Confidential and Commissioner of Taxation

[2009] AATA 478

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 478

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2008/2063

TAXATION APPEALS DIVISION		)
Re		CONFIDENTIAL

Applicant

And COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal Mr A Sweidan, Senior Member    

Date26 June 2009

PlacePerth

Decision

The Tribunal:

1.    Affirms that part of the respondent’s reviewable objection decision dated 17 March 2008 (the decision) which disallowed a deduction for expenditure on accommodation and meals totalling $17,540.00 and expenditure on phone cards and mobile phone calls totalling $881.00;

2.    Sets aside that part of the decision which disallowed deductions for a conference, study trip and careers fair totalling $4,088.00 and which imposed a tax shortfall penalty; and

3.    Remits the matter to the respondent with a direction to issue an amended assessment in accordance with the Tribunal’s decision.

.......(sgd) Mr A Sweidan...........................

Senior Member

CATCHWORDS

Income Tax - deductions claimed for living expenses incurred while applicant attending 2 year residential study course for a Masters degree at an overseas university - whether expenditure private or domestic in nature - whether applicant established a new home overseas - factors to consider - held new home established - decision under review affirmed

LEGISLATION

Income Tax Assessment Act - s 8-1(1) and (2)

Taxation Administration Act 1953 s14ZZK

Taxation Ruling TR 98/9

CASES

Lunney v. FC of T; Hayley v. FC of T (1958) 100 CLR 478; (1958) 11 ATD 404.
Ronpibon Tin NL v. FC of T (1949) 78 CLR 4; (1949) 8 ATD 431
Charles Moore & Co (WA) Pty Ltd v. FC of T (1956) 95 CLR 344; (1956) 11 ATD 147; (1956) 6 AITR 379
FC of T v. Cooper 91 ATC 4396; (1991) 21 ATR 1616
Roads and Traffic Authority of NSW v FC of T 93 ATC 4508; (1993) 26 ATR 76
Case E34 5 TBRD (NS) 205
4 CTBR (NS) Case 99
Board of Review decisions:
Case N13 13 TBRD (NS) 45
10 CTBR (NS) Case 98
Case N16 13 TBRD (NS) 65
10 CTBR (NS) Case 99
Case N19 13 TBRD (NS) 76
Case N20 13 TBRD (NS) 79

REASONS FOR DECISION

26 June 2009 Mr A Sweidan, Senior Member    

Reasons for Decision – Background and Issues in Dispute

1.In his income tax return for the year ended 30 June 2006 the applicant claimed a deduction for work related self-education expenses.  The expenses related to his study for a Master’s degree at a University in the United States (the USA University).

2.The respondent conducted an audit of the applicant’s claim for self-education expenses. The applicant provided information related to his claim. By letter dated 29 May 2007 the respondent notified the applicant of the completion of the audit. The respondent applied his Taxation Ruling TR 98/9 and accepted that self-education expenses totalling $49,749 were deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 97) as they had a relevant connection to the applicant’s income earning activities as a lawyer. However the respondent considered that some of the claimed expenses were not deductible under section 8-1 of the Act on the grounds that they were private or domestic in nature.

3.The respondent issued a notice of amended assessment dated 6 June 2007 disallowing some of the self-education expenses.  On the same date the respondent also issued a notice of assessment and liability to pay penalty of $1,908.35.

4.The applicant lodged a notice of objection dated 24 November 2007 against the notice of amended assessment and the notice of assessment and liability to pay penalty, with attached material in support.  In a schedule he listed the items in dispute as follows:

Accommodation and food	18,421
Internship expenses	2,249
Conference expenses	283
Study trip	3,575
Careers fair	230
$24,758

5.In a further schedule the applicant set out a break-up of the deductions for each of the items in dispute.  Relevantly, the break-up of the deductions for accommodation and food is as follows:

Aug to Jun	Various apartment items < 300	956
Aug to Jun	Rent on apartment Aug to Jun 06	13,850
Aug to Jun	Groceries	2,643
24 Oct 05	Bathroom goods	16
Aug to Jun	Lunches at university	75
Aug to Jun	Phonecards	164
Aug to Jun	Mobile phone costs	717
$18,421

6.In a notice of decision on objection dated 17 March 2008 the respondent partially allowed the objection, allowing a further deduction of $2,249 for internship expenses.  An amended assessment to give effect to the partial allowance of the objection issued on 15 April 2008.

7.The applicant lodged an application for review of the objection decision.

8.On 11 August 2008 the applicant filed a Statement of Facts and Contentions attaching further information relevant to his claim (applicant’s SFC).

