Jayatilake v Commissioner of Taxation

[1991] HCATrans 233

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Melbourne No M35 of 1991

B e t w e e n -

GITA DEVI JAYATILAKE

Applicant

and

COMMISSIONER OF TAXATION

Respondent

Application for special leave

to appeal

---

DAWSON J
TOOHEY J

MCHUGH J

Jayatilake 1 30/8/91

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 30 AUGUST 1991, AT 10.06 AM

Copyright in the High Court of Australia

MR A.M. NORTH, QC: If the Court pleases, I appear on behalf

of the applicant with my learned friend,

DR J.A. SCUTT. (instructed by Ryan Carlisle

Thomas)

MRS A. MOSHINSKY, QC: If the Court pleases, I appear with

MR. G.J. DAVIES, on behalf of the respondent.

(instructed by the Australian Government Solicitor)

MR NORTH:  If Your Honour pleases, this application raises

the question whether the cost of child care

expenses are deductible under section 51(1) of the

Income Tax Assessment Act. The grounds upon which

we rely in support of the application for special

leave are two. The first is that the decision of

this Court is necessary to resolve an inconsistency

between Lunney's case and Finn's case. The second

ground is that if there is no inconsistency the

Court should now review the principle enunciated in

Lunney's case that an expense which is a

prerequisite to the earning of assessable income is

not, by that reason alone, deductible under

section 51(1).

In this case the Commissioner of Taxation has allowed the taxpayer deductions for self-education

expenses. Those expenses are fees to the tertiary

institutions which the taxpayer attended, the books

purchased for the course, stationery, photocopying,

the fare to go to and from the course, lighting in
her home in an area used for study, heating and
telephone. It is common ground in this case that

the child-care expenses were necessary to allow the

taxpayer to undertake the courses. They were a

necessary prerequisite for the study, the expenses

of which were incurred in gaining the assessable

income.

DAWSON J:  Why were they not of a private or domestic

nature?

MR NORTH:	The expenses that were allowed?
DAWSON J:	I am sorry, you are talking about the expenses

that were allowed.

MR NORTH: That were allowed.

DAWSON J: Yes, but I am talking about the child-care

expenses.

MR NORTH:  Why were they not?

DAWSON J: Yes.

MR NORTH: Well, Your Honour, if they are necessary for the

purpose of engaging in the study which has been

Jayatilake 2 30/8/91

accepted all round as being incidental and relevant

to the job she had, if that be so, we say they are

necessarily excluded from being private, by reason

of their link with the work she did.	She did the
course solely for the purpose of her job.	She had

child care solely for the purpose of doing the

course.

DAWSON J: Well she did not. She had child care solely for

the purpose of caring for the child.

MR NORTH: Well, Your Honour can look at it that way.

Your Honour can - - -

DAWSON J:  That is the way you do look at it, is it not? I

mean, the fees that are paid for the course, that

is one thing, but this is something, an expense

which is incurred which is quite separate.

MR NORTH:  Well, Your Honour, can we put it this way. We

went to Finn's case. Finn was the Western

Australian Government architect who, after many

years service with Western Australia, decided to

take his long service leave. He went overseas and

with the consent and indeed encouragement of his
employer, visited places of architectural merit
overseas, spent his long service leave dedicated to

the pursuit of matters relevant to his job and

critical to his promotion. He made a claim for

fares and for accommodation for that trip, and the

High Court allowed the claim shortly after Lunney's

case.

Now the accommodation provided to him, we

submit with respect, was in no different category

to the child care provided to the taxpayer in this

case. It had no more or less link with the work in

each case.

DAWSON J: But Mr Justice Beaumont pointed out that in

Finn's case the services such as transport and

accommodation were provided to the taxpayer

himself, as part of the process of his self-

education. In this case the expenditure is

relevant to the welfare of the child, but that is a

different thing.

