AX03B and Commissioner of Taxation
[2002] AATA 665
•7 August 2002
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2002] AATA 665
ADMINISTRATIVE APPEALS TRIBUNAL )
) No AT2000/65
TAXATION APPEALS DIVISION ) Re AX03B
Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Mr M J Sassella, Senior Member Date7 August 2002
PlaceCanberra
Decision The tribunal decides as follows:
The decision under review in relation to gambling expenses is affirmed.
The decision under review in relation to motor vehicle expenses is affirmed.
The decision under review in relation to travel expenses is affirmed.
The decision under review in relation to “uniform and laundry expenses” is affirmed.
The decision under review in relation to seminar and developmental courses is affirmed.
The respondent’s alteration of the decision under review so as to allow a deduction in respect of the cost of computer books is consented to by the tribunal.
The decision under review in relation to computer equipment is affirmed.
The decision under review in relation to expenses related to loan interest charges and bank fees is affirmed.
The decision under review in relation to gifts and donations is affirmed.
The respondent’s alteration of the decision under review in relation to the medical rebate so as to increase the rebate to $422 is consented to by the tribunal.
The decision under review in relation to spouse rebate is affirmed.
As the applicant has been partially successful in his application for review the tribunal will refund his filing fee.
..............................................
Senior Member
CATCHWORDS
INCOME TAX – allowable deductions – substantiation required – substantiation where documents lost or destroyed – gambling expenses as deduction – motor vehicle expenses as deduction – travel expenses as deduction – uniform and laundry expenses as deduction – seminar and developmental courses as deduction – computer equipment depreciation as deduction – loan interest charges and bank fees as deductions – gifts and donations as deductions – medical rebate – spouse rebate.
Administrative Appeals Tribunal Act 1975 s 26
Income Tax Assessment Act 1997 ss 8-1, 26-5(1), 28-35, 28-60, 28-80, 28-100, 30-25, 34-10, 34-15, 900-10, 900-15(1), 900-25, 900-30(6), (7), 900-35, 900-40, 900-70, 900-75, 900-110, 900-115, 900-120, 900-195, 900-205
Babka v Federal Commissioner of Taxation (1989) 89 ATC 4963
Brajkovich v Federal Commissioner of Taxation (1989) 89 ATC 5227
REASONS FOR DECISION
7 August 2002 Mr M J Sassella, Senior Member CHRONOLOGY
1. On 8 February 2000 a delegate of the Commissioner of Taxation (“the respondent”) sent the Taxpayer (“the applicant”) a notice that an audit was to be conducted in relation to his 1999 tax return (T5). The items under review were listed. They were work-related deductions including car, travel, uniform and laundry, self-education expenses, deductions for interest and dividends and spouse rebate. A total of approximately $15,000 of deductions was to be looked at.
2. On 28 February 2000 a statutory declaration was completed by the applicant (T6) to the effect that he had inadvertently lost his tax documentation. He had been carrying it to and from his workplace when dealing with the respondent. Attached was all the documentation he had been able to “re-establish”. He also provided comments on claims on interest paid by him in respect of a loan he had from the Colonial Bank to cover gambling losses, the cost of shares and money for investing in property. He claimed gambling losses as genuine tax losses. T6 contains also information on a range of expenses claimed as tax deductions. The items include car expenses, travel expenses, clothing expenses, self-education expenses, work-related expenses, interest payments, school contributions and medical expenses.
3. On 29 May 2000 the ATO made its decision on the audit outcomes (T7). Most of the audited claims were disallowed. The allowance for interest and dividends was dramatically reduced. The allowance for gifts or donations was reduced by about two-thirds. A $400 odd medical rebate had been allowed. Reasons for each decision were then set out. For those completely disallowed, the reason generally was that the applicant had failed to produce any substantiating evidence. In T7-9 the Taxpayer’s claimed gambling losses of $60,000 were disallowed, as they were not incurred for the purpose of deriving assessable income. At T7-11 a penalty was imposed.
4. On 27 June 2000 the respondent issued its notice of assessment for 1999 (T3). Taxable income was $223,453. Several adjustments to work-related deductions appeared as a result of an audit. A penalty of some $3,750 for understatement of income was imposed. A Family Tax Assistance claim was rejected. The total amount of tax payable was $23,907.55.
5. On 27 July 2000 the applicant signed a notice of objection (T8). The applicant set out his response to numerous points in the ATO’s assessment. He objected to the penalty imposed, as he said he had not understated anything. Rather, he said, he had lost his receipts. He protested at unfair treatment, and pointed out that he could have dishonestly reconstructed a diary for travel expenses if he had wished to. He claimed he had received advice from a Colonial Bank consultant regarding interest and dividends. He did not believe that the review had been fair and reasonable. He complained of delays and of being assumed to be dishonest.
