Ogden and Commissioner of Taxation (Taxation) - [2016] AATA 32

Ogden and Commissioner of Taxation (Taxation) [2016] AATA 32 (29 January 2016)

Division

TAXATION & COMMERCIAL DIVISION

File Number(s)

2014/5943; 2014/5957; 2014/6763; 2014/6764

Re

Gary Ogden

APPLICANT

And

Commissioner of Taxation

RESPONDENT

DECISION

Tribunal
Deputy President S E Frost

Date 29 January 2016

Place
Sydney

In respect of the assessment of primary tax for the 2011 and 2012 income years (applications 2014/5943 and 2014/5957 respectively), the Tribunal sets aside the objection decisions and remits the matters to the Commissioner for reconsideration in accordance with these reasons.
In respect of the assessment of administrative penalty for the 2011 and 2012 income years (applications 2014/6763 and 2014/6764 respectively), the Tribunal allows the Commissioner 28 days from the date of publication of these reasons to reconsider and, if he wishes, to make further submissions on the penalty position.
..........................[sgd]..............................................
Deputy President S E Frost
CATCHWORDS
TAXATION AND REVENUE – income tax – deductions – employee – work-related travel expenses – home office expenses – occupancy costs – running costs – objection decision relating to income tax set aside and matter remitted to Commissioner – administrative penalty – further submissions
LEGISLATION
Income Tax Assessment Act 1997 (Cth) ss 8-1, 25-5, 995-1
Taxation Administration Act 1953 (Cth) s 14ZZK Schedule 1 ss 280-170, 284-90(1)
CASES
Amalgamated Zinc (De Bavay's) Limited v Federal Commissioner of Taxation [1935] HCA 81
Commissioner of Taxation v Cooper [1991] FCA 164)
Commissioner of Taxation v Forsyth [1981] HCA 15; (1981) 148 CLR 203; 11 ATR 657
Handley v Commissioner of Taxation [1981] HCA 16; (1981) 148 CLR 182; 11 ATR 644; 81 ATC 4165
Morris and others v Commissioner of Taxation [2002] FCA 616
Nicoll and Commissioner of Taxation [2002] AATA 1157
Ogden and Commissioner of Taxation [2014] AATA 385
Ovens and Commissioner of Taxation [2009] AATA 166; (2009) 75 ATR 479; [2009] ATC 10-081
Roche Products Pty Ltd and Commissioner of Taxation [2008] AATA 639
Ronpibon Tin NL v Federal Commissioner of Taxation [1949] HCA 15
Stevenson v Commissioner of Taxation (1991) 29 FCR 282
SECONDARY MATERIALS
Taxation Ruling TR 93/30 Income tax: deductions for home office expenses
Taxation Ruling TR 98/6 Income tax: real estate industry employees - allowances, reimbursements and work-related deductions
REASONS FOR DECISION
Deputy President S E Frost
29 January 2016
INTRODUCTION

The taxpayer in this case, Gary Ogden, has worked as a professional sales commission agent since the mid 1990s.
Mr Ogden’s 2010 income tax return was audited by the respondent Commissioner. The Commissioner disallowed many of the deductions Mr Ogden claimed. Mr Ogden objected against his assessment and the dispute found its way to the Tribunal where the matter was heard and determined by SM Ettinger. Mr Ogden enjoyed modest success on that occasion: Ogden and Commissioner of Taxation [2014] AATA 385 (the 2014 Decision).
He now has a dispute with the Commissioner concerning his income tax for the 2011 and 2012 income years (the relevant years). As occurred in relation to the 2010 year, the Commissioner disallowed various deductions claimed in Mr Ogden’s tax returns for the relevant years, and also assessed shortfall penalty on the basis that Mr Ogden or his agent had failed to take reasonable care to comply with the tax law. Mr Ogden objected against each of the Commissioner’s assessments. The objection against the primary tax for each of the relevant years was allowed in part. The objections against penalty were disallowed. The objection decisions are now under review here. The applications have been allocated file numbers as follows:
2014/5943:      Assessment of primary tax for the 2011 income year
2014/5957:      Assessment of primary tax for the 2012 income year
2014/6763:      Assessment of administrative penalty for the 2011 income year
2014/6764:     Assessment of administrative penalty for the 2012 income year
In his statement of facts, issues and contentions for each of the relevant years Mr Ogden also contended that the shortfall interest charge should be remitted to nil, but it is clear that the Tribunal has no jurisdiction to review the shortfall interest charge in this case: s 280-170 in Schedule 1 to the Taxation Administration Act 1953 (TAA).
BACKGROUND
Throughout the relevant years Mr Ogden was employed by IBM Australia Ltd as a professional sales commission agent, having started with the company in June 2010, just before the commencement of the 2011 income year. He was paid a base salary which was supplemented by sales commissions and incentives.
His job, put simply, was to try to sell IBM products to customers and potential customers. In the event that he was successful, the sale to the customer would often not be from IBM direct, but through the local IBM dealer. Mr Ogden referred to these local dealers as “business partners”.
Mr Ogden was responsible for what IBM called the New South Wales mid-market segment. Potentially that included the entire state, but in reality most of the customers and targets were based in the Sydney CBD or suburbs, the larger regional areas of Newcastle and Wollongong, and Canberra.
IBM did not provide Mr Ogden with a dedicated office or any dedicated workspace. Whenever he went to IBM’s premises to work, he would have to make do with what many in the workforce put up with these days – a “hot desking” arrangement. But it seems that in any event he spent little time in the IBM offices. As he said in each of his witness statements:
I am paid for results; I am not paid to be in IBM Australia’s office.
In fact, he spent much of his time travelling, either to visit customers or targets or to meet with the IBM business partners. Alternatively, when he needed to sit down at a desk to work, he would often do that at home, in the area that he described as his “home office”.
The home office is a major area of dispute between the parties, as it was in the earlier proceeding with respect to the 2010 income year. I will deal with Mr Ogden’s home office claims in some detail later in these reasons; the conclusions I reach may have a bearing on other deduction claims that he presses, including heating and lighting in his home, depreciation on certain items of office equipment, and the cost of items of replacement equipment and parts.
The amounts that Mr Ogden has claimed by way of deduction have changed, in virtually every category, from the time of lodgement of his tax returns, through the objection stage and right up to and even during the hearing. To put things into perspective, it is helpful to set out the amounts that he claimed in his returns, and I do this in Table 1 below. I will trace the movement of those amounts over time, as necessary.
Table 1

