CASE Z1
Members:BJ McMahon DP
Tribunal:
Administrative Appeals Tribunal
BJ McMahon (Deputy President)
This is an application to review a refusal by the respondent to allow certain self-education expenses as a deduction, pursuant to s 51 of the Income Tax Assessment Act.
2. In her return of income for the year ended 30 June 1988, the applicant claimed deductions for expenses which led to her admission as a solicitor. The first part of the claim was a sum of $3,421.15 being expenses incurred while the applicant attended the pre-admission course at the College of Law, between July and December 1987. I will refer to this amount as the college expenses. The amount included a sum of $1,725 paid for board while the applicant was living away from home in order to attend daily at the college. On the hearing, the claim for board was abandoned by the applicant. The respondent conceded that the balance of the claim for college expenses had been sufficiently substantiated.
3. The second part of the applicant's claim was for sums directly related to her admission as a solicitor. I will refer to these sums as the admission expenses. They included expenses of advertising and travelling amounting to $222.24, and the fee payable for her practising certificate, amounting to $85. It was conceded by the respondent that both these sums had been sufficiently substantiated. Although claims for the admission expenses had been included in her return of income, they were not included in her formal objection. With no opposition from the respondent, leave was granted to amend her objection in order to have these claims examined before the Tribunal.
4. The applicant acquired her Higher School Certificate in 1980 with sufficiently high marks to allow her to be accepted for a number of university courses. She said in evidence that she had always wanted to study law. Her mother said in evidence that although the applicant was accepted by the University of New South Wales to study law, her family was not able to afford the support that would be necessary if she came to live in Sydney during her course. It was therefore arranged that the applicant would enrol with the University of Newcastle for a course leading to a degree of Bachelor of Arts.
5. While they were on holiday after her examinations, the applicant and her mother saw an advertisement in The Sydney Morning Herald of 17 January 1981 in these terms-
``Magistrates Courts Administration
WE'RE LOOKING FOR SPECIAL
PEOPLE
young men and women
TO ASSIST US IN THE
ADMINISTRATION OF THE
PETTY SESSIONS COURTS OF NEW
SOUTH WALES
you will need to have passed the Higher
School Certificate with matriculation to
enable you to be eligible for enrolment in
a tertiary course leading to qualifications
in law. You will also be required to work
in both City and Country Houses.
In a career with the Magistrates Courts
Administration you will--
Participate in a wide variety of interesting
work in Courts. Have the opportunity to
commence legal qualifications to qualify
for appointment to senior positions. For
further information telephone Mrs J
Hendry or Mr M Moore (02)2673855
no later than January 23 1981.''
6. She applied for one of the positions advertised and was interviewed by a committee. At that interview, she said that she was asked whether she would undertake a tertiary course of legal studies. When she indicated her agreement, there was some discussion as to whether she should take the external course of Macquarie University or whether she should take the Solicitors' Admission Board course. It was agreed that the former was preferable. It was pointed out to her at the interview that unless she was admitted as a solicitor in due course, she would not be eligible for appointment as a Clerk of Petty Sessions or Chamber Magistrate. She did not tell the
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interviewers that she was at that time enrolled to do the Arts course at Newcastle University. She consulted with her mother during the course of the interview and decided to proceed on the basis discussed when she learned that the position she sought was located in Newcastle.7. She accepted the position and was immediately appointed to start at Newcastle Local Court. Although she had to wait until 1983 before a place became available and enrolment at Macquarie University was possible, she carried out certain studies prior to that time in order to build up credits. She continued to pursue her studies with Macquarie University until she completed the course in July 1987.
8. For a period of three months during 1985 she worked with the Workers' Compensation Commission. She regarded this move as a promotion. While there, her duties included accepting applications for determination, preparing for hearing of applications, giving advice to injured workers and, on occasions, acting in charge of the registry.
9. She returned to the Magistrates Courts Administration in June 1986. Noticing an advertisement in a Public Service Notice, she applied for a position with the Department of Consumer Affairs. She said in evidence (and I accept) that she thought this position would enhance her legal knowledge. She was then studying Consumer Law and Contract Law.
10. She was successful in her application. Her regional manager gave evidence, by way of letter, in the following terms-
``[The applicant] was employed by the Department of Consumer Affairs during 1986, 1987 and 1988.
[The applicant] was selected as Clerk Grade 1 at Newcastle Regional Office. The fact that she was studying a Bachelor of Legal Studies degree was significant in her selection. As a direct result of her tertiary study [the applicant] demonstrated a thorough knowledge of consumer and commercial legislation, which enhanced her performance as Clerk Grade 1.
