Case U189

Members:
PM Roach SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 9 October 1987.

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P.M. Roach (Senior Member)

These five applications for review of determinations of the Commissioner of Taxation made upon a consideration of objections to assessments of income tax relate to the years of income ended 30 June 1981 to 1985 inclusive. The matters come before this Tribunal pursuant to requests for reference made in the years 1983, 1984, 1985 (twice) and 1986. They relate to the affairs of a medical practitioner who at all material times was employed in the hospital service in the public health system. In some years he derived income as a servant of as many as three hospital authorities and in some periods he rendered service to authorities at more than two places. During most of the years under review he was seeking advancement to specialist status within his profession and was moving towards being granted a fellowship in the Royal Australian College of Physicians ("the College"). He was progressing towards that goal by the development of his professional skills, both as he worked and as he studied. His preparation for admission to the fellowship included attendances at public hospitals other than those at which he was currently employed. His principal, successive full-time appointments were with hospitals which I shall refer to as "Alpha" and "Omega". While on the staff of Alpha Hospital he was "seconded" to serve at "Beta" Hospital under the control of another authority. As Beta was more distant from his home than Alpha, the applicant's expenses of travelling between his home and place of work in that period were increased.

2. While in the service of Alpha Hospital the applicant submitted himself for examination by the College. The examination program called for the applicant to first succeed in a written examination held mid-year. If successful, he was entitled to submit himself for oral examination in the following September and, if necessary, the March next following. If unsuccessful, the examination program would have to be recommenced. Having first passed the written examination, the applicant submitted himself for examination orally in September 1980 and March 1981 but on each occasion was unsuccessful. In mid-1981 he again successfully completed the written examination but that success was followed by further failures in the oral examination in September 1981 and March 1982. In mid-1982 he again qualified to submit himself to oral examination but in September 1982 and March 1983 he again failed the oral examinations. By that time, having failed on no less than six

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occasions to pass the oral examinations, he determined to take a year off. His view of the matter at that time was that his problem in oral examination was not lack of knowledge or proficiency, but rather inability to communicate his knowledge and demonstrate his proficiency to his examiners. The oral examinations required that he should examine a child patient in the presence of the child's parent and his examiners and other observers and then explain and, as appropriate, demonstrate his assessment and recommendations and defend them in dialogue with his examiners. That called for not only effective communication with his examiners but also an easy and effective relationship with the child in order to successfully examine the patient without unnecessarily disturbing the child. The applicant found difficulty in those things to the point that on one occasion his nervousness was such that he was temporarily unable to speak to his examiners. During this period he took the counsel of an intelligent woman: the mother of a colleague and a teacher. She recommended that he consult an actress and drama teacher. He took the advice and from about March 1984 until the next oral examinations in September of that year - he again qualified by written examination in mid-March 1984 - he took weekly lessons from the lady at her suburban premises. Instruction took place on a "one-to-one" basis. Lessons lasted 1 ½ hours and were paid for ordinarily on the occasion of each lesson. Lessons usually took place on Saturday morning and on those occasions he travelled from his home for that purpose. I accept the applicant's estimate that on two of the 23 occasions he travelled from hospital to attend the class and then returned to his hospital duties; that on nine occasions, having travelled to class from his home, he then went on to hospital duties; and that on 12 occasions he would have returned home after travelling to the class from his home. In September 1984, the first occasion on which he was able to attempt the examination after commencing the course of personal development, he was successful and from there he was able to continue his advancement towards fellowship status with the College. I am satisfied that the seeking of fellowship status is an activity which is likely to generate an increased level of future assessable income for the applicant from within his profession, both in the sense that it is likely to open up more highly paid positions in hospital employment and also bring, from those who largely control the financial dimensions of private practice, the recognition which will result in a greater reward for his efforts.

