or permanently confined to a bed or an invalid chair; […]"

18. Section 8-1 of the Income Tax Assessment Act 1997 ("the 1997 Act") reads to the extent relevant as follows:

" 8-1 General Deductions

(1) You can deduct from your assessable income any loss or outgoing to the extent that:

(a) it is incurred in gaining or producing your assessable income; or

(b) […]

(2) However, you cannot deduct a loss or outgoing under this section to the extent that:

(a) […]

(b) it is a loss or outgoing of a private or domestic nature; or

[…]"

19. It was accepted that the case law relating to s 51 of the 1936 Act is relevant also in respect of s 8-1 of the 1997 Act.

20. It was also not disputed that Ms Hopkins, when the Applicant worked for the AG, worked for the Applicant for eight hours in each day; of that period, one hour was taken up by tasks such as assistance with dressing, toileting, eating etc (referred to in brief as "the personal functions") and the remainder of the time was taken up by duties in the offices of the AG (and referred to in brief as "the non-personal functions"). Mr Russell invited me to treat the personal functions as de minimis or in the alternative to regard this matter as a case in which apportionment is appropriate. I do not think that the personal functions can aptly be regarded as de minimis and so that an apportionment, if this case is decided in favour of the Applicant, would be appropriate.

Part C - was the expenditure incurred in the gaining or producing of the assessable income?

21. I commence this Part C by noting that it is now accepted that there is no antipathy between losses or outgoings incurred in gaining assessable income and losses of a private or domestic nature. It follows that it is first necessary to consider if the losses fall within s 8-1(1)(a) of the 1997 Act; this limb is usually referred to as the first limb; (the second limb set out in s 8-1(1)(b) of the 1997 Act is not relevant because on the facts furnished or assumed it does not apply and because the Applicant has not been and will not be involved in business). Once it is determined that expenses fall within the first limb it is necessary to determine whether they are then excluded as expenses of a private or domestic nature:
John v Commissioner of Taxation 89 ATC 4101; (1989) 166 CLR 417 ("John") at 431. It must be noted though that in
Commissioner of Taxation v Hatchett 71 ATC 4184; (1971) 125 CLR 494, Menzies J said at 498 that "it must be a rare case where an outgoing incurred in gaining assessable income is also an outgoing of a private nature". See also Income Taxation in Australia by Professor RW Parsons (referred to henceforth as "Parsons") at clause 8.4.

22. During the course of the hearing, numerous extracts from decided cases were cited and in some cases, read. I do not think it is necessary for the purposes of these reasons to do more than refer to some of the cases and to include extracts from some of them.

23. The Tribunal accepts that the expenses were incurred for the purpose of producing the assessable income:
Federal Commissioner of Taxation v Payne 2001 ATC 4027; (2001) 202 CLR 93 ("Payne") at 99 [9];
John Fairfax & Sons Pty Ltd v Federal Commissioner of Taxation (1959) 101 CLR 30 at 40;
Lunney v Commissioner of Taxation (1957) 100 CLR 478 ("Lunney") at 496;
Charles Moore & Co (WA) Pty Ltd v Commissioner of Taxation (1956) 95 CLR 344 at 349-351;
Ronpibon Tin NL and Tongkah Compound NL v Federal Commissioner of Taxation (1949) 78 CLR 47 ("Ronpibon") at 56-57;
W Nevill & Co Ltd v Federal Commissioner of Taxation (1937) 56 CLR 290 at 305 and
Amalgamated Zinc (De Bavay's) Ltd v Federal Commissioner of Taxation (1935) 54 CLR 295 at 303, 309.

24. However it is not sufficient for the purpose of a first limb deduction that the expenses be incurred for the purpose of producing the assessable income; they must be incurred in gaining or producing the assessable income. See
Fletcher v Federal Commissioner of Taxation 91 ATC 4950; (1991) 173 CLR 1 ("Fletcher") at 17, as follows:

"The question whether an outgoing was, for the purposes of s 51(1), wholly or partly 'incurred in gaining or producing the assessable income' is a question of characterization. The relationship between the outgoing and the assessable income must be such as to impart to the outgoing the character of an outgoing of the relevant kind. It has been pointed out on many occasions in the cases that an outgoing will not properly be characterized as having been incurred in gaining or producing assessable income unless it was 'incidental and relevant to that end'. It has also been said that the test of deductibility under the first limb of s 51(1) is that 'it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income or, if none be produced, would be expected to produce assessable income'."

25. The importance of the distinction is described in Payne at 99, as follows:

"The connection which must be demonstrated between an outgoing and the assessable income, in order to fall within the first limb of s 51(1), is that the outgoing is 'incurred in gaining or producing' that income. The subsection does not speak of outgoings incurred 'in connection with' the derivation of assessable income or outgoings incurred 'for the purpose of' deriving assessable income. It has long been established that 'incurred in gaining or producing' is to be understood as meaning incurred 'in the course of' gaining or producing. What is meant by being incurred 'in the course of' gaining or producing income was amplified in
Ronpibon Tin NL and Tongkah Compound NL v Federal Commissioner of Taxation where it was said that

'to come within the initial part of [s 51(1)] it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income or, if none be produced, would be expected to produce assessable income.' "

26. The High Court in Payne referred to Ronpibon (at 56), which made it clear that for an "expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end."

27. As to whether an expenditure is incurred in gaining the relevant income is a question of characterisation; see Fletcher at 17. Characterisation in turn requires a determination of "essential character"; see
Handley v Federal Commissioner of Taxation 81 ATC 4165; (1981) 148 CLR 182 at 189-190 per Stephen J; John at 426-427 per Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ.

28. The question to be decided then is as to whether the non-personal services were performed in the gaining of the income. During the course of the hearing Mr Russell referred to my decision in Case 26/97 (1997) 36 ATR 1001 ("Case 26/97") which when it reached the High Court became Payne. In Case 26/97 I attempted an exhaustive analysis of the case law (and including decisions of the Board of Review) referable to the question of when expenditure is incurred in the derivation of income; however it is not necessary to deal with that discussion. Suffice it to say that I am satisfied that the purpose, and whether subjective or objective, of the Applicant in incurring the expense (to the extent of seven eighths of it) was the derivation of the relevant income. Nor is it necessary for me, in this context, to deal with the distinction between an objective purpose and a subjective purpose described by the Full Court of the Federal Court of Australia in
Magna Alloys & Research Pty Ltd v Commissioner of Taxation 80 ATC 4542; (1980) 49 FLR 183 per Brennan J at 185 in the following terms:

"Purpose may be either a subjective purpose - the taxpayer's purpose - where it means the object which the taxpayer intends to achieve by incurring the expenditure; or it may be an objective purpose, meaning the object which the incurring of the expenditure is apt to achieve. Both motive and subjective purpose are states of mind and they are to be distinguished from objective purpose, which is an attribute of a transaction. An objective purpose is attributed to a transaction by reference to all the known circumstances; whereas subjective purpose and motive, being states of mind, are susceptible of proof not by inference alone but also by direct evidence, for a state of mind may be proved by the testimony of him whose state of mind is relevant to a fact in issue."

29. The Respondent contends that the expense was incurred as a prerequisite to the gaining of the income. He referred to Lunney, where Williams, Kitto and Taylor JJ said at 498 - 499:

"The question whether the fares which were paid by the appellants are deductible under s. 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, 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. 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."