[The applicant's] continued studies at Macquarie University increased her knowledge and ability in her occupation. She was required to give interpretation of legislation to traders and consumers. [The applicant] was also required to identify and refer alleged breaches of Consumer Protection legislation for detailed investigation and prosecution if appropriate. [The applicant's] legal studies were directly relevant to her work and she utilised them on a daily basis. Because of her tertiary studies [the applicant] was a much more knowledgeable and efficient employee.
Within the Department of Consumer Affairs advancement is prohibited in certain areas without tertiary qualifications. This is particularly so within the legal and accounting disciplines.
If [the applicant] had remained with Consumer Affairs I have no doubt that she would have been promoted as a result of her legal studies. Instead, she chose to accept appointment as a Solicitor with the Attorney General's Department.''
11. She gave evidence that while employed with the Department she was a ``front line clerk'' dealing with consumers and merchants. She said that she was called upon to give advice on a wide range of legislation, including the Trade Practices Act, the Sale of Goods Act, the Landlord and Tenant Act, the Lay-by Sales Act and the Consumer Claims Tribunal Act. She worked both at the counter and on the telephone. She assisted inspectors, prepared breach briefs and assisted the Tribunal member.
12. When her course finished in June 1987, she intended to apply for a position as legal officer with the Department. In order to complete her qualifications as a solicitor, it was necessary to undertake a six-month course at the College of Law and to be formally admitted. The Department arranged for the necessary leave by combining four weeks' leave on full pay (in addition to her normal recreation leave) and the balance on unpaid leave. During the unpaid leave, the applicant also took some paid recreation leave so that she would have some money to live on. She boarded with a family in Sydney and completed the course in December.
13. Before her formal admission, she returned to the Consumer Affairs Department but was then told that because of budgetary restraints, there was no position for a legal officer in Newcastle nor was it likely that one would be created in the near future. She was admitted as a solicitor on 19 December 1987. She later saw an advertisement in a Public Service Publication for the position of a
ATC 104
solicitor with the Director of Public Prosecutions in Newcastle. She applied, was accepted and was appointed on 1 February 1988. Her supervisor gave evidence by way of letter in the following terms-``[The applicant] commenced employment with the Public Prosecutions Office of the Attorney General's Department on 1st February, 1988.
It was a condition of [the applicant's] employment that she be admitted as a Solicitor of the Supreme Court of New South Wales and hold a current practising certificate for each year of employment. [The applicant] was admitted on 19th December, 1987.
In order for [the applicant] to be promoted to any Legal Officer position within the Office of the Director of Public Prosecutions it remains essential that she hold a current practising certificate.''
14. Her salary was considerably increased above that which she was earning with the Department of Consumer Affairs. She has held the same position since her appointment. Her duties are to prepare criminal matters for trial, to appear in the District and Supreme Courts, to instruct Crown Prosecutors and to prepare briefs.
15. The applicant submitted that she had only one employer throughout, namely, the Public Service Board. The fact that she moved from one area to another within the Public Service was not, she submitted, moving from one employment to new employment. The respondent submitted that although the Public Service may have been her employer throughout, a proper consideration would show that the changes in her duties were critical in characterising the expenditure under review.
16. The applicant said that the only reason she undertook legal studies was because it was required by the interviewers in relation to her first job with the Magistrates Courts Administration. This may not be quite accurate in view of her other evidence that she had always wanted to do law. It may be that the job opportunity gave her a parallel opportunity to fulfil her academic ambitions. She agreed that the interviewers for the job with the Department of Consumer Affairs did not require legal qualifications or even require her to embark on a course of studies before she could be considered for appointment. However, as was pointed out in her supervisor's letter, the fact that she was studying law was a significant factor in her selection. The applicant said that it was so significant that she was appointed to the position over another person who had been acting in the job for 12 months.
17. The applicant's case was that legal studies were directly relevant to each of her jobs in the Public Service. In the Magistrates Court she was dealing with Family Law, Criminal Law, Coronial Enquiries, Licensing and Civil cases. In the Workers' Compensation Commission she was dealing with Compensation Law and Common Law negligence. In the Department of Consumer Affairs she was involved in giving advice on a variety of legislation. While she accepted that it was not stipulated as a condition by the first interviewing committee that she undertake the studies and pursue a legal qualification, she gathered (and I have no reason to doubt the accuracy of this impression) that the committee would not consider her further if she did not indicate her willingness to undertake these studies. She said ``they were looking for clerks who wanted to study law''.
18. She also conceded that it was not necessary in the Department of Consumer Affairs to attain her qualification as a solicitor. However the Department encouraged her and facilitated the pursuit by making study leave available. She said that she wanted the qualification because she wanted to practise as a solicitor with the New South Wales Public Service. At the time that she attended the College of Law she thought that she would be able to achieve that ambition within the Department with which she was then working. Although she was not a legal clerk with the Department, she was a clerk doing legal work and considered that she would have almost inevitably been promoted had a position of legal officer been created.
