Hudson and Commissioner of Taxation (Taxation)
[2024] AATA 3678
•11 October 2024
Hudson and Commissioner of Taxation (Taxation) [2024] AATA 3678 (11 October 2024)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s):2023/2310
Re:Gregory Hudson
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Senior Member D Benk
Date: 11 October 2024
Place:Sydney
The reviewable decision dated 8 February 2023 is varied to the extent that:
1.The Applicant’s claims for home to office travel, and depreciation and deductions for his vehicle are refused; and
2.The Applicant’s claimed deductions relating to the deductibility of office expenses totalling $320.23 are allowed in full
........................[SGD]................................................
Senior Member D Benk
CATCHWORDS
TAXATION – Income tax – allowable deductions – travel expenses –– transport of materials between home and work – whether materials bulky and essential to income generating activity-– whether personal choice involved – decision under review affirmed
Work related home office expenses – set aside
Balancing adjustment – termination value and car depreciation – arm’s length transaction burden of proof not satisfied – affirmed
LEGISLATION
Income Tax Assessment Act 1997; s 8-1 and subdivision 40-D, s 40-285(2)(b) s 40-300,
CASES
Barnsdall v Federal Commissioner of Taxation (1988) 88 ATC 4565
Commissioner of Taxation v Smith (1981) 147 CLR 578
Commissioner of Taxation v Vogt [1975] 1 NSWLR 194
Danmark Pty Ltd v Federal Commissioner of Taxation (1943) 7 ATD 191
Forestwood Pty Ltd v Federal Commissioner of Taxation (1944) 7 ATD 333
Granby v Federal Commissioner of Taxation (1995) 95 ATC 4240
Lunney v Commissioner of Taxation (1958) 100 CLR 478
Macmine Pty Ltd v Federal Commissioner of Taxation (1979) 79 ATC 4133
McCormack v Federal Commissioner of Taxation (1979) 79 ATC 4111
Re Crestani and Commissioner of Taxation [1998] AATA 612
Trantwein v Federal Commissioner of Taxation (No 1) (1936) 56 CLR 63REASONS FOR DECISION
Senior Member D Benk
11 October 2024
Gregory Hudson (the Applicant) has made an application to the Administrative Appeals Tribunal (the Tribunal) seeking that the decision made by the Commissioner of Taxation (the Respondent) refusing his claims for taxation deductions be set aside (reversed).
The Respondent maintains that its position is correct although did concede at the review hearing that office expenses relating to Xerox, HP Laptop and HP Folio were properly deductable and so this aspect of the Commissioner’s objection decision should be set aside and substituted with a decision that they claimed expenses be allowed in full ($320.23), a concession unopposed by the Applicant.
BACKGROUND
The dispute relates to a claim for a tax deductions in relation to work-related car expenses for the 2017 income year.
The Applicant claimed work related car expense deductions totalling $14,607 but the respondent allowed a sum of $5,258.45.
Likewise, the Applicant claimed depreciation of his vehicle totalling $22,345 but the Respondent allowed a sum of $1,117.45. The amount claimed by the Applicant for depreciation deductions arose from a balancing adjustment of $20,408.85 plus $1,936.15 which he claims occurred on the sale of his Subaru WRX to his company (Gold Quarters Pty Ltd for $6,500 on 27 June 2017). In making its assessment, the Respondent noted that the vehicle was purchased on 22 March 2017 for $28,000 including $845 in stamp duty and so allowed 101 days (up to 30 June 2017) and applied a business use percentage of 56.6%.
The basis of the claim for motor vehicle expenses is that, during the relevant income year, the Applicant was required by his work circumstances to carry bulky equipment between his workplace and home. He says that the bulky equipment required transportation between a number of work sites. In those circumstances, he was forced to carry/transport the equipment every day to and from home. The only way he could do that was by car.
Further, the basis of the claim for a balancing adjustment/depreciation was on the basis that the Subaru was sold just three months after purchase as it was no longer a viable asset, being on-sold to his company who then undertook repairs before selling it.