3. The performance of all the professionally related activities of the applicant called for the extensive use of a motor vehicle. He used the motor vehicle:

• (A) to travel on a routine basis between his home and the principal hospital at which he was employed;
• (B) to travel between his home and Beta Hospital when he was temporarily seconded there by Alpha Hospital;
• (C) to travel "on call" to hospitals out of ordinary hours when called on;
• (D) to travel between hospitals at which he was concurrently employed;
• (E) to travel to hospitals in which he was undertaking professional training although not employed there; and
• (F) for the few months during 1984 to travel to and from his drama lessons.

4. When his income tax returns were presented, no claim was made for any deduction for motor vehicle expenses incurred in what the applicant considered to be the ordinary course of travelling between his home and place of employment (class A). However, claims were made under all other heads and some details were provided in relation to each head of claim, although the presentation was not always consistent. In the earlier years the Commissioner disallowed portions only of the claims made, but in later years he disallowed the claims so made in their entirety. However, by the commencement of the hearing the scope of the dispute had been much reduced. The applicant abandoned a claim to a deduction for the expenses of travelling 12,480 kilometres in order to attend at Beta Hospital: more remote from his home (class B). It seems that in the course of preparing for the hearing, the applicant had discovered that he was entitled to a "travelling allowance" to compensate him for the additional expenses incurred in so travelling. I was not asked to consider what tax consequences will flow from any payment or when they will flow. Further, except as hereafter specified, the Commissioner had conceded all other heads of claim. Amended assessments have issued accordingly. There

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being no dispute as to distances travelled under each category or as to the expenses of operating the motor vehicle, the only issues which need to be resolved in relation to motor vehicle expenses are claims to have travelled "on call" in the years ended 30 June 1983, 1984 and 1985 (class C); to have travelled from home to training hospitals at which he was not concurrently employed in order to prepare himself for examinations (class E); and for the costs of travelling to and from his drama lessons (class F).

5. At the hearing, the evidence of the applicant established that the cost of the drama lessons and attendant motor vehicle expenses had been incurred over two consecutive years and not, as claimed, during only the former of those years. In consequence it was contended for the Commissioner that, if the applicant succeeded at all, he could only be successful in relation to so much of the claimed costs as were incurred in the earlier year; and that nothing could be allowed in relation to the balance incurred in the later year. The problem is not an uncommon one and illustrates the strictness of the rules to be applied in the determination of taxable income for each year and the rigour of the procedural rules to be applied. As the last day for objecting to the 1985 assessment occurred prior to 1 July 1986, the Tribunal has no power to extend time to enable a new issue to be brought into existence (Taxation Boards of Review (Transfer of Jurisdiction) Act 1986 sec. 221). It is, in some sense, understandable that no claim in relation to the drama lessons should have been made until such time as success had been achieved in examinations. As the taxpayer's 1984 return was not prepared and lodged until December 1984 - after success had been had in the oral examinations - it is understandable that the question should then have arisen. However, even so, had the question been considered, it should have been obvious that the losses and outgoings in question were incurred over the two years. Further, it should have been realised that success in the examinations was not essential to the deductibility of the expenses claimed. Nor did success in the examinations make deductible what would not have been deductible without such success. The taxable income for the 1984 year has to be determined by reference to the events and expectations of that year. Furthermore, in this instance, as the unallowable portion for claim relates to the fifth year in a series of five years under objection and as this determination will be handed down within a period of three years from the date on which tax would have become due and payable under the fifth assessment, if the applicant succeeds at all it will be at least open to the applicant to request the Commissioner to exercise his discretion under sec. 170(4) of the Income Tax Assessment Act 1936 ("the Act") to effect a reduced amendment to his 1985 assessment.

6. That being so, I address the question as to whether the drama lessons and attendant motor vehicle expenses are allowable at all in the circumstances of the applicant. I find the question as to the deductibility of the cost of drama lessons difficult. I bear in mind the observation of Menzies J. in
F.C. of T. v. Hatchett 71 ATC 4184 at pp. 4186-4187, when his Honour said:

"It must be a rare case where an outgoing incurred in gaining assessable income is also an outgoing of a private nature. In most cases the categories would seem to be exclusive. So, for instance, the payment of medical expenses is of a private nature and is not incurred in gaining assessable income, notwithstanding that sickness would prevent the earning of income."