MR NORTH:  Your Honour, we would, with respect, say that

that distinction is utterly meaningless in the real

world. It is utterly without any meaning. I mean,

whilst it is possible to say that the child-care

services were provided to the child, it is no less

easy or right to say that they were provided to the

mother. It is just another way of looking at it,

equally meritorious.

Jayatilake 30/8/91

McHUGH J: For this application to success you really have

to turn the principles in relation to section 51 on

their head. You have to overrule Ronpibon, because

if the tests under section 51(1) is whether the

essential character of the expenditure must be

incidental and relevant to the activity by which

the taxpayer gains assessable income, and that

expenditure is not relevant and incidental merely

because it is a prerequisite to the income, it is

very difficult to see how you can succeed here.

MR NORTH:  We accept that, Your Honour, and that is

precisely what our second string to the bow was.	I
mean, we first say there is an inconsistency, but
if we are wrong about that - I mean an
inconsistency between Finn and Lunney, but if we
are wrong about that, we say that Lunney was
wrong - I do not think we need to go as far as to
say Ronpibon was wrong, because Lunney really added
that gloss that a mere necessary prerequisite does
not fall within the Ronpibon test.

McHUGH J: Well, you would have to say Hatchett was wrong

as well, would you not - the case of the university

lecturer.

MR NORTH:  Yes, Your Honour. We have to face up to the fact

that in Lunney the justification for the principle

was said to go back, I think, Chief Justice Dixon

said, two generations. We accept we have got a difficult job, Your Honour, but we do say, with

respect, that the time has come for Lunney to be

reviewed in respect of this principle, because it

was, after all, a decision made with a strong

dissent by Justice McTiernan, and of course those

well known comments of the Chief Justice, about

where he says, in effect, "Well, there is no

reasoning which supports this conclusion, but the

principle has been around for so long that we ought

not to interfere, that is a matter for the

legislature".

Now, of course, we come along 20 or 30 years

later and put the same argument, and no doubt would

initially be greeted with the same sort of
response, except that we say, in the meantime, a

couple of relevant things have happened. Further

reservations have been expressed about Lunney by

members of the Court. We rely on some observations

by Justice Stephen in Handley - can I hand up a

copy of Handley, 148 CLR 182, and we rely on the

passage at 192 point 9:

What was said in the joint judgment in Lunney

was, of course, directed exclusively to the

single question before the Court, relating to

the expense of travelling to work. If,

Jayatilake 4 30/8/91

despite the careful reasoning in the
dissenting judgment of McTiernan J. and the

misgivings expressed by Dixon J., the

disallowance of such travelling expenses can

be justified in modern conditions as a matter

of logic, rather than as a question of

adherence to well settled authority, the logic

application to this quite special context

cannon, I think, be applied in other areas.

Now, we take that as being a reflection upon the

principle that we seek to challenge.

McHUGH J: But I was going to say, I think, in Madelina

Mr Justice Menzies also said that money was not to

be extended.

MR NORTH:  Yes, that is right, Your Honour. In Handley,

Justice Aickin agreed with Mr Justice Stephen, so there are certainly some elements of discontent

about the decision, and - - -

DAWSON J: But you do have to overcome a problem on the

facts of this case. I mean, the line might be a

difficult line to draw in some cases, particularly

with travelling expenses and the like, but not

difficult to draw in this case. The child had to

be cared for in any event and the fact that the

taxpayer chose to care for it in this way does not

have anything to do with her study.

MR NORTH:  Your Honour, I think, might be assuming a little

more than the facts in this case amounted to. Can I ask you to turn to page 31 of the application book.

It was really a matter of common ground that, to

quote from line 40, subparagraph (7):

without the child-minding the taxpayer could

not have undertaken the courses.

DAWSON J: Well, of course that is so. Without eating you

cannot undertake the course either.

McHUGH J: Exactly, and I was going to ask you that. What

do you say about Professor Parsons' comment that

the degree of connection between child minding and
the derivation of income is no closer than that

between the cost of eating and being able to earn?

