Federal Commissioner of Taxation v Payne

The High Court of Australia considered an appeal by the Federal Commissioner of Taxation against a decision of the Full Court of the Federal Court of Australia. The dispute concerned the deductibility of travel expenses incurred by the respondent taxpayer in travelling between his rural deer farming property, where he conducted a business, and Sydney airport, where he was employed as a pilot for an international airline. These expenses were claimed as allowable deductions under section 51(1) of the Income Tax Assessment Act 1936 (Cth) for the income years 1991 to 1994.

The primary legal issue before the High Court was whether expenses incurred by a taxpayer in travelling between two unrelated places of work or business are deductible under section 51(1) of the Act, which allows deductions for expenses incurred "in gaining or producing the assessable income". A secondary issue arose concerning whether the Commissioner was bound by Taxation Ruling TR 95/19 in assessing the taxpayer's liability.

The High Court allowed the appeal. The Court reasoned that for an expense to be deductible under section 51(1), it must have a character of being incurred in the process of producing assessable income. While acknowledging that travel expenses between places of business can be deductible, the Court found that the expenses in this case, being travel between a private residence and a place of business, and between that place of business and a separate employment location, were not sufficiently connected to the gaining or producing of assessable income from either activity. The Court held that the expenditure was not incurred in the course of carrying on the deer farming business or in the course of performing the duties of a pilot. The Court also noted that the taxpayer sought to rely on a taxation ruling, which required a separate determination by the Administrative Appeals Tribunal.

Consequently, the High Court set aside the orders of the Full Federal Court and remitted the matter to the Administrative Appeals Tribunal. The Tribunal was directed to consider whether the taxpayer should be granted leave to rely on an additional ground of objection concerning the Commissioner's obligation to assess tax in accordance with Taxation Ruling TR 95/19, and if leave were granted, to determine the extent to which the Commissioner was so bound. Otherwise, the appeal was dismissed.