Case S4
Judges:KP Brady Ch
JE Stewart M
DJ Trowse M
Court:
No. 2 Board of Review
K.P. Brady (Chairman), J.E. Stewart and D.J. Trowse (Members)
The question for our decision in this reference, which relates to the 1980 year of income, is whether expenditure incurred by a teacher in travelling to and residing in Paris is deductible in terms of sec. 51(1) of the Income Tax Assessment Act 1936.
2. The taxpayer, a married woman with two young children, was a highly qualified teacher of modern languages. Having previously gained a Master's degree in German, she was engaged by an independent school in April 1977 to teach that subject to students preparing for their H.S.C. examination. Additionally, it appears that the taxpayer sought and obtained the opportunity of tutoring in the subject of French, that request being motivated by the thought that a combination of skills in teaching both languages would enhance her promotional prospects. It should, however, be observed that a reduction in student enrolments for French restricted the taxpayer's activities in that branch of learning and that, subsequent to the journey overseas, all of her professional efforts were directed to the teaching of German. In calculating the taxpayer's commencement salary at the college, the provisions of an award covering employees of independent schools were applied, and it seems that one of those conditions stipulated that the level of remuneration payable to teachers who had rendered service totalling in excess of eight years should be determined by reference to the top of the salary range laid down. In the taxpayer's case, her service within the education system exceeded that minimum requirement and, accordingly, her remuneration was assessed at the apex of the appropriate scale.
3. The taxpayer asserted that the objects of the trip were to attend a conference in Nicosia, Cyprus, of the Regional Commonwealth Council of Education Administration and, also, to reside in France for a time so that she might experience, at first hand, an exposure to the language, customs and culture of that country. The taxpayer, her husband and two children departed Australia on 9 December 1979, and arrived the following day in London where they remained on holidays until 1 January 1980. From there they journeyed to Nicosia for the purpose of attending the conference which extended over the period 2 January to 9 January, and upon its conclusion they recommenced their travels and finally arrived in Paris on 13 January 1980. Whilst the evidence indicates that the taxpayer visited commercial establishments and museums with the notion of updating and expanding her knowledge of the history, language and culture of France, it appears that no formal course of study on those topics was undertaken during her presence in Paris. The taxpayer, having returned to Australia with the children on 26 April 1980,
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recommenced her duties with the college at the beginning of the second school term.4. It is appropriate that we now turn to examine the reasons pertaining to the husband's decision to travel abroad, and in this regard we mention that he also possessed a teaching background and was, at that time, in the employ of a university. Furthermore, it seems that he had been awarded an overseas research fellowship on the subject of Educational Planning and that the relevant work attaching to the programme was undertaken by him throughout his stay in Paris. Upon the completion of that stage of the study which, incidentally, occurred in April 1980, he travelled to the United States of America where further research was undertaken prior to his ultimate return to Australia.
5. Details of the amounts claimed by the taxpayer in respect of the overseas excursion are as follows:
$
Air fares 1,269
Conference registration 10
Accommodation in France 340
Paris visitations - fares and
admissions 150
Car rental 556
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Total: $2,325
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Although the above expenditure relates solely to the costs associated with the taxpayer's trip to both Nicosia and Paris, the methods applied in apportioning the outgoings for accommodation and car rental as between herself and her husband remained unresolved. Subsequent to the lodgment of an objection against the total disallowance of the claim and the receipt of additional information, the Commissioner allowed as a deduction an amount of $90 which, according to the Commissioner's representative, reflected that share of the outgoings applicable to the attendance of the conference in Nicosia. It appears that the amount conceded was calculated as a percentage of the time spent at the conference as compared with the overall duration of the trip, and whilst the taxpayer did not challenge that formula, she submitted that the balance, i.e. $2,235, which was accepted as being relative to the Paris portion of the journey, qualified for deduction under sec. 51(1).
6. Before a consideration of the provisions of the stature and the surrounding case law, it is pertinent that we further expand on the taxpayer's position at the college and her prospects for promotion and, in doing so, we are assisted by the testimony of the headmistress who was called as a witness for the Commissioner.
7. Prior to departure, the taxpayer was employed by the college to teach German, although it does appear that she sporadically took French classes as and when they were available. Her remuneration was the equivalent of a teacher being paid at the top of the relevant award. Upon her return in April 1980, she recommenced her former duties and remained in that role until December 1980 when she was appointed head of the German Department, a position she still currently holds. Unfortunately for the taxpayer, that elevation in status did not carry an entitlement to salary increase, and indeed we observe that no increments, other than normal cost of living adjustments, have been granted since the visit to Paris. On the question of promotion and financial advancement, it seems that the only avenue available to the taxpayer was to achieve an appointment to the position of co-ordinator of modern languages, either with her current employer or some other teaching institution. The evidence adduced confirms that the possibility of obtaining such an improvement was, and still is, remote.