MR NORTH:  We would say, Your Honour, and we had anticipated

that one, to what extent is the breakfast of the

barrister relevant to his earning assessable

income? Of course that is outside the scope, Your

Honour, but when we necessary prerequisite, it is, of course, a necessary prerequisite to earning the

income. You cannot go back for ever, and it is

always going to be a question of nice line-drawing,

Jayatilake 30/8/91

but we ask the Court to review Lunney to stretch

the line backwards -

DAWSON J: But that is what I am putting to you. Sometimes

it might be a question of drawing a fine line, but

not in this case.

MR NORTH:  We would say so, Your Honour, because perhaps it

does not come out quite as clearly as Your Honour

puts it, but this is a case where, we say with

respect, where the only reason for the child

minding expenses being incurred was to allow the
undertaking of the course, and that is what we get

out of line 40 - - -

DAWSON J: Well that is the point, is it not?

MR NORTH:  Yes.

DAWSON J: Yes.

MR NORTH:  If that were established, as a matter of fact,

then we would say it would fall within the revised

principle as we would want to argue it. The

Full Court relied on Mr Justice Mason's decision -

as he then was - in Lodge, which rejected a claim

for deduction of child-care expenses by reference

to Lunney, and by reference to the principle that

merely being a prerequisite is not sufficient.

McHUGH J: Well, that is two Full Court decisions now: this

case and Martin on this point and the Chief Justice

has recently said that the Full Court of the

Federal Court is, in effect, the last word on

taxation cases, unless there is something very

special about them. What is special about this

case? It is just an application of the section to

a particular set of facts, is it not?

MR NORTH:  The way we put the application it is not, because

we seek to challenge the principle, as our second

string. We firstly say there is an inconsistency

that has to be resolved between Finn's case, which

is subject to the distinction which we reject, that

Mr Justice Beaumont drew, was accepted by the

Full Court. Subject to rejection of that there is

an inconsistency between Finn and Lunney, because

in Finn a prerequisite expense - I mean, the

accommodation of the architect overseas was just a

prerequisite for the architect to do the
self-education in the same way as the incurring of

expenditure on child minding was a prerequisite to

this lady. That inconsistency should be resolved

and that is a special leave point in itself. If

there is no inconsistency then we say the time has

come, given the dissatisfaction with the analysis

upon which Lunney was based, to review Lunney, and

Jayatilake 6 30/8/91

I was going to just take the Court to page 12 of

the appeal book, where in the Administrative claim says:

I would, with respect, adopt the

following passage from the judgement of

Mr Justice French in Hyde, at page 4751:

"One can accept that the taxpayer may well

feel some sense of grievance at the fact that

the expenditure cannot be claimed as a

deduction, but as the courts have said on
occasions before today, the answer to that
grievance will not be found in the courts but
in changing the law and that is a matter for

the legislature."

Well, what that demonstrates is that in Hyde's case

His Honour thought that there was a grievance that

flowed from the decision. The AAT thought the same

in this case, and this Court, we submit with

respect, ought to reject the notion that this

change is one that is dependent on the legislature.

This is a change, which is capable of being undertaken by the Court in a review of Lunney, and that is, in our submission, what should be done,

and it is on those grounds that we seek special

leave, if the Court pleases.

DAWSON J:  We need not trouble you, Mrs Moshinsky. The

applicant seeks to challenge a well-established

principle which is accepted in the court below. We

do not think there is sufficient reason to doubt

the decision of that court to warrant the grant of

special leave, and special leave will be refused.

MRS MOSHINSKY:	We seek costs, Your Honour.
DAWSON J:	Do you have anything to say about that, Mr North?

MR NORTH:  I cannot say anything about that, Your Honours.

DAWSON J: Refused with costs.

AT 10.23 AM THE MATTER WAS ADJOURNED SINE DIE

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