The issues before the Tribunal are whether;
(a)the Applicant is entitled, under s 8-1 of the Income Tax Assessment Act 1997, (ITAA) to the deduction claimed in respect of his travel from home to his employer’s office and
(b)is the Applicant entitled to deductions for car depreciation in accordance with s 8-1of the ITAA and specifically whether the Applicant is entitled to a deduction as a result of any balancing adjustment under subdivision 40-D of the ITAA on the sale of the car?
The matter was heard on 15 August 2024 when both parties gave evidence via MS Teams. The Tribunal considered the T-docs, oral and written submissions of both parties and additional documentation forwarded by the Applicant in its assessment of the matter.
ONUS OF PROOF
The Applicant (taxpayer) has the burden of proving that the amended assessments issued by the respondent were excessive: paragraph 14ZZK(b) of the Taxation Administration Act 1953 (TAA).
Paragraph 14ZZK(b) effectively creates a rebuttable presumption that an assessment is not excessive:[1]
[1] McCormack v Federal Commissioner of Taxation (1979) 79 ATC 4111, Jacobs J at 4128 and see Gibbs J at 4121 (‘McCormack’).
It is for the taxpayer to rebut the presumption; there is no onus on the Commissioner to show that the assessment is correct:[2]
[2] McCormack, above; Macmine Pty Ltd v Federal Commissioner of Taxation (1979) 79 ATC 4133 (‘Macmine’).
Consequently, the taxpayer does not discharge the onus by merely showing that the Commissioner made an error in the assessment. The taxpayer must positively establish, on the balance of probabilities, that the facts upon which the Commissioner asserts as the basis for its assessment have not been made out.[3]
[3] Macmine, 24 ALR 217 at 236 (Stephen J)
The onus rests on the taxpayer to establish the facts upon which he relies and, if it is necessary for him to establish a particular fact in order to displace the assessment, he must satisfy the Tribunal with respect to that fact.[4] Consequently, the taxpayer’s case must necessarily fail, if the evidence relied upon by him to prove that an assessment is excessive, is rejected.
[4] Danmark Pty Ltd v Federal Commissioner of Taxation (1943) 7 ATD 191; Forestwood Pty Ltd v Federal Commissioner of Taxation (1944) 7 ATD 333, at 337 (Latham CJ).
In assessing the quality (the weight) of the evidence adduced by the taxpayer, it will often be important to bear in mind that facts concerning a taxpayer’s income are peculiarly within his or her knowledge. The taxpayer cannot take advantage of inadequate records or recollections.[5]
[5] Trantwein v Federal Commissioner of Taxation (No 1) (1936) 56 CLR 63 at 87-88 (Latham CJ).
Background
The Applicant’s employment arrangements are not controversial or in dispute. He is a sole director and sole shareholder of Gold Quarters Pty Ltd and Hudson Global Investments Limited. In 2017, the Applicant was employed as a Business Analyst and was contracted to provide services to Sydney Trains via Randstad, an employment agency. Income of Gold Quarters Pty Ltd from Randstad is the Applicant’s personal services income and notably Gold Quarters Pty did not conduct a personal services business.
In the 2017 financial year, the amount of $105,000 in consulting fees paid by Randstad to Gold Quarters Pty Ltd was the Applicant’s personal services income. The Applicant claimed deductions of $73,343.90 in his 2017 income taxation return against the $105,000 consulting fees.[6] Following internal review, some deductions were allowed, but the claims made in relation to work related car expenses of $14,607, and the depreciation of the 2012 Subaru WRX claimed at $22,345 remain in dispute — which is why the matter is now before the Tribunal.
THE DEDUCTION CLAIM
[6] T3 – folios 21 to 53.
Applicant’s contentions – work related car expenses
The Applicant’s testimony with regard to travel from home to work were consistent with previous written representations, relevantly (unedited);[7]
[7] Folio 429 of the T docs.
I travelled regularly from my home in Northbridge to the Sydney Trains office
located on level 3 at 477 Pitt St Sydney NSW 2000.
I was required to drive from my home office and bring bulky equipment to the office
and then to site anywhere across Sydney from Pitt st to as far as Sefton.
Please see the attached statutory declarations regarding travel and the letter from
my Sydney Trains Manager requiring use of a motor vehicle for the job.
