Elder and Commissioner of Taxation

[2007] AATA 1592

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2007] AATA 1592

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No VT200600177

TAXATION       APPEALS        DIVISION		)
Re		THOMAS ELDER

Applicant

And COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal Mr B.H. Pascoe, Senior Member

Date26 July 2007

PlaceMelbourne

Decision The Tribunal affirms the decision under review.

(sgd) B.H. Pascoe

Senior Member

ADMINISTRATIVE APPEALS TRIBUNAL           N° VT200600177

TAXATION       APPEALS       DIVISION

Re:           THOMAS ELDER

Applicant

And:COMMISSIONER OF TAXATION

Respondent

ORDER

Tribunal:       Mr B.H. Pascoe, Senior Member

Date:              31 July 2007

Place:            Melbourne

Being satisfied that it is desirable to do so, the Tribunal hereby ORDERS in accordance with s 35(2)(b) of the Administrative Appeals Tribunal Act1975, that access to and publication of the names of the officers of the respondent in the applicant’s letter of complaint dated 3 March 2006 (T5) be restricted to the applicant and the respondent’s representative/s who have conduct of application N°VT200600177.

(sgd) B.H. Pascoe
  Senior Member

INCOME TAX – allowable deductions – travel expenses – self‑education expenses – share investor

Income Tax Assessment Act 1997

Taxation Administration Act 1953

Federal Commissioner of Taxation v Finn (1961) 106 CLR 60

REASONS FOR DECISION

26 July 2007 Mr B.H. Pascoe, Senior Member

1.      This is an application to review a decision of the respondent, Commissioner of Taxation to disallow an objection to an assessment of income tax for the year ended 30 June 2005.  The applicant, Mr T. Elder, sought by objection the allowance of $38,542 as a deduction described as income related self‑education and travel expenses.

2.      At the hearing, Mr Elder was unrepresented.  The respondent was represented by Ms A. Lemish an officer of the respondent.  Mr Elder gave oral evidence.

Salary	$ 9,812
Gross Interest	$ 1,378
Dividends	Unfranked Franked Franking Credit	$     741 $11,928 $  5,112	$17,781
Assessable Capital Gain	$24,775
Gross Income	$53,746
Less deduction claimed
Car Expenses	$     624
Other work related expenses	$   3,125
Interest & dividend deductions	$       13
Gifts or Donations	$     105
Cost of managing tax affairs	$     305	$ 4,217
Taxable Income	$49,529

3.      In the income tax return lodged by Mr Elder for the year ended 30 June 2005,  the following income and deductions were shown:

An assessment issued on 20 March 2006 assessed this amount of taxable income. However, the attachment to the assessment showed that $33,526 of work related deductions had been disallowed as two amounts of $12,466 and $21,060. It is not clear from the documents provided by the respondent pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 when and how this amount had been claimed by Mr Elder.  Nevertheless, in his objection, Mr Elder sought additional deductions of $38,542 made up of the following amounts:

Travel Expenses

USA – Attend company meetings and   business premises visits

$  1,760

Sydney – Attend company management meeting

$    276

Tasmania – investigative visit to west coast mineral province

$    651

Commonwealth of Independent States  -

investigative visit

$  2,168

United Kingdom – visit various companies, fund managers, Competition Commission and  Records House

$  8,326

Adelaide – attend Santos investor briefing,

Great Southern Plantations & Graincorp sites

$     624

$13,805

Self Education Expenses

St Andrews University Scotland

  M.Litt, International Business

  Full time September 2003-November 2004

$19,357

University of New England

  Master of Commerce – Accountancy

  Part-time July 2004-June 2005

$  1,694

Charles Sturt University

  Short Law course – Banking and Finance

$  1,350

Financial Services Institute of Australia  (Finsia) course of study and membership fee

$  1,165

Text Books for all above courses

$  1,171

$24,737

$38,542

4.      In his evidence, Mr Elder described himself as a professional investor and an investment analyst.  He said that, at the time of the hearing, he had approximately $3 million invested and believed that there were investments of between $1 million and $3 million during the year ended 30 June 2005.  In his capacity as an investment analyst he had written some articles for an investment journal and subsequent to the relevant year has acted as an advisor to a Japanese investment bank.  Mr Elder said that, initially, he was employed as a geologist in the oil and gas industry.

