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Case W73

Members:
P Gerber DP

Tribunal:
Administrative Appeals Tribunal

Decision date: 28 July 1989.

Dr P. Gerber (Deputy President)

The applicants - husband and wife - are both junior members of the New South Wales Police Force, stationed in a small town in the Hunter Valley. Both lodged identical claims. By consent, the husband's case was selected for determination, both sides agreeing that the wife's case would abide the result.

2. In brief outline, this couple commenced to plan an overseas trip in 1986, to commence in March 1987. To make the trip worthwhile, they agreed to defer their leave entitlements and took five weeks' unpaid leave with the approval of the employer.

3. Determined to make every post a tax deduction, this couple sought professional advice on how best to achieve such a fiscal result. They were advised, inter alia, to keep a diary, setting out whom they visited, when and why. They thereupon obtained a diary with plenty of space to jot down their daily activities, commencing with an entry on 18 March 1987, noting the time the couple got up, had breakfast and took a cab to the station (``$6 with tip''). The last entry was on 30 June 1987, noting cryptically ``catch train from Central to Newcastle Rail $23.80. Cab to accommodation $7 (incl. tip). Lunch $18.40. Dinner $24.10. Grand total $25165''.

4. Prior to setting off on this grand tour, which included the United States and Europe, the couple mailed a series of letters to various police stations and professors of law in the places they intended to visit. The following is a standard letter:

``May I take this opportunity of introducing myself and my wife. My name is Bobby Peel and I am a member of the New South

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Wales Police Force, stationed at Maitland Police Station and currently attached to the Criminal Investigation Branch. My wife, Margaret Peel, is also a member of the New South Wales Police Force and she is currently attached to the Maitland Licencing Police.

In April/May 1987 my wife and I are planning to visit Greece. Apart from the interest that my wife and I share in the criminal law, we also share an interest in the civil law that we are studying through the University of Sydney and the Supreme Court of New South Wales. Because of this interest we are hoping to speak to people who could give us information with regard to the practice and implementation of law within your country. The dates of any lectures and seminars which we could attend, if permitted, would also be appreciated.

To enable my wife and I to formulate an itinerary we require the name, address and telephone number of any persons who you feel may assist us within your University who we can contact on our arrival in Greece. This would assist us as this is not the only country that we are visiting and therefore you would appreciate the enormity of the task.

Any information that you could forward to us regarding the practice of law within your country as well as the above requests would be greatly appreciated.''

5. I do not propose to give a detailed description of the perigrinations of this couple around the world as they visited, Baedecker in hand, one police station after another in much the same way as other tourists pay homage to gothic cathedrals. Suffice it to say that if they aimed to make their tour an allowable tax deduction, they have succeeded, albeit not in the way the case was argued.

6. The objection raised a number of grounds which are set out below:

``That the deduction for overseas travelling expenses is claimed under sec. 51(1) and that the expenditure was incurred in seeking promotion under the new Police Guidelines of promotion by merit not years service (see attached copy of police circular re new promotion requirements).

Also that the taxpayer sought and received special Police Department leave provisions to undertake this trip and was encouraged by the N.S.W. Police Department to complete this trip, and thereby gain new knowledge and ideas, which could be used by the N.S.W. Police Department (taxpayer will be completing a special report on the trip, which will be made available to the Police Department).''

7. The main thrust of the applicants' submission was based on the proposition that the overseas trip was undertaken ``in seeking promotion''. That argument is quickly disposed of. Both taxpayers are constable, a rank which does not qualify them for promotion until, at the earliest, June 1990 and it was common ground that the ``new police guidelines of promotion by merit, not years of service'' referred to has no present application to policemen of that rank. There is no evidence before me which would enable me to say when, if ever, the proposed changes in the system for promotion will become relevant to police constables.

8. The claim to ``ready themselves for promotion'' is thus too indirect and remote to justify the conclusion that the expenditure on the overseas study tour was incurred in gaining or producing the taxpayers' assessable income.

