Grant and Commissioner of Taxation
[2007] AATA 1783
•21 September 2007
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2007] AATA 1783
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2007/2028
Sitting as SMALL TAXATION CLAIMS TRIBUNAL ) Re JENNIFER JUDITH GRANT Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Ms A F Cunningham (Senior Member) Date21 September 2007
PlaceHobart
Decision The appeal is dismissed and the decision under review is affirmed.
[Sgd Ann Cunningham]
Senior Member
CATCHWORDS
Income Tax - assessable income - claimed deduction for work-related expenses - volunteer and paid overseas aid work - nature of income - payment towards airfares and accommodation expenses - foreign earnings exemption from taxation - decision affirmed
Income Tax Assessment Act 1997, s.6-5, s.6-10, s.23AG,
Taxation Administration Act 1953, s.14AA, s.14ZZK
Fringe Benefits Tax Assessment Act 1986
Superannuation Industry (Supervision) Act 1993, s15A
Taxation Laws Amendment Act (No 2) 1991
FC of T v Dalco (1990) 90 ATC 4088
Way v Commissioner of Taxation [2003] AATA 720
Gauchi v FC of T (1975) 75 ATC 4257
Case W7389 ATC 659
ATO ID 2002/2206
TD 2005-14, TD 2005-15
REASONS FOR DECISION
21 September 2007 Ms A F Cunningham (Senior Member) 1. The applicant has sought the review of a decision made by the respondent dated 28 March 2007, which partially allowed the applicant's objection against a notice of amended assessment for the year ended 30 June 2005. The applicant had objected to the amended assessment made on 24 November 2006. A review of that assessment by the respondent determined:
1. That neither the payment of $3,300.00 received by the applicant from the Rotary Club of Hobart in relation to air fares and accommodation costs in the 2004/2005 income tax year, nor the salary and wages received from paid employment with the Christina Noble Children's Foundation (CNCF) in Vietnam was assessable income.
2. That the applicant was not entitled to a deduction for work-related travel expenses.
3. That reasonable care was taken by the applicant in preparing her income tax return for the 2004/2005 income tax year and a tax short fall penalty of $1052.10 was remitted in full.
Issues
2. The issues for the Tribunal to determine are:
1. Is the payment of $3,300.00 received by the applicant from the Rotary Club of Hobart in relation to air fares and accommodation costs in the 2004/2005 income tax year assessable income under section 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
2. Are the salary and wages received by the applicant from her paid employment with the CNCF in Vietnam during the period 1 April 2005 to 30 June 2005 assessable under section 6-5(2) of the ITAA 1997?
3. Is the applicant entitled to a deduction for work-related travel expenses incurred in relation to her volunteer and paid work for the CNCF during the period 5 August 2004 to 30 June 2005?
4. Did the respondent break its own code under the Taxpayers Charter by failing to meet the 56 day time-frame for determining an objection?
Background
3. The applicant, Jennifer Grant, is currently employed as a physiotherapist by Calvary Health Care Tasmania. From 15 November 2004 to 6 February 2005 (84 days) the applicant took leave from her place of employment without pay to undertake volunteer work in Vietnam. After writing to several support services she was offered the sum of $3,300.00 by the Rotary Club of Hobart towards air fares and accommodation costs. The applicant did not receive any income during this period and said that without the assistance from the Rotary Club she would have been unable to undertake the trip.
4. On 26 January 2005, the applicant was offered employment as a physiotherapist with CNCF in Vietnam on initial salary of US $1,000.00 per month together with other benefits including a return economy class flight, accommodation, car services etc.
5. Approval was given by the applicant's employer, for leave without pay for the period 24 March 2005 until 24 March 2006. The applicant spent from 1 April 2005 to 10 October 2005 (193 days) in Vietnam as an employee of CNCF. For the tax year ended June 2005 The applicant earned US $3,000.00 (AUS $4,054.00).
6. It is the applicant's contention that this income is assessable income under the provisions of the ITAA 1997 on the basis that the exempt provisions of section 23AG(2) do not apply in the applicant's case because her income was exempt from tax in Vietnam. Accordingly the applicant seeks to claim travel expenses incurred during her second trip to Vietnam which commenced on 1 April 2005.
