Gregory Yeates and Commissioner of Taxation
[2014] AATA 10
[2014] AATA 10
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2012/2035
Re
Gregory Yeates
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Mr Dean Letcher QC, Senior Member
Date 10 January 2014 Place Sydney The Tribunal affirms the decision under review.
..........................[sgd]..............................................
Mr Dean Letcher QC, Senior Member
CATCHWORDS
TAXATION – Income Tax – allowable deductions – whether deductions for outgoings of a private or domestic nature - whether expenditure on travel between home and workplace an allowable deduction – administrative penalty - discretion to remit the penalty - decision under review affirmed
LEGISLATION
Income Tax Assessment Act 1997; ss 8-1; 900-B, 900-15
Taxation Administration Act 1953; ss 14ZZK, 284-90, 298-20
CASES
Fardell and Commissioner of Taxation [2011] AATA 725
Commissioner of Taxation v Forsyth 81 ATC 4157
Handley v Commissioner of Taxation (1981) 148 CLR 182
Federal Commissioner of Taxation v Faichney (1972) 129 CLR 38
Lunney v Commissioner of Taxation (1958) 100 CLR 478
Commissioner of Taxation v Vogt (1975) 1 NSWLR 194
AAT Case 9654 (1994) 29 ATR 1031
Crestani v Commissioner of Taxation (1998) 40 ATR 1037
Federal Commissioner of Taxation v Collings (1976) 10 ALR 475
Tribunal Case 75 (1987) 18 ATR 3544
Taxation Case L49 (1979) 79 ATC 339
Federal Commissioner of Taxation v Payne (2001) 202 CLR 93Dixon v FCT (2008) 167 FCR 287
SECONDARY MATERIALS
Taxation Determination TD 2007/21
Taxation Ruling TR 2004/6
REASONS FOR DECISION
Mr Dean Letcher QC, Senior Member
INTRODUCTION
During the financial year ended 30 June 2008, the Applicant, Mr Gregory Yeates, was a senior pilot employed by Regional Express Holdings Ltd (‘REX’) and was based at Sydney Airport. In that year he flew the one aircraft type on scheduled passenger routes within New South Wales and occasionally flew interstate. He lived in an outer Sydney suburb and drove his car to and from the Mascot base when flying. He says that he was obliged to drive his car because of the weight of documents and equipment he was required to take with him in the aircraft. His employer did not provide secure lock-up space for his equipment at the airport. At his home he had a study which contained a desk and computer, there was a television set supplying free-to-air and Foxtel programming in the living room and he had a landline telephone. When he arrived at the airport he had access to a computer, weather information and all details of his crew, route, load and fuel for the day.
Mr Yeates said that he spent considerable time in his home study amending Civil Aviation Orders and the company manual, studying for line checks and simulator checks, and doing ‘pre-prep’ of weather and company intranet material. He took with him to the airport a flight bag containing Jeppesen Airway Manual volumes, landing instructions for airports all over Australia, Civil Aviation Safety Authority (‘CASA’) flight orders and Aviation Supplements. On eight to 10 occasions a month he took an overnight bag to stay out of Sydney. He said that he took a video camera with him because the REX ‘Safety Management System’ encouraged photographs to be taken of any ‘incident’.
Mr Yeates claimed that it was part of his job to check weather on the Foxtel weather channel before leaving home. He said that it took about 50 minutes to drive to the airport, 20 minutes to park and reach the REX crew room and he was required to sign on 45-70 minutes before going to his aircraft. He agreed that after ‘sign on’ he had access to a computer, referred to the Maintenance Board, received details of crew names, routes, fuel calculations, weather download and he briefed his crew. On arrival back in Sydney he could sign off 15 minutes after ‘chock time’ and he could use the crew room in that period.
Mr Yeates’ assessable income from aviation was approximately $106,000 and he claimed work-related deductions of approximately $54,000 i.e. over 50 per cent of his salary and allowances. The details of his financial affairs were prepared by his wife from information supplied by him, and he retained a tax agent who advised him and lodged his income tax return. Mr Yeates claimed work–related car expenses, other travel expenses, home office outgoings, portions of internet and Foxtel fees, computer expenses, bank and credit card fees and depreciation on home office equipment.