Label and Deduction category 2011 2012

D1: Work related car expenses 29,408 17,543

D2: Work related travel expenses 3,857 1,907

D3: Work related clothing expenses 0 830

D5: Other work related expenses 20,806 29,039

D10: Cost of managing tax affairs 9,223 4,154

Total 63,294 53,473

Mr Ogden declared salary and wages income of $209,048 for the 2011 year and $143,383 for 2012. His deduction claims in Table 1 represent 30 per cent of his salary and wages income for 2011, and 37 per cent for 2012.
THE RELEVANT LEGISLATION
Deductions are allowed against assessable income by s 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). That section reads relevantly as follows (notes omitted):
8-1 General deductions
(1)You 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; or
(b)it is necessarily incurred in carrying on a *business for the purpose of gaining or producing your assessable income.
(2)However, you cannot deduct a loss or outgoing under this section to the extent that:
(a)it is a loss or outgoing of capital, or of a capital nature; or
(b)it is a loss or outgoing of a private or domestic nature; or
(c)…; or
(d)…
(3)A loss or outgoing that you can deduct under this section is called a general deduction.
During the relevant years Mr Ogden did not carry on a business, and so s 8-1(1)(b) cannot apply.
The other provision that will need to be considered is s 25-5(1)(a). That provides:
25-5 Tax-related expenses
(1)You can deduct expenditure you incur to the extent that it is for:
(a)managing your *tax affairs.
“Tax affairs” means “affairs relating to tax”, and “tax” means “income tax”: s 995-1 of the ITAA 1997.
MR OGDEN’S WORK PRACTICES
Mr Ogden travelled a lot in his job. Some of his work was done at home – checking his work emails, writing proposals, meeting with business partners – and some of it was done at clients’ premises. Sometimes he would be at IBM’s premises, not so much to work but rather to attend meetings.
For the 2012 year, but apparently not for the 2011 year, he kept a diary of his activities. He said that he kept the diary because over the years his tax agent, David McNeice, had encouraged him to keep records, presumably to help with the accuracy of his tax returns.
Generally Mr Ogden’s approach was to write down in his diary where he was or what he was doing at a particular time of the day. The diary is pre-printed with the time of the day listed down the left hand side of the page, at 30-minute intervals. Mr Ogden would make entries in his diary to correspond with the printed time of the day.
The entries are brief, and provide very little in the way of detail. When he was at home he would generally record simply “Home office – email”, as a generic description of working in the home office, even if he was not just checking his emails but perhaps writing proposals. If he had a meeting outside the home, he would record the name of the person or business he was visiting.
Virtually every working day of the 2012 income year has at least one “Home office – email” entry. They are almost always at the beginning or end of the day, and sometimes both. The diary entries, to that extent, are consistent with his oral evidence.
I am satisfied on the basis of Mr Ogden’s diary records and his oral evidence that he used his “home office” extensively not only during the 2012 year but during the 2011 year as well. Exactly how extensively, unfortunately, I cannot say – because Mr Ogden did not tell me. The best he could do was this, at [13] of his first affidavit (dealing with the 2011 year) and [28] of his second (dealing with the 2012 year):
The home office is used extensively as an office during the daytime, Monday to Friday when I am by myself. Mrs Ogden works and the children are at school.
The affidavits were sworn on 27 and 28 August 2015 respectively. Although they are expressed in the present tense, I have taken them to be referring to the circumstances as they existed during the 2011 and 2012 income years. But there is a problem with their lack of specificity and the broad-brush approach to some of the statements Mr Ogden makes.
For example, his younger child would not have been at school during the 2011 income year because she was only born in November 2006. Mr Ogden explained in cross-examination that he thought his daughter attended pre-school “four days a week or whatever. … Yes. Something like that.”[1]
[1] Transcript 36.2-5
He also said in cross-examination that his wife had worked “four days a week, from memory. … So Monday and Friday were full days, 8.30 to 5.00 or 8 o’clock to 5 or whatever it was. Tuesdays and Thursdays were shorter days, 9.30 to 2.30, from memory. And Wednesdays was her day off. So she only worked four days.”[2]
[2] Transcript 35.7-13
It follows that the impression created by the statement in his affidavits, that no-one else was in the house during the day, Monday to Friday, is not entirely accurate. Furthermore, the statement is not specific about the extent to which Mr Ogden used the home office for work purposes rather than for private purposes. And Mr Ogden does not say anything at all about the use of the home office when he is not by himself.
The evidence does not establish that the home office was used exclusively by Mr Ogden for work-related purposes and I find that it was not.
THE HOME OFFICE
The home office is located upstairs in Mr Ogden’s family home. It is adjacent to the master bedroom. It is a small area, identified by Mr Ogden in his affidavits as 3.85 metres x 2.45 metres, but I do not accept those measurements. Exhibit R9 is a 2-page floor plan of the house which shows that the proper area of the irregularly-shaped space is actually 2.11 metres x 1.97 metres plus the (for practical purposes, unusable) extra 0.7 m² (1.0 m x 0.7 m) entry area. That makes 4.8567 m² in total, much less than the 9.4325 m² resulting from the measurements in Mr Ogden’s affidavits. For convenience, and favourably to Mr Ogden, I will treat the home office as having an area of 5 m².
OTHER AREAS OF THE HOME THAT ARE SAID TO BE “WORK-RELATED”
There are several additional areas of the home that Mr Ogden refers to in his affidavits[3] as being used “solely for work related purposes”. They are:
·meeting room – 4.3 m x 4.8 m = 20.64 m²
·storage room – 2.0 m x 2.0 m = 4.0 m²
·storage room – 1.1 m x 3.0 m = 3.30 m²
·storage room – 2.1 m x 4.3 m = 9.03 m²
·storage room – 1.8 m x 4.0 m = 7.20 m²
·garage (50 per cent) – 5.5 m x 6.5 m = 35.75 m².
[3] Exhibit A1 at [12]; Exhibit A2 at [27]
The total area of those parts of the home is 79.92 m², or 28.26 per cent of the floor area of the entire house (282.76 m²). Add to that Mr Ogden’s claimed (but incorrect) 9.4325 m² for the home office itself and one arrives at a total of 89.3525 m², or 31.6% of the entire house, claimed as being used for work purposes and therefore forming the basis of Mr Ogden’s initial tax deduction claims.
In the 2014 Decision, SM Ettinger rejected Mr Ogden’s claim in respect of the “meeting room” (which is in fact the living room in the family home) because it was hardly ever used for meetings. Mr McNeice, who represented Mr Ogden in the current hearing (and who has also been Mr Ogden’s tax agent for at least 15 years), informed me during the hearing that the claim for the meeting room in respect of the relevant years had been “dropped”. In fact, Mr Ogden was able to shed so little light on the frequency or duration of meetings that may have taken place during the relevant years, that there could never have been a sound basis for a claim that the living room was used solely, or even to any measurable extent, for work-related purposes. The claim should never have been made. The fact that it was, reflects poorly on both Mr Ogden and Mr McNeice. I will take that into account in my consideration of the administrative penalty.
THE SO-CALLED “HOME OFFICE PERCENTAGE”
A major part of the dispute concerns the “home office percentage”. This is a shorthand way of describing the proportion of the family home that is used for work-related purposes. The reason it forms part of the dispute is that Mr Ogden claims that the home office percentage is a reasonable proxy for calculating the extent to which certain of his losses or outgoings were incurred in gaining or producing his assessable income.
I have already dealt with the “meeting room”. Once that part of the home is removed from the claim, the total area of the family home that Mr Ogden claims is used for work purposes is 68.7125 m². That is 24.3 per cent of the floor area of the entire house. But two of the storage areas are actually in the roof space over the lower level of the house, albeit accessible from the upper level. It is plain from the house plans (Exhibit R9) that those two storage areas are not included in the calculation of the total floor area of the house. And so in arriving at the 24.3 per cent figure, Mr Ogden, or Mr McNeice, or both of them, included those two storage areas in the numerator of the fraction (68.7125) but not the denominator (282.76). Using proper arithmetic brings the potential claimable proportion down to 18.6 per cent.
Furthermore, when the Commissioner’s representative, Ms Hammond, asked Mr Ogden what he was storing in those upper storage areas, he said there were a number of storage crates and cardboard boxes, containing “a lot of papers and … documents and manuals and books, basically. … Proposals or all (sic – old?) training material that I might have had previously”[4]. He was asked whether that material was relevant to IBM, and he said[5]:
Relevant to just my working life, so stuff that I’ve learnt and kept training materials and collateral, et cetera.
[4] Transcript 160.17-23
[5] Transcript 160.25-26
Ms Hammond then asked[6]:
So you’re maintaining training materials that you acquired through different employers, is that what you mean?
[6] Transcript 160.28-31
He replied:
There’s that sort of stuff, yes. So there’s - like for example with Sun Microsystems a whole lot of stuff I’ve got - stuff in there from those days I was working in Sun Microsystems.
In his closing submissions Mr McNeice said that his client “is willing to exclude the upstairs storage area claim”[7]. In the circumstances I have described, I would have thought it outrageous if he had pressed it. It should not have been made in the first place – not only was the arithmetic fundamentally wrong; on Mr Ogden’s own evidence there is no perceptible nexus with his income-generating activities – and the claim certainly should not have survived as long as it did. I will also take that into account in my consideration of the administrative penalty.
[7] Transcript 215.28
The remaining storage areas are the cupboards in the laundry and the space under the internal stairs. Ms Hammond asked Mr Ogden about the laundry cupboards. He said[8]:
Well, at the time when I built the kitchen - sorry, the laundry, and just to clarify the laundry was made up of about eight cupboards and - well, nine components, I think it was, because there’s a bench in it, I presented the receipts to David to say at the time when I bought it that two of those cupboards were used for business use, so hence he took those two receipts and applied. Now, back then I was able to put - I had a broken printer which I stored on one of those shelves because there was two cupboards, one was a cupboard with a door on the front and the other one was just an open shelf. I did originally have some computer bags and printers and so forth in that shelving but over time the kids sort of took over that shelving space and I sort of got kicked out and had to put all of that in the other cabinet that I had. So back then I probably used - well, back then I was using two but now it’s down to one.
[8] Transcript 162.11-23
In addition to the storage areas, Mr Ogden claims 50 per cent of the garage because it houses the car that he uses for work purposes. He does not claim 100 per cent because it is a double garage.
The impression I am left with is that Mr Ogden’s and/or Mr McNeice’s approach has been focused on identifying areas of the home that have some relationship, no matter how remote, with the work Mr Ogden does at home, and going no further. In other words, the basis of the claims is as follows – he works at home; he travels to work appointments by car; he garages the car at home; the car takes up half the garage; therefore a deduction is available for 50 per cent of the garage area. As for the storage – he stores a broken printer and some computer bags in a cupboard; the printer was used for work purposes; therefore a deduction is available for the area occupied by the cupboard.