9. Turning to the alternative ground set out in the notice of objection, it should be noted (i) that there was no evidence that the overseas study tour was ``encouraged by the N.S.W. Police Department'' in the way the taxpayer in
F.C. of T. v. Finn (1961) 106 C.L.R. 60 was encouraged to undertake his trip by the Western Australian Government; at its highest, these taxpayers left on their whistle-stop tour with the acquiescence of their employer, no more and no less; (ii) neither taxpayer completed a report on the trip at its conclusion to enable the N.S.W. Police to gain whatever ``new knowledge and ideas'' this couple hoped to accumulate. The reason for their failure to do so was explained by the husband on the ground that disclosure of such information would enable others to adopt their ideas and thus stand in the way of their hoped for promotion.

10. In short, the claim as presented in evidence is a singularly unattractive one, the more so since this couple made only the barest concession to the undoubted fact that their trip

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contained a substantial private or domestic component and claimed expenses which are clearly insupportable. Be that as it may, it cannot be denied that on the evidence, the trip provided this couple with greater awareness of police methods in other countries, enabling them to return to Australia better equipped to handle such new challenges to police work as morale problems, the emergence of such new phenomena as civil liberty groups, audio-visual recording of interrogations of suspects in custody, and community action groups. Is this sufficient to make the outgoing an allowable deduction pursuant to sec. 51(1) of the Tax Act?

11. The fons et origo of all ``travel'' cases is Finn (supra). I analysed the case and the Authorities which purported to follow it in Case N24,
81 ATC 131. As a matter of shorthand, I repeat what I said on that occasion:

``The facts of Finn's case, taken from the headnote of the Commonwealth Law Reports, were as follows:

  • `The respondent was a senior design architect employed by the Public Works Department of Western Australia. Being entitled to long service and accumulated recreation leave he made of his own volition a tour of Great Britain and the Continent for the purpose of bringing himself up to date with current trends in architecture and bettering his prospects of future promotion within the Department. At the request of his Department he included a visit to South America in his itinerary, and the Department met the additional costs incurred by this extension of his tour. During the tour the respondent devoted all his available time to the advancement of his knowledge of architecture and the development of his architectural equipment, outlook and skill. After allowing for costs met by his Department, he claimed to deduct from his assessable income travelling expenses incurred during the year of income.'

The issue which I see as critical involves the proposition whether it is essential for a taxpayer, in order to succeed, to be able to demonstrate either (i) that his travel was a condition of his employment; or (ii) the expenditure had a direct and demonstrable result in increasing the taxpayer's income. Dixon C.J. faced the issue squarely when he observed (at 106 C.L.R. p. 65):

  • `If the point be whether the money claimed as a deduction were laid out for the improvement of his capacity to do the work for which he is paid, there could be no doubt that the whole expenditure was directed to that purpose. But the case for the Commissioner is that that is not the point or, at all events, it is a fact that is insufficient to support the claim for the deduction. In the first place, so it is contended for the Commissioner, the improvement of his capacity to do the work for which he is paid does not mean that he will be paid more, that his title to be paid will be better secured or that any chance of promotion to a higher position will be increased and, if there be any chance of his present status being diminished, that that chance would be lessened or removed. Thus in no way, it is said, were the costs of his search abroad for better knowledge `incurred in gaining or producing assessable income' derived from the State.'

The evidence of the taxpayer in that case was not challenged. Thus, he was asked before the Board of Review (the evidence was adopted before the High Court) whether he believed his period abroad would better fit him for promotion. He answered `I hope so. That was the whole point of the trip... The reason why I did it was that the Principal Architect was due to retire at the end of the year and there were two people senior to me in seniority, and so the purpose of my trip was to gain that extra knowledge to fit myself to perhaps get possible promotion over them.' After reciting the above evidence, the learned Chief Justice, at C.L.R. pp. 67-68, stated:

  • `From the facts that have been stated above 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 indisputable that the increased knowledge the taxpayer sought and obtained of his subject and the closer and more realistic acquaintance he secured of modern development in design and construction made his advancement in the service more

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    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 of 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. His journey abroad and what he did while in Europe, as well as in South America in the following year of income, was therefore in a correct sense incidental to his employment and most relevant to it.
  • When the foregoing elements are considered in conjunction, they do seem to form a firm foundation for the conclusion that the expenditure was in truth incurred in gaining or producing assessable income.'

It seems to me that one of the factors which the learned Chief Justice regarded as a relevant discrimen was that `the increased knowledge of the taxpayer... made his advancement in the service more certain'.

