Case L63

Judges:
HP Stevens Ch
CF Fairleigh QC
JR Harrowell M

Court:
No. 1 Board of Review

Judgment date: 14 November 1979.

---

H.P. Stevens (Chairman); C.F. Fairleigh Q.C. and J.R. Harrowell (Members): The issues which remain for the Board to determine in reviewing the Commissioner's decision on an objection to an amended assessment for the year ended 30 June 1977 are:

• (a) $392 spent on the purchase of newspapers and on public transport fares in seeking employment whilst the taxpayer was receiving benefits pursuant to the Social Services Act 1947.
• (b) $110 spent on accommodation during part of the period which is referred to in (a). This sum offsets a similar amount of money received by the taxpayer as rent assistance pursuant to the Social Services Act.
• (c) Council rates $98 outlaid with respect to land used (at times) for primary production.
• (d) $30 outlaid for making or maintaining fire breaks on the land which is referred to in (c).
• (e) Council rates $237 outlaid with respect to other land used (at times) for primary production and used (at times) also for gravel extraction leading to royalties payable to the taxpayer.

2. The last relevant employment of the taxpayer was with a Government Department. That position which might otherwise have become permanent (in the usual sense of the word) was held for some fifteen months and was lost when the taxpayer failed to pass the standard medical examination. The return of income indicates that that employment ceased on 30 September 1976. The taxpayer said that he ceased work on 5 October 1976, although for some purposes the date of cessation is taken to be 18 October 1976. The precise date is not of present importance.

3. The first issue has some features which are the same as those in Case L52,
79 ATC 384. However it is to be said immediately that the present taxpayer's sincerity in seeking employment at all relevant times is accepted without qualification. Another matter of distinction is well expressed in the written address which was given by the Commissioner's representative and some paragraphs of that address are now reproduced with minor emendations:

``In his return of income the taxpayer showed an amount of $704 as having been received by him in the form of unemployment benefits during the period 18 October 1976 and 19 January 1977. A further amount of $1146 was returned by him as being paid by way of invalid pension. In the course of obtaining evidence in relation to these proceedings, the Commissioner became aware that the

---

ATC 498

taxpayer's grant of an invalid pension was backdated by the Department of Social Security to take effect from 9 December 1976. The taxpayer was informed of this decision in a letter forwarded to him by that Department and dated 26 January 1977; a certified copy is now an exhibit. The letter points out that the payments totalling $348 which the taxpayer received in the form of unemployment benefits during the period 9 December 1976 to 20 January 1977 had been offset against the arrears of invalid pension due to the taxpayer.

It is important to determine the true character of these payments because of the different taxation consequences which attach to each. In the case of unemployment benefits which are paid pursuant to the provisions of Part VII of the Social Services Act 1947, the payments are income within the ordinary concepts of that term and thus fall to be assessed to tax under sec. 25(1) of the Income Tax Assessment Act. On the other hand, in the case of invalid pensions which are paid pursuant to Part III of the Social Services Act 1947, such payments are specifically exempted from taxation when the provisions of sec. 23AD(3)(d)(1) of the Income Tax Assessment Act are met. That section exempts from income tax payments (other than excepted payments) by way of pension, allowance, endowment or benefit under the Social Services Act 1947. An 'excepted payment', by definition in sec. 23AD(1) means a payment of excepted pension made to or in respect of a prescribed person.

That section defines a 'prescribed person' as, inter alia, a man who has attained the age of 65 years. As the taxpayer has not attained that age, his invalid pension was not paid to a prescribed person and thus does not come within the term 'excepted payments' as used in sec. 23AD(3)(d)(1). Therefore the invalid pension paid to him is exempt from tax.

Returning now to the payments totalling $348 received in the form of unemployment benefits by the taxpayer during the period 9 December 1976 and 20 January 1977 and subsequently applied to meet arrears of invalid pension payments, the Commissioner is prepared to accept that these payments have the same character as the invalid pension. In the result, it is contended that the taxpayer was in receipt of exempt income from 9 December 1976 to the end of the financial year.''

4. Pursuant to an undertaking given by the Commissioner's representative at the hearing, an amended assessment was later made reducing the assessable income by $348, i.e., by excluding that amount as having been paid to the taxpayer as invalid pension as aforesaid. A notice of that amended assessment was issued on 24 October 1979 and by virtue of sec. 191 it is that amended assessment which is to be dealt with on the reference. An earlier amended assessment excluded a sum of $1,146 as having been paid as invalid pension. Thereupon it follows that it is the sum of money which was spent on the purchase of newspapers and on public transport fares from the time when the taxpayer ceased employment with the Commonwealth until he went on the invalid pension as at 9 December 1976 which is in issue. The evidence supports a finding that that amount is only a few dollars which he has not quantified: however it will be dealt with as a matter of principle.

