Case V10

Members:
RK Todd DP

Tribunal:
Administrative Appeals Tribunal

Decision date: 6 January 1988.

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R.K. Todd (Deputy President)

The applicant in this matter is a Commonwealth public servant who is employed as a statistician. In the years of income ended 30 June 1985 (``fiscal 1985'') and 30 June 1986 (``fiscal 1986'') he claimed various deductions, pursuant to sec. 51(1) of the Income Tax Assessment Act 1936 (``the ITAA''), for expenses that, he submitted, had been incurred in producing his public service income. A number of these claims were rejected both initially and upon objection, and the applicant has applied to the Tribunal for a review of those objection decisions.

2. In respect of fiscal 1985 claims made for expenses of attending a social carnival organised from work ($82), an airshow ($23), and a wine appreciation course ($184); and for expenses related to staff gifts and lunches ($47), were referred to the Tribunal.

3. A claim for $260.45 relating to a bricklaying course was made in respect of fiscal 1986. In addition, $78.40 expended on attending a unit on ``Management'' was claimed. These claims were allowed upon assessment, although only after $250 was subtracted pursuant to sec. 82A of the ITAA. At the hearing, the Commissioner's representative submitted that the amount of $260.45 was not an allowable deduction under any section of the ITAA and that, to that extent, the assessment had been incorrect. He did not however seek to have the applicant's assessable income increased by the Tribunal. The applicant sought to have the $250, substracted pursuant to sec. 82A, included in the deduction. It was conceded by the respondent that the expenses of the management unit were deductible under sec. 51(1). As the applicant was, upon assessment, allowed a greater deduction in relation to expenses of self-education than the $78.40 claimed in respect of the management course, this concession does not necessitate amendment of the objection decision.

Staff gifts and lunches

4. These expenses were incurred in contributing to the cost of presents, or of lunches, for staff who were leaving the section in which the applicant worked, celebrating birthdays or for similar occasions. Although it would be possible in my opinion to conclude that these expenses were incurred in producing assessable income, in the sense that they were part and parcel of the applicant's employment activities and thus satisfied the terms of the first limb of sec. 51 of the ITAA, I find that they were in any event incurred in meeting social obligations that were of a private nature so that the expenses thereof are excluded from deductibility under the second limb of sec. 51.

Departmental sport carnival

5. While this was organised through the department, and attendance was encouraged by the department, it was predominantly a social activity of a private nature. This claim must therefore fail.

Airshow attendance; wine appreciation course; bricklaying course

6. Part of the applicant's duties involve the production of statistics which describe expenditure by households, and by State and local governments, as well as the production of statistics on the gross domestic product.

7. The applicant submitted that by attending the wine appreciation course and the bricklaying course, which were both ``community recreation'' courses, he became aware of errors in the basis used for a number of statistical items produced by the department. As a result of this knowledge, he submitted, he was better able to estimate the figures in relation to expenditure on private dwellings. In his submission he stated:

``As work done by home handymen has been a major statistical measurement problem for some time (and still is) any information that assists in the work of the national accounts in this regard is like gold eggs in the hay; otherwise the practice of `pulling figures out of the air' is often the only alternative.''

8. A similar submission was made in relation to an alleged connection between attendance at the wine appreciation course and statistics relating to alcoholic drinks.

9. As figures are also compiled in relation to, inter alia, entertainment and recreation, it is somewhat surprising that the applicant's expenditure throughout the year on such activities was not claimed as a deduction.

10. It was also submitted by the applicant that:

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ATC 156

``None of the `education' the applicant undertook was of a clear and direct benefit to him, nor used for personal or domestic purposes.''

I find this contention impossible to accept. The courses are offered predominantly as recreational courses. The finding by the applicant of some very tenuous connection between the courses and his employment does not serve to make the expenses of such courses deductible. Section 51(1) requires that the expenditure be ``incurred in gaining or producing the assessable income''. I am unable to find that the expenses of attending the bricklaying or wine tasting courses were so incurred. I find that they were incurred for private purposes with no more than the merest, and a very casual, connection with his employment.

11. Similarly, I find the lack of the necessary connection between the applicant's employment and his attendance at the airshow.

12. This case illustrates the type of taxpayer who will be exposed to great risk under the new ``self-assessment'' provisions. In the past taxpayers have been able to include imaginative if not bizarre claims in their taxation returns (see Case U154,
87 ATC 902 also involving the present applicant) knowing that, at worst, the claims could be expected to be rejected at the time of assessment. Pursuant to the self-assessment provisions however, the assessments that issue will not be final, and in a number of years' time the taxpayer may be subjected to an audit following which, if the claims are disallowed, the taxpayer will be presented with penalties for late payment.

13. Section 170(1) of the ITAA gives a general power of amendment to the Commissioner which is subject only to the remainder of sec. 170. The limitation in respect of matters where there has been full and true disclosure, sec. 170(3), has been amended and now states:

``Where a taxpayer has made to the Commissioner a full and true disclosure of all the material facts necessary for his assessment, and an assessment is made after that disclosure, no amendment of the assessment increasing the liability of the taxpayer in any particular shall be made after the expiration of 3 years from the date upon which the tax became due and payable under that assessment.''

Previously amendment could only be made in such situations to ``correct an error in calculation or mistake of fact''.

When these amendments to sec. 170 are considered in the light of the insertion of sec. 169A it is clear that the power of the Commissioner to amend assessments is vastly increased. (See also Australian Federal Tax Reporter ¶79-850 especially at p. 47,453 where the following passage appears:

``Before the amendments introduced in the Taxation Laws Amendment Act 1986 there were specified limits on the power of the Commissioner to amend assessments. For example, under sec. 170(3), where a taxpayer had made a full and true disclosure of all material facts necessary for assessment, an amended assessment increasing tax liability could be issued within three years of the original assessment to correct an error in calculation or mistake of fact, but not to correct an error of law. A similar disability applied to amending assessments to reduce tax liability (sec. 170(4)). The justification for this prohibition, the fact that returns were examined by experienced assessors capable of recognising and rectifying errors of law in the course of making the original assessment, no longer exists under the self-assessment system.''

14. The most worrying feature of the new arrangements is that public awareness of the risks involved may be insufficient. Many taxpayers may be of the opinion that assessments that have been issued cannot be changed unless there has been a failure to make a full and true disclosure. It is to be hoped that the Commissioner will make taxpayers, and not just tax agents aware, at the time of year when returns are being prepared, that the assessment can be subsequently amended pursuant to the new arrangements.

15. For the reasons given above the objection decision under review is affirmed.