7. Prior to her departure The applicant sought advice from her tax agent that she should inter alia keep a travel diary setting out dates, activities and expenses. The applicant subsequently included a claim for travel expenses in her taxation return for the financial year ended 30 June 2005. Expenses claimed include air fares for the first and second trip to Vietnam, travel insurance visas, police check costs, travel doctor costs, meals and incidentals and accommodation which total $21,069.00.
8. Section 14ZZ of the Taxation Administration Act 1953 (TAA) provides for an appeal to this Tribunal from a reviewable objection decision. Section 14ZZK Grounds of Objection and burden of proof reads as follows:
"On an application for review of a reviewable objection decision:
(a) the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and
(b) the applicant has the burden of proving that:
(i) if the taxation decision concerned is an assessment (other than a franking assessment)—the assessment is excessive; or
(ii) if the taxation decision concerned is a franking assessment—the assessment is incorrect; or
(iii) in any other case—the taxation decision concerned should not have been made or should have been made differently"
Issue 1
9. For the payment of $3,300.00 received by the applicant from The Rotary Club of Hobart to be treated as assessable income under section 6-5 of the ITAA 1997 or any provision, it must be classified as income earned by the taxpayer in the capacity of an employee rather than the payment of a reimbursement for an expense already incurred.
10. Previous taxation rulings have determined that amounts received by the taxpayer in the capacity of a volunteer for the purpose of covering expenses are assessable income under section 6-10 of the ITAA 1997. For instance, in the decision ATO ID 2002/2206 a volunteer worker at a college was paid an honorarium to cover the worker's costs such as travel, food and clothing. These amounts were classified as assessable income. In the reasons for decision, the ATO noted that ordinary income has generally been held to include 3 categories namely, income from rendering personal services, income from property and income from carrying on a business.
11. Taxation Ruling TR92-15 explains the difference between an allowance and a reimbursement for the purpose of determining whether a payment is a fringe benefit under the Fringe Benefits Tax Assessment Act 1986 or whether the payment is assessable income under ITAA 1997.
12. The ruling states
"A payment is an allowance when a person is paid a definite predetermined amount to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to extend the allowance.
A payment is a reimbursement when the recipient is compensated exactly (meaning precisely, as opposed to approximately) whether wholly or partly, for an expense already incurred although not necessarily dispersed. In general, the provider considered the expense to be its own and the recipient incurs the expenditure on behalf of the provider. A requirement that the recipient vouch expenses lends weight to a presumption that a payment is a reimbursement rather than an allowance. A requirement that the recipient refund unexpected amounts to the employer adds further weight to that presumption.
The meaning of the word reimburse includes payments made and "reimburse" includes payments made in advance of expenditure as long as those payments possess the characteristics outlined in paragraph 3".
13. Mr Gray on behalf of the applicant submitted that an employer/employee relationship existed between the applicant and the Rotary Club of Hobart. He relied on the definition of employee as contained in section 15A of the Superannuation Industry (Supervision) Act 1993, sub-paragraph A8 (persons paid as performers, etc) for the purposes of this Act:
"A) a person who is paid to perform or present, or to participate in a performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills is an employee of the person liable to make the payment; and
B) a person who is paid to provide services in connection with an activity referred to in paragraph (a) is an employee of the person liable to make the payment; and
C) a person who is paid to perform services in, or in connection with, the making of any film, tape or disc or of any television or radio broadcast is an employee of the person liable to make the payment".
14. Mr Gray submitted that the payment of $3,000.00 received from the Rotary Club of Hobart was not in the nature of a reimbursement for it did not compensate the exact expenses incurred by the applicant but was in the nature of an allowance to cover estimated expenses.
15. Included in the T Documents is a letter from the Rotary Club of Hobart Inc dated 5 November 2004 and addressed to The applicant which states as follows:
"Thank you for your letter seeking financial assistance for your volunteer work at the Christina Nobel Foundation in Vietnam from November 2004 to January 2005.
Our Rotary Club believes that the work you will be undertaking at the Foundation to be most worthwhile and the opportunity for you to be able to extend your experience and be able to assist in giving children health and happiness and a quality of life is commendable.
We see this program at the Foundation fitting Rotary ideals in assisting disadvantaged youth and building international relationships.