Mr Yeates says his work required him to set aside 10 per cent of the area of his house as a furnished home office and required him to have both a mobile and a landline telephone, fax machine, computer with internet access, a TV set, Foxtel subscription and aviation magazines. It was part of his case that he required credit cards on which he incurred annual fees, and interest charges on the cards and cash advances. He says that his home office was his home base and the expense of taking his documents, overnight attire and video camera by his private car to Mascot on the days he flew are properly deductible.
The Respondent says that Mr Yeates was employed as a pilot to fly REX aircraft from Mascot airport, that his employer neither required nor advised use of a home office or the equipment he had in it, and that the expense of car travel to the airport and use of credit cards were not deductible being private in nature.
The Australian Taxation Office (‘ATO’) issued an assessment disallowing substantial deductions on 6 January 2010. Mr Yeates lodged an objection on 29 November 2010 and the Respondent issued an objection decision on 29 June 2011 allowing Mr Yeate’s objection in part. Mr Yeates now applies to this Tribunal for a review of the objection decision in relation to the amended assessment of 29 June 2011, the administrative penalty of 25 per cent on the deductions ultimately disallowed and in respect of the ATO’s refusal to remit any portion of that penalty.
LEGAL BACKGROUND
Section 8-1 of the Income Tax Assessment Act 1997 (the ‘ITAA’) allows general deductions for losses or outgoings incurred in gaining assessable income but not if they are of a capital, private or domestic nature. Relevantly, it reads as follows:
General deductions
1You 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…
2However, you cannot deduct a loss or outgoing under this section to the extent that:
….
(b)it is a loss or outgoing of a private or domestic nature; or
…
(d)a provision of this Act prevents you from deducting it.”
Section 900-15 requires that written evidence of a work expense be produced if it is claimed as a deduction.
Where taxpayers dispute an assessment, they bear the onus of proof of all matters under s 14ZZK of the Taxation Administration Act 1953 (the ‘TAA’).
If the taxpayer, or his tax agent, fails to take reasonable care to comply with a taxation law in completing a tax return, then under Table Item 3 of s 284-90 of the TAA, an administrative penalty of 25 per cent of the shortfall may be imposed. Section 298-20 grants a discretion to remit the penalty in whole or part.
ISSUES AT HEARING
The Applicant pursued his objection with great vigour, persistence and large quantities of written submissions, correspondence, schedules, summaries and copied documents. The amended assessment allowed some categories of deduction in full, and some categories a reduced percentages of the claim. The ATO now says that many of these partial allowances were a mistake on its part and should not have been allowed. The following table sets out the amounts and categories of expense in dispute in these proceedings:
Expense
Amount Claimed
Amount Allowed in Objection Decision
1
Meals and Accommodation Overnight
$5808
Nil allowed
2
Private car travel expenses
$24, 996
$17, 691 wrongly allowed (but not in dispute), does not include $1707 now claimed for tolls (which is in dispute).
3
Home office occupancy
Claim consists of $5187.79 (rent), $123.80 (insurance), and $106.63 (rates).
Claim also made for 35.75% of electricity expenses ($884.00).
Nil allowed
15% of claim for electricity expenses wrongly allowed ($370.85). Difference in dispute is $513.03.
4
Computer and office equipment, and facsimile
Claim consists of $1237 (computer/office equipment) and $311.11 (facsimile).
15% of each wrongly allowed. Difference in dispute is $1051.45 and $264.11 respectively.
5
Depreciation on computer, TV set and video camera
$3020
15% wrongly allowed. Difference in dispute is $2,303.
6
Home internet
Claimed 32% for business use ($255.78)
15% wrongly allowed. Difference in dispute is $135.78.
7
Foxtel fees
Claimed 20% for business use ($251.86).
15% wrongly allowed. Difference in dispute is $62.86.
8
Landline telephone
Claimed 50% for business use ($395.08).
15% wrongly allowed. Difference in dispute is $278.98.
NB claim for mobile telephone allowed at 100%.
9
Credit cards
Claim consists of $597 (card fees), $74.50 (fees for cash advances) and $428.46 (interest on credit cards).