6. On 22 September 2000 the applicant was told by phone of the outcome of his objection (T10). His severance pay had been identified and removed from his taxable income and the penalties had been removed. On 29 September 2000 the respondent issued a written notice to the same effect (T11). The notice provided reasons in respect of the respondent’s conclusions in relation to:
·a redundancy payment;
·car expenses;
·gambling losses;
·failure to substantiate claims;
·medical expenses;
·Family Tax Assistance; and
·Penalties.
7. On 19 October 2000 the respondent issued an amended notice of assessment (T4). The applicant’s income had been revised downward to $183,653 based on information supplied. The total amount payable had become $1,115.75.
8. On 29 October 2000 the applicant lodged with the Administrative Appeals Tribunal (“the tribunal”) an application for review (T1). Reasons for his application were attached. He claimed that many items had not been correctly assessed. He claimed to be able to substantiate all of the gambling losses. He said the treatment he had received from the respondent had not been fair, timely or otherwise professional.
9. On 22 October 2001 the tribunal convened a hearing in the matter in Canberra. The applicant represented himself at the hearing. The respondent was represented by Ms A Lai from the Australian Taxation Office (“the ATO”). The tribunal had before it the following documentation:
·Exhibit TD1 – Document in lieu of a statement of reasons for decision together with copies of relevant documents (exhibits T1-T11).
·Exhibit A1 – Letter dated 9 April 2001 from applicant to the ATO.
·Exhibit A2 – Letter dated 19 June 2001 from applicant to the ATO.
·Exhibit A3 – Electronic mail message from applicant to ATO dated 19 October 2001.
·Exhibit A4 – Electronic mail message from applicant to ATO dated 20 October 2001.
·Exhibit R1 – Respondent’s statement of facts and contentions dated 10 October 2001.
·Exhibit R2 – Miscellaneous documents provided to the ATO by applicant.
·Exhibit R3 – Document entitled “Calculation of Medical Rebate”, undated.
FINDINGS ON MATERIAL QUESTIONS OF FACT WITH REFERENCE TO THE EVIDENCE AND OTHER MATERIAL IN SUPPORT OF THOSE FINDINGS
10. As Ms Lai indicated to the tribunal, s 8-1 of the Income Tax Assessment Act 1997 (“the 1997 Act”) provides the conceptual underpinning of the regime for allowable deductions from assessable income.
General deductions
8-1. (1) You can deduct from your assessable income any loss or outgoing to the extent that:
(a) it is incurred in gaining or producing your assessable income; or
(b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.
Note: Division 35 prevents losses from non-commercial business activities that may contribute to a tax loss being offset against other assessable income.
(2) However, you cannot deduct a loss or outgoing under this section to the extent that:
(a) it is a loss or outgoing of capital, or of a capital nature; or
(b) it is a loss or outgoing of a private or domestic nature; or
(c) it is incurred in relation to gaining or producing your exempt income; or
(d) a provision of this Act prevents you from deducting it.
…
11. Ms Lai highlighted that, in accordance with this provision, there must be a loss or outgoing incurred. There must, she said, also be a nexus between that loss or outgoing and the carrying on of a business for the purpose of gaining or producing assessable income. She then stressed that the loss or outgoing cannot be of a capital nature. She also suggested that a proportion of a loss or outgoing could be allowed as a deduction if only a portion of it was for the gaining of assessable income. The tribunal pauses to note also that the 1997 Act provides for a number of specific deductions, eg gifts to registered charities, that might not satisfy s 8-1.
12. In these reasons the tribunal will proceed to consider each head of objection in the Taxpayer’s application for review and will present its conclusions in relation to each head of objection as it is dealt with.
substantiation
13. Many of the Taxpayer’s problems with the ATO stem from the apparent absence of substantiation associated with his claimed deductions. In general terms two main types of substantiation are relevant in the Taxpayer’s case. The first type is evidence of money actually spent in relation to potentially deductible items, that is evidence of the amount spent and that it was the Taxpayer who spent it. The second is evidence of the usage of certain goods and services for business purposes where those goods and services are used for a variety of purposes.
14. The tribunal takes this opportunity to summarise something of the substantiation provisions, particularly as they relate to the Taxpayer’s claims. Not all provisions of the 1997 Act are set out in this discussion, however the relevant part of the 1997 Act can be located on the Internet[1].
·Substantiation is required for work expenses, car expenses and business travel expenses (s 900-10).
·A work expense must be an allowable deduction under another section of the 1997 Act and ideally is substantiated by obtaining written evidence (s 900-15(1)). Written evidence must be retained for five years (s 900-25). If the material is not so retained then the expense is not an allowable deduction (s 900-25(4)). If the evidence is lost then s 900-205 may assist (s 900-205(5)). Where work expenses total less than $300, including laundry expenses, there is no need to retain written evidence (s 900-35)).
