Case P19

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)

In this reference the taxpayer is a deputy principal at a State high school. In his return of income for the year ended 30th June, 1979, he claimed various deductions and rebates for a trip which he, his wife and twin sons, then aged 11, made to the United States in that year of income to update his professional knowledge and to augment his sons' education.

2. At the time the taxpayer and his family made the trip, he was teaching mathematics to years 8, 9 and 10 students, with a considerable part of his time at the school taken up in general administrative tasks. In planning the teaching program for 1979 early in the third term of 1978, he foresaw a vacancy occurring in teaching a composite subject of British and American history and, as he had previously taught history at matriculation level, he put his own name down to fill the vacancy.

3. With that decision made and with long service leave available, he proposed to the school principal that he take some holidays and visit the United States ``and get some background on this job that is looming next year''. The principal readily agreed, and so the taxpayer purchased an excursion-type return fare to the U.S. covering himself, his wife and their two children.

4. They departed for Honolulu on 10th October, 1978, and returned to Australia some four weeks later on 5th November. An approximate itinerary and summary of the trip given by the taxpayer in his evidence was as follows:

• October 10th/13th: Learned history, customs and geography of Oahu Island, Hawaii; toured Pearl Harbor and visited War Memorial.
• October 14th/16th: Visited Disneyland.
• October 17th/20th: Visited Grand Canyon; travelled by Greyhound bus to St. Louis.
• October 21st/24th: Visited the Jefferson Memorial Arch, Pioneer Museum and Daniel Boone's home.
• October 25th/26th: Visited a cereal and stock farm at Bowling Green, Missouri; visited a sporting goods manufacturing factory at Louisville, Kentucky; studied Ohio Valley Development region.
• October 27th/31st: Visited Great Lakes, Chicago, Niagara Falls and Salt Lake City.
• November 1st/5th: Visited Alcatraz Prison, San Francisco; plane flight to Vancouver and return to San Francisco; departed for Australia.

5. The above summary probably does not do justice to the learning experience enjoyed by the taxpayer and his family whilst on the trip, because they travelled by bus for almost all the time they were on the American mainland, and from the taxpayer's evidence it would seem that the travel time was used to make the educational process as continuous and complete as possible.

6. In his return of income for the year ended 30th June, 1979, the taxpayer claimed deductions and rebates as follows:

        
   Deduction under
     sec. 51(1)     (i)   Overseas educational tour for purpose
                          of extending and updating professional
                          knowledge:

                          Return air fare (economy)                  $1,279
                          Bus travel - North America                    150
                          Accommodation (23 days x $30 average
                          cost)                                         690
                                                                     ------
                                                                     $2,119
                    (ii)  Wife's travel expenses (return overseas
                          air fare, $1,279, plus bus fare, $150)      1,429
                                                                     ------
                                                                     $3,548
         Less
     Rebate under
      sec. 159U     (iii) Portion of the above claimed as self-
                          education expenses                            250
                                                                     ------
                                                                     $3,298

         Plus
    Deduction under
      sec. 51(1)    (iv)  Expenses of car used in employment and
                          not reimbursed, and not used from home
                          to employment                                 164
                                                                     ------
                                                                     $3,462
                                                                     ------

          Also
      Rebate under
       sec. 159T          Portion of air fares and bus fares incurred
                          for both sons, being such amount as when
                          added to the amounts paid in connection
                          with their State school education in
                          Australia, $362, enabled the claim of the
                          maximum rebate of $500                       $138
                                                                     ------
      

7. In processing the assessment, the Commissioner disallowed all the above claims save an amount of $133 for the taxpayer's car expenses. In drafting his objection, the taxpayer did not pursue the claim for his wife's travel expenses. Also, upon the Commissioner allowing a further deduction of $11 for car expenses, the taxpayer voiced his intention at the hearing not to pursue the balance amount of $20. Accordingly, the taxpayer's claims at the hearing comprised:

• - a deduction of $1,869 under sec. 51(1) for his own overseas trip expenses;
• - a rebate of $250 under sec. 159U for self-education expenses; and
• - a rebate of $138 under sec. 159T for portion of his sons' overseas trip expenses.