Nil allowed
10
Miscellaneous (paint)
$192.09
Nil allowed
The total amount in dispute is $19,498.68. The Respondent does not seek to retract the incorrect concessions made, and as a matter of policy, does not argue that the Tribunal should correct the ATO error by not allowing any amount where it had been conceded mistakenly. However, it did argue that no further amount or percentage should be allowed.
THE CLAIMED DEDUCTIONS
Overnight allowance
The Applicant received as part of his salary an ‘Overnight Allowance’ of $9,886.64 in addition to other allowances, including a Day Travel Allowance (‘DTA’). In some documents these items are shown as ‘DTA Day’ and ‘DTA O/night’.
In accordance with his REX Enterprise Bargaining Agreement (REX EBA) the DTA was taxable and the Overnight Allowance was not. That is, although Mr Yeates received the $9,886.64 it never formed part of his assessable income. That is because the amount paid as Overnight Allowance was at a rate which fell within the ‘reasonable amount’ for the 2008 tax year, which is outlined by the ATO in Taxation Determination TD 2007/21. If such an allowance was calculated or said to be within the ATO allowable rates, the Applicant could spend as much or as little of it as he wished without any need to substantiate the expenditure. The amount was deemed to be fully spent in gaining his assessable income. Whatever he did spend was not deductible from his assessable income and it was never part of his assessable income.
However, Mr Yeates claimed a deduction of $5,808.00 spent in respect of overnight expenses in addition to the $9,886.64 allowance. The Respondent’s view was that if he did so then the whole of the $9,886.64 should be added to his assessable income.
At the conclusion of the Tribunal hearing, it was not clear if the Applicant sought to make an argument that the $5,808 deduction sought was in respect of DTA, and not the actual amount spent of the untaxed Overnight Allowance of $9,886.64. The Tribunal ordered that if the Applicant wished to make that submission, then he should provide written submissions and granted leave for a right of reply to the Respondent. The Applicant then submitted that he was not obliged to declare the $9,886.64, but also that he was entitled to deduct the $1,849.21 he received as DTA, saying that he “is prepared to reduce his claim against his taxable allowance to $1,849.21” (which is the amount paid by his employer as an “overtime meal allowance”). This was an entirely new claim directly contradictory to the claim made during the Tribunal hearing. However, the ATO’s response was that DTA is not a bona fide travel allowance within the meaning given by s 900-50 of the ITAA and Taxation Ruling TR 2004/6 in particular, because it was not for staying away from home overnight. That is an essential requirement for this type of allowance.
A second point was that the claim was entirely in respect of meals on days when the Applicant was not staying away overnight. The money spent on meals during the working day keeps the character of private expenditure, and s 8-1(2)(b) of the ITAA specifically excludes expenses of a private nature. The matter of Fardell and Commissioner of Taxation [2011] AATA 725 dealt with this situation and held against the claim. I agree with the reasoning in that case, and I find that this new claim is not maintainable and the claimed expenses are of a private nature.
Under Taxation Ruling TR 2004/6 at para 12, all allowances must be shown as assessable income in the employee’s tax return, except where:
(a)the allowance is not shown on the employee’s payment summary;
(b)the allowance is a bona fide travel allowance;
(c)the allowance does not exceed the ‘reasonable amount’; and
(d)the allowance has been fully expended on deductible expenses.
Paragraph 9 of the same Ruling repeats s 900-B of the ITAA, which states that no written substantiation of the expense is required where it is a bona fide allowance and it is within the ATO’s reasonable amounts.
Paragraph 16 of the Ruling provides that where the deduction claimed is more than the ‘reasonable amount’, the whole claim must be substantiated with written evidence, not just the excess over the reasonable amount.
Paragraph 18 provides that a ’bona fide travel allowance’ is an allowance paid to cover expenses incurred only where it involves sleeping away from home, so that the Overnight Allowance is covered but the DTA is not. Hence the DTA forms part of the assessable income but the DTA Overnight does not.
Motor vehicle expenses of transport between home and airport
It is settled Australian law that the expenses of a taxpayers’ travel between home and work are not deductible from income, because they are regarded as a pre-requisite to earning rather than being incurred in the course of the work activity, and the essential character of the expense is ‘private and domestic’ (Lunney v Commissioner of Taxation (1958) 100 CLR 478).