7. Even before that decision in the High Court of Australia, a Taxation Board of Review in Case M10
(1961) 12 T.B.R.D. 69 had denied to the agent for a life assurance society a deduction in relation to a "Dale Carnegie Course" in which he had received instruction and training in what the course prospectus described is "effective speaking, leadership training and human relations". A decade after the decision in Hatchett (ante), another Taxation Board of Review reached the same conclusion in relation to expenses incurred by a sales representative in receiving from a hypnotherapist speech therapy treatment to overcome a speech impediment. In neither case did the Board embark upon any attempt to explain why the cost of developing communication skills should be denied to persons in such circumstances when they are allowable to some other specialists in communications, such as singers and actors. I also bear in mind other decisions: a Regular Army Officer was denied the cost of regulation style haircuts (Case L61,
79 ATC 488); the

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many medical appliance cases where deductions under sec. 51 of the Act have been denied in relation to the cost of medical appliances essential to enable disabled persons to earn their income - a quadriplegic law lecturer (Case P31,
82 ATC 141); a quadriplegic school teacher (Case R72,
84 ATC 506) Yet, the costs to a professional footballer of playing squash (Case J3,
77 ATC 39); and even of eating steak and drinking beer (Case T31,
86 ATC 290), have been allowed. I do not consider all the decisions are capable of being reconciled.

8. Other difficulties can easily be imagined. If the applicant had incurred expense in mastering a second language so that he might more effectively render medical service to patients within a particular ethnic group, the claim might well have been allowed. On the other hand, it is far from clear that the claims a migrant practitioner who undertook speech training in order to overcome the communication difficulties with patients occasioned by his heavy accent would have been allowable.

9. However, having weighed all of these considerations, I am not persuaded that the expense incurred by this applicant was not "private" in nature. The difficulties experienced by the applicant were highly personal in nature. They were not a function of his professional skill and capacity, but rather personality characteristics which impacted on his professional life. In this instance, they affected it adversely. In my view, the expenses incurred in relation to the drama lessons were "private" in character and are not deductible. It follows that the motor vehicle expenses related to the drama lessons are not deductible.

10. However, as to all other motor vehicle expenses which have been claimed and which remain in dispute, I am satisfied that the expenses are allowable. For the Commissioner, it was contended that, unlike the computer consultant in
F.C. of T. v. Collings 76 ATC 4254, the applicant did not maintain at his home any operation comparable to the computer terminal maintained at home by the computer consultant. Further, it was contended that, because for the most part calls requiring the applicant's attention resulted in him physically attending at the hospital, that indicated that such calls were rather more comparable to summonses to return to work than calls requiring the assumption of responsibility on the part of the applicant from the time of the making of the calls. I reject those contentions. The applicant had a responsibility for the welfare of persons and sometimes human lives were at stake. I find nothing to criticise in the thought that perhaps he was more diligent or concerned than some others might have been about the discharge of those responsibilities and that he perhaps too frequently in the eyes of some may have responded by attending at the hospital when some telephone instruction to subordinates might have sufficed. Better too often than too late. It is pre-eminently a case in which the principle should be applied that it is not for the Commissioner to tell a taxpayer how much he ought to spend, but only to determine how much he has expended. I am satisfied that, when he was called as to the treatment of a patient, he became personally and professionally responsible for the care of that patient and, that being so, that he in all respects satisfied the tests laid down by the House of Lords in
Pook v. Owen (1970) A.C. 244.

11. Not all travelling claimed related to such "on call" situations. Some clearly related to circumstances in which he attended training sessions in preparation for the examinations he was about to undertake. In my view, the circumstances that his attendance at those sessions was not directly and immediately productive of income is not of critical significance. I am satisfied that by the very act of attending such courses he was engaged in the development of his professional skills and that the development of those skills was an integral part of the manner in which he was then practising his profession (cf.
F.C. of T. v. Finn (1961) 106 C.L.R. 60). It is no answer to propose that some medical practitioners did not seek to develop specialist skills. Accordingly, I would allow all the claims for motor vehicle expenses with the exception of those claimed in relation to the drama lessons.

