Case D11

Judges:
AM Donovan Ch
GR Thompson M
RK Todd M

Court:
No. 2 Board of Review

Judgment date: 13 April 1972.

---

A.M. Donovan (Chairman); G.R. Thompson and R.K. Todd (Members): Tiring of the inactivity of life in retirement, the taxpayer sought and obtained a new appointment in a remote part of a distant State. The position was to continue for a year certain, but, subject to mutual satisfaction, was thereafter to be extended for a further four years. The taxpayer endeavoured to sell his home, for he then expected that when the new appointment terminated he would move to yet another State to be near some members of his family. When the sale of his home could not be negotiated at a satisfactory price, he let it fully furnished to a tenant. He then travelled with his wife to the town where he was to work and took up residence there in a rented flat. In fact, soon after his arrival his wife became dissatisfied with the move and the taxpayer, having given ample notice of his intention to do so, relinquished the position after one year and returned to his former home.

2. In his return the taxpayer claimed two deductions to which attention needs to be directed. The first was the excess of the cost of transporting himself, his wife and some personal effects to the new location over the amount reimbursed by his employer. The other represented the rental of the flat which he and his wife occupied. These deductions were disallowed by the Commissioner who also included as income an amount of $220, being an allowance paid regularly by the employer and calculated at a weekly rate because rents in the locality were regarded as being higher than in less remote places.

3. Shortly after receiving the assessment reflecting the abovementioned alterations, the taxpayer wrote a letter to the Deputy Commissioner which constitutes the objection before the Board but which, to say the least, could have been more precisely drafted. At the hearing, the Commissioner's representative argued the reference on the basis that the objection challenged the disallowance of the two deductions abovementioned and contested the assessability of the amount of $220 to which reference has been made. For reasons which will emerge, we are prepared to deal with the reference on this basis but feel compelled to direct attention to the fact that by sec.190 of the Act a taxpayer in a reference to the Board is restricted to the grounds taken in his objection, i.e. he is restricted to the matters which the objection (required to be in writing) fairly raises. No concession by the Commissioner's representative can enlarge the ambit of the document, the scope of which has to be determined by the tribunal which has the duty of considering it.

4. The taxpayer, who presented his own case to the Board, submitted that it was

---

ATC 52

logical and equitable that the deductions should be allowed. He said that the expenses of transporting himself, his wife and personal effects were necessarily incurred to produce the salary from his new position and that the rent paid for the flat was similarly incurred in producing the rental from his previous home. He referred particularly to the recent decision in
Hatchett's case, 71 ATC 4184, submitting that that case was authority for the view that an expense undertaken to produce more income was deductible.

5. As was explained during the hearing, the questions posed by this reference cannot be decided on the basis of what might be equitable and the Board must ignore the fact that, as events turned out, the taxpayer's decision to take the position in question proved to be financially unrewarding. What has to be determined is, firstly, whether the deductions claimed satisfy the requirements of sec.51 of the Act, for there is no other section under which they might fall, and, secondly, whether the allowance mentioned constitutes assessable income for the purposes of the statute.

6. As far as is presently material, sec.51 provides for a deduction in respect of ``outgoings... incurred in... producing the assessable income'' and excludes outgoings of a capital, private or domestic nature. The meaning of the section has been explained by the High Court on numerous occasions, and it is sufficient to refer to what was said in
Ronpibon Tin N.L. v. F.C. of T., 78 C.L.R. 47, at pp.56-7, namely: ``For 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. The words `incurred in gaining or producing the assessable income' mean in the course of gaining or producing such income.'' The costs incurred by the taxpayer in travelling to the place where he was to work were expenses incurred in order to enable him to earn income but were not expenses incurred in the course of earning that income as required by the section. His wife's expenses in accompanying him and the cost of transporting personal belongings were not in any relevant sense related to the derivation of his salary and were in any event of a private or domestic nature falling within the excluding provisions. The rental paid for the flat occupied by the taxpayer and his wife was similarly not in any relevant sense incurred in the course of producing the rental from the former home. It too represented an outgoing of a private or domestic nature. The items in question do not satisfy the requirements of deductibility under sec.51 of the Act.

