Case F44

Judges:
JL Burke Ch
CF Fairleigh QC

Court:
No. 1 Board of Review

Judgment date: 20 August 1974.

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J.L. Burke (Chairman) and C.F. Fairleigh, Q.C. (Member) (Constituting a Quorum): In his return of income for the year ended 30 June 1973 the taxpayer claimed a deduction (at the rate of 10 cents per mile) in respect of the mileage from his home to a technical college and return (broadly corresponding on the forward journey with the distance travelled to the college from the place where he did his day's work); he also claimed a deduction for meals at 50 cents each time he attended the college. The evening classes began at 6 p.m. and as he did not arrive home on some nights until after 8.30 p.m. and on others after 9.30 p.m. it was his custom to purchase evening tea en route to the college. At the hearing the claim was amended to 67 vehicle trips at 10 cents a mile each of 10 miles ($67), and 50 meals at 50 cents ($25), a total of $92. College fees and expenditure on books and equipment had been claimed by and allowed to him under sec. 82JAA of the Assessment Act. No question as to quantum arises on the evidence.

2. The Commissioner disallowed the claim for expenditure on travelling and meals and his decision on the objection was referred to a Board for review.

3. The taxpayer conceded, and rightly so, that his claim could not be sustained under sec. 82JAA. ``Expenses of self-education'' as defined in sub-sec. (5) thereof are limited to expenses necessarily incurred by the taxpayer for fees, books and equipment (with various limitations not presently relevant).

4. The question for decision is whether the amounts claimed are deductible pursuant to sec. 51(1). The Commissioner argues that the items of expenditure were not incurred in gaining or producing the taxpayer's assessable income and in any event are specifically excluded from deduction as being outgoings of capital or of a capital, private or domestic nature. With regard to the positive provisions of sec. 51(1) it has been judicially observed that it is not sufficient that the purpose of the expenditure is incidental and relevant to the derivation of assessable income; it must also be of a character which warrants the description of an expense incurred in the course of producing assessable income - see the comment in
Lunney v. F.C. of T. (1958) 100 C.L.R. 478 at p. 496-497; concerning
Ronpibon Tin N.L. v. F.C. of T. (1949) 78 C.L.R. 47 at p. 56-58.

5. The taxpayer left school at intermediate level in 1957 and in 1966 enrolled at a technical college as a night student in what was then known as the Accountancy Certificate Course. By the end of the 1971 academic year he had satisfied the examiners in Introductory Accounting, English, Commercial Law I and Auditing and Investigations. In 1972 the content of the course was changed and it was designated the Commerce (Accounting Procedures) Certificate. Although the course was not thenceforth recognized for admission to the Society of Accountants it was accepted by the Institute of Affiliate Accountants and also as a preliminary qualification leading to registration as a public accountant.

6. In 1972, in the new course, the taxpayer sat for and passed Company Accounting and Taxation Law and Practice. In 1973 the taxpayer passed the Introduction to Data Processing but failed Monetary Theory and Advanced Financial Accounting.

7. Up to March 1970 the taxpayer's employment was in insurance firms on clerical and inspectorial duties but in that month he obtained employment with a commercial firm as a production services accountant involved in cost accounting.

8. From January 1971 to July 1973 the taxpayer was employed with a firm of chartered accountants as an intermediate clerk. Notwithstanding his employment with

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the firm his prospective qualifications would not have entitled him to be admitted as a chartered accountant. During the 1972/1973 year he was employed on audit work and balance sheet verifications. He was under direct supervision but not continually so in the performance of his day-by-day duties; for approximately 50% of the time he was on his own.

9. In evidence the taxpayer said that the subjects which he was studying in 1972 and 1973, in particular Company Accounting, Taxation Law and Practice and Introduction to Data Processing, would have been of some assistance in the performance of his duties but he placed emphasis on the overall relevance of his course to his professional duties rather than to the fragmented approach of tying his course subject by subject to what was being done by him in each year of employment.

10. The evidence of the senior partner of the firm which employed the taxpayer supports the taxpayer's approach on the question of the relevance of the taxpayer's course to his employment generally. Called as a witness by the Commissioner, the partner agreed that the taxpayer, on the commencement of his employment, was given no undertaking as to promotion at the completion of his course. However in answer to the question, ``Was it a condition of his engagement with the firm that he continue with his accountancy?'' the witness replied, ``No, it was not a condition, but if he did not carry out some studies he would have found that he would not be able to maintain his position, and others would have passed (over) him, and he probably would not have been of any use to us, or sufficient use to warrant the salary we would have to pay him.'' To the further question, ``Was that the salary he was currently getting or a salary that he might be getting in the future?'' the reply was, ``The salary that he would be getting in the future.'' In explanation of his evidence ``We would have expected him to have done some studies to try and further his position with us'', the witness said the study he had in mind was ``some course that would be associated with the type of work he was doing.'' It should here be observed that it would rarely be possible for any employer to be able to select a course at an institute of public learning where the academic training proceeds pari passu with the practical work being done by the employee.

