Case T10

Judges:
KP Brady Ch
JE Stewart M
DJ Trowse M

Court:
No. 2 Board of Review

Judgment date: 21 March 1986.

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K.P. Brady (Chairman), J.E. Stewart and D.J. Trowse (Members)

The question for decision in these references is whether the taxpayer, a locum pharmacist, is entitled to deductions for the cost of attending pharmacy refresher courses held in various overseas countries in each of the years ended 30 June 1982 and 1983.

2. In each of the years in issue, the taxpayer worked as a locum for the same two pharmacy proprietors, whom we shall call A and B. In the 1982 year she worked for A for one-half day only over the whole year, and for B for two half-days each week. In the following year she worked for A on various days adding up to approximately 10 for the year, whilst for B she

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worked on a more regular basis, but it would seem for a lesser total period than in 1982. Her earnings as a locum over both years in issue were as follows:

       1982          $

      From A          30
      From B       8,538
                   -----
                  $8,568
                   -----

       1983          $

      From A         712
      From B       5,981
                   -----
                  $6,693
                   -----
      

3. The taxpayer told us that the basis of the above remuneration was the award payable to locum pharmacists. Whilst on the subject of the taxpayer's income, it is of relevance, we consider, to state that her earnings from locum activities formed part only of her total income, which was comprised as follows:

                                     1982        1983
                                       $           $
      Locum earnings                  8,568       6,693
      Income as a beneficiary
        under a will                  1,821       1,803
      Interest and dividends         18,598      24,217
                                     ------      ------
                                    $28,987     $32,713
                                     ------      ------
      

4. In giving her evidence, the taxpayer told us that she had owned and operated her own pharmacy business for some 20 years but had sold it approximately ten years previously. It seems that since 1976 she had worked as a locum, mainly for B, but not exclusively so.

5. Her attendance at the two overseas conferences stemmed from a perceived need to update her knowledge in the practice of pharmacy, because of new developments taking place in many areas of treatment. She considered that it was vital for all practitioners to continually update, which process, she thought, could take place in a variety of ways. Because she worked only a limited number of hours each week in her role as a locum, she considered that she had a greater availability of time, and a greater measure of control over her time than did many of her colleagues. She therefore viewed participation in overseas refresher courses as the most appropriate form of updating for her own situation.

6. B, who was called as a witness by the Commissioner, endorsed the taxpayer's action in seeking to learn of the developments taking place in pharmaceutical practice, particularly as regards patient counselling and drug usage. He advised us that, whilst the taxpayer participated in the overseas refresher courses in her own time and at her own expense, she received his unqualified commendation for doing so.

7. It seems that the particular courses which the taxpayer attended were organised by the Pharmaceutical Society of Australia as part of its continuing education program. The course which the taxpayer attended in May/June 1982 was its Sixth Annual Pharmacy Refresher Course and was held in Miyazaki, Japan, with a ``pre-satellite course'' being held in Kagoshima, Japan and a ``post-satellite course'' held in Hong Kong. The main content of the course took place at Miyazaki, with various options being available to participants as to their attendance at the ``satellite'' courses. Further variations could also be made to the tour, depending upon whether participants wished to visit places of general interest before and after the conference. The taxpayer saw fit to attend all the formal courses and, in company with other pharmacists, she departed Australia on 22 May 1982 and returned almost three weeks later on 9 June.

8. From our examination of the course program which was tendered in evidence it seems that the formal part of the conference took the form of lectures given by acknowledged leaders in their respective fields over a wide ranging number of topics relating to pharmacy and pharmaceutical practice. Opportunity was provided for sightseeing, but certainly, so far as the taxpayer before us was concerned, the conference was a learning experience and, because of her obvious dedication to her calling, we have little doubt that she would have benefited considerably from it. It seems that she had attended every overseas conference of the Pharmaceutical Society since 1979. In giving her evidence, the taxpayer considered it relevant to point out that she had visited Japan on a number of occasions over past years as part of her holidays.

9. In preparing her taxation return for the first year of income in issue, the year ended 30 June 1982, the taxpayer claimed as deductions the following expenditures as relating to the above conference:

        
                                             $
      Air fares Melbourne/Tokyo and
        return, via Hong Kong, and
        two internal flights within
        Japan, and accommodation           2,454
      Travel insurance                        35
      Meals                                  238
      Conference registration                195
      Departure tax                           20
                                          ------
                                          $2,942
                                          ------
      

10. In the following year, the year of income ended 30 June 1983, the Pharmaceutical Society arranged its Seventh Annual Pharmacy Refresher Course in Malaysia, with the format being no greatly different to that which appertained in 1982. Again the taxpayer attended. On 1 June 1983, she left Melbourne for Kuala Lumpur where a number of formal sessions were held, and from there travelled on to Penang where the bulk of the conference took place. On 11 June she returned to Australia.