30. I should note, if only for the sake of completeness, that Mr Bloom in argument sought to draw a distinction between the functions performed by the Applicant in relation to the AG and those performed by Ms Hopkins. He put it on the basis that the Applicant was performing "lawyering" services whereas Ms Hopkins was performing services which enabled the Applicant to provide the "lawyering" services. As to what precisely the Applicant did in the offices of the AG is not in evidence before me. As a legal clerk and not a qualified lawyer, it is likely that her duties would have consisted in the main of legal research of one kind or another and the drafting of opinions and other documents. She would not have performed lawyering functions in the sense that she gave advice on an unsupervised basis. Nor is this likely to change to any significant degree during the remaining relevant years. I make this point purely (as I have said) for the sake of completeness because I do not think that the distinction (if distinction there is) is a relevant distinction. To perform her functions the Applicant needed the assistance of Ms Hopkins, and even if the assistance of Ms Hopkins could aptly be described as being at a lower level, the essential character test was not thereby and in consequence failed.

31. It must be remembered that the non-personal services were furnished in the offices of the AG and during the course of each working day. This is not a case in which the expense (as for example a child-care cost or a travel expense of the nature referred to in Payne) was incurred in order to enable the Applicant to take up the employment. The non-personal functions were performed (as I have said) by Ms Hopkins in the offices of the AG and where Ms Hopkins would have been in close proximity to the Applicant. The expense is thus clearly distinguishable from the travel expense referred to in Payne and which was incurred in point of time prior to the commencement of the relevant income-earning activity (the same reasoning would apply to a child-care expense). Accordingly and in my view the non-personal services constituted an expense incurred in order to enable the Applicant to carry out her duties and was thus incurred in the derivation of the relevant income.

Part D - private or domestic character

32. The next question is as to whether the expense in question should be denied deduction because it is of a private or domestic nature.

33. It is in this context that debate as to what might be loosely referred to as the "clothing" cases took place.
Commissioner of Taxation v Edwards 94 ATC 4255; (1994) 49 FCR 318 ("Edwards") was described during the hearing as an exception to the general rule. In Edwards the taxpayer was allowed a deduction for clothing acquired by her additional to that which she would have required for her own purposes, and in order to carry out her duties as a personal secretary to the wife of the Governor of Queensland. That deduction was allowed in those particular circumstances, notwithstanding the fact that clothing is also necessary for private purpose and in particular to preserve decency; (other clothing cases were cited but it is not necessary for me to refer to them specifically).

34. It seems clear that some kinds of expense will usually be classified as private. This will generally be so in respect of clothing (not being uniforms or clothing of a similar kind) and food. In
Commissioner of Taxation v Cooper 91 ATC 4396; (1991) 29 FCR 177 a footballer was required to eat more in order to acquire bulk to better perform his duties on the football field. The court held that he was paid to play football and not to eat additional food, and the deduction sought was denied.

35. It is likely that cosmetics will usually be classified as private although in
Mansfield v Federal Commissioner of Taxation 96 ATC 4001; (1995) 31 ATR 367, deductions of cosmetics were to a limited extent allowed in the particular circumstances of that case.

36. As I understood the arguments before me, Mr Bloom contended that a person who suffers from a physical disability and who overcomes that disability through the assistance of an employee paid to furnish that assistance, invariably incurs an expense which is private. Mr Russell contended that to interpret the 1997 Act in this fashion would offend against the Disability Discrimination Act 1992 ("the Disability Act"). He did not however detail the precise manner in which the provisions of s 8-1 (or any other provision) of the 1997 Act could be said to be discriminatory. He did not, it must be said, pursue this particular aspect with any particular enthusiasm and in my view he could not properly do so. I do not think that that contention is correct.

37. Mr Bloom's contention receives some support from Parsons in clause 8.18 (and also the decision in Case P31;
Gilbert v Federal Commissioner of Taxation (1982) 82 ATC 141 ("Gilbert") referred to in that clause); clause 8.18 of Parsons reads as follows:

"8.18 There is some suggestion in the judgment of Pennycuick J. in
Prince v. Mapp [1970] 1 W.L.R. 260 that medical expenses incurred in the restoration of a specific bodily function that is necessary for the process of income derivation in which the taxpayer is engaged could attract deductibility. If it had appeared that the only purpose of the taxpayer in having the finger tendon repaired had been to enable him to play the guitar professionally, Pennycuick J. would have allowed a deduction of the expense of the surgery involved. A test of sufficient connection for purposes of s. 51 which would allow the deduction of medical expenses in these circumstances may be thought unacceptable. In the circumstances of
Prince v. Mapp the expense may be thought specific, and the expenses of treating influenza not to be. But what view should be taken of the cost of spectacles for a person with defective sight? The latter question ranges into areas beyond the medical, though areas where the issues of relevance have their parallels. What view should be taken of the cost of an attendant without whom a paraplegic could not travel on business? In Gilbert (1982) 82 A.T.C. 141 a quadraplegic was denied a deduction in these circumstances. What view should be taken of the cost of keep fit classes undertaken by an airline pilot?"

38. Although Parsons in clause 8.18 referred to Gilbert and although he did not suggest that the decision was in any way incorrect, it is not possible to treat clause 8.18 as an unqualified endorsement of the proposition that an expense incurred in overcoming a physical difficulty will always be private. During the course of the hearing I raised by way of analogy the position of a person who for reasons of his own employs another person to perform tasks which the first-mentioned person prefers not to perform himself or is unable to perform himself perhaps because he does not have the necessary (and for example typing or computer) skills, or because he can use the time thus saved more productively. It seems to me that the expense will be deductible (subject where relevant to the questions raised in Part E and Part F below). Put succinctly, and in relation to Part E, Mr Bloom contended that such a deduction will not be available to an employee where it would be available to an independent contractor.

39. Gilbert was decided by the Board of Review and where the board members were Messrs Stevens, Harrowell and Pape. Messrs Harrowell and Pape considered by way of example a taxpayer with no disability who employed a valet while engaged in tax-deductible travel. (In Gilbert a disabled taxpayer employed his father to wheel him in relation to his work). They were of the view that in respect of both the Gilbert facts (and where the taxpayer was disabled) and where the taxpayer was not disabled the valet expense would be private. But if the cost of food obtained during the course of deductible travel is deductible the valet cost would not, it might be thought, be any the less deductible. Mr Stevens considered the cost would be non-deductible in accordance with Lunney. However Lunney would not be relevant if the expenditure was incurred as part of travel expenses incurred during employment and not in order to get the taxpayer to his place of work and would therefore (it would seem) on this basis be deductible.

40. Gilbert involved to some extent reasoning which (with respect) might be thought to be somewhat confused. In any event it is not a decision which is binding on this Tribunal.

41. It must also be remembered as regards clause 8.18 of Parsons that the law in the United Kingdom was in some respects different, bearing in mind in particular that in some cases a sole purpose test applied. That sole purpose test does not arise in Australia because s 51 of the 1936 Act and s 8-1 of the 1997 Act inserts the words "to the extent" before the positive and negative tests. There is thus a relevant difference between the Australian and UK legislation. It may explain Pennycuick J's comment as to "the only purpose". In my view the question of whether something is or is not private is a character test, and character is determined by what Australian courts refer to as "essential character". The "essential character" test has the effect that although fixing the guitarist's tendon is necessary for him to play the guitar, the essential character of expenditure to fix the tendon is such that it is private. The phrase "to the extent" in Australian legislation does not negate the essential character test.