Lunney v Commissioner of Taxation (1958) 100 CLR 478 was a decision of the High Court dealing with:
…a question of income tax law which has been accepted as settled for the last two generations. It is whether the fares paid by ordinary people to enable them to go day by day to their regular place of employment or business and back to their homes are deductible expenses…Both in Australia and England the view has always prevailed that expenses of travelling from home to work or business and back again are not deductible.
The judgement of the esteemed Dixon CJ is notable for its brevity (5 paragraphs) and its questioning of the long-accepted principle:
I confess for myself, however, that if the matter were to be worked out all over again on bare reason, I should have misgivings about the conclusion.
In the years since that decision the courts have outlined several exceptions to the general rule but they are few.
In Commissioner of Taxation v Vogt (1975) 1 NSWLR 194, Waddell J allowed the travel expenses of a musician who played trumpet, flugel horn and electric bass with amplifier at Marrickville RSL, the Musicians Club, EMI Records and Daley Wilson Big Band concerts. Not surprisingly he concluded that travel with his instruments by bus was impracticable and claimed the expenses of obtaining and running a station wagon. His home was his place of practice and storage of the equipment. It was held that “the mode of his travel was simply a consequence of the means which he employed to get his instruments to the place of performance” (at 201) and the expenditure lacked a personal and domestic character. It was a condition of his employment that he brought those instruments to the various places of work.
The Judge referred to three determinants of the “essential character” to the expense – it was incurred as “part of” the income earning operation, it was “essential” to the operation and it was “attributable” to the carriage of instruments. Essentially, the vehicle was for the equipment and without the vehicle there would be no income.
In AAT Case 9654 (1994) 29 ATR 1031, an RAAF Airborne Electronics Analyst was required to take personal flying gear onto flights weighing about 20kg, sometimes up to 30kg, which in practice could be kept in a locker at the base, but by choice he kept the gear in the boot of his car. The reverse of Vogt was decided, namely that the mode of transporting the gear “was simply a consequence of the means adopted by the applicant in conveying himself to and from his place of employment”. The deduction was not allowed.
An Ansett Ground Flight Engineer was on the other side of the line in Crestani v Commissioner of Taxation (1998) 40 ATR 1037. In this matter the applicant took by car his box of tools weighing about 27kg on a trolley to a room at his airport workplace where there were no effective security measures against theft. The Tribunal found that the tools could not be conveniently carried for any distance, that the applicant used his own tools frequently on aircraft maintenance and that he had no real choice as to his mode of transport. Even though the applicant agreed that he would have travelled by car even if he had no tools to carry, it was held that vehicle expenses were deductible, the expense being reasonably attributable to the tools which formed an essential part of the engineer’s work.
The tools were an essential part of the engineer’s work, were personally owned and were probably “the best tools that man can buy”. The Tribunal was assisted by Clause 138 of Taxation Ruling TR95/19 which dealt specifically with airline employees and referred directly to “bulky equipment” and the lack of a secure area for storage at the workplace. The Tribunal noted that this was a case where the home was not one of several places of work (cf Federal Commissioner of Taxation v Collings (1976) 10 ALR 475) and cited Tribunal Case 75 (1987) 18 ATR 3544 where it was remarked that “this taxpayer is one of those fortunate few who is able to hitch a free ride to work on his toolbox…”
Taxation Case L49 (1979) 79 ATC 339 concerned a pilot who claimed he had two places of work being his home and the airport, but it was held that his employment duties commenced at the airport and his “work” at home was to retain his endorsement as a Boeing 707 pilot. Because he was not travelling “‘on his work’” but “‘to his work’” the expenditure was disallowed except for trips to receive inoculations or to arrange extra work.
In Federal Commissioner of Taxation v Payne (2001) 202 CLR 93, the High Court affirmed Lunney. A pilot employed to fly out of Mascot also conducted a deer farm and claimed the expenses of travel between the two places of business. It was held that where the travel was between two places of unrelated income-earning activity the expense was not related in the course of earning from either activity. Attempts to bring the case within Collings (1976) 10 ALR 475 where a computer consultant operated both from home and office on call 24 hours a day were not successful because the two activities were unrelated. These cases concerned travel between two sites of work.
