Ariyasinghe, Ex parte - Re Min for Immig & Anor
[2000] HCATrans 415
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Sydney No S252 of 1999
B e t w e e n -
COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Appellant
and
ANDREW PAYNE
Respondent
GLEESON CJ
GAUDRON J
GUMMOW J
KIRBY J
HAYNE J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON THURSDAY, 3 AUGUST 2000, AT 12.18 PM
Copyright in the High Court of Australia
MR D.H. BLOOM, QC: May it please the Court, I appear with my learned friend, MR S.W. GIBB, SC, for the appellant. (instructed by the Australian Government Solicitor)
MR D.F. JACKSON, QC: If the Court please, I appear with my learned friends, MR D.B. McGOVERN and MR A.J. O’BRIEN, for the respondent. (instructed by Locke Harris McHugh)
GLEESON CJ: Yes, Mr Bloom. We will sit till 1 o’clock and we will resume again at 2 o’clock.
MR BLOOM: If your Honours please. There is the subject of my learned friend’s notice of contention. Do your Honours wish to deal with that first?
GLEESON CJ: You take in whatever order is convenient to you.
MR BLOOM: I think it might be best, if your Honours please, to deal with that first and perhaps we should move to contend.
KIRBY J: You are opposing, are you?
MR BLOOM: Yes, your Honour, we are opposing.
KIRBY J: Was this matter raised before the Administrative Appeals Tribunal?
MR BLOOM: No, your Honour.
KIRBY J: Because I thought there is an assertion that it was.
MR BLOOM: Well, it was not raised, your Honour.
KIRBY J: What does the decision in Glennan say? Is that a decision of the Full Court of the Federal Court?
MR BLOOM: It is, your Honour.
KIRBY J: And it says unless you raise it before the Administrative Appeals Tribunal, you cannot raise it - - -
MR BLOOM: Then I think, to use the words of Justice Gummow, “it is extremely difficult to say that the Tribunal erred in law in not dealing with it.”
KIRBY J: Why is not the Tribunal expected to know the law, and apply the law?
MR BLOOM: The matter was never raised before the Tribunal, and the Tribunal was never put in a position to make the necessary findings of fact that are necessary in order for the proposition which is put to be made out. The proposition your Honour understands is one that, because of section 170BA of the Tax Act, if the law applies in a publicly ruled way, in a fashion which is different to the way the law itself applies, and that is more favourable to the taxpayer, then the Commissioner is bound to apply the law in accordance with the ruling. But the ruling was never raised before the Tribunal and the Tribunal was never asked to make any of the findings of fact which are necessary before section 170BA can be said to apply.
KIRBY J: So the ruling does not, in the absence of a determination of the issue by the Tribunal, become binding on the Commissioner by virtue of the provisions of the Act in respect of rulings?
MR BLOOM: That is correct, your Honour. What must be the case is that there is an arrangement. It must be an arrangement which has been entered into after the date of commencement of the statute and, in this case, at least two of the years proceed the commencement of the statute, and that distinction is not made by our learned friends.
The arrangement ruled on must be one which the taxpayer can then show himself to come within, and that would have required, in this case, a finding by the Tribunal which has not yet been made as to the relevance of the fact that he resided at his farm ‑ ‑ ‑
KIRBY J: Does the Act talk in terms of reliance on a ruling, does it?
MR BLOOM: No, it does not, your Honour, but it talks about – perhaps I should take you to the provisions. They are annexed to our submission in reply.
KIRBY J: Well, I do not know whether the members of the Court want to hear Mr Jackson first. He might want to get his spoke in first.
MR BLOOM: I am in the Court’s hands.
GLEESON CJ: Mr Bloom, this is not a matter that was raised in any of the courts below?
MR BLOOM: It was raised in the Full Court of the Federal Court.
GLEESON CJ: Well, it is a point on which Mr Jackson says he was entitled to succeed in the court below.
MR BLOOM: Well, it was not raised in the AAT and it was not raised before the trial judge.
GLEESON CJ: I mean by that the Full Court of the Federal Court.
MR BLOOM: It was raised for the first time in the Full Court of the Federal Court.
GLEESON CJ: Well, the ordinary way of dealing with a matter such as that would be to hear the appellant first on the ground of appeal that the appellant seeks to pursue and then we can hear the additional ground on which the respondent says he is entitled to succeed in due course.
MR BLOOM: I am content with that order, if your Honour please.
GLEESON CJ: So that produces the not uncongenial result that we can go fairly quickly to the merits.
MR BLOOM: Yes, your Honour. Your Honour, there is on the appeal a very short and precise issue, namely, whether the expenses of travel between two places of unrelated income production are, because the travel is between those two points, within one or other of the first and second positive limbs of section 51(1) and the way that issue arose so discreetly can be demonstrated from the Full Court’s majority judgment below and if I could ask your Honours, do your Honour have a preference for the Federal Court Report of the appeal book?
GLEESON CJ: Why do not you give references to both, if you can.
MR BLOOM: Those references are set out in our submissions, if your Honour please.
GLEESON CJ: We will go to the appeal book.
MR BLOOM: The appeal book.
KIRBY J: Just to get it clear in my mind, are we concerned with that provision at the end for private purposes?
MR BLOOM: No, solely the positive limbs.
KIRBY J: I see.
MR BLOOM: If your Honours go to 365 at the commencement of the majority judgment in volume 2, paragraph 16:
The taxpayer had two sources of assessable income in the financial years 30 June 1991 to 30 June 1994. One was his salary as a pilot employed by Qantas. The other was his earnings from a deer farming business conducted by him on a property at Duri, near Tamworth, where he also resided.
The issue before the Administrative Appeals Tribunal (“AAT”) was whether the taxpayer was entitled to deduct the cost of travel between the farm property and the airport at Mascot, and associated accommodation expenses, as “outgoings ... incurred in gaining or producing the assessable income” within the first limb of s 51(1).....If that issue were found in favour of the taxpayer, the AAT would have had to determine whether the outgoings were nonetheless of a “private or domestic nature” so as to be excepted from what would otherwise have been the operation of s 51(1). There is no necessary antipathy between a loss or outgoing incurred in gaining or producing assessable income, and loss or outgoing of a private nature.....
The AAT broke the issue down into two subsidiary questions:
. First, are expenses incurred in travel between two places of unrelated income derivation “incurred in gaining.....
. Second, if the answer to the first question is in the affirmative, what, if any, bearing does the existence of the taxpayer’s residence at one of those places have upon the matter?
The AAT answered the first question in the negative and did not find it necessary to answer the second. The negative answer to the first question was sufficient to defeat the taxpayer’s claim.
Then if your Honours go to page 375 paragraph 43:
Because the AAT has not yet expressed any conclusion on the second of the questions it identified (par 18), we are required to deal with the matter upon the basis that the essential character of the travelling expenses here in question is that of expenses incurred in travelling between two places of income derivation, for the purpose of deriving assessable income at each place. It was a fact that the taxpayer resided in one of the two places, but the AAT rejected his claim simply on the basis that travel expenses between two unrelated places of income derivation are not deductible under s 51(1) of the Assessment Act. Thus the fact that the taxpayer resided at the deer farm was irrelevant to the AAT’s conclusion. Consistently with the AAT’s approach, it was the Commissioner’s contention in this Court that no deduction was available to the taxpayer, irrespective of the answer which might be given to the second question.
GLEESON CJ: Has anybody at any stage in these proceedings contended for any possible apportionment?
MR BLOOM: That would be the case if the matter went back to the Tribunal, your Honour. The fact of residence would then raise the question of whether there should be an apportionment and, if so, of course, to what extent.
KIRBY J: Why would it?
MR BLOOM: Because the taxpayer’s residence at the farm may mean that when he is returning home from the airport, notwithstanding that he also has a business there, but in part, the outgoing is a private nature because it permits him to return to where he dwells.
KIRBY J: I just observe that that seems to be contrary to Tax Ruling 95/19, but I have no doubt you will deal with that in due course.
MR BLOOM: May I say this, it is not ‑ ‑ ‑
KIRBY J: At the very least that is a very embarrassing ruling from your point of view, it seems to me.
MR BLOOM: I wish I could say on behalf of the Commission that it is the only embarrassing ruling, your Honour. But, rulings are given ‑ ‑ ‑
KIRBY J: I am only concerned with this case at the moment.
MR BLOOM: Rulings are given in a spirit of intended assistance and sometimes they do not get everything perfect. But this ruling does quite clearly say that a different situation pertains if the taxpayer resides at one of the two places of income earning. In that sense, although the Tribunal found that there was sufficient ambiguity in the preceding non-binding ruling, IT 2199, that not being a ruling to which the private party system applied, and reduced, therefore, penalties to zero as a result of those ambiguities, it cannot be said, with respect, that there is anything more than ambiguities in them. There is certainly nothing concrete ‑ ‑ ‑
KIRBY J: I have taken you off your track.
MR BLOOM: Then at paragraph 62, at page 382, under the heading “Further Conduct of the Proceedings”, the majority having held that travel between two such places is capable of giving rise to expenses which are deductible, said:
It follows from what we have said that the appeal fails –
That was the Commissioner’s appeal –
However, the matter should be remitted to the AAT for determination according to law, rather than according to the reasons of the learned primary Judge, since our reasons differ in some respects from his.
This means that the AAT should approach the case on the basis of the expenses of travel by a taxpayer between a place of business and another place of employment are capable of constituting allowable deductions pursuant to s 51(1) of the Assessment Act.
GAUDRON J: That does not seem to me to say “and vice versa”, does it?
MR BLOOM: No, but it has always been thought, your Honour, that even in the case of travelling from home to work that the vice versa follows from the travel to. The English cases and the Australian cases say that one ought not make a distinction between to and fro.
GAUDRON J: But I am just wondering whether there is a distinction between travel between a place of business and a place of employment that does not exist between a place of employment and a place of business.
MR BLOOM: Well, particularly here where there is the factor of residence. The factor of residence, of course, is not a factor which troubles this Court, it is only if this Court upholds the majority decision below and says that this travel, because it is between two points of income production, albeit unrelated, is deductible, that the matter will go back to the AAT and the question of private will come up.
GLEESON CJ: Did the majority hold, not only that it is capable of being deductible, but that in the facts of the present case the only thing that might stop it being deductible is the residence aspect?
MR BLOOM: That must be, reading properly, what they held, yes, your Honour, the latter.
GLEESON CJ: So the only issue that requires further consideration or reconsideration or examination by the AAT if it goes back there, or by whatever body it now goes back to, will be whether or not the fact of residence means that instead of being wholly allowable, it is only partly allowable, or perhaps even not allowable at all by reason of the fact of residence.
MR BLOOM: Yes, to the extent to which the private or domestic limb, negative limb comes in.
GUMMOW J: Is that right? It goes back to the AAT. Why cannot they then deal with the ruling? You are not going back to a trial court. It is going back to an administrative one.
MR BLOOM: It may well be, if leave is sought to amend the objection, and the matter is raised properly, that that would be a result, your Honour, yes.
GUMMOW J: Yes.
MR BLOOM: But we are only dealing with its appropriateness in this Court, with respect.
GUMMOW J: No, we are trying to work out consequences of what happens here.
MR BLOOM: Yes. Yes, your Honour.
GUMMOW J: What I am putting to you is that a consequence of what happens here could be a reopening of the matter in the AAT.
MR BLOOM: Yes, your Honour, on that issue, too, yes.
GLEESON CJ: So there are, leaving aside the significance of the ruling, there are three possible outcomes of the decision of this Court. We might hold, putting the ruling to one side, that on the facts of this case the Commissioner is right and the travelling expenses are not allowable at all or we might hold that, subject to whatever problem arises out of the fact of residence, the travelling expenses are allowable deductions. Is anybody contending for a third possibility which is that we might hold that the travelling expenses are allowable, regardless of the factor of residence?
MR BLOOM: We are certainly not contending for that possibility and I do not understand my learned friends to be contending for it unless they can rely upon the ruling point.
GLEESON CJ: Thank you.
MR BLOOM: Now, your Honours see the balance of paragraphs 62, 63.
HAYNE J: What do you say we should understand by the last two sentences of 63? You had stopped reading at “that allowable deductions pursuant to 51(1)”. What do we understand the majority to be saying was to go back to the AAT?
MR BLOOM: The question of the extent to which the fact of his residence at one of the two places would impact upon a conclusion, either that the expenditure was properly within the first limbs, or that it should not be excluded by the negative limbs.
HAYNE J: Excluded wholly or in part.
MR BLOOM: Or in part, your Honour, yes. Either.
KIRBY J: It sounds a bit ethereal. I mean, the fact is that his place of residence happens to be one of the places of income production.
MR BLOOM: Yes, your Honour.
KIRBY J: I mean, it is not an astonishing idea. He has made more income by going to the other place of earning, namely Qantas, and you have the benefit of that extra income. If he did not go there you would not have it.
MR BLOOM: But that must be so with everybody with a second job, with respect, your Honour, and it is indeed so with everybody with just one job. It is necessary to get to work. Indeed, it is necessary to clothe oneself, to feed oneself and to take medicine from time to time.
KIRBY J: Not everybody works over the premises.
MR BLOOM: No. Not any longer.
KIRBY J: Yes, exactly.
MR BLOOM: As Lord Denning points out so colourfully in one of the cases to which we will be referring, but it nonetheless is the case, with respect, that in the development of this area of the law, it has been recognised that the need to get to work, which is obviously an essential prerequisite, does not confer upon the costs of getting to work, deductibility, because those costs are not incurred in gaining or producing the assessable income. That is certainly so going to one place of work and it is the same, in our submission, whether one is going from place A to different place B. It still remains a prerequisite to the earning of income and not something in the course of.
GUMMOW J: Mr Bloom, just so you can take it on board, it seems to me that the notice of contention on one way of looking at it is really an application to rescind special leave.
MR BLOOM: Yes, your Honour, and the point was not raised at the application for special leave in this case of course.
GUMMOW J: Because we are not resolving the controversy.
MR BLOOM: No.
GUMMOW J: We are just writing some academic article.
MR BLOOM: On a very important point because if ‑ ‑ ‑
GUMMOW J: Maybe.
MR BLOOM: If your Honours were to uphold the majority, then the matter goes back but if ‑ ‑ ‑
GUMMOW J: As the matter stood in the Full Court, it was going back to the Tribunal.
MR BLOOM: Yes, but if your Honours were to uphold the minority ‑ ‑ ‑
GUMMOW J: We are being invited to avoid that situation.
MR BLOOM: Yes.
GLEESON CJ: If you are right, the conclusion is that, regardless of the fact of residence, this claim for deduction fails.
MR BLOOM: Yes, your Honour, cannot succeed because it has travel between two unrelated ‑ ‑ ‑
GUMMOW J: Even in the face of the ruling?
MR BLOOM: Even in the face of the ruling, but that is because in this particular case there was no attempt to argue the binding nature of the ruling not only before the Tribunal but before the trial judge on appeal from the Tribunal. It was not even a ground of appeal.
KIRBY J: Is it too late for that to be ‑ ‑ ‑
MR BLOOM: Yes, your Honour.
GUMMOW J: It is not too late because it is going to go back to the Tribunal.
MR BLOOM: If it goes back to the Tribunal it is not too late, yes.
GUMMOW J: It is the nature of the administrative process and we are being invited to disrupt that, but I will not say any more about it. That seems to me what is going on.
MR BLOOM: But the Full Court ‑ ‑ ‑
KIRBY J: If you win and the Tribunal is upheld, that is the end of the matter, whereas if you ‑ ‑ ‑
MR BLOOM: Yes, that is the way the case has been conducted to this point and nothing was said at the special leave application about the possibility of raising this point, but the majority of the Full Court dealt with this at page 383, the next page, your Honours:
The taxpayer contended that the AAT committed an error of law in failing to determine whether the Commissioner was obliged to issue an assessment in accordance with public ruling TR95/19 if the public ruling was contrary to law. In view of the conclusion which we have reached, it is not necessary for detailed consideration to be given to the various problems which are or may be associated with the taxation ruling. It is sufficient to say that this matter was not raised before AAT for its determination and that this may well be an insurmountable barrier to the taxpayer being able to rely on the point in this Court.
GUMMOW J: “in this Court”.
MR BLOOM: Yes. Your Honours, of course the facts as found, although they make reference to “residence”, do not include any findings of fact by the Tribunal necessary to underpin the second question that it did not get to, which is what effect does residence have on all of the above? Those same findings of fact are essential before one gets, with respect, to the ruling – absolutely essential.
Your Honours, the findings of fact are set out at page 2 of our written submissions in paragraph 4 and they make it quite clear that the taxpayer was carrying on a serious business at his farm, that he needed to travel from the farm to Mascot when he did work as a Qantas pilot – he was a captain – that the farm generated substantial income, required dedication of much time, skill and experience and that it was his habit to do something about the business before he took off to the airport and he would go immediately from the airport back to the farm and do something associated with that business before he went into the home.