While it is sometimes appropriate to calculate the extent to which expenses are deductible by reference to a proxy such as floor space, you cannot just calculate the floor space and then treat the enquiry as complete. The critical step, requiring close analysis, is to determine the way the floor space assists in answering the statutory question, which is this: to what extent were Mr Ogden’s outgoings incurred in gaining or producing his assessable income (which, according to the authorities, means in the course of gaining or producing his assessable income: Amalgamated Zinc (De Bavay's) Limited v Federal Commissioner of Taxation [1935] HCA 81; Ronpibon Tin NL v Federal Commissioner of Taxation [1949] HCA 15; Commissioner of Taxation v Cooper [1991] FCA 164)?
Mr Ogden and his representative have done little, if any, analysis of that issue here. They have really only taken two mechanical steps. The first was the arithmetic – and there were fundamental errors with that. The second was to apply the so-called “home office percentage” to a range of expenditure items. There was no critical thinking. There was no analysis of why a deduction might be allowable. There was nothing more than an across-the-board application of a percentage to a range of expenses, some of which had, at best, a tenuous relationship with Mr Ogden’s work activities. As a result, the claims were wildly excessive.
In the 2014 Decision, SM Ettinger had allowed a home office percentage of 11.7 per cent. In the current proceeding Mr McNeice mounted a spirited argument to the effect that the proper percentage is much higher than that. It started at 31.6 per cent, but with the meeting room and the upper storage areas removed it comes down to 18.6 per cent. But whatever the figure is, Mr Ogden claims that it should be applied to home loan interest, building insurance, council rates, water rates and repair and maintenance costs[9] so as to arrive at the amounts that would be deductible from his assessable income.
[9] Transcript 12.29-31
It is appropriate to pause here, and refocus on the statutory question. To take home loan interest as an example, the question is: to what extent is the home loan interest expense incurred in the course of gaining or producing Mr Ogden’s assessable income? And the intuitive answer to that question is: to no extent at all. This is a two-storey family home with a floor area of 282.76 m². Within the home there is a home office area of 5 m² which is used (but not exclusively) for work-related purposes. Measured by area, the home office represents 1.7682 per cent of the family home but Mr Ogden, on Mr McNeice’s advice, claims to be entitled to claim, as a deduction against his assessable income, 31.6 per cent (reduced, progressively, to 24.3 per cent and eventually to 18.6 per cent) of his home loan interest expense. I find it difficult to understand how a registered tax agent could allow such a claim to be made.
In my opinion, even the 1.7682 per cent is unsustainable for these categories of expenses. The Commissioner characterises them as “occupancy costs” and says they should be rejected for that reason, on the basis of High Court authority including Handley v Commissioner of Taxation [1981] HCA 16; (1981) 148 CLR 182; 11 ATR 644; 81 ATC 4165 and Commissioner of Taxation v Forsyth [1981] HCA 15; (1981) 148 CLR 203; 11 ATR 657. I agree. The home office is an integral part of the family home, just as it was in Handley and Forsyth. These expenses of Mr Ogden’s are private expenses, and that remains the case even though a relatively tiny part of the home is used for work-related purposes.
I dealt with the same issue in Ovens and Commissioner of Taxation [2009] AATA 166; (2009) 75 ATR 479; [2009] ATC 10-081 at [29]-[42] in the following way:
[29]     The starting point in this enquiry is, as it should always be, the language used in the legislation. A deduction is allowable under s 8-1(1)(a) of the 1997 Act for “any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income”. …
[30]     The cases – most notably Ronpibon Tin NL v Federal Commissioner of Taxation (1949) 78 CLR 47; 8 ATD 431 – have explained that the words “in gaining or producing” your assessable income mean “in the course of gaining or producing” that income. The questions, therefore, are these – first, did Mr Ovens incur the outgoings, or any of them, in the course of gaining or producing his assessable income; and second, if he did, to what extent did he do so?
[31]     Those questions are best considered, first, in the light of the decisions in Handley v Commissioner of Taxation (1981) 148 CLR 182; 11 ATR 644; 81 ATC 4165 and Commissioner of Taxation v Forsyth (1981) 148 CLR 203; 11 ATR 657; 81 ATC 4157. Both cases, heard within a week of each other by the same High Court bench, concerned deduction claims by barristers for certain home office expenses.
[32]     In Handley, the taxpayer claimed certain expenditure under s 51(1) of the 1936 Act. The Commissioner allowed the electricity and cleaning expenses, but disallowed mortgage interest payments, council rates and fire insurance premiums.
[33]     The High Court, by majority (Mason J, Murphy J and Wilson J), agreed with the Commissioner that the amounts disallowed were not deductible. Mason J, although acknowledging that the use to which the home office was put was “a matter of great importance”, noted that the “essential character” of the expenditure would determine whether it was deductible or not. According to his Honour, the expenditure related to the home office was referable to the home; the “essential character of the expenditure”, therefore, was that of a “capital, private or domestic nature” (at CLR 194; ATR 651; ATC 4171) – excluded, in other words, by what are now paragraphs (a) and (b) of s 8-1(2) of the 1997 Act.
[34]     Wilson J incorporated in his reasons those he had given in Forsyth, and said at CLR 201-2; ATR 656; ATC 4176:
… The room used as a study does not cease to be part of the taxpayer’s home merely because as a matter of convenience he uses it for professional purposes for twenty hours per week during forty-five weeks of the year. … But it remained essentially part of his home. … I conclude that no part of the outgoings possess the requisite character of outgoings incurred in gaining or producing assessable income … In any event, I believe that they must be regarded as outgoings of a capital, private or domestic nature, thus coming within the exception to s 51.
[35]     Murphy J also based his decision on the fact that the outgoing “was of a domestic nature even if it were incurred in earning assessable income”: 148 CLR at 196; 11 ATR at 653; 81 ATC at 4173.
[36]     In Forsyth the taxpayer paid his family trust (which owned the family home) an amount described as “rent” for the use of a home study and ancillary space, both of them within the family home. Mason J thought that the “artificial arrangements” did not distinguish the case “in point of principle” from Handley (at CLR 207; ATR 658; ATC 4159). Murphy J considered (also at CLR 207; ATR 659; ATC 4159) that the arrangement “[did] not negate the domestic nature of the expenditure”.
[37]     Wilson J said at CLR 215; ATR 664; ATC 4163-4164 that an important question was the relationship of the study and ancillary space to the house as a whole. His Honour noted the apparently “complete integration” of the work areas with the remainder of the home, the lack of “any physical exclusivity”, the fact that the study was “indistinguishable” from other rooms in the private living area of the house, and the location of the ancillary space “at the side of the living room”. After acknowledging that these matters were not decisive in themselves, his Honour noted other factors (again, not decisive), such as the fact that the taxpayer maintained chambers in the city, that there was “no compulsion” for him to work at home, but that he found it “convenient” to do so. His Honour continued:
As I have said, in the last resort the question is one of fact and degree. Having regard to all the circumstances, I conclude that it is not open on the facts of this case to find that the outgoings in question were incurred in gaining or producing the assessable income, or were necessarily incurred in carrying on the taxpayer's professional business. The home was not his business premises. It was not open to be described, with any show of reality, as his base, or one of his bases, of operations …
[38]     In Swinford v Commissioner of Taxation [1984] 3 NSWLR 118; 15 ATR 1154; 84 ATC 4803, David Hunt J in the Supreme Court of New South Wales said:
There can be no doubt that, as a result of those two cases [that is, Handley and Forsyth], it will be difficult (perhaps impossible) for any taxpayer to obtain a deduction where his home office is a study used in those circumstances. It is, however, to take a very large step further to say that, as a result of those decisions, no deduction will be available in relation to a home office as a matter of law.
[39]     Nevertheless, it is important to understand why the taxpayers in Handley and Forsyth were not successful. Mason J took the view that the expenditure that was being claimed was of a “capital, private or domestic nature”, concluding, apparently, that to characterise the expenditure in that way necessarily excluded the possibility that it was incurred in gaining or producing assessable income. Murphy J agreed that the expenditure was domestic in nature, but seems to have recognised the possibility that expenditure can be both income-producing and domestic in nature – but to the extent that it is the latter, it cannot be deducted. Wilson J also recognised the scope for duality of characterisation, finding in each case that the expenditure was not incurred in gaining or producing assessable income, but in any event, that it was of a capital, private or domestic nature.
[40]     Mason J’s reference in Handley to the “essential character” of the expenditure recalls the language of the High Court in Lunney v Federal Commissioner of Taxation (1958) 100 CLR 478; 11 ATD 404. The expression has also been used in other cases, including (to mention only a few) Swinford (referred to above), Commissioner of Taxation v Brixius (1987) 16 FCR 359; 19 ATR 506; 87 ATC 4963; Fletcher v Federal Commissioner of Taxation (1991) 173 CLR 1; 22 ATR 613; 91 ATC 4950; Macquarie Finance Limited v Commissioner of Taxation (2004) 57 ATR 115; 2004 ATC 4866; and Spriggs v Federal Commissioner of Taxation (2008) 70 ATR 14; 2008 ATC 20-064.