·Generally a car expense is not a work expense (s 900-30(6)). Work expenses can include a decline in the value of property owned and used by the taxpayer to produce salary or wages (s 900-30(7)).
·Even if work expenses as claimed total more than $300, a taxpayer can deduct up to $150 for laundry expenses without written evidence (s 900-40(1)). This does not increase the $300 overall total permitted for unsubstantiated work expenses (s 900-40(2)).
·In substantiating car expenses the form of substantiation depends on the method used. If using the “one-third of actual expenses” method or the “log book” method of substantiation the taxpayer needs to substantiate using written evidence (s 900-70). Odometer records are a part of this. The written evidence must be retained for five years (s 900-75). The principles here are as for a work expense (discussed above).
·A taxpayer can obtain written evidence in a number of ways. It should exist before the lodging of the tax return or within a reasonable time after that (s 900-110). If the evidence is very late then the deduction should occur in the financial year when the evidence is forthcoming (s 900-110(3)). Evidence from a supplier may suffice unless the expense is decline in value of a depreciating asset such as a computer (s 900-115). In such a case there are special rules applying where reliance is on a supplier (s 900-120).
·Section 900-195 provides that “[n]ot doing something necessary to follow the rules [regarding substantiation] does not affect [a taxpayer’s] right to a deduction if the nature and quality of the evidence [the taxpayer has] to substantiate [his or her] claim satisfies the Commissioner” that he or she incurred the expense and he or she is entitled to deduct the amount claimed. If documents are lost or destroyed s 900-205 applies. A taxpayer can rely on a complete copy of the lost document. If there is no such copy, but the Commissioner is satisfied that the taxpayer took reasonable precautions to prevent the loss or destruction of written evidence, s 900-205 explains the procedure followed. The taxpayer must try and obtain substitute written evidence that fulfils the statutory criteria for the lost documents. If the taxpayer succeeds in this, then the substitute document is satisfactory. If it is not reasonably possible to obtain substitute documentation then the deduction is not affected by the failure to retain or produce the original document. If it is reasonably possible to obtain a substitute document and the taxpayer does not do so then the taxpayer obtains no relief from the requirements discussed above. In relation to lost or destroyed documents, Taxation Ruling TR 97/24 provides that, “if the circumstances of a particular case indicate that the loss or destruction of a document resulted from the taxpayer’s carelessness or recklessness, [s 900-205] does not apply to provide relief where the taxpayer does not have a complete copy of the lost or destroyed document” (paragraph 58).
[1] expenses
15. The Taxpayer claimed that he lost more than $60,000 gambling on poker machines in the relevant year. The money came from a redundancy payment. He argued that it should be a tax deduction because “Mr Packer is able to claim his gambling losses as a deduction”. It was the Taxpayer’s addiction, he said, that led to this financial loss. He saw the club as his workplace and wasted much time there. He had credit card receipts and records of cash withdrawals at licensed clubs as records of his gambling (T6-24 to T6-39). He had no system to use to try winning. He simply chose a machine and played it.
16. Ms Lai cited Brajkovich v Federal Commissioner of Taxation (1989) 89 ATC 5227 (full Federal Court) as authority for the proposition that it is a matter of fact whether a taxpayer’s gambling amounts to a business. The court held that gambling winnings are not assessable unless they are derived from a business or vocation. An isolated bet at the races does not produce assessable income or an allowable deduction. At page 5223 of the decision their Honours identified six criteria indicative that gambling may be a taxpayer’s business: whether the betting is conducted in a systematic, organised and “businesslike” way; the scale, ie the size of the wins and losses; whether the betting is related to, or part of, other activities of a business-like character, eg breeding horses; whether “the better” appears to engage in his activity principally for profit or principally for pleasure; whether the form of betting chosen is likely to reward skill and judgment or depends purely on chance; and whether the gambling activity in question is of a kind which is ordinarily thought of as a hobby or pastime.
17. In relation to the criterion of whether the form of gambling rewards skill or depends purely on chance, Hill J in the Federal Court in Babka v Federal Commissioner of Taxation (1989) 89 ATC 4963 held that the intrusion of chance into the activity as a predominant ingredient will usually preclude a finding that a punter is carrying on a business. Ms Lai suggested that this meant that a dedication to Lotto could not amount to the carrying on of a business because of the strong element of chance in Lotto results. She submitted that poker machines were in a similar category.
18. The Taxpayer suggested that a user of poker machines can adopt a system in that a run of bad luck for one user can be identified by another who might take over the machine and, on the law of averages, do better than his or her predecessor.
19. The tribunal finds that the Taxpayer was not carrying on the business of gambling. Addressing the Brajkovich (above) criteria the tribunal finds that there is no evidence that the use of the poker machines was conducted in a systematic, organised and businesslike way. The Taxpayer’s own evidence of his gambling addiction tends to support this assessment.