42. The cost of clothing is generally non-deductible. A solicitor who acquires a suit for work purposes cannot deduct the cost because the suit can be worn for both private and professional purposes. It is likely that the same principle will generally apply to a number of items required to overcome a disability and where the item in question is required both at work and at home. Items such as spectacles, hearing aids, wheelchairs and crutches spring to mind as examples. But I do not think that the services of Ms Hopkins were akin to crutches; crutches will be required both at home and at work, whereas Ms Hopkins' services by contrast were required and provided (excepting in relation to the personal services) only at and for work. It does not seem to me that the position of the Applicant is different from that of a solicitor who pays someone else to do his typing either because he cannot type himself or prefers not to do so or considers that he can use his time more productively. Excepting only that the disability in this case did not involve any element of choice it does not seem to me that the expense can or should be characterised differently. Ms Hopkins worked for eight hours each day; one hour was taken up by the personal services (clearly private) while the other seven hours were taken up by the non-personal services and without which the Applicant could not fulfil her work obligations. I do not think that the non-personal factors are aptly described as personal or domestic. I accept that an expense incurred to overcome a physical disability will probably in most cases be non-deductible as private or domestic, but this is not a rule which applies invariably.

43. Other decisions of the Board of Review and of this Tribunal were cited and it is desirable that reference be made to some of them. In Case M55 (1980) 80 ATC 366 ("Case M55") the taxpayer was a medical technologist employed by a company providing pathology services and he was required to be on call after business hours during one week in three. If he was out on a call at night, his wife took the calls and the taxpayer paid her for doing so. Dr Gerber held that because the taxpayer's employer did not employ the taxpayer's wife the expense was private. Dr Beck also held that the expense was not deductible but for different reasons referring to the fact that it was incurred "as a cost of lightening the work load, of gaining time off, of filling a gap in the employee's competence …"

44.
Wells v Commissioner of Taxation 2000 ATC 2077; (2000) 45 ATR 1145 ("Wells") was decided some years after Case M55 by Senior Member Beddoe in this Tribunal; in Wells an employee employed his wife to perform certain tasks in order to free him to perform other tasks and in order to derive additional commission income. In Wells Senior Member Beddoe allowed a deduction for the amounts paid to the taxpayer's wife; he dealt with Case M55 in clauses 22 to 26 in the following terms:

"22. The respondent relies upon dicta of Dr Beck of Taxation Board of Review No. 3 reported as Case M55 80 ATC 366. In that case a medical technologist employed by a large company providing pathology services was required to be on call after business hours at certain times. In the event that the taxpayer was out on call at night his wife would take telephone messages for him relating to his after hours duties. To compensate her for this inconvenience the taxpayer paid her $20 per week and claimed an amount of $1,040 in his taxation returns.

23. The respondent Commissioner adopted a somewhat equivocal approach to the issue but the Board of Review No. 3 had no doubt in its collective mind that the outgoings were in the words of the Chairman "classically an expenditure of a private or domestic nature". Dr Gerber thought the outgoing had been incurred in the course of gaining or producing the employer's income but this does not seem to have been of any assistance to the taxpayer and the Board was unanimously of the view that the claim was not allowable.

24. Dr Beck said at page 368 that "if an employee pays another party to render some of the services for which the employee is paid this expenditure is not a cost of deriving the income". Taking a line through Dr Gerber's reasons it may well be that Dr Beck would have accepted the outgoings were incurred in the course of gaining the employer's income but as the wife was not employed by the employer that seems to have been treated as of little relevance to the issue that was before the Board.

25. I am satisfied that the decision of the Board of Review, is, with respect, of little assistance in this case. Here there is a direct involvement by the wife in the preparation of the documents which are submitted to the bank for the approval of loans business originally obtained by the applicant. There is a real connection between the activities of the wife in providing the services through the company and the derivation of the applicant's assessable income by means of the increased commissions derived by the applicant because of the services provided by the wife.

26. It is clear that it is not necessary to establish a manifest connection between the outgoings and the derivation of assessable income but in this case I am satisfied that there is both a relevance and an incidence which connects the payment for secretarial services with the derivation of the commission income by the applicant. The applicant says and I accept that his increased commissions are directly attributable to the fact that he paid for secretarial services to be performed by his wife and he can, therefore, show a clear link between the outgoings for the secretarial services and the increased commissions obtained. I am satisfied that the outgoings in relation to the secretarial services are reasonable amounts for the services provided."

45. It is not easy to reconcile the two Board of Review decisions (Gilbert and Case M55) with the decision of this Tribunal in Wells although and on balance, it is my view that in respect of conflict between them the view expressed in Wells is to be preferred. It may be noted that the maxim 'delegatus non potest delegare' dealt with in Part E below does not appear to have been cited to Senior Member Beddoe.

46. It follows that, (having regard to my findings in Part E) as to seven eighths, the expenditure is not denied deductibility as personal or domestic.

47. It is perhaps worthy of note, although of little or no relevance that the effect sought by the Applicant could have been achieved through a direct contract of employment between the AG as employer and Ms Hopkins as employee and on the basis that the remuneration payable to the Applicant would be reduced by the amount payable in such circumstances to Ms Hopkins. It might have been beneficial to the Applicant in that the Applicant's own marginal tax rate might thereby have been reduced although it must be conceded that in such event, the AG would have arguably incurred obligations to Ms Hopkins which he would not otherwise have incurred. But this is of course not directly to the point, and in any event it is clear that the amounts involved in this case are not large.

Part E - delegatus non potest delegare

48. Mr Bloom referred the Tribunal to
Australian Air Express Pty Limited v Langford [2005] NSWCA 96 ("Australian Air Express") as authority for the proposition that an employee does not have the power to delegate; he contended in other words that this being so, any expense so incurred would not accordingly be deductible. He accepted of course that such a limitation would not apply to an independent contractor.

49. Australian Air Express turned on the correct characterisation of the taxpayer and more particularly as to whether the taxpayer was correctly characterised as an independent contractor rather than as an employee. As I read the judgment in that case, the fact that the taxpayer could employ others tended to favour the proposition that the taxpayer was indeed an independent contractor. But I do not read that judgment as laying down a rule to the effect that an employee can never employ another to perform some of his functions.

50. It must be remembered also that in the case of the Applicant and in relation to the AG, the Applicant had her employer's permission to employ Ms Hopkins. I have assumed that a similar position will apply in the future during the relevant years. Even if it can be said that an employee cannot as a general rule delegate (and it is by no means clear that this is so), there is no policy reason why with the employer's consent this cannot occur. And even if it could be said that the fact that the employment by the Applicant of Ms Hopkins was not (despite the fact that the AG consented) legal (and this too may be doubted), it has always been the law that a person engaged in an activity which may not be legal is nevertheless taxed on his or her earnings, and earnings in this context means income net of expenses. A dealer in illegal drugs is allowed a deduction for the cost of the illegal drugs in which he deals. As a matter of tax law, I can see no reason why despite the authority cited, a deduction should not in these circumstances be allowed. As indicated earlier in these reasons a deduction was allowed in Wells although again, as noted previously, it does not appear that the maxim referred to in this Part E was cited in Wells; (the case referred to in this Part E was decided in point of time after Wells). There is another aspect of the maxim, which appears to me to be relevant. The maxim suggests (according to Mr Bloom) that an employee may not delegate. The Applicant in this case did not "delegate" in the sense in which that term is ordinarily used. She did not in other words (and by way of example), having been asked to research a legal question, delegate the task to Ms Hopkins. Ms Hopkins will have performed the physical tasks necessary for this purpose but she will have done so under the direction and control of the Applicant. The Applicant in other words obtained assistance needed by her to fulfil her obligations and functions as a law clerk employed by the AG; (see also in this context Part H below).