[41]     More recently, a majority of the High Court (Gummow, Hayne, Heydon and Kiefel JJ) in Commissioner of Taxation v Day [2008] HCA 53 has provided the following caution, at [29]:
Reference in some cases to the expenditure having an “essential characteristic” must likewise be treated with some care. As Gaudron and Gummow JJ observed in [Commissioner of Taxation v Payne [2001] HCA 3; (2001) 202 CLR 93], the use of the term may avoid the evaluation which the section requires. It is perhaps better understood as a statement of conclusion than of reasoning.
[42]     Their Honours went on to explain at [30] that the question posed by s 8-1(1)(a) is: “is the occasion of the outgoing found in whatever is productive of actual or expected income?” That inquiry, their Honours said:
will provide a surer guide to ascertaining whether a loss or expenditure has been “incurred in [the course of] gaining or producing ... assessable income”.
The occasion of the outgoings in relation to home loan interest, building insurance, council rates, water rates and repair and maintenance costs is Mr Ogden’s ownership of the family home. No part of those outgoings was incurred in the course of gaining or producing his assessable income. No deduction is allowable.
This case is different from Nicoll and Commissioner of Taxation [2002] AATA 1157, where the taxpayer was required by his employment to move from one city to another. He rented a house that specifically met his needs. The property he rented included a carport, which was separate from the house. On top of that, he had nowhere else to work, since his employer had no offices in the city he had moved to. I see nothing in the Nicoll decision that assists the taxpayer here.
Accordingly, in the context of the case put by Mr Ogden with respect to the “home office percentage”, in support of deductions for home loan interest, building insurance, council rates, water rates and repair and maintenance costs, I conclude that the appropriate percentage is zero.
If I am wrong with that, such that some portion of those expenses should be held on appeal to be allowable on a floor area basis, I find the appropriate home office percentage to be 1.7682 per cent for building insurance and repair and maintenance to the home. I would not allocate the same percentage to the other heads of expenditure because, although the numerator will remain the same, at 5 m², the denominator should be increased to include the additional area of the property beyond the footprint of the house. The reason for the increase is that home loan interest, council rates and water rates relate to the entire property, not just to the residential building. The denominator should equal 282.76 m² (the usable floor space of the residence) plus the remaining area of the suburban block.
OVERTIME MEAL ALLOWANCES
Mr Ogden claimed $838[10] in relation to the 2012 income year for the cost of overtime meals. He did not make a corresponding claim for the 2011 year.
[10] The total claim amount was $838 in his “affidavit” (Exhibit A2), down from $849 in his statement of facts, issues and contentions. In fact, nothing had been claimed in his tax return; the claim was first advanced in Mr Ogden’s audit response: Transcript 57.23 and 57.40
His statement dated 28 August 2015, relating to the 2012 year (Exhibit A2), explains the basis of the claim:
[131]    Cost of compolsory (sic) meals when working in excess of ten hours a day have been recorded in my diary and substantiated by receipts.
[132]    The compolsory (sic) overtime meal allowance has been rolled up into over award payments included in my salary.
[133]    I have not claimed for the evening meal when working more than ten hours a day at home. I have only claimed the additional cost of meals when working away from home in particular when returning from interstate meetings in Canberra, Melbourne and Brisbane as when returning from late meetings in the Northern Suburbs more than an hour’s drive from home.
[134]    These costs necessarily incurred by me are allowable under Section 8 of the 1997 Income Tax Assessment Act and are also allowable in accordance with the regulations for the cost of overtime meals. The amount claimed has been substantiated.
The argument, apparently formulated by Mr McNeice, seems to be this: Mr Ogden was employed under an award; the award says that workers employed under it are entitled to an overtime meal allowance when they work more than ten hours; so whenever Mr Ogden ate a meal after working more than ten hours he could claim a deduction to offset the meal allowance he was paid. The claim was based on the Commissioner’s public ruling TR 2004/6 and the Commissioner’s determination TD 2011/17.
There are a number of problems with that argument.
Taxation Ruling TR 2004/6 is a ruling about when taxpayers need not substantiate their expenses. It is not clear how or why Mr McNeice would think it applies to Mr Ogden’s circumstances, nor why he has sought to support his claims with substantiation if the ruling applies in the first place.
But the problems run deeper than that. The following exchange took place during cross-examination[11]:
[11] Transcript 51.24-53.47
MS HAMMOND: You say that you’ve only claimed the additional costs of meals when working away from home, in particular when returning from interstate meetings in Canberra, Melbourne and Brisbane and when returning from late meetings in the northern suburbs more than an hour’s drive from home?
MR OGDEN: Yes.
MS HAMMOND: Now just in terms of understanding this statement, how often did you work in Melbourne and Brisbane?
MR OGDEN: For that particular year it would have been captured in the diary records. It would have just been for conferences or events I went to. I didn’t really - from what I recall I didn’t have really any customers that I visited from memory.
MS HAMMOND: I put it to you that your diary doesn’t ever reflect a situation where you went to Melbourne or Brisbane or Canberra?
MR OGDEN: I thought there would have been some Canberra entries in that timeframe.
MS HAMMOND: I haven’t been able to locate that. Perhaps you could draw those out for me?
MR OGDEN: Now?
MS HAMMOND: If you would like to. I say that there’s never a situation where you’ve claimed a meal where you’re returning from an interstate location. Perhaps we can do it a little bit easier. You have in your statement of 28 August at paragraph 135 you’ve actually listed all the meals that you’re claiming. Can I ask you to turn to your home office diary for 6 July 2011?
MR OGDEN: Yes.
MS HAMMOND: Just one moment, I want to confirm something else with you. If I could just take you back to paragraph 133, you use the word “late”. You say when returning from late meetings in the northern suburbs. What do you mean by late?
MR OGDEN: It was just at that time of day when it was getting to mealtime. So I think, yes, it was just later in the afternoon.
MS HAMMOND: What time do you refer to as mealtime though? Would that be 5.30, 6 o’clock, 7.30?
MR OGDEN: Something like that, yes. Something like that, yes.
MS HAMMOND: Can you be a little bit more specific?
MR OGDEN: Whenever I get hungry. 5.30, 6 o’clock, 7 o’clock, 8 o’clock, yes.
MS HAMMOND: Okay. How about we turn to 6 July 2011?
MR OGDEN: Yes.
MS HAMMOND: Now, you were working in your home office until 6.15?
MR OGDEN: Yes.
MS HAMMOND: And you then popped down the road to the St George Leagues Club which is - what - approximately five minutes from your home?
MR OGDEN: Yes. Across the road more or less, yes.
MS HAMMOND: And 10 minutes after you finish in your home office you’re ordering a meal at the St George Leagues Club?
MR OGDEN: Yes.
MS HAMMOND: And you say that’s an overtime meal?
MR OGDEN: Yes.
MS HAMMOND: Can you explain how that fits into the categories you’ve described at paragraph 133?
MR OGDEN: Yes.
MS HAMMOND: You weren’t working away from home at an interstate meeting?
MR OGDEN: No.
MS HAMMOND: So you weren’t in Canberra, Melbourne or Brisbane. You weren’t returning from a late meeting in the northern suburbs and you weren’t more than an hour from home?
MR OGDEN: That’s correct. It’s an error.
MS HAMMOND: That’s an error?
MR OGDEN: Yes.
MS HAMMOND: So you’re not pressing that?
MR OGDEN: No.
MS HAMMOND: Okay. Can I ask you to turn to 8 July. Now, in relation to 8 July, can I ask you to have a look at 9 July because it might assist you to understand where you were. Was this a family ski trip?
MR OGDEN: Yes, that’s correct.
MS HAMMOND: So when you claim a meal - I beg your pardon. I will withdraw that question. Now, if I can ask you to look at the entry of 8 July, you finish up at approximately 5.30?
MR OGDEN: Correct.
MS HAMMOND: And that says:
Email DHL response.
MR OGDEN: Correct.
MS HAMMOND: Does that mean you were in your home office?
MR OGDEN: I was at Rhodes in the morning.
MS HAMMOND: Yes?
MR OGDEN: It would imply, yes, correct.
MS HAMMOND: So you finish up work at 5.30 in the afternoon and you pack your family up and you’re heading off to the snow?
MR OGDEN: Yes.
MS HAMMOND: You stop at the BP at Marulan?
MR OGDEN: Yes.
MS HAMMOND: And you claim a meal?
MR OGDEN: Yes.
MS HAMMOND: How does that fit any of the categories that you’ve referred to?
MR OGDEN: Yes. Look, it’s a good question. I’m just trying to think back, “1500 DHL tender response email”. I can just assume I was working from home there but it might imply that I was over at Rhodes doing it because that’s where DHL was located.
MS HAMMOND: Okay. But Rhodes isn’t more than an hour from your home and, you know, you’re back home and leaving by 5.30 for the snow, so it’s not late?
MR OGDEN: No. Well, 5.30 on a Friday afternoon. It’s an hour just to get 10 kilometres up King Georges Road but anyway.
MS HAMMOND: So the meal that you incur as you’re driving to the snow with your family?
MR OGDEN: Yes.
MS HAMMOND: You say you’re entitled to as an overtime meal allowance. Is that correct?
MR OGDEN: Well, what I’m saying is that the 10 hours was worked during the day, more than 10 hours, and from what I understood it was eligible to be claimed.
MS HAMMOND: You say that’s on the basis that you were more than an hour from home potentially?
MR OGDEN: Prior to leaving for the snow, yes. But, again, I’m not 100 per cent clear on where I was at 3 o’clock. The diary record doesn’t clearly articulate it.
MS HAMMOND: It’s difficult to read the receipt on the next page, being T37-1049, but are you able to work out from this receipt the time that you incurred this cost?
MR OGDEN: 7.26 or something.
MS HAMMOND: So it is likely that you left your home approximately 5.30?
MR OGDEN: Yes. 5.30’ish, yes.