Equipment I carried included, but not limited to:
Laptop
Laptop bag
iPad
mouse
Whiteboard markers
Cables
Powerpacks
External Hard disk drive
Hi-Vis vest
Laser measuring equipment to measure warehouses, car parks, racking, storage etc
A monitor to plug into laptop to use on site for presentations and work
Boots for safety and required onsite
Safety glasses
Sun glasses
Hat
Torch
Various PPE
Often a range of tools required to gain entry to site or remove items such as
hammers, screwdrivers, tools etc
I also drove staff and team members to site
Any other tools required to carry out site visits for the range of construction, office, relocation, civil projects etcIn addition, with regard to the need for the use of his personal vehicle between home and the head office, the Applicant testified;
·He was required to work across 28 depots for Sydney Trains over an 18 month period, conducting over 1200 staff assessments;
·There was no fixed office where he could store items hence the need to transport them;
·He applied the logbook method 100% of the time. Most days he was required to transport up to 25kg and this included over the summer months where temperatures exceeded comfort;
·The materials he had to transport were bulky;
·The only reasonable way he could transport the materials was by car; and
·The cost of travelling by car between his workplace and home should be deductible as a loss or outgoing incurred “in gaining or producing [his] assessable income”, in the words of s 8-1.
Further, the Applicant submitted;
·The delays in finalising this matter have been stressful. He has not been able to get a straight answer. There must be a better way in dealing with these matters as the beaurocracy has little appreciation that his life has been on hold.
·This dispute has prevented the finalisation of taxation returns for Gold Quarters Pty Ltd and Hudson Investments which has had an impact on his ability to secure finance. His family has also incurred family assistance and child care debts raised by the Department of Human Services (Centrelink) which cannot be finalised/reconciled until a determination is made on his claims.
THIRD PARTY EVIDENCE
Statement of Kevin Blye
The Respondent requested further and better particulars from the Applicant’s employer as follows (unedited);[8]
[8] Supplementary T Doc 1-7
Please confirm if Mr Hudson:
1. As part of his role, was he required to carry items like protective clothing, a computer monitor
and tools such as hammers, screwdrivers?
2. Whether any storage was available to Greg at the Sydney Trains office located at 477 Pitt St
Sydney NSW 2000 or at other Sydney Trains sites for the storage of item?
3. Was he expected to carry these items from his home to Sydney Trains offices?
4. Was he provided a place to work at 477 Pitt St Sydney NSW 2000?
5. Was he required to wear PPE by Sydney Trains?
6. With respect carrying items like a hammer and screwdrivers, what were they required for? How often were they required and were any other tools required in his role?
7. With respect to a computer monitor, was he required to:
a. Supply his own computer monitor whilst working at Sydney Trains?
b. Carry his own monitor from home and to the Sydney Trains’ various sites.
8. Had a regular place of work at 477 Pitt Street Sydney NSW 2000.
9. Did not know the exact location or site of where he could be expected to work daily.
10. How often was he required to attend 477 Pitt St Sydney NSW 2000?
11. How many different sites would he attend in a day?
12. How far in advance was he informed of the Sydney Train sites he was required to visit?
13. Were allowances or disbursements paid for his travel expenses?
14. Was Mr Hudson required as part of his role to transport other team members to various offices or site locations?In response, the following answers were recorded as being given by Mr Blye (and subsequently confirmed by him). The Tribunal understands that Mr Blye was nominated as the employer contact, relevantly (unedited);
Meeting held on Friday 16 February 2024.
In attendance:
Lauryn Petropoulos – ATO
Mahmoud Roumie – ATO
Kevin Blye – Sydney Trains
Meeting commenced at or around 10:02am
QUESTIONS
1. LP: As part of Greg’s role, was he required to carry items like protective clothing, a
computer monitor and tools such as hammers, screwdrivers? What was his role?
Role
KB: The office may have shown Pitt St. The main office was based in Clyde.
He was hired as a business analyst.
Developed tools for analytics and developed documents.
Supported me around facilities. Project for consolidating facilities.
Locations were Strathfield, Chullora, and Clyde. Majority of time at Clyde.
Items
Not required for the role with me.
