Case P18

Judges:
KP Brady Ch
LC Voumard M
JE Stewart M

Court:
No. 2 Board of Review

Judgment date: 25 March 1982.

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

The taxpayer in this reference, who described himself in his return of income for the year ended 30th June, 1979, as a ``health surveyor'', was employed throughout that year on a full-time basis by a statutory corporation. In the return of income lodged by him, the taxpayer included as income amounts received by him by way of salary, a travelling allowance paid to him by his employer, interest from investments and an amount of $179 from a source which he described in his return as ``authorship''. In calculating the taxable income for the year, the Commissioner allowed the taxpayer's claims other than an amount of $983, details of which appeared in a schedule attached to his return as follows:

``Overseas Travelling

Taxpayer departed from Australia on the 30th September, 1978 on Annual Leave from his employer to return to England to pursue his authorship activities. Whilst in the U.K. he took the opportunity to visit local Health Departments to view their approach to his employment duties in Australia - Arrived back 10th November. 41 days.

      Fares                       900.00
      Train Expenses              112.00
      Meals & Accommodation
      (41 days @ $20)             820.00
                                --------
                                1,832.00
                                --------
      Claimed 22 days =
        22 of $1,832.00           983.02
        --
        41''
        

Although nothing appears to turn on it, it is mentioned in the interests of completeness that the amount of $983 appeared in the schedule abovementioned as part of the larger amount of $1,341 which was claimed as a deduction under the heading of ``other expenditure (as author)''. The amount of $358 (i.e. $1,341 - $983) allowed as a deduction included such items as travelling expenses in attending meetings and theatre, general office expenses, lighting and heating expenses, costs of magazines, etc., and depreciation on office equipment.

2. The Commissioner disallowed the taxpayer's objection against his disallowance of the claim and, at the request of the taxpayer, he referred his decision on the objection to a Board of Review.

3. As a preliminary matter at the hearing of the reference before us, the taxpayer's representative advised that the taxpayer had reduced his claim from $983 to an amount of $625, which was based upon 14 days of his overseas trip in lieu of the 22 days which were taken into account in his original claim. It is understood that this adjustment was made to eliminate from the taxpayer's claims any portion of the pro-rated expenses which might be attributable to his visits to U.K. health departments.

4. From the evidence it emerged that the taxpayer had, in addition to performing his normal duties as a full-time employee, pursued for many years an interest in writing coupled with an ambition to become a successful commercial writer on a full-time basis of plays, books and/or articles. We were given to understand that in pursuance of that interest and ambition it was not uncommon for the taxpayer, subject to the normal constraints imposed upon him by the need to care for a wife and young family, to spend as much as 22 hours in a week for a substantial part of each year in writing, reading, classifying information, attending meetings with fellow writers and in such like activities. Although the evidence on the point was not specific, it seems a reasonable inference from the evidence as a whole that writing activities of the kind mentioned were probably undertaken during the year of income in issue even though it was said that the level of those activities in that period was somewhat less than previously.

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5. It appears that the taxpayer's writing activities go back at least to the 1950s and that, although his first manuscript for publication was submitted in or about 1959, his first work comprising several newspaper articles was not published until 1970. From that time until about 1978, it seems that, although the taxpayer completed in each year three or four items of varying length which he submitted for publication (including short stories for children and adults, plays for adults and a video play and articles), his total published works to date include only the articles abovementioned, a book on gardening, a textbook on food for children and several short stories for children. Details of any income that may have been derived from those sources in the 1978 and earlier years were not advised to us. We do not know from the evidence whether any works were submitted for publication in 1979; however, it appears that none of his works was published in that year and that the only income in that period derived from that general source was the amount of $179 abovementioned, which was in the nature of a royalty received from a public lending right attaching to the earlier published children's textbook.