KIRBY J: What if he was very very tired? We just ignore that, do we?
MR BLOOM: I think it is fair to say that if there is a little exploration of these facts, it would still be necessary.
KIRBY J: But we can act on your fact summary and on the additional seven that are in the respondent’s submissions.
MR BLOOM: Not the additional seven, your Honour. Some of those additional seven, as we have pointed out, are comprehended within the Federal Court’s statement of defence, as found by the AAT. Others are statements - more statements of fact by the taxpayer in his own statements before the Tribunal, which have not yet been commented upon in argument as to whether or not they should be accepted, given other evidence. That sort of thing.
KIRBY J: The Tribunal said the facts were not relevantly in dispute.
MR BLOOM: No, and those facts not relevantly in dispute are the paragraphs set out in our paragraph numbered 4 – paragraphs (a) to (i). They were the facts that were not in dispute, and they were the Federal Court’s finding of what facts the AAT had found.
KIRBY J: At some stage, seeing as you do not dispute some of them, it might be helpful just to have identified which ones specifically and only you object to.
MR BLOOM: We have done so in our written reply, if your Honours please, and I can simply give your Honour a reference to those – paragraph 7 of the submissions in reply. If your Honour pleases.
Your Honours are concerned, of course, with section 51(1). We have set it out at the top of page 5 of our written submissions. It has been replaced in the 1997 Act by section 8-1, and we have annexed that. Your Honours do not need to go to it. The same issues arise, namely, whether the loss of outgoing is incurred in gaining or producing the assessable income or necessarily incurred in carrying on a business for such a purpose.
Now, may I take your Honours first, in terms in authorities, to Green’s Case. It was a decision of the High Court (1950) 81 CLR 313.
GLEESON CJ: Thank you.
MR BLOOM: An appeal from Justice Philp of the Supreme Court of Queensland. And it appears the judgment was delivered orally by Sir John Latham on the day of the hearing. Interestingly, Justice Kitto was one of those who sat, because he was also one of those in the majority judgment in Lunny v Hayley, the major case in this area and in Lunney v Hayley, in that majority judgment, and despite the fact that it had been cited to the Court, Green’s Case was not referred to at all, but I take you to it because it is an unusual case. It may be thought, on one view, to find some support to the case for our learned friends. If your Honours go to page 314 of the report, it is an appeal to the High Court from a decision of Justice Philp:
The taxpayer, William Herbert Green, who resided in Brisbane, was a director of seven companies and was supervising a pharmacy in Brisbane on behalf of a chemist who was absent on war service. From his directorships he received ,500 and from the pharmacy ,250. He was the owner of five shops in North Queensland, one at Cairns and four at Townsville, from which he received in rents ,1,850. In addition, he received dividends as a shareholder in two companies, interest on moneys owing by purchasers, and secured, by mortgages, on two pharmacies sold by him. For the purpose of keeping permanent records of his various transactions, the taxpayer employed an accountant at Townsville to keep and audit books of account. For keeping and auditing the books, preparing his income‑tax returns and advising on income‑tax matters, he paid the account ,35 13s. He also paid his daughter –
who was obviously worth much more than the accountant:
,150 for clerical work performed by her on his behalf. She performed this work in an office at his home and the work consisted of keeping business books of accounts, attending to correspondence, making appointments in his absence and other similar duties. The taxpayer managed all his own affairs –
and this is very important:
and maintained a properly equipped office at his residence. Besides claiming deductions for the moneys paid to the accountant and his daughter he also claimed ,15 15s. 6d. as the fair proportion of travelling expenses in visiting Townsville and Cairns attending to his interests in the shop premises at those places.
Now, the Commissioner disallowed those various amounts and Justice Philp upheld the objections to all of them. If one goes to page 315 – and this helps to understand the judgment of the Court, with respect – one sees that Mr Hanger, who was appearing for the Commissioner, at the forefront of his submissions, submitted that there was no business and in case their Honours were in any doubt he submitted it some seven or eight times and no doubt their Honours got the message that that was his submission.
Mr Wanstall for the respondent put it, firstly, on the basis of “a properly equipped office at his residence” showing that that he was carrying on a business but then said that it did not matter and the High Court said, “We agree. It does not matter because you do not have to have a business to get deductions under section 51(1). Then a judgment was delivered by Sir John Latham and at 319, the first full paragraph, “His Honour”, that is Justice Philp:
found that it was reasonably necessary for the taxpayer to keep books and records and to have them audited and to have a person in attendance in Brisbane to deal with matters affecting his financial affairs which arose during his absence from Brisbane, and his Honour held that it was reasonably necessary to inspect and supervise from time to time the properties from which rents were derived. The evidence supported these findings. The expenditure, a deduction of which is claimed, was incurred in relation to the management of the income‑producing enterprises of the taxpayer. If this is so it is immaterial that there might be a difficulty in holding that the taxpayer was carrying on in a continuous manner an identifiable business of some particular description.
Section 51, it should be observed, is not limited to deductions from income derived as being the proceeds of a business. Section 51 is a general provision relating to deductions claimable in relation to expenses, losses or outgoings incurred in gaining or producing any income whatever and not merely in relation to income derived from a business.
Then we have given your Honours the reference to the judgment of Justice Philp which is in volume 9 of the Australasian Taxation Decisions.
KIRBY J: Can I just ask those words “in relation to” are very wide and somewhat general words. The actual words of the statute are “in gaining”.
MR BLOOM: “In gaining”, yes, and it is to those words that the Court, in fact, returns, if I may say so, in Lunney and focuses upon those words in excluding the travel expenses that were there sought for deduction. Justice Philp’s judgment contains this passage at 144, last paragraph:
As to the sum of ^15 15s 6d claimed – the appellant owned four rented shop properties in Townsville and one in Cairns. He made an annual visit to these cities combining his person business with Church and Masonic business. So far as his personal business is concerned he allocated to it for travelling expenses the said of ^15 15s 6d which would scarcely cover his train fares. The question is “Is a taxpayer who owns such a number of rented properties entitled to deduct travelling expenses to inspect them and keep in touch with his tenants”? Each case must depend upon its own circumstances and I feel that in respect of this appellant such an expenditure is something incidental and relevant to his gaining taxable income.
KIRBY J: Again “incidental to”.
MR BLOOM: “Incidental” and “relevant” are the words, of course, that were used by the High Court in Ronpibon but when we get to Lunney the High Court said as interesting as those words may be they do not stop us from needing to go to the statute and needing to look at whether this was incurred in gaining or producing. Then there is a reference at page 146 to the fact that the judgment of Sir John Latham was an oral judgment.
GUMMOW J: What is wrong with that?
MR BLOOM: There is nothing wrong with it, your Honour, indeed, it is to be commended, with respect, but it is simply the case that it was an extemp judgment based upon the findings of fact below, one of which included that the taxpayer in relation to his rental properties maintained “a properly equipped office” at his home, so that he was travelling, on one view, in the course of the income‑producing activities, which were the rental property administration, if one likes, even though it did not amount to a business. I am not suggesting, with respect to your Honour, that the judgment lacks anything because it was oral but ‑ ‑ ‑
GUMMOW J: Why do you keep referring to it? You have referred to it four times, now.
MR BLOOM: I think only three, to be fair, your Honour, or four now, yes, your Honour.
Lunney and Hayley, your Honours, 100 CLR page 478. There was a case stated by Justice Kitto. Mr Lunney was a ship’s joiner by occupation and he reported to Darling Harbour for work, Monday to Friday. He resided at Narraweena, and in the statement of the case at page 479, about point 8:
The sole purpose of the appellant’s morning journey as aforesaid is to get from his residence at Narraweena to the said office of the company at no. 11 Darling Harbour, and to enable him to fulfil the requirement of reporting at the said office of the company at the commencement of each day’s work, and the sole purpose of the appellant’s afternoon journey as aforesaid is to get from the said office of the company to his residence at Narraweena.
The question stated for the Full Court is set out just above the reference to Mr Hayley’s case:
Is the said sum of sixty-two pounds (£62) deductible either wholly or in part from the assessable income of the appellant under the Income Tax and Social Services Contribution Assessment Act 1936-1956?
Mr Hayley was a dentist, he had a residence in Strathfield and rooms in Macquarie Street. At page 481 the stated case shows that, at about point 4:
The sole purpose of the appellant’s morning journey…..at Strathfield to his rooms at 183 Macquarie Street Sydney, and to be available at the said rooms to carry on his professional practice, and the sole purpose of the appellant’s afternoon journey as aforesaid is to get from his rooms at 183 Macquarie Street Sydney, to his residence at Strathfield.
The question stated is the same question, but a different amount at the bottom of that page and over to page 482.
GLEESON CJ: I notice that in the argument of Sir Garfield Barwick, appearing for the Commissioner on page 483, a little over halfway down the page, he says:
The necessity to go to the employment from some place is not dictated by the employment or its nature or duties but by the place of living.
MR BLOOM: Yes, your Honour.
GLEESON CJ: He returns to that theme on 484 in the middle of the page where he says:
There is a certain universality in this problem. The English authorities show that the travelling to the place of employment or of labour arises out of and is occasioned by the place of residence ‑ ‑ ‑
MR BLOOM: Yes.
GLEESON CJ: Which I think is the point that Lord Denning made.
MR BLOOM: Yes, in Newsom v Robertson. The case, however, for Sir Garfield, if one returns to page 483, the case Sir Garfield put, was put on two bases: firstly:
Amounts spent on fares whether to an employment for a master or to a business amounting to self-employment are not outgoings incurred in gaining an assessable income or necessarily incurred in carrying on a business. Further they are in fact of a private or domestic nature within the exception to s.51(1).
Of course, the fact that one is going to and from where one lives may be most relevant to that second, but it is not the basis upon which, in our respectful submission, their Honours went on to hold that the expenses were non-deductible because of the positive limbs.
Indeed, if one takes the sentence reporting the argument that your Honour the Chief Justice just read to me and one replaces the word “living” with “place of other employment”, the same result, in our submission, in terms of 51(1), positive limbs flows. The necessity to go to the employment from some place is not dictated by the employment or its natures or duties, but by the place of departure.
GUMMOW J: Well, it is both, is it not? This is not mind shatteringly attractive reasoning. It is both.
MR BLOOM: I think the distinction Sir Garfield was seeking to make then was – and the Court does make in Lunney – between travel where the job requires it, the job itself, the duties, require travel. A commercial traveller, for instance, or a solicitor who goes from one office to another office in order to conduct his practice, he is travelling, as the English cases have said, on work.
GUMMOW J: Or to enable you to get to the place where you have to get to in order to earn your money.
MR BLOOM: But we all have to do that, with respect, your Honour.
GUMMOW J: Yes.
MR BLOOM: And it is a prerequisite therefore to the earning of assessable income but it does not make it incurred in the earning of assessable income, and that is the point.
KIRBY J: I suppose to some extent you rely on those words at the end of Chief Justice Dixon’s reasons at 486, uncharacteristically strong language:
If the whole subject is to be ripped up now it is for the legislature and not the Court to do it.
MR BLOOM: Yes.
KIRBY J: But his Honour did say that he had to confess that if he was starting over again, bare reason would lead to another conclusion. One of the suggestions of the respondent is that things have really changed significantly in employment, in the nature of employment, in part‑time employment, in dual employment, and that provides the reason to look again at some of these authorities.
MR BLOOM: If one were examining the question of what effect residence has on the distance that one has to travel ‑ ‑ ‑
KIRBY J: See, a lot of people do work at home now. With computers more and more will work at home.
MR BLOOM: Certainly, and therefore have no need really to travel to a place of employment.
KIRBY J: They might have to do a bit of travelling.
MR BLOOM: The computer example is an example of people going back to work above the shop or above chambers.
GLEESON CJ: Mr Bloom, I realise that you would almost certainly have made arrangements that mean that the question I am about to ask is academic, but assuming that you were bearing your travelling expenses to come here to argue in this Court, and assuming you came here straight from home and not from chambers, would the whole of those expenses be an allowable deduction?
MR BLOOM: If I came from home?
GLEESON CJ: Yes.
MR BLOOM: If I did not go via chambers to pick up my wig?
GLEESON CJ: Yes.
MR BLOOM: Yes, your Honour, because that would be a trip that started at chambers, took me home and then down to Canberra. At least I would so argue, your Honour.
GAUDRON J: Perhaps if you took your wig home.
MR BLOOM: Yes, and my robes.
GAUDRON J: And your robes.
MR BLOOM: And my appeal books.
KIRBY J: And had your dinner and read the paper.
MR BLOOM: Yes, I have not the slightest doubt that ‑ ‑ ‑
GAUDRON J: Because you have your equipment with you, you might ‑ ‑ ‑
GLEESON CJ: I only gave the example to suggest the possibility that the distinction between travelling to work and travelling in work or on work is not necessarily one that provides a simple answer to all problems.
MR BLOOM: There is a need perhaps to work it out as a factual question, which it is, and the answer to your Honour’s question is, in terms of the facts, that would be travelling on work because one is really travelling whether with or without one’s equipment from chambers effectively to the Court, even if ‑ ‑ ‑
KIRBY J: But I thought there was evidence here that Captain Payne had his uniform and he had various things that he travelled with.
MR BLOOM: Yes, but no reliance was placed upon that.
KIRBY J: I am just trying to test it by the answer you gave the Chief Justice. Why are barristers given a special protection, not pilots?
MR BLOOM: We should not be, your Honour; we should not be given anything special.
KIRBY J: Pilots are just as important if you are up there in the planes.
MR BLOOM: The barrister is taking his robes and his wig and his books of appeal to go to a court where he is appearing in the course of the same profession.
GUMMOW J: Let us get rid of the wig. Suppose it is going to be heard in chambers.
MR BLOOM: In chambers?
GUMMOW J: Yes.
GLEESON CJ: What might be more important is not where he carries his wig; it is where he carries his brief. Suppose he takes his brief home, works on it at the weekend, then gets the plane down to Canberra and argues the case.
MR BLOOM: Travelling on work, we would say, your Honour. It would be silly, with respect, to require him to go back into chambers in order to make that the point of departure for the court in the other State or Territory but that, of course, is not the case.
GUMMOW J: It seems to me that logic is not going to help you. The only thing that really helps you are the considerations that moved Sir Owen Dixon.
MR BLOOM: Mr Hannan’s statement at page 430.
GUMMOW J: No. No. What moved Sir Owen Dixon at page 486.
GLEESON CJ: The proposition there has been too much water under the bridge.
MR BLOOM: Yes, but that is not an issue ‑ ‑ ‑
GUMMOW J: You will not get far appealing, as far as I am concerned, to pure reason as supporting all of this.
MR BLOOM: No, well, your Honour, particularly is that is so when every judge of the Federal Court and the High Court who comes to consider the principle underlying Lunney and Hayley keeps saying how illogical and unreasonable it is. So I think it is very difficult for me, at this point, to try to support it on either of those two bases. Your Honour, I see it is one o’clock.
GLEESON CJ: We will adjourn until 2 pm.
MR BLOOM: If your Honour pleases.
AT 12.59 PM LUNCHEON ADJOURNMENT
UPON RESUMING AT 2.01 PM:
GLEESON CJ: Yes, Mr Bloom.
MR BLOOM: Thank you, your Honour. If I might return to Lunney 100 CLR, in Sir Owen Dixon’s judgment 485, your Honours will see that he said:
These two cases stated raise a question of income tax law which has been accepted as settled for the last two generations. It is whether the fares paid by ordinary people to enable them to go day by day to their regular place of employment or business and back to their homes are deductible expenses allowable against the assessable income earned by the employment or business.
Both in Australia and in England the view has always prevailed that expenses of travelling from home to work or business and back again are not deductible. An explanation of how this came about in England is given by Denning L.J. in Newsom v Robertson.
The position as it has been understood to be is stated in the work of the late Dr Hannan, “Principles of Income Taxation” pp. 306, 433.
If I could hand your Honours page 433. Page 306 deals with the private exception, this deals with the positive limbs. As your Honours will see under the heading “Travelling Expenses”, at about the middle of the page:
Instances of travelling costs which were held not to be admissible deductions have been given in Chapter 25 (Private and Personal Expenses). In those cases the expenditure was incurred in connection with the earning of assessable income, but not in the course of earning it. Although the decisions were given under provisions of British legislation which were superficially more restrictive than those of the Commonwealth Act, it is very doubtful whether an Australian taxpayer could successfully claim a deduction in any similar circumstances.
Then over the page in Sir Owen Dixon’s judgment at 486, he says as much:
These views have remained unquestioned up till this case. The relevant provisions of the English Income Tax Acts are not in the same terms as those of the Australian law, but the whole course of English authority involves a like conclusion. To escape from the course of reasoning on which the decisions proceed requires the taking of refined and rather insubstantial distinctions.
GLEESON CJ: Is this the same kind of idea as behind clothing? Let us say, obviously you have to buy yourself some clothes to turn up decently to work, but unless you have to buy a special uniform or some protective clothing or something like that, you do not get a tax deduction for it.