I have quoted extensively from the transcript to show just how little care went into making these claims. They could not be justified on any basis. They are private expenses, pure and simple.
After the luncheon adjournment on the first hearing day, Mr McNeice informed me that he had analysed the 60 “overtime meals” Mr Ogden claimed, and he was now reducing the claim to just four meals, totalling $89.20[12]. Mr McNeice explained[13]:
It’s my fault. I didn’t check the diary to see whether he had returned home or not before purchasing the meal.
[12] Transcript 68.34
[13] Transcript 69.18-19
I am not satisfied that Mr Ogden is covered by the award that he relies on, the Business Equipment Award 2010 (MA000021), or that he received an overtime meal allowance from IBM. Nor am I satisfied that these expenses are anything other than private expenditure. None of them are allowable.
STAFF AND CLIENT AMENITIES
Under this heading Mr Ogden originally claimed $1,300 for the 2011 income year and $950 for 2012. The 2011 claim has since been reduced to $1,013. His statements say this[14]:
This is a normal cost of doing business. Gary Ogden does not drink tea or coffee himself, however, he is expected to provide tea and coffee and pay for light refreshments when he is in a selling situation. This expenditure has been necessarily incurred in earning his income as a Professional Sales Commission Agent.
[14] Exhibit A1 at [114], Exhibit A2 at [99]
Mr Ogden acknowledged that he has no staff. This should be described, then, as a claim for client amenities. In fact, even that label is wrong – it is amenities for business partners.
Questions were put to Mr Ogden about meetings in the home[15]:
MS HAMMOND: How often would you estimate that you saw clients in your own home?
MR OGDEN: Well, mainly business partners. Not clients as such but mainly business partners, and it was really only the people who were down my - down sort of my area in the St George sort of Sutherland area. It was easy to meet up there. Look, on occasions, like, when we are writing a proposal, it might be a couple of times during the week or it might be once every couple of months, depending on who it was. But there were people coming to the house during the whole year. But it might only - on average it might only be once a month.
MS HAMMOND: So on average you say maybe once a month?
MR OGDEN: Maybe. I don’t know. Like, it might have been two or three coming in the course of a couple of weeks and then it might have been a bit quiet.
[15] Transcript 38.33-45
The claims under this heading are summarised at T11-229 to T11-233 for the 2011 year and T37-1016 to T37-1028 for the 2012 year. Commonly occurring categories of expenditure are biscuits, soft drinks, tissues, toilet paper, tea, coffee, hand wash and milk.
I refer again to the transcript, this time at pages 82-90[16]:
[16] I have made minor corrections to the transcript as printed
MS HAMMOND: If I can ask you to turn to T11-229. This is the claim you make for the 2011 income year. If you turn to T13-254 you’ll find the claims for 2012?
MR OGDEN: Yes.
MS HAMMOND: You’ve said that on average once a month is the number of times that you’ll see a business partner in your office?
MR OGDEN: Yes.
MS HAMMOND: If I can take you now to T37-1016. … I’d like to focus on the income year ended 30 June 2012. The claim is smaller but the reason I focussed on that year is because you’ve got a diary for that year so it made it a little bit easier to understand the particular claims. Can I ask you to have a look in that diary for July of 2011 and indicate for me whether you can identify at least one occasion where you believe - and it will have to be a guess - believed that a business partner came to your home office. So T37 is where you’re looking and it’s your home office diary. I’m happy to take a generous view of it, so if you think there might be a situation where a business partner attended by all means let me know?
MR OGDEN: July 2011 was it?
MS HAMMOND: Yes.
DEPUTY PRESIDENT: The July diary starts at page 1044?
MR OGDEN: Yes.
MS HAMMOND: Are there any days in July where you think a business partner might have come to your home?
MR OGDEN: No.
MS HAMMOND: None. Okay. Can I just hand up a photograph for you. Sorry, two copies, I beg your pardon. In that same month of July, what you’re claiming are staff and client amenities or now client amenities. Three packets of tissues, one of them is a six pack of pocket tissues. Eighteen bottles of soft drink, two packets of Bega Stringers Cheese - that’s what the photo is for. One toilet deodorant, not so worried. Ten packets of biscuits, 75 tea bags over two purchases. Ten rolls of toilet paper. A bag of sugar. Two Weight Watchers cakes and four packets of Weight Watchers Lamingtons. And they’re for the clients you’re saying that you saw in July?
MR OGDEN: No - well, let me clarify. So all the receipts that I kept - again it comes back to the diary records that I didn’t keep about who came to my house and I recognised there wasn’t people in that period of time but I think what David and I did in the end was just averaged out - I think it worked it out to be like a packet or $20 a week or something we allocated just on the provision that people would come to the house and so forth.
MS HAMMOND: No, that’s not what you’ve claimed?
MR OGDEN: Well it’s wrong.
MS HAMMOND: You originally claimed $2,000 - sorry, I’ll just find the figure for you again. Over the two income years you originally claimed $2,250?
MR OGDEN: Yes.
MS HAMMOND: What you’re pressing now or what you still claim now is $1,963. They are specific claims that you have made and they’re broken down. You can see that they’re identified - you’ve gone to some effort to describe them at T13-254, Kleenex tissues, diet lemonade, lemon lime and bitters or lemon and lime water, Bega cheese, toilet deodorant. All I’ve done is gone back to the receipts and expanded on some of those?
MR OGDEN: Yes.
MS HAMMOND: Why would you need to claim - why did you need that much stuff when you can’t identify one person that came to your home in that period?
MR OGDEN: I suppose - I could easily just pull it all out and not claim it at all but under the provision that there was stuff probably needed in case someone was there. I wasn’t going to go run to the corner shop and buy stuff so it was just allocated on a - like David worked out the theory that it probably - if we just allocate just $20 a week that would cover the costs of keeping the food there and keeping it in.
MS HAMMOND: That’s not what you’ve claimed. You’ve claimed those items specifically and you’ve put it in two responses thus far?
MR OGDEN: I put it so - - -
MS HAMMOND: You’ve even included it - - - ?
MR OGDEN: I didn’t - I don’t write down specifically what’s been allocated to a client or a partner or whatever.
…
MS HAMMOND: You’ve even highlighted the receipts?
MR OGDEN: Well that was highlighting just to sort of say this was more or less - it could be used. It’s not - - -
DEPUTY PRESIDENT: Could be used?
MR OGDEN: Could be used for client amenities.
MS HAMMOND: So at the time that you were lodging your income tax return - and that takes you back to T5-169 - and you signed the top of that page, you see staff and client amenities, $1,300. That’s a pretty significant claim in the grand scheme of things. Did you say to Mr McNeice, “What is this?” ?
MR OGDEN: Not specifically, no.
MS HAMMOND: “Thirteen hundred dollars, what did I spend $1,300 on?” ?
MR OGDEN: Again I plead ignorance to a lot of that sort of stuff. I’m probably gullible on all that sort of stuff as well.
MS HAMMOND: Well you prepared the summaries for him?
MR OGDEN: The receipts?
MS HAMMOND: You said that at the time that you lodge your return you prepare summaries for Mr McNeice?
MR OGDEN: Yes, I just put a whole lot of things like Coles receipts and whatever else and just capture it all in that.
MS HAMMOND: So you write Coles receipt, $60?
MR OGDEN: I can’t remember exactly. It’s captured somewhere.
MS HAMMOND: Coles receipts, $27.49. Coles receipts, $45.16. Coles receipts, $48.60?
MR OGDEN: Probably, with the Coles stuff I don’t. I just keep a docket of Coles receipts and then hand them across and we work out what’s claimable and what is not.
MS HAMMOND: You say we work out what’s claimable, do you sit down with Mr McNeice and go through those receipts and go, 18 bottles of soft drink this month were purchased for - - - ?
MR OGDEN: Well I think originally we worked out - and again I could stand corrected here but I think what we worked out was that it totalled up to so much and then we worked backwards from there because we got back to the $20 a week scenario.
MS HAMMOND: Can I take you to T11-229. The response you gave our auditor was:
Mr Ogden gives his children fruit juice to drink. The soft drink is for business clients.
MR OGDEN: Part thereof, yes.
DEPUTY PRESIDENT: Pardon?
MS HAMMOND: Sorry?
MR OGDEN: I drink it, my children drink it as well.
DEPUTY PRESIDENT: That’s not what that says?
MR OGDEN: Okay.
DEPUTY PRESIDENT: It’s not remotely what that says, is it?
MS HAMMOND: From the receipts that you’ve supplied does it surprise you that you’ve claimed every soft drink bottle that you’ve purchased. It’s all for business, none of it is private?
MR OGDEN: That level of detail I haven’t got to, no.
MS HAMMOND: Every Weight Watchers cake is for business purposes?
MR OGDEN: Yes.
MS HAMMOND: Did you segregate it and say this is for business clients and this is for my family?
MR OGDEN: No. No.
MS HAMMOND: Can I take you to the month of August in your diary. Can you look through August and tell me if you can identify a time when someone came to your home office. Don’t worry, we don’t do it for the entire year?
MR OGDEN: Yes. As an example - I’m not saying this is fact but as an example on August 15 where I’ve just been working from home for the morning, someone may have come. I’m not saying I did but someone may have come, because I don’t articulate it.
MS HAMMOND: Okay. So you possibly have somebody coming?