6. The taxpayer travelled during his annual vacation in the second half of 1978 to the U.K. (where he had previously resided) in company with his wife and two children. In England the taxpayer and his family stayed for 20 nights with his mother and sister who were living there, they stayed for four nights with friends in Ireland and they stayed for the remaining 16 nights or so in hotels and in guest houses. It would seem that the greater part of the trip was concerned with visits to relatives in England and in Northern Ireland, and to a lesser extent it was also concerned with a wide range of other matters. Those matters included job related problems associated with food hygiene administration, an attempt to obtain reasons from a contact with the B.B.C. as to why a radio play written by him had been rejected by it, discussions with archaeologists concerning legal problems encountered by them in the U.K. in ensuring that preservation orders in the country were enforced, and with the taxpayer's authorship interests. While the taxpayer's evidence could lead us to conclude that all of his life experiences, including his return trips to the U.K. to visit relatives, etc., were significant to him as a writer, much emphasis for the purposes of his tax claims was placed upon the abovementioned period of 14 days when, in company with his wife and children, he visited such places as the Tichbourne Manor House, archaelogical diggings and museums at York, oil drilling and houses at Aberdeen, monasteries, castles, graveyards, museums and such like en route between Inverness and Larne, scenes of unrest in Belfast, museums and such like in and around Dublin and other places of historical interest in and around Adiham, Alice Holt and Purnell. The 14 days referred to and places visited were interspersed between a longer period of time and other places visited where, it would seem, the taxpayer concerned himself with such other matters as health problems, conservation interests and visits to relatives. From the evidence it would seem that the abovementioned trip within the U.K. was planned to meet the abovementioned wide range of the taxpayer's personal interests and, at the same time, to provide his wife and family with an opportunity to share with him his interest in historical places as well as visiting relatives.

7. It would appear that, apart perhaps from approaching the B.B.C. in the matter already adverted to, the taxpayer had no set purpose or plan connected with his writings (if any) then in course or proposed which could of itself have given rise to his trip to the U.K. or to his travels within that country. Like most travellers (and no doubt the taxpayer would include his wife and family in that category), he enjoyed as a consequence of his trip a renewal of past experiences as well as new experiences, all of which would no doubt contribute in some way to a broadening of personal knowledge and, in his case, to a greater fund of experiences which could be drawn upon at will for his writings. We were given to understand that, no doubt with the latter purpose in mind, the taxpayer kept a record of his travels in the form of books and pamphlets purchased at various places, photographs taken of various places and things of particular interest and a few notes which the taxpayer intimated had not been looked at by him since his return home from the trip. We were also given to understand that the taxpayer had embarked

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ATC 80

upon the writing of two plays since his return home which may be seen inferentially to have been prompted to some extent by his U.K. experiences. However, it is understood that neither of those plays had been completed, and there was no indication given as to when they might be completed and ready for publication, if at all. There was no evidence that the taxpayer undertook any writing or allied activity during the trip or thereafter which possessed a commercial flavour. In that respect it is also relevant to note that a film which was understood to have been prompted by the trip and which concerned problems associated with conservation and preservation of buildings, etc., was the subject of a gift by the taxpayer and not put by him to any commercial use.

8. On the evidence we have had no hesitation in concluding that the taxpayer did not carry on a business as an author, or as a writer, or at all during the year of income in issue and that the amount of $625 in dispute could not therefore in any way relevant to the operation of sec.51(1) be regarded as a loss or outgoing which was ``... necessarily incurred in carrying on a business for the purpose of gaining or producing...'' his assessable income. As pointed out by Brennan J. in the Fedeal Court in
Inglis v. F.C. of T. 80 ATC 4001, in determining whether a business of primary production there in issue was still being carried on, it is a question of fact and degree whether a business is being carried on and not just simply a state of mind of the taxpayer or an intention on his part so to act. ``It is a matter of activity'' stated Brennan J., at p. 4004 in that case, and at p. 4005 he stated that ``at the end of the day, (it is) the extent of activity (which) determines whether the business is being caried on'' (emphasis added). While Walsh J. in the High Court case of
Thomas v. F.C. of T., 72 ATC 4094 remarked at p. 4099 that ``... a man may carry on a business although he does so in a small way'', activities attributable to a business said to be carried on must nevertheless be seen to exist and, on the authority of the decisions in the cases of Inglis and Thomas (supra), they must also be at a level which enables them to be characterised as having a commercial purpose or character. A conclusion along those lines is also apparent in the following remarks of Waddell J. of the Supreme Court of New South Wales in his judgment in
McInnes v. F.C. of T., 77 ATC 4167 at p. 4169:

``It is clear enough that activities may be said to be a business even though carried on only in a small way but nonetheless before such activities can be said to be a business it must be possible to attribute some significant commercial purpose or character to the activities. An example of both these statements is to be found in the decision of Walsh J. in Thomas v. F.C. of T. 72 ATC 4094 at 4099-4100.''

9. On the evidence before us it is considered that while the taxpayer devoted much time and energy to his interest in writing and in associated matters and sought ways and means, including the trip to the U.K., by which his proficiency in those respects might be enhanced, his activities overall did not amount to more than the vigorous pursuit of a pastime or a hobby (see generally the reasons for judgment of the High Court in
Martin v. F.C. of T. (1952-53) 90 C.L.R. 470) which did not amount to the carrying on of a business in the year in issue. On the evidence, his activities in that period appeared to be only minimally directed towards the commercial exploitation of his works which would appear, generally speaking, to have been still in the developmental stage and subject to alterations as to content and improvements as to style, etc., following upon suggestions usually canvassed by him with fellow writers and with others whose opinions he respected. Evidence concerning completed works on hand (if any) was only sketchy, and that concerning marketing activity associated with them or with partly completed works was vague and unconvincing. At all events, his evidence fell far short of establishing to our satisfaction that a ``commercial purpose or character'' attached to those activities.

10. It will be apparent from our comments above that the amount of $625 in issue could not in our opinion fall for deduction as an expense of business in the period in issue under the second positive limb of sec. 51(1). It could not either, in our opinion, fall for deduction under that limb in connection with a business (if any) which may have been carried on in a prior year or in a business (yet to be commenced) in a later year. (See

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ATC 81

generally decisions of the High Court in
Ronpibon Tin N.L. v. F.C. of T. (1949) 78 C.L.R. 47;
F.C. of T. v. Snowden & Willson Pty. Ltd. (1958) 99 C.L.R. 431.) In neither case could that expenditure be regarded as incidental or relevant to such a business (if carried on), nor could the nexus between the latter and the expenditure be regarded as sufficiently close so as to qualify it as a deduction. Clearly, the expenditure in issue had no connection which was relevant to the application of sec. 51(1) to the amount of $179 which the taxpayer returned as being received from ``authorship'' and which had as its source (what is understood to have been) the use of a public library lending right in that year relating to a book which had been completed by the taxpayer and published some time earlier. In that connection, we would mention that, in our opinion, the facts in the instant case differ materially from those in Case N30,
81 ATC 163, where we allowed the taxpayer's claim in part; in particular, we do not think that the public lending right referred to in the instant case was in any way similar to the Commonwealth Government literary grant in Case N30 (supra) by which means part of the taxpayer's publishing costs were defrayed. We do not think, as was suggested by the taxpayer's representative, that our decision in that case assists the taxpayer in the instant case.

11. Because of our further finding on the evidence that the expenditure in issue was of a private nature and therefore precluded as a deduction by the excluding provisions of sec. 51(1), we do not find it necessary for present purposes (particularly in the light of our earlier comments concerning the second positive limb of that subsection) to do other than to observe that, having regard to such decisions of the High Court as
Lunney v. F.C. of T. (1958) 100 C.L.R. 478;
F.C. of T. v. Hatchett 71 ATC 4184 and
F.C. of T. v. Faichney, 72 ATC 4245, the expenditure does not fall for deduction under the first limb of that subsection. In our opinion, the expenses in issue were essentially personal to the taxpayer and were therefore ``of a private nature'' within the meaning of that phrase for the purposes of sec. 51(1).

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

Claim disallowed