20. The tribunal finds that the scale of the exercise, while relatively large on the Taxpayer’s evidence in 1999, was not of itself sufficient to render this pastime a business. There would be a need for some evidence that the pastime was yielding results that would permit the Taxpayer to remain in the “business” for some substantial time.
21. The Taxpayer’s gambling was not ancillary to other activities of a businesslike character. In relation to the fourth criterion, whether the Taxpayer engaged in gambling principally for profit or for pleasure, the evidence was that he engaged in gambling as a result of an addiction. While it might be stretching the concept to describe this as gambling for pleasure, it was certainly not gambling principally for profit.
22. The tribunal finds that there is little or no skill or judgment involved in playing poker machines. This pastime depends on chance. The tribunal further finds that the use of poker machines is regarded ordinarily as a hobby or pastime and not as a business.
23. The tribunal therefore affirms the decision under review in relation to gambling expenses. As the Taxpayer was not carrying on the business of gambling his gambling expenses are not allowable deductions. It is unnecessary to comment on the applicant’s substantiation via bank and credit card statements.
motor vehicle expenses
24. $2,000 was claimed originally in relation to these expenses. In the audit this rose to $2,350 (T6-69). He had spent $2,000 on a reconditioned engine for the car which he used for travel to clients’ premises scattered throughout the ACT. The $350 was in respect of other expenses that could not be substantiated because the Taxpayer had lost his receipt book and notebook.
25. The audit results disallowed $2,000 of these expenses for failure of substantiation using the log book method. The objection outcome allowed $218 as a deduction based on the “cents per kilometre” method. The respondent accepted that 420 kilometres of travel had been for business purposes. The Taxpayer had provided an invoice relating to the reconditioned engine (T6-67). However, no allowance had been made for this expense because there was no evidence of a business component involved in this expense.
26. The Taxpayer put to the tribunal that the 420 kilometres figure had been a guess. In the latest financial year he had logged over 1,000 kilometres as business-related. He told the tribunal that on reflection he would have travelled over 1,000 kilometres in 1998-1999 for business purposes because he was working at two jobs then.
27. Ms Lai submitted that the applicant had not met the substantiation requirements using the log book method and could not claim the amount actually spent. Subdivision 28B of the 1997 Act provides for four methods available for the calculation of car expense deductions. Each of them requires a form of substantiation (ss 28-35, 28-60, 28-80 and 28-100).
28. The tribunal affirms the decision under review in respect of the motor vehicle expenses. The lack of substantiation is an insurmountable problem. The CCH Australian Master Tax Guide 2002 (“the AMTG”) summarises (paragraph 14-340) the effect of the 1997 Act provisions permitting the respondent to grant relief from the substantiation requirements. Relief may be granted if the nature and quality of the evidence the taxpayer can produce satisfies the respondent that the taxpayer incurred the expense and is entitled to deduct the amount. Section 900-195 of the 1997 Act applies. As the AMTG says, “A bona fide attempt to comply with the requirements is likely to prompt the exercise of the discretion, but unsupported statements will not”. In paragraph 14 above it was noted that Taxation Ruling TR 97/24 holds that s 900-205 does not apply to grant relief where a taxpayer has lost substantiating documents through careless or recklessness. The tribunal notes the Taxpayer’s explanation in the statutory declaration at T6-1 to the effect that he had inadvertently lost or misplaced an envelope with his receipts and notebooks which he had carried each time to his workplace when he queried the ATO about delay. The tribunal finds that the applicant was careless in his handling of his documentation in losing track of it, as he described.
travel expenses
29. The Taxpayer claimed a deduction for $300 in the form of travel expenses. This claim related to parking fees and fines and the Taxpayer had retained no receipts because the claim was only $300.
30. The Taxpayer told the tribunal that most of this money related to parking fines. Ms Lai cited s 26-5 of the 1997 Act for the proposition that parking fines are not allowable deductions. Section 26-5 reads:
Penalties
26-5. (1) You cannot deduct under this Act:
(a) an amount (however described) payable, by way of penalty, under an *Australian law or a *foreign law; or
…
31. Probably addressing the parking fees, Ms Lai also made the point that substantiation would be required under Subdivision 900B of the Act because this was one of many work-related expenses which together totalled over $300. The other work-related expenses were for self-education, a uniform, laundry and computer depreciation. In relation to parking fees, it would be necessary to show how payment of these helped in gaining or producing assessable income.