Part Ff - section 159P of the 1936 Act

51. It is common cause that in respect of the amounts paid by the Applicant to Ms Hopkins, she was entitled to the offset provided by s 159P of the 1936 Act. No rebate is available for the first $1,500 and thereafter a rebate of 20 percent is available.

52. A rebate is not the same as a deduction and indeed will generally (to the extent that this is relevant) be less valuable. But there is no reason why both should not be available. I refer in this context to Parsons at clause 8.20 and in which he said:

"There is no provision which expressly precludes the allowance of a concessional rebate expenditure and the deduction of that same expenditure under s. 51(1). Section 159M only applies to double rebates. Section 82 applies only to double deductions. It will be seen, however, that s. 82A deals expressly with the correlation of concessional rebate expenditure and s. 51(1) deduction where the expenditure qualifies as "self-education" expenditure."

53. Mr Bloom contended that Parsons was issued at a time prior to the decision in
CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384 ("
CIC v Bankstown") and that in the light of that judgment a statutory provision must be construed so as to take into account the whole purpose of the statute and that it could not have been intended that the 1997 Act would have allowed for what might be termed, at least in practical terms, as a double deduction.

54. Towards the end of the hearing permission was given to the parties to furnish (within one month) additional written submissions as to the issues referred to in Part E and this Part F. In the event, the Respondent elected not to avail himself of this opportunity. The Applicant did in fact furnish additional submissions (and in which she referred to a number of statutes), and which have satisfied me that there is no relevant secondary material which would suggest that the Parsons view is no longer valid; (I refer also in this context to Part H below).

Part G - an alternative approach

55. This case was argued before me in the main (although not exclusively) as to the question of whether or not the expense involved should be denied deduction because it was private or domestic and more particularly because it was incurred by the Applicant in order to overcome a physical disability.

56. However, it seems to me that it is at least arguable that the "essential character" of the money spent was no more nor less than the payment of wages or in other words the acquisition for wages of services needed in order to enable the Applicant to derive her income. If this approach is correct the fact that the Applicant suffered from a disability becomes irrelevant. If a taxpayer spends money on an item in respect of which a deduction is in the ordinary course allowable in order to derive income then a deduction is available regardless of the reason why the money was spent and even if the amount spent was in some respects extravagant. We do not in such circumstances ask whether the taxpayer was disabled and all taxpayers are treated alike. Either the amount spent falls with s 8-1 of the 1997 Act or it does not. So it is (and this aspect was raised during the hearing) that the lazy solicitor or the incompetent solicitor who pays wages to someone else to provide services which the payer does not wish to perform, or is not willing to perform, or is unable to perform, nevertheless obtains a deduction (subject of course to the issues referred to in Parts E and F) and the question of whether or not he is disabled or incompetent or lazy becomes irrelevant.

57. On this basis the payment of wages for services which are required in order to derive income is deductible regardless of why the services are obtained. This approach assumes of course that Parts E and F have been correctly dealt with in the manner set out previously in these reasons and it also allows for the apportionment provided for previously in these reasons.

58. On this basis also the Applicant is entitled to deduct the wages paid as to seven eighths.

Part H - the Applicant's further and additional submissions

59. As set out in clause 54 above, the parties were allowed a period of one month to furnish further submissions in respect of the two issues set out in Parts E and F. It is relevant in this context to note that in both cases the issue was raised by the Respondent and not by the Applicant. It was the Respondent who contended that to allow a rebate and a deduction amounted to a double deduction and that the Parsons view (referred to in clause 52) is in the light of
CIC v Bankstown no longer valid; (see Part F). And it was the Respondent who raised the question of 'delegatus non potest delegare' and as to which see Part E.

60. In the event and as set out previously in clause 50 the Respondent elected not to file any further submissions as to these two issues while the Applicant on 29 May 2008 did, in respect of these two issues, file lengthy submissions.

61. The eminence of counsel who appeared in this matter, notwithstanding the comparatively small amount involved, leads me to infer that this matter may not end with this decision; the issues raised are plainly of some importance.

62. As to whether if this matter is taken further the Respondent will again press the issues set out in Parts E an F is not clear to me. Nor do I think it necessary in these circumstances to burden this decision with a more detailed discussion of why I have come to the conclusion that the contentions by the Respondent in Parts E and F cannot be sustained. At the same time and in case these issues are again raised the contentions by the Applicant in this context deserve mention.

63. It is for this reason that I include in relation to Part F, but as an annexure marked A to these reasons, clauses 7 to 45 of the Applicant's further and additional submissions; those provisions set out in some considerable detail the Applicant's additional contentions as to why in respect of the relevant expense the grant of a rebate does not preclude the grant of a deduction.

64. As to the maxim referred to in Part E, I include clauses 46 to 60 of the Applicant's further and additional submissions, and for the reasons set out previously, but as an annexure marked B to these reasons.

Part I - general and conclusion

65. I have therefore as set out previously, come to the conclusion that the expense (as to seven eighths) fell within the first limb of s 8-1 of the 1997 Act and was not of a private or domestic nature, and the result is that the Applicant must to that extent succeed. The question of whether or not the expense was private or domestic falls away if the alternative approach set out in the preceding Part has merit.

66. In summary I find that:

a. The expenditure was incurred in respect of the first limb of s 8-1 of the 1997 Act (to the extent of seven eighths), for the purpose of the derivation of the relevant income; I have also found that it was incurred (to the same extent) in the derivation of the relevant income;
b. The expenditure can be deducted (to the extent of seven eighths) because it is not of a private or domestic nature; in the alternative it is deductible because this question is not relevant;
c. I do not consider that the provisions of s 8-1 of the 1997 Act offend against the Disability Act;
d. The maxim 'delegatus non potest delegare' does not preclude the deduction; and
e. The fact that a rebate under s 159P of the 1936 Act is available does not preclude the deduction.

67. In all the circumstances, the objection decision under review must be set aside and the Respondent is directed to issue a ruling in accordance with these reasons.

Annexure A

7. The majority (comprised of Brennan CJ, Dawson, Toohey and Gummow JJ) in
CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384 at 408 stated:

Moreover, the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses "context" in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy. Instances of general words in a statute being so constrained by their context are numerous. In particular, as McHugh JA pointed out in
Isherwood v Butler Pollnow Pty Ltd, if the apparently plain words of a provision are read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation, they may wear a very different appearance. Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonably open and more closely conforms to the legislative intent.

8. The requirement for legislation to be given a purposive construction does not mean that the purpose of the legislation is to be identified by making a priori assumptions:
Palgo Holdings Pty Ltd v Gowans (2005) 221 CLR 249 at 262 [28] per McHugh, Gummow, Hayne and Heydon JJ.

9. A Court or Tribunal may look at prior statutory provisions dealing with the same subject matter in order to enable the Court or Tribunal to interpret a statute: DC Pearce and RS Geddes, Statutory Interpretation in Australia, Butterworths, 2001 at paragraphs 3.28-3.29 and
Mathieson v Burton (1970) 124 CLR 1 at 26 per Gibbs J.