11. In the present case the Commissioner's representative said that the fact that expenditure has to be incurred as a prerequisite to gaining the income is not determinative of the character of the expenditure, and that the fact that an employer encourages studies and therefore presumably regards them as incidental and relevant is not the test for deductibility under sec. 51(1). The submission was made that
F.C. of T. v. Finn (1961) 106 C.L.R. 60 ``represents the high water mark in the allowability of deductions incurred by an employee in furthering the knowledge necessary to carry out the duties of his employment'' and that it would be an entirely unwarranted extension to hold that it authorizes education expenses incurred not in adding to knowledge and experience already possessed in a given field, but in gaining a basic qualification; expenditure which is designed to bring about a fundamental change in the status of a person, both academically and in employment, lacks the essential character of expenditure incurred in the course of carrying out the duties which give rise to assessable income from changed employment; such expenditure is incurred in getting or maintaining that employment, not in doing the work involved in the job; expenditure incurred in gaining a public qualification, even if it might place the taxpayer in a position to gain greater assessable income, does not have the essential character of a business outgoing; it cannot be said to be incurred in any particular business or employment but rather it is expenditure of a private or personal character that is intended to create a status which is personal and attaches to the taxpayer.

12. It was further submitted that a critical analysis of judicial dicta on the problem supports the proposition as stated in para. 11 and reveals nothing which would preclude the Board from holding that the expenses with which we are now concerned ``are capital or, at least, of a capital, private or domestic nature''. In a true economic sense,

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it was said, expenditure must fall into one of only two categories - capital or revenue; there are no intermediate categories; therefore, if an outgoing is one of capital, it is also of a capital nature; the expression ``capital nature'' in sec. 51(1) would be redundant if the exclusion of capital expenditure refers only to capital as an economic concept. The conclusion was then expressed that the words ``capital nature'' comprehend situations outside the field of economics and they must be given a wider meaning than the simple word ``capital'', and that there was a difficulty in seeing how the words ``private or domestic'' could have any relevance to economic concepts.

13. The function of the Board would not be to enter into discussions on theories of economics, even if it had before it any expert evidence on the subject. The only answers that need be made to the submissions are first that
F.C. of T. v. Hatchett 71 ATC 4184 establishes at the present time beyond controversy that human capacity is entirely different from ``capital'', and that moneys expended by a taxpayer in respect of self-education cannot be denied the quality of deductibility as being ``outgoings of capital''; or ``outgoings... of a capital... nature''; secondly, that Finn's case (supra> is essentially an instance of the application of a section of the Act to the facts of a particular case, and it would be incorrect to regard it as establishing a highwater mark for allowance under sec. 51(1) of a deduction of expenditure incurred by an employee in furthering his knowledge in a particular field.

14. For the purposes of determining the issues in the present reference it is not necessary to traverse in detail the several decisions by Boards of Review on similar matters. Suffice it to say that we confirm the approach adopted by this Board (as then constituted) in Case D20,
72 ATC 114 and Case D61,
72 ATC 371.

15. On the facts before us as set out in paras. 5 to 10 inclusive we are satisfied that, to use the words of Menzies J. in Hatchett's case, supra, there was a ``perceived connexion'' between the outgoings involved in pursuing the course in accountancy and the production of the taxpayer's assessable income. We accordingly find that the travelling expenses necessarily incurred in connexion with the course satisfy the positive requirements of sec. 51(1) as having been incurred in gaining or producing the taxpayer's assessable income and further, again applying the reasoning in Hatchett's case (at p. 4186), that the expenses were not of a private nature.

16. The taxpayer's claim for a deduction for expenditure on meals fails because the money is outlaid for his advantage and benefit as a human being (cf.
Norman v. Golder (Inspector of Taxes) (1945) 1 All E.R. 352 at p. 354,
(1966) 17 T.B.R.D. Case S13. The expenditure on meals is an outgoing of a private nature.

17. The objection is allowed to the extent set out in para. 15 hereof (viz., a deduction of $67) and the assessment is to be amended accordingly.

Claim allowed in part