MR BLOOM: Yes, and behind food and medicine, it is that it is ‑ not just that it is a personal expense and comes under the negative limbs but ‑ ‑ ‑
GUMMOW J: Well, we had a footballer who had to eat more.
MR BLOOM: Yes, your Honour, Mr Cooper, and I will come to his case. The additional cost of, I think, beer recommended to increase his weight.
GUMMOW J: Steak.
MR BLOOM: And steak, but I think beer was in there as well, your Honour, and that was a very hard order apparently for Mr Cooper to obey, but the additional costs were not deductible and, again, as your Honours will see, on two bases, two bases distilled from Lunney, the first being that it did not come within the positive limbs, the second, as a further or additional basis, that it fell within the negative limb.
Now, Justice McTiernan dissented in Lunney. He was of the view that the necessity to incur it meant that travelling to work, even from home, ought to justify deductibility and in his view it was incidental and relevant and that was sufficient to justify it and at 491 he distinguishes Green:
In that case –
he is talking about a case in Victoria –
as in Federal Commissioner of Taxation v Green the taxpayer carried on business at his residence. In the present case the taxpayer did not. That is the fine distinction on which the present case turns. Conceding even that the travelling expenses in question were incurred by the taxpayer in gaining or producing the income from his employment, it is said against him that they are not allowable deductions because they are.....private –
So his Honour would have allowed the deductions of travelling to and from work. At page 495 he says:
The fact that the expenses in the case of either taxpayer are incurred solely and necessarily for the purpose of travelling to the taxpayer’s employment may in all the circumstances of the case be sufficient to justify the conclusion that such expenses are incurred in gaining the taxpayer’s income and are not “of a private or domestic nature” ‑
so both –
In this case that conclusion is in my opinion amply justified by the facts –
Now, the joint judgment, Justices Williams, Kitto and Taylor, as I said, your Honours, made no reference to Green. If I can just give your Honours a reference to the majority’s judgment. They wrongly attributed a reference to Green at page 487 to the majority in Lunney, whereas, in fact, it was a reference in the dissenting judgment of Justice McTiernan. It is at paragraph 57 at page 381 of the appeal book or paragraph 49 of page 450 of 90 FCR, and that may or may not be material your Honours, but, in any case, it is incorrect and we simply point it out for that reason.
I should say, your Honours, the reason why there is a difference in the paragraph numbering in the appeal book and in the Federal Court Report is that, wherever their Honours, in their published judgment, went into two paragraphs in one, the Federal Court assisted them by assigning a number to that second or third paragraph and so, bit by bit, the number of paragraphs, at least numbered paragraphs in the Federal Court Report, increased over the report. But your Honours will see at paragraph 57, at the top of page 381:
The AAT Senior Member also analysed a number of decisions permitting deductions for the cost of travel between two places of business. Of these, the most important are Commissioner of Taxation (Cth) v Green (1950) 81 CLR 313 (cited with apparent approval by the joint judgment in Lunney at 487) –
well, it is not the joint judgment. It, in fact, was Sir Edward’s judgment.
KIRBY J: What do you take from the lack of reference to Green in Lunney? Were they a little embarrassed about it?
MR BLOOM: I am a bit scared to say anything after what Justice Gummow said to me before, your Honour. I can merely say that, although Justice Kitto was on the Court in both instances, no reference was made to it. And what I would seek to have your Honours take from it, is that it dealt with entirely different factual circumstances, namely, someone who had an office which was relevant to his properties in Townsville, at his home in Brisbane, and was really travelling between those two and so could be said to be travelling “on work”, as opposed to be travelling “to work” And that is the essence, we think of the factual finding by Justice Philp and of the judgment of the High Court upholding it.
GLEESON CJ: Well, both the nature of a business or the nature of an employment might complicate the distinction between travelling “to work” and travelling “on work”.
MR BLOOM: Quite, your Honour, and there will be questions of fact in determining that issue and it will be a question - for instance, one of the English cases to which I will take your Honours shortly and briefly, Ricketts v Colquhoun, involved a barrister who travelled from London to perform the office of recorder at Portsmouth and it was held that they were not the same profession, notwithstanding that he needed to be a barrister in order to be a recorder and that, therefore, the costs of travel between those two places, backwards and forwards, were not deductable under the English Act.
Now, your Honours, at the bottom of page 495 in the joint judgment
The fact that s 51 was intended to deal with a great variety of items of expenditure made it inevitable that it should be couched in general terms and both that section and its immediate predecessor have been the subject of judicial consideration on a number of occasions.
Then at about point 4:
Yet, in the course of dealing with individual cases, it has been necessary to devote particular attention to the words “in gaining or producing the assessable income” and “incurred in carrying on a business for the purpose of gaining or producing such income” and to attempt to express precisely what those words mean.
At the bottom of the page, after referring to Amalgamated Zinc and W. Nevill:
This means that it must have been incurred in the course of gaining or producing the assessable income. It does not require that the purpose of the expenditure shall be the gaining or production of the income of that year.
Then over at 498:
The sense in which the appellants suggest that the expenditure in question in this case was incidental and relevant to the derivation of assessable income is well illustrated by the observations of Holroyd J. in In re The Income Tax Acts. In that case the learned judge was concerned, inter alia, with the question whether a taxpayer was entitled to claim as a deduction expenditure incurred in travelling to and fro between his private residence and the city of Melbourne where he performed duties which enabled him to earn fees as a director of the company. His Honour said: “These fees, like the profits of his business, are part of his income, and the money which he employs in travelling up to Melbourne in order to earn them is expended for the purpose of enabling him to earn his income and without paying those expenses, apparently, he could not earn it. I may say I do not understand the difference between the going and returning in such cases. If he goes to Melbourne, he comes back to where he lives; and in my opinion the expenses of going and returning are both necessary for the purpose of earning the money”. The question in that case was whether expenditure so incurred by the taxpayer was “wholly and exclusively expended for the purposes of his trade” and may, perhaps, be said to differ substantially from that which arises in the present case. Possibly, if the learned judge had been required to apply the provisions of a section similar in terms to s. 51 he would have found great difficulty in saying that the expenditure had been “incurred in gaining or producing” the taxpayer’s assessable income. The grounds for his Honour’s decision on the point did not, however, commend themselves entirely to the other two members of the court in that case and do not appear to have found acceptance on any other occasion on which not dissimilar problems have arisen for consideration.
The question whether the fares which were paid by the appellants are deductible under s. 51 should not and, indeed, cannot be solved simply by a process of reasoning which asserts that because expenditure on fares from a taxpayer’s residence to his place of employment or place of business is necessary if assessable income is to be derived, such expenditure must be regarded as “incidental and relevant” to the derivation of such income. No doubt both of the propositions involved in this contention may, in a limited sense, be conceded but it by no means follows that, in the words of the section, such expenditure is “incurred in gaining or producing the assessable income” or “necessarily incurred in carrying on a business for the purpose of gaining or producing such income”. It is, of course, beyond question that unless an employee attends at his place of employment he will not derive assessable income and, in one sense, he makes the journey to his place of employment in order that he may earn his income. But to say that expenditure on fares is a prerequisite to the earning of a taxpayer’s income is not to say that such expenditure is incurred in or in the course of gaining or producing his income. Whether or not it should be so characterised depends upon considerations which are concerned more with the essential character of the expenditure itself than with the fact that unless it is incurred an employee or a person pursuing a professional practice will not even begin to engage in those activities from which their respective incomes are derived.
The problem now before us was to some extent the subject of consideration I the recent case of Newsom v Robertson where, pursuant to the Income Tax Assessment Act –
in England –
the question was whether railway fares which had been paid by a professional man in respect of journeys between his home and his professional chambers constituted “money wholly and exclusively laid out or expended for the purposes of his profession”. It should be mentioned that in this case the additional fact appeared that the taxpayer consistently performed some of his professional duties at his home and the case was put as one in which the facts disclosed that the expenditure was incurred, not merely in travelling between his home and place of business, but, rather, in travelling between one place of business and another. Yet the taxpayer’s claim to a deduction was rejected both in the first instance and in the Court of Appeal.
Over the page they refer to Lord Denning’s ‑ ‑ ‑
GLEESON CJ: Before you go over the page, that quotation from Lord Justice Romer that:
The object of the journeys…..is not to enable the man to do his work, but to live away from it –
leaving to one side its applicability in modern conditions, could embrace the considerations relevant to both limbs of section 51, could it not? It is more obviously relevant to the second limb, but it could also apply to the first.
MR BLOOM: Yes, your Honour.
GLEESON CJ: It is only another way of saying his work did not require him to do the travelling.
MR BLOOM: Certainly.
GLEESON CJ: It was his living away from work that required him to do travelling.
MR BLOOM: Yes, your Honour. The fact of residence, the travel being to and from a residence is relevant both to the question of whether it comes within positive limbs and whether it goes out under the negative limbs. But the case as it is now before your Honours does not involve travel between residence and work but travel between two places of work, travel that we say, however, is not on work because it is not the same work. That is the difference.
Your Honours are familiar with the passage from Lord Denning’s judgment about the change in life for barristers who can no longer live over their chambers or ride to work on their horses, and I will not trouble your Honours again with that. But over the page at 501, they refer to some English cases, amongst them Ricketts v Colquhoun, and say:
No doubt the legislative provisions which required consideration in these cases were not identical with section 51, but the process of reasoning by which they were decided consistently rejects the notion that expenditure incurred by a taxpayer in order to travel from his home to his place of business is, in any sense, a business expenditure or an expenditure incurred in, or, in the course of, earning assessable income. Indeed they go further and refuse assent to the proposition that such expenditure is, in any relevant sense, incurred for the purpose of earning assessable income and unanimously accept the view that it is properly characterised as a personal or living expense. This view agrees with that which we, ourselves, entertain. Expenditure of this character is not by any process of reasoning a business expense; indeed, it possesses no attribute whatever capable of giving it the colour of a business expense. Nor can it be said to be incurred in gaining or producing…..or incurred in carrying on a business for the purpose of gaining or producing his income; at the most, it may be said to be a necessary consequence of living in one place and working in another.
Or, in this particular case, a necessary consequence of travelling from one place of work to a different place of work. There must always be a point of departure.
Your Honours, the propositions to be distilled from Lunney were applied by Sir Anthony Mason in Lodge 128 CLR 171 to the case of childminding expenses incurred by a taxpayer whose income was derived through the preparation as a contractor of solicitors’ bills of costs. It was quite clear that without the nursery fees that she paid she would not have been able to conduct the work that she had to conduct, but it was held that that did not give rise to an entitlement to a deduction and, although the purpose could be said to be the gaining or production of assessable income, it did not take place in or in the course of preparing bills of costs and, further, it was of a private nature. If your Honours would turn to page 174, the first full paragraph:
To qualify as an allowable deduction under s. 51(1) of the Income Tax Assessment Act 1936-1971 (Cth) it must appear that the item of expenditure was “incurred in gaining or producing assessable income” or was necessarily incurred “in carrying on…..The meaning of these expressions has been elucidated in a variety of cases, some of long standing. The expressions prescribe tests which are different, but the first expression covers almost all the ground occupied by the second.
Mr Aickin for the taxpayer has placed emphasis on the statements made in the decided cases which say that for an item of expenditure to fall within the first expression it must be incidental and relevant to the activities or operations carried on for the production of income. However, as Williams, Kitto and Taylor JJ. pointed out in Lunney v. Federal Commissioner of Taxation, these statements did not constitute “an exclusive and exhaustive test for ascertaining the extent of the operation of the section”. As their Honours observed, this is made clear by the judgment of the Court in Ronpibon –
and the incidental and relevant observation:
immediately followed by the observation is:
“The words ‘incurred in gaining or producing the assessable income’ mean in the course of gaining or producing such income.”
GLEESON CJ: In order to succeed in this case, you do not have to persuade us to follow Lodge, do you?
MR BLOOM: No, your Honour.
GLEESON CJ: There is an argument advanced by Mr Aickin in about the middle of page 172 that may not be entirely without its attraction concerning the absence of choice.
MR BLOOM: Yes, but, your Honour, if one comes to a test which is an essential character test – and that seems to be the test which Lunney puts forward ‑ ‑ ‑
GUMMOW J: Yes, I know, but what do you mean by “essential”?
MR BLOOM: Essential character, in this case ‑ ‑ ‑
GUMMOW J: In some platonic sense.
MR BLOOM: ‑ ‑ ‑ is very easy. Can you describe the expenditure as a working expense, or is it not? It will be a working expense if the duties are what cause it to be incurred. The duties, themselves, require the incurring of that expenditure, then that is a working expense.
KIRBY J: What about stand by in this case? Why does not the duty of stand by require that the respondent travel to Sydney and be near the airport and be standing by.
MR BLOOM: But that would happen whether he lived in a suburb right next to Mascot, your Honour.
KIRBY J: No. If he lived in the suburbs of Sydney, he would just hop on the train that day, but because he lives elsewhere, in order to fulfil his stand‑by duties, he has got to travel down on one occasion and had to take a plane, hire a plane.
MR BLOOM: But, your Honour, wherever he lives, he must travel in accordance with stand by and the evidence, I think, tends to suggest in any case, and it may not be a relevant circumstance, but that this man had achieved the rank of captain and was pretty well able to dictate what times he flew, what shifts he did so that it fitted in with the convenience of running the farm.
KIRBY J: I think we heard something different in Christie v Qantas. They have got a bidding system and it is not quite as simple as that.
MR BLOOM: And it depends on seniority.
KIRBY J: Anyway, these are not amongst the agreed facts. I do not think we have ‑ ‑ ‑
MR BLOOM: Well, your Honour, I think the findings of fact, Mr Gibb reminds me, as set out in our written submissions (e), in order to minimise the risk of being called from the property at short notice the taxpayer when placed on stand‑by duty usually travelled to and stayed in the vicinity of the airport for the duration of the stand‑by period, but I think also your Honour will find that was in the early part of the period with which we are concerned. If I could come back to essential character, that is the test which Lunney puts forward.
GUMMOW J: I know but what does it mean? It is just two words.
MR BLOOM: Well, in the case that your Honour reminded me of, the footballer’s case, it means that notwithstanding that it was considered by his coach that the extra bulk that he should get would enable him, I think, to break the line, was the expression – I wondered what else he may have broken but certainly the line is something that this encouraged him to do – notwithstanding that, it was held that that expenditure was not deductable because he was not paid to eat food and the eating of additional food, indeed, of any food, was not “in the course of”.
I see your Honours have the report. In the judgment of Justice Lockhart at 181:
The phrase “incurred in gaining or producing assessable income” in the first limb of s51(1) has been construed to mean “incurred in the course of”…..
For expenditure, to be an allowable deduction as an outgoing incurred in gaining or producing the assessable income, it must be incidental and relevant to that end…..This test of deductibility has been explained in subsequent judgments of the High Court, so that to be deductible the expenditure must be incidental and relevant in the sense of having the essential character of expenditure incurred in the course of gaining or producing assessable income. This formulation of the test has its origins in the joint judgment of Dixon CJ, Williams, Webb, Fullagar and Kitto JJ in Charles Moore…..It has been applied subsequently in cases which include Lunney…..The essential character test is also applied to determine if the expenditure is of a capital, private or domestic nature as these cases illustrate.
And at the bottom of the page:
Closer to the present case however is Lunney which held that fares paid by a taxpayer travelling day by day from his home to his place of employment and back again was not a deductible expense under s51(1).
And then, over the page:
Lunney’s case accorded with a well-established view in the English Courts that for a person to live away from his place of employment or business is a matter referable to his private choice or domestic necessity. This process of reasoning has been much criticised and said to be illogical: see, for example, Handley, per Stephen and Commissioner of Taxation (Cth) v Maddalena.
In Lodge v Commissioner of Taxation…..Mason J denied a deduction of expenditure incurred by a taxpayer consisting of payment of nursery fees for her infant daughter whilst she was at work. His Honour held that child care expenses, because of their essential character, are not incurred in gaining or producing the assessable income of the taxpayer. He said:
“The expenditure was incurred for the purpose of earning assessable income and it was an essential prerequisite of the derivation of that income. Nevertheless its character as nursery fees for the appellant’s child was neither relevant nor incidental to the preparation of bills of cost, the activities or operations by which the appellant gained or produced assessable income. The expenditure was not incurred in, or in the course of, preparing bills of cost.”
See also, with respect to child care expenses, Martin v Commissioner of Taxation.
These are the relevant principles to apply in determining the deductibility of the taxpayer’s expenditure in this case. The application of s51(1) gives rise to difficulty in some cases because there is a large variety of factual situations to which it may apply. The deductibility of expenditure on food, clothing and housing poses difficult questions. In one sense expenditure on food is always relevant to the derivation of income because a person must eat to enable him to live and therefore to work. Obviously that alone is not a sufficient connection with the earning of assessable income to permit a deduction. On the other hand a person whose business is the publication of a food guide may buy and taste food in the course of his business, so there is a clear nexus between the expenditure and the derivation of income. The cases that lie in between the two extremities give rise to the difficulty and this is case is one of them.
