Case M42 (Public Hearing: David Jones Roberts v. Federal Commissioner of Taxation)
Judges:AM Donovan Ch
LC Voumard M
Court:
No. 2 Board of Review
A.M. Donovan (Chairman) and L.C. Voumard (Member)
The question raised by this reference is whether or not the taxpayer is entitled to a deduction, under sec. 51(1) of the Income Tax Assessment Act, in respect of expenditure he incurred during the year ended 30 June 1978 in connection with studies he was pursuing at Western Australian Institute of Technology (``W.A.I.T.'') leading to the degree of Bachelor of Business (Accounting).
2. As set out in the relevant return of income, the taxpayer's claim was in respect of a sum of $2,166, described as ``self education expenses''. The total included $15 by way of depreciation in respect of fittings in his ``home study''. The return gave effect to the sec. 82A limitation, and deducted from the total amount of the claim the sum of $250. This left a claim of $1,916 which the Commissioner initially disallowed in full. However, following two objections and three amended assessments, the amount in dispute became $1,599, all of which was claimed as deductible under sec. 51(1). This amount related, as to $40, to travelling expenses estimated to have been incurred in connection with a subject called ``Business Systems 201''; as to the balance it related to a subject styled ``Western European Business Studies'', which we shall abbreviate to ``W.E.B.S.''. The break up of the sum of $1,599 was as follows:
A. Travelling re Business Systems 201 -
Home to W.A.I.T.,
the University of W.A.
and Cottesloe (for study)
320 km at 12.6 cents/km $40
B. W.E.B.S. -
Cost of tour $1,758.10
Travel - Work to
W.A.I.T. to attend
seminars - 110 km at
12.6 cents/km 13.86
Text books
The effect of sec. 82A is that sec. 51(1) is to be considered in relation to the whole of this sum of $1,599.
3. We might mention here that the second amended assessment was dated 14 December 1979, the day set down for the hearing of the reference. It was no doubt served on the taxpayer shortly thereafter and, according to papers subsequently placed before the Board by the Commissioner, became the subject of an objection dated 1 February 1980 which contended that sec. 170 precluded the issue of the amended assessment. This objection was allowed in full by a further amended assessment dated 19 March 1980 the effect of which was to restore as deductions two amounts that had been allowed as deductions under sec. 51(1) in the first amended assessment dated 17 January 1979. These two amounts therefore continued to be irrelevant as far as the matters before the Board are concerned, and no further reference needs to be made either to them or to the third amended assessment.
4. It is now necessary to say something about the taxpayer's employment history, his academic record and the W.A.I.T. course that he pursued. In February 1975 he was appointed a Clerical Assistant Grade 1 in the Australian Public Service, and took up duty with the Australian Taxation Office. He resigned from the Public Service on 24 February 1976, and during the 1976 academic year was a full time student at W.A.I.T., where he successfully completed the first 10 units of the B. Bus. course mentioned earlier. From 9 November 1976 to 18 March 1977 he was employed by Telecom, but on 21 March 1977 he was appointed as a Clerk Class 1 in the Australian Taxation Office. Between that date and 28 September 1979, when he resigned to take employment outside the Public Service, he progressed through various assessing grades in the Taxation Office to that of Assessor Grade 4, and at the time of his resignation he was employed as a Clerk Class 5 in the Recovery Section. During the academic years 1977-1979 inclusive, he continued his studies at W.A.I.T. as a part-time student, and completed the course shortly after his second resignation from the Public Service.
5. We turn now to the claims in dispute between the taxpayer and the Commissioner, beginning with that related to Business Systems 201.
Business Systems Claim:
6. One of the units studied by the taxpayer during the first half of the 1978 academic year was Business Systems 201. This was a compulsory unit of the taxpayer's course and, so we were told, it required students to work in groups and present group assignments. For this purpose the taxpayer made an unspecified number of visits in the evenings and at weekends to the home of a fellow student, and to the libraries of W.A.I.T. and the University of Western Australia for discussions concerning and preparation of the assignment(s). The taxpayer estimated the cost of this travel at $40. His argument that this amount was deductible was expressed in these words: ``These expenses are considered to be expenses of self-education, being necessarily incurred for or in connection with a prescribed course of education as defined in sec. 159U. The expenses cannot be considered to be of a private or domestic nature, for the purpose of sec. 51(1), as they relate to travel from one place of study to another.'' With respect, this submission misses the point. An outgoing may well fit the definition of ``expenses of self education'', but it by no means follows that it is therefore incurred (in this case) in gaining the taxpayer's assessable income and not excluded from deduction by the excepting words of sec. 51(1). Nor is it sufficient to assert that because the outgoing concerns travel from one place of study to another it is not of a private nature. The question is whether the occasion of the outgoing is found in whatever is productive of the taxpayer's assessable income (see the well known statement in the joint judgment of the Full High Court in
Ronpibon Tin N.L. v. F.C. of T. (1949) 78 C.L.R. 47 at p. 57). And in our opinion the $40 in question was too remote from the taxpayer's income producing activities, present or prospective, to enable it to be properly described as within the scope of and incidental and relevant to
ATC 302
them. One can point to cases where travel expenses associated with study have been allowed (for example,F.C. of T. v. Smith 78 ATC 4157), and cases where they have been disallowed (for example,
F.C. of T. v. White 75 ATC 4018) as falling or not falling, as the case may be, within sec. 51(1), but in the end one has to come back to the words of the section. And we do not think that the estimated sum of $40 in question was an outgoing incurred in or in the course of gaining the taxpayer's assessable income. That claim was therefore, in our opinion, correctly disallowed by the Commissioner.