10. Section 15AB of the Interpretation Act permits a Court or Tribunal to consider a variety of extrinsic material in the interpretation of a provision. However, there are limits to the usage of these extrinsic materials, particularly parliamentary debates and Second Reading Speeches. As Kirby J said in
Nominal Defendant v GLG Australia Pty Ltd (2006) 228 CLR 529 at 555-556 [82]-[84]:

"This Court has repeatedly insisted that the Second Reading and other speeches in Parliament may only be used to throw light on the meaning of legislative words, to the extent that such speeches are sustained by the legislative text as subsequently adopted. It is in the nature of parliamentary speeches that they commonly lack the precision of statutory language. They can sometimes be motivated by forensic and political factors. They occasionally stray into hyperbole. The rule of law requires that this Court give effect to the purpose of Parliament expressed in the law made by or under an enactment. It is not part of a court's function, as such, to give effect to parliamentary speeches, ministerial media releases or other informal statements unless, validly, they have the specific endorsement of a parliamentary enactment. Saying this is not to discourage the proper use of such materials. It is simply to insist on the primacy of the enacted law.

Avoiding the unenacted: When the Minister's words are scrutinised, there are important disparities between his stated purposes and the bill in support of which he was speaking. Thus, whatever commonsense and community expectations may say in respect of the coverage of injuries 'which arise from crashes and collisions on the roads', the definition of injury in the Act makes no reference to 'crashes'. Nor does it confine recovery to 'crashes and collisions on the roads'. Nor does it limit recovery to injuries 'associated with use on the dedicated public road network'. Nor does it exclude liability for vehicles 'such as forklifts'. Nor does the definition of injury exclude liability where there is some other 'public liability' insurance, compulsory or otherwise. Nor does the definition contain a power or discretion in a court to assign liability to any relevant 'public liability policies and not against the Nominal Defendant'. If it had been the purpose of the New South Wales Parliament to introduce exclusions, qualifications, powers and discretions in terms of the language used by the Attorney-General in his speech, it was open to it to do so. However, the law as enacted is significantly different. It is that law which this Court must apply. If we do not, we undermine the parliamentary process, damage that institution, and shift power still further from Parliament to the executive and specifically officials who write Second Reading and like speeches, draft explanatory memoranda and prepare media releases. I would not do that.

It follows from this analysis that this Court should, in the orthodox way, whilst noting the Attorney-General's explanation of the general purposes of the 1995 amendments, turn to the words as enacted. The Court must give them meaning consistent with the legislative purpose as revealed by the enacted words, taking into account only such background material as is consistent with those words."

11. Subsection 15AB(3) of the Interpretation Act states that in determining whether consideration should be given to any material in accordance with subsection 15AB(1) of the Interpretation Act, or in considering the weight to be given to any such material, regard shall be had, in addition to any other relevant matters, to:

"(A) the desirability of persons being able to rely on the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act; and

(B) the need to avoid prolonging legal or other proceedings without compensating advantages."

Legislative framework

12. An individual, amongst other "entities", must pay tax for each year ending on 30 June: subsection 4-10(1) of the 1997 Act. The income tax payable is calculated by reference to taxable income: subsection 4-10(2) of the 1997 Act. The amount of income tax payable is calculated in accordance with the formula set out in subsection 4-10(3) of the 1997 Act, which provides:

"Income tax = (Taxable income × Rate) − Tax offsets

Method statement

Step 1. Work out your taxable income for the income year. To do this, see section 4-15.

Step 2. Work out your basic income tax liability on your taxable income using:

(a) the income tax rate or rates that apply to you for the income year; and

(b) any special provisions that apply to working out that liability.

See the Income Tax Rates Act 1986 and section 4-25.

Step 3. Work out your tax offsets for the income year. A tax offset reduces the amount of income tax you have to pay.

For the list of tax offsets, see section 13-1.

Step 4. Subtract your *tax offsets from your basic income tax liability. The result is how much income tax you owe for the *financial year."

13. By virtue of subsection 4-15(1) of the 1997 Act, taxable income is equal to assessable income less allowable deductions.

14. Allowable deductions and tax offsets fulfil very different functions in the design of the 1936 Act and the 1997 Act. The former are used to determine the amount that will be subject to tax. The latter are used to reduce the quantum of the tax on grounds which, more often than not, have nothing to do with the determination of the amount subject to tax. Rather, tax offsets are generally the result of policy decisions taken by Parliament as to what amount of tax a taxpayer should pay having regard to particular types of income of a taxpayer (e.g. foreign income which has been subject to foreign tax), particular types of expenditure of a taxpayer (e.g. expenditure on private health insurance or medical expenses) or particular facts and circumstances applicable to a taxpayer (e.g. "child events" - see Sub-division 61-I of the 1997 Act).

15. The medical expenses tax offset is a social policy measure that is designed to alleviate hardship and horizontal inequity, especially when it is examined against its legislative history (see paragraphs 39 to 44 below).

16. It follows from the above that section 159P and section 8-1 must be applied separately and independently. The Applicant submits that the alleged "irregularity" of an outgoing qualifying for an offset is not a ground for denying a deduction under section 8-1 where the terms of section 8-1 have been satisfied. As the High Court of Australia noted in
Charles Moore & Co. (W.A.) Pty Ltd v Commissioner of Taxation (1956) 95 CLR 344 at 351:

Phrases like the foregoing or the phrase "incidental and relevant" when used in relation to the allowability of losses as deductions do not refer to the frequency, expectedness or likelihood of their occurrence or the antecedent risk of their being incurred, but to their nature or character. What matters is their connection with the operations which more directly gain or produce the assessable income.

17. The Applicant submits that the statutory context referred to in paragraphs 12-14 above, together with the relevant principles of statutory interpretation referred to in paragraphs 7-11 above, when considered with the legislative history of the tax treatment of medical expenses discussed below, support the view that the outgoings referred to in questions 1 and 2 of the private ruling are allowable deductions under section 8-1 irrespective of the Applicant's entitlement to a medical expenses tax offset under section 159P.

Legislative history

18. When the 1936 Act was enacted, it contained section 79(c), which provided:

"The following amounts (in this Act called the 'concessional deductions') shall be allowable deductions where the taxpayer is resident:

(a)…

(b)…

(c) Payments not exceeding fifty pounds in the aggregate made by the taxpayer in the year of income to any legally qualified medical practitioner, nurse or chemist, or public or private hospital, in respect of any illness or operation upon the taxpayer or his spouse or any of his children under the age of twenty-one years, if the spouse or child is a resident;"

19. The so-called "concessional deductions" were subject to subsection 82(1), which provided:

"Where in respect of any amount, a deduction would but for this section be allowable under more than one provision of this Act, and whether it would be so allowable from the assessable income of the same or different years, the deduction shall be allowable only under that provision which in the opinion of the Commissioner is most appropriate."

20. In the Applicant's submission, the existence of subsection 82(1) allows the Tribunal to infer that outgoings in respect of so called concessional deductions could, in appropriate cases, be an allowable deduction under subsection 51(1) or any other applicable provision subject to the terms of subsection 51(1) or any other applicable provision being satisfied.