MR OGDEN: Again, but I won’t state a fact on it.
MS HAMMOND: And that’s before you go into the IBM centre?
MR OGDEN: Yes.
MS HAMMOND: So someone might have come?
MR OGDEN: Might have come but, again, it’s just wherever - - -
MS HAMMOND: That’s all right?
MR OGDEN: Wherever I’ve got home office and it just says email, that might have been when I’m at home. So that’s - - -
MS HAMMOND: So in July - - - ?
MR OGDEN: Yes.
MS HAMMOND: - - - you haven’t identified anyone that came to your home. Then in August you purchase even more items for these clients. You purchase another two packets of the Bega stringer cheese. Now you’ve got four of these packets by this stage. You also purchase Bega dairy cheese in the eight pack, Bega slice cheese. Can I ask you, did you actually ever offer anybody a Bega stringer cheese?
MR OGDEN: Probably David when he’s over.
MS HAMMOND: But David is not a business partner?
MR OGDEN: No.
MS HAMMOND: Did you offer the three gentlemen that you identified as coming to your home, a Bega stringer cheese?
MR OGDEN: I think when this return was put together it was on the assumption that David’s meals were also claimable and a lot of those - - -
MS HAMMOND: No, we’ve still to come to that. This is definitely just for clients?
MR OGDEN: Yes. But what I’m saying is all the receipts were kept for when David also came to my house as well because it was assumed that that was claimable and - - -
MS HAMMOND: Yes. Well, you have made separate claims for that and we will come to that?
MR OGDEN: All right.
MS HAMMOND: Just assume for a moment - - - ?
MR OGDEN: To allocate - - -
MS HAMMOND: - - - this is only claims that you have made for staff and client amenities or client amenities?
MR OGDEN: Okay.
MS HAMMOND: So of the three gentlemen that you identified, did you offer them a Bega stringer cheese?
MR OGDEN: Probably. I can’t recall. No, I wouldn’t have thought so, no.
MS HAMMOND: I would say they would probably react quite strangely to that, wouldn’t they?
MR OGDEN: Correct. Correct.
MS HAMMOND: Then in August you purchased another 13 bottles of soft drink?
MR OGDEN: Yes.
MS HAMMOND: So at this point you had 31 bottles of soft drink. Where were you keeping 31 bottles of soft drink? Did you tuck them under your desk in the office?
MR OGDEN: They would have been consumed by the family.
MS HAMMOND: But yet you haven’t modified your claim. You’ve gone from the point at which you lodged your income tax return, lodged 26 October 2011 is how it’s stamped at T5-150?
MR OGDEN: Yes.
MS HAMMOND: So October 2011. You’ve gone through the entire audit process, the entire objection and the entire litigation phase. It has been raised with you as a concern at all three stages?
MR OGDEN: Yes. Yes.
MS HAMMOND: I’ve certainly raised it with you as a concern?
MR OGDEN: Yes.
MS HAMMOND: You directly. But you haven’t changed the claim?
MR OGDEN: Yes.
MS HAMMOND: Okay. So what you’re saying is you’re making a claim for these - at least the soft drinks that were consumed for private purposes?
MR OGDEN: Yes.
MS HAMMOND: I’m pretty sure the cheese was also consumed for private purposes. And you know this?
MR OGDEN: Yes.
MS HAMMOND: And you haven’t modified the claim?
MR OGDEN: No. Correct.
MS HAMMOND: You also purchase another 17 packets of biscuits in that month?
MR OGDEN: Yes.
MS HAMMOND: And then you purchase three packets of Weight Watchers lamingtons on 14 August?
MR OGDEN: M’mm.
MS HAMMOND: Was that for the possible person that came on the 15th?
MR OGDEN: I wouldn’t know. I just get - - -
MS HAMMOND: Would you ordinarily offer a business partner a Weight Watchers lamington? Would that elicit an odd response?
MR OGDEN: All I - I suppose all I can say is I go shopping, buy food, put it in the pantry and allocate food when people do arrive out. Often biscuits, tea, coffee, whatever. But do - - -
MS HAMMOND: $2,250 worth?
MR OGDEN: I understand what you’re saying. How much does that get consumed by the family and how much gets consumed by the clients or business partners is very minimal. I just - - -
MS HAMMOND: I put it to you that what gets consumed by the business partners is miniscule compared to that number?
MR OGDEN: Yes. Yes. But I suppose - - -
MS HAMMOND: Why are you maintaining this claim?
MR OGDEN: Well, my understanding was that if I’m working from home, and I do invite people over, I have the ability to have refreshments available, ready to go if they do come.
MS HAMMOND: Do you understand that you can only claim the things you actually incur?
MR OGDEN: Yes.
MS HAMMOND: That are work-related?
MR OGDEN: Yes.
MS HAMMOND: So you incurred $2,250 worth of groceries?
MR OGDEN: Which is - yes.
MS HAMMOND: You know you haven’t given $2,250 worth of groceries to the business clients?
MR OGDEN: Yes.
MS HAMMOND: But you think it’s okay to claim it?
MR OGDEN: Well, as I said, just going back to my previous comment, for that to be available that was - my assumption of why it could be claimable.
MS HAMMOND: Mr Ogden, the Bega stringer cheese? Really?
MR OGDEN: Well, again, that’s just numbers that add up to a portion of the total Coles’ receipts. I don’t think you’re probably looking at every single receipt but it’s just a portion of the receipts, yes.
MS HAMMOND: It’s quite a - - -
DEPUTY PRESIDENT: It’s a bit more than that, Mr Ogden.
MS HAMMOND: Quite a significant number.
DEPUTY PRESIDENT: Can you have a look at page 1,016, please, of the T documents. You might have it open there. 1,016. One-zero-one-six. T37-1,016?
MR OGDEN: T37. Yes.
DEPUTY PRESIDENT: Do you have that page?
MR OGDEN: Yes.
DEPUTY PRESIDENT: That’s some Coles receipts from - - - ?
MR OGDEN: Yes.
DEPUTY PRESIDENT: It might not be all of them but it’s for July - sorry - July 2010.
MS HAMMOND: July 2011.
DEPUTY PRESIDENT: I beg your pardon. July 2011. And do you see there, admittedly it’s printed upside down but there are a number of - you can - these do cross-match to the summary?
MR OGDEN: Yes.
DEPUTY PRESIDENT: At page 254 or thereabouts?
…
DEPUTY PRESIDENT: But what you will see there, Mr Ogden, on these receipts is a number of little tick marks next to some of the lines?
MR OGDEN: Yes. Yes.
DEPUTY PRESIDENT: Did you put them there?
MR OGDEN: That would have been David going through the receipts.
DEPUTY PRESIDENT: Did you put them there?
MR OGDEN: I don’t think so, no.
DEPUTY PRESIDENT: Right. I did my own analysis of some of this claimed expenditure in the client - sorry - the staff and client amenities category. And unless I’ve made some errors, and I don’t think I have, during the 2012 income year, that 12-month period, those ticks identified 39 packets of Monte Carlos?
MR OGDEN: Yes.
DEPUTY PRESIDENT: 39 packets?
MR OGDEN: Yes.
DEPUTY PRESIDENT: I didn’t separately record the White Wings Chunkies or the - sorry, just bear with me.
MS HAMMOND: The mini Wagon Wheels.
DEPUTY PRESIDENT: The Westons mini biscuits. The tins of Arnotts biscuits. The Wagon Wheels.
MS HAMMOND: Tiny Teddies.
DEPUTY PRESIDENT: I didn’t record them separately either but what I did come up with was 39 packets of Monte Carlos. That struck me as more than passing strange, I’ve got to say. 39 packets. My own research indicates that there are 12 biscuits in a packet. That’s 468 biscuits in the year. And that might sound a trivial thing for me to focus on but it does paint something of a picture. It’s starting to paint a picture of quite indiscriminate deduction claims?
MR OGDEN: Yes.
DEPUTY PRESIDENT: That’s the picture that it’s painting?
MR OGDEN: Yes. Yes.
DEPUTY PRESIDENT: Someone - you say it wasn’t you - someone actually went through these receipts and put ticks next to these things. Some of the items that were ticked in that exercise although called “Tea” - t-e-a - in the summary at page 264?
MR OGDEN: Yes.
DEPUTY PRESIDENT: It’s actually 1.5 litre bottles of Lipton Iced Tea?
MR OGDEN: Iced tea, yes.
DEPUTY PRESIDENT: There are claims under the heading “Cheese” for Bega sliced cheese. There’s a claim for Kraft Easy Cheese. You will forgive me for not knowing what Kraft Easy Cheese is. I subsequently have found out that Kraft Easy Cheese is cheese in a can that’s dispensed in a sort of aerosol fashion. It comes out of a can almost like toothpaste, and I thought that would be a strange thing to be offering business partners or clients?
MR OGDEN: It would be, yes.
DEPUTY PRESIDENT: There’s quite a bit of sliced cheese. I must say that struck me as more likely purchased for the purpose of putting on the children’s lunches. That’s the way it struck me. I could be wrong with that but that’s the impression that I had. It really is quite a remarkable state of affairs that someone - and I suspect this but I don’t know that there’s really any way that I can become comfortably satisfied about it but I suspect that someone has gone through these receipts and ticked things, ticked items that maybe look as though we might be able to get away with in broad categories. The categories being cheese, biscuits, nuts and soft drinks. Because on a version of events, that’s what’s made available to clients and business partners, but it doesn’t stack up. …
…
DEPUTY PRESIDENT: All right. Well, look, I just thought I would give you the benefit of my own analysis of some of those summaries, Mr Ogden. They don’t look too crisp, I’ve got to say?
MR OGDEN: If they’re not eligible I’m happy to withdraw it.
DEPUTY PRESIDENT: But that’s not really the point?
MR OGDEN: Right.
DEPUTY PRESIDENT: That’s not the point. I mean, that’s part of the point admittedly, but there’s a little more to it than that. For quite some years now the taxation system in Australia is a self-assessment system. There’s an expectation that taxpayers put the right information in their tax return. That’s a responsibility that you bear as a taxpayer?
MR OGDEN: Right. Right.
DEPUTY PRESIDENT: And your tax agent bears it as well?
MR OGDEN: Yes.
DEPUTY PRESIDENT: We can’t have the resources of the tax office spent on auditing everybody. There’s an expectation that people put the right information in their tax returns. And this stuff isn’t even close. …