Western European Business Studies Claim:
7. During the second semester of 1977, that is, from July to November, the taxpayer continued his studies at W.A.I.T., but as a part-time student. In addition to studying subjects dealing with Finance, Accounting and Economics, he enrolled for a subject styled Western European Business Studies (``W.E.B.S.''). This subject required that (a) he attend a class on one evening per week during the last 10 of the 15 weeks making up the semester; (b) between late November 1977 and the latter part of January 1978, students enrolled in it undertake an overseas study tour arranged by W.A.I.T. - Abroad, that being ``the name given to regular and on-going study tours conducted by W.A.I.T. to enable students to particpate for course credits in programmes outside Western Australia''; and (c) after the completion of the tour students submit a ``thesis'' running to at least 4000 words on a topic selected, with some assistance from lecturers taking the tour, by the students themselves, from what the taxpayer described as ``the business management area''. Some time during the first semester of 1978 the taxpayer completed his ``thesis'' and was awarded a pass in the subject.
8. The tour was open not only to students enrolled for the subject, W.E.B.S., but also to students enrolled for a particular accounting subject, and for a systems analysis subject. The itinerary was a common one for all three subjects.
9. Not much needs to be said of the subject, W.E.B.S., itself. Quite obviously it was an elective unit in the course. The tour that formed such a major part of it began on 30 November 1977 and was scheduled to end when participants returned to Perth on 20 January 1978. A significant part of the tour was devoted to sightseeing, there being considerable free time while travelling through Italy, Switzerland, Germany, Holland, Belgium, France and England. There was provision for visits to factories and other institutions, and discussions of the features observed during these visits occupied the participants on many evenings. But, when all is said and done, one is left with the distinct impression that the subject as a whole, and the tour in particular, were, to put matters at their highest, of no more than limited peripheral significance when set against the income producing activities, or the likely promotion, of an Income Tax Assessor Grade 2 (as the taxpayer was at the relevant time). This impression is strengthened when it is realised that the taxpayer's wife accompanied him on the tour. As the tour was open to ``bona fide students'' of W.A.I.T., the wife enrolled for one subject for the purpose of qualifying for enrolment in W.E.B.S. Her academic performance in those two subjects was not mentioned in evidence.
10. It appeared that to some extent one or both of the couple regarded the tour as a holiday, for the taxpayer agreed that in her leave application to her employer his wife made a statement ``something like'' that she was spending Christmas in Europe with relatives. In fact, before leaving Australia, the taxpayer and his wife made arrangements to leave the touring party on 16 January 1978 and to undertake a private visit to Northern Europe and Scandinavia, in which latter country they spent a few days with the wife's relatives. They returned to Perth on 29 January 1978, some nine days after the end of the study tour.
11. Reference must now be made to the Public Service regulations that have a bearing on the question before us. By sec. 53(1) of the Public Service Act 1922 the Public Service Board may determine that an officer shall not be transferred or promoted to specified offices unless he possesses prescribed qualifications. The relevant portion of the determination in force at material times set out the qualification requisite for promotion to Assessor Grade 5 and Assessor Grade 6 in these words:
ATC 303
``1. The officer has completed a course of training in accountancy, being a course recognised by the Board as a course appropriate for the efficient discharge of the duties of the office; or
2. The officer has passed in such subjects of a course in accountancy or law at a recognised educational institution as are, in the opinion of the Board, appropriate for the efficient discharge of the duties of the office; or...''
It was agreed between the parties that the W.A.I.T. course for the degree of B.Bus. (Accounting) was a course that would satisfy the requirements of para. 1 of the determination (although, of course, the taxpayer had resigned from the Public Service prior to completing the degree). It was also agreed that certain subjects, which were part of that degree course, were subjects the completion of which would satisfy the requirements of para. 2 of the determination. Successful completion of these subjects (conveniently described as ``the tax ten'') which did not number among them W.E.B.S., was treated by the Public Service Board as constituting a qualification no different from that constituted by successful completion of a degree course approved under para. 1 of the determination. On completion of the para. 2 subjects, therefore, an officer gains the qualification prescribed for promotion to Assessor Grade 5 and Grade 6. The taxpayer's evidence was that he was not aware of the prescribed units at the time he began his course, but he agreed that he became aware of them during his employment as an assessor.
