CASE Z22

Members:
BA Barbour SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 11 May 1992

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BA Barbour (Senior Member)

On 11 April 1991 the Deputy Commissioner of Taxation referred to the Tribunal the taxpayer's objection to his 1988 income tax assessment. The assessment was issued on 25 July 1989. On 27 July 1989 the applicant's agent lodged an objection against this notice of assessment. The objection was disallowed. The applicant requested the referral of the matter to the Tribunal on the 22 May 1990.

2. At the Hearing the applicant was represented by Mr JH Pearce of Counsel and the respondent by Mr SW Gibb of Counsel. Oral evidence was provided by the applicant and by Mr Perry Harte, a licensed aircraft maintenance engineer now employed as a maintenance coordinator at Kingsford Smith Airbase and Mr Kevin Petterson, a licensed maintenance engineer now employed as a co- coordinator at the international terminal, who was the maintenance co-coordinator of major maintenance during the year in question. The Tribunal had before it a copy of the documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975. These documents appeared to be incomplete. In addition, the following documentary evidence was lodged at the Hearing: the applicant's income tax return for the year ended 1987/1988 (Exhibit 1), a letter dated 25 February 1991 from the Deputy Commissioner of Taxation to Qantas Airlines (Exhibit A1) and a letter in reply dated 14 March 1991 (Exhibit A2); a memorandum dated 4 July 1991 to Mr S O'Shea from Mr R Homes, Manager Employee

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Relations, Engineering and Maintenance (Exhibit 2); letter to Mr B Farnham dated 19 March 1992 from Mr R Homes (Exhibit 3); a map of Mascot airport with markings indicating the hangars where the applicant worked and the turnstiles used for entry and exit (Exhibit 4); a full list of tools owned by the applicant (Exhibit 5); a list of tools taken to and from work by the applicant (Exhibit 6); the applicant's log book recording journeys for the period 14 July 1987 to 25 November 1987 (Exhibit B); a letter dated 13 May 1991 from the Deputy Commissioner of Taxation to the applicant (Exhibit C1) and the applicant's responses (Exhibit C2).

3. The applicant is a licensed aircraft maintenance engineer currently employed by Coffs Harbour Air Maintenance. He was employed by Qantas at the Kingsford Smith Airport base from 1972 until 1991. During the year under review, 1987-1988, the applicant travelled by car to and from work with some of his tools in a green canvas bag in the boot of his car. It is the cost of this travel ($3,680) which is in dispute. Neither quantum nor documentary verification is in dispute. The sole issue for this Tribunal to determine is whether the motor vehicle expenses are an allowable deduction under section 51(1) of the Income Tax Assessment Act 1936.

4. The initial application for review also concerned a disallowed objection in respect of the applicant's residential telephone bill of $231. At the Hearing the Tribunal was informed that the applicant wished to discontinue this claim. The respondent did not object to this course of action.

5. The applicant gave evidence that it was a term of his employment as a licensed aircraft engineer that he supply his own tools. This was corroborated by Mr Petterson who gave evidence that if engineers did not have tools with them on the job, they would have to borrow tools or would be moved to a documentation job. Generally tools are not shared or lent to others. The larger tools were issued to the applicant in 1972 at the completion of his first year of training at the Rosebery school. Over the years he has purchased tools and the collection has evolved from there. He received a tool allowance as part of the terms and conditions of his employment and this compensates for some of this expenditure.

6. The larger, bulkier tools were kept in a standard-sized tool box. The tool box was stored in a mesh cage located in a vacant area at the rear of a Hangar. This cage was supposed to be padlocked. The applicant did not take these tools home unless he was taking leave. The other tools, those listed in Exhibit 6, were kept in a green canvas bag 10 to 12 inches long, 6 inches wide and 12 inches deep. These bags appear to have been freely available to Qantas employees. The applicant took this bag home daily. The tools kept in the bag were mainly specialist tools. They were of a kind used principally, if not exclusively, in his kind of work. These tools were rarely used at home for work on the car or household appliances. It appears to be fairly common practice for aircraft maintenance engineers to take their tools home. The two witnesses for the applicant gave evidence that they had been taking their own tools home for the last 10 years or so. The applicant estimated the value of his tools to be about $3,000, with the tools taken home valued at about $2,000.

7. The applicant told the Tribunal that he took certain tools home daily because of their value and because of numerous incidents of theft over the years. They were the most commonly used tools, some were difficult to come by and some were expensive. Theft had occurred during ``smoko'' or lunch breaks, when changing from one job to another, and on the job when someone dipped into someone else's tool box. Although tools were marked with the owner's name this did not impact on the incidence of theft. Mr Harte and Mr Petterson gave evidence that there was a substantial amount of theft at the airbase ranging from theft of tool boxes to clothes.

8. All witnesses gave evidence that security at the base was poor. Entry was via turnstiles activated by electronic identification cards. These gates were not staffed and entry could be gained by waiting for someone else to activate the turnstile. Entrance to the Hangars was also not limited to the engineers working in the area. Tradespeople, visitors, outside contractors and construction workers were able to enter the hangar unquestioned. Exit from the base did not require the use of a card. The gates were often not staffed and there were only very random security checks, perhaps once or twice a year.