5.      Mr Elder said that he believed that he was born to be an investor.  He maintained that he was a long term investor and prefers never to sell an investment although there have been times where he has accepted that a particular investment is no longer appropriate to hold and, therefore, sells it.  He said that he does not rely on advice of others and the primary aim of the education undertaken was to obtain and broaden his knowledge of all aspects of business to enable him to completely evaluate a prospective or current investment.  He considered that a range of knowledge from geology to finance was necessary to properly evaluate an investment decision in a company such as BHP Billiton Ltd.  Mr Elder said that his travel was partly to fully investigate specific companies and partly general research into market and operating conditions of companies in which he was interested and of their competitors.

6.      In the objection decision the respondent allowed a further deduction of $900, being the travel expenses to Adelaide and Sydney.  This was said to be on the basis that they were costs of attending meetings of companies in which Mr Elder held shares.  It is noted that the travel cost claimed for the Adelaide trip were wholly car expenses and it would appear that this $624 represented the amount claimed as car expenses in the return lodged and allowed as a deduction in the assessment.  Consequently the amount has now been allowed twice.  No detail has been provided of the claim of $3,125 in the return as other work related expenses and allowed, also, in the assessment.  It appears more likely than not that this amount also represents some part of the subsequent total of $38,542.

7.      It should be noted that, in his extensive correspondence with the respondent and in his evidence and submissions to the Tribunal, Mr Elder has been very long in rhetoric and criticism of the respondent and his officers and very short on facts.  He has given no detail of his investments prior to, during or subsequent to the year ended 30 June 2005 and little in direct correlation of the expenditure to such investments.  In one letter to the respondent of 3 March 2006, he accuses the respondent of bungling the figure in his return and then, himself, misstates the calculation of taxable income.  This letter, set out below, is an example of his regular criticisms:

Further to my Notice of Objection, dated 20 February 2006, more evidence of Australian Tax Office bungling has come to light.

I now bring this to your attention.  In your notice of Decision of Income Tax Audit dated 16 February, it is asserted my taxable income as returned was $9812. This is incorrect. Wages or salary income of $9812 was declared.  Total income declared was $53,746.  Taxable income declared was $16,003.

In order to correct the ATO’s bungling I have prepared the following calculation to rectify the errors.

Income as declared  $53746

Work related travel expenses   $13805

Work related self-education expense           $24737

Taxable Income  $11631

Tax Already Paid   $9228 

Tax Refund Due Including Offsets               $8505.73

Given the ATO’s mistakes in this matter, in addition to those raised in my notice of objection, I strongly suggest Mr B…, Ms H... and Mr K… of the ATO’s … Office partake in intensive training sessions to correct severe professional shortcomings.  I also suggest Mr K… partakes in a training session on skills of discourse.  Please advise me when this has taken place, so as I may feel confident other taxpayers will not be subjected to such incompetence.

Sincerely

Thomas Elder

It is noted that deducting $38,542 from assessable income leaves an amount of $15,204.  Mr Elder’s calculation of taxable income of $11,631 must involve a further deduction of $3,573.  The amount originally claimed total $4,217, a difference of $644 which, perhaps, can be explained by excluding a double counting of the car expenses of $624 plus, maybe, a $20 arithmetic error.  Nevertheless, the original claim included the amount of $3,125 which, while not explained, is likely to be included in the $38,542.  Rather than being able to rectify the errors.  Mr Elder has added more confusion.

8.      In relation to the claim for travel expenses, Mr Elder provided the following information in a letter of 10 May 2006 to the respondent:

Summary of information from travel logs, tacit memory and assorted documentation.

Preface to all answers

·Most intended/visits meetings were prearranged before departure, with some transpiring due to chance ‘on the run’. i.e. the opportunity arose after travel began.

·At no point did any party reimburse for out of pocket expense incurred.

·There was no purposeful and specific private element in any trip.

·These notes are derived from travel log.

·All trips were conducted for own purpose

·All trips were directly related to earning assessable income as per phone conversation with Rachel Levy ATO 09/05/06.  As per conversation Rachel Levy, international visits have direct relevant to Australian investment scene.

·In reality, I have understated claims, only claiming those that are easily identified and documented.