19. The applicant relied on
FC of T v Finn (1961) 12 ATD 348; (1961) 106 CLR 60. The course she undertook with the College of Law was, she submitted, to maintain and improve her skill within the field in which she was then working. She drew an analogy with the taxpayer in
FC of T v Wilkinson 83 ATC 4295 where the cost of flying lessons was held to be incurred in gaining the taxpayer's assessable income as an air traffic controller. She
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submitted that by undergoing the course with the College of Law, she became more efficient and enhanced her prospects of promotion. She also relied on the judgment of the New South Wales Supreme Court inFC of T v Smith 78 ATC 4157.
20. I will deal first with the claim for admission expenses. In my view, they are different in their essential character from the college expenses. Outgoings of an identical nature were considered in Case L38,
79 ATC 208. The Board held that expenditure relating to the taxpayer's admission in that case was expenditure of a capital nature and was therefore excluded from deductibility under s 51. The view which the Board took (and with which I agree) was that on admission to the Supreme Court, the taxpayer acquired an asset of enduring benefit. The expenses of the present applicant's admission must be seen as securing a ``lasting advantage'' in the sense of those words in the formulation of principle by Dixon J in
Sun Newspapers Ltd and Associated Newspapers Ltd v FC of T (1938) 5 ATD 87 at 96; (1938) 61 CLR 337 at 363. The status of solicitor conferred on the applicant a legal power to do work for remuneration which was prohibited to those without the same qualification. Her status is one of those ``almost infinite variety of shapes'' which a ``profit yielding subject'' may take (Sun Newspapers at ATD 93-94; CLR 359-360). The qualifications which the present applicant acquired allow her to engage in employment as a solicitor in all branches of the Public Service and empower her to do certain work and carry out certain duties which are better rewarded than those available to others without a similar qualification. The status, of course, also gives the applicant the right to enter private legal practice with all of its probable future benefits and advantages.
21. The admission expenses may also be viewed in the same way that the footballer's expenses were viewed in
FC of T v Maddalena 71 ATC 4161 as being expenses ``incurred in getting, not in doing, work as an employee. It would come at a point too soon to be properly regarded as incurred in gaining assessable income''. A few weeks after the admission expenses were incurred, the applicant obtained employment, using her special qualification. The purpose of her admission was to qualify her to apply for just such a job.
22. On either basis therefore, the claim for deduction of the admission expenses under s 51 must fail.
23. The college expenses must be capable of being categorised as working expenses if the applicant is to succeed in the balance of her claim. There are some clear indications of relevant circumstances which do not assist applicants in her position.
24. The whole the college expenses were incurred while the applicant remained an employee of the Department of Consumer Affairs. I accept that it encouraged her to study and facilitated that study by making special leave available. This however is not sufficient to convert the expenses into working expenses. In
FC of T v Hatchett 71 ATC 4184 at 4187 Menzies J observed that:
``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?''
25. This view was followed in
FC of T v White 75 ATC 4018 at 4022. Helsham J there said-
``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.''
26. The applicant therefore cannot rely on the encouragement given by the various interviewing committees, by her employing department or by the supervisors to whose evidence I have referred, as conferring the character of working expenses on the college expenses.
27. It is also clear that such characterisation does not follow from the fact that the expenditure is a prerequisite to earning the assessable income in the sense that the particular income could not be earned
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withoutsuch expenditure (Lodge v FC of T72 ATC 4174).
28. The principles set out in FC of T v Finn (1961) 12 ATD 348; (1961) 106 CLR 60 have been considered in many subsequent cases, particularly in the light of the observations of Menzies J in Hatchett. In White (at 4022) Helsham J concluded his analysis of both cases in these words-
``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.''
29. Notwithstanding the applicant's reliance upon Wilkinson, that view of the law was expressed in that case which turned upon its own facts. The court there took the view that there was an implied obligation incidental to the position that an air traffic controller would avail himself of opportunities to maintain and improve his efficiency and that flying experience would, of necessity, increase that efficiency.
30. To satisfy that nexus between the college expenses and the gaining of assessable income, in other words to show that the expenses were in relation to an activity incidental and appropriate to the office, the applicant must show that there is an explicit or implicit condition of the office that the expenses be incurred. At all relevant times, the applicant was in the employ of the Department of Consumer Affairs where qualifications as a solicitor were not necessary, although the gaining of such qualifications was encouraged. It seems to me that the course pursued by the applicant during the relevant financial year was of her own choice and for her own self- improvement. It could not be said to be ``part and parcel'' of her employment. It is not sufficient to say that the payment of the college expenses enhanced her ability to perform the duties of her employment. The authorities indicate that the nexus must be much more direct. I have therefore come to the conclusion that the college expenses cannot be regarded as working expenses.
31. The decision under review is therefore affirmed.
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