8. It appears that the taxpayer was granted leave of absence without pay during the period abroad and that there existed an understanding that she would be re-engaged in her former position upon return. It is of interest to note that the taxpayer did not seek a travel subsidy from the college, notwithstanding the existence of a fund from which grants could be made to assist employees travelling overseas either to undertake courses or to further their general teaching background. Statements made by the headmistress, when questioned on her interpretation of the reasons appertaining to the trip to Paris, created the impression that the taxpayer's predominant purpose was to be with her husband, and perhaps that suggested purpose might provide an explanation as to why the taxpayer did not make application for financial assistance from the college fund. In concluding the factual situation, we add that the journey was clearly undertaken at the taxpayer's own volition and that the experience
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gained was not a factor used by the college in determining advancement.9. For the taxpayer to succeed in her claim it is necessary, in the light of the authorities, for her to bring it within the ambit of the first positive limb of sec. 51(1), which states that all losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income shall be allowable deductions. In addition, she must also demonstrate that the expenditure in question was not of capital, or of a capital, private or domestic nature. The words of the section which are most material to the taxpayer's claim are ``incurred in gaining or producing the assessable income'', and it is appropriate that we turn to the following meaning given to that phrase by the High Court in
Ronpibon Tin N.L. and Tongkah Compound N.L. v. F.C. of T. (1949) 78 C.L.R. 47 at pp. 56-57:
``For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. The words `incurred in gaining or producing the assessable income' mean in the course of gaining or producing such income...''
10. The leading authority on the deductibility of outgoings designed to increase one's knowledge, efficiency or aptitude is the decision of the Full High Court in
F.C. of T. v. Finn (1961) 106 C.L.R. 60. In that case, the taxpayer, a senior architect employed by the Public Works Department of Western Australia, used his long service and accumulated recreation leave to tour Great Britain and the Continent for the express purpose of updating his knowledge on current architectural trends and bettering his prospects for future promotion. At the request of his employer, Mr Finn included in his itinerary a visit to South America with the employer paying the additional costs resulting from that extension. Dixon C.J., in holding that the outgoings relevant to the tour were incidental to the taxpayer's assessable income and therefore deductible in terms of sec. 51(1), placed substantial reliance on a combination of conclusions (see pp. 67-68) drawn from the surrounding circumstances:
``In the first place it seems indisputable that the increased knowledge the taxpayer sought and obtained of his subject and the closer and more realistic acquaintance he secured of modern developments in design and construction made his advancement in the service more certain and that in respect of promotion to a higher grade these things might prove decisive. This was put clearly by the Principal Architect, though in a letter written ex post facto, `I understand from you that the Commissioner now desires to know whether the experience obtained and the large amount of data collected will result in an increase in your income. To me, it is obvious that this must increase your professional efficiency, and hence your value to this Department, and must materially assist your future advancement to a higher position in the Department with consequent increase in income.' In the second place, so far as motive or purpose is material, advancement in grade and salary formed a real and substantial element in the combination of motives which led to his going abroad. In the third place it is apparent that the heads of his Department, and indeed the Government itself, treated the use which he made of his long service and other leave to study architecture, increase his professional knowledge and study modern trends, as a matter not only of distinct advantage to his work for the State but of real importance in at least one project in hand. In the fourth place it was all done while he was in the employment of the Government, earning his salary and acting in accordance with the conditions of his service. He was in fact complying with the desires, and so far as going to South America was concerned, with the actual request of the Government.''
In our view, all of those aspects are absent in the current reference before us. The experience gained did not materially assist the taxpayer's future promotion to a higher position with a consequent increase in salary, nor could it be said that the purpose of the trip was directed towards the attainment of such a result. Neither did the taxpayer's employer regard the visit to Paris of real importance to her work as a teacher of the German language, and finally the sojourn was not undertaken at a time when she was earning her salary, nor was she acting in accordance with the conditions of her service in making the trip. Those negative inferences, when taken in conjunction, provide a basis for the conclusion that the expenditure was neither
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relevant nor incidental to the production of the taxpayer's assessable income.11. In the case of
F.C. of T. v. Hatchett 71 ATC 4184, Menzies J. considered in detail the degree of nexus required as between outgoings incurred and assessable income in order to ensure deductibility under the first limb of sec. 51(1). He held that the expenditure incurred by a teacher in gaining a higher qualification, the holding of which provided an automatic increase in salary, was clearly relevant to the earning of future assessable income and that therefore those outgoings were allowable deductions. However, the learned Judge arrived at a contrary conclusion on the question of university enrolment fees paid for subjects in the Faculty of Arts, and his comments at p. 4187 on that issue are apposite to the matters raised in the current reference:
``As I have said, I am not able to find any connection between the payment of fees and the assessable income of the taxpayer beyond the circumstance, which I take to be self-evident, that a teacher who has pursued university studies is likely to be a better teacher than if he had not done so and is therefore more likely to obtain promotion within the department. In my opinion this general consideration is not enough to make the fees deductible; there must be a perceived connection between the outgoing and assessable income.''
12. Whilst we accept that the experience derived from the stay in Paris added to the taxpayer's expertise in teaching French, it is our conclusion that the link between the outgoings in issue and her assessable income is too remote to provide the requisite perceived connection, and for that reason we hold that the expenditure of $2,235 was not incurred in gaining or producing the assessable income.
13. Furthermore, having regard to the circumstances of the visit to Paris, we are of the view that the outgoings were essentially of a private nature.
14. For the reasons stated above, we uphold the Commissioner's decision on the objection and confirm the assessment before us.
Claim disallowed
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