32. The tribunal accepts Ms Lai’s submissions regarding lack of substantiation and finds that the Taxpayer’s claim in respect of travel expenses was not an allowable deduction. The tribunal therefore affirms this aspect of the decision under review.
uniform and laundry expenses
33. The Taxpayer claimed a total of $80 for expenses under this heading. $20 was for laundering of his clothing. $30 related to the purchase of uniform. $30 related to damage to his tie which was beyond repair. The Taxpayer wore shirts with the company logo exhibited on them. His employer, CSC Australia Pty Ltd, did not have a listing on the register of approved occupational clothing and the Taxpayer had no receipts for substantiation of these expenses. The respondent had allowed nothing under this heading.
34. Ms Lai referred to the relevant provisions of the 1997 Act:
What you can deduct
34-10. (1) If you are an employee, you can deduct expenditure you incur in respect of your non-compulsory uniform if:
(a) you can deduct the expenditure under another provision of this Act; and
(b) the design of the uniform is registered under this Division when you incur the expenditure.
Note 1: This Division also applies to individuals who are not employees: see Subdivision 34-A.
Note 2: Employers apply to register designs of uniforms: see Subdivision 34-C.
(2) You cannot deduct the expenditure under this Act if the design is not registered at the time you incur the expenditure.
(3) However, this Division does not stop you deducting expenditure you incur in respect of your occupation specific clothing or protective clothing.
What is a non-compulsory uniform?
34-15. (1) What is a uniform?
A uniform is one or more items of clothing (including accessories) which, when considered as a set, distinctively identify you as a person associated (directly or indirectly) with:
(a) your employer; or
(b) a group consisting of your employer and one or more of your employer's associates.
(2) When is a uniform non-compulsory?
Your uniform is non-compulsory unless your employer consistently enforces a policy that requires you and the other employees (except temporary or relief employees) who do the same type of work as you:
(a) to wear the uniform when working for your employer; and
(b) not to substitute an item of clothing not included in the uniform for an item of clothing included in the uniform when working for your employer;
except in special circumstances.
35. The Taxpayer explained that he had to wear the shirt bearing the logo if going on site. Three shirts had been given to him by the employer. His responsibility was to keep them laundered. The tie in question also bore a CSC logo.
36. It was noted that if uniform is compulsory and distinctive it may be deductible. Ms Lai submitted that in the Taxpayer’s return for the tax audit (T6-62) he described the uniform as “non-compulsory”. The Taxpayer explained that he had meant by this that he did not have to wear the uniform on a daily basis. He had to wear it on two or three days a week on average. If he saw a client without the company shirt and tie he would have to provide an explanation to the employer. His first tie had been given to him free but he had to pay $30 for the replacement tie. The Taxpayer had no receipts.
37. Ms Lai explained that in 1999 a maximum of $150 was allowable for laundry and $300 was the maximum total allowed for unsubstantiated work-related expenses. Where work expense claims totalled more than $300 substantiation for all of those included in the total was required, save that in such a situation up to $150 could nevertheless be claimed for laundry expenses free of substantiation. Section 900-40 of the 1997 Act relates to laundry expenses and their substantiation:
Exception for laundry expenses below a certain limit
900-40 (1) Even if the work expenses you claim total more than $300, you can still deduct up to $150 of laundry expenses without getting written evidence of them.
(2) However, this exception does not increase the $300 limit in section 900-35 to $450: your laundry expenses still count toward that limit.
Example: You want to deduct laundry expenses of $140 and union dues of $200. These work expenses total more than $300, so the exception in section 900-35 doesn't apply. This means you must substantiate the union dues expense. However, because of the exception in this section, you don't need to get written evidence of the laundry expenses.
(3) This limit can be increased from time to time by regulations made under section 909-1.
(4) A laundry expense is a work expense to do with washing, drying or ironing clothes (but not dry cleaning).
38. However, the laundry expenses must be properly a work-related expense. The tribunal finds that the CSC uniform was non-compulsory. The AMTG explains that “[t]he fact that an employer requires a taxpayer to dress in a particular way for work will not of itself be sufficient to allow a deduction. Deductions have been disallowed, for example, to a female shop assistant required to wear an ordinary black dress to work (citation omitted) and to another required to wear a black skirt and white blouse (citation omitted). … Expenditure incurred by an employee on an employer’s range of brand name conventional clothing, which is required to be worn as a condition of employment, is not deductible (citation omitted)” (paragraph 14-180).
39. The Taxpayer was not required to wear a “compulsory uniform” in the sense meant in the current discussion. The AMTG explains at paragraph 14-180 that compulsory uniforms are those such as are required to be worn by police and airline pilots. These are generally deductible.
40. The tribunal finds that the Taxpayer’s non-compulsory uniform did not attract deduction status because the design was not registered as required by 34-10(2) of the 1997 Act.
41. The tribunal finds that the Taxpayer was not able to claim a deduction in respect of his laundry expenses, despite s 900-40 of the 1997 Act, because that applies only in relation to the laundering of protective clothing, occupation-specific clothing and compulsory and non-compulsory uniforms or wardrobes (AMTG, paragraph 14-180).