8. Dealing first with the taxpayer's claim under sec. 51(1), that section provides for the deductibility of outgoings incurred by an employee if they are incurred in gaining his or her assessable income, provided they are not of a private or domestic nature. A comprehensive statement of the operation of sec. 51 in a situation where an employee is claiming deduction for travelling expenses is to be found in the judgment of Helsham J. in the case of
F.C. of T. v. White, 75 ATC 4018. There, he ruled that the travelling expenses incurred by a clerk employed by a firm of accountants in attending

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ATC 84

accountancy classes at night were not deductible under sec. 51(1) because they did not have ``the character of outgoings incurred in gaining or producing the income derived from the employment''.

9. In reaching his conclusion he carefully analysed the decisions in two of the leading cases in that area of law, viz.
F.C. of T. v. Finn (1961) 106 C.L.R. 60, and
F.C. of T. v. Hatchett, 71 ATC 4184. He stated at p. 4022:

``As the 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.''

He went on to say:

``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.''

10. In the instant case, the taxpayer was not required under the terms of his employment to undertake the trip. He decided to visit the U.S. as a matter of his own choice. In this vital aspect his situation can be contrasted with the government-employed architect, of whom Dixon C.J. said at pp. 67-68 of Finn's case (supra):

``... it (the overseas trip) 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.''

(Emphasis added.)

11. The taxpayer argued that it was at least an implied term of every school teacher's employment that that person search out knowledge to meet his or her needs. From that proposition he argued that there exists a real connection between the expenditure incurred by an educator (such as himself) in seeking out such knowledge, and the gaining of that educator's salary income. Thus, he contended that the cost of his overseas trip was a deductible expense.

12. The taxpayer's conclusion, however, is not a valid one. Whatever the merits of the argument that a school teacher must seek out knowledge, there is certainly no implied condition that he must travel overseas to seek out such knowledge and it is the deductibility of such an expense that is now in issue before us.

13. Arising from the lack of any express term that the taxpayer should journey overseas, it would need to be gleaned from the facts of his particular job situation that there existed a necessity in the objective sense for him to so travel in order that sec. 51 could operate in his favour; refer judgment of Smith J. in
Burton v. F.C. of T., 79 ATC 4318 at p. 4323. As was stated by that learned Judge:

``Necessity from the personal circumstances or the personal preferences of the taxpayer is not enough.''

14. Referring to the second of Mr. Justice Helsham's criteria in White's case (supra), viz. whether the expenditure incurred in making the trip had a direct effect on the taxpayer's income, the evidence was to the contrary. Both before and after the trip, the taxpayer was a deputy principal and was being paid a salary appropriate to that position. No adjustment to his salary was made because of any specialised knowledge of American history and customs acquired on the trip. In point of fact, he taught the subject only in the 1979 year, there being a need for him to revert to teaching mathematics in 1980, and subsequently.

15. We therefore consider that the necessary degree of nexus does not exist between the expenditure outlaid in making the trip and the derivation of the taxpayer's salary income, and therefore we find that such expenditure is not deductible under sec. 51(1).

