Case V135
Members:PM Roach SM
Tribunal:
Administrative Appeals Tribunal
P.M. Roach (Senior Member)
The applicant is a senior member of the academic staff of an Australian university. In the period 1982 to 1987 she was engaged in research in a particular field of interest. Her undertaking was wholly approved by her university and, in addition, it had the support of the Australian Research Grants Scheme which funded the salary of a research assistant for her. As a member of academic staff she had an obligation to her university to undertake substantial research and, by reason of her privileged status as a member of academic staff, it was expected that she would act responsibly as a scholar. She had the privilege of not being required to account for her work on a day to day, let alone an hour to hour, basis in terms either of the periods devoted to her work or of her attendance at the workplace. She was expected to have a sense of responsibility. She was not expected to confine her work involvement to particular hours or even to a particular commitment as to the number of hours to be spent about the discharge of her responsibilities.
2. In recognition of the importance of advanced research in the life of the community, her university, in common with many other universities, encouraged its staff to devote substantial periods of time to full time research. It had its own policies and systems for providing that encouragement and administered a ``Special Studies Program'' (SSP). It did so by making provision to relieve approved staff from ordinary teaching duties and administrative tasks for prolonged periods in order to enable them to devote themselves to approved research. In 1983 the applicant gave her superiors preliminary notice of her intention to apply for special study leave for 1984 to enable her to travel overseas and there pursue her research close to original sources not available in Australia.
3. During 1982 the applicant had become aware that a well-endowed overseas university, well-sited for the purposes of her proposed research, was willing to share the benefits of its endowments with some overseas scholars. She became aware that it was willing to provide fellowships to approved applicants of sufficient distinction and learning who indicated their interest in pursuing research there. She applied for a fellowship stating her interest in pursuing her special research project. Her application was successful. As a result she was offered bedroom accommodation on campus; a daily
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meal in college; a modest monetary allowance; and the privileges extended by that university to resident fellows.4. In due course, being fully aware of the overseas fellowship, her own university approved her application. As a result she was relieved from responsibility to attend to her other duties for a period of ten months. For the ten months of her absence she was to continue to draw one-half of the normal salary for her status. The other half of that salary was to be paid to her in advance as a ``travelling allowance''. In addition she applied to her university for a special grant which, at the discretion of the university for a special grant which, at the discretion of the university, could be paid to her in accordance with its established policy. After taking into account the moneys to be received under the fellowship and the fact that the other members of her family would be with her overseas for some portion of her period of leave, a grant of $1,838 (later increased to $1,973) was approved and paid to her. The special grant was the maximum provided for by the policy. It was not reduced by reason of moneys to be received pursuant to the fellowship.
5. In due course she travelled overseas and was away for approximately ten months. For some six weeks of that period she was joined by her family. Of that period, three weeks were spent together by the family on vacation. No claim was later made in relation to any expenses incurred by the applicant during that period. The balance of three weeks was spent in private accommodation near her host university. In relation to that period she was working about her research project. Later she claimed a deduction of one-third of the living expenses incurred during the latter period. (The apportionment was not queried. Accordingly I accept that it was reasonable.) For the balance of the ten months she availed herself of the accommodation offered in the host university and also of the other facilities provided by that university.
6. Although in applying for the fellowship it had been necessary for her to stipulate what course of study she proposed to pursue, she entered into no commitment with her host university in any formal or contractual sense that she would do so. I find that she was favoured with the grant of the fellowship by reason of her scholarship. I find that it was assumed and expected on both sides that she would diligently apply herself to her nominated field of research. I also find that she did so, but that in doing so she had no obligation to inform her host university of her activities, let alone any obligation to report to them upon the outcome of those activities. To that extent her relationship was to be distinguished from that with her own university. There she was under an obligation to provide a report upon the research undertaken during her period of leave; an obligation duly discharged upon her return. Following her return to Australia she continued with her research. Prior to the hearing, two volumes of research material had already been published and a third volume was in course of publication. The first of those volumes was under the editorship of the applicant and her research assistant. In that volume express acknowledgement was made of the grant of the fellowship from the host university and the support the applicant had had from her own university.
7. When the applicant returned to Australia in the latter part of 1984 she promptly completed her return of income to 30 June 1984. In that return of income she disclosed salary from her university to 30 June 1984 of $28,883, and a travelling allowance for the same period of $14,176 (with a further amount of $5,294 to be brought to account in the next year). She also disclosed free accommodation and provision of some meals at her host university; an emolument of $A1.562: and reimbursements of research, travel and expenses at $A327. She acknowledged the travel grant received from her home university to constitute assessable income. She also brought the reimbursements from her host university to account as an offset against expenses otherwise claimed. But she did not acknowledge the value of the accommodation or of the meal allowance; or acknowledge the emoluments she received to constitute assessable income.
