Case N87

Judges:
KP Brady Ch
LC Voumard M
JE Stewart M

Court:
No. 2 Board of Review

Judgment date: 16 October 1981.

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

In this reference, the taxpayer is a field engineer employed by a large oil company. To assist him in making his calls on consumers of his employer's products, he had the use of a company car. Those consumers included large industrial concerns and international ships lying at berth. In making one such call in the year of income in issue (which was that ended 30th June, 1978), he committed a driving offence. As a consequence, his licence was cancelled for a period of three months. With his employer's consent he engaged his son, then aged 23 and temporarily unemployed, to drive him about on his calls. He agreed to pay him a wage of $100 per week, and in his return of income for that year he claimed the alleged amount paid, $1,100, as a deduction against his salary income. He also claimed entertainment expenses of $90, those being additional to what he had been reimbursed by his employer.

2. The Commissioner disallowed both claims, and upon the taxpayer objecting, and the Commissioner disallowing that objection, the matter has come before this Board for review.

3. It seemed that the taxpayer's job was in some jeopardy after he lost his licence. It was a condition of his employment that he hold a current driver's licence and without that licence his value as a field officer was obviously greatly diminished. There were no vacant positions in the company's office at the time, and it seemed that no suggestions were forthcoming from the company as to how he could cover the loss of his licence. It was the taxpayer's own idea that he engage his son and, whilst the employer company was prepared to have a non-employee drive a company vehicle in the short term, it did not make any overtures to the taxpayer to reimburse him for the son's wages.

4. Some uncertainty existed as to the period for which the taxpayer engaged his son, similarly as to the amount he paid him. The taxpayer thought, but was not sure, that he lost his licence on 14th April of the year of income. Immediately afterwards he engaged his son to drive him about on his calls, and subsequently on his leave, when both journeyed to Queensland by car. The amount of wages as agreed was $100 per week. It appeared that the taxpayer worked until close to 30th June (although it seemed that his last customer call was on 15th June), then took holidays until 18th July. Wages were paid to the son only for the time that coincided with the taxpayer actually working. The period for which the son was paid became a matter of debate at the hearing, the taxpayer contending eleven weeks, and the Commissioner's representative nine weeks. The matter remained unresolved.

5. Lack of certainty also attended the amount of wages paid to the son. The taxpayer said in evidence:

``My wife used to give my son money when he needed it, and I kept him going and paid his insurance and his car registration and other things like that to keep him afloat, and it worked out about $100 a week over the period.''

He subsequently elaborated on the situation when he said:

``The position was that while he (the son) was away for a couple of months we sustained or kept up his insurance. The registration of his vehicle was paid, and I kept a running sheet of those things as I came to them and these other amounts were simply paid as they came up for that period. Peter had no other income at this time, and we simply paid that and we tied up the amount at the end of this period and we considered that the amount of $1,100 was the absolute minimum, and that was the amount that I claimed. How I arrived at that figure was from these cheque butts, the amounts that he had been paid in the interim, plus the A.M.P. and the other account and the registration payments and this was all tallied in and he was agreeable to this form of reimbursement which kept him going, and then after that he went and got a job and set about his life again. That is how we arrived at the figure.''

It seemed that the amount actually paid in cash to the taxpayer's son was $259 only, but, like the period of payment, it remained unresolved.

6. As regards the claim for $1,100, we doubt very much whether the taxpayer has

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discharged the burden of proof imposed on him by sec. 190(b) of the Assessment Act. In Case 107
(1951) 1 T.B.R.D. 453, which was concerned with a claim for entertainment expenses, the Board said at p. 456:

``In deciding whether the taxpayer has discharged the burden of proof cast upon him by sec. 190..., we would point out that for many years Boards of Review have made it clear that in claims of the kind under consideration something more than a mere estimate of expenses incurred and borne by a taxpayer must be proved before he can succeed. In our opinion, it is necessary in order to establish an outgoing or outgoings in a case of this kind for the taxpayer to provide details of the expenditure incurred showing with reasonable precision when, where and upon whom the sum or each of the sums of money concerned was spent and the person or persons entertained in the process.''