28/04/05 – 05/05/05 Travel to United States – see attachment ‘Back to Berkshire’ For a general itinerary summary, see article. Expense claimed – flights and travel insurance only. …

24/01/01 Travel day trip Sydney – meeting with management of ROC, Sydney based company. Expense claimed – flights only.  …

09/05/05 – 13/05/05 Tasmania – Travel to and visit mine sites through Tasmania, including Beaconsfield, Old Henty and Sites around Zeehan.  Included meeting with former industry associates and company management and the gathering of ‘scuttlebutt’ from technical associates.  Expenses claimed – ferry travel and meal with industry associate I was entertaining only. …

15/08/04 – 20/08/04 CIS and Russia – Co-ordinated trip through ‘Flight Bookers Plc’. Visas to CIS and Russia are impossible to get without ‘valid business’ reason and support.  Visited companies and management of enterprises in the region including oil and gas operations on the Caspian and factories and professional firms in West Russia, including Russian accounting and law experts. …

10/06/05 – 29/06/05 United Kingdom – time spent at British geological survey re oil and gas seismics North Sea, ROC management and UK exploration sights, company management including Wyvale and Robert Wiseman.  Collate regulatory data at company records house and the office of fair trading re dynamics of European milk market.  Visit fund managers including Scottish Widows, and SVM re investment process – with gratitude.  Visit oil consultant Wood Mackenzie offices Scotland and oil and gas ancillary companies North Sea.  Expense claimed – flights, car hire and fuel, travel insurance and accommodation only.  …

06/06/05 – 07/06/05 Adelaide – car trip from Melbourne – Adelaide for Santos investor briefing re transition international accounting standards.  Visit Alumina Portland and Graincorp terminals Portland En route.  Visit Great Sothern Plantation sites ‘green triangle’ (i.e. Hamilton – Mt Gambier).  Expenses claimed 1200 km claimed for 1.6 litre car per ATO schedule…

Ms Levy maintained that each of these trips was directly related to earning assessable income.

9.      In relation to the United States, the article referred to by Mr Elder was in a magazine called The Intelligent Investor and consisted of comments from five attendees at the annual meeting at Omaha, Nebraska of Berkshire Hathaway, the company run by the world’s second richest man, Warren Buffett.  One of those attendees whose comments were included in the articles was Mr Elder.  Mr Elder said that this trip was made on his own initiative.  At the time however, he received remuneration from the publisher of the magazine and it is assumed that this was the $9,812 shown as salary in his return.  He said that he was paid per article, normally an article suggested by himself.  In this particular article, Mr Elder was referred to as one of our analysts and while not directly provided in evidence, it is assumed that he received payment in relation to that article.

10.     Mr Elder described all of the courses of study claimed as self‑education expenses as having both developed and maintained my business analysis skills, which include political, legal, economic, social and technological dimensions.  In his oral evidence he said that he attended St Andrews University for its reputation in business programmes and to broaden his knowledge of business as an investor.  In relation to the University of New England, this was said to have broadened his accounting knowledge.  The degree was completed in the following year.  Mr Elder said that he was completing a Masters degree in Applied Finance at Macquarie University and had arranged to do the remaining subjects at Charles Sturt University.  He said that the course of study with Finsia was a prerequisite for membership of that body.

11.     To obtain a deduction for the expenditure it must come within the provisions of s 8-1 of the Income Tax Assessment Act 1997 (the Act) which provides:

8-1  General deductions

(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 your *non-assessable non-exempt income; or

(d)   a provision of this Act prevents you from deducting it.

Pursuant to s 14ZZK(b) of the Taxation Administration Act 1953 an applicant before this Tribunal has the burden of proving that the assessment against which an objection has been lodged is excessive.  In so seeking to discharge this burden of proof it is not simply a matter of showing that the assessment is excessive but requires proving the amount by which it is excessive.

12.     It is clear from Mr Elder’s evidence that he is not and was not in the relevant year carrying on any business.  He was very firm that he was primarily a long term investor and not a share trader.  As such s 8-1(1)(b) has no application in relation to the expenditure claimed.  It is necessary, therefore, for Mr Elder to demonstrate that the expenditure was incurred in gaining or producing his assessable income and was not of a capital nature.