Accordingly I am pleased to advise that our Club is able to provide funding for the airfares and accommodation costs as requested in your submission for the volunteering program.
Our cheque is enclosed for $3300.
We would very much like you to come and visit our Club on your return and be Guest Speaker at one of our Club meetings and share with us your experiences. Our Guest Speaker coordinator will be in touch with you in this regard.
\We wish you well with the volunteer work and look forward to seeing you on return".
16. The Tribunal is satisfied on the evidence presented that the payment of $3,300.00 to the applicant did not constitute a reimbursement as the term is currently defined.
17. The Tribunal does not accept that the applicant's relationship with the Rotary Club fits the interpretation of a person paid as a performer in the SIS Act definition of employee referred to above. There was no evidence that The applicant was paid to perform or present at the Rotary Club on her return from Vietnam. Rather she was invited to share her experiences with the Club. There is no evidence of any separate payment for the presentation.
18. It would appear that the only relationship that the applicant had with the Rotary Club was to seek their assistance in providing funds to meet some of her travel expenses. Whilst the Rotary Club commented that the Foundation's program fits the ideals of the Rotary Club in assisting disadvantaged youth and building international relationships, there was no evidence of a relationship or nexus between CNCF and the Rotary Club of Hobart. The applicant may have felt obliged to visit the Club on her return as a guest speaker to share her experiences, but there is no evidence of any contractual obligation for her to do so, nor could it be said that the travel allowance was paid to her on this basis.
19. The letter confirms that the Rotary Club viewed the applicant as undertaking volunteer work in Vietnam and the Tribunal concludes that the payment was made to her as a volunteer and not in the course of employer/employee relationship. There is no nexus between the payment and the rendering of personal services within the accepted meaning of ordinary income for the purposes of section 6-5 of the ITAA 1997. Accordingly the Tribunal finds that the payment does not constitute assessable income.
Issue 2
20. Sub-section 6-15(2) of the ITAA 1997 states that if an amount is exempt income then it is not assessable income. Section 11-15 of the ITAA 1997 lists the provisions that deal with income which may be exempt. Section 23-AG is included in this list under foreign aspects of income taxation - overseas employment income.
21. During the applicant's second visit to Vietnam commencing 1 April 2005, she was paid salary and wages as an employee with CNCF. The question is whether these monies are assessable under the provisions of section 6-5(2) of the ITAA 1997. The applicant's letter of engagement from CNCF dated 26 January 2005 clearly specifies that she would be working as their employee on an initial salary of US $1,000.00 per month.
22. As the applicant's period of foreign service was for a continuous period in excess of 91 days, section 23AG applies. Sub-section (1) states that:
"Where a resident, being a natural person, has been engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived by the person from that foreign service is exempt from tax".
Sub-section 23AG(2) states:
"An amount of foreign earnings derived in a foreign country is not exempt from tax under this section if the amount is exempt from income tax in the foreign country only because of any of the following:
(a) a law of the foreign country giving effect to a double tax agreement
(b) a double tax agreement
(c) provisions of a low of the foreign country under which income covered by any of the following categories is generally exempt from income tax:
(i) income derived in the capacity of an employee
(ii) income from personal services
(iii) similar income
(d) the law of the foreign country does not provide for the imposition of income tax on one or more of the categories of income mentioned in paragraph (c)
(e) a law of the foreign country corresponding to the International Organisations (Privileges and Immunities) Act 1963 or to the regulations under that Act
(f) an international agreement to which Australia is a party and that deals with:
(i) diplomatic or consular privileges and immunities; or
(ii) privileges and immunities in relation to persons connected with international organisation
(g) a law of the foreign country giving effect to an agreement covered by paragraph (f)"
23. It was submitted by Mr McCulloch on behalf of the respondent that section 23AG(1) does not apply in this because the foreign earnings are not exempt from tax solely on the basis of one of the factors listed in sub-sections (a) to (g) of sub-section 23AG(2). It is exempt from tax because of the nature of the applicant's work as a foreign aid worker and not because of one of the provisions in sub-section (2). The income is exempt Mr McCulloch contended, because it is foreign employment income and not because of the provisions of section 23AG.
