Case U109

Members:
BJ McMahon SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 7 May 1987.

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B.J. McMahon (Senior Member)

The applicant is a high school teacher employed by the New South Wales Department of Education. About 18 years ago he obtained a degree of Bachelor of Science from the University of New South Wales, majoring in geology. This helped him to advance in his profession. He is presently head of the Science Department of an inner city high school where he teaches physics, biology, chemistry and junior science, as well as his speciality, geology. That special subject is taught to year 12 for six of the 22 periods of teaching for which he is called upon every week.

2. In the Science Department there are four other teachers who work under him. The syllabus is set by way of a brief statement from the Department of Education. It is necessary for individual teachers to give content to that syllabus and to discuss ways in which specific subjects are to be taught. For example, in the school in which the applicant teaches, some 80% of the children come from families whose first language is not English. Asian students in particular, because of their wish to please, require special methods of teaching involving "hands-on" experience. It is not enough simply to talk to them or to give them written material. To learn geology they need to consult and handle specimens and to see photographs. In order to discuss teaching goals from time to time, meetings are held every three weeks between the applicant and the four teachers who serve under him.

3. He is paid a salary under an award as head of a department. In his particular field he is now being paid at the maximum rate for teachers. There is no way in which he could increase his salary within his present classification, although part-time activities might be available to him in other areas which would enable him to increase his income. He could be promoted to Deputy Principal, but this would involve less face to face teaching and would not be to his liking.

4. In the year of income he decided to join a 17-day organised trip to Indonesia. As a member of a natural history museum society, he joined 12 other persons on this excursion. Of them, only the leader and two others were geologists. The other members of the party were interested in different scientific disciplines.

5. After discussing the matter with his wife, he decided to travel without her as she could not conveniently come and the trip afforded an opportunity to look at and examine Krakatoa, a volcano not readily accessible except in circumstances like these. His passage was booked a long time in advance. He intended that three of the 17 days should come from his accumulated long service leave and the remaining 14 from the August school holidays. He was not asked by his headmaster to undertake the trip. Indeed, he does not appear to have consulted his headmaster until he ran into difficulties with the proposed three days long service leave. Those that administer this leave scheme in his department considered that this was too short a period to take from long service leave. Once the headmaster was made aware of his difficulties shortly before he was due to go, he intervened on the applicant's behalf and arranged for the necessary leave. Having learned of the applicant's plans, the headmaster of course approved of them. Nevertheless, if the three days long service leave had not come through, the applicant would not have been able to cancel the trip without substantial financial loss. I consider it

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very likely that he would have gone in any event and dealt with leave allocation on his return.

6. After the party arrived at Jakarta, they spent several days becoming acclimatised and visiting tourist attractions such as "Mini Indonesia", an educational park popular with Indonesian school parties. They attended a geological congress then being held in Jakarta at which their leader presented several papers. They then proceeded to various destinations in Java and Bali.

7. In his return of income the applicant described his geological activities during this trip in the following words:

"During this excursion I visited the Krakatau Geological Symposium; climbed and examined Anak Krakatau; descended into Tangkubanparahu volcano; visited Bandung Geological Museum; visited Ciater geothermal region; viewed Aalunggung volcano; climbed to Bukit Plawangan Seismographic Station and Observatory below Merapi volcano; visited Dieng geothermal region; Borobudur Temple and Prambanan Temple; viewed Kelut and Semeru volcanoes; walked across the sand sea in the caldera and then climbed Bromo active volcanic vent and viewed Batok vent; walked across the caldera floor, through the 1974 flow and then climbed Batur volcano; viewed Agung volcano; visited Goa Gajah and bathing place disinterred from tuffa; visited the valleys and coastal regions devastated by Agung pyroclastics and lahars in 1963; examined pillow lavas of Recent times; saw Rinjani volcano."

8. In addition to these geological observations, the applicant visited the Botanic Garden at Bogor, the Zoo at Surabaya, a musical instrument factory at Jogjakarta, and a cottage-industry brickworks establishment at Bandung.

9. From Java, the party proceeded to Bali where they spent five days. Some of this time was taken up in exploring a volcano on the island.

10. While in Indonesia, the applicant took many slides of which he says he made good use when he returned to Sydney. He prepared a voice-on tape commentary for these slides which he found very helpful in interesting his students in his observations.

11. He made a claim for a deduction for the cost of travel and accommodation represented by the gross amount paid to the society that organised the expedition, less an amount which he deducted for meals.

12. In the same year of income, he made a trip to Europe with his wife. Some two years previously, he had decided to take time out of his long service leave in order to make such a trip when the opportunity arose. Because of an improvement in his financial circumstances, that opportunity came earlier than he had expected. He planned variations to a basic package tour within which he made three principal expeditions.