2. LP: Whether any storage was available to Greg at the Sydney Trains office located at 477 Pitt St Sydney NSW 2000 or at other Sydney Trains sites for the storage of items like the ones I mentioned?
KB: No, nowhere to store it safely at the facilities. There was already monitors so he could plug in his laptop.
3. Was he expected to carry these items from his home to Sydney Trains offices.
4. Was he provided a place to work at 477 Pitt St Sydney NSW 2000?
5. LP: Was he required to wear PPE by Sydney Trains.
KB: Yes, safety vests, hard hat, and PPE.
6. With respect to the hammer and screwdrivers listed at (o), what were they required for? How often were they required and were any other tools required in his role? If so, please advise of the other tools required.
7. LP: With respect to the computer monitor listed at (g) was he required to:
a. Supply his own computer monitor whilst working at Sydney Trains?
b. Carry his own monitor from home and to the Sydney Trains’ various sites.
c. There was no place to store the monitor at a Sydney Trains office?
KB: He was in other roles as well as with me.
Whether he needed the screens for other roles, I’m not aware about.
8. LP: Had a regular place of work at 477 Pitt Street Sydney NSW 2000 Did he travel
multiple sites or was it one location?
KB: No, it was mixed
9. LP: Did not know the exact location or site of where he could be expected to work daily.
KB: Sometimes it was pre-planned the day before. But it could have been on the day.
10. How often was he required to attend 477 Pitt St Sydney NSW 2000?
11. How many different sites would he attend in a day?
12. How far in advance was he informed of the Sydney Train sites he was required to visit?
13. LP: Were allowances or disbursements paid for his travel expenses?
KB: Not that I’m aware of.
He was just paid the typical day rate and claim any expenses on his tax.
14. LP: Was Mr Hudson required as part of his role to transport other team members to various offices or site locations?
KB: No
Meeting ended at or around 10:07amStatement of Brendan McLean
In a statement dated 26 April 2024, Brendan McLean stated (unedited):
“ I worked at Sydney Trains from 2014-2021 as a Change Manager. I worked with Greg Hudson on projects across the Engineering and Maintenance Directorate in 2016 to 2019, including the construction of the Sydney Central Hub at Clyde, including the business transformation and relocation of approximately 1,200 staff from various Sydney Trains sites, depots, offices and warehouses to this newly built agile workplace. Greg was required to meet a Change Manager on site or travel to site when carrying out work or engaging with Sydney Trains staff. This was a union requirement”.
In cross examination, the Applicant maintained the statement of Kevin Blye is inaccurate as Blye was not his supervisor for all periods, nor did he work with him between November 2016 and June 2017, and so the statement must carry little weight. He did not nominate any other individuals, nor did he provide evidence from any other relevant employer contact apart from Mr McLean. He also did not obtain any evidence from Blye to verify the supervision and reporting arrangements. The Respondent and the Tribunal queried why no additional evidence was obtained from Kevin Blye to verify these contentions to which the Applicant responded “I was never asked to provide it”. He did however submit that the statement of Brendan McLean should be preferred.
Deductibility
The Act allows for the claiming of deductions. Deductions may be general[9] or specific.[10] The provisions are technical but to make the complex simple, in order to claim a general deduction, what must be demonstrated is that the ‘loss or outgoing’ (ultimately claimed as a deduction) was incurred in gaining or producing the assessable income reflected in the taxation return for the financial year.
[9] Section 8-1 of the 1997 Act.
[10] Subsection 8-5(i) of the 1997 Act.
The Act, however, stipulates that a loss or outgoing cannot be claimed to the extent that it is of a capital nature; a private or domestic nature; or alternatively incurred in relation to producing exempt income.
In assessing whether an outgoing is deductable, the Applicant must demonstrate that there is a sufficient nexus between the expense/outgoing and the activity which has produced his assessable income.[11]
[11] Commissioner of Taxation v Smith (1981) 147 CLR 578.
The starting point in a case such as this is the well-established principle that travel between home and a place of employment is not deductible.[12]
[12] Lunney v Commissioner of Taxation (1958) 100 CLR 478.