Kitto J. commenced his judgment at pp. 69-70 with the observation:

  • `I am of the same opinion, and even if the relevance of the expenditure to the respondent's prospects of promotion were to be put on one side I should consider that enough would remain in the facts of the case to entitle him to the deduction he has claimed. His assessable income consisted of or included a salary which was payable from time to time in virtue of his holding the office of a senior design architect in the Public Works Department of Western Australia. It is, I think a correct application of the terminology of s. 51 to say that he was engaged in `gaining' that salary whenever and so long as he acted in the fulfilment of his office; for the salary payable was his remuneration for everything comprised in or incidental to his service.
  • The respondent incurred the expenditure during a period of leave, and in carrying out activities beyond any which had been or could lawfully have been specifically required of him by the Government. But it was nevertheless in my opinion incidental to the proper execution of his office and not otherwise that he engaged in those activities. For the office was of a kind which by its nature made incumbent upon the occupant much more than the performance of set duties at set times. Its professional status implied an obligation of progressive acquaintance with a living and developing art. It was therefore, I think, plainly incidental to the office that the respondent should avail himself of such opportunities as might arise to add, in the interests of the State even if also in his own interests, to his knowledge and understanding of architectural achievements and trends overseas, both in design and in construction, and of endeavours made and being made to solve architectural problems such as might from time to time confront his Government.
  • In my judgment the respondent, in making the investigations and studies which he pursued during his period of leave, was acting within the scope of his office, and therefore in gaining of his salary. I would hold that the expenditure which he incurred in the process was an allowable deduction under s. 51 in the assessment of his income tax.'

Pausing here, it would seem that Kitto J., whilst concurring with the judgment of the

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Chief Justice, appeared to consider that it would be sufficient to attract the provisions of sec. 51(1) if the activity could be characterized as being `part and parcel' of the employment in the sense that professional status `implies an obligation of progressive acquaintance with a living and developing art'.

The third Judge, Windeyer J., at p. 70, stated:

  • `I also agree. Each case of this sort must depend on its own facts. The facts and considerations relevant in this case appear fully in the judgment of the Chief Justice. Generally speaking, it seems to me, a taxpayer who gains income by the exercise of his skill in some profession or calling and who incurs expenses in maintaining or increasing his learning, knowledge, experience and ability in that profession or calling necessarily incurs those expenses in carrying on his profession or calling. Whether he be paid fees by different persons seeking his skilled services from time to time, or be paid a regular salary by one person employing him to exercise his skill, matters not in my opinion. Moreover, it would surely be wrong to assume that the Crown is so indifferent to the professional attainments of those whom it employs that their rights and prospects in its service are not affected by the true measure of those attainments. That was not so in this case. Outgoings incurred for the genuine purpose of acquiring or maintaining knowledge and skill in a vocation do not become an outgoing `of a private nature' simply because the taxpayer got pleasure and satisfaction in increasing his knowledge and attainments.'

Pausing here, I feel constrained to conclude that if Finn were the sole authority on this point, a majority of the High Court appears to me to have concluded that it is sufficient to introduce sec. 51(1) if the expenditure can be shown to have been incurred as an implied obligation to keep abreast `with a living and developing art'.

I now turn to
F.C. of T. v. Hatchett 71 ATC 4184; (1971) 125 C.L.R. 494. In that case, the taxpayer, a schoolteacher, claimed as a deduction pursuant to sec. 51(1) two amounts: $71 for university fees and $89, being the cost in obtaining a Teacher's Higher Certificate. A majority of the Board of Review allowed both amounts in reliance on Finn's case and the matter was appealed by the Commissioner to the High Court and heard by Menzies J. In dismissing the appeal on the allowance of the cost of obtaining the Higher Certificate, Menzies J. noted at ATC p. 4185; C.L.R. pp. 495-496:

  • `The Teacher's Higher Certificate is granted by the Education Department depending upon length of service, efficiency as a teacher, the passing of examinations and the submission of theses. Teachers employed by the department are classified in a lower classification, Scale B, or a higher classification, Scale A. Teachers who begin their service at the end of a period of two or three years' training are classified B and receive their remuneration in accordance with that scale. Scale B has 16 grades within which progression is automatic. Scale A has 14 grades within which progression to the 11th grade is automatic. A Teacher's Higher Certificate serves to enable a teacher to transfer from Scale B to Scale A and in Scale A enables progression beyond the 11th grade. It is also a necessary qualification for some positions in large primary schools. Possession of a Teacher's Higher Certificate also carries with it higher salary without change of status. Scales A and B provide basic salaries. Additional remuneration is paid by way of responsibility allowances in positions such as headmasters, deputy headmasters and senior masters in secondary schools. A university degree is necessary for promotion to be a headmaster or a deputy headmaster of a secondary school.'