It is clear from the examples outlined above that the exceptions arise where the expense is an essential part of the income earning activity, and this is usually where the work necessitates the transport of heavy and bulky equipment. The Applicant claimed that he was required to take with him on each flight extremely heavy flight manuals, company instructions, charts, books, safety bulletins from aircraft manufacturers, aviation amendments from Jeppersen USA, from the Australian Civil Aviation Authority, from CASA and Air Services Australia, as well as earphones and a video camera, all purchased by himself at considerable expense, in two bulky bags for which there was no secure storage at the Sydney airport base. The employer provided information (Exhibit R1) that it did not require pilots to have a video camera, flight manuals were provided by the company at no expense to the pilot and that pilots were expected to take a flight bag with weight between seven and 15kg. In fact, the REX safety manual prohibited the use of video cameras. The Applicant was cross-examined and conceded that only a few of these publications were actually required on board.
As to verification of the vehicle expense claim the Applicant claimed that one particular vehicle was used “100 per cent for flying” but for the only period for which the Applicant provided records, there is a substantial difference between the distance the car actually travelled and the distance required for work based on travel between home and the airport (plus two Ikea trips). It appeared from the records that this car was used for other private purposes for a substantial proportion of the distance it travelled and the deduction claimed was related to non-work kilometres. This discrepancy of over 2,300km was never explained although raised squarely in cross-examination. As with some other claims, the Respondent’s submission was that although a substantial portion was allowed at the objection stage, this was an error on the Respondent’s part. As a matter of policy it did not seek to retract that concession but opposed any additional amount being allowed on ground of principle and lack of verification. The records produced by the Applicant do not substantiate his claim as the legislation requires but the Respondent does not dispute that the amount already allowed should be allowed to stand and accordingly that aspect of the reviewable decision will remain undisturbed.
In a further statement provided to the Tribunal by the Applicant, he sought to re-open the question of motorway tolls incurred driving to and from the airport. This claim depends upon a finding that the Applicant was required by his employer, or the nature of his work, to transport heavy/bulky items for his work. This issue is dealt with above. The claim does not succeed. I note that the claim of $1,707 was reduced by $410.20 after the hearing when the Applicant first disclosed that he had received M4 Cashback in that amount and produced the relevant documents.
Home Office
The Applicant claimed that a home office occupying 10 per cent of the area of his home containing a computer, fax machine, and land line telephone, as well as a desk and other furnishings, were essential to his work. He claimed 10 per cent of his mortgage payments as well as electricity and telephone charges.
The Applicant claims (in his post-hearing submission) that the industrial agreement under which he worked (the REX EBA) defines “home base which according to the definitions within the EBA is his home office”. That claim is incorrect. The EBA he refers to defines “home base” as “the base at which a Pilot from time to time is permanently domiciled” (at [3.30]), and elsewhere differentiates it from “bases of temporary transfer” (at [3.48]). Elsewhere in the EBA “home base” for Mr Yeates refers to Sydney Airport. A letter obtained by the Applicant from the Australian Federation of Air Pilots dated 26 February 2013 quotes from the EBA provision for ground transport of pilots on overnight stays, and it notes that “cars are not provided to pilots for private use when travelling between their home base airport and home before or after a duty period” [emphasis added].
The Applicant relied on a letter from the REX Manager of Training and Checking [T14-333] which stated only:
I can confirm that you are required to perform such duties as detailed below as part of your employment with Regional Express as a SAAB 340 pilot.”
The detail referred to was an email from the Applicant which set out a number of duties but added the words “in my home office”. It does not appear that the Manager responded to this phrase and I read the letter as dealing with duties only – not place of performance. I prefer the very direct responses to individual questions which the Respondent obtained from the Human Resources Co-ordinator (Exhibit R1) – a position whose occupant would be expected to know what the employer required.
The response of the employer to the Respondent’s questions in Exhibit R1 is directly contrary to the Applicant’s contention that a home office and his equipment was a requirement of his work:
Q13:Does REX provide facilities, such as office facilities, sufficient for its pilots to perform their duties or are pilots expected to carry out their duties [other than, of course, duties such as flying] at their own expense from their home?
A13:Rex provides provisions in the crew rooms for the pilots to be able to carry out their duties
Q14:If REX expects its pilots to carry out part of their duties from their home, what are those duties?