21. Section 79, including section 79(c), was repealed by the Income Tax Assessment Act 1942 (Cth). The Income Tax Assessment Act 1942 (Cth) enacted a new concessional rebate in the form of subsections 160(1) and 160(2)(d) of the 1936 Act to replace the former section 79(c). In so far as "medical expenses" were concerned, section 160 provided:

"(1) A taxpayer shall be entitled to a rebate in his assessment of tax equal to the amount ascertained by applying -

(a) to each of the amounts set forth in sub-section (2) of this section where the taxpayer is resident; or

(b) …

(2) The amounts in respect of which a rebate of tax shall be allowed under the last preceding sub-section shall be -

(a) …

(b) …

(c) …

(d) amounts not exceeding Fifty pounds in the aggregate paid by the taxpayer in the year of income to any legally qualified medical practitioner, nurse or chemist, or public or private hospital, in respect of any illness of or operation upon the taxpayer or his spouse or any of his children under the age of twenty-one years, if the spouse or child is a resident;"

22. The Income Tax Assessment Act (No. 2) 1944 (Cth) amended subsection 160(2)(d) and enacted a new subsection 160(2)(da). Subsection 160(2)(d)-(da) provided:

"(2) The amounts in respect of which a rebate of tax shall be allowed under the last preceding sub-section shall be -

(a) …

(b) …

(c) …

(d) the amount of any payments (other than payments in relation to which paragraph (da) of this subsection applies) made by the taxpayer in the year of income to any legally qualified medical practitioner, dentist, nurse or chemist, or to any public or private hospital, in respect of any illness of or operation upon, or dental services or treatment rendered to, the taxpayer or his spouse, or any children under the age of twenty-one years, if the spouse or child is a resident:
Provided that -

(i) if the total sum of the payments made in respect of dental services or treatment rendered to any such persons exceeds Ten pounds, the amount of the excess shall not be included for the purposes of this paragraph; and

(ii) if the total sum of all the payments made in relation to any such person, after deducting there from the amount (if any) required to be excluded by the last preceding sub-paragraph, exceeds Fifty pounds, the amount shall not be included for the purposes of this paragraph;

(da) the amount of any payments made by the taxpayer during the year of income in respect of any artificial limb (or part of a limb) or artificial eye required for the personal use of the taxpayer or his spouse, or any of his children under the age of twenty-one years, if the spouse or child is a resident;"

23. The Income Tax Assessment Act 1945 (Cth) further amended subsection 160(2)(d). After the enactment of the amendments made by Income Tax Assessment Act 1945 (Cth), subsection 160(2)(d) provided as follows:

"(2) The amounts in respect of which a rebate of tax shall be allowed under the last preceding sub-sections shall be -

(a) …

(b) …

(c) …

(d) the amount of any payments (other than payments in relation to which paragraph (da) of this subsection applies) made by the taxpayer in the year of income to -

(i) any legally qualified medical practitioner, nurse or chemist, or any public or private hospital, in respect of any illness of or operation upon the taxpayer or his spouse, or any of his children under the age of twenty-one years, if the spouse or child is a resident;

(ii) any legally qualified dentist in respect of dental services or treatment rendered to the taxpayer or any such spouse or child;

(iii) any person for services rendered to the taxpayer or any such spouse or child in the testing of eyes or the prescribing of spectacles, if that person is legally qualified to perform those services, or to any person for the supply of spectacles in accordance with any such prescription; or

(iv) any attendant as remuneration for services rendered to, and arising out of the blindness or permanent confinement to a bed or invalid chair of, the taxpayer or any such spouse or child

(da) the amount of any payments made by the taxpayer during the year of income in respect of any artificial limb (or part of a limb), artificial eye or hearing aid required for the personal use of the taxpayer or his spouse, or any of his children under the age of twenty-one years, if the spouse or child is a resident;"

24. As can be seen, the lineage of the current paragraph (h) of subsection 159P(4) can be traced back to sub-paragraph (iv) of subsection 160(2)(d).

25. The Income Tax Assessment Act 1945 (Cth) also enacted subsection 160(5), which provided:

"(5) Where, in respect of any amount referred to in sub-section (1) of this section, a taxpayer would, apart from this sub-section, be entitled to a deduction under any provision of this Act, he shall not be entitled to both a rebate and a deduction in respect of that amount, but shall be allowed only the rebate or the deduction, whichever the Commissioner considers appropriate."

26. The Explanatory Memorandum to the Income Tax Assessment Bill 1945 (Cth) noted as follows in relation to subsection 160(5):

"Paragraph (g) of clause 14 [of the Income Tax Assessment Bill 1945 (Cth)] will insert in section 160 of the Principal Act a new sub-section, viz., sub-section (5), which is designed to make it impracticable for a taxpayer to obtain both a concessional rebate and an allowable deduction in respect of the same amount, e.g., payments to a personal attendant by a blind person engaged in a trade or profession. The new provision will, in such cases, empower the Commissioner of Taxation to allow either the rebate or the deduction, whichever he considers appropriate.

The amendments proposed by clause 14 will first apply to assessments based on income derived during the year 30^th June, 1946."

27. As can be seen from the terms of subsection 160(5), Parliament readily contemplated that amounts falling within the scope of sub-paragraph (iv) of subsection 160(2)(d) (now paragraph (h) of subsection 159P(4)) could be deductible under another provision of the 1936 Act, including subsection 51(1), if the terms of the other provision were satisfied. There would have been no need for subsection 160(5) if amounts coming within the scope of sub-paragraph (iv) of subsection 160(2)(d) were not deductible.

28. The Applicant submits that there is no material difference between payments to an attendant by a blind person engaged in a trade or profession (the example given in the Explanatory Memorandum to the Income Tax Assessment Bill 1945 (Cth)) and the circumstances of the Applicant, save the fact that the assistant in the Applicant's case is provided remuneration by a person who is permanently confined to an invalid chair rather than blind.

29. The Income Tax and Social Services Contribution Assessment Act 1950 (Cth) discontinued the "concessional rebate" provisions and inserted a new "concessional deduction" dealing with "medical expenses", viz section 82F.^[1] The history of these provisions is recounted in part by Chairman H.P. Stevens in Case S65 85 ATC 460.

30. Section 82F, when originally enacted, provided as follows:

"(1) Amounts paid by the taxpayer in the year of income as medical expenses in respect of himself, or in respect of a dependant who is a resident, shall, to the extent to which he has not been, and is not entitled to be, recouped those expenses by any government, public authority, society or association, be allowable deductions.

(2) The deductions allowable under this section shall not include, in respect of any one year of income, so much of the amount of medical expenses in respect of any one person as it exceeds One hundred pounds.

(3) In this section:
'dependant' means:

(a) the spouse of the taxpayer;

(b) a child of the taxpayer less than twenty-one years of age; or

(c) a person in respect of whom the taxpayer is entitled to a deduction under section eighty-two B or eighty-two C of this Act.

'medical expenses' means payments:

(a) to a legally qualified medical practitioner, nurse or chemist, or a public or private hospital, in respect of an illness or operation;

(b) to a legally qualified dentist for dental services or treatment, but not including so much of the amount of such payments in the year of income in respect of any one person as exceeds twenty pounds;

(c) for therapeutic treatment administered by direction of a legally qualified medical practitioner;

(d) in respect of an artificial limb (or part of a limb), artificial eye or hearing aid;

(e) in respect of a medical or surgical appliance (not otherwise specified in this definition) prescribed by a legally qualified medical practitioner;

(f) for:

(i) the testing of eyes or the prescribing of spectacles by a legally qualified person to perform those services; or

(ii) the supply of spectacles in accordance with any such prescription; and

(g) as remuneration of a person for services rendered by him as an attendant of a person who is blind or permanently confined to a bed or invalid chair."

31. Section 82F was subject to the operation of subsection 82(1): Case P31,
Gilbert v Commissioner of Taxation 82 ATC 141 at 145 per Members J.R. Harrowell and B.R. Pape and Parsons, Income Taxation in Australia, Law Book Company, 1985 at paragraph 8.20.