But there are exceptions to that general principle. One category of exception, which is relevant in the Applicant’s case, is the circumstance in which a taxpayer carries, between work and home, equipment which is both bulky and essential to the income-generating activity. In some circumstances that transport can be characterised as something other than simply “travel between work and home”.
For example, in Commissioner of Taxation v Vogt [1975] 1 NSWLR 194; 75 ATC 4073, Waddell J considered the case of a professional musician who performed at various locations. He played acoustic bass, electric bass, trumpet and flugel horn. He had to transport his instruments and related equipment, which his Honour described as “very bulky”, between the various work locations and home, and sometimes from one work location to another. The taxpayer generally stored his equipment at home, “for justifiable reasons of convenience and for the purpose of practising on them”. His Honour concluded as follows:
… in a practical sense, the expenditure should be attributed to the carriage of the taxpayer’s instruments rather than to his travel to the place of performance. The mode of his travel was simply a consequence of the means which he employed to get his instruments to the place of performance, that is by carrying them in the motor vehicle which he drove. In the light of these matters it is my opinion that the essential character of the expenditure was such that it should be regarded as having been “incurred in gaining or producing the assessable income”.[13]
[13] at 201.
The same sort of reasoning has been applied in other cases. In Re Crestani and Commissioner of Taxation [1998] AATA 612; (1998) 40 ATR 1037; 98 ATC 2219, Senior Member Block (as he then was) allowed deductions to an aircraft engineer who transported “bulky” tools from work to home, in circumstances where the taxpayer’s employer provided no secure location for the tools to be stored at work. The travel expense was accepted as reasonably attributable to the tools, which formed an essential part of the taxpayer’s work.
Cases in which taxpayers’ claims have been unsuccessful are generally those where the travel expense has retained its character as “travel between work and home”, and has not taken on the flavour of a work-related activity.
The attributes that tend to shift the expense (generally a car expense) from the category of non-deductible private transport to that of a deductible work-related activity are that:
·the equipment being carried is necessary for the income-generating activity;
·the equipment is “bulky”;
·there is no secure storage at the workplace; and
·the only practicable way to transport the equipment is by car.
APPLICATION OF THE PRINCIPLES TO THE APPLICANT’S CASE
I accept the statement of Kevin Blye. Mr Blye is the only nominated employer contact and supervisor of the Applicant and there is no evidence to negate that premise or his statements. I acknowledge the statement is made almost 7 years after the relevant taxable year, but there is nothing in the statement that would appear to be inconsistent with the Applicant’s job description. The answers by Mr Blye to the questions asked of him were direct and did not suggest any lack of recollection due to the passing of time. I find the statement persuasive in the absence of any contrary information.
I acknowledge the statement of Mr McLean but it provides little insight into the Applicant’s activities on a daily basis. His statement is largely consistent with the Applicant’s description of his job description and duties but does not provide any information about the ‘bulky goods’ issue and so is of limited assistance.
Given the lack of support by the supervisor/employer for the requirement to transport any such claimed bulky material, to the extent that the Applicant carried ‘essential equipment’ between work and home, and the requirement to do so, I find he engaged in such activities as a matter of personal choice; that is, the evidence has not established the equipment being carried was necessary for the income generating activity.
Even if it were the case that he did transport the material nominated above at all times, it is not supported by the employer as being essential equipment and so his claim would similarly fail. That would also be a matter of personal choice, and personal choice of that kind is not enough to displace the principle established in Lunney’s case that transport between work and home is not deductible.
Overall, I find the circumstances do not support a re-characterisation of his transport expenses out of the category of non-deductible private transport into that of a deductible work-related activity.
Depreciation claim and balancing adjustment
I next have to consider the claim for depreciation and specifically the balancing adjustment claimed.
Here there is no dispute the Applicant purchased the Subaru WRX on 22 March 2017 for a total of $28,000 but sold it to his company three months later for $6,500 on 27 June 2017.
The Applicant testified the dramatic fall in value was due the vehicles requirement for cosmetic and mechanical repairs nominating, in oral submissions, panel damage of $7,500; a blown head gasket which cost $3,500 to replace; replacement of the clutch valued at $2,000; viscous coupling and shock absorbers collectively costing $2,500; brake pads $1,300 and tyres at $630. The Applicant submits that, in hindsight, he probably paid too much for the vehicle at first instance but confirmed his company had sold it approximately one year after its purchase for $13,000. He acknowledged in his evidence that he did not have receipts or invoices for the work undertaken or estimates for costs of repair for damages both cosmetic and mechanical.