42. The tribunal affirms the decision under review in relation to uniform and laundry expenses.
seminar and developmental course expenses
43. The Taxpayer claimed $800 as self-education expenses for undertaking work-related courses and a two-day information technology (“IT”) seminar, as well as for books, disks and other materials. He had no receipts for these expenses when audited. He said that they had been misplaced or lost.
44. A letter from the Taxpayer’s employer was provided when the Taxpayer’s objection was being considered (ex R2/25). That letter stated that the Taxpayer attended seminars and short day training courses to improve his IT skills.
45. On 19 June 2001 the Taxpayer wrote to the respondent with an itemisation of the components of this claim (ex A2). He still had no receipts for the IT course and the firm involved had ceased trading. He produced a receipt to show that he had bought computer reference books in September 1998 for $593.95 (ex A2).
46. By the time of the hearing this claim had risen to $960 (ex A2). This was said to be an estimate. The Taxpayer had paid for the IT courses by cash or credit card and the credit card statements and receipts had been lost. It would cost him money to obtain replacements.
47. Ms Lai explained that these IT courses could be allowable as deductions if the requirements in s 8-1 of the 1997 Act were met. Such expenditure would be included as work expenses. They were not “self-education expenses” as not being in the nature of formal university or TAFE enrolments with some continuity. Such work expenses required substantiation, as discussed above in paragraph 37.
48. Ms Lai reported that the claim for books was allowed as having been substantiated (ex A4). The tribunal applies s 26 of the Administrative Appeals Tribunal Act 1975 (“the AAT Act”) to consent to the respondent making this alteration to the decision under review. Section 26 requires that the parties to the proceeding also consent. The tribunal is satisfied that they do so consent from their demeanour at the hearing.
49. The tribunal affirms the decision under review as it relates to expenses for seminars and developmental courses. The lack of substantiation for these expenses, substantiation being required for work expenses under Subdivision 900B of the 1997 Act, is fatal to this claim. The tribunal endorses the respondent’s decision in relation to expenditure on computer books.
computer equipment
50. In relation to computer equipment the applicant claimed in respect of two computers (one bought in 1994, the other in 1999) and peripheral equipment. The computer bought in 1999 was bought in the Taxpayer’s son’s name. The Taxpayer’s employer wrote to say that the Taxpayer used his home computer for work-related purposes (T8-3).
51. The applicant explained that he had won $5,000 on the poker machines in 1999 and gave the money to his son to buy a computer. It was purchased in the son’s name to attract a student discount, however it had been recorded that the Taxpayer paid for the machine. The Taxpayer used the new computer 85-90% of the time, with the family using it at other times. There were no records to substantiate this estimate. The applicant worked for CSC during the day and used the home computer to solve problems encountered during the day.
52. Ms Lai advised that the taxation treatment of this computer would be to take the sale price of $2,408 (T6-45), apportion its use as between private use and the Taxpayer’s business use [this could be done by retaining a diary recording a four-week sample of usage], and then administering a depreciation allowance. It was unclear at the hearing why the Taxpayer had claimed only $1,200 as the purchase price of this computer.
53. In relation to the older computer it was thought that its value had been amortised by 1999 in any event and there could be no further allowance for depreciation. This would apply also to peripherals bought also in 1994. There was no substantiation for $300 worth of other computer products bought in 1999.
54. The respondent’s position was that the 1999 computer had been bought by the applicant’s son. As this was an expense not incurred by the Taxpayer, he could not claim any relevant deduction in relation to it. At base, the Taxpayer had not shown that he expended the amount in question. He had not substantiated any such expenditure. There could be no deduction for the computer’s depreciation in the hands of the Taxpayer.
55. The tribunal notes two items of relevance. In T6-45 there is an invoice for the purchase of the computer dated 28 January 1999. The purchase price was $2,408. The invoice is annotated “Paid by [the Taxpayer] for my and family use”. The invoice is annotated, “customer collected 9.3.99 DB”. The invoice was for payment on delivery and delivery was signed for by the Taxpayer’s son on 9 March 1999. Payment was in cash. Further, in attachment B to ex A1, the applicant’s son wrote on 4 April 2001 in a letter to the ATO that his father gave him the cash to purchase the computer when he became impatient with his father’s procrastination. The Taxpayer’s son was “eager to get an internet compatible computer for home use as quickly as possible, so that [he] could use it for a research project at uni[versity]”. The Taxpayer’s son estimated that his father used the computer over 85% of the time when it was in use. The Taxpayer’s son wrote that it was meant to be purchased in the applicant’s name as he provided the capital for its purchase. However, the son had bought it in his name so as to obtain a student discount. The tribunal notes that the computer was bought from an affiliate to the Australian National University (“ANU”) (T6-45). This was PCTech, “a division of ANUTECH Pty Ltd” which had the same postal address as ANU.