13.     In relation to the claim under the heading of self‑education expenses, much reliance was placed on the decision in Federal Commissioner of Taxation v Finn (1961) 106 CLR 60. In that case, Mr Finn was an architect employed by the government who sought deductions for the cost of an overseas architectural study tour. In finding for the taxpayer, Windeyer J said (at p70):

… a taxpayer who gains income by the exercise of his skill in some profession or calling and who incurs expenses in maintaining or increasing his learning, knowledge, experience and ability in that profession or calling necessarily incurs those expenses in carrying on his profession or calling…

In this case, expenditure incurred by Mr Elder in attending the three universities in the relevant year related to the attaining of Masters degrees in subjects in which he did not appear to have had any prior qualifications.  It would appear that it was not a matter of Mr Elder seeking to maintain or increase existing professional skills but to attain those skills.  It is difficult to see how the obtaining of these degrees and attaining the knowledge within them so as to provide Mr Elder with skills to become a successful investor can be said to have been incurred in gaining or producing his assessable income.  At best, they are a prelude to investment and incurred at a point too soon.  From his evidence, it would appear that his initial qualifications were in geology and he believed that the courses of study undertaken in 2004 and 2005 added additional skills to enable him to become an investor.  Even if it could be said that the expenses were incurred in gaining assessable income they have all the earmarks of being of a capital nature to put himself in a position to gain that income.

14.     The remaining item under the self‑education claim related to the membership fee of $275 and the cost of a professional development course of $890 for Finsia.  This institute which adopted the name in November 2005 was the result of the merger of the Securities Institute of Australia and the Australasian Institute of Banking and Finance.  It is primarily a professional body for persons involved in the financial services industry.  Mr Elder said that he completed the required professional development course for membership between 1 July 2004 and 30 June 2005.  It is not known which of the former institutes conducted this course.  With the limited facts provided by Mr Elder to demonstrate the relevant nexus between the course and membership of Finsia, it is difficulty to know whether the expense is said to be related to his income from writing investment magazine articles or from investment or both.  While this expenditure may be seen as similar to that incurred in his university studies, it is difficult to see the costs of memberships of a professional body as being of a capital nature.  On balance, I am prepared to accept this expenditure as being deductible against his assessable income.

15.     In relation to the claim for travel expenses, the respondent allowed $900 of the total claim of $13,805 in the objection decisions.  Subject to the possible question relating to the costs of the trips to the United States, the remaining items of expenditure appear to relate to travel undertaken for the purpose of investigating potential investments.  While Mr Elder spoke of the need to research overseas operations of a company and its competitors, he lacked specifics and the direct relationship of the expenditure to existing or future income.  Again, much of the expenditure appeared to be of a capital nature being part of the cost of a future investment rather than monitoring existing investment.  The trips to Tasmania, Commonwealth of Independent States and United Kingdom were described as investigative visits which would appear to have been designed to enable Mr Elder to determine whether or not to make a capital investment.  On the information provided it is not possible to accept that Mr Elder has discharged the onus of demonstrating that this expenditure was an allowable deduction under s 8-1 of the Act.

16.     The trip to the United Atates appeared to be different in that there appears to be a more direct relationship between that expenditure and the derivation of income from the investment magazine.  While it appears likely that the ability to derive income from the article relating to this trip arose subsequent to the visit and not necessarily prior, on balance it would be appropriate to accept the costs of this trip as an allowable deduction.

17.     As noted earlier, the end result of the original assessment and the objection decision is that Mr Elder has been allowed deductions totalling $4,649 made up of :

Claims in return lodged

Car Expenses

$ 624

Other work related expenses

$3,125

Travel expenses allowed after objection

$  900

$4,649

In the above reasons, it would appear appropriate that the following items be allowed as deductions:

Travel expense to Sydney and Adelaide	$   900
Finsia subscription and education course	$1,165
Travel expenses to USA	$1,760
$3,925

There is a difference of $824 which has been allowed as a deduction in excess of that which I can identify as being allowable.  As indicated earlier, Mr Elder was unrepresented at the hearing and did not present sufficient facts relating to his actual investments and the relationship if any between much of his claimed expenses and such investments.  It is quite possible that some greater part of that total claim is allowable if Mr Elder had better satisfied his burden of proof.  Consequently, I do not see it as appropriate to direct the respondent to issue a further amended assessment to increase taxable income.  It is appropriate as a result of the foregoing reasons to affirm the decision under review which, effectively, allowed a deduction of $4,649 out of the $38,542 claimed.

I certify that the seventeen (17) preceding paragraphs are a true copy of the reasons for the decision herein of Mr B.H. Pascoe, Senior Member

Signed: Dianne Eva

Clerk

Date/s of Hearing  28 May 2007
Date of Decision  26 July 2007
Advocate for the Applicant       Self Represented 
Advocate for the Respondent   Anna Lemish, Legal Services Branch, ATO