CASE Y54

Members:
KL Beddoe

Tribunal:
Administrative Appeals Tribunal

Decision date: 1 November 1991

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KL Beddoe (Senior Member)

The applicant seeks a review of an objection decision disallowing an objection dated 16 March 1990 in which the applicant claims a deduction amounting to $32,502 as self education expenses under sub-section 51(1) of the Income Tax Assessment Act 1936 (``the Act'').

2. The basis for the claim could not be substantiated in full before this Tribunal. The applicant seeks a deduction be allowed in respect of an amount of $29,212 only. No issue arose before me as to the balance. During the course of the hearing, however, I drew attention to the fact that the claim included an amount of $937 for depreciation. The respondent's representative advised the Tribunal that the respondent conceded that this amount was deductible under s. 54 of the Act if the Tribunal decided that the balance of the claim is deductible under s. 51. Given that the Notice of Objection does not raise any grounds under s. 54 of the Act it may be a long bow to accept that the amount of $937 could be allowed. However, in view of the respondent's concession I am prepared to infer that the Notice of Objection raises s. 54 of the Act because the claim is clearly made for depreciation.

3. The detail of the claim is set out in the Notice of Objection as follows (edited to maintain confidentiality): -

                                                             $
      Tuition Fees -  University                           24,260
      Less                                                    250
                                                          --------
                                                           24,010
      Accommodation at University                           5,368
      Travel to University City                             1,730
      * Photocopying                                          140
      * Stationery                                            116
      * Taxis for field trips                                  59
      * Telephone                                              90
      Depreciation of Computer                                937
      * Replacement of HP5C Calculator                         52
                                                          ---------
                                                          $32,502
                                                          ---------
      

^*Items conceded by the applicant at the hearing.

4. Evidence was given before the Tribunal by the applicant and also by an officer of the applicant's employer. The parties had also agreed to certain material facts (Exhibit A).

5. The taxpayer graduated with a Bachelor of Engineering degree in December 1976 and from that time occupied a number of positions as an employee of coal mining companies, in due course obtaining his under manager's certificate and eventually becoming a mine manager in 1984. Although the parties agreed that the applicant's occupation or profession was mine manager, the evidence before this Tribunal does not support that agreed fact. It is clear enough that the applicant followed the occupation of mine manager for many years but his profession is more correctly described as mining engineer. My basis for coming to this conclusion is the evidence of the applicant and also folio 25 in Document T3 which sets out the professional association fees paid by the applicant during the year ended 30 June 1989.

6. The applicant gave evidence that he had been encouraged by various people to not only obtain an engineering degree but also to equip himself as a manager by undertaking management studies. In this regard the applicant having been a mine manager from 1984 had by September 1987 submitted various applications for admission to overseas Master of Business Administration programs. Those applications had resulted in his being accepted to a United States University. His enrolment at that University as a full time student was assisted, it might be said, by the fact that he was retrenched as a mine manager by his then

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ATC 473

employer when that employer decided to close or sell a number of its mines. The applicant's evidence indicated that the retrenchment was with his consent. I formed the view from his evidence that he may not have been retrenched if he had resisted that action, but as he pointed out in his evidence he was the youngest of the mine managers employed by the company and therefore at risk of being retrenched. Prior to his retrenchment, and also prior to his acceptance of the offer of a place by the University, the applicant had discussions with another mining company with a view to his employment by that company. While it would be true to say that those discussions were promising from the applicant's point of view it would be incorrect to say, on the evidence, that he obtained a firm promise of employment as a result of those discussions.

7. Following his retrenchment from employment at the end of July 1988 the applicant commenced the Master of Business Administration program at the University in September 1988 and completed the course of study in June 1990 after 21 months of full time study.

8. Prior to completion of the studies the applicant received and accepted an offer of employment as a mine manager from the mining company with which he had had discussions in early 1988. Upon completion of his studies he commenced full time employment with that mining company in August 1990. The terms and conditions of that employment are set out in a document which forms part of Exhibit C. The applicant's designation in his new position is that of General Mine Manager. This position carries a significantly increased salary when compared to his previous position.