12. There were some unsatisfactory features of the taxpayer's evidence. For example, he resigned from the Taxation Office in February 1976 to undertake full time study. He opted for full time study, he said, ``in order to gain rapid advancement through the tax office''. Yet at the time he began his course he was not employed by the Taxation Office, and there was no commitment or assurance that he would be re-employed by the Public Service Board in the Taxation Office or elsewhere. As it happened, after sitting for a ``selection test'' in late 1976, he was offered appointment in the Taxation Office, but that could not possibly have been known to him when he began his course at W.A.I.T. He later advanced a different reason for undertaking degree studies, namely, that the degree was a prescribed course by virtue of sec. 53 of the Public Service Act, but again, at that stage he had resigned from the Taxation Office and the question of promotion to Assessor Grade 5 or Grade 6 just could not have been in contemplation. Again, he was questioned about the visit to his wife's relatives in Sweden. He stated that he accompanied his wife ``because travelling by train by herself would be a bit dangerous. I had nothing to do with her relatives at all''. Yet, with his wife, he stayed with these relatives with whom he professed to have had nothing to do.
13. In considering the deductibility of the tour costs and other expenditure related to the subject W.E.B.S., it is, we think, legitimate to look at that subject separately from the others in the degree course. This appears from the attitude taken by both Menzies J. in
F.C. of T. v. Hatchett 71 ATC 4184; (1971) 125 C.L.R. 494, and more recently Waddell J. in F.C. of T. v. Smith 78 ATC 4157 at p. 4161, where he drew a distinction between, on the one hand, the ``accountancy and legal subjects'' of the degree there under consideration, and on the other the ``general arts topics''. And the question we have to decide is, not whether the W.E.B.S. outgoings were incurred as part of the taxpayer's studies for his degree, but whether they were incurred in gaining or producing his assessable income; that is, in this context whether the (successful) pursuit of the subject W.E.B.S. would or could lead to advancement in his employment and therefore an increase in his assessable income (
F.C. of T. v. Finn (1961) 106 C.L.R. 60).
14. There was no evidence that the taxpayer's advancement in the Taxation Office was affected in any way by his study of the subject W.E.B.S. In fact, the evidence given by an assistant director of general services within the Taxation Office was to the contrary. This witness explained that selection committees had set a study achievement whereby officers should complete forty per centum of ``the course'' by the time they were ready to be promoted to class 4 level, and seventy per centum of ``the course'' by the time they reached class 5 level, so that by the time they were ready to
ATC 304
be promoted to class 6 level they would have completed ``the course''. In this explanation references to ``the course'' were references to ``the prescribed ten subjects''; that is, the so-called ``tax ten'', being the prescribed units constituting the qualification specified in para. 2 of the determination described in para. 11 of these reasons. It was not, therefore, the mere continuance of the degree course as a whole that was responsible for the taxpayer's promotion; rather was it his success at those subjects prescribed by the Public Service Board. And, as already stated, they did not include W.E.B.S.15. In the circumstances, we are not able to perceive any relevant connection between the outgoings incurred in relation to the subject W.E.B.S. and the gaining of the taxpayer's assessable income. In our opinion, therefore, the outgoings do not fall within the first positive limb of sec. 51(1) and, of course, the second positive limb cannot be applicable to them. But a further submission on behalf of the Commissioner should be noted. This was that either wholly, or at least substantially, the outgoings were of a private nature. This was based on the following facts. First, the taxpayer spent some $6,000 to enable himself and his wife to undertake the tour, and the academic reward the taxpayer gained for successfully completing the subject W.E.B.S. was to be credited with 28 points towards the 520 that constituted his degree. Secondly, before the end of the scheduled tour, the taxpayer and his wife proceeded independently to Scandinavia to visit relatives of the wife, thereby extending their time overseas by some nine days. Thirdly, there was a considerable amount of free time available, and the sightseeing and cultural aspects of a European tour were by no means over-looked. These factors lend considerable support to the submission, with which we agree, that in any event to a large extent the expenditure was of a private nature. Questions of apportionment which might otherwise arise are precluded from doing so here by the earlier finding that the expenditure falls outside the first positive limb of sec. 51(1).
Conclusion:
16. For the reasons given above, both claims made by the taxpayer must fail. The Commissioner's decision on the objection is upheld, and the assessment before the Board is confirmed.
Claims disallowed
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