A14:Rex does not expect pilots to carry out any duties at their homes
The evidence from Mr Yeates himself in re-examination was that the Rex crew room contained tables, chairs and five computers.
The Respondent relies upon Commissioner of Taxation v Forsyth 81 ATC 4157, Handley v Commissioner of Taxation (1981) 148 CLR 182 and Federal Commissioner of Taxation v Faichney (1972) 129 CLR 38, all of which held that a study in a home retains its essential domestic and private character as do outgoings for it. Even where barristers were writing opinions in their home office rather than their city chambers, the expenditure on an office which was part of a home was seen as domestic.
I accept the Respondent’s position and the authorities it relies on in relation to the Applicant’s claim for the home office. The Applicant was employed as a pilot and on the evidence before me he was given facilities to carry out necessary pre-flight and post-flight tasks at the airport crew room and not required to perform those tasks at his home.
Internet Usage
The Applicant also claimed use of the internet to look at weather before leaving home for the airport.
The ATO wrote to REX requesting information regarding this claim. The relevant questions and the response (Exhibit R1) from the REX Human Resources Co-ordinator, Marcia Shin, is as follows:
Q:Does REX consider it necessary for a pilot to have access at home to the internet for work related purposes. If REX considers it necessary for pilots to have access to the internet in order to perform their work, what are the purposes for which internet access is required.
A:No, Rex provide internet access for staff during their duty periods.
Q: Does REX provide all of the required weather information to its pilots as part of the pre-flight [or even in-flight] briefing or does it require its pilots to obtain weather information from home in order for them to carry out their duties.
A:Rex provides all of the required weather information as part of their pre-flight briefing.
Ms Shin was not required for cross-examination. There was no evidence contrary to these responses beyond a general assertion by the Applicant that both home internet and home weather information were necessary. He gave no evidence of any company requirement.
The Respondent’s counsel cross-examined the Applicant as to the accuracy of the diary entries relating to this issue, making the point that on occasions when his flying records showed him to be staying overnight out of Sydney, there were still claims for home office and internet usage, with detailed times and descriptions of work tasks allegedly performed in the home office. In the first month of the financial year July 2007 alone the following entries were made by Applicant:
Date
Overnight Place
Internet Use Time
Task Alleged
1-2
Merimbula
0400-0450.25
Check weather, flight details on internet, pre flight prep
3-4
Ballina
2145-2245
Debrief from flight, log hours in logbook prep for tomorrow
6-7
Orange
0830-09.30.25
Check weather etc
8-9
Wagga
1600-1700; 0330-0430
Check weather etc
10-11
Merimbula
0330-0430.25
Check weather etc
17-18
Grafton
0330-0430
Check weather etc
19-20
PKS
0330-0430
Check weather etc
24-25
Wagga
0330-0430
Check weather etc
These eight instances out of about 23 entries for that month make it clear that there was some systemic error or falsity occurring, which had not been checked at any time by the Applicant or his tax agent. No reliance can be placed on the detailed schedule which purports to support the claim. There was no evidence called by the Applicant to explain the discrepancies. The Tribunal is not satisfied with this evidence. One inference open is that there was no genuine recording of usage. An ex post facto assumption is not the verification process the ATAA requires. Both as a matter of principle and lack of verification the claim fails.
Proportion of pay TV and TV set expenses
The Applicant claimed that 20 per cent of Foxtel fees and depreciation on his TV set were deductible work-related expenses, and the Respondent argued that these matters were essentially private in nature and not required by his employer.
Mr Yeates claimed that it was part of his job to check weather on the Foxtel Weather Channel before leaving home. He agreed that it took about 50 minutes to drive to the airport, another 20 minutes to reach the crew room and he was required to sign on 45-70 minutes before going to his aircraft. This meant that there was a time of between two and three hours between viewing the Foxtel Weather Channel and taxiing out. He denied that this meant that Foxtel was not a useful guide to rely upon. He was asked: “Does REX require you to check weather before you go to the airport?”. His reply was “Yes” and he referred to a passage in an REX policy and procedures manual (Exhibit A4) which read:
The Pilot-in-command has the authority to apply greater safety margins, including airport minima, if he deems it necessary.