56. Had the Taxpayer retained a diary demonstrating his and others’ use of the computer over a four-week period the tribunal would have been prepared to allow a deduction in respect of the depreciation of the computer bought in 1999. While it is true that there are estimates of the Taxpayer’s use of the computer, it is unclear whether these relate to his level of usage in 1999 or in 2001 or on an average over that time. Even that estimate varied, it being described as 85% to 90%. The tribunal is satisfied that the respondent acted correctly in disallowing this deduction and affirms the respondent’s decision on this point.
expenses related to loan interest charges and bank fees
57. The Taxpayer claimed (ex A1/5) $3,961 in deductions for interest expenses incurred as a result of taking out investment loans to pay for poker machine losses, Telstra shares and an investment property. During the audit he increased this claim to $8,217.
58. The respondent allowed a deduction of $104 for financial institution duty payments and adjusted The Taxpayer’s self-assessment to bring in the claimed deductions at $3,857. The Taxpayer produced substantiation for these claims (T6-21 to T6-44). The applicant reported no income from investments in 1999.
59. In evidence it emerged that the applicant had had his house extended in 1999 and the Colonial Bank had advised him on loan arrangements designed to assist his tax position. The extensions were not for a home office.
60. The Telstra shares had been bought in five names. If they had been bought to yield dividends with the Taxpayer making use of borrowed funds, then a deduction would be allowed for any interest paid on the loan used to buy the shares.
61. Exhibit A1/5 indicated that the Taxpayer borrowed $127,000. In handwritten annotations $20,000 was said to have been used to buy Telstra shares. The rest was used for the extensions and in paying gambling debts. The problem was that there was no evidence regarding when the Telstra shares had been bought or how much the Taxpayer had paid for them. These were Telstra II shares. The Telstra II shares were bought in 1998-99 but the loan had been taken out in 1997. There was no necessary connection between the receipt of the loan and the share purchase. The Taxpayer agreed that the money had been borrowed in joint names and the family had thought it might be used either for the shares or to reduce their mortgage.
62. Ms Lai conceded that, if the loan were for the purpose of buying shares that would generate income, then the interest would be a valid deduction. However, she said, it seemed that the Taxpayer had bought the shares for capital gain rather than income. Ms Lai mentioned in her statement of facts and contentions (ex R1) that the Taxpayer had reported no investment income in his 1999 tax return.
63. The tribunal affirms the respondent’s decision in respect of loan interest charges and bank fees.
gifts and donations
64. The Taxpayer claimed $1,344 for contributions to the Canberra Catholic Schools Building Fund and the expenditure was substantiated (T6-16 to T6-18). He claimed also for $948 for contributions to Mackillop Catholic College and St Clare’s College for the purposes of Parents and Friends school equipment and college levies. This was substantiated by receipts (T6-17 and T6-18).
65. The applicant claimed for $500 contributed to the Parish of St John the Baptist through the Canberra church school building fund, a fund for the construction of a building used as a school. This is substantiated at T6-19.
66. He claimed for $345 in the form of a donation of property to a church. This was substantiated at T6-15. It was payment for the fabric required for the making of religious vestments.
67. The Taxpayer claimed for $1,905 he had donated to various charities in Australia and overseas. These donations could not be substantiated as the receipts were lost or misplaced. Certain documents in support were provided in ex A1, but a number of them addressed donations in 2001 (eg ex A1/13, A1/17, A1/18).
68. The respondent had allowed deductions in relation to the contributions to the Canberra Catholic Schools Building Fund and the Canberra Church School Building Fund. Ms Lai explained that such gifts and donations have to satisfy Division 30 of the 1997 Act. Contributions to the building funds were within Division 30 (s 30-25, item 2.1.10). The college levies were not because they are for books and similar items. They were not gifts or donations because the applicant’s children received benefits in return for the payments.
69. As regards the $1,905 given to charities, ex A1, attachment F indicated that some of these donations were made in the wrong financial year, ie in 2001. Gifts to charities are tax deductible if they appear on the “Treasurer’s list”. This is a “deductible gift register” available on the Internet ( A receipt or cheque butt was said by Ms Lai to be adequate substantiation for gifts to entities on the register.
70. The tribunal can see no basis for interfering with the respondent’s decision in relation to these payments. The decision under review is therefore affirmed as regards gifts and donations.
medical rebate
71. The applicant claimed $1,643 ($670 backed up by receipts) in respect of medical expenses not reimbursed by Medicare or a health insurance fund in 1999. The Medibank Private annual statement was offered as substantiation (T6-8). He claimed for pharmaceutical goods purchased from a qualified pharmacist totalling $899. Pharmacist’s substantiation was provided (T6-6 to T6-7).
