Caffrey v. Federal Commissioner of Taxation.

Judges:
Wickham J

Court:
Supreme Court of Western Australia

Judgment date: Judgment handed down 4 October 1973.

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Wickham J.: This is an appeal to the Supreme Court by a taxpayer, Mr. Caffrey by way of treatment of his objection to his assessment of income tax for the year ending 30 June 1971 as an appeal pursuant to sec. 187(b) of the Income Tax Assessment Act 1936-1971. The appellant gave evidence and his details as set out in Schedules 1 and 3 may be taken as verified.

Over the relevant period, namely from the end of September 1970 to 30 June 1971 the appellant was employed as a lecturer in law at the Mitchell College of Advanced Education, Bathurst, New South Wales. His field of work covered many aspects of legal education at the commercial course level.

I accept his evidence that at that time at the college neither his working conditions nor the law library were adequate for him to be able properly to carry out his professional duties, and that it was necessary for him to acquire an extensive library of his own, do a lot of work at home, and also to travel to and from the library at the Law School at the University of Sydney in order further to research his lectures and other work.

In his return for year ending 30 June 1971 the appellant claimed among other things a deduction of 35% of his motor vehicle expenses said to be justified by his travelling to and from Sydney for the purposes mentioned and also one-third of the rent, electricity and gas applicable to his private residence in Bathurst. Of the former claim, after objection the Commissioner allowed it was said the equivalent of 22½% (21½% it seems to me) of the expenses mentioned, and of the latter claim he allowed roughly one-sixth of the electricity and gas, and disallowed the whole of the proportionate claim for rent. It is these matters which are the subject of this appeal.

In respect to the travelling expenses I suspect that the taxpayer's claim was conservative and had his evidence been more accurate he would have had little difficulty in substantiating it; however it was apparent that he did much exaggerate the number of journeys which he had made to Sydney even before allowing for some which were probably of a private nature. I accepted his evidence as to mileage done by his vehicle over the relevant period and it was impossible to reconcile this with even the minimum number of income producing journeys which could be inferred from his evidence. This left the matter in a state of uncertainty and leaves me unpersuaded that the taxpayer's estimate of 35% of his expenses as applicable to gaining assessable income was any closer to being accurate than the estimate made by the Commissioner. The appeal therefore in that respect fails.

In respect to the electric light and gas, the Commissioner accepted, I think correctly, that to some extent this outgoing was incurred in gaining or producing the assessable income. In evidence the appellant said nothing which would cause me to think that he had justified his claim of one-third of

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ATC 4146

the amounts, and as the amount allowed by the Commissioner does not seem to me to be unreasonable, that aspect of the appeal also fails.

The third matter, namely the claim for a proportion of rent paid as a deduction seemed to be considered by the parties as an important matter of principle but it seems to me to raise a question only of fact.

The appellant over the relevant period lived with his wife in a house about one mile from the College, for which he paid a rental of $25.00 per week. It had three main rooms, a bathroom, kitchen and laundry. The appellant had a small private library when he went to Mitchell College but he then increased it extensively by an expenditure of some $370 in the remainder of the year of income. The appellant converted the third room of the house into a study by lining the walls with rough timber shelving for his books, files, and other papers and included a rough structure which served as a desk. I accept his evidence that the room was used by him wholly and exclusively for the purposes, and that it was reasonably necessary for the purpose, of him doing work associated with the earning of his assessable income, and that he did work long hours in it for that purpose. The room set up and so used by the taxpayer was not in the same category as the sort of room in a house which is called a study and sometimes or even often used for that purpose, but is nevertheless in its nature a part of the total domestic establishment. I mention that for the purpose not of stating criteria which might be used in other cases, but only for the purpose of finding the facts of this case. I have carefully considered the authorities mentioned with special reference to the remarks of Walsh J. in
Thomas v. F.C. of T. 72 ATC 4094; 46 A.L.J.R. 397 and of Mason J. in
Lodge v. F.C. of T. 72 ATC 4174;46 A.L.J.R. 575 and in
F.C. of T. v. Faichney, 72 ATC 4245. I have not been able to find anything in these judgments which lay down any new legal rule relating to the construction of sec. 51 of the Act and each decision seems to me to be a decision of fact. In particular, the example given by Mason J. in the last case where he said that payment of rent on the taxpayer's dwelling is an example of an outgoing of a private or domestic nature cannot, even if it were not obiter, be erected into the legal proposition that rent paid for the taxpayer's dwelling can never be to any extent incurred in gaining or producing assessable income within the meaning of sec. 51(1). This would be taking a liberty with his Honour's reasons which cannot be taken and would in addition not be construing the section, or applying it, but amending it by adding another exception or proviso to it.

In my opinion this is a clear and simple case and the taxpayer has established an allowable deduction in respect to rent paid to the extent to which the outgoing was incurred in gaining or producing his assessable income, and that it was so incurred to some extent.

If it is thought useful to apply some other test than the actual wording of the section, then I also think it to be here clear on the facts that the occasion of the loss or outgoing (to the relevant extent) is found in what is productive of the assessable income, namely, is found in the necessity to pay rent for a house which includes a workroom used for work productive of the income and is directly ``incidental and relevant to'' that. See
Ronpibon Tin N.L. v. F.C. of T. 78 C.L.R. 47 at 56-57 and
Lunney v. F.C. of T. 100 C.L.R. 478 at 497 cited by Mason J. in Lodge v. F.C. of T. ibid.

In my opinion the taxpayer has on the facts brought himself within the rule stated in sec. 51(1) and has demonstrated that his case does not fall within any of the exceptions to it and that therefore his appeal in this respect should be allowed, and that the assessment should be amended to allow a deduction to the relevant extent.

The appellant was given no notice that the Commissioner disputed his apportionment, the ground of the disallowance in the amended assessment being stated simply as ``a deduction for rent cannot be allowed in respect of home study expenses. Rent etc. is classed as private expenditure''. Either party has liberty to apply if the matter of apportionment remains of dispute.