Case P71

Judges:
KP Brady Ch
LC Voumard M
JE Stewart M

Court:
No. 2 Board of Review

Judgment date: 19 August 1982.

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

Following upon action taken by the Commissioner pursuant to the provisions of sec. 188 of the Income Tax Assessment Act 1936, this reference came before us for hearing. It concerns the year of income ended 30th June, 1979. At the hearing the taxpayer, through his representative, abandoned his claims for deduction other than those that related to the taxpayer's digital wrist watch which was purchased by him in September

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1978. The questions for decision therefore are whether an amount of $210, being the cost of the watch, is an allowable deduction pursuant to the provisions of sec. 51(1) or, in the alternative, whether an amount is allowable as a deduction by way of depreciation under sec. 54 of the Act in respect of the watch.

2. It appears that the taxpayer was employed on a casual basis as a radio telephonist or despatch officer by a locum service organisation during the period 1st July, 1978, to 31st May, 1979. The terms of his employment involved him in working various hours, usually from 7.00 p.m. to midnight or from the latter time until 8.00 a.m., on an average of two nights per week. His duties involved him in being in attendance at his place of employment to receive telephone calls from patients seeking medical attention and to advise nominated medical practitioners of details of calls received. His duties required him to record details of the calls received and made by him.

3. The place in which those functions were performed by the taxpayer was equipped with a sealed electric time-clock which provided for the mechanical registering of times at which calls were received and made. When the clock malfunctioned the taxpayer recorded the times manually by referring to his own watch. The taxpayer was not required by the terms of his employment to wear a watch when on duty. However, we accept that he wore it when on duty and that he used it on occasions for the purpose mentioned. The evidence does not indicate how often it was used for that purpose.

4. The taxpayer was employed also as an ambulance officer on a casual basis during the period 18th September, 1978, to 30th June, 1979. It appears that his normal hours of work in that position were between 7.00 a.m. and 7.00 p.m. on weekdays. Overtime was also worked on occasions. Details of the actual hours worked were not advised to us. Further, it appears that, for the purpose of improving his prospects of being employed as an ambulance officer on a continuing basis, he undertook duties in that capacity on a voluntary basis from about November 1978 to June 1979. Duties undertaken on that basis were generally between the hours of 7.00 p.m. and 7.00 a.m. on Mondays to Fridays inclusive, and on occasions for entire weekends. The actual time spent on voluntary work was not advised to us. Further, between March 1979 and the latter part of May 1979, the taxpayer pursued a university course. The actual hours devoted to attendance at university and to study in connection with the course being undertaken were not made known to us, nor were the effects of those activities upon the hours otherwise devoted to employment and voluntary work elaborated upon.

5. The taxpayer's duties as an ambulance officer, whether as an employee or as a volunteer, involved him in acting in the capacity of either the driver of an ambulance or as an ambulance attendant. Those duties required him to record specific (oftentimes critical if not life-saving) functions performed by him in the treatment of patients and the times at which those functions were performed. The taxpayer was not required by the terms of his employment or as a volunteer to wear a watch when on duty. However, we accept that the taxpayer wore his watch at those times and that he used it on occasions for the purposes mentioned. The evidence, in that instance also, does not indicate how often it was used for those purposes. We also accept that the regulations controlling his ambulance officer's uniform permitted him (without requiring him) to wear a wrist watch and precluded him from wearing a fob watch or any other visible timepiece.

6. It appears that the taxpayer's employers did not stipulate any particular make or style of wrist watch that might be worn by its employees when on duty. However, it was said that its use in the work performed depended upon it being accurate and reliable and it having a seconds sweep-hand or a seconds display facility of the kind that was said to be included in the taxpayer's watch. Whether the latter facility was on permanent display or was subject to push button control, and whether or not it was permanently illuminated for use in all light conditions (without the need for separate push button control), were matters not advised to us. The taxpayer intimated that he was wearing his watch at the hearing. However, we were not invited to inspect it and in consequence we were left to speculate upon the extent to which it was capable of

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being used without manual intervention in the performance of his ambulance duties where, it is understood, his both hands would be otherwise fully engaged in the support of patients, in monitoring pulse rates and in making the requisite entries on forms for various official purposes.