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ATC 85

16. Also we find that no part of the cost of the overseas trip is rebatable as self-education expenses under sec. 159U. We say this because the taxpayer's outlays do not comply with the definition of ``expenses of self-education'' as contained in subsec. (5) of that section. That subsection states as follows:

```expenses of self-education' means expenses necessarily incurred by the taxpayer for or in connexion with a prescribed course of education, but does not include expenses in respect of which a deduction has been allowed or is allowable to the taxpayer in respect of any year of income under any other provision of this Act;

`prescribed course of education' means a course of education provided by a school, college, university or other place of education and undertaken by the taxpayer for the purpose of gaining qualifications for use in the carrying on of a profession, business or trade or in the course of any employment;.''

17. Whilst the trip to the U.S. was no doubt helpful to the taxpayer in teaching American history in the 1979 calendar year, it was not prescribed by the employer, the Education Department of his home State; at best he was simply encouraged to make the trip by the school principal. But even if the trip were prescribed, the outlays associated with it would still not be rebatable because the American mainland could not be described, in accordance with the ejusdem generis rule of construction of statutes, as an ``other place of education'', when it is seen that those words follow specific places of education such as a school, college or university; refer Maxwell on Interpretation of Statutes, Ninth Edition at pp. 336-342.

18. At the hearing, the taxpayer conceded that sec. 159U was not applicable to his situation and invited the Board to rule that the amount of $250 claimed as rebatable was more properly deductible under sec. 51(1). Because of our view as stated above that sec. 51 has no application in the instant case, nothing can turn on the point. For completeness, however, we would mention that by virtue of sec. 190(a), a taxpayer is limited to the grounds stated in his objection in any reference to a Board of Review, and therefore it is not open to the taxpayer to change the grounds of his objection at the hearing. The rationale of sec. 190(a) was enunciated by Lavan S.P.J. in the case of
Sarich v. F.C. of T., 78 ATC 4646, when at p. 4652 he said:

``... the authorities are clear that no contention may be advanced before a Court or a Board unless it is one which the tribunal finds is within the stated ground of objection so drawn that the Commissioner might reasonably be expected to have gathered from the written objection the sense of the attack on the assessment.''

19. As regards the remaining claim of the taxpayer, viz. a rebate under sec. 159T for portion of his twin sons' overseas travel costs, we are of the view that that claim must also fail. One of the criteria for obtaining the rebate is that the education expenses must be ``necessarily incurred by the taxpayer for or in connexion with full-time education at a school, college or university or from a tutor'', refer sec. 159T(6). We do not consider that the expenses relating to the sons' trip were necessarily incurred bearing in mind the way in which the word ``necessarily'' has been interpreted by the Courts.

20. In the case of
Pearce v. F.C. of T., 79 ATC 4195, Sangster J. had cause to discuss the terms of sec. 82J, which was the forerunner of the current sec. 159T. As amended in 1953, it contained the same definition of education expenses as incorporated in the current provision, and therefore the Judge's dicta as contained in his judgment are relevant to the issue now before us. He said at p. 4202:

``Whilst in its earlier form the school's charges were not restricted by the words `necessarily incurred', now that the section relates to payments to the school or to anyone the Legislature has in my opinion clearly indicated that, on the one hand, the choice of what expenses will be incurred is to be made either by the school or by the taxpayer, but that, on the other hand, that choice is to be limited to expenses for which a necessity can be shown. In my opinion such necessity has become part of the objective test.''

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ATC 86

Earlier in his judgment, at p. 4201, the learned Judge had said:

``In their primary meanings, it seems clear to me that the word `necessarily' or the phrase `of necessity' imports at least some element of need (for the expense in question).''

21. In discussing the situation before him of a deduction claimed for the cost of encyclopaedias used by the taxpayer's school children in their own home, Sangster J. drew a distinction between usefulness and need. He came to the view that the availability of encyclopaedias, whilst doubtless useful, lacked relevant necessity, and so disallowed the taxpayer's claim.

22. Similarly in the instant case, we find that the taxpayer's evidence did nothing more than show that the trip was useful in the educational development of his sons; he did not show that there was a need for the boys to make the trip so far as their education was concerned.

23. Before concluding, we would allude to an argument which the taxpayer pressed on us in his address. He contended that had he sent his boys to a private school, as opposed to a State school, the additional cost would have been rebatable. Why then was an alternative source of education, the overseas trip, not rebatable? He used the same line of argument in another aspect. He said that had he engaged a tutor to teach his boys in after-school hours the cost of such tuition would have been rebatable. Why not then was the cost of his time spent in acting as tutor to his sons on the overseas trip not rebatable?

24. The short answer to the taxpayer's contentions is that a notional deduction for what might have been paid in other circumstances is not permissible. That proposition is well entrenched in income tax law and was succinctly stated by Kitto J. as far back as 1952 in the case of
F.C. of T. v. Western Suburbs Cinemas Limited (1952) 9 A.T.D. 452, in these words (at p. 455):

``... when a taxpayer has two courses open to him, one involving an expenditure which will be an allowable deduction for income tax and the other involving an expenditure which will not be an allowable deduction, and for his own reasons he chooses the second course, he cannot have his income tax assessed as if he had exercised his choice in the opposite way. Section 53 is concerned with expenditure which was in fact incurred, not with expenditure which could have been incurred but was not.''

25. For the reasons detailed above, we would uphold the Commissioner's decision on the objection and confirm the assessment.

Claim disallowed