9. Exhibit A2 states that:

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``It is Company practice that the Foreman should sign a chit for an employee to take a tool box off the premises. This is to ensure that tools are not taken off the premises without being checked at the security gate.''

When questioned as to this practice, the applicant denied its enforcement. The other witnesses, Mr Harte and Mr Petterson, gave evidence that in their capacity as maintenance coordinators they had rarely signed such chits.

10. Although the applicant was aware of the existence of an insurance scheme run by Qantas for which he may have claimed any loss of tools, he had never made such a claim.

11. While working at Kingsford Smith Airbase the applicant was allocated a personal locker. It was six foot high, 10 inches wide and about 10-12 inches deep. He used it to store his wet weather gear, toiletries, towel, dirty overalls and any bits and pieces he had taken out of his overalls after a day's work. Although secured with a lock and key, the applicant claimed the locker was not very secure and could be broken open easily. The applicant acknowledged that the green canvas bag could have been left in the locker, and that on occasion during the working day he may have left it in the locker. Mr Harte corroborated the applicant's evidence on the secureness of the personal lockers indicating that the locker could be opened by pulling out the bottom.

12. During his employment at the airbase, the applicant had a number of items stolen from his locker. In 1986/87 an oil hose and a headset with a mouthpiece and lead was taken out of the locker and in 1988/89 a crude grease gun was stolen. However, the applicant could not recall whether he had locked the locker. Although other employees had upgraded their lockers with additional locks and reinforcing, the applicant considered this to be a waste of time because things would probably still get stolen.

13. It was suggested by the Respondent that there was some inconsistency regarding the applicant's claim that he took the tools home in a green bag. The letter from the Deputy Commissioner of Taxation (Exhibit C1) asked:

``(k) On each occasion you took tools home did you take them in your tool box?''

The applicant replied ``Yes'' (Exhibit C2). It was contended by the Respondent that the applicant had not told anyone about the green bag but had given the impression that he had been taking his entire tool box home. It was only during a conversation with Mr Simms from the Australian Taxation Office on 31 October 1991 that he had finally mentioned the green bag. The applicant claimed that the existence and use of the green bag was implicit in his answer to question (m). This question was:

``(m) How did you carry your tools from the car to the worksites?''

and the applicant's reply was ``By hand, on wheel trolley''.

14. The applicant did not use public transport. The reason advanced for this was that there was not a reliable system to the airport, particularly during the early hours of the morning or during the night, although having never used it, the applicant could not be certain. He suggested that the weight of the bag and the speed brace protruding from the bag would have prevented his carrying it on public transport. The applicant did however acknowledge that he was able to carry the bag and generally did so over his shoulder. Mr Harte acknowledged that it would be possible to use public transport while carrying the bag but that it would ``get awful heavy after a while''.

15. The Tribunal is satisfied, after hearing the evidence of the applicant, that he did carry some of his tools in the green bag to and from work in the boot of his car during the year in question.

16. The issue to be determined by this Tribunal is whether the carriage of the tools is an allowable deduction under section 51(1) of the Income Tax Assessment Act 1936. Section 51(1) reads:

``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.''

17. The Tribunal, in determining whether the expenditure is incurred in the course of gaining or producing income, is required to characterise the expenditure on the basis of its ``essential character'' (
Lunney v FC of T (1958) 11 ATD 404

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; (1957-1958) 100 CLR 478). The authorities make it clear that the journey to and from work is a consequence of living and working in different places and cannot then be said to be incurred for the purpose of earning assessable income (Lunney v FC of T (1958) 11 ATD 404; (1957-1958) 100 CLR 478). There are exceptions to this general rule and the parties referred the Tribunal to a number of cases where the cost of journeys to and from work have been held to be allowable deductions.

18. After considering the documents and hearing the oral evidence, the Tribunal has made the following findings:

• 1. The relevant aspects of the operations carried on by the taxpayer for the production of his income are his daily attendance at the base and the provision of his own tools. It cannot be said that his expenditure in transporting the tools by car, was part of the operations by which he earned his income.
• 2. The taxpayer was required to provide his own tools. The security arrangements at the airbase appear to have been generally lax. The applicant's knowledge of theft relates largely to his working hours at the base when colleagues had their tools with them. He considered the mesh cage sufficiently secure for the storage of his major tool box containing a valuable set of tools. The canvas bag could also have been securely stored in this area. In the alternative, I am not persuaded that with a little ingenuity and some easily performed modifications, the applicant's personal locker could not have been secured and used for the storage of some of his tools.
• 3. The green canvas bag weighed approximately 15 kilograms and was carried by hand over the applicant's shoulder. There was no evidence provided to the Tribunal to support the applicant's suggestion that he would not be permitted to use public transport. It cannot be said that there was no other practicable way of getting his green canvas bag to the airbase. The applicant acknowledged that he carries the bag over his shoulder and although it gets heavy after carrying it for an extended period, no other valid reason for not using public transport was presented. The applicant would not have to carry or hold the bag once on public transport and it is diffcult to see why it should be regarded as being especially awkward; for example, in comparison to a heavy attache or briefcase.
• 4. It would seem that the mode of travel was not simply a consequence of the means the applicant used to transport his tools to work. The applicant's perception of the unavailability and inconvenience of public transport to Mascot particularly when working shifts and the consequent need to drive to work were given considerable weight in his evidence. The applicant did receive a travel allowance to compensate this position.