9.In a letter dated 12 August 2008 the respondent advised the applicant and the Tribunal that the expenses relating to the conference, study trip and careers fair (totalling $4,088) were considered by the respondent to be allowable as deductions and therefore no longer in dispute between the parties.

10.In a further letter dated 15 December 2008 the respondent advised the applicant and the Tribunal that the respondent had decided to remit the tax shortfall penalty.

11.Therefore the issues still in dispute are the deductibility of the expenses set out in paragraph 5 above.  They fall into 2 categories: expenditure on accommodation and meals totalling $17,540; and expenditure on phone cards and mobile phone calls totalling $881.

FACTS

The following facts are not in dispute

12.From January 1996 to December 2000 the applicant studied for law and commerce degrees at a university in Melbourne.  During this period he spent the majority of time living at one of the university’s residential colleges. He returned to his parent’s home in country Victoria on vacations.

13.After completion of his degrees, the applicant spent one year travelling overseas before living in rented premises in Melbourne.

14.In February 2002 the applicant commenced employment with a law firm in Melbourne. Before leaving to study for his Masters degree in August 2005, he practiced as a lawyer with the firm.

15.During the period February 2002 to August 2005 the applicant was single and lived at a university residential college in Melbourne and paid subsidised rent in exchange for providing weekly tutorials and other residential duties.

16.In March 2005 the applicant was offered entry into the Master’s degree program at the USA University. In April 2005 he accepted the offer.

17.The applicant was granted a 2 year leave of absence from 7 September 2005 to 7 September 2007 by his employer. He never returned to the firm.

18.In April 2005 the applicant applied for the lease of a 2 bedroom apartment owned by the USA University and available to students in the program, to be shared with another student, to commence 15 August 2005 and continue for the 2005/2006 academic year.

19.In August 2005 the applicant travelled to the United States and commenced living in the 2 bedroom apartment leased from the USA University (the first apartment).  He shared the first apartment with a fellow student from Africa. The applicant says that he and his roommate furnished the first apartment with the bare minimum of items.

20.The applicant had a girlfriend who remained in Australia during 2005.  At the commencement of 2006 she moved to Canada for study purposes.

21.During the period from 15 August 2005 to May 2006 the applicant undertook the first year of the Master’s degree course and lived in the first apartment.  He left the first apartment to undertake various short self-education related courses and private travel from time to time including visiting his girlfriend in Canada.

22.In May 2006 the applicant and his girlfriend entered into a lease for another apartment (the second apartment) and he moved various possessions into that apartment.

23.From June until late August 2006 the applicant lived in a South American country, undertaking an internship related to his Master’s degree.

24.In late August 2006 he returned to live with his girlfriend in the second apartment and commenced his second academic year of study for the Master’s degree which he completed in June 2007.

Legislation

25.In so far as it is relevant for present purposes, section 8-1 of the ITAA 97 provides as follows:

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 ... .

8-1(2) However, you cannot deduct a loss or outgoing to the extent that:

(b) it is a loss or outgoing of a private or domestic nature ... .

26.Paragraph 14ZZK(b) of the Taxation Administration Act 1953 (TAA) provides that the applicant has the burden of proving that the assessment is excessive.

Commissioner’s Taxation ruling TR 98/9

27.Taxation Ruling TR 98/9 deals with the deductibility of self-education expenses. Paragraphs 32 – 36 discuss the general principles of deductibility under the first positive limb of section 8-1 of the ITAA 97. Paragraphs 33 – 34 are as follows:

33. The High Court of Australia has indicated that the expenditure must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense (Lunney v. FC of T; Hayley v. FC of T (1958) 100 CLR 478 at 497 498; (1958) 11 ATD 404 at 412). There must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of the assessable income (Ronpibon Tin NL v. FC of T (1949) 78 CLR 47 at 56; (1949) 8 ATD 431 at 435).

34. Consequently, it is necessary to determine the connection between the particular outgoing and the operations by which the taxpayer more directly gains or produces his or her assessable income (Charles Moore & Co (WA) Pty Ltd v. FC of T (1956) 95 CLR 344 at 349-350; (1956) 11 ATD 147 at 148; (1956) 6 AITR 379 at 384; FC of T v. Cooper 91 ATC 4396 at 4403; (1991) 21 ATR 1616 at 1624; Roads and Traffic Authority of NSW v. FC of T 93 ATC 4508 at 4521; (1993) 26 ATR 76 at 91). Whether such a connection exists is a question of fact to be determined by reference to all the facts of the particular case.