7. For present purposes, it is convenient to set out in summary form what we would understand to be the representative's main submissions in support of allowing the taxpayer's claims:

• (i) ``A watch, by its very nature, is a business expense.'' In that connection the representative sought to distinguish modern life with its propensity to be governed by ``the watch'' with life of earlier times when it seems ``the correct thing to do was, when you were hungry you ate and when it got dark you went to bed. When the sun came up you got out of bed and started working''. The submission appeared to proceed on the basis that the distinction that exists between the two lifestyles thus depicted supports the propositions that any modern time constraint (imposed through the use of a watch) is ``not a natural, private or domestic activity; it is something we have done for business reasons more and more''. Therefore, the submission continued, the cost of a watch is a business expense and allowable as a deduction for income tax purposes.
• (ii) The nature of the work performed by the taxpayer established a need (impliedly at least) for him to own and use a watch in the course of that work.
• (iii) When deciding what is private or domestic expenditure, it is necessary to look at the particular circumstances of the taxpayer and not apply an overall policy decision. In that connection we were invited to conclude that, if the costs of overalls and safety boots were properly deductible at present, they would not cease to be deductible (and could not cease to be deductible simply because of a policy decision) even though those items of clothing were to become fashionable generally and were to be worn by many people.

8. Neither on the evidence before us nor in the light of our personal experiences are we able to test the aptness of the underlying propositions or to derive any support for the conclusions reached in submission (i) above. However, it might well be that, if the taxpayer's watch were acquired because of the growing social pressures adverted to, the nexus between the expenditure incurred (which would arise because of common usage and not because of his employment) and the derivation of his assessable income would be ``problematical and (too) remote'' for the expenditure to qualify as a deduction under sec. 51(1) (see comments of Menzies J. at p. 4186 in
F.C. of T. v. Hatchett 71 ATC 4184). To succeed in his claim under that subsection the taxpayer, being an employee and not carrying on a business, must show that the expense in issue falls for deduction under its first positive limb and that it does not fall within the subsection's exclusion provisions as expenses of a capital, private or domestic nature. Clearly, the expenditure could not fall for consideration under the second limb of that subsection because it was not a ``business expense'' that could have been ``necessarily incurred in carrying on a business for the purpose of gaining or producing such (assessable) income''.

9. While we accept that the taxpayer occasionally used his watch in connection with his para-medical duties and in the task of entering times on official records, there can be no doubt that he personally made the decision to purchase it and that the advantage sought by him by expending money on its purchase was the acquisition of a possession (within his economic capability) that satisfied his personal requirements, including, no doubt, a modern appearance and its technology and reliability in time-keeping. We do not think that the essential character of the expenditure that gave rise to that possession was lost by the taxpayer's action in using it for official purposes (however well intentioned that action might have been), or because incidentally his employers might have derived advantages because of that use. We do not think that the taxpayer's actions differed greatly, if at all, from similar voluntary actions taken by most employees in emergency situations. The evidence does not provide any support for the conclusion that his employers were aware that clocks or other means of time-keeping

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were not provided by them in all circumstances or, if provided, that they were inadequate for the purposes of enabling the taxpayer properly to carry out his duties. The evidence does not provide any basis either for concluding that the taxpayer's employment would be threatened by his failure to own a watch and use it for official purposes, or that the level of his income was improved by using it for that purpose or would be reduced if he did not so use it. In the circumstance, we do not think that submission (ii) above can be sustained. Further, we do not think that the circumstances of the case support the proposition that the whole or a part of the expenditure in issue falls for deduction under the first limb of sec. 51(1) because, in our opinion, it did not, wholly or in part, have the attribute of being incurred ``in the course of gaining or producing'' assessable income (per Dixon J. (as he then was) at p. 309 in the High Court case of
Amalgamated Zinc (de Bavay's) Ltd. v. F.C. of T. (1935) 54 C.L.R. 295) in the sense that it was ``incidental and relevant to that end'' (per the joint judgment of the Full Court of the High Court at p. 56 in the case of
Ronpibon Tin N.L. v. F.C. of T. (1949) 78 C.L.R. 47).