8. In turn, in relation to her overseas travel she claimed deductions in the sum of $4,209. The deductions fell into three groups with the following results:
-
Return air fare overseas together with all incidental expenses .............. $1,948 -
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Research travel while overseas less reimbursement host university ........ $280 Living expenses Periods on vacation with family ($1,169 - claim) .......................... $nil Accommodation and living expenses while with family and at university ............................. $238 Living expenses without family and prior to taking up university residence ................................. $140 Other living expenses while resident in university .................... $749 Research expenses Stationery ................................ $139 Postage of printed matter, notes and correspondence on her university business ....................... $150 Telephone calls to and from Australia on university business or in relation to SSP leave ............... $379 Entertainment expenses in host university: Entertainment of overseas scholars, co-researchers and publishers with regard to my research .................................. $186 ------ $4,209 ------
Travel expenses
9. Upon assessment the Commissioner increased the taxable income returned by $2.528 by reason of $1,562 for emoluments under the fellowship and by disallowing the deduction for overseas entertainment $186 and a claim for computer depreciation $780. A note to the adjustment sheet said, inter alia, that the fellowship moneys were ``not exempt from tax under Section 23(z) of the Income Tax Assessment Act as you were not engaged in a full time course of education''. The suggestion that sec. 23(z) was relevant had been made by the applicant in her return. Upon objection the disallowance of the claimed deductions for entertainment and depreciation were allowed. (I observe that a second claim for entertainment expenses of $101, not apparently related to the journey overseas, has at no stage been queried.)
10. However, as the objection to the treatment of the fellowship moneys as assessable income had not been allowed the applicant requested that her objection be referred to independent review. That was on 17 March 1986. On 23 June 1986 the Commissioner referred on the application, at that time stating as the Commissioner's reasons for disallowing the taxpayer's claims ``an amount of $1.562 received by the taxpayer as a... fellowship awarded by... was correctly included in her assessable income for the year ended 30 June 1984 under sub-section 25(1) of the Act''. That basis for assessment was confirmed in a preliminary conference before a member of this Tribunal.
11. As a result, the applicant came to the hearing expecting to argue a case as to whether or not the fellowship moneys she had received constituted assessable income. On that basis the issue for her was whether the taxable income for the year of income ended 30 June 1984 should be affirmed at $39,097, or reduced to $37,545. It therefore came as somewhat of a surprise to the applicant, and the colleague who represented her at the hearing, to hear the representative of the Commissioner advise that the Commissioner wished to argue that, if the fellowship moneys did not constitute assessable income, none of the expenses which had been claimed in relation to overseas study should have been allowed, or alternatively, should have only been allowed in part.
12. It was pointed out that, if that submission were to be wholly successful, to give effect to it would require that instead of the taxable income of the applicant being reduced by $1,562 to $37,545 it would be necessary to increase the assessment of taxable income by $2,748 ($4,310 - Item 27 - less $1,562) to a total of $41,855. The initial reaction of the Commissioner's representative was to indicate his intention to contend that the Tribunal should direct that the subsisting assessment of taxable income be increased accordingly. After consideration the Commissioner's representative resiled from that position. In consequence it will not be necessary to determine whether or not in face of such a submission it would ever have been appropriate to increase the assessment challenged by the applicant.
13. The applicant received benefits in money and in kind from the host university. The money (converted to $A (sec. 20 of the Act)) and the money value of all of the benefits (sec. 21) will be liable to be brought to account in determining the taxable income of the applicant
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(sec. 48) if, and to the extent to which, the benefits conferred in money or in kind constitute assessable income. The benefits, by which term I refer to both the money and benefits in kind, will constitute assessable income of the applicant if they are neither capital nor exempt income. If the benefits constitute capital they cannot constitute income unless they constitute ``income'' by reason of some extension of definition in the Act which incorporates in the concept of assessable income what would otherwise be capital. No such extended definition is contended for as applicable in the circumstances of this case. However, if the benefits do constitute income, they will constitute assessable income unless they constitute exempt income.14. The benefits came to the applicant by way of gift. They came from a public institution which, as part of its commitment to scholarship, provided support for some scholars. The benefits which came to her were not unsolicited, but the provision of them by the host university was gratuitous on its part. Although the money benefits were payable by instalments, the benefit was by way of a fixed, pre-determined sum. Further, the benefaction was, of its nature, an isolated transaction and non-recurrent. The benefits were conferred upon the applicant to provide her with an opportunity to study in a university atmosphere. They consisted of providing her with resources sufficient to provide for her sustenance and accommodation during her period of study. They did not come to her as a reward for any services rendered to the host university. Except in so far as the provision of accommodation was of its nature ongoing and the payments of moneys were by instalments which constituted a fixed amount payable over a defined term, the benefits had no characteristic of periodicity, recurrence or regularity. They did not have the characteristics of the supplementary payments made by a former employer in order to bring the income of a combat soldier up to his pre-war rate of civilian pay as in
F.C. of T. v. Dixon (1952) 86 C.L.R. 540. Nor did the payments come to the applicant by way of gratuitous supplements to existing pension entitlements as in the ``pension'' cases (
F.C. of T. v. Blake 84 ATC 4661: sed cf.