There is no justification at all for these deduction claims. I do not accept that any of these expenses were incurred in the course of gaining or producing Mr Ogden’s assessable income. Overwhelmingly the products were consumed by the family. Many, probably most, were actually purchased specifically for consumption by the family. It is hard to regard Mr Ogden’s and Mr McNeice’s approach as anything other than an attempt to paint black as white. It is outrageous, and utterly unacceptable. The claims in this category are rejected in their entirety.
HEATING AND LIGHTING EXPENSES
The thrust of Mr Ogden’s claim is that he is entitled to a deduction by reference to formulas set out in the Commissioner’s taxation rulings TR 93/30 and TR 98/6. TR 93/30[17] says the following:
[17] Excerpt at T2-78
[22]     However, if the taxpayer uses the room at a time when others are not present or uses a separate room, he or she is entitled to a deduction. This is the case even if the room used is not set aside solely as a home office. In this respect the treatment of lighting and heating expenses is different to most other home office expenses. This is because heating/cooling and lighting expenses relate to the use by the occupant rather than to the premises occupied.
[23]     The amount that the taxpayer is entitled to claim is the difference between what was actually paid for heating/cooling and lighting and what would have been paid had he or she not worked from home.
[24]     Once it has been established that a taxpayer does, in fact, incur additional expense by reason of working at home, an appropriate formula for calculating the additional expense for an appliance is:
Formula
(a) x (b) x (c)
where –
(a) is the cost per unit of power used;
(b) is the average units used per hour; and
(c) is the total annual hours used for income producing purposes.
[25]     Generally speaking however, the quantum of any allowable deduction for the additional expense will be small. Accordingly, a bona fide estimate based on a reasonable percentage of the household annual fuel bill will be acceptable.
It seems that the Commissioner allowed a deduction of $1,736 in this category for the 2012 income year[18], and the Commissioner does not now seek to disturb that position.
[18] T21-381
For the 2011 income year Mr Ogden claimed, and was allowed, a deduction of $326 against his salary and wage income. He was allowed an additional $124 against his trust income. Although that position seems generous to Mr Ogden, the Commissioner is content to allow things to stay as they are. Mr McNeice submits, though, that these deductions are not enough. He says the same calculation that was accepted for the 2012 year should be applied to the 2011 income year[19]. The result is that Mr Ogden now claims an additional $898, so that the final claim for 2011 is $1,224 against his salary and wage income.
[19] Transcript 217.8-9
Taking the additional $124 into account, the total claimed deduction for heating and lighting is $1,348 for the 2011 income year. The total cost of electricity consumed during the 2011 income year was $1,905[20]. The claim amounts to 70 per cent of the family’s entire electricity consumption for the year.
[20] Four invoices, not five – see Respondent’s Outline of Written Submissions at [95]
Once again, I fail to see how Mr Ogden and Mr McNeice could regard that as a serious, justifiable claim. Mr Ogden should consider himself fortunate to have been allowed the $450 that the Commissioner accepted. The additional $898 claimed is rejected.
HOME OFFICE RUNNING COSTS
In this category the claims relate to depreciation on computers, carpets, air conditioning and a desk.
The Commissioner has accepted 100 per cent work-related use for one computer and 80 per cent for a second one. At the time those percentages were accepted, the Commissioner was unaware that IBM had issued Mr Ogden with a computer – a computer which, one imagines, IBM would have expected to be used for IBM-related activities. So, apart from the IBM-issued computer, Mr Ogden has been allowed full depreciation for one computer and almost full depreciation for another. There is no scope for anything more than that.
The desk is in Mr Ogden’s son’s bedroom. Nothing should be allowed for that. If the Commissioner has already accepted some percentage of work-related use for the desk, then I will take the matter no further. Mr Ogden has received more than he was entitled to.
The claims for the air conditioning and the carpet are similarly excessive. He claimed 26.5 per cent for the carpet on the stairs and the upstairs hallway – on the basis that you have to walk up the stairs to get to the home office. The Commissioner has allowed 8 per cent and is content to leave it at that. Given that the true proportion of the home that is used for work-related purposes is less than 2 per cent, I could hardly be persuaded to allow more than the Commissioner has already accepted. The same applies to the air conditioning, where Mr Ogden claimed a staggering 75 per cent and the Commissioner has allowed 4 per cent. Any claim in excess of the amount allowed has no merit whatever.
INTEREST ON PRIOR WORK-RELATED EXPENSES
The substance of this claim is that over the years (since 2005, in fact) Mr Ogden has borrowed money to fund some of his work-related expenditure and there is an ongoing interest expense in relation to those borrowings.
To make good this claim Mr Ogden would have to satisfy me of a number of things. First, he would have to provide me with reliable work-related deduction amounts in the year or years in which he borrowed the money. Next he would have to track the movement in the borrowings from time to time, distinguishing between claimed work-related expenditure and expenditure that he acknowledges is not work-related. Then he would have to satisfy me that the expenditure that he claims is work-related is actually deductible, and to what extent.
He has failed to satisfy me at each of those steps. To the extent that any of the calculations rely on prior year deduction claims, they are no more reliable than some of the exaggerated and unmeritorious material that he has put forward for 2011 and 2012. He has not, for example, even satisfied me that the amounts that he claimed as deductions in 2005 were charged to the loan account that he has identified.
It is impossible, on the material presented, even to arrive at reliable estimates. Neither the Commissioner nor the Tribunal should be burdened with having to decipher material and arguments that are so opaque. It seems that the Commissioner has been bamboozled – there is no other word for it – into accepting some amount under this heading. My own view is that Mr Ogden has failed to establish any entitlement at all. Bearing in mind the burden of proof that he bears under s 14ZZK of the TAA, I would have allowed nothing under this heading.
SUNSCREEN AND SUNGLASSES
The Commissioner has allowed 20 per cent of the cost of sunscreen purchased by Mr Ogden during the relevant years. That equates to a deduction of $29 for the 2011 income year and $47 for 2012.
Mr Ogden says that this is not enough: his claim is for five-sevenths of the total amount he spent on sunscreen. He wants an extra $75 for the 2011 income year and an extra $122 for 2012.
He also claims, in the 2012 year, a deduction of $274.50 for replacement sunglasses and $15 for repairs.
He submits that his circumstances are similar to those of Mr Fennell and Mr Fitton, dealt with in Morris and others v Commissioner of Taxation [2002] FCA 616. Mr Fennell was an electrical fitter and mechanic who spent a lot of his time working outdoors responding to reports of power outages for Energy Australia. Mr Fitton was a senior auditor with the Australian Taxation Office who travelled to taxpayers’ premises to conduct audits and strategic reviews. He caught the train and then walked for “up to one hour”[21] to and from the taxpayer’s premises. While conducting an audit, Mr Fitton did not only look at financial statements but was “often required to conduct inspections of outdoor sites which may take several hours”[22].
[21] [2002] FCA 616 at [60]
[22] [2002] FCA 616 at [60]
In Morris, Goldberg J said:
[86]     The relevant consideration is not simply that the applicants work outside in the open air but, rather, that they are obliged to do so in order to carry out the work as a result of which their assessable income is derived.
…
[105]    But what is important for present purposes, is that the applicants are required by the nature of their work obligations and duties to expose themselves to the rays of the sun for sustained periods of time in order to fulfil and carry out their work activities. I use the expression “required” by reference to what has to be undertaken in order to carry out their duties. I do not use that expression by reference to an expenditure which is stipulated by the employer as it is a well accepted principle that the fact that expenditure is required by an employer to be expended by an employee will not necessarily render the expenditure deductible under s 51(1) of the 1936 Act or s 8-1(1) of the 1997 Act, although it is a relevant factor to be taken into account: Commissioner of Taxation v Cooper[23] at 184, 200; Mansfield v Federal Commissioner of Taxation[24] at 373.
…
[115]    The applicants’ evidence was that the sun protection items were necessary to enable them to perform their employment duties, that these items increased productivity and provided protection from exposure to the sun and ultraviolet radiation which can cause sunburn and skin cancer. This evidence was not disputed by the Commissioner. These factors, therefore, provide a substantial and close nexus between an applicant’s expenditure on sun protection items and his or her income producing activities. Working outside in conditions of exposure to the sun and ultraviolet radiation forms part of the activities undertaken by each of the applicants for the production of their assessable income. Accordingly, there is a real connection between an applicant’s production of assessable income and his or her expenditure on items such as sun protection items which increase productivity and provide protection while carrying out work activities. That is to say, an applicant’s income producing activities include the use of the sun protection items.
[116]    This does not mean that expenditure on sunscreen, sunhats and sunglasses used at work will always be deductible. In each case it will be necessary to examine the facts of the case, including the nature and scope of the income-producing activities and the nature and character of the expenditure, to determine whether there is a real connection between the expenditure on such items and the activities which produce assessable income.
[23] [1991] FCA 164; (1991) 29 FCR 177
[24] (1995) 31 ATR 367
Mr Ogden has provided a letter from his doctor recommending that he wear sunglasses, a hat and sunscreen for protection from the sun.
The entirety of his evidence with respect to sunglasses is[25]:
… when I go outside I wear my sunglasses and I need to wear sunglasses outside based on my eye condition.
[25] Transcript 166.26-27
He gives no precise evidence about the extent to which he “go[es] outside”. He is surely not “outside” for five-sevenths of the week – that would be impossible, given the amount of time he says he spends in his home office. Nor can I infer from the evidence that the extent to which he is “outside” during the working week is roughly equivalent to the extent to which he is “outside” at the weekend, so as to justify a five-sevenths deduction.
As far as the sunscreen is concerned, he has not given evidence about when he applies sunscreen during the working week, or how often he re-applies it. He says this[26]:
It has been established that I use my car extensively as a Professional Sales Commission Agent to drive to the city and drive to Canberra to see clients and prospective clients.
I am in the car for forty five minutes each way to and from Sydney CBD and fifteen to twenty minutes’ walk each way to and from the carpark to my appointments to see clients, a total of two hours in the sun each day in Sydney CBD and longer for Northern suburbs appointments and North West of the city.
When I travel to and from Canberra I am in the sun for six hours a day.
I have provided a letter from my Doctor requiring me to apply sunscreen protection daily following the removal of a number of skin cancers.
These claims are allowable in accordance with the decision in [the Morris case]. This expenditure has been necessarily incurred for Occupation Health and Safety.
The amount claimed does not include sunscreen purchased by Mrs Ogden for her own use and does not include sunscreen purchased for my children. (original emphasis)
[26] Exhibit A1 (for the 2011 income year) at [108]-[113]; Exhibit A2 (for the 2012 income year) at [93]-[98]; emphasis in the original
I note that he does not give any evidence at all about whether he complies with his doctor’s instruction. He does not say that he actually applies any of the sunscreen that he buys, or if he applies it how often, or where he is when he does so. I do not accept his estimates of his time in the sun: they are vague and unreliable. I also doubt the statement in the last paragraph of the quoted excerpt.
As far as I can tell, Mr Ogden does not drive a car with a sunroof, so there should be minimal exposure to the sun while he is driving. Nor does he perform his work functions outdoors. His circumstances, to the extent that they have been disclosed to me, are nothing like those of Mr Fennell or Mr Fitton, and they are nowhere near the circumstances that Goldberg J considered relevant to making good a deduction claim.
On the evidence before me I would allow nothing to Mr Ogden for sunscreen or sunglasses.
RUBBER-SOLED SHOES
Mr Ogden claims a deduction of $383 in the 2012 income year for a pair of R.M. Williams rubber-soled shoes. It is described in his statement of facts, issues and contentions for that year as “Replacement of safety footwear”[27].
[27] At [19]
In his affidavit, Exhibit A2, he described the basis for the claim in the following way, at [22]-[24]:
When I leave my desk I pick up static electricity from the carpet. When I was trained as a Computer Technician I was required to wear rubber soled shoes to protect against continual shocks from static electricity.
The Occupation Health and Safety manual from my first two employers both made an issue of the static electricity both from a Health and Safety perspective and also for the damage that is often caused to the computer hard drive in both the desktop computer and a laptop.
I wear my rubber soled RM Williams shoes Monday to Friday when working to prevent receiving a static electricity shock on each occasion that I returned to my computer.
His oral evidence had a somewhat different focus[28]:
MR McNEICE: Yes. Now, to change the topic slightly, can you explain to the tribunal what static electricity is and what effect that has on the computers?
MR OGDEN: I will have to go back - my brain has to think.   When I was a - when I first started working I was a computer technician back in ‘89, ‘90. I did that until, I think, 1994 so I was in that area for about six years or thereabouts, five years. Part of that training and - that I got from two computers companies I worked for at the time, the main was Digital Equipment Corp, was to learn about static electricity and the effects it has on computers. And basically it - static electricity and noise down power is what effectively makes computers malfunction because noise - noise on the power or static electricity basically blows holes in the silicon chips and ultimately when - after a while once there is enough holes it will stop the computers working. So yes, that’s static electricity and - well, I assume that’s the reference you require.
MR McNEICE: How do you avoid those issues happening or problems happening?
MR OGDEN: So a couple of things. If you’re working on computers and so forth it’s - you earth yourself through a static strap or you use means to prevent static electricity. Things like rubber soled shoes, the type of clothes you wear, even the hair, yes, how you conduct yourself. So just rubbing yourself will produce like 20,000 volts of static electricity, rubbing your hair will produce 20,000 volts of electricity. If you’re touching a computer component or like a USB cable and it’s connected to something and the static electricity can actually affect the computers by making it malfunction through an electricity surge which will blow the silicon.
[28] Transcript 24.21-44
I must confess that in my entire life I have never heard this before. To be satisfied in relation to this claim I would need some evidence from an expert who could explain the science to me. I am not inclined to accept the proposition on Mr Ogden’s assertion alone, especially since so much of his evidence in other areas has ranged from the exaggerated to the implausible. It looks to me like yet another attempt to have the Australian taxpayer, through the Commissioner, subsidise Mr Ogden’s private expenditure. I reject the claim.
COST OF MANAGING TAX AFFAIRS
Mr Ogden seeks to have included as deductible under this heading the cost of “business meals” that he provides to Mr McNeice when they meet, at Mr Ogden’s home, to review Mr Ogden’s income tax affairs[29].
[29] Statement of Facts, Issues and Contentions for the 2011 income year, at [133]
The justification for the position is as follows:
On the occasions that David McNeice travelled to Gary Ogden’s home, David McNeice arrived between 2:00pm and 4:00pm in the afternoon and worked through to after 10:00pm each evening. On a number of visits David McNeice stayed overnight and was provided with several cups of tea and coffee, cheese and biscuits, evening meal and breakfast the next morning.
…
The cost of meals provided for business meetings are not entertainment.
The additional amounts he claims are $360 for each of the relevant years.
I do not accept the amounts claimed as accurate. They are blanket claims for groceries purchased on the day of, or the day before, Mr McNeice is claimed to have visited the family home.
More fundamentally, the claims fail because they do not satisfy the terms of the legislation. To suggest that the cost of food purchased in these circumstances answers the description “expenditure you incur to the extent that it is for managing your tax affairs” is without merit. The cost of feeding your tax agent is not a cost covered by s 25-5(1)(a).
Asgard fees
For the 2011 year Mr Ogden claims the following:
·Asgard 20% of $18,034
·Asgard 100% of $5,166
For the 2012 year he claims the following:
·Asgard 20% of $18,034
·Asgard 100% of $5,204
The explanation for these claims appears in Mr Ogden’s objection at T20-329 (emphasis in the original):
Mr Ogden entered into a service agreement for the managing of his income tax affairs. The cost of this service was deducted in part from Mr Ogden’s investment account and in part from Mr Ogden’s superannuation account. The service agreement was for a five year period. The service agreement was extended from time to time on payment of additional fees. One hundred percent of these fees deducted from Mr Ogden’s account were paid to his Adviser.
Each payment covered a period of five years and the cost have (sic) been amortised over the period of the agreement. Additional fees were charged on each deposit to the investment. The unexpired portion of the deductions was shown and carried forward each year. Particulars of when each payment was made was (sic) provided to the Auditor for the 2010 taxation year.
The Auditor has allowed $3,607 at item 16 other deductions for the 2010 taxation year.
This amount was paid to Mr Ogden’s Adviser for managing of his income tax affairs and should also be allowed at D15 for the 2011 taxation year.