He agreed that this instruction “surely refers to cloud base and wind” when actually flying. I find this instruction to be entirely irrelevant to the issue.
REX responded to the ATO enquiries about this issue (Exhibit R1) by stating “Rex provides all of the required weather information as part of the pre-flight briefing” and further:
Q:Does REX consider it of benefit that its pilots watch certain television programmes such as ‘Air Crash Investigation’ in order to carry out their duties?
A:No, Rex does not endorse watching TV programs in order to carry out their duties.
Q:Does REX consider it necessary or advisable for its pilots to have access to such products as Foxtel at their residence for work-related purposes and if so,what are those purposes?
A:No, Rex does not consider it necessary or advisable to have Foxtel for work-related [duties]
The Applicant should never have been allowed the 15 per cent for Internet expenses and for looking at the Foxtel Weather Channel and Air Crash Investigation program. No requirement for home internet access nor use of a TV set has been demonstrated.
The Applicant also claimed depreciation on a video recorder. The Applicant alleged that he was required to carry a video camera-recorder with him in the cockpit to record ‘incidents’ as part of his safety responsibilities. No such requirement was proved and the only material bearing on it (2008 Safety Policy Ch 4 page 32) appeared to prohibit the operation of these devices in-flight (although this could have been directed to passengers).
Credit Cards
The Applicant claimed bank fees and interest on outstanding balances on his credit cards. There was no requirement of his employer that he obtain or use these cards nor that he obtain cash advances. Rex provided and paid for all overnight accommodation and using a credit card to pay for a meal is the choice of the individual of a private nature. The DTA and Overnight Allowances covered necessary expenditure. These claims should not be allowed.
Miscellaneous
The Applicant claimed the amount of $192.09 for paint. As it was apparently for the home office area, I find that it is not a deductible item for the reasons set out above. As outlined in Forsyth, Handley and Faichney, a study in a home retains its private character.
CONDUCT OF THE TRIBUNAL PROCEEDINGS
In response to the Tribunal order about written submissions on the meal allowance question, the Applicant went further and submitted a ‘Witness Statement’ making submissions on most parts of his claim and a plea ad misericordiam, suggesting that he was taken by surprise by the formality of the proceedings, by the nature of the Respondent’s case and by the lack of assistance from his wife during the hearing.
He complained about the conduct of the Respondent’s lawyers. The Tribunal observed the Respondent’s behaviour to be courteous and professional. The Respondent’s Statement of Facts and Contentions was filed and served in advance of the hearing and fairly set out the Respondent’s case.
The Applicant was represented by his tax agent who indicated at the start of proceedings that Mrs Yeates would be called as a witness because she had prepared the material which made up the Schedules for car travel, internet and Foxtel usage. She was then requested to be seated outside the hearing room as is usual before giving her evidence. The Applicant had access to his wife during adjournments. During the day, the Applicant himself insisted on taking on the major conduct of his proceedings as the only oral witness and also as advocate. He was given latitude as a result and was afforded ample procedural fairness, and more than usual assistance in elucidating his case. At the end of the Applicant’s evidence, for reasons not explained, it was announced that Mrs Yeates would not be called as a witness. That was the Applicant’s choice.
The Tribunal has taken into account the material forwarded by the Applicant after the hearing and the submissions in reply from the Respondent.
DISCUSSION
Although the Applicant argued strongly for his position that his employment, and in particular his employer, required the expenditures claimed in order for him to carry out his work, and produced many schedules and letters asserting his claim, I prefer the evidence from the documents produced by the Respondent, in particular the evidence provided by REX’s Human Resources Co-ordinator in Exhibit R1. This material contained unequivocal statements that REX did not require its pilots to have a home office, facsimile machine or computer at their home, that a pilot was required to have only a landline or mobile telephone for contact , that internet access was provided during duty periods, that it did not endorse staff watching TV programs to carry out their duties, that it provided facilities in the crew room for pilots to carry out their duties, that it did not expect pilots to carry out any duties at their homes , that it provided all overnight accommodation, that it provided for and paid for all necessary training ,and that it provided all of the required weather information. The company stated quite clearly that “Rex does not expect pilots to carry out any of their duties at their home” and that office-type facilities were provided in the crew room for pilots to be able to carry out their duties.
