Case N47
Judges:KP Brady Ch
LC Voumard M
JE Stewart M
Court:
No. 2 Board of Review
K.P. Brady (Chairman); L.C. Voumard and J.E. Stewart (Members)
The question in issue in this reference is whether the taxpayer is entitled to a deduction under sec. 51(1) of the Assessment Act in respect of travelling expenses applicable to his wife who accompanied him on an overseas study tour.
2. The taxpayer is a civil engineer by profession and is employed by the municipality of S in a capital city as its engineer and building surveyor.
3. In his return of income for the year ended 30 June 1978, he claimed the cost of an overseas study tour, $9,433, as an allowable deduction, which total included the expenses of his wife as well as those incurred on his own account. In his return of income for that year he included as income an amount of $5,000 contributed by his employer towards the cost of the tour. In preparing his assessment, the Commissioner disallowed an amount of $4,331, being his estimate of the expenses attributable to his wife, Mrs. B. The taxpayer objected and, upon the Commissioner disallowing that objection, the matter has come before this Board for review.
4. The main purpose of the taxpayer undertaking the tour was to study road traffic management as related to his employer council's municipality, and the effects of heavy volume traffic on a residential-type environment. Subsidiary purposes were to examine the integration and preservation of historical precincts, and recent developments in the disposal of waste products, all of these matters being of concern and immediate interest to the taxpayer's municipal council. Initially the council approved a tour of five weeks duration, subject to acceptance of the itinerary by its General Purposes Committee, but subsequently the period was extended to 10 weeks.
5. The taxpayer's wife accompanied the taxpayer on the tour at his request to assist him in recording and documenting places and items of interest, also the results of discussions held with government and local government officers (predominantly). In addition, the indexing of photographs and technical literature was seen to be a necessary and time-consuming task.
6. In claiming deduction for the cost of the tour for both himself and his wife, the taxpayer submitted the following expenditures on a schedule accompanying his return:
Air fares $3,930.00
Train fares 426.67
Bus fares 220.14
Taxi fares 15.84
Car hire 430.94
Petrol 97.29
Accommodation 2,040.69
Meals 1,785.92
Tips 64.84
Capital expenditure $2,692.15
Less amounts not
claimed, being of
a private nature 2,562.11
---------
$ 130.04
---------
comprising:
Cassette tape player 25.97
Maps, guide books 13.72
Pocket calculator 26.24
Office calculator 64.11
Sundries 290.95
---------
$9,433.32
=========
7. In making his assessment, the Commissioner somewhat arbitrarily determined that one-half of certain items of the above expenditures was incurred by the taxpayer on account of his wife, and that these were as follows:
Air fares $1,965.00
Train fares 213.33
Bus fares 110.07
Accommodation 1,020.35
Meals 892.96
---------
$4,201.71
=========
ATC 237
8. The amount added back by the Commissioner to the taxpayer's taxable income as shown in the Adjustment Sheet and reg. 35(1) statement was $4,331, but it was agreed at the hearing that the amount in dispute was $4,201. Certainly it was that latter amount by which the amended assessment was increased, and no higher amount.
9. The taxpayer and his wife departed from Australia for the West Coast of the United States on 1 April 1978, and returned on 8 June of that year. He examined traffic flows in Los Angeles, San Francisco and Vancouver, and had discussions on traffic problems with senior staff of the City Planning Departments of those cities. He also toured the redevelopment and historic areas of the latter two cities, and inspected depot facilities and refuse transfer stations in Santa Monica and Seattle. Basically he sought to learn from the United States experience of the problems that could beset his own municipality unless action to counter those problems was expeditiously taken. From the United States he and his wife travelled on to Denmark, Norway, West Germany, Austria, Switzerland, Holland and the United Kingdom. In the cities he selected to visit in those countries, he essentially sought to extend his knowledge of traffic management and those other subject items enumerated previously, along the same lines of enquiry and inspection he had made in the United States. Certainly it was a very compressed tour involving the visit to approximately 47 cities in 13 different countries, and we would agree with the taxpayer's observation that he probably sought to do too much within too short a period of time. However, having said that, it is not the taxpayer's own expenditures which are in question but those incurred on behalf of his wife. An appreciation of the tasks undertaken by her whilst overseas, however, cannot be made unless there is a knowledge of what the taxpayer sought to achieve from the tour and, in a general sense, some understanding of his modus operandi. The taxpayer completed his evidence by pointing to increases in salary which he had received after arriving back in Australia in acknowledgement by his employer council of his additional value as an employee through the knowledge gained on the tour.