After reviewing the evidence, Menzies J. concluded that there was a plain connection between the obtaining of the Higher Certificate and the assessable income from the time the certificate was obtained and subsequent years. On the question of the university fees, his Honour saw the problem differently. He concluded, at ATC p. 4186; C.L.R. pp. 496-497, that:

  • `Any relationship between any assessable income of the taxpayer and the payment of university fees is problematical and remote. Having regard to the taxpayer's lack of success in passing university examinations it is not possible to find affirmatively that

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    there exists any connection between the payment of the university fees in 1967 and the earning of assessable income at any time in the future. The prospects of the taxpayer obtaining a university degree leading to his promotion to positions in the service for which a university degree is prerequisite affords no ground for concluding that the Commissioner was in error in refusing to allow the fees paid as deductions.'

Pausing here, it is, at first blush, somewhat surprising that the issue of deductibility or otherwise of tuition fees is said to depend on the success or failure of the examination, so that fees paid at the beginning of an academic year cannot be deducted with certainty at the end of the financial year until the examination results are published at the end of the academic (and calendar) year. In cases like this, a taxpayer's only remedy is to apply for an extension of time in which to lodge his return. So be it. It is clear, however, that Menzies J. was not prepared to view the problem simply in terms of success or failure, for he went on at ATC p. 4187; C.L.R. p. 499, to state:

  • `The university fees paid were paid with the encouragement of the department; it contributed towards them. This, however, is not, of itself, enough to bring the fees within sec. 51. Enlightened employers often encourage employees to improve their bodies and their minds, and assist them to do so. Such encouragement is not, of itself, enough to warrant the deduction of outgoings for these purposes. The test to be applied is a more stringent one, namely were the outgoings incurred in gaining assessable income?
  • Here, I am not dealing with the general question whether the payment of university fees can ever afford a deduction from assessable income; I am dealing with the particular questions whether the fees paid by the taxpayer in the circumstances already stated are deductible. 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 outgoings and assessable income. Had the taxpayer paid fees for subjects in the Faculty of Law, it would, I think have been obvious that the fees were not allowable deductions. In my view the payment of such fees would have as much connection with the taxpayer's assessable income as the fees in fact paid. In the conclusion that the university fees paid are not deductible, I believe that I am supported by F.C. of T. v. Finn...'

After an exhaustive citation from Finn his Honour concluded at ATC p. 4188; C.L.R. p. 500:

  • `Each citation emphasises a relationship between the assessable income and the outgoing incurred to gain it.'

Speaking for myself, and with the utmost respect, I would not myself have reached such a conclusion unaided. Indeed, and again with the utmost respect, I find the result in Hatchett difficult to reconcile with Finn. Fortunately, I am spared the necessity of reconciling a decision of the Full High Court and a later decision of a single Justice of the same Court purporting to follow it, since both cases were subjected in turn to minute analysis by Helsham J. in
F.C. of T. v. White 75 ATC 4018. Quoting from the headnote:

  • `From January 1971 to July 1973, taxpayer was employed by a firm of chartered accountants as an intermediate clerk. Prior to that date, while in other employment, he had commenced an accountancy certificate course at night at technical college. He continued the course when he began his employment in 1971, although by that time the content and the name of the course had changed.
  • The evidence established that the accountancy course was of general relevance to taxpayer's employment but there was no agreement with his employer that the completion of the course would lead to any promotion or increase in salary. The senior partner of the firm gave evidence that taxpayer was expected to undertake some studies to try to further his position and that if he had not carried out some studies, he would not have been able to maintain his