The question whether the additional expenditure of the taxpayer is deductible under s51(1) cannot be answered simply by a process of reasoning that, because expenditure of this kind is a prerequisite to the earning of the taxpayer’s assessable income (in the sense that it is necessary if assessable income is to be derived), it must be incidental and relevant to the derivation of income. It does not follow that such expenditure is incurred in or in the course of gaining or producing the income. The deductibility of the expenditure depends upon determining the essential character of the expenditure itself and not upon the fact that, unless it is incurred, the taxpayer will not be able to engage in the activity from which his income is derived.
GUMMOW J: We had a case in the Federal Court about the secretary to Lady Campbell, I think, when Sir Walter Campbell was Governor of Queensland.
MR BLOOM: A clothing case.
GUMMOW J: She got a deduction, I think.
MR BLOOM: Yes, on the facts, the clothing was specifically for the purpose, as I recall, of the various functions that she had to attend.
GUMMOW J: Have you got a reference to that?
MR BLOOM: It is Edwards v The Commissioner. We will get the reference and supply it to your Honour’s associate.
At page 185, about point 7 of the page:
The taxpayer incurred the expenditure on additional food and drink for the purpose of increasing his weight and thus to play professional football and earn assessable income. But its character as the cost of additional food and drink is neither relevant nor incidental to the training for and playing of football matches, which is the activity by which he gained assessable income. The expenditure was not incurred in or in the course of that activity. The taxpayer was paid money to train for and play football, not to consume food and drink. His income-producing activities did not include the consumption of food and drink.
Furthermore –
his Honour went on to say, they would be excluded under the negative limb.
GLEESON CJ: Is the problem in the present case complicated a little by the nature of the business the taxpayer was carrying on? He was carrying on the business of a primary producer which almost, of necessity, is carried on in a rural area, away from a major airport. Is a possible point of view that because he was carrying on a business that of its nature required him to do that at a substantial distance from his other place of work, Mascot or wherever it was, if you like, the travelling between the two places from which he derived income was not connected to the derivation of his income as a pilot, but it was connected to the relationship between the two sources of income that he had?
MR BLOOM: Your Honour, we would say, with respect, that that is not an appropriate test, that one does not look to see whether travelling expenses are deductible by reference to assessable income globally, that one must find that the expenditure was incurred in gaining or producing one or other where they are disparate forms of income production.
GLEESON CJ: That is the point of departure, really, between the majority and the minority view in the Full Court of the Federal Court, is it not, that the majority took what might be called a global or an overall approach to his income earning activities and the minority treated them as separate.
MR BLOOM: Yes, and their Honours found, of course, in the majority that the expenses were incurred in gaining or producing neither income considered separately. However, they said you amalgamate the income and you could say that they were expenses incurred in gaining or producing the assessable income generally. We say, with respect, that is not the way in which to approach it. The question is, what is the essential character of the expenditure itself, and the answer to that is, it is expenditure to getting to or from work.
GLEESON CJ: Why cannot the expenditure take its character from a consideration of the totality of his income earning activities? Why do you have to characterise the expenditure by reference to one or other of them considered separately?
MR BLOOM: Because when the cases lay down a test, using words of section 51(1) “in or in the course of the gaining or production of the assessable income”, they are looking to the activity which produces ‑ ‑ ‑
GUMMOW J: It did not mean the assessable income of the year of income, though.
MR BLOOM: Oh, no, it is not limited to the year of income, of generally, any future year of income.
GUMMOW J: So there is a certain looseness about it.
MR BLOOM: Well, only ‑ ‑ ‑
GUMMOW J: Steel’s Case is the most recent example of that.
MR BLOOM: Yes, and we do not run away from that at all. Of course, the assessable income is not the assessable income of one period, but to be incurred in gaining or producing the assessable income there must be a nexus between one of the working activities, at least one of the working activities, which is productive of the assessable income.
HAYNE J: What is it in the words “the assessable income” that invites attention to, what, gross profits or income returned as assessable in respect of one business venture? What is it that segregates it?
MR BLOOM: Your Honour, it is our proposition that “the assessable income”, accepted for the moment, as it must be, as meaning all of the assessable income ‑ ‑ ‑
HAYNE J: Of the taxpayer.
MR BLOOM: Of the taxpayer. The entirety from everything that he might do, dividends, interest, two jobs. Nonetheless, the particular outgoing is not incurred “in”, or “in the course of” gaining or producing any of it. That is the proposition. It is true that it is an outgoing that in its particular circumstances comes about because he travels from job 1 to job 2. But take ‑ ‑ ‑
GUMMOW J: There are many other types of outgoings that qualify, even though it seems to me they are probably less “in” than this is “in”. That is the conceptual problem I have.
MR BLOOM: If your Honour will assist me by an example or two, I will attempt to deal with them.
GUMMOW J: The strange pavan that is danced in this case is not danced in a lot of other cases where deduction is allowed.
MR BLOOM: Well, perhaps one is focusing on this more because of the extremely high cost to ‑ ‑ ‑
GUMMOW J: Exactly.
GLEESON CJ: Yes, and because almost every taxpayer travels to work.
MR BLOOM: Every taxpayer travels to work.
HAYNE J: And the level of the cost is at the taxpayer’s choice. It is at the element choice that the taxpayer has of the amount of the deductible.
GUMMOW J: Yes. There is a Cecil Bros ghost in the background, too.
MR BLOOM: One could, if one had an aeroplane, in the case of this taxpayer, travel to and from work by aeroplane.
HAYNE J: References to society changing and counsel no longer living in chambers now have to take account of that glut of very desirable investment properties found in tilt slab city apartments around the Commonwealth.
MR BLOOM: The very first case referred to by the majority in Lunney, a case called Re Adair expressed the horror that would occur if people who lived in Sydney got a deduction for travelling to work. After all, it was said, they might move to Mittagong. But, leaving aside those sorts of considerations, the question that still arises for the Court is whether that expenditure is in gaining or producing the assessable income. In our submission, it will not be in unless it is a true working expense. So that the solicitor who travels from the city to Strathfield from one office to the other in his working day is travelling on work, as the English cases say, and that is incurred as a working expense because travelling is part of the work. But if he is travelling, in the example that their Honours gave, from his practice as a solicitor to his second job as an engineer, then those travelling expenses are not incurred in gaining or producing the assessable income from either, and for that reason are not incurred in gaining or producing assessable income generally.
HAYNE J: Because, as I understand your argument, you ask: what is he paid to do?
MR BLOOM: Yes, your Honour. What are the duties of his office or employment?
KIRBY J: What if he is thinking about his cases or working on files, as many people do on public transport?
MR BLOOM: Well, your Honour, many of us do that at home too.
GLEESON CJ: Maybe some barristers have a meter in their car that ticks as they sit there and worry.
MR BLOOM: I must ask Mr Jackson about that, your Honour.
HAYNE J: But the “what is he paid to do?” test sounds wonderful for application to employees. How do you apply it to the self-employed?
MR BLOOM: Your Honour, the difficulty is that the examples are myriad. For instance, somebody might have a day job as a policeman and work as a security guard at night.
HAYNE J: Under the name J. Smith.
MR BLOOM: Yes, your Honour, but on the assumption that he returns it all as his assessable income – and we should assume that – that expenditure would not be, in our submission, deductable because it is not incurred in gaining or producing the assessable income of either of those two jobs. As the dissenting judge, Justice Hill, pointed out, what difference would it make if that person went to the gym first for a work‑out before he went to his second job or went home or had lunch? In that particular instance the travelling really cannot be on any view said to be on work or in the course of the work or in the performance of the duties. These are the distinctions which, as Sir Owen Dixon points out, for over 50 years formed the foundation of the approach in England and, likewise, was picked up in this country. That approach would lead to these results. The travel to and from home to work is not deductable, the travel between related places of business is, but the travel between places of business where the income productive feature is different or unrelated does not.
GLEESON CJ: It may be that the main thing that these distinctions have to commend them is the same thing as commended Mt Everest to Sir Edmund Hillary: they are there.
MR BLOOM: But he climbed it, your Honour.
HAYNE J: You are inviting us to climb it, are you?
MR BLOOM: Yes, your Honour.
HAYNE J: I see.
MR BLOOM: With respect, I have to because it is ‑ ‑ ‑
HAYNE J: It might be using metaphors differently, I think, Mr Bloom.
MR BLOOM: I am really endeavouring to suggest to your Honours though that it is not as arduous. If I might just then return to our written submissions, your Honour. In paragraph 9 at page 5 we have pointed out that the Taxation Review Committee’s report of 1975 recommended against deductions being allowed for the cost of travel to and from work. I will not take your Honours to that but it is attached to our submissions. Then in paragraph 10 there is a reference to the travelling “on work” expression from the speech of Lord Wilberforce in Taylor v Provan. The full passage is set out at page 338 of the appeal book in volume 2 in the judgment of the judge at first instance. At line 35:
“It is only if the job requires a man to travel that his expenses of that travel can be deducted, ie if he is travelling on his work, as distinct from travelling to his work. The most obvious category of jobs of this kind is that of itinerant jobs, such as a commercial traveller. It is as a variant upon this that the concept of two places of work has been introduced: if a man has to travel from one place of work to another place of work, he may deduct the travelling expenses of this travel, because he is travelling on his work, but not those of travelling from either place of work to his home or vice versa. But for this doctrine to apply, he must be required by the nature of the job itself to do the work of the job in two places: the mere fact that he may choose to do part of it in a place separate from that where the job is objectively located is not enough.”
KIRBY J: It seems a little arbitrary that if say Qantas had a farm and had him managing that and then he was travelling from there down to do his piloting work he could claim the deduction but not in this case, but it may be that all of these cases are about drawing lines and that there has been a settled jurisprudence which Sir Owen Dixon acknowledged had inconsistencies but he was not prepared to rip it up.
MR BLOOM: Yes, your Honour, and exactly the term he used, and this is part of the fabric that is not new law - in the speech of Lord Wilberforce. That is what was said in Ricketts v Colquhoun, which was decided in 1925, and it is part of the fabric of the cases that came up to the Court in Lunney and in which the principle in Lunney was formulated and has been followed.
KIRBY J: Do you have at your fingertips how many times section 51 has been amended since Lunney?
MR BLOOM: Section 51(1)? Relevantly not at all. There have been paragraphs added about trading stock and that sort of thing, but relevantly not at all. Section 51(1) remains in that original form and section 8(1) is meant to give effect to exactly the same principle, so that I have to tell your Honours you will have the benefit of hearing argument about it for some years to come yet.
GLEESON CJ: Why are you going on about that rewrite, Mr Bloom?
MR BLOOM: Well, it is only that for some of the period the rewrite covers, as I understand it, your Honours. Is that not right?
GLEESON CJ: I do not know.
KIRBY J: That might have been relevant to the special leave because ‑ ‑ ‑
MR BLOOM: Yes, your Honours, we may have inadvertently ‑ ‑ ‑
HAYNE J: Up to the 91 to 94 years?
MR BLOOM: Yes, yes. You are right. 97 amendment, I am sorry, your Honours.
HAYNE J: In 94 it was 51(1).
MR BLOOM: Well, at least your Honours know about it. I am sorry, your Honour, it has no relevance to this particular case.
KIRBY J: It is irrelevant except that it shows that the problem, in your construction, your submission, it goes on.
MR BLOOM: It goes on, yes. I knew it was there for a reason, your Honour, thank you. Your Honours, at paragraph 16 we return to what we suggest, with respect, is the distinction.
GUMMOW J: We can read paragraph 16.
MR BLOOM: Thank you, your Honour. I have taken your Honours to Cooper and I should then simply take your Honours very briefly to the overseas authorities, and I mean briefly. If I could just hand up a booklet of those to your Honours.
GLEESON CJ: Thank you.
KIRBY J: Are travelling expenses deductable in any country with which we would normally compare ourselves in tax law?
MR BLOOM: No, your Honour. I think in some northern European countries there may be a specific allowance.
GUMMOW J: A concession.
MR BLOOM: A concession, yes, but not a deduction on the basis of applying any sort of law. There are some examples in 7.6O of the Taxation Review Committee’s report, which your Honours have.
GUMMOW J: That is the Asprey Committee?
MR BLOOM: Yes. The first case is Ricketts v Colquhoun. Your Honours recall the barrister who was also a recorder. No deduction for the travelling expenses from London to Portsmouth and vice versa on the basis that he was carrying on two different income producing activities. At page 4 Viscount Cave at about point 7 says that:
In order that they may be deductible…..they must be expenses which the holder of an office is necessarily obliged to incur - that is to say, obliged by the very fact that he holds the office and has to perform its duties - and they must be incurred in - that is, in the course of - the performance of those duties.
The expenses in question in this case do not appear to me to satisfy either test.
They are partly before and partly after and therefore, they are not in. Also, in Lord Blanesburgh, page 8 at about point 7:
The expenses covered by the words “the expenses of travelling in the performance of the duties of the office” are, I think, limited to those which the Master of the Rolls has well termed “itinerant expenses”. There are none such here, and the limitation so put by the rule upon travelling expenses makes it difficult as matter of construction to bring other expenses of travelling under the general words in the later part of the rule.
GUMMOW J: This is not a high point of English jurisprudence, is it?
MR BLOOM: Your Honour, it was one of the cases that the High Court referred to in Lunney and, from that point of view, it is important. Newsom v Robertson I can pass over. Mahaffey is the Canadian position on travelling expenses. The taxpayer was a resident of Calgary. He was a member of the legislature for Alberta and he had to go to the capital, Edmonton, from Calgary, which was also, of course, in that state and he was not permitted a deduction for the costs of travelling to the legislature or staying in a hotel overnight so that he could attend there, notwithstanding, of course, that he was 200 miles or 300 kilometres away from where he had to go to do his work. There is a joint judgment and, if I could ask your Honours in due course to read the judgment of Justice Rand which is very much in point.
GLEESON CJ: All these wonderful distinctions are mirrored, if not exactly, very closely, in issues that arise about travelling allowances.
MR BLOOM: Yes, your Honour, on the other side and it can be the case, of course, that one is assessable and yet no particular deduction is available against them if the circumstances here apply unless the travelling expense can be said to be incurred in gaining or producing the travelling allowance.
Your Honours, the two South African cases – it is of a tax court, although constituted by, then, one of His Majesty’s Counsel and the costs of going to and from a farm and a business of company directorships was held to be not deductable whether or not the appellant resided on the farm, which was the second case, or not, which was the first case.
GLEESON CJ: Most Pitt Street farmers travel regularly between the farm and Pitt Street.
MR BLOOM: Yes, your Honour, and some between Phillip Street and the farm, your Honour, but that does not give rise to a deduction, the fact that it is regular or the fact that unless they travelled from the farm back to Phillip Street, they could not do their work as a barrister. There is a decision from the High Court of Southern Rhodesia from 1937 which dealt with a company director who resided in England but carried on business in Southern Rhodesia, of a tobacco farm, and had administrative duties in England and travelled between the two and was held entitled to a deduction. But the principles are set out at page 109 and they are the principles which the Chief Justice of that court took to be the principles established by the English cases. If your Honours please.
GLEESON CJ: Thank you, Mr Bloom. Yes, Mr Jackson.
MR JACKSON: Your Honours, could I deal first with section 51(1). The course taken by the majority in the Full Court in this case, in our submission, was correct; and, your Honours, in particular their Honours did not start with a preconception, as it were, that the cost of travelling between home and work, on the one hand, or between work and work could never be deductable or would always be deductable, but, rather, your Honours, looked at the circumstances of a particular taxpayer, and, your Honours, in looking at the circumstances of the particular taxpayer, posed the question, were the costs of the travel between the two places where assessable income was derived losses or outgoings incurred in gaining or producing the assessable income? Your Honours can see that approach in the majority’s reasons at page 375, commencing at the top of the page at about line 2:
It is important to keep in focus –
going through the remainder of that paragraph and the whole of the next paragraph where your Honours see their Honours set out the statutory question and advert, at about line 7, to the fact:
the expression “the assessable income” in s 51(1) has been authoritatively interpreted…..is not confined to income from a particular job or a particular business.
So, their Honours then say:
The critical question involves an examination of the scope of the operations undertaken by the taxpayer (in this case pilot and deer farmer) and the relevance of the expenditure to those operations.
Your Honours will see that they say in the last sentence of that paragraph that:
The relevance of the expenditure should be determined having regard to the overall income producing activities of the taxpayer, and not by reference to individual sources of income.
GLEESON CJ: What if those overall activities were barrister and grazier?