28.TR 98/9 discusses the types of self-education expenses that are considered by the respondent to be allowable under section 8-1. Commencing at paragraph 88 it discusses expenditure on accommodation and meals (as part of a travel expense) and the circumstances in which it will be private or domestic in nature and therefore excluded from deductibility by paragraph 8-2(b):

‘88. Expenditure on accommodation and meals ordinarily has the character of a private or domestic expense. However, the occasion of the outgoing may operate to give the expenditure the essential character of an income-producing expense. An example is where the expenditure is incurred while away from home overnight on a work-related activity (Case E34 5 TBRD (NS) 205 at 211; 4 CTBR (NS) Case 99 at 587; FC of T v. Cooper 91 ATC 4396 at 4415; (1991) 21 ATR 1616 at 1638; Roads and Traffic Authority of NSW v. FC of T 93 ATC 4508 at 4521; (1993) 26 ATR 76 at 92).
89. Where a taxpayer is away from home overnight in connection with a self-education activity, accommodation and meals expenses incurred are deductible under section 8-1. (Examples include an overseas study tour or sabbatical, a work-related conference or seminar or attending an educational institution.) They are part of the necessary cost of participating in the tour or attending the conference, the seminar or the educational institution. We do not consider such expenditure to be of a private nature because its occasion is the taxpayer's travel away from home on income-producing activities.
90. However, we believe that comments by Hill J in the Roads and Traffic Authority of NSW support our view that there may be exceptions to the general rule outlined in the previous paragraph. The case raised issues concerning the application of fringe benefits tax where workers required to camp at the work site, were paid a camping allowance. It was necessary for his Honour to consider whether expenditure on meals in the circumstances would have been deductible under section 8-1. In considering the question he stated (93 ATC at 4523; 26 ATD at 94 and 95) that:

'An employee who had no private home and was employed indefinitely to work at a particular site and did in fact work for the whole of his employment at that site, might be said to have chosen to live at the site so that the cost of his accommodation there would be private.'

91. In our opinion, the same principle applies when a taxpayer establishes a new home. In these circumstances, expenditure on meals and accommodation is private or domestic in nature and therefore not allowable under section 8-1.
92. Generally, it is obvious where a taxpayer's home is located. For example, if a taxpayer lives with her spouse and children in Sydney and travels to Melbourne for a 10-day seminar, her home remains in Sydney. Alternatively, if she sold the family home in Sydney and moved with the family to Harvard (USA) to do a two-year business course, her home would now be in Harvard.
When is a new home established?
93. The key factors to be taken into account in determining whether a new home has been established include:

·the total duration of the travel;

·whether the taxpayer stays in one place or moves frequently from place to place;

·the nature of the accommodation, e.g., hotel, motel, long term accommodation;

·whether the taxpayer is accompanied by his or her family;

·whether the taxpayer is maintaining a home at the previous location while away. The fact that the taxpayer did not maintain a home while away for an extended period was the decisive factor in characterising expenditure on accommodation and meals as private 'living expenses' in a series of Board of Review decisions: Case N13 13 TBRD (NS) 45; 10 CTBR (NS) Case 98; Case N16 13 TBRD (NS) 65; 10 CTBR (NS) Case 99; Case N19 13 TBRD (NS) 76; Case N20 13 TBRD (NS) 79; and

·the frequency and duration of return trips to the previous location.’

Tribunals’ Findings

Application Of The Law

Accommodation and meals

29.The Tribunal finds that the applicant established a new home while studying at the USA University: firstly at the first apartment during the 9-10 month period he lived there from 10 August 2005 until late May 2006; and then at the second apartment he leased from June 2006 and shared with his girlfriend from late August 2006 until June 2007.

30.In the Tribunal’s opinion an analysis of the key factors set out in paragraph 93 of TR 98/9 supports the Tribunal’s view that the applicant established a new home.

Total duration of the travel

31.The entire duration of the travel was a lengthy period of approximately 22 months (10 August 2005 until June 2007).

Whether the taxpayer stays in one place or moves frequently from place to place

32.The applicant did not move frequently.  There was one move from the first apartment to the second apartment, both of which are located in the same university town. Throughout the duration of his time at the USA University he maintained a home base at one of those apartments, from which he then undertook both private and self-education related travel.  In respect of the self-education related travel the Tribunal notes that the respondent has allowed deductions for the travelling and living expenses in respect of those trips.

The nature of the accommodation, e.g., hotel, motel, long term accommodation

33.It is clear that the first apartment was an apartment in which students would stay for reasonably lengthy periods while undertaking their courses (to be contrasted with more temporary accommodation such as a hotel).  The applicant’s lease ran for the duration of the 2005/2006 academic year.  That the apartment was according to the applicant ‘uninviting’, ‘furnished … with only the bare minimum of items’ and that the applicant shared with another student are not relevant factors in the Tribunal’s view.  It was the applicant’s personal choice to seek shared accommodation in an apartment owned by the USA University, and to furnish it to the extent he required.  He could have rented different accommodation similar to the second apartment, or have made the first apartment more comfortable if he chose.