9. The applicant's representative relies upon the decision of the High Court in
FC of T v Finn (1961) 12 ATD 348; (1961) 106 CLR 60 relying particularly upon the dicta of Dixon CJ. She submitted that it was not necessary that the taxpayer be able to demonstrate derivation of relevant assessable income in the year in which the allowable deduction is claimed and it was only necessary for the applicant to demonstrate an expectation of additional assessable income being derived because of the studies pursued by the taxpayer.

10. The respondent's representative relied upon a whole series of authorities which the respondent claims point in the opposite direction. It is now trite to say, as was suggested by Ormiston J in
FC of T v Klan 85 ATC 4060 that the decisions in the self education cases appear to be confusing and need to be reconsidered. As I have said previously this Tribunal is bound to apply the law as it has been interpreted by the courts and it is not appropriate that the Tribunal undertake a review which is clearly the responsibility of an appeal court.

11. Although she did not cite his Honour's judgment, the applicant's representative really relied on dicta of Windeyer J in Finn's Case at p. 70 where his Honour said:

``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.''

That dicta of his Honour sums up very succinctly the basis on which the applicant makes his claim.

12. I have previously reviewed what might be termed the leading authorities in this area in Case T78,
86 ATC 1094 and I do not need to repeat such an analysis here because my reasons in Case T78 apply mutatis mutandis to the present case.

13. I do, however, need to give consideration to a subsequent decision of this Tribunal in Case W97,
89 ATC 803. The taxpayer in that case was a qualified engineer who undertook a one year full time Master of Business Administration degree. Prior to travelling overseas the taxpayer was employed as a civil engineer with managerial duties but while studying was on leave without pay from his employment. The taxpayer's reason for undertaking the course was that he felt he needed more general business expertise if he were to be promoted to a more senior position with his employer. Apparently the employer was not overly impressed and did not provide any financial assistance to the taxpayer but had given him leave without pay from his employment with an understanding that when he returned to Australia a job would be

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ATC 474

available for him. The Tribunal found that although the taxpayer had made enquiries regarding other employment upon his return to Australia he had not specifically contemplated carrying on business as a consultant. As it transpired upon his return to Australia he established himself as a business consultant. At p. 807 the Tribunal found that the taxpayer was by profession a civil engineer and the work that he was undertaking for his employer was of an engineering nature to which was allied certain management responsibilities. The taxpayer sought to move into areas of management expertise, not into areas of engineering expertise. The Tribunal therefore came to a conclusion ``that what the taxpayer was seeking to do was to move into a different area of employment involvement that was consistent with his being a qualified engineer for which qualifications he had initially been employed''. That decision is therefore clearly distinguished on its facts from the present case.

14. The respondent's representative asks the Tribunal to follow the decision in Case W97. For the following reasons I am unable to do so.

15. In my view the applicant is correctly described as a professional mining engineer with particular expertise in management of coal mines. That was his expertise prior to his enrolment in the Master of Business Administration course and the evidence before me establishes that that is still his expertise and also his occupation as a mine manager in his present position. This applicant has not sought to move into other areas of expertise but has merely sought to increase his learning knowledge experience and ability in his profession as a mining engineer specialised in managing coal mines.

16. The decision in
FC of T v Kropp 76 ATC 4406 makes it clear that it is not fatal to the claim that the applicant terminated his employment before going overseas to undertake the course of study. Nor, in my view, is it fatal to his claim that he resumed employment in Australia as a mining manager with a different employer upon completion of the course. He was a mine manager before he left Australia and he became a mine manager (on an increased salary and in a more responsible position) upon his return to Australia. He did not seek to change his expertise or the nature of his occupation. All he did was to seek to increase his expertise with a view to increasing his assessable income. The evidence establishes that he succeeded although as Finn's Case shows it is the expectation rather than the result which is the relevant test.

17. It follows therefore that there is a sufficient connection between the outgoings incurred in undertaking the Master of Business Administration course and the applicant's assessable income derived as a mine manager thereby bringing the outgoings within the first positive limb of sub-section 51(1) of the Act. It is now beyond argument that such outgoings cannot be characterised as being of a capital nature
FC of T v Hatchett 71 ATC 4184). On my findings it cannot be said that the amount claimed is of a private or domestic nature.

18. The parties agreed that section 82A of the Act applies and the claimed amount has been reduced by $250.

19. The objection decision under review will be set aside and the objection allowed in part by allowing a deduction for outgoings and depreciation totalling $29,212.