MR JACKSON: The same thing should apply, your Honour, and I say that as a general proposition. But it depends, of course, on the extent to which the activities of the person in question were ones involving active involvement in the carrying on of the grazing business, but assuming other ‑ ‑ ‑
GLEESON CJ: Yes. I suppose you had a barrister who goes to his rural property, and works actively on his rural property every weekend, and goes down there on Friday nights and comes back to Sydney on Sunday nights. On your argument, because his overall income earning activity is barrister and grazier, then the travel costs between the farm and Sydney on Friday and Sunday evenings are deductable.
MR JACKSON: In the ordinary course of events, yes, your Honour. And there is nothing very surprising about that, your Honours, because one is, after all, talking about assessable income. Your Honours will see it defined at the top of page 370:
“assessable income” is defined in the Assessment Act, s6(1), to mean all the amounts which, under the provisions of the Act, are included in the taxpayer’s assessable income.
And, your Honours, one of the things one sees in the argument advanced by our learned friends is really that they do not treat assessable income as meaning all the assessable income, but divide it up into the different sources. Now, it may be one thing to have statutory quarantining, but in the absence of a statutory quarantining, then one looks to see what is all the assessable income, and if the assessable income comes from two sources, dispirit in location, then, in our submission, in the ordinary course of events – and if one makes the assumption, of course, that there is a need for the person to move between those places to derive the income, then it would, in the ordinary course of events, in our submission, be something that falls within the concept of a deduction in the Act in section 51.
Your Honours, in our submission, one cannot leave out of account the fact that the assessable income, in the particular case, is derived from engaging in two activities necessarily separate in location. And to derive the income from one, the respondent is required to move from the other location to the location of the second source of assessable income. Your Honours, if I could just pause to say: I was submitting a moment ago that it must depend on the particular circumstances. One sees, on the one hand, in Green the application of section 51(1) to a particular set of circumstances where there are two businesses in different locations, resulting in different sources of income. If your Honours will recall in the particular year, he was managing a pharmacy in Brisbane, as well as everything else. One sees one result in that case and, on the other hand, in Lunney one sees another result where there is only ‑ ‑ ‑
KIRBY J: It is curious, is it not, that the majority or the joint reasons – none of the majority referred to Green. It is as if it was just passed over.
MR JACKSON: Well, your Honour, a reason is, perhaps if I endeavour to – I will come to Lunney in a moment, more specifically. But what we will be submitting is that Lunney really was dealing with two cases together, of course – one was self-employed, the other being the employee. And the simple question was does the place where a person chooses to live, at some distance from the source of income, mean that the costs of getting there to earn it, and getting back, is something which is deductable and the view was taken that it did not.
But Lunney really was not dealing with the dual source of income case circumstance at all. It may well be that their Honours did not regard Green as in any way atypical; it is just simply a case dealing with the application of similar principles to particular circumstances. But, your Honour, it is perhaps surprising, but it is obvious their Honours did not think there was anything wrong with it.
KIRBY J: One way to read it is that Green is, as Chief Justice Latham said, a case of very special circumstances and Lunney is a case in which an attempt was made to state the general principle.
MR JACKSON: The general principle, in circumstances where their Honours specifically – and I will endeavour to come to this in a moment – do limit it to what is in a sense the simplest class of case. That is why one of the things that we seek to say is that if, as our learned friend is arguing, one says that Lunney really goes beyond that then, in our submission, that is the aspect of Lunney that would need to be reconsidered, not the basic determination in it.
Could I just say that if one looks at the assessable income being derived from engaging in two activities, necessarily separate in location, then in ordinary parlance, in our submission, the cost of moving from one to the other is an outgoing incurred in producing the assessable income. “The assessable income” being the income which is assessable and which comes from the several sources, because one cannot, in effect, have one without the other. I do not mean that in any ‑ ‑ ‑
KIRBY J: But a statute is incurred “in”, it is not enough that it be related to, or consequent on, or pre-conditioned to, it has to be incurred “in”, which has been interpreted as confining you in a temporal causative way.
MR JACKSON: With respect, your Honour, temporal, in one sense, I suppose. It can be income of any year, not necessarily the year in which it is expended. That is what the “in” has been treated as referring to principally. If I could just give a reference to that ‑ ‑ ‑
KIRBY J: The problem that worries me – if I can just put it in your mind so that you can deal with it – is, does your theory of “in” in the statute unravel all of the cases that relate to travelling expenses? Because if it does, that would, prima facie be a matter that the legislature should deal with and not the Court.
MR JACKSON: It does not, and when one says “all the cases dealing with travelling expenses”, I intend to go to the overseas ones on which my learned friend relies, and our submission consists of two things in relation to those: (a), that they are all based on statutes that use expressions such as “wholly” or “exclusively”, and make it clear that they are not applicable. The second thing about them is that if one looks at the reasons in them, they really, in our submission, tend to support the contention for which we contend, rather than the opposite. Your Honours, I will need to take a minute on them, but may I come to that in a just a moment?
HAYNE J: Before you do, can I ask you what the position would be, on your submission, if Captain Payne, instead of living out at the farm, had lived in an apartment on the fringe of Sydney and had travelled alternately to the farm or to Mascot, according to his duty roster? Would the cost of those items of travel been deductible?
MR JACKSON: It probably would be a Lunney case, your Honour.
HAYNE J: If that is so, what is it that takes this case out of Lunney, other than the bare assertion that it is different because he lives at the farm? That is, what is the difference in the nature of the connection between expenditure and derivation of income which exists in the present case from the apartment case just hypothesised?
MR JACKSON: Well, your Honour, it is that the expenditure is an expenditure in moving between two places where income is derived.
HAYNE J: That is descriptive. I understand that. Is it descriptive of a different level of connection between expenditure and income or different kind of connection? If it is what is that difference?
MR JACKSON: Well, your Honour, it is difficult to describe it – I do not mean to be saying the same words in saying this, your Honour – other than by using descriptive terms because what one is seeking to identify is whether there is an outgoing which is incurred in producing the assessable income.
HAYNE J: And that connotes connection of some kind.
MR JACKSON: Yes, your Honour.
HAYNE J: And it is to try to understand whether there is a difference in the connection or whether you have to overturn Lunney in effect.
MR JACKSON: Yes. Your Honour, what I would seek to say about it is this, that really the starting point in any consideration of this has to be, “What is the assessable income?” Otherwise there is nothing to which the expenditure can be related.
HAYNE J: Let it be assumed it is the whole of the income from both adventures.
MR JACKSON: Yes, your Honour, but assessable income, if one is speaking about the application of section 51(1) to it, is assessable income which is of its nature something that comes from an activity or relationship or something of that kind. So that to determine whether a particular outgoing is something incurred in producing that, one has to first identify what are the sources, in effect, of the assessable income. So one comes to the particular case and says in relation to the particular case there are two. One source is one which of its nature, being flying aircraft, must start from a limited number of places and that the international aircraft no doubt effectively one place in the particular case of New South Wales.
So that has to take place from a particular location. That location is necessarily different from the location of which the other activity, which is raising deer, takes place. That must take place in the country. Now, the same person is engaged in the two activities personally and, your Honour, again, one does have to look at the particular circumstances. So that one says, “For the taxpayer to derive the assessable income in toto what outgoings were there?” Now, if one has got to the substratum, as it were, of fact to which I have adverted, our submission then is that it does become really basically a question of fact and it is difficult to find words other than synonyms for the expression “an outgoing” – and these are outgoings – “which are incurred” – they are incurred – “and are they incurred in producing the assessable income?” to use the words of the statute.
That is when one goes back to apply those words to the particular facts. I do not know that I can say more in that regard than to say that is fundamentally the case. To earn the assessable income in toto it is necessary to go from A to B. If one treats the term “the assessable income” as meaning the assessable income in toto, it is to engraft upon section 51(1) words that are not in it to say that you have to treat the two sources as separate.
GUMMOW J: You were about to give us some references, I think. You had a sheet of paper with some references.
MR JACKSON: Yes, I was, your Honour. What I was going to do was to say that the term “in” is an expression that has been treated as being the expression which would prevent section 51(1) as being limited to expenditure producing income in the year in which it was produced. That is the principal function, in our submission, of the term “in”. Could I just give your Honours these references: Commissioner of Taxation v Finn 106 CLR 60 at page 68. I will have to give the others in an abbreviated form: Ronpibon at page 56; Snowden & Willson at page 436; and John Fairfax & Sons 101 CLR at pages 35 and 46.
Your Honours, in relation to the question of the global nature, as it were, of assessable income, the Court’s decision in Steele v Deputy Commissioner of Taxation 197 CLR 459 is of some significance because in that case at page 474 at the conclusion of paragraph 43, your Honour the Chief Justice and Justices Gaudron and Gummow said, the last four lines:
bearing in mind that the assessable income referred to is the assessable income of the taxpayer generally, it seems difficult to deny the relevance of the outgoing presently in question.
Could I refer also to Justice Callinan, at page 496. Just before I go on to that, I should also have said if one looks at Steele at page 474, it is of significance also because it recognises that to describe something as a prerequisite or, if I could pick up a word from our learned friend’s written submissions, pre‑working expense, and in consequence to regard the expense as not attracting section 51(1) is, in our submission, not correct. Your Honours will see in paragraph 44 at page 474 your Honours said:
There are cases where the necessary connection…..has been denied upon the ground that the outgoing was “entirely preliminary”…..or was incurred “too soon”…..The temporal relationship between the incurring of an outgoing and the actual or projected receipt of income may be one of a number of facts relevant to a judgment as to whether the necessary connection might, in a given case, exist, but contemporaneity is not legally essential, and whether it is factually important may depend upon the circumstances of the particular case.
There are many things, items perhaps, which one would regard as being things that are essential to be able to carry on a particular activity, for example, being a pilot passing the necessary medical examinations to retain the licence to fly each year. But in the ordinary course of events, that is one of the items that a pilot would be able to obtain a deduction in respect of.
Your Honours, could I refer also to Justice Callinan on page 496 and your Honours will see in paragraph 107 his Honour referred to a number of cases and then said:
They then referred to –
“they” meaning the Full Court of the Federal Court –
then referred to Maddalena and Lodge and a text of Professor RW Parsons which they said established that there should be an element of contemporaneity between the expenditure and the commencement of the business or income producing activity. I doubt whether they do establish such a proposition. If they do, they cannot now be taken as correct in view of the decision of the majority here.
Your Honours, could I go then to the cases to which our learned friend has referred. The first is Lunney 100 CLR 478. Your Honours, that case, in our submission, is dependent upon the fact that what the Court had under consideration there was travel between home and work. Could I take your Honours to page 499 and your Honours will see, in the passage commencing at about point 7 on the page, the way in which their Honours put it is this:
The fact that few taxpayers are free to choose whether they will live at their place of work or away from it may appear to invest this statement with a degree of artificiality. But, even in these modern times, they still have, within limits, the right to choose where their homes shall be so that a taxpayer’s daily journeys between his home and place of work are rendered necessary as much by his choice of a locality for his residence as by his choice of employment or occupation. And indeed the purpose of such journeys is, at least, as much to enable him to reside at his home as to attend his place of work or business.
GLEESON CJ: Did anyone ever argue that the consequence of that is that in the ordinary case you have an apportionment and you get 50 per cent of the travelling expenses?
MR JACKSON: Your Honour, did anyone argue that in Lunney?
GLEESON CJ: Has anyone ever run that argument?
MR JACKSON: Your Honour, I really cannot give your Honour an answer to it. I have not seen it in any of the decisions on the issue except that in Green your Honours will have seen that the purposes for which he went to Townsville, I think, were, amongst other things, private and some Masonic purposes and so not all the amount of the expenditure could have been claimed. But that really turned on the basis of the amount claimed as distinct from any apportionment by the court.
So, your Honours will see that their Honours are saying that the purpose of travelling, in effect, is to reside as much as to work and, your Honours, in a case like this, of course, one really is not talking about a situation of that simplicity, of such simplicity. What one is speaking about here is work to work.
The second passage, your Honours, is at page 501. Your Honours will see, after referring to a number of other cases, their Honours then say, at about point 2 on the page – indeed, they go further and refuse assent to the proposition that such expenditure ‑ and, your Honours, such expenditure is travelling from home to place of business and, of course, vice versa ‑ and they say:
such expenditure is, in any relevant sense, incurred for the purpose of earning assessable income and unanimously accept the view that it is properly characterised as a personal or living expense.
Their Honours say they agree with that view, but then go on to say:
Expenditure of this character is not by any process of reasoning a business expense; indeed, it possesses no attribute whatever capable of giving it the colour of a business expense.
Well, not so here, your Honours.
Nor can it be said to be incurred in gaining or producing a taxpayer’s assessable income or incurred in carrying on a business…..at the most, it may be said to be a necessary consequence of living in one place and working in another.
Now, your Honours, that is really what Lunney is based upon, circumstances where a person lives in one place and works at another. But, your Honours, that is why we would seek to say Lunney decides no more than that.
GLEESON CJ: It is hard to resist the conclusion or the impression – and this does not affect the outcome of the present case, I think ‑ that historically what happened here is that when income tax law was in a very early stage of its development, one of the obvious questions that arose is whether you got a tax deduction for the cost of getting to and from work. That question was emphatically answered in the negative and ever since then, as the legislation has changed, people have cast around for reasons to sustain that conclusion in the words of whatever the legislation happens to be from time to time.
MR JACKSON: Yes. Whatever it says – and, your Honours, that is made apparent, in our submission, if one does go to the – and I will do so very briefly – several cases to which our learned friends refer. If one goes to Newsom v Robertson (1953) 1 Ch 7, we would say two things about it that I think I adverted to earlier. The first is that the legislation is different ‑ it is in my learned friend’s book, your Honours, and it is behind tab 2 I think – and very significantly different. Your Honours will see that at page 12 in the first paragraph of the reasons for judgment of Lord Justice Somervell where he says the question was, your Honours will see the last three lines:
whether this expenditure was “money wholly and exclusively laid out or expended for the purposes of his profession.”
Your Honours will see the expression “wholly and exclusively”. The second thing, your Honours, is that if one goes to the reasons, they do, we would submit, support the proposition for which we are contending. Could I go first to the bottom of page 13, Lord Justice Somervell again. In the last five lines he speaks of:
A professional man, say a solicitor, has two places of business, one at Reading and one in London. He normally sees clients and does his professional work at Reading up till noon and then comes to London. He may live at Reading or in London or at neither. I would have agreed with Mr Tucker that the journeys to and from between Reading and London were deductible within the rule. He is carrying on one profession partly in London and partly at Reading.
Now, your Honours, if I could just pause to say, “What difference is there, with respect, between a case of that kind, on the one hand, and a case where a person is, for example, qualified in two respects and carries on one business at one in the mornings, goes to somewhere else and does something in the afternoon?” If one took, for example, the case of a person who worked as a cleaner and had a part time employed job at place A and did that for three hours a day and then went off somewhere else to a contract job, again, carrying on contract work as a cleaner in the second case, your Honours, in our submission, why would that be different from a proposition that Lord Justice Somervell will accept as being “wholly and exclusively” within that rule? Your Honours will then see at the first new paragraph on page 14 his Lordship said:
One thing is quite clear, namely, that Whipsnade as a locality has nothing to do with Mr Newsom’s practice. That differentiates it from the case of the solicitor which I have put.
And he then goes on to develop the proposition that he chose to live there because it was a pleasant spot to live. Lord Justice Denning at page 16 - your Honours, if I could just pause to say their Lordships did advert to a case that had been mentioned in the argument in that and one which does apply to, for example, some barristers in Australia. What was spoken about in argument was the case of Scottish barristers who, at least in those days, kept no chambers, worked from their houses or worked in the library at the ‑ ‑ ‑
GUMMOW J: In the law courts.
MR JACKSON: Yes.
GUMMOW J: They had little desks.
MR JACKSON: Yes.
GUMMOW J: And some servants bribed to keep people away from them.
MR JACKSON: And, your Honour, many, many, many barristers in Australia have done that at various times. But that was not adverted to and at page 16 Lord Justice Denning said, at about point 4 on the page:
In the case of a barrister, it is his chambers. Once he gets to his chambers the cost of travelling to the various courts is incurred wholly and exclusively for the purposes of his profession. But it is different with the cost of travelling from his home to his chambers and back. That is incurred because he lives at a distance from his base. It is incurred for the purposes of his living there and not for the purposes of his profession, or at any rate not wholly or exclusively…..It is a living expense as distinct from a business expense.
Now, your Honour, these are classifications, of course, that have a somewhat arbitrary aspect to them. But what we would seek to submit is that if one looks at that passage, it rather suggests that if there was business at one end and business at the other, then it would be something that was deductable.
Lord Justice Romer, finally, at the bottom of page 17, sums up, in the last few lines:
In other words, the object of the journeys, both morning and evening, is not to enable a man to do his work but to live away from it.
Again, quite different from this case. Finally, at page 18, Lord Justice Romer again, at the fourth line on the page:
It seems to me impossible to say that this element assimilates the case to that of a man who possesses two separate places of business and, for the furtherance and in the course of his business activities, has to travel from one to another.
