Case G4

Judges:
AM Donovan Ch
GR Thompson M
RK Todd M

Court:
No. 2 Board of Review

Judgment date: 13 December 1974.

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A.M. Donovan (Chairman); G.R. Thompson and R.K. Todd (Members): The taxpayer in this reference claimed a deduction of expenses incurred by him in removing himself and his family establishment from one State to another in order to take up a senior position at a College of Advanced Education. In fact, the taxpayer's claim in the return was made up of amounts relating to fares, car running costs, cartage of furniture and hotel bills (all described as ``costs of travel to new place of employment'') and of estate agents' fees on sale of his old house, telephone connection fees and solicitors' fees relating to his new house and of stamp duty on the housing loan obtained for the purchase of the new house (all described as ``costs caused directly by change of position''). Allowance was made for partial reimbursement by the new employer of portion of the costs of travel. It is obvious that distinctions could be drawn between some of the items of cost referred to, but having regard to the conclusion to which we have come it is unnecessary to do so.

2. The taxpayer's former position was as a senior lecturer at a University. He in fact claimed that he took up his new position about a week before his prior employment ceased, but this claim is based upon the fact that he actually commenced to attend to his new duties during that week. His remuneration seems to have overlapped for the space of one day only, but the taxpayer alleged that he was paid for work and not for time and this was the basis of his saying that he commenced to be employed a week earlier. This point need not however, in our opinion, be taken any further for it has no bearing on the point at issue. The taxpayer's argument was succinctly and well put in his own words in opening the case. Referring to the Commissioner's disallowance of costs of travel and costs caused by change of position on the grounds that the costs were not incurred in the gaining or producing of assessable income, he said: ``They were not of a capital nature, they were of a normal income nature and therefore I believe they should be considered as a whole when assessing my taxable income. Without these costs being expended I would be unable to take up the position I now occupy. The effect of taking the position I now occupy was to increase my income and therefore increase my

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income tax. Therefore I maintain that these should be included in my assessment of taxation deductions.''

3. It is necessary first to put aside the argument that a deduction should be allowed on the ground that by making the move the taxpayer was enabled to earn a higher income and thus was liable to contribute a higher amount of tax. This ``cost/benefit'' analysis is put to the Board from time to time but we are quite unable to give effect to it in terms of the existing law. What has to be determined is whether the deduction claimed satisfies the requirements of sec. 51(1) of the Income Tax Assessment Act as interpreted by the Courts.

4. As far as is presently material, sec. 51(1) provides for a deduction in respect of ``outgoings... incurred in gaining or producing the assessable income'' and excludes outgoings of a capital, private or domestic nature. The meaning of the section has been explained by the High Court on numerous occasions, and it is sufficient to refer to what was said in
Ronpibon Tin N.L. v. F.C. of T. (1949) 78 C.L.R. 47, at pp. 56-7, namely: ``For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. The words `incurred in gaining or producing the assessable income' mean in the course of gaining or producing such income.'' The costs incurred by a taxpayer in travelling to the place where he works are expenses incurred in order to enable him to earn income but are not expenses incurred in the course of earning that income as required by the section. In
Lunney v. F.C. of T. (1957-8) 100 C.L.R. 478, the following passage appears in the joint judgment of Williams, Kitto and Taylor JJ. at pp. 498-499 -

``The question whether the fares which were paid by the appellants are deductible under sec. 51 should not and, indeed, cannot be solved simply by a process of reasoning which asserts that because expenditure on fares from a taxpayer's residence to his place of employment or place of business is necessary if assessable income is to be derived, such expenditure must be regarded as `incidental and relevant' to the derivation of such income. No doubt both of the propositions involved in this contention may, in a limited sense, be conceded but it by no means follows that, in the words of the section, such expenditure is `incurred in gaining or producing the assessable income' or `necessarily incurred in carrying on a business for the purpose of gaining or producing such income'. It is, of course, beyond question that unless an employee attends at his place of employment he will not derive assessable income and, in one sense, he makes the journey to his place of employment in order that he may earn his income. But to say that expenditure on fares is a prerequisite to the earning of a taxpayer's income is not to say that such expenditure is incurred in or in the course of gaining or producing his income. Whether or not it should be so characterised depends upon considerations which are concerned more with the essential character of the expenditure itself than with the fact that unless it is incurred an employee or a person pursuing a professional practice will not even begin to engage in those activities from which their respective incomes are derived.''

In
Lodge v. F.C. of T. 72 ATC 4174: (1972) 128 C.L.R. 171, the taxpayer claimed a deduction of nursery fees paid by her for the minding of her infant daughter. The purpose of the expenditure was to enable her to perform her work and to perform it efficiently, the work being the preparation of common law bills of cost. At p. 4176 of the report. Mason J. said -

``The expenditure was incurred for the purpose of earning assessable income and it was an essential prerequisite of the derivation of that income. Nevertheless its character as nursery fees for the appellant's child was neither relevant nor incidental to the preparation of bills of cost, the activities or operations by which the appellant gained or produced assessable income. The expenditure was not incurred in, or in the course of, preparing bills of cost.''

(emphasis supplied)

5. Again and again taxpayers have failed because while they have demonstrated that an item of expenditure had necessarily, in all the circumstances in which the taxpayer found himself placed, to be incurred in order to do the job which brings in the relevant income, they have failed to show that the expenditure in

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question was such an integral part of, as compared with an essential prerequisite to, the work as to enable expenses incurred in relation to it to be classed as having been incurred in or in the course of gaining or producing assessable income. If a taxpayer does not travel to work, he does not get to work. If the taxpayer in Lodge's case (supra) did not place her child in a day nursery she could not do her work. If the taxpayer in this reference had not removed himself and his family to the area of his new employment he could not have taken it up. But the High Court has made it plain again and again that necessity is not the test, and the principles laid down by the High Court are wholly adverse to the case sought to be made by the taxpayer and leave no room for what might be called creative interpretation by Boards of Review.

6. This conclusion follows previous decisions of Boards of Review. Recent examples are the decisions of this Board in Case B18,
70 ATC 78, and in Case D11,
72 ATC 50. It is unnecessary to refer to others. We know of no Board of Review decision inconsistent with our conclusion.

7. In our opinion the decision of the Commissioner on the objection was correct and the assessment should be confirmed.

Claim disallowed