32. Section 82F was amended a number of times. None of the amendments to section 82F had any bearing on the construction or operation of the former subsection 51(1) or former subsection 82(1).

33. The Applicant respectfully submits that the structure of the 1936 Act that was in existence readily supports the proposition that "medical expenses" as defined in subsection 82F(3) could be deductible under other provisions of the 1936 Act, including subsection 51(1), the forerunner to section 8-1. The Applicant notes that paragraph (g) of former subsection 82F(3) is identical to the current paragraph (h) of subsection 159P(4), and save for variations in grammatical form not presently relevant, identical to former paragraph (d)(iv) of subsection 160(2). As such, amounts coming within the scope of what is now paragraph (h) of subsection 159P(4) (and hence former paragraph (g) of subsection 82F(3) and former paragraph (d)(iv) of subsection 160(2)) could have been deductible under former subsection 51(1) and current section 8-1, but for the application of former subsection 82(1) or former subsection 160(5).

34. Section 82F was repealed by Income Tax Assessment Act (No. 2) 1975 (Cth). It appears that the reason the deduction in section 82F was replaced was that "the high-income taxpayer would receive somewhat less assistance than … the low-income taxpayer".^[2] Commonwealth Taxation Review Committee , Australian Government Publishing Service, Canberra, at paragraph 12.40 (hereafter the “Asprey Report” ).

35. The Income Tax Assessment Act (No. 2) 1975 (Cth) enacted a number of concessional rebates. It also enacted a provision dealing with "double rebates" for the same expenditure: see section 159M. However, a provision similar to the former subsection 160(5) was not enacted in spite of legislative precedent. It was open for Parliament in 1975 or any time thereafter to impose a restriction on the ability of a taxpayer to claim medical expenses offset and a deduction in respect of the same amounts coming within the scope of paragraph (h) of subsection 159P(4). Parliament has chosen not to do so.

36. The Respondent contends that section 159P, when enacted, was meant to "cover the field". However, the Respondent does not cite any authority to support that view. Indeed, there is nothing in the Explanatory Memorandum, the Second Reading Speech or the Asprey Report to suggest that the enactment of section 159P somehow altered the operation of the former subsection 51(1) (now section 8-1). Nor is there anything in the Explanatory Memorandum or the Second Reading Speech that accompanied the legislation to the enactment of section 8-1 to support the Respondent's view.

37. This is not surprising. In the ordinary case, expenditure on "medical expenses" would not qualify for a deduction under section 8-1 (or former subsection 51(1)) as the first positive limit would ordinarily not be satisfied, or, failing that, the private and domestic limb would apply to deny a deduction under section 8-1 or subsection 51(1). However, outgoings that come within the scope of paragraph (h) of the definition of "medical expenses" in subsection 159P(4) and former paragraph (g) of subsection 82F(3) readily lend themselves to deductibility under subsection 51(1) or section 8-1, as was recognised by the Parliament in 1945 by virtue of former subsection 160(5) and again in 1950 by virtue of Parliament's reliance on former subsection 82(1).

38. The Applicant's submits that it would be surprising for there to be a modification in the operation of subsection 51(1) or section 8-1, two of the most important provisions in the 1936 Act and the 1997 Act, respectively, without an enactment of Parliament or any reference to such a modification in any extrinsic materials published since 1975. Usually, there are specific provisions dealing with the restrictions on deductions otherwise available: see paragraph (d) of subsection 8-1(2) and Division 26 of the 1997 Act.

39. The Applicant submits that section 159P was introduced for social policy reasons that are unrelated to the issue of deductibility of "medical expenses" as defined.

40. The Commonwealth Government in June 1985 released a Draft White Paper entitled Reform of the Australian Tax System ( Draft White Paper ). The Draft White Paper recommended the abolition of the concessional rebate because evidence indicated that the rebates were of very limited benefit to taxpayers.^[3] Chapter 9 of the Draft White Paper, pages101-103. The Draft White Paper at the same time recognised that there was a need to provide concessional tax treatment for medical expenses:

"Not to provide concessional tax treatment for exceptionally high unreimbursed medical (including hospital, dental, optical) expenses, however, could involve an element of hardship and horizontal inequity for taxpayers who have substantial expenditures on items which are not fully covered by Medicare (or other government assistance programs) in the health area. One way of meeting this concern would be to provide a special concession for medical expenses …"

41. This recommendation was adopted by the Government in the Taxation Laws Amendment Act (No. 2) 1985. The Government's view in relation to the medical rebates is expressed as follows in the Second Reading Speech (given by the Honourable Chris Hurford, MP, the Minister Assisting the Treasurer) in the House of Representatives:

"However, the Government also recognised a continuing need for some assistance to those incurring high unreimbursed medical expenses and has therefore decided to introduce a new medical expense rebate for net outgoing exceeding $1,000."

42. The medical expense offset is designed to address "unreimbursed" medical expenses rather than non-deductible medical expenses. The Draft White Paper further emphasised that medical expenses that are "not fully covered" by health care or government assistance would lead to hardship and horizontal inequity. The medical expenses tax offset is therefore designed to alleviate hardship and horizontal inequity. It was not introduced as a substitute for a deduction for medical expenses.

43. Even if medical expenses incurred by the taxpayer are deductible, the taxpayer would still be left out of pocket as the taxpayer's medical expenses would not be "fully covered". Accordingly, there is still room for the policy rationale underlying section 159P to apply even if the "medical expenses" as defined are deductible under section 8-1.

44. The former subsection 160(5) addressed this problem by permitting the more appropriate tax treatment to be adopted in the circumstances - in the present context the allowance of a deduction rather than a nominal rebate. In the absence of such a provision it should not be assumed that remedial legislation was intended to have an adverse operation on person such as the Applicant - rather, a beneficial construction should be preferred.

45. The Applicant submits that the only conclusions from the above survey of the legislative history are that:

(a) the medical expenses tax offset operates independently of any deduction in respect of the same expenditure allowable under section 8-1;
(b) Parliament would have expressly excluded the concurrent application of section 159P and section 8-1 if Parliament had wanted to achieve that objective (as it had done with the former subsection 160(5));
(c) the medical expenses tax offset aims to achieve a different result from a deduction, in this case being a social welfare result; and
(d) there is no extrinsic material to justify the proposition that section 159P was intended to "cover the field" in terms of the tax treatment of outgoings that satisfied the definition of "medical expenses". The Respondent's contention at paragraph 25 of his Submissions is therefore incorrect.

Annexure B

46. The Applicant submits that it is a fundamentally flawed argument that an expense is not deductible under section 8-1 on the basis that the incurrence of the expense contravenes the Latin maxim delegatus non potest delegare. Apart from anything else, there is in fact no delegation here. The concept of delegation and, by corollary, the ability to delegate is discussed in many books dealing with company law: see for example, Palmer's Company Law, 21 st edition, 1968 at paragraph 1.531 and Ford's Principles of Corporations Law, LexisNexis at paragraphs 7.264 and 8.340. The very essence of delegation assumes a right exercisable by the employee to delegate to some other person the carrying out the employee's duties qua employee. This is simply not the case here. Rather, there is merely the performance of an act that assists the employee to carry out her duties of employment more effectively. For example, there is no delegation if the Applicant requests her assistant to open an envelope addressed to her. The opening of the envelope is merely an act that assists the Applicant in performing her duties of employment.