24. It was Mr Gray's submission that the income is exempt because of the law of a foreign country, in this case Vietnam. Tendered in evidence was an extract from the Thanhnien News published on 1 June 2007 which stated:
"Foreign aid workers in Vietnam exempt from income tax. The Vietnamese government has exempted foreign staff working for projects and programs funded by non-government aid from personal income tax. The exemption is contained in Circular No. 55 from the Ministry of Finance".
25. Sub-section 23AG(2)(a) refers to the law of a foreign county which gives effect to a double tax agreement. The intent of such agreements is to avoid a double taxation of income received by Australian and Vietnamese residents. One of the provisions of Article 15 of the Vietnamese Agreement provides that remuneration will only be taxable in Australia if the taxpayer was present in Vietnam for a period not exceeding 183 days. As the applicant's period exceeded 183 days in the Vietnamese year of income in 2005, the salary and wages she received could also be subject to taxation in Vietnam. However because the applicant was working for a charitable organisation namely CNCF, Mr McCulloch submitted that the applicant's income is exempt because of the nature of her work as a foreign aid worker. In the ATO's reason for decision included in the T Documents at T2, it stated that the exemption is provided in the Vietnamese Income Tax law.
26. The provisions of sub-section 23AG(2)(c) state that the exemption law covers the income derived in the capacity of an employee. This is not the reason for the exemption provided in the Vietnamese Income Tax law for it specifically relates to employment with a charitable organisation and not simply that of an employee. The reason for the exemption relates to the nature of the work undertaken. This is not provided for in sub-section 23AG(2)(c). Accordingly the Tribunal determines that the reason why the applicant's income earned as a foreign aid worker is exempt from income tax in Vietnam is pursuant to the provisions of the Vietnamese Income Tax law and the nature of her work for a charitable organisation which is not included within the provisions of sub-section 23AG(2)(c). The Tribunal is accordingly satisfied that the applicant's income is exempt from tax in accordance with section 23AG(1) of the ITAA 1936.
27. This finding is in accordance with the taxation determination TD 2005-15 which referred to the Explanatory Memorandum to the Taxation Laws Amendment Act (No 2) 1991 at para 82 regarding the meaning of "only". It was stated as follows:
"Once the law is changed, foreign earnings that are exempt from tax overseas will also be exempt in Australia except where they are exempt in the overseas country solely (because of the reasons for exemption set out in section 23(2)).
At paragraph 8 it was stated:
"Therefore, if a reason for exempting the foreign earnings from tax in the foreign country is not one of the reasons listed in sub-section 23AG(2), the exemption is sub-section 23AG(1) continues to apply, provided the other requirements of the section are satisfied".
28. In that case as the foreign earnings of an Australian resident volunteer aid worker were exempt from taxation in the foreign country because of the double tax agreement (DTA) and also because of a Memorandum of Understanding of the government of that foreign country and an aid organisation, regardless of the existence of the DTA, sub-section 23AG(2) was held not to apply and foreign earnings were held to be exempt from Australian tax under sub-section 23AG(1).
29. The ATO ruled in TD 2005-14 that the phrase "only because of the following" does not mean only because of any one but not more of those reasons but that it should be construed to mean only because of any one or more of the reasons listed in the sub-section. For instance it may be exempt under the provisions of a double tax agreement as well as the provisions of the law of the foreign country.
30. The exemption from taxation in Vietnam is not solely due to one of the factors specified in sub-section 23AG(2) and the exemption provision afforded by section 23AG(1) therefore applies.
Issue 3
31. The third issue to be decided relates to the applicant's claim for a deduction for work-related travel expenses incurred in relation to her volunteer and paid work for CNCF during the period 5 August 2004 to 30 June 2005.
32. The onus rests with the applicant to prove that the assessments are excessive. It is not sufficient to simply demonstrate that the Commissioner erred in order to prove that an assessment was excessive. (See FC of T v Dalco (1990) 90 ATC 4088) Referring to this decision the Tribunal in its decision Way v Commissioner of Taxation [2003] AATA 720 commented at para 75:
" the High Court concluded that "excessive" referred to the amount of the assessment (see the Judgement of Brennan J at 4089-4094), and that it was necessary for the taxpayer to discharge the burden of proving that his taxable was in truth less than the amount assessed".
And at para 76:
"in the present matter it was necessary for the applicant to satisfy the Tribunal, on the balance of probabilities, that the amount of his sales tax liability for the quarters covered by the assessments was actually less than that stated in the assessment".