12. In consequence, the order of the Tribunal will be that the decisions of the Commissioner upon the objections under review be varied by reducing:

• (a) the assessments for the years of income ended 30 June 1980 and 1981 to $27,218 and $33,363;
• (b) the amended assessments made 9 September 1978 in respect of the years of

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  income ended 30 June 1983, 1984 and 1985 to $34,136; $36,807; and $52,194.

13. Before concluding, I wish to add a few words on procedural considerations which this case (among others) has brought to my attention. The case of the applicant was heard in the week preceding the date upon which Statutory Rule No. 181 of 1987 was made, taking effect from 17 September 1987. That caused me to reflect yet again on the interrelationship between substantive law and procedural rules in relation to matters of litigation. I hold firmly to the view that the objective of all procedural rules, in tax litigation as in every other type of litigation, ought to be to assist in providing for all who act reasonably in seeking it, a just determination in accordance with prescriptions of substantive law. I also hold firmly to the view that it is part of the responsibility of courts and Tribunals charged with the administration of the law to draw attention to situations in which procedural rules work to deny justice rather than promote it. In tax litigation, for the first 50 years of operation of the 1936 Act, two procedural considerations frequently worked to effect injustice. They were the strictly limited periods of 60 days defined as the period allowed within which to object or request reference or the institution of an appeal (cf. sec. 185 and 187(1) of the Act); and the provision that "the taxpayer shall be limited to the grounds stated in his objection" (sec. 190(a)). Provision was made in the Taxation Boards of Review (Transfer of Jurisdiction) Act 1986 for the harshness of those inflexible rules to be relieved.

The same legislation abolished the requirement that any fee should be payable as a condition precedent to disputing before the courts or this Tribunal any decision of the Commissioner of Taxation disallowing an objection. That brought that aspect of tax litigation into line with other fields of litigation in which demands were made in the name of the community against individuals. The provision which was repealed by that legislation had required that a fee of two dollars be paid when requesting reference for independent review. That fee had been fixed as a fee of "one pound" by the 1936 Act. When the Commissioner set out the text of the 1936 Act (and of the 1922 Act which it replaced) in a handbook of 272 pages in the way of an "Explanatory Handbook Showing the Differences Between (the Acts)", the Commissioner made the following comment on the new provision:

"The deposit for an appeal or reference to the Board of Review has been fixed at one pound. There was under the previous Act no deposit demanded for an appeal to a Court, but in the case of a reference to the Board of Review, the regulations prescribed a minimum of one pound and a maximum of fifty pounds, the calculation being based upon 1% of the amount in dispute, according to the circumstances of the type of case involved. It is considered that the simple prescription in the Act itself for a fixed deposit of one pound will be sufficient to prevent frivolous or unreasonable appeals or references, and save the Department from the work of preparing and transmitting unnecessary cases. The matter of refunding or retaining the deposit is made automatic, being dependent upon a reduction being secured in the assessment."

In 1936 it would seem that it was never imagined that delays in tax litigation could necessitate the raising of objections and the making of requests for reference year by year over periods of several years. Further, the objective in fixing a fee was seen to be directed only to the prevention of "frivolous and unreasonable appeals".

14. In the next half-century there were dramatic changes. The scope of income tax was greatly extended and the law was made vastly more complicated, thereby greatly increasing the scope for disputes. The number of persons affected by assessments of income tax greatly increased and the sum of two dollars came to be quite insignificant in the affairs of all but the poorest in the community. However, with abolition of the fee, payment of money ceased to be a precondition to any challenge to a decision of the Commissioner.