Similarly in the case before us we consider that it was incumbent on the taxpayer to show details of the claim for $1,100, more particularly because that amount comprised a multiplicity of payments including some seemingly made in a previous year, or years, of income.

7. However, we do not consider it necessary to examine the matter of onus of proof further because we consider that the taxpayer's claim fails on the more substantive ground that the various outlays were of a private nature, and thus excluded from the operation of sec. 51(1). That section, to the extent to which it is relevant, states:

``All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable 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...''

8. In large measure the claim of $1,100 represented the eradication of debts due to the taxpayer by his son through the performance of driving tasks by the son. The arrangement made between father and son was not a legally binding one but was essentially one whereby private debts which had accrued over a number of years could be extinguished by the son performing a series of filial tasks for his father. The ``essential character'' of the transaction, to adopt the expression used in
Lunney v. F.C. of T. (1958) 100 C.L.R. 478 at p. 497 and approved by the High Court as recently as the case of
Handley v. F.C. of T. 81 ATC 4165 (see p. 4171), was of a private nature. As such, the claim of $1,100 is expressly excluded from deduction.

9. A case fairly analogous to the situation now before us came before the No. 3 Board last year, refer Case M55,
80 ATC 366. There, the taxpayer was a medical technologist employed by a large company providing pathology services. A term of his appointment required him to be on call after business hours one week in every three. If he happened to be out on a call, the taxpayer's wife would take telephone messages for him as relating to his after hours duties. To compensate her for that inconvenience, the taxpayer paid her $20 per week and claimed the annual total of $1,040 as a tax deduction against his salary income. The Board disallowed the claim, regarding the payment as a private expenditure and, in giving his reasons, Dr. Beck (Member) said (at p. 368):

``If an employee pays another party to render some of the services for which the employee is paid, this expenditure is not a cost of deriving that income. It can be regarded as a cost of lightening the work load, of gaining time off, of filling a gap in the employee's competence, or as perhaps is the case here, of rendering service beyond that which he is being paid for, and all expenditure of this kind is private and hence specifically excluded by sec. 51.''

10. In the instant case there may have been a greater urgency to delegate the car driving task than was the situation with the taking of telephone messages in Case M55, but that factor of itself could not change the nature of the arrangement which remained essentially a private one. The taxpayer's claim for deduction of the amount of $1,100 must therefore fail.

11. In regard to the taxpayer's claim for deduction of entertainment expenses of $90, we consider that on the limited evidence adduced he was not able to show

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affirmatively that in each instance the entertainment was both an incident of his office and relevant to the discharge of his duties.

12. The taxpayer tendered a list of expenditures totalling $129, of which his claim for $90 formed part, the difference being expenditures conceded to be of a private nature. The outlays as listed were said to be additional to out-of-pocket expenditures totalling $1,400 for which he had been reimbursed by his employer on a fortnightly basis during the year of income in issue. The taxpayer stated that he was disinclined to submit the additional items for reimbursement because a number were incurred in entertaining shipping clients. That fact, he alleged, could give rise to difficulty in obtaining his departmental head's approval of his claim, because of that officer's alleged lack of interest in that side of the company's business.

13. Whilst that contention does not appear to be unreasonable, it does nothing to displace the onus placed on the taxpayer to adduce the necessary evidence to prove his case. That onus, indeed, can be said to be a substantial one in the present circumstances where there exists a procedure to have an employee reimbursed for all outlays properly incurred on the employer company's affairs. Unfortunately, the taxpayer had recently burnt his diary, which was the source of the information tendered to us in summarised form, and so he was not able to explain to us in what circumstances the various items of entertainment expenses had been incurred. For instance, notations of the kind, ``Mar. 15 1978, Meeting Clunies Ross House, $6'', required supporting oral evidence from the taxpayer, which he was not able to give.

14. For the above reasons, the Commissioner's decision on the objection as regards both claims must be upheld, and the assessment before us confirmed.

Claims disallowed