11. In her taxation return for the 1983 year of income, she claimed the following expenditures as relating to the conference:

                                                $
      Air fares Melbourne/Kuala Lumpur
        and return, via Penang                 754
      Accommodation                            965
      Travel insurance                          43
      Meals                                    132
      Conference registration                  195
      Departure tax                             20
                                            ------
                                            $2,109
                                            ------
      

12. In processing her returns for the two years in issue, the Commissioner wholly disallowed the above detailed claims of $2,942 and $2,109, on the basis that they did not come within the ambit of sec. 51(1) of the Income Tax Assessment Act 1936. The taxpayer objected to that action and, upon her objections being disallowed, the matter has come before this Board for review.

13. A perusal of the taxpayer's notices of objection reveal that she has put her case upon alternative grounds, viz.:

• (i) that the amounts expended in attending the conferences were outgoings incurred by her in gaining or producing the assessable income; or
• (ii) that the amounts were necessarily incurred by her in carrying on a business for the purpose of gaining or producing assessable income.

14. The word ``business'' is defined in sec. 6(1) to mean:

``... any profession, trade, employment, vocation or calling, but does not include occupation as an employee.''

Accordingly, if the taxpayer in the instant case was in fact the employee of A and of B, she could not be said to be carrying on a business as a pharmacist. The matter is of relevance because the test of deductibility is different for outgoings incurred in carrying on a business as compared with outgoings incurred in gaining or producing assessable income. In the case of
Ronpibon Tin N.L. v. F.C. of T. (1949) 78 C.L.R. 47, it was stated by the Full High Court at p. 56 as follows:

``The word `business' is defined by s. 6(1) to include profession, trade, employment, vocation or calling, but not occupation as an employee. The alternative in s. 51(1) therefore covers a wide description of activities. But in actual working it can add but little to the operation of the leading words, `losses or outgoings to the extent to which they are incurred in gaining or producing the assessable income'. No doubt the expression `in carrying on a business for the purpose of gaining or producing' lays down a test that is different from that implied by the words `in gaining or producing'. But these latter words have a very wide operation and will cover almost all the ground occupied by the alternative.''

That pronouncement has been subsequently confirmed in a number of cases, of which
F.C. of T. v. Snowden & Willson Pty. Ltd. (1958) 99 C.L.R. 431 at p. 436 and
A.G.C. (Advances) Ltd. v. F.C. of T. 75 ATC 4057, are perhaps the most well known. However, the fact remains that the second part of sec. 51(1), i.e. the provision dealing with carrying on a business, called colloquially the second limb, was inserted in the Assessment Act at a later stage than the first limb, and because the two limbs do not cover the same ground it is possible for deductions not allowable under the first limb to be allowed under the second limb (see dicta of Menzies J. in
F.C. of T. v. Maddalena 71 ATC 4161 at p. 4163, also dicta of Fullagar J. in

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John Fairfax & Sons Pty. Ltd. v. F.C. of T. (1958-1959) 101 C.L.R. 30 at p. 40, and more recently dicta of Wilson. J. in
F.C. of T. v. Forsyth 81 ATC 4157 at p. 4161). Certainly, as regards the application by the Courts (and Boards of Review) of sec. 51(1) to claims for travelling expenses, the wider basis of the second limb seems to have been acknowledged. Thus, a distinction seems to have evolved between the claims of employees and those of self-employed persons (see recent comments of Dr P. Gerber in Case S37,
85 ATC 320).

15. That distinction was doubtless very much in the mind of the taxpayer's representative for one of his main submissions was that the taxpayer was self-employed. He pointed to the fact that there is a continual demand by pharmacists for locums, stemming in part from the legal requirement that a pharmacist cannot be absent from his or her work premises unless a qualified pharmacist is left in charge. Due to B's poor state of health, it seems that he was not able to work full-time on a regular basis. It seems that the bulk of the taxpayer's duties took place in the dispensary where she made up the scrips, dispensed medicines and gave advice to customers on minor ailments. B told us that the taxpayer carried out all of the above duties without any direction from him. In giving her evidence, the taxpayer told us that B was never at the practice when she was there. Thus, as the only pharmacist on the premises, she contended that she had full and complete control over all work done on those premises.

16. On the other hand, the Commissioner's representative submitted that both A and B had a legal right to control the manner in which the taxpayer did her work, even though they may not have given detailed instructions to her because of her professional status and her many years of experience as a practising pharmacist. As authority for that proposition, he referred us to
Zuijs v. Wirth Brothers Pty. Ltd. (1955) 93 C.L.R. 561. There, the respondent company resisted a claim by the appellant, an acrobat, for compensation in respect of injuries suffered in the circus owned by it. The ground upon which Wirths sought to escape liability was that the appellant was not employed under a contract of service, and that the appellant did not fall within any special provision bringing him within the appropriate workers' compensation legislation. The argument advanced in support of that proposition was that the work which the appellant performed as an acrobat involved the exercise of special skills and judgment of such high order that the respondent was not able to control or interfere in its performance. Hence, it was argued that the arrangement between the parties was not a contract of service but an independent contract. The Full High Court, however, rejected that line of argument. It ruled that the fact that the work to be performed under a contract involved special skills so as to preclude the other party from interfering in the performance of that work did not show that the agreement was not a contract of service. It considered that the nature of the duties to be performed might be such so as to leave little room for direction or command in detail, but it held that so long as there was lawful authority to command, though the scope for it be limited, the work is performed under a contract of service and not an independent contract.