The Applicant appears to have attempted to ‘gild the lily’ as to the requirements of his employer and apparently believed that voluminous schedules and lists would overwhelm the ATO assessors and that persistence would succeed despite the facts. To an extent the Applicant succeeded in this to some extent [as demonstrated by the partial acceptance of his arguments by the ATO at the objection stage] but in the end he did not make out a convincing or consistent case.
The Applicant did not seek to cross-examine the Human Resources Co-ordinator but was cross-examined himself to considerable effect on the factual elements of these claims.
FINDINGS ON CLAIMED DEDUCTIONS
I find that the Applicant has not discharged the onus placed upon him by s 14ZZK of the TAA to prove that the deductions sought were correct in amount and should have been allowed. None of the Applicant’s contentions is upheld and none of the claims in dispute is allowed for the reasons stated above. If the Respondent had not decided that it would not argue the amounts which it said were wrongly conceded then the final amount of tax found payable and the amount of administrative penalty might well have been considerably greater.
ADMINISTRATIVE PENALTY OF 25 PER CENT OF SHORTFALL
A rate of 25 per cent applies where the shortfall results from a failure on the part of the taxpayer (or his tax agent) to take reasonable care to comply with a taxation law (Table Item 3 of s 284-90 of the TAA).
The Applicant was clear in his evidence that he had put his credit card and other paper receipts in a shoebox, and otherwise had provided the raw data concerning his work activities involving his home, his car travel, his overnight and day expenses, depreciation etc to his wife, who then processed the data using a computer. An unrelated activity of both Mr and Mrs Yeates was their partnership business, providing internet sites and web design to others. Both were sophisticated in the use of computers and computer programs.
Mr Yeates told the Tribunal that he did not check the accuracy of the material his wife prepared either before or after it was forwarded to his tax agent in Victoria. The errors and contradictions in that material became apparent in cross-examination based on cross-referencing (as described above).While it might not be reasonably expected that Mr Yeates should make a detailed analysis of taxation law to determine the appropriateness of the claims, it is entirely reasonable to expect that he would check the accuracy of the factual assertions in that material and detect serious inaccuracies. He agreed that he took no steps to do this.
The tax agent also failed to take reasonable care to comply with taxation law. The claims made were approximately 50 per cent of the total pilot income. Considering that Mr Yeates’ daily task was flying aircraft on scheduled passenger routes for an established airline based at Mascot, this level of claim should have raised questions in the mind of a careful tax agent.
This in turn should have caused the tax agent to make further enquiries about elements of the claims. The analysis by the Respondent’s counsel of the contradictions between the various schedules in the Applicant’s material could have, and should have, been done by the tax agent. In these circumstances, the level of care of both Mr Yeates and the tax agent cannot be regarded as reasonable. The imposition of the 25 per cent rate of administrative penalty is, in my view, the correct and preferable decision.
I have considered whether there are grounds for remitting the penalty in full or part under s 298-20(1) of Schedule 1 of the ATAA. In Dixon v FCT (2008) 167 FCR 287 the Full Federal Court stated the test when exercising a discretion to remit as:
…whether any part of the penalty should be remitted on the basis that the outcome is harsh, having regard to the particular circumstances of the taxpayer.
My opinion is that the 25 per cent penalty is not harsh given the circumstances. Mr Yeates was careless in not checking the accuracy of the data, not checking whether it was properly transferred to the Schedules forwarded to his tax agent and making claims unsupported in law (e.g. private car travel, DTA deductions, Foxtel programs, fees and interest on credit cards and cash advances). He and his tax agent continued to press those claims to the end despite both the evidence and the law being strongly adverse.
CONCLUSION
The objection decision under review is affirmed including the substantive tax liability, the administrative penalty and the non-remission of penalty.
I certify that the preceding 73 (seventy-three) paragraphs are a true copy of the reasons for the decision herein of Mr Dean Letcher QC, Senior Member. .............................[sgd]...........................................
Associate
Dated 10 January 2014
Date(s) of hearing 3 July 2013 Date final submissions received 23 July 2013 Advocate for the Applicant D & C Accounting Services Solicitors for the Respondent ATO Legal Services Branch
0
8
0