10. In order that the wife's expenses may be deductible to the taxpayer, he must demonstrate that sec. 51(1) of the Assessment Act operates in his favour. To the extent that it is relevant, that provision states as follows:
``All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income... shall be allowable deductions except to the extent to which they are losses or outgoings of capital, or of a capital, private or domestic nature.''
11. In the case of Amalgamated Zinc
(De Bavay's) Ltd. v. F.C. of T. (1935) 54 C.L.R. 295, Latham C.J. stated at p. 303 that:
``The phrase losses and outgoings actually incurred in gaining or producing the assessable income' may, in relation to outgoings, be read as meaning that the outgoings must be an expenditure which has an effect in gaining or producing income, e.g., the purchase price of goods which are subsequently sold.''
12. The same emphasis on a degree of close nexus existing between expenditure claimed and the taxpayer's income was made in
F.C. of T. v. White 75 ATC 4018, where Helsham J. stated at p. 4022:
``... it seems to me possible to say that expenses incurred in pursuing studies associated with employment will qualify as allowable deductions under sec. 51 when it can be said that those studies are part and parcel of the employment, which means that the expenditure is incurred in the process of carrying out the employee's duties, or, even if they are not such, they can be seen to have a direct effect on income.''
13. The nub of the issue before us in the instant case is, therefore, whether the outlays incurred by the taxpayer for his wife's expenses had a direct effect on his income. To that end we must examine the nature and extent of the duties performed by Mrs. B whilst on the tour.
14. First, it must be said that at no time was Mrs. B an employee of the S municipality. The council formally knew of her presence on the tour and of the assistance she might give to the taxpayer, but it did not seek to acknowledge her contribution by
ATC 238
reimbursing him for her expenses or any part thereof. In the negotiations which took place before obtaining his employer's approval of the tour, the taxpayer sought leave to extend the duration of the trip and, in a report to the General Purposes Committee of council, he stated ``that my wife will accompany me to assist with secretarial work in recording and documentation of events''. Prior to presentation of that report, his employer council had agreed to allocate to him the sum of $5,000 to meet his fares and expenses, but no increase was subsequently made to that amount either to cover the extended period of the trip or in acknowledgment of the taxpayer's declared purpose of taking his wife. The matter of the taxpayer requesting his wife to accompany him was therefore very much his own personal decision.15. Also it may be said that Mrs. B was not anxious to make the trip. They had three sons, all teenagers at home, and their care had to be arranged by having a married daughter return to the family home and look after them. In giving evidence on behalf of her husband, she stated with considerable emphasis that she would not make such a trip again.
16. The bulk of the work which required Mrs. B's attention on the tour related to the preparation of a most comprehensive report which the taxpayer completed upon his return for presentation to council. The duration of the tour was approximately 9½ weeks, and the taxpayer estimated that his wife contributed 136 hours of secretarial time over that period, and spent an additional 30 hours on such domestic chores as washing and ironing his clothes in order that he might present himself as well as possible for discussions with city hall officers and the like. Most of the secretarial work was performed by Mrs. B at night, the taxpayer estimating that of the 69 days away, 40 would have been expended, at least in part, in his wife attending to secretarial matters.
17. It was the taxpayer's practice to record on tape the key points of discussions had with local government officers in the cities visited, and his wife would then transfer the information to script by playing back the completed tapes. There were 15 such tapes. Also, the taxpayer used colour photographs on a substantial scale to visually depict, inter alia, how traffic problems had been attended to in California and European main cities, and how historic buildings had been preserved. Some 900 photographs were taken in that regard, of which approximately 300 were taken by Mrs. B. This proliferation of photographs required appropriate description and indexing, and this task fell to Mrs. B's lot.