It is not the responsibility of the respondent to show that the assessments were correctly made and unless the taxpayer shows by evidence that the assessment is incorrect, it will prevail. (See Gauchi v FC of T (1975) 75 ATC 4257).
33. The claim by the applicant relates to all assessable income for the taxable year including the income derived from Calvary Health Care. It was contended by the applicant that she was encouraged by her employer to undertake her travel and work in Vietnam as it would give her new knowledge and ideas and hold her in good stead for promotion.
34. It was the applicant's oral evidence that she had sought advice before undertaking her travel with respect to the keeping of diaries, recording her activities and expenses. She said that her employment in Vietnam had provided her with opportunities to develop her management skills, improve resource development and develop creativity of practice with the limited resources available. It also offered teaching opportunities and stood her in good stead for managerial advancement with her current employment.
35. The applicant conceded however that limited opportunities exist for promotion within the area tin which she works and that there has only been one position in southern Tasmania which has been of interest to her. This position has arisen only recently, some two years since her last trip to Vietnam. Whilst the Tribunal does not dispute the applicant's evidence that she gained experience and developed certain skills as a result of her work in Vietnam, the Tribunal does not accept that the work was undertaken for the purpose and with the expectation that it would improve her employment opportunities or prospects for promotion. There was no documentary evidence presented to support this suggestion.
36. The Tribunal was referred to Case W7389 ATC 659, a decision of Deputy President Gerber, made on 28 July 1989. The Tribunal in that case was satisfied on the evidence presented that some of the deductions claimed were incurred with respect to the gaining or producing of assessable income. Deputy President Gerber examined various decisions relating to this issue and noted that each decision must be considered according to its particular facts.
37. It is clear from those decisions that for a taxpayer to succeed more needs to be shown than that the expenditure was incurred for an out-going which is likely to improve work capacity. A nexus must be established between the expenditure and the particular employment. Claims have failed even when there was evidence that an employer actively encouraged the trip. Whilst there was some evidence that the applicant's employer was supportive of her overseas aid work, there is insufficient evidence to persuade the Tribunal that the applicant undertook the trip for the purpose of advancing her skills as a physiotherapist or with the intention of gaining such knowledge and skills that would improve her prospects of promotion, especially where little promotion opportunities exist.
38. The Tribunal concludes that the applicant has failed to discharge her onus under section 14ZZK of the TAA to demonstrate that the assessment should be varied because it did not take account of work-related expenses. The applicant needed to persuade the Tribunal on the balance of probabilities that these expenses should have been included on the basis that they were undertaken for the purpose of gaining skills and experiences associated with the applicant's work as a physiotherapist. Whilst an incidental benefit may have resulted from her overseas work, the Tribunal is not satisfied that this was the purpose of the trip. Further there is insufficient evidence to persuade the Tribunal that the expenses claimed and noted in the travel diary are necessarily associated with the gaining of assessable income. The applicant has failed to provide evidence of a nexus.
39. Section 8-1 of the ITAA 1997 allows for a deduction of losses and outgoings to the extent to which they are incurred in gaining or producing assessable income. As the Tribunal has determined that the payment by the Rotary Club of Hobart of $3,300.00 did not constitute income the payment is not assessable and therefore the deduction is not allowable. It could not be said to be incurred in gaining or producing assessable income.
Issue 4
40. This issue relates to an alleged failure by the respondent in not meeting the 56 day timeframe for determining the applicant's objection. The issue was not pursued at the hearing of the appeal before the Tribunal and no evidence was presented in support. The Tribunal is not persuaded that it has jurisdiction to determine this issue. It is accordingly dismissed.
41. The applicant has failed to discharge the onus of establishing on the balance of probabilities that the assessment is incorrect. For the above reasons the appeal is accordingly dismissed and the decision under review is affirmed.
I certify that the 41 preceding paragraphs are a true copy of the reasons for the decision herein of Ms A F Cunningham (Senior Member)
Signed: R Hunt (Administrative Assistant)
Date/s of Hearing 23 July 2007
Date of Decision 21 September 2007
Advocate for the Applicant Mr A Gray, Accountant
Solicitor for the Respondent Mr A McCulloch, Australian Taxation Office
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