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    position in the firm and others would have passed over him.
  • For the year ended 30 June 1973, taxpayer claimed a deduction for travelling expenses and meals incurred in substance in going from his place of work to classes in the evening and then to his home. The Commissioner disallowed both claims and on review the Taxation Board of Review No. 1 upheld taxpayer's objection with respect to travelling expenses. The Commissioner then appealed to the Court.
  • Held: appeal allowed.
  • 1. The decisions in F.C. of T. v. Finn (1961) 106 C.L.R. 60 and F.C. of T. v. Hatchett 71 ATC 4184, establish 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, i.e. 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.
  • Further, it is not enough that the course of study relevant to his employment pursued by an employee should be likely to enable him the better to carry out his work and so to obtain promotion, even if encouraged by his employer. Nor is it enough that without undertaking a course of study encouraged by his employer a person may not be able to improve his position in his employment. There is nothing more than this in the present case and it is not sufficient to enable the travelling expenses to be claimed as outgoings incurred in gaining or producing assessable income.
  • 2. Expenses incurred in gaining an initial qualification may qualify for deduction where the necessary connection between the expenditure on study and the earning of assessable income can be shown.'

His Honour pointed out, at pp. 4020-4021, that:

  • `Each of the two decisions in Finn's case and Hatchett's case must be assessed with constant reference to the facts which gave rise to them. Nevertheless it is clear that both cases are authority for a proposition that expenses incurred in connection with education undertaken by an employee and related to his employment may be outgoings incurred in gaining or producing income from his employment. It is necessary to try to ascertain from them what will, in any particular case, determine whether an expenditure is or is not such an outgoing.'

After analysing both Finn and Hatchett, his Honour put forward two views of what Finn could be said to have decided. The first view (which his Honour described as the `narrower view') at p. 4021 comes to this:

  • `the trip and expenses connected with it was and were simply part and parcel of his employment, taken and incurred during as part of his job and, I suppose one could add, what one could clearly see as being an activity appropriate to the office held.'

His Honour dealt with the second view in the following words at p. 4021:

  • `The second or wider ground for the decision is that expenses incurred by a taxpayer for education that will better equip him as an employee to carry out the duties of his employment and will further his prospects of advancement in that employment and so increase his income can be outgoings incurred in gaining or producing his income.'

Helsham J. then proceeded to analyse Hatchett. After stating the facts, his Honour added at p. 4022:

  • `his Honour [Menzies J.], in reaching his decision as to both expenses, stated that he believed he was supported by Finn's case. I do not think that what I have termed the narrower basis for the decision in Finn's case can be applied to support the decision in Hatchett's case, for I do not consider that the study undertaken and the expenditure incurred could be said to be part and parcel of the employment of the taxpayer in the way it was in the former case; rather was the study undertaken by the schoolteacher study activity ab extra which would better equip the taxpayer to carry out the duties of his employment and so further his prospect of advancement in that employment. And looked at in this light I consider the basis of the decision in Hatchett's case is clear. So far as concerns the Teacher's Higher Certificate the effect of the study activity

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    which involved the expenditure was clear and demonstrable - the obtaining of the certificate had a direct and immediate result in increasing income; the certificate was obtained, and the expenses incurred in obtaining it were therefore outgoings incurred in gaining or producing income. In the case of the University fees, the activity in which they were incurred had no such clear effect upon the taxpayer's income, nor could any effect in the future be predicted; there was no `perceived connection', as his Honour put it, between the outgoings and the income.
  • 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.'

Helsham J. concluded his reconciliation of the two cases by observing, at p. 4022:

  • `In my view there is no sufficient association in the present case. It is not enough, as was said by Menzies J. in Hatchett's case, that the course of study relevant to his employment pursued by an employee should be likely to enable him the better to carry out his work and hence to obtain promotion, even if encouraged by his employer. It is not saying anything different if the situation be that without undertaking a course of study encouraged by his employer a person may not be able to improve his position in his employment. And there is nothing more than that here. It is not sufficient to enable the expenditure incurred in this case in connection with the study activities to be claimed as outgoings incurred in gaining or producing assessable income.'

Helsham J., having concluded that what he termed `the wider' view of Finn was to be preferred, it follows that for a taxpayer to succeed, more needs to be shown than that an expenditure was incurred for an outgoing which is `likely to enable him the better to carry out his work'. In the circumstances, I see little point in reviewing the myriad of Board cases which have grappled manfully with the ever-recurring problem of employee-taxpayers seeking to upgrade their professional competence without being required to do so by the terms of their employment. It would appear that the `essential character' of such an expenditure cannot be viewed as having been incurred in gaining or producing their assessable income. For myself, I must freely confess that this view affords me little intellectual satisfaction. On the other hand, if the law is to be changed, it clearly cannot be done by a Board of Review. Since this taxpayer cannot take her case beyond the point of increased professional competence simpliciter, her claim must fail.''