That situation was not to long remain. By an amendment to the Taxation Administration Act 1953 (No. 154 of 1986) with effect from 1 March 1987 that Act was amended to provide:

"14ZAC(1) Where a person who is dissatisfied with an objection decision lodges with, or sends to, the Commissioner (whether or not within 60 days after service on the person of notice of the decision) a

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request to refer the decision to the Tribunal or a court under a relevant enactment, the request shall be accompanied by the required fee.

(2) If the request is not accompanied by the required fee, then, notwithstanding any provision to the contrary contained in the relevant enactment, the request shall be taken not to have been lodged with, or sent to, the Commissioner."

Section 14ZAB provided that:

"In this Part, unless the contrary intention appears -

• ...
• `required fee', in relation to a request to refer an objection decision to the Tribunal or a court, means $200 or, if another amount is, at the time when the request is lodged with, or sent to, the Commissioner, payable under the regulations made under the Administrative Appeals Tribunal Act 1975 as the fee in respect of an application made to the Tribunal under sub-section 188A(3) of the Income Tax Assessment Act 1936, that other amount."

15. In consequence, if the requests for reference which came before the Tribunal on behalf of this applicant had been lodged following 1 March 1987, the applicant would have been required to raise $1,000 in fees in order to institute his challenge.

16. But the matter does not end there. As a result of the proclamation of Statutory Rule No. 181 of 1987 - Administrative Appeals Tribunal Regulations - had the applicant instituted his requests for reference at the date of this decision, the amount required to be prepaid in fees would have been $1,200. That sum, together with the tax in dispute, would then have been at risk.

17. At least for an applicant of the professional status of this applicant, it is not likely that it would have been beyond his capacity to raise fees in such amounts had he chosen to do so. However, even he might well have felt that the fee was, and was intended as, a deterrent and constituted a quite excessive demand as the fee to be paid to have the benefit of a single member Tribunal being constituted at a hearing for no more than a three hour matter. He might have wondered why he should have to pay such fees to have an independent assessment of his disputes with one of the most powerful officials of Government when the community would provide for the independent determination of his more substantial dispute with a tradesman for only a nominal fee.

18. I mention these matters because I am concerned that already the fixing of such fees as prerequisites to securing an independent review of the Commissioner's decisions is working to deny such an independent review to many and, thereby, justice in assessment to some. I appreciate that the fee appears to have been set uniformly for all applications to this Tribunal, but the appearance of fairness in that regard is largely illusory. In many instances where applicants are making claims on the public purse for financial support (e.g. "personal income maintenance" issues), they are exempt from the fee. Further, the fee is usually only payable once for each applicant. In addition, a family unit is usually only called on to pay the fee once. In other areas, where multiple and/or successive fees may be called for, the applications usually relate to commercial operations in which the fee comes to be tax deductible in any event. In other major fields of the Tribunal, such as deportation matters and some freedom of information matters, where questions of personal status are involved, once again the fee usually only has to be paid once. My understanding is that very few applicants outside the Taxation Appeals Division have been called on to pay more than one fee to the Tribunal and that they have been major trading organisations.

19. But as this case illustrates, that is far from being commonly so in income taxation matters. For this taxpayer five years were involved (currently fees of $1,200). Had the same issues touched the affairs of a partnership, the fees could have been $2,400 assuming only two partners; or as many multiples of $1,200 as there were partners.

20. What is more, all would have been incurred with a view only to providing one single member hearing of less than three hours.

21. Nor does the matter end there. If this applicant had needed today to seek from the Tribunal an extension of time within which to object to the assessments or to request reference

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to the Tribunal for independent review, he would have been required to pay fees totalling $1,200 and to suffer the loss of the whole of that sum if his applications to extend time - probably determined upon no more than a 30 minute Directions Hearing - had been unsuccessful.

22. It may be that there are circumstances in which no price is too high to pay for justice. I doubt that the Parliament intends that that should apply in the administration of the tax litigation system. I express the hope that the Parliament will give its attention to the matter and consider alternatives and more just and efficient solutions to the problems sought to be resolved by the imposition of such fees.