5. The taxpayer has contended that one of the conditions of retaining eligibility for unemployment benefits was that he must satisfy what is commonly known as the ``work test'' as prescribed by sec. 107(c)(ii) and (iii) of the Social Services Act, viz., ``satisfies the Director-General that he... is capable of undertaking, and is willing to undertake work... suitable to be undertaken..., and has taken reasonable steps to obtain such work''.

6. There is no doubt that the expenditure of money as under para. 1(a) hereof was reasonable incurred by the taxpayer with a view to obtaining work. The question is whether the balance thereof is deductible pursuant to the first positive limb of sec. 51(1); as it was not incurred in relation to any business carried on by the taxpayer the second positive limb of sec. 51(1) is inapplicable.

7. Even if the taxpayer had been in

---

ATC 499

employment during the period October to early December 1976 and the employer had told him that he should seek employment elsewhere and that his current position would remain so long as he took reasonable steps to obtain employment elsewhere, thereupon expenditure as here in issue would not be related to current employment, and would come at a point too soon to be properly regarded as incurred in gaining assessable income, assuming that such expenditure resulted in new employment (
F.C. of T. v. Maddalena 71 ATC 4161; (1971) 45 A.L.J.R. 246). The outgoings on newspapers and travelling here in issue were not incurred in gaining or producing the unemployment benefits; albeit that a failure to incur any such payments might be some evidence of a failure to take reasonable steps to obtain suitable work and thus might have led to an inquiry and to the formation by the Director-General (on that and other evidence) of the opinion which is referred to in sec. 107(c) of the Social Services Act.

8. The claim which is referred to in para. 1(b) hereof has taken a different aspect consequent upon the back-dating of the invalid pension as in the said letter of 26 January 1977. That sum of $110 which was received pursuant to Div. 4A of Part 3 of the Social Services Act was granted because the Director-General was satisfied that the taxpayer paid rent and was entirely or substantially dependent upon the pension. The whole of the sum of $110 as received by the taxpayer is encompassed by the sum of $348 now allowed by the Commissioner as a deduction and the whole is exempt income as mentioned in para. 3 hereof. The deduction as claimed by the taxpayer for outlays on accommodation is entirely a private or domestic matter within the meaning of the proviso to sec. 51(1). The taxpayer claimed an alternative based on sec. 51A. This claim fails because the payment is not in the nature of a living away from home allowance; the amount received by him has been excluded from his assessable income as it is exempt income; furthermore the taxpayer was not an employee within the concept of sec. 51A.

9. Whilst it is not strictly necessary to deal with the matter for the purposes of deciding the issues in para. 1(c), (d) and (c) it may be mentioned that in earlier years the Commissioner allowed the taxpayer the benefits of being in primary production on those lands. Some doubt now exists whether primary production was carried out on those lands in each of those years, but the Commissioner merely points out that, of course, no estoppel arises. The taxpayer had fenced the parcels of land as required by the conditions of the Crown land auction and carried out other improvement conditions, e.g., establishing windmills to ensure a supply of underground water for an orchard. He had intended building a fruit packing shed and occupying it as a residence but was prohibited from doing so. Thereupon he erected a very small cottage on the land. During the year in issue and for some two years prior thereto he was living many hundreds of kilometres distant from these lands.

10. The property which is referred to in para. 1(c) and (d) is an area of about eight acres acquired by the taxpayer at a Crown land auction in about 1953 or 1954. The taxpayer had by about 1960 cleared about half an acre of the land and had planted some ``soft'' fruit trees. For some two years prior to that which is in issue the land had received little attention and neither then nor in the year in issue was the land being used for primary production or for any other purpose. Therefore those two claims must fail (cf.
Inglis v. F.C. of T. 77 ATC 4305 to which reference was made during the hearing).

11. The property which is referred to in para. 1(d) consists of four parcels bought at two Crown land auctions during the years 1952 to 1960. The total area is 36 acres approximately. One acre was cleared by the taxpayer and planted with citrus fruit trees in about 1958; a further area was cleared ready for similar development. Some fruit was produced although not sold commercially. This subject need not be pursued because since 1975 the orchard has not been tended by the taxpayer nor by anyone else except that the neighbours with the taxpayer's consent enter the land from time to time to remove fruit to prevent fruit fly infestation and to carry out the maintenance of fire breaks as a general protection. This land was not used for primary production during the year in issue and the remaining issue is whether it was used in a business of gravel extraction with the consent of the taxpayer.

---

ATC 500

12. Prior to the year which is here in issue the taxpayer was receiving, or entitled to receive, payment from a contractor of about 27 or 28 cents a cubic yard for gravel extracted and removed by the contractor from the said land of the taxpayer. This arrangement led to the taxpayer receiving moneys from the contractor in years prior to that which is now in issue. However that arrangement was not current during the year which is here in issue and no money was received by the taxpayer from the contractor during that year. Accordingly this claim must fail.

13. The Commissioner's decision on the objection as subsequently amended is to be upheld and the notice of amended assessment of 24 October 1979 is confirmed.

Claims disallowed