18. Moreover, in excess of 3,500 separate pamphlets, booklets, brochures and reports were collected, and again these were all indexed and categorised by Mrs. B. The evidence revealed that she had been a private secretary to a company manager prior to her marriage, and, whilst she had not worked in the intervening years (apart from a brief period), she had been involved on the local school council and in community affairs and certainly she impressed us as being a proficient person who would complete such tasks thoroughly and well. It is clear from the taxpayer's evidence that his tour was an onerous one, and that one result of his own dedication and industry was to make his wife a very busy person. We have no doubt that she filled a most supportive role to her husband for the whole of the tour.
19. However, no matter how benevolently we regard her contribution to the sum total of duties performed on the tour, it did not, and perhaps could not, have an effect on his income. It could not seriously be contended that the secretarial tasks that she performed influenced the salary increases which he received upon his return, even if those increases could be shown to have resulted from the trip. It was very much his own choice to take his wife on the tour, and it was completely open to him as to whether he allocated to her tasks or not. (Obviously once Mrs. B commenced the tour the internal travelling, accommodation and incidental expenses had to be paid for her whether she performed tasks or not.) In the case of
F.C. of T. v. Green (1950) 81 C.L.R. 313, the taxpayer, a self-employed person, engaged his daughter to perform clerical tasks at his home (where he had a properly equipped office) in connection with his business affairs, and paid her an annual salary of £156. The daughter's duties consisted of keeping books of account, issuing receipts for moneys received and banking such moneys, attending to correspondence, making appointments in his absence, and
ATC 239
similar duties. There, the High Court in a unanimous decision held that the payment was deductible to the taxpayer as it was reasonably necessary for him to keep books and records, and to have a person in his home city to deal with matters affecting his affairs which arose during his absence on business. Presumably the amount paid to the daughter as salary was the proper market value for the duties she performed (although the judge in the court of first instance thought it was on the high side), and it followed from the High Court's ratio decidendi that it was irrelevant that the wage earner was the taxpayer's daughter. Once it was found as a fact that the service provided was necessary in order that the taxpayer might derive assessable income, the outlay was properly deductible under sec. 51(1).20. In the instant case there was no payment to the wife as such, but the essential difference between the two cases is that in Green's situation the daughter's services were inextricably involved with the earning of the taxpayer's income, whereas in the case now before us the wife's duties were not.
21. In any event, we would consider that the expenditure incurred by the taxpayer on account of his wife was beyond the scope of the contractual arrangement existing between him and his employer, and was of a private nature, its essential character being personal to the taxpayer (see
Lunney and Hayley v. F.C. of T. (1957-58) 100 C.L.R. 478 at p. 499).
22. We have not commented upon the various Board of Review cases cited to us by the Commissioner's representative because they are not very helpful in a reference such as that now before us where the issue whether an outgoing has the necessary relation to the gaining of the assessable income is very much a question of fact and degree (see
F.C. of T. v. Finn (1961) 106 C.L.R. 60 at p. 64, also
F.C. of T. v. Forsyth 81 ATC 4157 at p. 4163).
23. We commented earlier, see para. 7, on the inexactitude of the dissection made by the Commissioner in arriving at those amounts of expense attributable to Mrs. B. In particular, we refer to the apportionment of accommodation and meals expense made between the taxpayer and his wife on a 50:50 basis. We consider that the reality is that had the taxpayer gone on the tour alone, the cost of his accommodation would have been no greatly different from that incurred when accompanied by his wife, the tariff for sole occupancy of a hotel/motel room being only marginally lower than the rate applicable for dual occupancy. The taxpayer made passing reference to this aspect in his evidence, but did not provide the Board with any specific information to warrant us varying the Commissioner's disallowance. The deduction of $1,020 for his own accommodation expenses must therefore stand unchanged. In regard to the Commissioner's dissection of meal expenses, we would point out that the taxpayer's itinerary (which was tendered to us in evidence) shows that he entertained 19 local government and city hall officers at lunch and dinner at different times during the course of his tour and as part of his duties, and accordingly we would regard that cost, estimated at $200, as being deductible under sec. 51(1). Thus, we would increase the taxpayer's deduction under that head of expenditure from $893 to $1,093.
24. We would therefore order that the amount of taxable income as disclosed in the amended assessment be reduced from $28,696 to $28,496, but in all other respects we confirm the assessment.
Claim allowed in part
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