In response to questioning by the Respondent, the Applicant submitted that, whilst there was panel damage, he made no claims on his insurance company as the excess was prohibitive, as each panel was subject to a separate claim and each claim would be subject to an excess.
The Applicant admits he did not get the vehicle valued before he sold it to his company for $6,500 as he never knew that he would be encountering problems with the Respondent. He believes it was a fair price given the state the vehicle was in and referred the Tribunal to photographs of the vehicle found in the exhibits. He admits that he does not have all of the receipts for the repairs undertaken. His evidence did not reveal any market research into the value of the vehicle at the time of sale. The Applicant confirmed he had no evidence to justify that the repairs and cosmetic damage had a significant impact on sale value.
The Respondent maintains the Applicant has not provided sufficient evidence that the termination value of the vehicle was $6,500 and therefore cannot show that the termination value is less than its adjustable value just before the transfer of sale to Gold Quarters. It further submits the transaction was not at arm’s length because the Applicant had complete capacity and control to influence the sale price of his car to his own company; the nature of the dealing was unusual as the Applicant claimed significant depreciation due to having serious damage, but then purchased it for $6,500 and then on sold it just one year later for $13,000 with no evidence of repairs undertaken; and finally the dealing was not of a bargaining nature as the Applicant has not provided substantiation that the vehicle which was purchased for $28,000 in March 2017 was worth only $6,500 three months later.
Section 40-285(2)(b) of the ITAA allows for the application of balancing adjustments in certain circumstances which are prescriptive — particularly for vehicles. The termination value of an asset is determined with reference to section 40-300 ITAA and generally consists of the consideration taken to have been received by the taxpayer for the asset.
Section 40-300(1)(a) of the ITAA defines ‘terminating value’ and specifically Item 6 of the termination valuation table stipulates certain rules that apply to the termination value of the vehicle if the circumstances of termination are considered to not be at ‘arm’s length’. The definition of arm’s length is found in section 995-1 (1) of the ITAA and requires me to consider the connection between the parties in the overall transaction. I am mindful of authorities which state that a ‘finding as to a connection between the parties is simply a step in the course of reasoning and will not be determinative unless it leads to the ultimate conclusion’.[14]
[14] Barnsdall v Federal Commissioner of Taxation (1988) 88 ATC 4565.
Authorities suggest that an arm’s length transaction will be established where it can be shown that ‘separate wills and minds of the parties have been applied to the bargaining process’.[15]
[15] Granby v Federal Commissioner of Taxation (1995) 95 ATC 4240.
In circumstances where an arm’s length transactions cannot be established, the ITAA directs that the market value of the car is to be substituted as the termination value. This amount then requires further adjusting by reference to the car depreciation limit adjustment required by s40-325 of the ITAA.
I acknowledge the photographic evidence of cosmetic panel damage and the claims regarding mechanical defects. However, given the dearth of evidence in regard to the value of such defects on the actual sale value and market position, I cannot be satisfied that a vehicle which was purchased only three months earlier for $28,000 would have dropped in value to $6,500. There was no evidence that the Applicant attempted private sales or obtained a trade in estimate. There is no evidence of the costs of repairs and what the costs of such repairs did to the actual value of the vehicle.
For these reasons, I find that the Applicant has not discharged his burden in establishing that the outgoings/deductions claimed had a nexus to gaining or production of his assessable income and I cannot find that the arrangement was ‘arm’s length’.
For these reasons, the objections decision relating to the Applicant’s claims for home to office travel and depreciation for his vehicle are affirmed. The decision relating to the deductibility of office expenses totalling $320.23 is set aside and allowed in full.
I certify that the preceding 51 (fifty-one) paragraphs are a true copy of the reasons for the decision herein of Senior Member D Benk
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Associate
Dated: 11 October 2024
Date(s) of hearing: 15 August 2024
Solicitors for the Respondent: L Petropoulos, Australian Taxation Office
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