Caffrey v. Federal Commissioner of Taxation.

Judges:
Jackson CJ

Court:
Supreme Court of Western Australia

Judgment date: Judgment handed down 21 May 1976.

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Jackson C.J.: This is an appeal by a taxpayer under sec. 187 of the Income Tax Assessment Act from his assessment to income tax for the year of income ending 30th June 1972. The appellant complains of the disallowance in whole or in part of his claim for deductions from his assessable income in relation to three matters, viz. (1) rates and taxes, (2) motor car expenses, (3) expense of a home office or study.

(1) Rates and Taxes. The claim is to deduct $31.80 being the sum paid by the appellant during the year when he bought a vacant block of land and paid this amount to the vendor by way of adjustment of rates and land tax already paid by the vendor. The land did not produce income. He claims a deduction under sec. 72, but this cannot succeed because he was not personally liable for the rates or the land tax nor had he himself paid them - see
F.C. of T. v. Morgan (1961) 106 C.L.R. 517 at p. 518.

(2) Motor Car Expenses. During the year in question, the appellant was for the most part employed as a lecturer in commercial law subjects at the Mitchell College of Advanced Education at Bathurst, New South Wales, and at the Western Australian Institute of Technology at Bentley. His employment at Mitchell College was for the first 12 weeks of the year, to 24 September. Then he worked as a high school teacher at Bathurst and Lithgow until the end of the school year. His employment at Bentley covered the last six months of the year. His claim for motor car expenses was expressed in his return in this way

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ATC 4118

- ``Taxpayer uses his auto to attend seminars in Sydney as well as to use the Law Libraries at the Univ. of Syd. & the Univ: of W.A. to keep abreast of current Law etc.''. He then set out in detail his motor car expenses which totalled $1,398 and claimed 35 per cent of this sum, or $489, based upon an estimated 35% use of the car for business and 65% for private purposes. In evidence he said that because law library facilities at Mitchell College were poor, he needed to travel regularly to Sydney to attend the Sydney University Law School library to do ``a fantastic amount of research in law'', which included preparing notes, doing research on hundreds of cases, and reading voluminous law journals, law reviews and text books. In all he claimed to have made 16 return trips Bathurst to Sydney (270 miles each) solely for this purpose. In addition, between 5th January and 30th June 1972, while at the Institute of Technology, he claimed to have made 53 return trips by car to the Law School library at the University of Western Australia.

The mileage involved in these journeys equalled 5,380 or about 35% of his total car mileage for the year, 14,595; hence the amount of the claim, $489. The Commissioner disallowed all but $30.

Although the appellant at first said that all 16 trips to Sydney were made during his employment at Mitchell College, this seemed improbable during the 12 weeks to 24th September; and he later corrected this and said that eleven trips took place then and five from late October to early December. He was not able to recall attending any seminars during this time. No reason was expressed for the visits twice a week from Bentley to Crawley, and it was not suggested that the Institute also was deficient in its library. During the same period, the appellant claimed and was granted as a deduction fees he paid to the University of Western Australia as a student enrolled for a Diploma of Education.

The appellant was lecturing to first and second year accountancy students at a fairly elementary level. Some reading and research would be necessary, but I think it highly improbable that the appellant would have found it necessary or even desirable to spend so much time at University law libraries. Of course, if he did do so bona fide in the course of his work as a lecturer, his expenses should be allowed. But he called no evidence other than his own; no officer of either college supported the need for his doing this work or the fact that he did so. His own testimony was marred by evident exaggeration and hyperbole, to such an extent that I am unable to accept what he has said as a reliable foundation for me to form a sound conclusion as to the extent to which he did in truth incur travelling expense in connection with his employment to a greater extent than the Commissioner has allowed. This part of his appeal also fails.

(3) Home office expenses. At Bathurst, the appellant and his (de facto) wife rented a flat for $25 a week, and in Western Australia they rented a house at Darlington for $27. She worked as a schoolteacher and they shared some living expenses but not, he says, the rent. The appellant claims that at each residence he set aside and used one room exclusively in which he prepared lecture notes, exam papers, read voluminous law literature and ``thousands of cases'' and marked exam papers. At Bathurst the flat consisted of two bedrooms, a lounge/kitchen, bathroom and laundry. He claims one-third of rent, electricity and gas for the period of 22 weeks in which they lived there. At Darlington, the house had four rooms plus bathroom, kitchen and laundry. He claims one-quarter of the rent and electricity which he paid in the 27 weeks they lived there. He also claims $30 spent on book shelves, which seems a capital item. The total claim under this head is $412 of which only $10 was allowed by the respondent.

The appellant contends that part of his rent and other charges should be allowed as a deduction under sec. 51(1) of the Act as being outgoings incurred in gaining his assessable income. From the decisions of the High Court in
Ronpibon Tin N.L. v. F.C. of T. (1949) 78 C.L.R. 47 and
Lunney v. F.C. of T. (1958) 100 C.L.R. 478, it is clear that the section allows the dissection and apportionment of outgoings even of a private or domestic nature if some demonstrable part of the expenditure is shown to be incidental and relevant to the gaining of assessable income. The occasion for the outgoing is to be found in whatever is productive of the assessable income, and it is of importance to consider the essential character of the expenditure to decide whether it is incurred in the course of gaining income. But the decision in each case turns on a question of fact.

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ATC 4119

The payment of rent for a flat or house for a taxpayer and his wife is prima facie an outgoing of a private or domestic nature. But it is not difficult to conceive circumstances where an apportioned part of such rent and other house expenses might properly be claimed as a deduction under sec. 51; for example, where a medical or legal practitioner conducts his professional practice from his home, and uses part of his house premises for office, consulting room, surgery, library and the like. But in this branch of his appeal, the appellant again founders on the unreliability of the evidence to support his claim. Again his claim was markedly exaggerated, quite apart from the flamboyant language of his testimony. In each dwelling, the room was not used exclusively by him but was also used by his wife in connection with her work as a school teacher. At both colleges, the appellant was provided with an office for his use, which at least reduced the need for as much use of his home study as he advanced. His home library was not restricted to law books; he had general literary works there, and his wife's books also. He admitted that he did not use the room for his lecturing work while he was school teaching, yet he has claimed in all for 49 weeks, which covers the whole year excluding his travelling to and settling in Western Australia.

Upon his evidence, I can form no sound conclusion as to the extent to which the appellant incurred expense in the use of his study in the course of gaining his income. It is clear that his claim to a deduction of $412 cannot be supported; and I have no reliable material before me upon which I can properly assess any lesser sum as having been so incurred. The appeal must also fail in this respect.

I should add that I have been asked by Helsham J. of the Supreme Court of New South Wales to publish the following statement which he has prepared and which he wishes to be made public -

``After reasons for judgment had been given in the case of
F.C. of T. v. McCloy 75 ATC 4079; (1975) 1 N.S.W.L.R. 202. Mr. Caffrey appeared before Mr. Justice Helsham in connection with another matter, and explained that the facts in the case of
Caffrey v. F.C. of T. 73 ATC 4144; (1973) 21 F.L.R. 427, to which his Honour adverted, were not fabricated, but had been mistakenly argued with reference to an incorrect tax year. His Honour accepted this explanation and has apologised to Mr. Caffrey and feels that his apology should be given no less prominence than his previous remarks.''