12. The question in this case comes to this: in the light of recent cases, does the above analysis still cover the field?

13. In
Griffin v. F.C. of T. 86 ATC 4838 the facts are succinctly set out in the headnote.

``The taxpayer was a professional electrical engineer employed by the State Rail Authority (S.R.A.) of New South Wales. During long service leave and annual leave he travelled overseas on his own initiative to familiarise himself with the developments in overseas railway electrical systems.

The taxpayer claimed a deduction under sec. 51(1) for transport, accommodation and similar costs of the trip taken between August and October 1981. The Commissioner and the Board of Review disallowed the claim and the taxpayer appealed.

Held: appeal allowed.

1. The activities of the taxpayer whilst overseas were closely related to the proper carrying out of his duties as a professional engineer. In widening his knowledge and making himself familiar at first hand with developments in overseas railway electrical systems he better equipped himself to carry on as a professional engineer employed by the S.R.A.

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2. In order to keep up and advance his status and standing as a professional engineer he was obliged to keep abreast of developments in railway electrical engineering, whether at home or overseas.

3. The case falls within sec. 51 notwithstanding that no question of promotion was relied on. Further, the absence of any express request by his employer to travel overseas on its behalf or to improve his understanding of overseas developments does not preclude the taxpayer from succeeding in his claim.''

After analysing Finn's case, Yeldham J. went on to observe at pp. 4845-4846:

``In the present case counsel for the respondent submitted that the taxpayer was not a person in an executive position whose views about the matters which he investigated overseas might ordinarily be regarded as being of significance to the S.R.A.; that the first three criteria referred to by Dixon C.J. in Finn's case did not apply; that there was not any real connection between the outgoings claimed and the assessable income of the appellant (and reference was made to F.C. of T. v. Hatchett 71 ATC 4184; (1971) 125 C.L.R. 494; that the activity associated with the expenditure was not required by the employer or recommended by him; and that minimal use of the information obtained was made by the appellant in connection with his work.

However, I am of the opinion that, notwithstanding that no question of promotion is relied upon, the case falls within sec. 51, the deductions claimed being outgoings incurred in producing the assessable income of the appellant, and they were not of a capital, private or domestic nature. In this respect I rely in particular upon the judgment of Kitto J. in Finn's case. I regard the activities of the appellant whilst overseas as being closely related to the proper carrying out of his duties as a professional engineer. Plainly he travelled abroad for the purpose of widening his knowledge and making himself familiar at first hand with the developments in overseas railway electrical systems. In doing so he better equipped himself to carry on as a professional engineer employed by the State Rail Authority. In order to keep up and advance his status and standing as a professional electrical engineer he was obliged to keep abreast of developments in railway electrical engineering, whether at home or overseas. His visit was designed to ensure, as best he could, that he brought the highest degree of professional skill to the carrying out of his task. In
Magna Alloys and Research Pty. Ltd. v. F.C. of T. 80 ATC 4542 at p. 4559 Deane and Fisher JJ. used words in relation to the second limb of sec. 51(1) which are equally applicable, in my view, to the first limb. Their Honours said:

  • `It is implicit in what has been said that the distinction between immediate direct purpose or object and remote indirect purpose or object does not play an essential part in determining whether an outgoing is properly deductible pursuant to the second limb of sec. 51(1) of the Act. To the extent that the subjective element is relevant, what is important in the case of a voluntary outgoing is the identification of the advantage or advantages which the outgoing was intended to achieve on behalf of the taxpayer regardless of whether that advantage or those advantages were seen as the direct result of the outgoing or as indirectly flowing therefrom or of whether the pursuit of them should be seen as `purpose' or as `object' or as `motive'. Business outgoings may be properly and necessarily incurred in the pursuit of indirect and remote, as well as direct and immediate, advantages. The fact that the business advantages sought is indirect or remote will not of itself preclude the pursuit of that advantage from characterizing the outgoing as an outgoing necessarily incurred in carrying on the relevant business.'