17. Thus, the notion of control for the purposes of establishing whether a relationship of master and servant exists in a particular situation is concerned with overall control rather than direction or control in detail. Whether the relationship of master and servant can be said to exist between two parties is a question of fact to be determined according to the circumstances of each individual case (see
Simmons v. Heath Laundry Co. (1910) 1 K.B. 543 at pp. 549 and 550). In the situation before us there seems little doubt that at various times, according to their need of the services of the taxpayer, both A and B selected her to assist them in their practices, and that there reposed in them the right to control her activities for the time that she worked for them. Also, it seems to us that the taxpayer would have been legally bound to comply with directions as to when she would attend and the hours that she would work. Furthermore, both A and B could have terminated the arrangement when they wished (which was true also of the taxpayer). In summary, it seems to us that there existed between A and the taxpayer, and between B and the taxpayer, all the indicia of an employer/employee relationship.

18. The fact that the taxpayer could take on locum jobs whenever she wished, as opposed to maintaining continuity in the one job (as is the situation with the normal salaried employee) is not, we consider, to the point. Nor is the matter that, so far as the pharmacy's customers were

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concerned, she seemed to take the place of the pharmacy's proprietor. The essential fact remains that she did not hold herself out as the proprietor, nor lawfully could she; her legal status for all of the times that she worked at A's pharmacy and at B's pharmacy was that of employee.

19. Accordingly, it is our view that it is only open to the taxpayer to argue the first limb of sec. 51(1), viz. that the expenditures in issue were incurred by her in gaining or producing her assessable income, and it is to that matter that we now turn.

20. Any examination by a court or a Board of Review of the operation of sec. 51(1), in regard to a claim for deduction of travelling expenses incurred by an employee taxpayer, inevitably involves a scrutiny of
C. of T. v. Finn (1961) 106 C.L.R. 60, where the Full High Court decided in favour of the taxpayer. There, he was a senior design architect employed by the Public Works Department of Western Australia. He had accumulated a considerable amount of leave, and of his own volition went on an overseas tour for the purpose of studying current trends in architecture with a view to improving his prospects of future promotion. At the request of his employer, he varied his itinerary to include a visit to South America, and the employer paid the additional costs incurred in making that extension. The taxpayer claimed the expenses which he himself incurred under sec. 51(1). Windeyer J., in agreeing with the principal judgment of Dixon C.J., stated at p. 70:

``Generally speaking, it seems to me, a taxpayer who gains income by the exercise of his skill in some profession or calling and who incurs expenses in maintaining or increasing his learning, knowledge, experience and ability in that profession or calling necessarily incurs those expenses in carrying on his profession or calling.''

21. If the decision in Finn had depended upon that pronouncement, it would seem that the taxpayer in the instant case should obtain the deductions sought by her. However, the above words of Windeyer J. are generally considered to be wider in scope than the bases of the other judgments of the Chief Justice and Kitto J. (see
F.C. of T. v. Wilkinson 83 ATC 4295 at p. 4300). In an analysis of Finn and of
F.C. of T. v. Hatchett 71 ATC 4184, the Supreme Court of New South Wales in the person of Helsham J. in
F.C. of T. v. White 75 ATC 4018, 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. 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.''

22. In our view, neither of the criteria formulated by Helsham J. are present in the situation of the taxpayer before us. She did not incur the expenditures in issue in carrying out her duties as did Mr Finn, for the evidence disclosed that she attended the conferences in both years in her own time and at her own expense. Also, during the times that she was out of Australia she was, on the particular basis that she worked, unemployed. Furthermore, the expenditures in issue could not be said to have a direct effect on her income. As will be remembered, the taxpayer was paid according to an award, and that remained undisturbed by any considerations as to whether the recipient had incurred expenses in order to update her knowledge. We consider it true to say that, through the time and considerable expense involved in updating her knowledge, the taxpayer would always be a strong contender for any locum position, but that situation does not provide a basis for deductibility under sec. 51. Nor does the contention advanced by her representative that if she had not spent money on updating, it should have been impossible for her to obtain locum work. The courts have held in a considerable number of cases that the fact that a particular expense is a necessary prerequisite to the gaining of assessable income is itself insufficient to bring that expenditure within the positive limbs of sec. 51(1) (see
F.C. of T. v. Green (1950) 81 C.L.R. 313 at pp. 317 and 318,
Lunney v. F.C. of T.; Hayley v.

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F.C. of T. (1957-1958) 100 C.L.R. 478, also
Martin v. F.C. of T. 83 ATC 4722).

23. For the reasons detailed above, we uphold the Commissioner's action in disallowing the taxpayer's objections and we confirm the assessments.

Claims disallowed