Case N4

Judges:
KP Brady Ch
LC Voumard M
JE Stewart M

Court:
No. 2 Board of Review

Judgment date: 20 February 1981.

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K.P. Brady (Chairman); L.C. Voumard and J.E. Stewart (Members)

The question raised in this reference concerns the deductibility of certain expenses incurred by a part-time teacher of the French language, who, during an overseas trip of some 44 days between 16 December 1976 and 29 January 1977, spent the period 27 December 1976 to 10 January 1977, visiting various places in France. In her return of income for the year ended 30 June 1977, she claimed a deduction of $1,769 under sec. 51(1) of the Income Tax Assessment Act as being the expenditure referable to the 15 days spent in France, and it is the disallowance of this claim and the taxpayer's subsequent objection that is now before us. The Commissioner's representative conceded that there was no dispute as to quantum if the claim should otherwise be held to be admissible.

2. In the early 1950s the taxpayer gained an Arts degree, with honours in French and German, and a Diploma of Education. After spending about one year in the teaching profession she forsook it for family reasons. About 1972, when her diminished family responsibilities permitted it, she returned to teaching at a State High School as an employee of the (State) Education Department, being employed as a temporary teacher of the French language on a part-time basis. During the year ended 30 June 1977, she was one of four teachers of French at the school, teaching it to Forms 1 to 4.

3. The taxpayer's evidence was that because of her lengthy absence from teaching, and because of competition for part-time teaching posts that had not existed in 1972, but had arisen by 1976, she considered it necessary to update her linguistic skills, to hear and speak French in France, and ``to see and experience at first hand the areas and places, monuments, customs and so on, that I dealt with constantly in the class room''. Her purpose was to make herself as effective as possible in her role as a teacher of her chosen subject, and thereby secure tenure of her part-time position or, should she suffer retrenchment (up to the date of hearing this had not occurred), to equip her to compete in the private sector.

4. Activated by these purposes, she undertook the overseas trip mentioned above, doing so with the approval and, one

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may assume, the encouragement of the principal of the school. There was no evidence that her employer, the Education Department, played any part in the taxpayer's decision, and the latter freely conceded that there was no term, express or implied, in her contract with the Education Department pursuant to which she undertook the trip. In short, it was undertaken by an employee of her own volition.

5. The taxpayer's itinerary might be set out for completeness' sake. She was in the United Kingdom from 17 to 27 December 1976, in France from 27 December 1976 to 10 January 1977, and in Italy and then Greece between 11 and 27 January 1977. The visit to France, to which alone the taxpayer's claim relates, covered time spent in Paris (27 December to 4 January), Orleans (4 and 5 January), Tours (5 to 8 January) and Avignon (8 to 10 January). In cross-examination she said that, superficially, what she did during this period would have differed very little from the activities of a tourist who happened to be in France, but she added that in her case it was a learning situation, involving the gaining of skills she was going to use later.

6. If the taxpayer's claim is to succeed, the outgoing of $1,769 must be shown to have been actually incurred by her in the course of gaining her assessable income as a teacher (sec. 51(1), first limb, as explained in
Amalgamated Zinc (De Bavay's) Ltd. v. F.C. of T. (1935) 54 C.L.R. 295 at p. 303). In her argument the taxpayer referred us to the oft-quoted passage from the judgment of Dixon C.J. in
F.C. of T. v. Finn (1961) 106 C.L.R. 60 at pp. 67-68, where he said:

``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 developments in design and construction made his advancement in the service more 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 to 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.''

The taxpayer then sought to equate her own case to each of the four points made by his Honour. But, with respect, the two cases are not really comparable; Finn's case is readily distinguishable on its facts, and even putting that to one side, we do not think the evidence supports a finding that in making the trip the taxpayer was ``acting in accordance with the conditions of her service'' as Dixon C.J. put it. Nor do we consider that the encouragement of the taxpayer's principal can be viewed in the same light as the support and encouragement given to Mr. Finn by the heads of his Department and by the

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Government itself. And we do not consider, in the circumstances of this case, that it is appropriate to describe the trip to France as having the same influence on promotion or advancement in the service as in Finn's case; indeed, the taxpayer very fairly agreed that as a temporary or part-time teacher the question of promotion would not arise. The taxpayer invited us to place less emphasis on the ``condition of employment'' criterion and to stress instead the matter of updating professional skills, but we think that authority is against this - see, for a recent decision emphasising the ``condition of employment'' aspect of the matter,
Burton v. F.C. of T. 79 ATC 4318, especially per Smith J. at pp. 4322 and 4323.

7. It will be apparent that in our opinion Finn's case does not assist the taxpayer to demonstrate the requisite connection between the relevant outgoings and the gaining of her income that sec. 51(1) requires. This view is supported by the decision of Helsham J. in
F.C. of T. v. White 75 ATC 4018. There the taxpayer was employed by a firm of accountants, and his employers expected him to study accountancy. His contract of service did not oblige him to do so, nor was there any arrangement whereby successful completion of his studies would lead to increased salary or any promotion. Yet, without undertaking the study, the taxpayer would not have maintained his position in the firm. In disallowing the taxpayer's claim to deduct travelling expenses incurred in attending night school, Helsham J., after analysing the decision in Finn's case (supra) and in
F.C. of T. v. Hatchett 71 ATC 4184, went on at p. 4022;

``As a 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.

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.''

In our opinion the case before us is governed by similar principles, which lead to the conclusion that the outgoings in question do not meet the requirements of the first limb of sec. 51(1), as those requirements have been judicially interpreted.

8. There was a final reference at the hearing to the fact that subsequent to the overseas trip the taxpayer had gained in seniority at the school, and on occasions had the supervision of student teachers, for which she received additional remuneration. This possibility had not been in contemplation before she undertook the trip (cf. Finn's case), and there was no evidence to show any connection between the outgoings now in question and that part of the taxpayer's assessable income.

9. For the reasons given, we would uphold the Commissioner's decision on the objection and confirm the assessment before us.

10. We might add that, although we have not mentioned them, we have read the various Board of Review decisions to which we were referred, and many others, dealing with the deductibility of overseas travelling expenses incurred by teachers. Each case can be regarded as a decision on its own facts, and hence of limited assistance in different factual situations.

Claim disallowed