Again, that, in our submission, rather supports, rather than is against us on this issue.
HAYNE J: Do the facts as found in this case reveal whether Captain Payne had to live on the farm, or was that a matter of choice?
MR JACKSON: My learned friend has said there was some facts not yet found. That, I think, is one of the ones to which we have adverted at paragraph 4, subparagraph 6 of our written submissions. We have given there the reference to what was said by Justice Foster, but could I just say that the facts were not in dispute in this case, and the evidence to support that your Honour will find in volume 1 at page 77, about line 5.
KIRBY J: Were these the subject of findings by the AAT or not?
MR JACKSON: The AAT did not say this specifically, your Honour. Your Honour will see – I should have said about line 25 on page 77 where he said in his affidavit:
Were it not for the farm I would not choose to live there.
If one goes to what took place in the AAT, your Honours will see that there was no cross-examination of him on any of these matters at all, except for some three or four questions designed to ask him whether he regarded himself as carrying on both activities full time.
GLEESON CJ: Just before you pass from page 77, what appears on the bottom of page 77 and the top of page 78 may be relevant to another aspect of the case, may it?
MR JACKSON: I am sorry, your Honour?
GLEESON CJ: Is it the case that what appears on the bottom of page 77 and the top of page 78 might have a possible relevance to another aspect of the case?
MR JACKSON: Yes, indeed, your Honour. I was just going to give your Honours a reference to the cross‑examination in this case, but perhaps I could just give your Honours a reference in just a moment.
Could I, however, indicate where your Honours will find the other two passages that are in paragraph 4 of our written submissions in relation to which our learned friend says there was no finding. The evidence in relation to paragraph 4(1) is page 64 and the evidence in relation to paragraph 7 is page 74. Now, your Honours, I was going to go from Newsom to the second case referred to, and that is the decision of the House of Lords in Ricketts v Colquhoun [1926] AC 1 – it is the first in our learned friend’s book.
Your Honours will see that the statutory provision in this case was even more rigid. It is at the bottom of page 3 which said:
“If the holder of an office or employment of profit is necessarily obliged to incur and defray out of the emoluments thereof the expenses of travelling in the performance of the duties of the office or employment or –
and then if I could leave out about the horse:
or otherwise to expend money wholly, exclusively and necessarily in the performance of the said duties, there may be deducted from the emoluments to be assessed the expenses so necessarily incurred and defrayed.”
Now, your Honours will see that what was decided in the case was that, although the appellant was a barrister in London, and he was appointed “Recorder of Portsmouth”, it was held that whilst in the case of some recorders it might be necessary for them to sit or perform their duties in more than one place within the area in relation to which they were recorder, if it was just a case of the expenses of getting from London to Portsmouth, they were not recoverable as falling within that provision. Your Honours will see at the bottom of page 4, Viscount Cave says in the last four lines:
No doubt the rule contemplates that the holder of an office may have to travel in the performance of his duties, and there are offices of which the duties have to be performed in several places in succession, so that the holder of them must necessarily travel from one place to another. That was no doubt the case of the minister whose expenses were in question –
now, your Honours will see – and I will not read out the remainder of that paragraph – that his Lordship says in the last few lines:
the question is, not what expenses a Recorder or the holder of some other office may be expected to incur, but what expenses he may deduct from his assessment, and upon this point r. 9 appears to be conclusive.
You will see then, your Honours, at the bottom of page 5 in the last line:
It seems to me that the words quoted, which are confined to expenses incurred in the performance of the duties of the office, and are further limited in operation by the emphatic qualification that they must be wholly, exclusively and necessarily so incurred, do not cover such a claim. A man must eat and sleep somewhere, whether he has or has not been engaged in the administration of justice.
And then your Honours will see the reference to choice, necessity and the fact that he does not:
as a rule, eat or sleep in the course of performing his duties, but either before or after their performance.
Now, your Honours, Lord Blanesburgh, at page 7, said, and your Honours this is about point seven on the page:
Undoubtedly its most striking characteristic is its jealously restricted phraseology, some of it repeated to heighten the effect.
Your Honours, the Canadian case to which our learned friends referred of Mahaffy v The Minister of National Revenue (1946) SCR 450, No 3, turned on a wholly and exclusively provision which your Honours will see set out halfway down at page 453 in the paragraph commencing “Alternatively”:
In computing the amount of the profits or gains to be assessed, a deduction shall not be allowed in respect of
(a) disbursements or expenses not wholly, exclusively and necessarily laid out or expended for the purpose of earning the income.
Your Honours will see that the Chief Justice at page 454 gave his reasons at the top of the page where he said the:
expenditure to be deductible must be directly related to the earning of income from the trade or business conducted.
Then it said:
It cannot be said here that the expenses of the appellant had been incurred in the process of earning the income and more particularly such expenses cannot be considered as having been incurred “wholly, exclusively and necessarily” for that purpose.
A very hard decision, with respect, your Honour.
GLEESON CJ: Well, now, expressions like that which are typical of the legislation you have referred to so far seem to stand in contrast to the words of section 51 which introduce the entitlement to the deduction which demand apportionment where that is appropriate.
MR JACKSON: Yes, to the extent, your Honour, yes. Your Honours, that is so. In an appropriate case, there has to be an apportionment, but where one sees the “wholly and exclusively” provision – and it recurs in these cases – where one sees that provision, it does demand there be only one purpose, whereas, of course, section 51(1), as your Honours adverted to, uses the expression “to the extent to which they are incurred in gaining or producing assessable income. So that, your Honour, it contemplates that there may be dual purpose. It is, with respect, inappropriate to convert cases based on an entirely different provision to section 51(1).
Your Honours, could I just say finally in relation to Mahaffy, your Honours will see at page 456, Justice Rand, his Lordship said, it is about the sixth line:
To treat the travelling expenses here as within that range would enable employees generally who must, in a practical sense, take a street car or bus or train to reach their work to claim these daily expenses as deductions.
Your Honours, I said a moment ago this seems a hard case. It seems, with respect, a very hard one indeed why politicians who, ex hypothesi, have to travel from their electorates to the place of the legislature could not, as part of their ordinary expenditure, have the cost of getting there and staying there during their debates.
KIRBY J: But so does an ordinary employee. This is like saying because it is a prerequisite he cannot get to the chamber of Parliament. What is the difference?
MR JACKSON: Well, your Honour, the ‑ ‑ ‑
KIRBY J: It does seem hard to think – but this is how this area of the law is developed.
MR JACKSON: Well, could I say, if one took a provincial parliament as in that case, no doubt the parliament would have its offices perhaps under the control of the speaker or whatever, but there would be a department or a number of offices. Now, in the ordinary course of events, they would be people living in the capital, I would expect, and so the street car or bus or the Lunney notion would apply to them going to work in the ordinary course of events.
However, there may well be two qualifications. If one took an employee who was on the staff of one of the members of the legislature and that employee had to travel to Edmonton or wherever it be for the purposes of carrying out that employee’s task with the member of Parliament, it would seem an extraordinary thing, in our submission, if that employee were not able to get as a deduction the cost of travelling to it.
The second qualification would be if one took the staff who were from, say, Edmonton who were there during the course of the sittings but the sittings went on late at night, it might well be appropriate for them to get a taxi home because the streetcar and bus had stopped running or it was not safe to go home in the ordinary way. In circumstances like that, there would be no reason, in our submission, why the cost of a taxi would not be appropriate. That is why we would seek to say Lunney and cases of this kind really apply to a very simple – indeed, simplistic, with respect – situation. One does have to look at the circumstances of the particular case. I am sorry, it is a long answer to the question your Honour gave to me.
KIRBY J: But if you apply the so-called essential character test, which I think is a self-fulfilling prophecy in a sense, but if you apply that, then you say at the point that they leave the great door of Parliament they have ceased their employment. They are just in their private time, they are on their way home. It is not the essential character of their employment.
MR JACKSON: That can be right sometimes but people, whether they be employees or be self‑employed, do not always leave the character of their employment or activities behind them as they go, when they move out of the door of the place where they work. To take that example again, if one takes the case of someone who works in the Parliament, one cannot divorce from that person’s persona, as it were, and characteristics the fact that Parliament is something that often sits into the night. So with it, it is all right to say you have ceased the job at that stage but you have to get home from the job, and a feature of the job is that it becomes more expensive to do so.
GLEESON CJ: As a question of Justice Hayne’s earlier indicated, some of these distinctions turn upon a very physical conception of work and it may be that the distinctions are becoming more and more difficult to apply as a smaller percentage of the population engages in work of a strictly physical character, so that you can point at them one moment and say they are working and point at them the next moment and say they are not working. It may be the distinctions will also become more and more difficult to apply as more and more people, using information and other technology, are more and more flexible in their work locations.
MR JACKSON: Well, there is no doubt that is so, in our submission.
GLEESON CJ: But your client’s employment as a pilot is of a fairly readily identifiable physical nature, which is why you need to call in aid the combined circumstance of the business activity of the employment.
MR JACKSON: That is so, your Honour. I accept that, and I do not think the case has been conducted differently at any level really. The situation is that we say one has to look at what section 51(1) starts with, and that is “the assessable income”. That is two things; it is not one. I have elaborated upon that already.
I do not propose to take your Honours through the detail of the two South African and one Rhodesian case. Your Honours will see that they turn on the very narrow provisions that were in question in those cases. Indeed, one sees that in the two South African cases they had one result and the Earl of Verulan, if that be the right pronunciation, had more success in the latter.
GUMMOW J: It is Latin for St Albans.
MR JACKSON: Is it? One gains something in each case here.
HAYNE J: More than knowledge, Mr Jackson.
GLEESON CJ: I noticed, however, that in one of those South African cases, assuming the head note accurately describes the issue, we were getting closer to our legislative provision. On page 71 of Income Tax Case No. 259, they talk about the expenditure not being incurred in the actual earning of income.
MR JACKSON: The section is at the bottom of that page, and it says:
The sole question to be decided is whether these items are allowable deductions…..That section says that a taxpayer shall be allowed expenditure and losses actually incurred . . . .in the production of the income.
GLEESON CJ: No, that is getting away from that “wholly” and “exclusively” idea that we were looking at earlier, is it not? It is closer to our language.
MR JACKSON: Yes, it is, but your Honour will see the way in which it was then dealt with because as soon as one turns the page, Ricketts v Colquhoun is referred to, which is on an entirely different provision. I do not think Nolder v Walters really takes it anywhere except it has a reference to a pilot, some expenses claimed by a pilot. So, how one really converts a provision such as that in Richetts v Colquhoun into a provision germane to what is at the bottom of page 71, is not, with respect, very clear.
I said a moment ago I was going to give you a reference to such cross-examination as there was. Volume 2, at page 223, you will see about line 10, Mr Roope, who was appearing on behalf of the Commissioner say that he would not cross-examine. Then there was a short cross‑examination by him, in fact which appears at page 228, line 19. Page 228 does not really go anywhere, but one gets to the question and answer on page 229, line 19, where he was asked whether he was full-time at Qantas. Then at line 23 he said he was, in effect. Then at the bottom of page 229 he was asked whether it was a part-time activity in the farming, and the last line he said he considered it as a full-time business activity, full-time.
Then on the next page, your Honours, going down to about line 12. They are the only matters that were put in dispute. Your Honours, could I just mention a couple of other matters before moving on. The first concerns a question of clothing and your Honour the Chief Justice mentioned it and the case – I do not have the reference to it – Wood’s Case but it did go to the Full Court of the Federal Court. I appeared for the Commissioner, I think, in fact in the case and I do not think, your Honours, there was ever an application for special leave to appeal.
My learned friend has the reference. It is (1994) 49 FCR 318, but that was, as I recall it, a case where the clothing was not special. It was ordinary clothing that was required for the purpose of carrying out – attending functions and so on as an aide, in effect, to the Governor’s wife in Queensland and a deduction was allowed. The clothing was normal clothing, not perhaps the lady’s choice of her own if she had a free choice, but it was a requirement of the office that she be properly dressed.
The second thing, your Honours, is that more and more the cases were, in effect, giving a deduction for clothing that in the end led to the introduction of a section 51AL, which is, I understand, now Division 34 in the current version of the Act, and it had the effect that a deduction was allowed only in limited and specific circumstances.
GLEESON CJ: Would you mind just instructing me on that expression “the current version of the Act”? I just got this awful feeling that I am years behind the play in relation to the state of this legislation because cases only get to us in relation to legislation of several years ago.
MR JACKSON: Well, your Honour, I can ‑ ‑ ‑
HAYNE J: You can take us through the diagrams, Mr Jackson.
MR JACKSON: Well, your Honour, I am not sure that I can do it otherwise by saying you will find a guide to the Act in Part I‑II but ‑ ‑ ‑
GLEESON CJ: By “the Act” you mean the Act of nineteen ‑ ‑ ‑
MR JACKSON: No, your Honour, the 1997 Act, your Honour.
GLEESON CJ: 1997.
MR JACKSON: It is the Income Tax Assessment Act 1997. Your Honours, it is largely a rewriting of the previous enactment in ‑ perhaps I should use a neutral term – more contemporary terms.
GLEESON CJ: Does it contain section 51(1) or an equivalent?
MR JACKSON: It has an equivalent, your Honour, yes, and the equivalent is 8‑1. It is the provision referred to in my learned friend’s written submissions.
GLEESON CJ: Thank you.
KIRBY J: Do you agree that it has no application to the present case?
MR JACKSON: No, it does not apply to the present case. The present case is concerned with four years ending in 1994. Your Honours, in our submission, the cases from the other jurisdictions do not greatly assist. Your Honours, we have referred in our written submissions, paragraph 13, to a reconsideration of Lunney, if necessary. What we seek to say simply in relation to that is that if ‑ ‑ ‑
KIRBY J: Can I just interrupt to say that if you look at the foreign cases without studying them closely, the one thing that is common is the preposition “in”. They have adverbs decorating it like “wholly” and “substantially” and so on, but the preposition “in”, which is the thing that Mr Bloom latches onto, is the common thread.
MR JACKSON: Your Honour, could I just say though, that what they do not address attention to is what we have in section 51(1) and that is that the starting point is to look at the assessable income and the assessable income, in our submission, is, as the Full Court of the Federal Court said, something one has to treat as the agglomerate, as it were, and, your Honour, that is a distinction.
A second distinction, your Honour, is that the – as your Honour the Chief Justice referred to before, that it is not just a question of taking away the words “wholly” and “exclusively” and words of that kind, but section 51(1) recognises that there may be a dual characterisation of an expenditure.
Your Honours, I was going to take your Honours for a moment to what we said in our written submissions in paragraph 13 dealing with Lunney and all we would seek to say, your Honours, is this, that if Lunney is to be treated as establishing a proposition that the expenses of travel to and from work, if I could use that expression, are never recoverable, then, in our submission, it would go too far. It depends on the circumstances of each case and that is something that it would be appropriate for the Court to declare.
Could I come then, your Honours, before moving to the notice of contention, to say one further thing and that concerns the footballer decision in the Full Court of the Federal Court Cooper 29 FCR. The particular matter to which I wish to advert - your Honours will see at the bottom, I think, of page 187 - your Honours, the point I wanted to make about it simply is that in the judgment of Justice Wilcox is dissenting in the case. However, his Honour does advert at the bottom of page 187 to the “essential character” test and says, in effect, that it does tend to:
beg the critical question. Everything depends upon the ambit of the facts selected for inclusion in the description of essential character, so that the making of that selection predetermines the outcome of the case.
Your Honours, could we refer, without reading, to the remainder of that paragraph which goes through on to page 188 where his Honour says, in effect, if you characterise “expenditure merely as food and drink, there is no nexus with the earning of assessable income” the claim fails. If, on the other hand, you consider the “occasion of the expenditure” you have to have, if one can then treat the additional food and drink as necessary to “maintain an optimum playing weight” and “the nexus with assessable income” is apparent.
Your Honours, the point I am seeking to make about it is that these are issues upon which it is perfectly possible to have differences of view in relation to the application of particular cases but little is gained by trying to superimpose on the enactment an additional test such as essential character.
KIRBY J: Has there been the usual frenzy of commentary on this case that one sees in tax law?
MR JACKSON: There have been some, your Honour. I do not know about there being frenzy of commentary in relation to it.
KIRBY J: I was thinking of Steele. Steele really got them going.
MR JACKSON: Your Honour, nothing really that does, I think, other than repeat a view one way or the other in relation to it.
Could I come then to the question of the notice of contention. May I say something first in relation to it. Your Honour Justice Gummow said when my learned friend was mentioning the topic – I think this is the effect of what your Honour said: might this not be a case that requires there to be an application for special leave to appeal by - take our side - as distinct from it being a matter of involving a notice of contention. We do not seek to alter the orders that were made below and in that regard could I take your Honours to the orders. They are in volume 2, first of all, page 353. If I can invite your Honours to hold for a moment Justice Foster’s order which you will see said importantly in paragraph 2:
The matter be remitted to the Tribunal for reconsideration in accordance with these reasons.