47. Further, the Latin maxim delegatus non potest delegare is nowhere expressed in the text of the 1936 Act or the 1997 Act. The maxim is not a "negative limb" of section 8-1. The maxim is therefore irrelevant to the application of section 8-1.

48. Even if the maxim is thought to be relevant for the purposes of the law of employment, it is irrelevant for tax purposes. Save for express provisions such as section 26-54 of the 1997 Act, a loss or outgoing in respect of an illegal activity is deductible under section 8-1 if the terms of section 8-1 are otherwise satisfied:
Commissioner of Taxation v La Rosa 2003 ATC 4510; (2003) 129 FCR 494.

49. The existence of a right to delegate is not inimical to the existence of an employment relationship:
Logan v Gilchrist, Watt & Cunningham (1927) Argus LR 321 (High Court of Australia). In Logan, the appellant, the owner of a large flock of sheep, engaged a drover to move those sheep to a different location due to drought. The agreement, which was in standard form, contained the following clauses 1, 4 and 10:

"1. That the said drover shall take charge of and carefully drove about ten thousand (10,000) wethers from "Redcliffe," Hughhenden, to St. Lawrence, via Nebo aforesaid, or such destination or destinations as may be from time to time decided upon by the said owner. Such sheep to be droven in two flocks of equal numbers by day, but held in one camp at night.

4. That the said drover shall provide labour , wages, rations, plant and other things necessary to perform the work in a proper and efficient manner, and, unless otherwise instructed by the said owner, to travel the sheep by the usual and well known stock routes, not less than 42 miles per week, unless prevented by wet or other unforseen cause or causes.

10. Should the said owner find the said drover neglectful or failing to carry out properly and to his satisfaction his part of this agreement, then the said drover will at once on demand deliver up peaceable possession of the said sheep, and accept instant dismissal without recourse against the said owner or his agent for such dismissal." (Emphasis added)

50. The drover allowed the sheep, whilst under his charge while droving, to trespass on the land of the respondents and cause damage. The respondents sued the owner of the sheep on the basis that the owner of the sheep was vicariously liable for the acts of the drover as the drover was the employee of the owner of the sheep. The Supreme Court of Queensland and the Full Court of the Supreme Court of Queensland gave judgment for the appellant. Each of Isaccs ACJ, Higgins and Gavan Duffy JJ also held that the drover was an employee of the appellant and that the owner of the sheep was vicariously liable, in spite of the terms of the agreement between the drover and the owner of the sheep. In particular, the existence of an express term allowing the drover to employ others did not in any way alter the fact that an employment relationship existed. The conclusion of the High Court of Australia was arrived at on the basis that the appellant controlled the activities of the drover.

51. In the Applicant's submission, Logan supports the view that it is possible for an employee to have an employee, provided that permission is given by the employer (expressly or impliedly).

52. Given the Applicant's disabilities are self-evident, it must be the case that the Applicant's terms of employment permit her to obtain such assistance as is necessary. The mere physical presence of the attendant in the employer's premises suggests that the employer has consented, whether expressly or impliedly, or acquiesced, to the delegation. In the Applicant's submission, the Latin maxim res ipsa loquitor is apposite.

53. Authority to delegate is implied in the case of ministerial acts: see Harold Broom, A Selection of Legal Maxims, 10th ed, Sweet & Maxwell, 1939 at 571. This is especially the case where no special discretion or skill is required, and where the acts are subsidiary to the main purpose. For example, Willes J said the following in
The Burial Board of the Parish of St Margaret, Rochester v Thompson (1871) 6 LR CP 445 at 457-458:

"It was argued that the maxim "Delegatus non potest delegare" applied. If a person is appointed to some function, or selected for some employment , to which a peculiar personal skill is essential - as a painter engaged to paint a portrait - he cannot hand it over to some one else to perform; but where the thing to be done is one which any reasonably competent person can do equally well, or when any discretion to be exercised is in respect of a merely ministerial act, a deputy may be appointed." (Emphasis added.)^[4] See also Johnson v Osenton (1869) LR 4 Ex 107 at 112 per Kelly CB.

54. The Court of Common Pleas thus concluded that the sexton of a parish was entitled to appoint another person to dig graves and ring the bells of a church to assist in the performance of burial services.

55. It is clear that the tasks performed by the Applicant's attendant are in the nature of ministerial acts. That is, the tasks performed by the attendant merely aid and assist the Applicant and are subsidiary to the activities of the Applicant that require legal training.

56. The notion that the Applicant is parting with her own authority is misconceived. The assistant is merely assisting the Applicant to fulfil her duties of employment and the Applicant still retains all her powers, rights and duties in respect of her employment.

57. In order to appreciate the significance of this point, it is necessary to examine the concept of "delegation". Wills J. in
Huth v Clarke (1890) 25 QBD 391 at 395 defined "delegation" in the following terms:

"Delegation, as the word is generally used, does not imply a parting with powers by the person who grants the delegation, but points rather to a conferring of an authority to do things which otherwise the person would have to do himself. The best illustration of the use of the word is afforded by the maxim, Delegatus non potest delegare, as to the meaning of which it is significant that it is dealt with in Broom's Legal Maxims under the law of contract: it is never used by legal writers, so far as I am aware, as implying that the delegating person parts with his power in such a manner as to denude himself of rights. If it is correct to use the word in the way in which it is used in the maxim, as generally understood, the word "delegate" means little more than an agent."

58. See also
O'Reilly v The Commissioners of the State Bank of Victoria (1982) 153 CLR 1 at 17 per Mason J.

59. The Respondent is tacitly acknowledging that there is a direct nexus between the performance of the attendant's tasks and the Applicant's employment by stating that there is a delegation. The tasks (i.e. the ministerial acts referred to above) performed by the attendant are part of the activities that generate the Applicant's assessable income as the tasks are carried out for the Applicant as an agent of the Applicant. There is no delegation of all her authority to the assistant. Rather, there is only a delegation of authority in relation to certain ministerial acts and the Applicant still retains her powers and rights in relation to the assistant in relation to matters delegated. If this is done during the course of the Applicant's employment, as would necessarily be the case under the Respondent's argument, then this would only serve to highlight the incidental and relevant nature of the assistant's activities to the Applicant's work. There can be no delegation in the relevant sense if the occasion of delegation was unconnected or antecedent to the Applicant's employment. As such, the assistant's activities are directly connected "with the operations which more directly gain or produce the assessable income" of the Applicant:
Charles Moore & Co (W.A.) Pty Ltd v Commissioner of Taxation (1956) 95 CLR 344 at 351 (see paragraph 16 above).

60. Given that the engagement of an assistant was consented to by the Applicant's employer, if, contrary to the above contention, the maxim is applicable to the position of an employee in all circumstances, the result is not that the engagement was unlawful but rather that the Applicant's engagement is to be categorised not as one of employment, but that of an independent contractor. On the Respondent's argument this would mean that it is the second positive limb of section 8-1 which is relevant, and on the Respondent's argument it is more, rather than less, appropriate for the expenditure to be deductible.

Footnotes

^[1] The history of these provisions is recounted in part by Chairman H.P. Stevens in Case S65 85 ATC 460.
^[2] Commonwealth Taxation Review Committee , Australian Government Publishing Service, Canberra, at paragraph 12.40 (hereafter the “Asprey Report” ).
^[3] Chapter 9 of the Draft White Paper, pages101-103.
^[4] See also Johnson v Osenton (1869) LR 4 Ex 107 at 112 per Kelly CB.

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