34.The second apartment was also accommodation of a long term nature.

35.The Tribunal finds the assertion by the applicant that the accommodation in these apartments was temporary in nature is unacceptable.  It is apparent that the applicant chose to live in accommodation of this nature on a long term basis if it suited his purposes, including for some years in Australia prior to leaving for the USA University. In the Tribunal’s view it is clear that for the applicant this type of accommodation was relatively permanent in nature.

Whether the taxpayer is accompanied by his or her family

36.At the time he departed Australia in August 2005 the applicant was 29 years of age and had for some years been living at the residential university college in Melbourne.  He commenced living with his girlfriend at the second apartment in August 2006.

Whether the taxpayer is maintaining a home at the previous location while away

37.The applicant contends that he maintained his primary residence in Australia, specifically at his parent’s home in country Victoria where he says he ‘maintained a bedroom and retained the majority of … [his] possessions’.

38.The Tribunal finds that the evidence does not support the contention that the applicant did maintain a home in Australia while he was at the USA University. In particular his claim that country Victoria was his home base and that he was living temporarily away from that base while at the USA University is not supported by the evidence and is rejected by the Tribunal for the following reasons:

(a)He had not lived at his parent’s home in country Victoria for some years prior to his departure to the USA University.

(b)While studying for his law and commerce degrees he lived at the university residential college in Melbourne and only returned to his parent’s home on vacations.

(c)After completion of the law and commerce degrees he travelled overseas and then lived in rented accommodation in Melbourne for 10 months.

(d)From February 2002, until he left for the USA University, he again resided at the residential university college while employed at the Melbourne law firm.

(e)Since completing his Master’s degree at the USA University he has worked and lived in the USA and Africa.

(f)There is no evidence that the applicant ever had any intention of returning to live at his parent’s home.  The nature of his study at the USA University indicates in the Tribunal’s view that this was not a realistic possibility.

The frequency and duration of return trips to the previous location

39.The applicant only returned to Australia for brief periods while studying at the USA University.  Even following completion of his Master’s degree he has lived permanently outside Australia.

40.The Tribunal finds that the applicant established a new home while studying at the USA University, and that therefore on the basis of the authorities cited in TR98/99 with which the Tribunal is in agreement  the expenditure he incurred on meals and accommodation while living there is private or domestic in nature and excluded from deductibility by paragraph 8-2(b).

Phone cards and mobile phone costs

41.The deductibility of expenses incurred by the applicant on phone cards and mobile phone costs falls to be determined according to paragraph 8-1(1)(a).  There must be a connection between the expenses and the activities by which the applicant currently derives his assessable income (see paragraph 34 of TR 98/8).  The onus is on the applicant to demonstrate a connection between the expenses and the course of education he was undertaking (for example, telephone calls to his lecturer to discuss the course).

42.The appropriate connection would not exist in respect of expenditure on telephone calls that were not related to his course of study, for example calls made to family and friends in Australia or his girlfriend in Canada.  Alternatively, such expenditure would be private and excluded from deductibility under paragraph 8-2(b).

43.The applicant has provided no evidence to support the deductibility pursuant to section 8-1 of the expenses on phone cards and mobile phone costs. As already noted the burden of proof lies on him pursuant to paragraph 14ZZK(b) of the TAA.

44.The applicant has failed to discharge the burden of proof which lies on him to establish that the expenditure on accommodation, meals and telephone calls is deductible (paragraph 14ZZK(b) of the TAA) and therefore that the amended assessment is excessive.

Decision

45.      The Tribunal:

45.1Affirms that part of the respondent’s reviewable objection decision dated 17 March 2008 (the decision) which disallowed a deduction for expenditure on accommodation and meals totalling $17,540.00 and expenditure on phone cards and mobile phone calls totalling $881.00;

45.2Sets aside that part of the decision which disallowed deductions for a conference, study trip and careers fair totalling $4,088.00 and which imposed a tax shortfall penalty; and

45.3Remits the matter to the respondent with a direction to issue an amended assessment in accordance with the Tribunal’s decision.

I certify that the 45 preceding paragraphs are a true copy of the reasons for the decision herein of Mr A Sweidan, Senior Member  

Signed: ........(sgd) Lan Huynh...............................................
  Associate

Date/s of Hearing  9 June 2009
Date of Decision  26 June 2009
Applicant’s Representative      Mr P Hoff  
Respondent’s Representative  Mr M Vincent        

Australian Taxation Office

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