One then had at page 385 the order made by the Full Court. What your Honours will see is that that altered his order only in that instead of saying, “In accordance with these reasons”, it said, “for reconsideration in accordance with law.”
If we were to succeed on the notice of contention issue, we would not be seeking any order different from that. We would simply be asking that the matter be remitted. We would simply be asking that the same order be maintained and then the Administrative Appeals Tribunal or its successor would have to deal with it in accordance with the reasons. So it is not, in our submission, a case that would require other than a notice of contention.
KIRBY J: But, because the matter was not litigated below and we are asked simply to correct the Federal Court and the matters that were litigated, then if the appellant is right we do not really get to the notice of contention unless you have special leave to reopen an entirely new point that was not agitated in the Full Court.
MR JACKSON: Your Honour, could I just say this. What your Honour puts to me involves a number of assumptions about what was and what was not dealt with, and that is what I am about to move on to next if I may. One starts with the fact that there is a taxation ruling which appears in volume 2 at page 280. It is No 95/19. Your Honours will see at page 280 that it has paragraph 1 which says:
This Ruling applies to employees in the airline industry –
which your Honours will see includes pilots. Paragraph 2(b) says the ruling deals with:
deductions for work-related expenses generally claimed by airline employees.
Then paragraph 4 says:
The Ruling also discusses whether deductions are allowable or specifically excluded (or limited), under subsection 51(1) –
Could I pause to say if your Honours look in the left column on the same page, your Honours will see it says, “other Rulings on this topic”, and then amongst them IT 2199. The commencement date is 16 June 1995. That appears from page 320, about line 45. That of course is the date after the years in question, but it applies to years both before and after 16 June 1995. Your Honours will see that at page 281, paragraph 9, the first sentence.
Now, your Honours, that is subject to a qualification. May I mention that immediately. The qualification is that, although paragraph 9 speaks of it being applicable to years in the past without limitation, the earliest year of income to which it could apply is that which ends 30 June 1993. So it applies only to the last two years. The reason why that is so is because of the terms of the Taxation Laws Amendment (Self-Assessment) Act 1992 section 12(2). Your Honours, I will come to the provision a little later, if I may. It is annexed to our learned friend’s submissions in reply. That is the first thing. Your Honours will see in paragraph 11 on page 281 that it says:
This Ruling was previously released as Taxation Ruling TR 93/19. There have been no substantial changes to the technical views contained in that Ruling.
I should say, your Honours, the earlier ruling does not deal with this question. So, it did not relevantly deal with the matters with which the Court is concerned.
The relevant part of the ruling starts with paragraph 23 at the bottom of page 283. It says that:
The common work-related expenses incurred by airline employees and the extent to which they are allowable deductions are discussed below, in alphabetical order.
And your Honours will see there is a large number of things, including, at page 286 at about line 8, the medical examinations I adverted to earlier. And then at page 287 about line 45 comes the item “Transport expenses”. Now, your Honours will see that the first paragraph, that is between lines 45 and 52, speaks of the treatment as being “considered below”, and then the first heading:
Travel between home and work: Generally, a deduction is not allowable for the cost of travel between home and the normal work place as it is considered to be a private expense.
If I could pass over the next heading, that is “Transporting bulky equipment”, and then come to about line 20 on page 288. You will see:
Travel between two separate work places if there are two separate employers involved: A deduction is allowable for the cost of travelling directly between two places of employment.
Could I invite your Honours to note a reference, to which I will come, to paragraphs 142 to 143.
Now, further down the page at about line 42 there is another heading:
Travel between two places of employment or between a place of employment and a place of business. A deduction is allowable for the cost of travel directly between two places of employment or a place of employment and a place of business, provided that the travel is undertaken for the purpose of carrying out income‑earning activities –
you will see the paragraphs again referred to.
KIRBY J: Just pausing there. On the face of things, that would be read as “an ordinary place of employment”, that is to say a place of employment of an employer that is separate from the home - not necessarily, but on the face of things it would normally apply to an employer’s place of employment which is separate from one’s own home.
MR JACKSON: I am sorry. Is your Honour referring to ‑ ‑ ‑
KIRBY J: That last passage that you read.
MR JACKSON: ‑ ‑ ‑ travel between two places of employment?
KIRBY J: Yes.
MR JACKSON: Your Honour, that is all between a place of employment and a place of business. That would seem to contemplate, on the one hand, an employee - your Honour, it is probably not unknown to have pilots who engage in various activities of primary or second industry. Your Honours, the paragraphs that are referred to then commence at page 312.
KIRBY J: I notice the ruling in respect of “on call” which follows the passage which you have just read.
MR JACKSON: Yes. Your Honour, I have not gone through them all, I have just taken your Honours to the central ones. At the bottom of page 312 you will see paragraph 142, two work places, and your Honours will see the example given at the top of page 313:
Jane, an airline employee, is allowed a deduction for the cost of travel from the airport directly to a university to give night lectures, for which she is paid.
Presumably by the university, two different employers. You will see in paragraph 144 a reference to:
A deduction is allowable for the cost of travel from –
one normal workplace to another. Then one comes to the bottom of the page to the heading set out between lines 45 and 50, and paragraph 148:
A deduction is allowable for the cost of travelling directly between two places of employment or between a place of employment and a place of business. This is provided that the travel is undertaken for the purpose of engaging in income‑producing activities.
Your Honours, then comes paragraph 149:
If the airline employee lives at one of the places of employment or business, a deduction may not be allowable as the travel is between home and work. It is necessary to establish whether the income‑producing activity carried on at the person’s home qualifies the home as a place of employment or business.
Then they say the fact that one room – Handley v The Commissioner of Taxation, that kind of case -
is used in association with employment or business conducted elsewhere will not be sufficient ‑ ‑ ‑
GLEESON CJ: Well, that ruling looks as though it is the same in effect as the conclusion of the majority of the Full Court in the Federal Court.
MR JACKSON: Yes, indeed, your Honour, yes. We would say that really it represents the position. The issue only arises if their view is wrong.
GLEESON CJ: I am not saying the Full Court of the Federal Court followed the ruling, but they came to the same conclusion as is expressed in the ruling.
MR JACKSON: Yes, your Honour, and that is why the issue arises if the Court takes the view that the Full Court gave too wide an operation to the concept in section 51(1).
HAYNE J: It is to equate, is it, Mr Jackson, at 314, line 2, or line 6 it would be, the second line of the document, that “the home”, relevantly, is the whole of the farm?
MR JACKSON: I am sorry, your Honour, I missed in a sense what your Honour was putting to me in that.
HAYNE J: At 314 the first complete sentence says:
It is necessary to establish whether the income‑producing activity carried on at the person’s home qualifies the home as a place of employment or business.
MR JACKSON: Yes, your Honour. What we would say is that what you have is a place of business, being the farm, on which the respondent lives. We would say that is ‑ ‑ ‑
HAYNE J: “The home” relevantly is the farm.
MR JACKSON: The home, relevantly, is the farm. But I should say, your Honour, that really is, in a sense, to convert a little the meaning of what is in that sentence, I suspect, because your Honours will see that it is really ‑ ‑ ‑
HAYNE J: That was my impression, that there was a conversion occurring which would drive you back to the first sentence of paragraph 149, the question is open, and if that is so the ruling does not speak to the case. It simply says there is a question.
MR JACKSON: Your Honour, what the three sentences, in effect, of paragraph 149 seem to be saying is if you live at one of the places of employment then the deduction may not be allowable. Then it goes on to say that, in effect, epexegetically, as it were:
It is necessary to establish whether the income‑producing activity carried on at the person’s home qualifies the home as a place of employment or business –
and then goes to give an example in the next paragraph of circumstances where that will not occur and, your Honours, what we would say is that in a case such as this it is manifest, in our submission, that the income‑earning activity carried on on the property is an income‑earning activity carried on on the property. The fact that the home is on the property does not prevent that being the case.
KIRBY J: Presumably it is just a homestead house on a property which is the business. Deer raising is something which goes far beyond the house which is on the property.
MR JACKSON: Yes. Your Honour will see at the bottom of page 133 that the farming operation is a considerable undertaking. It is one of the findings made by the AAT. I am sorry. The last few lines on page 133, the finding was that:
the Respondent did not dispute that the deer farming activities of the Applicant amounted to the carrying on of a business, and that the property was a place of business.
GAUDRON J: Was this question affecting this ruling before the Tribunal?
MR JACKSON: It was, your Honour.
GAUDRON J: If it was not, Thiyagarajah would have you out of court on it now, would it not?
MR JACKSON: I expect that is so, your Honour, but may I just say in relation to it, your Honour said was it before the Tribunal. I answered yes. I was going to add a qualification to that. It is referred to in the papers but more often the earlier ruling, which I think is 2119, is the one that is being referred to.
KIRBY J: That is the 93 ruling, is it not?
MR JACKSON: No, no. I am sorry, your Honour. It is earlier than that. It starts 1985. It is in the papers. I will come to it, your Honours, and I will do so as briefly as I can. Now, your Honours, will have seen – I said there was a reference back and you will see it at page 314 at the end of paragraph 149 - there is a reference back to the earlier ruling, IT 2199, and that ruling can be seen at page 276. It is shorter and more general.
KIRBY J: Would you give the page again, please?
MR JACKSON: Page 276, your Honour, in volume 2. I am sorry, your Honour. I should have said the preamble – well, it is really paragraph 1 but unnumbered. It refers to:
travelling between two places of employment, two places of business or a place of employment and a place of business.
Then you will see paragraph 2, a reference to Garrett and in the passage quoted:
“On the other hand, where the travelling expenditure is incurred on journeys between different places of business or employment, the expenditure can be regarded as being a deduction within the sub‑section and this can be so even though one of the places of business may also be the home of the taxpayer, or the home can be so construed –
GLEESON CJ: Now, this is the ruling your client said he relied on?
MR JACKSON: Yes, your Honour. Your Honour will appreciate that in the years in question the 95 ruling had not yet come into being.
GUMMOW J: This is 1985, this one?
MR JACKSON: Yes, your Honour, yes. Now, you will see, your Honours, that in paragraph 5 on 277, the ruling starts in paragraph 4, your Honours will see a ruling that the deduction:
should be allowed where the taxpayer does not live at either of the places –
and then paragraph 5, it says:
Difficulty may arise where a taxpayer lives at one of the places of employment or business because it is not in all cases…..deduction is allowable for the costs of travel –
Then they say:
It is not practicable to lay down a rule which is capable of application in all cases. At best some general propositions –
and then paragraph 6, your Honours, the first:
it is necessary that the income producing activity.….should constitute an employment or a business.
There is, of course, a finding to that effect. Then your Honours will see:
It is not sufficient –
et cetera. Your Honours will then see on 278, really down to the end of paragraph 8.
GLEESON CJ: Once again, this seems consistent with the approach taken by the Full Court of the Federal Court which is to say if expenses are incurred in travelling between a place of employment and a place of business, the problem that is likely to arise is if you live at one of those places.
MR JACKSON: Yes, your Honour.
GLEESON CJ: There is no clear answer to that problem ‑ ‑ ‑
MR JACKSON: Yes. Your Honours, could I say that the complaints are made by our learned friends about the point not having been taken below. Now, it is right to say that the words “95/19” do not appear in the notice of objection. However, your Honours, it is clear that that was understood to be involved because it is referred to in the Commissioner’s response.
GLEESON CJ: One of the relevant aspects before Mr Block of the ruling, as I understand it, was that there were penalties imposed.
MR JACKSON: Indeed, your Honour.
GLEESON CJ: And he made a decision favourable to your client in relation to the penalties. So I understood the evidence at the bottom of page 77 and the top of page 78 to be addressed primarily to the matter of penalties.
MR JACKSON: Both were dealt with, your Honour, and our contention involved both aspects. Mr Block dealt with it only as going to penalties, but in fact it was made on both bases.
Your Honours – and I will do so very briefly, your Honours – could I go to volume 1 to page 41 which is the notice of disallowance of objections and you will see on page 41 between lines 30 and 35 that it said:
Rulings which are considered to support this decision are Income Tax Rulings 117 & 2199…..and Taxation Ruling TR95/19.
That is in response to the objections, and the objections are at volume 1, page 23. You will see particularly, your Honours, in respect of the 1994 year, at page 23, about line 30, there is a reference to the IT 2199. That is developed through page 24, for example, paragraph 5.2.1, and it goes on at some length.
KIRBY J: What is this document?
MR JACKSON: This is our notice of objection to the 1994 assessment. What is in that is picked up in relation to the other years. You will see at page 33 in relation to the 1993 year, at about line 17:
(Claimed in accordance with IT2199)
Then at line 35, please refer to the 1993/94 year. The others follow a similar form. You will see them at page 36 and page 34. As I said, this ruling only applies to the 1993 and 1994 years.
So the Commissioner’s response which I took your Honours to at page 41 certainly had no difficulty in treating that ruling as germane. Then, in the AAT, the Commissioner’s statement of findings referred to it. You will see at page 9, in volume 1, the Commissioner’s Statement of Findings on Material Questions of Fact, Evidence and Reasons for the Decision.
KIRBY J: What page is that?
MR JACKSON: Page 9, volume 1.
KIRBY J: I may have misunderstood it, but I understood Mr Bloom’s objection to be that all this may have been raised and it is raised in argument and it is sort of background, but in so far as you are relying on a specific force which the Act now gives to rulings, that you did not present and tender that as an issue for a ruling.
MR JACKSON: Your Honour has, with respect, put my learned friend’s argument more fully ‑ ‑ ‑
KIRBY J: I just put it so that you can ‑ ‑ ‑
MR JACKSON: More fully than he had put, with respect, so far, because he has not had the opportunity, as he reminds me. Could I just say in relation to it, that we would submit that is not right. I am sorry to do it in such a tedious way, but I really need to take your Honours, in the light of that, to how the case went. I am nearly there.
What I was seeking to say was that leading to the hearing in the AAT, one had the document which is at page 9, which is the statement by the Commissioner, and at line 40 you will see a reference to the fact that the deductions had been claimed under section 51(1). If one goes to the next page, page 10, under the heading “Reasons for Decision”, at about line 9 there is:
1) Travel between place of employment and place of business.
Then further down the same page, about line 34:
Taxation Ruling TR95/19
Then it says in the first paragraph under that heading:
The same basic approach is taken as in IT2199 –
The application for review which we made is at page 4, and you will see at about line 40, the question “Reasons for Application” “Why do you want this decision reviewed?”. The answer is:
Because they are not in compliance with the Income Tax Assessment Act and rulings issued by the A.T.O.
There is then a statement of facts and contentions lodged by us in the AAT which is in volume 2 at page 193 where, at the bottom of the page, about line 40 Captain Payne said:
In making my claims for a deduction for travel expenses I acted in accordance with Ruling IT2199 –
which, of course, had to be the case. He could not say “acted in accordance with 95/19”, because it did not exist at the relevant time. And then at page 195 between lines 20 and 25:
As such the expenditure is allowable under sec 51 of the ITAA and in accordance with Ruling IT 2199.
Your Honours, on the hearing, the issue was adverted to, and you will see that at page 265 of volume 2 –page 201 I should have said, your Honours. That is, I think, in the same document. At page 201 it refers specifically to the taxation ruling 95/19.
Now, your Honours, it is the paperwork before the hearing starts. One then gets to the hearing itself and you will see at page 265 there was a contention by our side, which seems not to have been agreed to by the other side, that the case would turn on whether we did or did not fall within IT2199. Your Honours will see then at page 265 Mr McGovern about line 25 saying:
I had opened the case and I understand this to still be the position, that my fall back position would be that to the extent that IT2199 may somehow represent an amelioration of the general law position, we fall within 2199 and it is agreed that we would be entitled for the past on the basis –
Now, a question arose then about the fact that the ruling IT2199 was not a public ruling, which would have the force given to it by the 1992 Act. And your Honours will see at the top of page 266 the ‑ ‑ ‑
KIRBY J: Which year was the amendment?
MR JACKSON: In 1992, your Honour - as from 1 July 1992. He said:
No, but I suppose I have been putting the matter in a positive way. I have been saying if we elided our facts to the ruling, then we put in our return having read IT2199 and we say to ourselves: We have taken advice, looks like we fall within 2199, and you find that within 2199 we did indeed fall, no issue of penalty would arise and you would uphold the objections for those years –
so, your Honours, it was not just a question of the penalties. And your Honours will then see that at page 268 at about line 14 – these are in submissions at the end of the case – Mr Roope for the Commissioner says:
Firstly I would just like to address IT2199 since much has been made of it.
It is:
the Commissioner’s method of outlining his thoughts…..IT2199 is in, I contend, a general ruling incapable of specific application so it would not specifically allow the deduction –
and then at the bottom of that page, the member, Mr Block, says:
But Mr Roope, this is not a public ruling, is it? It is not a public ruling for the purpose of the penalty provisions. You know, one thing I did not pick up with Mr McGovern is we straddled two different regimes –
and that is then discussed.