13. Prior to leaving, he gave additional tuition to his year 12 students so that they did not feel that they were neglected. He then felt more comfortable about travelling abroad for 53 days, all of which came from his long service leave. On this occasion he had no difficulty in obtaining leave and did not need the intervention of his headmaster. He was not requested to make the trip, nor was any allowance made to him for that purpose.

14. The applicant and his wife first went to London where they spent some time visiting museums. They then embarked on a bus tour of certain countries in Europe organised by a firm called "In Flight". The tour went through France, Italy and Switzerland. There were a few Australians on the tour who turned out to be teachers. Most of the other passengers were a party of American post-graduate students. The tour was not organised through any particular society or organisation and appeared to be an ordinary bus tour. For that reason, the tour captain was hesitant about allowing any variations. However, he was persuaded to agree to allow the applicant and his wife to leave the tour at Naples for a few days where they hired a car in order to see Pompeii and other associated sights of geological interest. They drove to Rome where they rejoined the tour in due course. Apart from that interval, they followed the same program as all the other tour members, except for rest days when they followed their own inclinations. They were principally examining land forms and visiting museums where they were available.

15. Shortly after they returned to London they took another bus tour to Scandinavia. From Bergen on the west coast of Norway,

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they travelled to Sweden then back to Norway thence to Denmark and back to England. The applicant said that he had much more freedom in this trip which lasted for two weeks. He was able to clamber over rocks and investigate matters of geological interest almost at will during the course of this trip. Naturally, his activities excited some interest amongst other passengers in the bus and he says that he was called upon from time to time to give explanatory lectures to those passengers.

16. Back in England, the applicant hired another car and toured areas of special interest to him in Britain. In his return of income he said in part:

"In England I visited the fossiliferous rocks of Robin Hood's Bay, Ravenscar and Whitby, Lyme Regis with its giant ammonites, Abereidy with its graptolites, St David's with its trilobites, and spent a day on the fens of Lincoln. I saw fossil collections in many towns such as York, Lyme Regis etc."

17. Of the 53 days comprised in the trip he says that 29 were spent "doing true geology". Although he was constantly making geological observations, he says that he does not claim in respect of the other 24 days. The total cost of fares and accommodation was $5,250. Of that amount he claimed as a deduction 29/53. In addition, he claimed for car hire and petrol in Naples and England.

18. Apart from these observations carried out privately, the applicant followed no other educational course on the European trip. He attended no lectures and had not planned to visit nor did he in fact visit any teaching institutions. Once again he prepared numerous slides from photographs which he considers are useful teaching aids in his subject of geology. He obtained sound recordings and specimens which he says he could not otherwise have acquired. He says that although in some areas he was travelling with tourists and looking at the same things that other tourists look at, he was in fact looking at them in a different way and learned more from them than ordinary tourists would have learned.

19. His case is for deductions based on sec. 51(1) of the Income Tax Assessment Act which is in the following terms:

"51(1) [Deductions for losses and outgoings] All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such 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, or are incurred in relation to the gaining or production of exempt income."

20. He did not seek to argue that the expenditure claimed directly or indirectly, would lead to an increase in the level of his income. He specifically rejected this as a justification for his claims. He repeated several times that his object was "to maintain and improve my efficiency as a teacher". He has written articles on science teaching and considers that these travels were intended to, and had the effect of, bettering him in his chosen profession. No income was received from the articles that he wrote. There was no aspect of his employment to which he could point which amounted to a requirement on his part to undertake this travel. He did, however, feel a moral obligation to develop new approaches to the teaching of geology and to present new teaching aids and to write on the subject. There was nothing in the terms of his employment, he agreed, which required him to do this, nor would he expect to receive the disapprobation of the Department if he did not do it.

21. The claims for deduction were disallowed by the respondent in full on the grounds that they were private expenditure and thus fell within the exception quoted above. This application is brought to review that objection decision.

22. When considering the deductibility of expenses of travel incurred by employees, one must start with
F.C. of T. v. Finn (1961) 106 C.L.R. 60. A passage in the judgment of Dixon C.J., which is often quoted, must still be regarded as a statement of the four guiding principles for application in cases such as the present application.

23. At p. 67 his Honour said:

"... three or four conclusions may be drawn which perhaps may be considered to govern the question whether the expenditure was incurred in gaining or producing the assessable income. In the first place it seems

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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... 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."

24. The elements of promotion or advancement and relevance to the conditions of service are elements that continually recur in the cases where this type of situation has been considered.

25. The nature of the required relevance was stated by Menzies J. in
F.C. of T. v. Hatchett 71 ATC 4184 at p. 4187 in relation to study costs in the following words:

"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."

26. Although Windeyer J. took a broader view of relevance in Finn, all Judges in both cases concluded that there must be a connection between the expenditure and the assessable income demonstrated through the relevance test.