10. In any event, we consider that, in applying the ``essential character'' test (see generally
Lunney v. F.C. of T. (1958) 100 C.L.R. 478,
Handley v. F.C. of T. 81 ATC 4165), the expenditure was essentially of a private nature, being incurred by the taxpayer in a private capacity for personal reasons, and is therefore denied deductibility because of the exclusory provisions of sec. 51(1). In arriving at that conclusion, we have, with respect, been assisted by the following analysis which was made by Messrs. W.M. Owen (Chairman) and A.P. Webb (Member) (both formerly of this Board) at p. 216 in Case F37,
(1955) 6 T.B.R.D. 214:

``The words `private or domestic' appearing in sec. 51 we take to be used in their ordinary natural signification and not in any technical sense. Without attempting an exhaustive definition of either variety of expenditure, losses or outgoings of a private nature we take to mean here losses or outgoings relating solely to the person incurring them as an individual member of society where that society is the society of human beings, e.g. travelling expenses incurred by a person to and from his place of employment (see particularly Case Q74,
(1965) 15 T.B.R.D.). Losses or outgoings of a domestic nature we take to mean here losses or outgoings which relate solely to the house, home or family organisation, of the person incurring them, e.g. expenses paid by a person to a domestic to enable the former to carry on his or her own employment (Case M20,
(1961) 12 T.B.R.D.).''

(Emphasis added.)

11. We would, with respect, agree with submission (iii) above that, in determining the nature of expenditure under sec. 51(1), it is necessary to carefully examine the particular circumstances giving rise to the expenditure in issue in each case. We would also agree that overall policy formulated without proper regard to relevant statutory provisions, including interpretations of them by the Courts, should not be relied upon under income tax law for decision-making purposes. However, we would add that, in our opinion, an administrative tribunal such as this Board, although its functions have been held by the High Court to be quasi-judicial in nature, cannot be innovative in its findings because it is bound to follow legislative policies and decisions that effectively find expression in statutory form and, similarly, to uphold administrative policies and decisions that are soundly based upon a proper interpretation of that law and which take into account relevant judicial pronouncements that are made from time to time. The matters raised in submission (iii) concerning the costs of overalls and safety boots were not in issue before us and we refrain therefore from making any comments in connection with them.

12. The taxpayer's representative did not pursue the alternative claim under sec. 54 in his final address to us. However, in response to the submission for the Commissioner that no amount of depreciation could be allowed, it was submitted in the address in reply that ``since it (i.e. the watch) is necessary and incidental to his employment... at least some depreciation should be supplied''. Section 61 of the Act provides that where the use of any property by the taxpayer has been only partly for the purpose of producing assessable income, only such part of the deduction

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otherwise allowable under sec. 54 in respect of that property as in the opinion of the Commissioner is proper shall be an allowable deduction. Even assuming in the taxpayer's favour that the combined effects of sec. 54 and 61 would be as a matter of principle to allow some amount as depreciation, we would be unable on the evidence before us to determine what that amount should be. In the circumstances, and having regard to the burden placed upon the taxpayer under sec. 190(b) of proving that the assessment in issue is excessive because of the failure to allow a specified amount as a deduction for depreciation purposes, we would have no choice, even on the assumption made, other than to support the Commissioner's opinion that no amount should be allowed.

13. For the above reasons, we would uphold the Commissioner's decision on the objection and confirm the assessment in issue.

Claim disallowed