That is then discussed and then at page 272, about line 14, Mr Roope says:
That is –yes. Well, the rulings issued before 1992 are not binding legislatively under the Commissioner but they are administratively.
That is it. Your Honours, I should also give the reference to where the issue was raised first in the opening. That is page 216 at about line 35 where Mr McGovern said:
As I also further understand it, the parties are agreed that the Tribunal should uphold the objections and set aside the decisions on objection if the applicant’s claim otherwise falls within the terms of Income Tax Ruling IT2199. That was a ruling that was publishing before the regime that commenced, I think, on 1 July 1992 with public and private ruling provisions. But, the Commissioner has subsequently indicated that as a matter of administrative decision making, he will regard himself as bound by previous –
et cetera. Then at line 24 on page 217, Mr McGovern said:
The reason that I raised the reference to IT2199 at the present time, is that it is conceivable that IT2199 is susceptible of an interpretation which could put it at variance or at odds with the general principles of deductibility under section 51(1).
And your Honours will see that that goes on through the remainder of that paragraph. So the issue plainly went not just to penalty. Your Honours, on appeal to the Federal Court the notice of appeal is in volume 2 at page 172.
KIRBY J: The Administrative Appeals Tribunal did not refer to this matter at all?
MR JACKSON: Only on the question of penalty, your Honour. Page 172 your Honours will see the questions of law ‑ ‑ ‑
GLEESON CJ: What page is that?
MR JACKSON: Page 172, your Honour, in volume 2. Paragraph 2(d) and the contention then at page 174 paragraph (f) at the bottom of the page and paragraph (g) on page 175 and in a sense also paragraph (i) because your Honours will appreciate that 2199 picked up Garrett. Your Honours, the issue was dealt with by Justice Foster adversely to us at pages 324 to 327.
KIRBY J: I am sorry, I did not get those pages.
MR JACKSON: Page 324 to 327 and your Honours will see that at page 324 line 5 he set out the grounds in the outline of submissions and, in particular:
(b) whether the Tribunal erred in law in failing to consider and uphold the applicant’s objections and set aside the objection decisions upon the basis that the applicant’s claim fell within the terms of Income Tax Ruling IT2199.”
He discusses that through to page 327. Your Honours, on the appeal, of course, the Commissioner was the appellant so we did not have a notice of appeal, the Full Court dealt with the issue very briefly. You will see it at page 383. Yes, we did have a notice of contention I am told, your Honour.
HAYNE J: Sorry, did or did not?
MR JACKSON: Did, your Honour.
GLEESON CJ: So far as the majority in the Full Court were concerned, since they came to the same conclusion as the ruling, it did not matter, did it, to them?
MR JACKSON: Yes, it did not matter, your Honour, and their observation at 383 line 20 said:
this matter was not raised before AAT for its determination –
In one limited sense that is right, in the sense that the ruling that was referred to was 2119, as distinct from 95/19 in the oral discussion that took place before the AAT, but that was not the whole of the matter. What we would simply seek to say is that – and your Honours will see the provisions ‑ ‑ ‑
KIRBY J: Could you just help me on this. I heard you say that Mr McGovern had said before the AAT or somebody had said that the Commissioner had by administrative decision said he would take himself as bound by the non‑binding rulings as if they were rulings, but that would not give them statutory force, would it? I mean, I have a lot of sympathy for the point you have elaborated now because the issue was in a sense squarely presented, but it is a question of whether technically it was before the AAT for decision.
MR JACKSON: Your Honour, there are really two things in a sense in what your Honour has put to me, I suppose. One is that there are rulings in which the Commissioner has stated what his position was in relation to them. I am sorry, perhaps I should also have added that if one looks at the catchwords at page 129 in the AAT’s decision, you will see one of the provisions referred to is Taxation Ruling 95/19, but I do not know how that could be.
KIRBY J: It might be done by a vigilant associate, not by the member.
MR JACKSON: It could be, your Honour. What I was going to say in response to what your Honour asked me was that there are some further taxation rulings that indicate the attitude to be taken by the Commissioner to the non‑binding rulings. Could I give your Honours a reference to those in just a moment. The second thing is this, that no doubt the Commissioner cannot dispense with the law except for ‑ ‑ ‑
GUMMOW J: I feel I am missing something with all of this, Mr Jackson. What affectation flows for the parties’ legal rights from the existence or non‑existence of this ruling and the reliance or non‑reliance upon it?
MR JACKSON: Your Honour, just this – that is actually the point I was about to come to and I am sorry to have taken so long to get to it. The point we would seek to make about it is simply this. In respect of the last two years, if the position be that following the ruling we would end up with less tax to pay than would be the case if there had not been the ruling under section 51(1) had a more limited interpretation than the ruling gave it, then we are entitled to the position as determined by the ruling.
GUMMOW J: What section says that?
MR JACKSON: Could I just come to that now.
GUMMOW J: So the 1985 ruling does not speak to any of this? It does not speak to any of this positive affection of legal rights, does it?
MR JACKSON: The ruling itself, your Honour, that is dealt with by statute.
GUMMOW J: No, but does the statute speak to the 1985 ruling as well as the 95 one?
MR JACKSON: Yes, your Honour, yes, it does. Your Honour, the provisions are set out in the attachment to our learned friends’ submissions in reply, and on the last three pages, I think, last four pages, your Honours, you will see a heading “Attachment” and then on the second page of that attachment, you will see a section numbered 14ZAAE:
The Commissioner may make a public ruling on the way in which, in the Commissioner’s opinion, a tax law or tax laws would apply to any person in relation to a class of arrangements.
Then ZAAF:
a tax law or tax law would apply to a class of persons in relation to an arrangement.
Then it is elaborated on further in the next provision, ZAAG:
would apply to a class of persons in relation to a class of arrangements.
Now, if one turns the page, your Honours, to ZAAH(1):
a public ruling about a class of arrangements applies to all arrangements in the class, whether past, present or future.
Then, your Honours, there is a provision in ZAAH(2) which allows it to start at a specific nominated date, but, your Honours, the earliest possible starting date in cases where there is no nominated date, as the case here, is 1 July 1992. That is because of the provision which is at the bottom of page 3, that is section 12(2) of the Taxation Laws Amendment (Self Assessment)Act.
HAYNE J: Now, what is it in these provisions that makes the earlier ruling to which you have referred a public ruling as defined at page 2 of these notes?
MR JACKSON: Nothing.
HAYNE J: Therefore, the earlier ruling?
MR JACKSON: No, your Honour, the earlier ruling was never a public ruling which had any statutory force.
HAYNE J: And therefore does not bite by this legislation on this taxpayer.
MR JACKSON: No, that is so, your Honour, yes. That is why, your Honours, this only applies to the last two years.
KIRBY J: But do I take your argument to be that in the event that you would otherwise lose, that you so sufficiently raised the substance of the matter before the AAT and did not have a determination on the point that at least that matter, in fairness to the procedures that have been adopted, should be reserved to you and the matter should go back for determination, even though you did not raise the governing ruling, that you raised the substance of it by the previous ruling?
MR JACKSON: Your Honour, there is a matter on which I need to obtain some instructions - and I should be able to do so in just a moment - which may take away this issue altogether.
KIRBY J: Take away the appeal altogether?
MR JACKSON: No, your Honour. Whilst that is being done perhaps I could just indicate – I said to in answer to your Honour Justice Kirby a few moments ago that there were some rulings which dealt with the extent to which there might be departure from a taxation ruling or it would be treated as binding administratively. They are referred to actually in the appeal books. Your Honour will see a ruling 92/1 at page 390, the relevant paragraphs being, I think, at page 394, paragraphs 21 and 23, and page 399, another one, 92/20, paragraph 5.
I am sorry, I just do not think I can get instructions in a few moments. I thought I could but it is something on which I would need to discuss the matter with ‑ ‑ ‑
GLEESON CJ: You can discuss it after the conclusion with Mr Bloom and if you have agreed on anything you can send us a joint note to that effect.
MR JACKSON: I take it your Honour is intending I should go on.
GLEESON CJ: Yes, you go ahead. You and Mr Bloom can put what you want to put. If you agree on anything later then you can let us know the terms of your agreement.
MR JACKSON: Thank you, your Honour. Your Honours, the point to which I was going was this. Your Honours were asking me why does it all matter, in effect, and what your Honours will see then is that from the public ruling provisions I have referred to in 14ZAAE to H and your Honours will then see in 14ZAAI on the third page the ruling is made public by publishing it and so on.
Now, your Honours, the position which then obtains is set out on the third page in the provisions of that annexure and your Honours will see that there is a reference to section 170BA and 170BA(3) provides that if:
there is a public ruling on the way in which an income tax law applies to a person in relation to an arrangement (“ruled way”); and
(b) that law applies to a person in relation to that arrangement in a different way -
that is apparently different from the way in which the ruling so states, and -
(c) the amount of final tax under an assessment in relation to that person would…..exceed what it would have been if that law applied in the ruled way;
the assessment and amount of final tax must be what they would be if that law applied in the ruled way.”
So, in effect, the rule becomes the law for the purposes of the particular case.
KIRBY J: Now, just let me pause there. That means that an administrative act by the Commissioner by force of this provision is said to overrule an Act of the Parliament of the Commonwealth.
MR JACKSON: Your Honour, it is a circumstance where the Parliament has said that the way in which the law is to operate is in accordance with the rule so there was statutory backing for it and we are not challenging its validity in any way, your Honour.
GUMMOW J: It relies on the reasoning in Girris’ Case, I suppose, ultimately.
MR JACKSON: Yes. Girdis, I think. I am not sure. But, your Honours, yes, that is so. So that is the way in which it applies. The next thing, your Honours, is this. Does it apply to a case such as the present and that issue arises because of the definition of the term “arrangement” on page 2 in section 14ZAAA which says it includes a:
scheme, plan, action, proposal, course of action, course of conduct, transaction, agreement, understanding, promise or undertaking; or
(b) part of an arrangement
Now, your Honours, the issue that that gives rise to comes about because of the last provision referred to on page 3 of the document to which I have been referring and that is that it says:
In spite of section 14ZAAH…..a public ruling does not apply to any arrangement within the meaning of s14ZAAA as so amended that began to be carried out before 1 July, 1992…”
GUMMOW J: Yes. So if we take the 1995 ruling, it can look backwards but it cannot be operative further backwards than 1 July 1992.
MR JACKSON: Yes, that is so, your Honour. However, your Honour will see the definition of “arrangement” in 14ZAAA. It refers, amongst other things, to a “course of action” and a “course of conduct”. As we would understand the proposition, the argument for the other side would say that because we had been doing the same thing in the two preceding years, or perhaps earlier than that, that therefore there was a course of conduct that was in being prior to 1 July 1992 and that therefore the public ruling could not apply to it. What we would seek to say in response to that is simply this: that when the term “arrangement” uses the various terms that are referred to there, it is referring to in each case, a scheme, et cetera, or course of conduct, which has an operative effect in relation to the year of income.
GUMMOW J: Yes. This definitional and construction debate did not take place before Mr Justice Foster, did it?
MR JACKSON: No, your Honour.
GAUDRON J: He did not have to decide it, though.
MR JACKSON: No, your Honour, he did not, nor did the Full Court.
GAUDRON J: No.
GUMMOW J: No, but was it debated?
GAUDRON J: Was it debated? Was there any argument about it?
MR JACKSON: I do not think the argument before Justice Foster is before your Honours. Perhaps the easiest way would be if I, in due course, gave your Honours copies of the relevant pages of the transcript of argument with the passages dealing with this marked. But, certainly, 95/19 was referred to and some argument took place about it. Without taking your Honours to the particular pages, I do not think I could answer your Honour more fully at this point, but could we take that course in relation to the matter?
GLEESON CJ: Yes.
MR JACKSON: Your Honour, subject to that, those are our submissions.
GLEESON CJ: Thank you, Mr Jackson. Mr Bloom, in relation to the notice of contention, it seems to be an issue that might disappear this afternoon. Are you happy if we take the course that we give you seven days to put in writing any submissions you want to make in response to what Mr Jackson has said about that, assuming you do not agree, and he can then have a further seven days in which to put in a reply to whatever you want to put?
MR BLOOM: Certainly, your Honour.
GLEESON CJ: And so we will hear you now in reply on what I might call the merits of the case.
MR BLOOM: Thank you, your Honour. My learned friend in answer to a question your Honour Justice Hayne posed about needing a connection between the derivation of the income, whether it is global or otherwise, gave an answer which said that in order to earn the assessable income in toto it is necessary to travel from A to B.
But that is true of a taxpayer who has only one job. He has only one source of assessable income and for him travelling from home to work, A to B, is as necessary in order for him to earn all of his assessable income and it does not change the nature of the expense in travelling from A to B. It still remains a non‑working expense in its essential character. It has no connection with the earning of assessable income at either A or B. It is for that reason that the reasoning in Lunney, which has been applied and approved so many times, would lead to the result that the expenditure in this case, leaving the question of residence aside, would not be deductable.
My learned friend sought to make something of the differences between the English legislation and section 51(1) but they were not differences which appealed to those Judges who comprised the High Court majority in Lunney. Sir Owen Dixon made specific references to the fact that the legislation was different but said no different result ought to apply. He referred to Dr Hannan, who had said the same thing. The joint judgment likewise said that it that made no difference that the legislation was different; the same underlying principle applied.
In Ricketts v Colquhoun words can be found in Lord Justice Somervell’s judgment, for instance, talking about the expenditure not being incurred in the course of the pursuit of the activities. So that the same sort of language is used to deny deductability as appears ‑ ‑ ‑
KIRBY J: Well, I have a bit of a problem with that. I mean, I thought the point you made with the foreign authorities was good until Mr Jackson pointed out ‑ there seems to me to be a difference between saying it has to be wholly ‑ ‑ ‑
MR BLOOM: But “wholly” may go to the question of apportionment, and they focus in their judgments, your Honours, and speeches in the English cases on two things: wholly and exclusively, and in the performance of the duties. They say repeatedly that it is neither wholly or exclusively, nor in the performance of the duties. That is the reason, with respect, we think that the High Court found them to be of utility in delivering judgment in Lunney.
The Canadian case is a very good example. My learned friend took you to one only of the sections that the Supreme Court considered in Mahaffy, but there were two and it was held that neither applied. If your Honours go to tab 3 of the overseas authorities and look at the headnote on page 451:
2. Such expenses are “not wholly, exclusively and necessarily laid out or expended for the purpose” –
but then, and my learned friend did not take you to this:
Travelling expenses incurred by the appellant are not “travelling expenses … in the pursuit of a trade or business –
and if one goes over to page 453, that subsection is addressed by the majority judgment:
We do not think the words used in subsection 5(1)(f) are apt to include the expenses now in question…..in the pursuit of a trade or business.
The occupation of Members of Provincial Legislative Councils and Assemblies is neither a trade nor a business. The travelling expenses there mentioned are in the nature, for example, of expenses of commercial travellers.
And it refers to Ricketts v Colquhoun. Now, these days, one supposes the necessities are that members of Parliament have an office in their electorate, and would usually be travelling from that office to Parliament and back, and so would be in those circumstances travelling “on work”.
But, certainly, unless it can be said that the travel is again in the nature of its essential character, is in the nature of working expense, it is for the same reasons given by their Honours non-deductable.
HAYNE J: Their Lordships disposed of 5(1)(f), did they not, on the basis that members of Parliament are not in trade or business?
MR BLOOM: That was one aspect of it, yes, your Honour, but not entirely - in the pursuit of. Justice Rand dealt separately with that point.
GUMMOW J: Yes, he said they are neither in trade nor they are in business.
MR BLOOM: I am sorry, your Honour. I do not want to overstate it.
GUMMOW J: That is what he said.
MR BLOOM: I had thought ‑ ‑ ‑
GUMMOW J: But you are right.
MR BLOOM: I am sorry, your Honour?
GUMMOW J: You are also correct, looking at the fifth-last line on the ‑ ‑ ‑
MR BLOOM: I had thought he had dealt specifically with that point, your Honour. I would not want to mislead the Court. Green’s Case, finally, did not, even though they had thought it had been referred to with approval by the majority in Lunney, commend itself to their Honours in the majority in the Full Court as necessitating the result to which they came, and I simply refer your Honours to paragraphs 58 and 59 at page 381 of the appeal book and 450 of the Federal Court Reports.
Finally, your Honours, the only reason that we referred to section 8(1), I am reminded by Mr Gibb, as containing the same expressions as section 51(1) was in answer to the proposition that perhaps Lunney’s Case should somehow be reversed in its thinking. If your Honours please, those are our submissions.
GLEESON CJ: Thank you, Mr Bloom. We will reserve our decision in this matter and the Court will adjourn until 9.30 tomorrow morning in Canberra and 9.30 tomorrow morning in Sydney.
AT 4.41 PM THE MATTER WAS ADJOURNED
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