7. It is perfectly true that the taxpayer could not have earned his salary unless he first travelled to the place of employment. The expenses involved in doing so might therefore in a sense be said to have been ``necessarily'' incurred in gaining that salary. The receipt of rent from letting his former home was only possible in the circumstances because the taxpayer had vacated it, and it might be said too that the rental of alternative accommodation was a necessary ingredient in the production of the rental received. That such a connection between an outgoing and income is insufficient to ensure deductibility under sec.51 was explained at length in the joint judgment of Williams, Kitto and Taylor, JJ. in
Lunney's case, 100 C.L.R. 478, at p. 495 et seq. As the law stands, it can be said shortly that although an item of expenditure may be an essential pre-requisite to the earning of income it will remain non-deductible unless incurred in the course of (in the sense of ``in the process of'' or, in homelier terms, ``as part and parcel of'') gaining or producing the income.

8. We rather feel that, insofar as the taxpayer relied upon Hatchett's case (supra), he founded his submission more on editorial comment in a non-legal professional periodical than upon the actual judgment or the reasons for it. Hatchett's case was an appeal from a decision of this Board (as then constituted) and we are very familiar with its facts. In part that case called for consideration of the deductibility of costs incurred by a teacher in a State Education Department in obtaining an in-service qualification. Upon obtaining that qualification the teacher became entitled to higher salary without any change in duties

---

ATC 53

and became eligible for promotion to higher positions. It was held that the costs under consideration were deductible. At p.4186, Menzies, J. observed -

``The question first to be dealt with is whether the outgoings to obtain the Teacher's Higher Certificate were incurred in gaining the assessable income of the taxpayer. It is now beyond doubt that, in considering this question, consideration must be given to assessable income of future years as well as that of the year in which the outgoing occurs. The evidence to which I have referred establishes that the possession of a Teacher's Higher Certificate would not only enable the taxpayer to earn more in the department in the future, it forthwith entitled him to be paid more for doing the same work without any change in grade. If the certificate had been obtained during a tax year, instead of at the end of a tax year as was the case, it would have entitled the taxpayer to greater earnings in that year. The taxpayer, in reliance upon the conditions of his employment, spent money to earn more. In these circumstances the outgoings necessary to obtain the certificate ought, I think, to be regarded as outgoings incurred in gaining assessable income. This conclusion is, I think, supported by the decision in
F.C. of T. v. Finn (1961-62) 106 C.L.R. 60, but I will defer an examination of that case until later because it also bears upon other matters in issue.''

9. The facts on which that decision turned were somewhat unusual and differed substantially from those in this reference, and for that reason the decision can be distinguished. In any event, however, the reasons contained in the above passage seem to be no more than an application of generally accepted principles to the particular circumstances of the case. Certainly, nothing in the reasons supports the conclusion that his Honour intended to convey that an amount laid out in order to earn more income is for that reason alone deductible under sec.51.

10. We turn now to the regular allowance received by the taxpayer from his employer. There can be no doubt that the allowance fell to be included as assessable income under sec.26(e) of the Act and was properly so treated by the Commissioner. Indeed, at the hearing the taxpayer did not contest this treatment but argued that he was entitled to a deduction pursuant to sec.51A of the Act because the allowance was a ``living-away-from-home allowance''. Sub-section (3) of that section defines such an allowance as one ``paid or granted in money or otherwise - in the nature of compensation to the employee for the additional expenses... incurred by him... through having to live away from his usual place of abode....'' It should be observed that the letter of objection, however widely construed, does not raise the question of a deduction under sec.51A and, in consequence, the Board is precluded from pronouncing upon that matter. Nevertheless, we think we should say that had the question been before us for consideration this contention, in our view, would have failed. The reason can be shortly stated. During the relevant time the taxpayer had only one place of abode, that is to say, the rented flat which he occupied in the locality where he worked. He had abandoned his previous place of abode which had been let to a tenant, and it is nothing in point that it was again occupied by him at the expiration of his employment. The allowance in question was therefore not a living-away-from-home allowance as defined. Since the receipt and assessment to tax of such an allowance are conditions precedent to the allowance of a deduction under sec.51A, the taxpayer is not entitled to any benefit under that provision.

11. For the reasons abovementioned, we are of the opinion that the deductions sought are not allowable and that the allowance received constitutes assessable income. In our opinion, therefore, the taxpayer's objection was properly disallowed by the Commissioner. We would uphold his decision and confirm the assessment before us.

Claims disallowed