19. In
FC of T v Forsyth 81 ATC 4157; (1980-1981) 148 CLR 203 Wilson J discussing the proper construction of this provision stated at ATC p 4161; CLR p 210 that:

``it is fair to say that its application in the circumstances of each case remains very much a matter of fact and degree.''

For this reason I propose to outline the facts of the more pertinent cases to which I have been referred and indicate what appear to be the material distinguishing features for cases where the journey has been held to be an allowable deduction.

20. In cases where the taxpayer has two or more places of employment or is an itinerant worker the outgoing may be deductible: Case U29,
87 ATC 229;
FC of T v Wiener 78 ATC 4006; Case T106,
86 ATC 1192. ln addition, where the taxpayer's journey is undertaken, not to commence duty, but to complete an aspect of the employment already underway before the journey commences the outgoing may be deductible (
FC of T v Collings 76 ATC 4254 following the UK authorities
Owen v Pook (1970) AC 244;
Taylor v Provan (1975) AC 194). On the present facts, the applicant's work was completely conducted at the base and thus does not fall within these exceptions.

21. The Tribunal was referred to a decision of the Taxation Review Board, Case L49,
79 ATC 339. In that case the airline pilot taxpayer contended that the journeys to and from the airport terminal before and after overseas flights were allowable deductions partly because he had to transport his 30kg suitcase and it was illegal to carry such bulk on public transport. The Board held that the journeys were not allowable deductions as the bulky suitcase ``is hardly such as to suggest that the accoutrements

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were being transported primarily and that the taxpayer obtained an incidental (and `tax-free') ride'' (p 342) and that the travel was not in the performance of his duties (at p 351). In this case, the canvas bag of tools was not the primary article being transported and the taxpayer's journey was not merely incidental to its transportation. On the contrary the facts imply that the driving to work was primarily to transport the applicant and that the canvas bag was taken home because of convenience and a concern about security.

22. 
FC of T v Vogt 75 ATC 4073 concerned a professional musician's claim for the journeys, where he was required to carry his musical instruments, between his home and various performance and rehearsal venues. The instruments were very bulky and could not be accommodated within his Volkswagen ``beetle'' vehicle. Waddell J considered that the determination involved two steps: firstly to determine the relevant aspects of the operations carried on by the taxpayer for the production of income; and secondly to determine the essential character of the expenditure. His Honour found the relevant aspects were the substantial value and bulk of the instruments and that the taxpayer kept the instruments and associated equipment at his residence for justifiable reasons of convenience and for the purpose of practising on them. The following matters were considered relevant to the character of the expenditure: it was incurred as part of the operations by which the taxpayer earned his income, it was essential to the carrying on of those operations as there was no other practicable way of transporting the instruments, and ``the mode of travel was simply a consequence of the means which he employed to get his instruments to the place of performance'' (at p 4078). Given the findings that it was not essential for the applicant in this case to take his tools home it would seem that this application is distinguishable from Vogt.

23. Case U29,
87 ATC 229 decided that it was a matter of practical necessity to transport the equipment by car for the carpenter who could not carry all his equipment by hand simultaneously. In addition the carpenter attended various work sites and there was no secure place to store the tools. Once again, the present application is distinguishable on its facts as the green canvas bag was easily transported by hand - over the shoulder, and with a little modification there was a reasonably secure place to store the tools in addition to the storage area provided.

24. The applicant relied on the authority of Case U107,
87 ATC 650 which decided that the taxpayer was:

``able to hitch a free ride to work on his tool box - `free' in the sense that the cost of transporting this magic box from home to work and back again constitutes an allowable deduction incurred in the course of gaining the taxpayer's assessable income''

(p 652).

The facts of Case U107 are similar to the matter before me in that a ground maintenance aircraft engineer was successful in claiming for the carriage of his two substantial tool boxes. The Tribunal held that where the employment creates the need, as a matter of practical necessity, for the worker to transport his tools of a bulk which makes it impractical (or indeed illegal) to carry them on public transport, the expense thus incurred constitutes an allowable deduction. This matter is however distinguishable in a number of important respects. In Case U107 there were two tool boxes which were too large and heavy to be carried on public transport and it was found that there was no secured facility specifically for storage.

25. For the reasons outlined above, the Tribunal finds on the evidence before it that the applicant's journeys to and from work in the tax year 1987/1988 are not allowable deductions under section 51(1) and affirms the decision under review.