27. The same principles have been applied in considering deductibility of cost of study. In
F.C. of T. v. White 75 ATC 4018, the New South Wales Supreme Court stated the test in the alternative. The study must either be in the course of the applicant's duties or must have a direct effect upon his income. At p. 4022 Helsham J. said:

"As the result of the decision in the two cases 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. Where that cannot be seen, I think it will be difficult to establish the necessary connection between the study activity and the employment so as to give study expenses the character of outgoings incurred in gaining or producing the income derived from the employment."

28. In
F.C. of T. v. Smith 78 ATC 4157, Waddell J. emphasised 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). The demonstration of relevance by connecting expenditure with promotion is an element that recurs many times in the cases. In
F.C. of T. v. Lacelles-Smith 78 ATC 4162 and in
F.C. of T. v. Wilkinson 83 ATC 4295 there was a perceived connection between the education expenses and actual promotion. This was sufficient for the courts to accept the relevance of the expenditure to the gaining of the assessable income.

29. These principles have been worked out in numerous decisions of Boards of Review and more recently by this Tribunal. There have in fact been so many decisions concerning the cost of overseas travel by teachers that they have become almost a separate genus. In most of the decisions I have been able to find, the teacher has not been successful in convincing the Board that the facts of his particular case fall within the principles which govern deductibility of expenses of this nature under sec. 51(1).

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30. The prospect of promotion and the likelihood of achieving it through undertaking the travel, whilst not being a necessary element, has proved to be an important consideration in all of these cases. For example, in Case P11,
82 ATC 54 the teacher had no real possibility of promotion and this was regarded as an important factor. In Case Q57,
83 ATC 307 the teacher found himself (like the present applicant) at his maximum grade with no possibility of further promotion. Similar considerations were taken into account in Case P19,
82 ATC 81 and Case P79,
82 ATC 386.

31. On the other hand, taxpayers have succeeded in establishing the necessary relevance of their travel expenditure when they have demonstrated advancement in their profession as a result of undertaking that travel. Examples can be found in Case Q104,
83 ATC 522 and Case R20,
84 ATC 201.

32. Many school teachers have been unable to demonstrate a sufficient connection with their income-earning activities. The travel has been held to be too remote to have any bearing on their day-to-day employment. Examples of this can be seen in Case Q25,
83 ATC 120, Case S4,
85 ATC 109 and Case S12,
85 ATC 165. Even where special study tours have been undertaken, as distinct from general packaged travel arrangements, some teachers have been unable to demonstrate the necessary connection. Examples of this may be found in Case Q86,
83 ATC 432, Case R109,
84 ATC 727 and Case U54,
87 ATC 354.

33. There were two decisions in which school teachers have been able to demonstrate the relevant connection. However, a reading of the two decisions (Case R73,
84 ATC 509 and Case T65,
86 ATC 464) indicate that they turn on very special facts that were appropriate to the particular teachers. Because of the specialist nature of their teaching duties as a master art teacher in one case and an Indian history teacher in the other case, it was considered that it was incumbent upon them to carry out the travel involved and that such travel was incidental to the proper execution of their offices.

34. It is also clear from the decisions that the general principle enunciated by Menzies J. in Hatchett, namely that the general consideration of improvement in the ability of a person to teach is not sufficient, has been widely applied and accepted. Simply to improve or even to maintain one's efficiency is not to demonstrate a sufficient connection between the travel and one's income-earning activities. Reasoning of this nature can be found in Case R47,
84 ATC 380, Case R84,
84 ATC 562 and Case R97,
84 ATC 642.

35. It is also clear from these decisions involving school teachers that active encouragement by way of provision of paid leave, or even by way of specific request of the headmaster, will be of significance in demonstrating that the travel was carried out in the course of employment. Examples of situations of this kind can be found in Case S1,
85 ATC 102, Case T23,
86 ATC 228 and Case T47,
86 ATC 381.

36. The present applicant's case must be looked at in the light of the above principles. He was not requested to undertake either tour. He had reached the top of his grade and was unable to achieve any further promotion. He did not achieve promotion to any administrative position as a result of his travel. The European trip was one of a general nature, despite the particular excursions which the applicant undertook in the course of it. The Indonesian trip by a group of scientists of mixed disciplines did not demonstrate any particular special circumstances that would differentiate it from any of the other study tours referred to in the above decisions.

37. Both journeys were occasions for broadening the applicant's knowledge and understanding in ways that were personally satisfying to him. As was pointed out in Case U54 (supra), many persons who have the good fortune to find personal satisfaction in their work find their recreational satisfactions in a field of endeavour which is also related in some ways to the field of activity in which they carry out their principal income-earning activities. I consider that both the journeys in the present application were essentially recreational in character for this reason.

38. Accordingly, the objection decision under review is affirmed.