72. The Taxpayer had claimed $20 for a flu injection but he later indicated that its cost had been covered by Medicare and dropped the claim. He presented receipts totalling $740 for orthodontic expenses incurred for his dependent children in an amount of $4,440.
73. The respondent had allowed a medical expense rebate of $406 based on acceptance of $3,282 as having been spent on medical services. In T7-10 the respondent explained its decision. A rebate is available where a taxpayer, in 1999, had net medical expenses in excess of $1,250. The rebate was 25% of that excess. The expenses could be in respect of the taxpayer and/or a resident dependant. Medical expenses included payments to legally qualified medical practitioners, nurses or pharmacists in respect of an illness or surgery. The Taxpayer said that he had total medical expenses of $7,029.03 in 1999. He said that $1,643 was not refunded by Medicare or his private health insurer. He provided a record of purchases from a pharmacist (T6-6 – T6-7) totalling $899. The Taxpayer claimed that he had spent $4,440 for orthodontic expenses for his children. The documents showed that he had spent a total of only $740 for orthodontic treatment (T6-2 to T6-3). The orthodontic expense was incurred for treatment carried out in the previous year. Payments were in instalments. The respondent had no evidence that any more than $740 had been spent. Applying the rebate formula, $406 was derived.
74. In ex A4 the respondent presented a set of tables drawn from the documentary evidence available and allowed as the full amount paid to the orthodontist (ex R2) in 1998-1999 $1,445 for Lawrence and $1,424.50 for Anthea. Health Insurance Commission material (ex R2) indicated also that the respondent had since allowed as the amount not covered by Medicare $297.85. Medibank Private material (ex R2) indicated also that the respondent had since allowed as the amount not covered by Medibank $1,643. The pharmaceutical amount of $899 was accepted. Applying the rebate formula the correct final figure was shown to the tribunal to be $441.87, or $442 when rounded.
75. The Taxpayer suggested that the pharmaceutical figures amounted to $938.03. The respondent’s representative, and the tribunal, did their own calculations and arrived at $899.
76. The tribunal finds itself convinced by the material in ex R4 and finds that the correct deduction in respect of the medical rebate was $442. This was an alteration by the respondent to the decision under review. It was favourable to the applicant and a correct alteration in the opinion of the tribunal. The tribunal therefore consents to the alteration in accordance with s 26 of the AAT Act.
spouse rebate
77. The applicant declared his wife’s income as $19,940 in the 1999 tax return. No spouse rebate was payable in respect of a spouse with an income higher than $6,098. Section 195J(2) of the Income Tax Assessment Act 1936 (“the 1936 Act”) provided the rules as to calculation of this rebate. In 1999 $1,452 was the maximum payable. The spouse could earn up to $282 without affecting that amount. However, 25 cents of every dollar earned above $282 was deducted from the maximum amount. The operation of these rules meant that entitlement cut out when the spouse received annual income of $6,089 or more.
78. The Taxpayer argued that money paid for child care could be deducted from his wife’s income. This was unsubstantiated expenditure of some $6,000 in 1999. Unfortunately for the applicant, even if he were allowed to deduct this amount, his spouse nevertheless had earnings of $13,000, well in excess of $6,089.
79. The tribunal is satisfied that the Taxpayer had no valid claim for a spouse rebate. The decision on spouse rebate that is under review is affirmed.
CONCLUSION
80. The tribunal has upheld the constellation of decisions of the respondent in this matter and endorsed two alterations of decision by the respondent made in the course of this review.
DECISION
81. The tribunal decides as follows:
The decision under review in relation to gambling expenses is affirmed.
The decision under review in relation to motor vehicle expenses is affirmed.
The decision under review in relation to travel expenses is affirmed.
The decision under review in relation to “uniform and laundry expenses” is affirmed.
The decision under review in relation to seminar and developmental courses is affirmed.
The respondent’s alteration of the decision under review so as to allow a deduction in respect of the cost of computer books is consented to by the tribunal.
The decision under review in relation to computer equipment is affirmed.
The decision under review in relation to expenses related to loan interest charges and bank fees is affirmed.
The decision under review in relation to gifts and donations is affirmed.
The respondent’s alteration of the decision under review in relation to the medical rebate so as to increase the rebate to $422 is consented to by the tribunal.
The decision under review in relation to spouse rebate is affirmed.
As the applicant has been partially successful in his application for review the tribunal will refund his filing fee.
I certify that the 81 preceding paragraphs are a true copy of the reasons for the decision herein of Mr M J Sassella, Senior Member
Signed: .....................................................................................
AssociateDate of Hearing 15 October 2001
Date of Decision 7 August 2002
Counsel for the Applicant Self-represented.
Counsel for the Respondent Ms A Lai, ATO
Solicitor for the Respondent Mr Iain Anderson, ATO Solicitor
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