Case T87

Members:
P Gerber SM
KL Beddoe SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 6 November 1986.

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Dr P. Gerber and K.L. Beddoe (Senior Members)

The applicant in this case is presently a pastor with the Baptist Church at W. In the 1980 tax year now before the Tribunal, the applicant was employed up until the end of the calendar year as a teacher with the Victorian Department of Education, teaching both English and Social Studies. By the end of that year (1979), he had decided to broaden his career by undertaking studies which would enable him to do chaplaincy work within schools, either departmental or church schools.

2. He made enquiries from the Council for Christian Education Schools as to what would be required to enable him to undertake such work and was informed that three things were conditions precedent:

• (i) a teaching qualification;
• (ii) a theology qualification;
• (iii) pastoral experience.

3. With no firm view as to where his future career would take him, the applicant sought and was granted leave without pay for one year from the Department to enable him to embark on studies leading to the degree of Bachelor of Theology. At the end of his year of absence (1980), the applicant resigned from the Department of Education. His letter of resignation reads as follows:

``During 1980 I was granted `leave without pay' and commenced a three year Bachelor of Theology degree course. I feel it is important to complete this course whilst the opportunity is available to me, and this necessitates my resignation from the Victorian Education Department.

It is with regret that I notify you of my intention to resign from the Department as of Friday the 20th February 1981, at 4.00 pm.

I am grateful for the opportunities and experience afforded by the Department, both during my training and the years of teaching.

Yours sincerely,''

4. The applicant was quite frank in informing the Tribunal that whilst his additional qualification would widen his options as a teacher, he could not assert positively that an additional degree in theology would lead to higher earnings. Indeed, the events as they occurred would lend support to the view that whilst he had broadened his bases it had not led to higher income.

5. After he obtained his degree in theology, the applicant returned briefly to the Department for the remainder of that academic year on a part-time basis and resigned again at the end of that year and became a part-time teacher at Woburn College.

6. His remuneration from the church took the form of an allowance relating to his travel and entertainment; clearly in terms of income, the applicant was now worse off than before he undertook his theology studies.

7. Regrettably, the Income Tax Act is, as its name implies, concerned with income and any deductions which are sought demand a nexus between the outgoing and the derivation of that income.

8. In correspondence between the applicant and the respondent, the applicant sought to rely on two decisions: one from a Board of Review Case D1,
72 ATC 1, and a decision of the Supreme Court of New South Wales,
F.C. of T. v. Smith 78 ATC 4157.

9. The thrust of the Board case is neatly set out in the headnote at p. 1:

``Taxpayer, an assistant science teacher employed by a State Education Department at a high school in a country town, had studied agricultural science at Teachers' College and had obtained a B.A. degree majoring in biology. His day-to-day duties as a science teacher required him as well to teach science subjects (such as chemistry, physics, geology etc.) in which his training was limited to that of his own schooling and his Teachers' College training course.

For the year in question, he claimed deductions for university fees and incidental travel and thesis preparation expenses connected with two separate courses of study - towards a degree of Litt. B. at his old university, specialising in biology, plant ecology and scientific method; and towards a second B.A. degree at another university, consisting wholly of scientific subjects.

It was taxpayer's stated intention to remain a school teacher. His terms of employment did not require him to take a higher degree and the obtaining of one would not

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ATC 1123

guarantee his promotion, although it was likely that if there were two applicants for a higher position, both equally well trained, and one had a higher degree, that one would gain the promotion, all other things being equal.

... Having regard to
F.C. of T. v. Hatchett, 71 ATC 4184, the expenditure cannot be disallowed on the ground that it is capital. On the whole, the test in relation to studies towards a degree to be gleaned from Hatchett's case is that `there must be a perceived connection between the outgoing and the assessable income'. On the evidence, taxpayer clearly became, as a result of the studies in question, better equipped to discharge his day-to-day duties, within the ambit of the test in
F.C. of T. v. Finn (1961) 106 C.L.R. 60. Moreover, a strong possibility that taxpayer's prospects of promotion were enhanced by his increased educational attainments can be inferred. Hatchett's case on this point distinguished on the facts.''

10. As I understand the reasoning of the majority, it was an essential finding of fact that the course undertaken by the taxpayer in that case did not only equip him better to discharge his day-to-day duties, but created a strong possibility that the taxpayer's prospects of promotion would be enhanced by his increased educational attainments. It is precisely this feature which the present applicant is unable to adduce. It follows that unless it can be demonstrated that the increase in knowledge would at least create the possibility of promotion, and therefore higher earnings, such a claim must fail.

11. Nor does Smith's case advance the argument any further. In that case the taxpayer was a clerk employed in the Taxation Office. He undertook a course leading to the degree of Bachelor of Commerce and sought to deduct the costs thus incurred, such as fees, etc., from his assessable income. The claim succeeded at first instance before Board of Review No. 1, Case H18,
76 ATC 130, and subsequently on appeal before Waddell J. His Honour indicated that Hatchett's case did not establish that educational expenses would not be deductible unless they related to a course of study which has as its necessary consequence an increase in salary. Rather it decided that educational expenses which do have that necessary consequence will be deductible and that ``educational expenses paid in respect of a course which, if successfully completed, makes the taxpayer likely to do a better job and therefore more likely to obtain promotion, but which the taxpayer had no real prospect of completing, are not deductible'' (p. 4161, my emphasis).

12. His Honour went on to say that in that case there was a real connection between expenditure and the taxpayer's assessable income. His commencement of the course was reasonably calculated and led to his appointment as an assessor and to an increase in his future income by being able to pass up through assessor grades, and he had in fact moved to Grade 3 by February 1973. ``In short, in incurring the expenditures in question the taxpayer, in reliance upon the prospects of promotion which appeared reasonably to be present, spent money to earn more in the future'' (p. 4162).

13. It will be seen that, far from supporting the applicant's claim, Smith's case, on which reliance was placed, is heavily weighted against him.

14. Regrettably, therefore, this applicant is unable to establish that his additional qualification is likely to lead to promotion and therefore to higher future earnings - and this would be true whether he rejoined the Department as a teacher with pastoral duties or obtained a full-time appointment in a church school (the salary of private schools is ``tied'' to that of church schools). Hence the necessary nexus between the additional qualification and the expenses incurred in obtaining it and the derivation of higher earnings in the future has therefore not been made out.

15. The Tribunal therefore affirms the decision under review.

Claim disallowed