F.C. of T. v. Harris 80 ATC 4238). Nor did the benefits come as an incident of a rendering of service to an employer, as in the bank-officer case (
Smith v. F.C. of T. 87 ATC 4883).
15. Nor did the benefits come to the applicant as a reward for any service rendered to her home university. I find that the host university conferred on her the benefits which it did by reason of her personal qualities as a scholar and by reason of her commitment to undertake the studies which she did. The circumstance that she had an obligation to her employer university to pursue those studies and that she was in receipt of income from her home university by reason of her services in and about those studies, does not alter my view in that regard. In reaching that conclusion, I have particularly borne in mind the words of Jenkins L.J. in
Morehouse v. Dooland (1955) 36 T.C. 1: one of the many cases concerned with the assessability of collections from spectators in recognition of meritorious performances by cricket professionals employed under contract with cricket clubs, under which the contracts entitled the players to the benefits of testimonial matches. His Lordship said:
``If the recipient's contract of employment entitles him to receive the voluntary payment, whatever it may amount to, that is a ground, and I should say a strong ground, for holding that from the standpoint of the recipient it does accrue to him by virtue of his employment, or in other words by way of remuneration for his services:
The fact that the voluntary payment is of a periodic or recurrent character affords a further, but I should say a less cogent, ground for the same conclusion:
On the other hand, a voluntary payment may be made in circumstances which show that it is given by way of present or testimonial on grounds personal to the recipient - as for example a collection made for a particular individual who is at the time vicar of a given parish because he is in straitened circumstances, or a benefit held for a professional cricketer in recognition of his long and successful career in first-class cricket. In such cases the proper conclusion is likely to be that the voluntary payment is not a profit accruing to the recipient by virtue of his office or employment but a gift to him as an individual paid and received by reason of
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his personal needs in the former example and by reason of his personal qualities or attainments in the latter example.''
16. In my view it is the latter passage in his Lordship's reasons which is of the most relevance in these circumstances. The applicant is like to the cricketer in the examples given. It might be fair to say that she would not have received the benefits of the scholarship had she not been a distinguished scholar and that she would not have been a distinguished scholar had she not been able to pursue a professional income-earning career on the academic staff of her home university. But, in providing its support for her future studies, the host university was not doing more than recognising her personal merits as a scholar and lending its support gratuitously to the furtherance of her activities as a scholar.
17. That being so, I am satisfied that no part of the amount received constituted assessable income liable to be brought to account in the assessment of taxable income. Accordingly, the determination of the Tribunal will be that the decision of the Commissioner upon the objection under review be varied and that taxable income of the applicant for the year of income ended 30 June 1984 shall be reduced by $1,562.
18. I am conscious that the finding I have made will leave unresolved one issue which may give rise to future difficulties. It is the question whether, in light of the findings which I have made, the amounts allowed to date as deductions may be excessive. Recognising the possibility of further contention and in an endeavour to avert it, I make the following observations:
- (a) that the only reason for not allowing that issue to be raised at the hearing was that it was not possible to overcome the effects of surprise at the matter being raised so late - too late to allow evidence and argument to be fairly presented:
- (b) that, if the Commissioner were to consider increasing the present assessment of taxable income by reference to such considerations, the only appropriate course for doing so now would be to issue an amended assessment: assuming that the issue of such an amended assessment would be within power; and
- (c) that, but for the last-mentioned observation, it would seem to be appropriate that, in so far as unrecouped expenses of research were partly related to the derivation of assessable income and partly to the derivation of the scholarship moneys, an apportionment would seem to be appropriate: and the basis of apportionment most appropriate would seem to be to apportion all of the research expenses (whether recouped or not) between the scholarship moneys and assessable income in the proportions they bear to each other.
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