See also
F.C. of T. v. Kropp 76 ATC 4406; (1976) 14 A.L.R. 308; and
F.C. of T. v. Highfield 82 ATC 4463. The absence of any express request by his employer to travel overseas on its behalf or to improve his understanding of overseas developments does not, I think, prelude the applicant from satisfying the relevant test. As Kitto J. observed in Finn's case his professional status implied an obligation of progressive acquaintance with a living and developing body of knowledge, and it was plainly

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incidental to his employment as a professional engineer that he should avail himself of such opportunities as might arise to add, in the interests of his employer, even if also in his own interests, to his knowledge and understanding of matters such as those which the appellant investigated overseas, this all being work which from time to time he could use to advantage in the practice of his profession in the employment of the S.R.A.''

14. As I understand his Honour's reasoning, it is to the effect that it is sufficient for purposes of sec. 51(1) if a taxpayer can demonstrate that he travelled abroad for the purpose of widening his knowledge and making himself familiar at first hand with developments in the area of his employment, even though no nexus of any kind with the gaining of increased earnings can be demonstrated. If the Tax Act does indeed reward the conscientious employee whose sole aim is to improve his performance, this is a worthy, albeit novel concept which has lain fallow since the clearly obiter remarks of Kitto J. in Finn (``even if the relevance of the expenditure to the respondent's prospects of promotion were to be put to one side, I should consider that enough would remain in the facts of the case to entitle him to the deduction he has claimed.'').

15. Griffin was, in turn, followed by Deputy President Todd in Case V74,
88 ATC 529. The facts and decision are fully set out in the headnote:

``The taxpayer was a teacher of media studies and `outdoor education.' Outdoor education involved her in taking her students abseiling, rock climbing, cross-country skiing, snow camping, li-loing, bushwalking and kayaking. In 1986 she undertook a six-week Canadian canoeing expedition. She claimed that it was necessary to participate in it because it would provide the experience that she required to expand her skills in outdoor education and was essential to the proper execution of her job. The expedition involved canoeing down the Back River in the Canadian Arctic.

In her 1986 return, the taxpayer claimed a deduction for the cost of airfares to Canada and the cost of the canoeing expedition, but not for the cost of additional travel of a private nature which she undertook while in North America. The Commissioner disallowed the claim and the taxpayer objected.

Held: objection allowed.

1. Activities such as abseiling, rock climbing and kayaking could become very dangerous unless properly taught and supervised. The taxpayer was required to do what she could to exercise the highest degree of professional skill while teaching outdoor education. She could therefore legitimately claim expenses for maintaining or increasing her skills from time to time.

2. The canoeing expedition maintained or increased the taxpayer's skills in outdoor education. The expedition was not to be compared in any way with a tourist trip, even a tourist trip of a broadly educational kind. It was calculated to lift the taxpayer's performance in a critical area of her work, and to confer on her substantially increased confidence in her conduct of outdoor education. Accordingly, the expenditure on the trip was sufficiently connected and directed to the gaining of assessable income to support her claim for deduction.''

16. Counsel for the respondent invited me to make a distinction between policemen on the one hand and engineers and teachers on the other. I firmly decline to make that distinction.

17. Applied to these taxpayers, I find that some of the claimed expenditure was designed to, and did - paraphrasing Deputy President Todd's words in Case V74 (supra) - ``lift their performance in a critical area of their work''. This is sufficient to characterise the outgoing as one which was ``incurred in gaining or producing the assessable income''.

18. I must freely confess that I would not have reached this result unaided by recent authorities. If there is a conflict between Griffin and Case V74 on the one hand, and the jurisprudence said to emerge from Finn, Hatchett and White on the other, I prefer to follow the more recent strand of authorities. Having said this, I feel compelled to add that the ``travel'' cases are a jungle of single instances from which no clear guideline can be said to emerge. If the nexus between an expenditure and the derivation of assessable income is to be redefined, this must be done by

ATC 670

a superior court, not by me ex tempore in Newcastle.

19. I indicated to the parties during the hearing that I had some difficulty in accepting that many of the deductions claimed were other than of a ``private or domestic nature'' and invited the parties to see whether they could reach some accommodation on quantum. However, I was informed from the bar table that the case was to be fought on ``principle'' and that the Commissioner was not prepared to haggle with the amount of $25,165 this couple managed to incur on this world tour. In the circumstances, the decision on the objection is set aside and the claim as pleaded allowed in full.


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