Ms Hammond tried her hardest to allow Mr Ogden to flesh out the claims[30]:
[30] Transcript 168.21-169.10
MS HAMMOND: I want to ask you some questions about Asgard. You’re claiming - there are two claims for Asgard. One is a deduction for 20 per cent of 16,461 and the other is for 100 per cent of 5,203. Now you see those on page 193? About midway down the page it’s got Asgard and Asgard. There are some Asgard documents in T5 - at T5-176 and 177. A general question to begin with, what is Asgard or what do you understand Asgard to be?
MR OGDEN: It’s a stock and investment fund, portfolio fund, something like that. Basically it’s where I invest money through David into Asgard.
MS HAMMOND: You have an Asgard investment account. Do you also have an Asgard superannuation account?
MR OGDEN: Yes, I’m pretty sure I do. Yes.
MS HAMMOND: In relation to that superannuation account, when you were employed with IBM were they making contributions into your Asgard superannuation fund or was it going somewhere else?
MR OGDEN: I’d probably have to refer to David but from what I understand I had an account - a super account with IBM. It might have been IBM Super or whatever they call it and I think I had a separate superannuation fund with Asgard. David’s nodding so that must be right, yes.
MS HAMMOND: In relation to the claim you’re making for 100 per cent of the $5,166, what documentation did you provide to Mr McNeice in order to substantiate that particular claim? So what did you give to your tax agent?
MR OGDEN: No normally when I - when I go to do my tax return with David it always has to be sort of October time frame because I think - and I can’t recall the exact documents but there is like an Asgard document that I’ve got to wait for usually around the end of September - usually early October so David can then have the appropriate information to complete the tax return. So without that he can’t do my tax return so there is a - I’m pretty sure it is an Asgard document I have to wait for them to supply me before I can give it to David.
MS HAMMOND: Can I ask you turn to T40-1369. Is this an example of the document that you’re referring to?
MR OGDEN: There’s multiple Asgard documents I receive. Some are investment, some are superannuation. I think there’s multiple Asgard. I’ve just got a massive folder at home I called Asgard and everything basically goes into that.
Ms Hammond explored further but at the end of Mr Ogden’s explanations I confess I understood no more about the claim than I had at the beginning. Ms Hammond seems to have been equally mystified, for she finished with this[31]:
There’s very little guidance provided in Mr Ogden’s witness statements. There’s a little bit more guidance provided in the statement of facts, issues and contentions that the applicant filed a little while ago, but not enough to explain where the numbers come from. So if you turn to the applicant’s statement of facts, issues and contentions in relation to the 2011 income year, page 23, paragraph 140, we see the second sentence is:
The cost of this service was deducted in part from Mr Ogden’s investment account and in part from Mr Ogden’s superannuation account.
Now, I don’t know how much came from either, but if it was deducted within the fund then the benefit has already been taken. It’s a double dip if it’s being claimed a second time. Now, I’m not suggesting that - I’m not saying that I know that’s what happened. I’m saying that that sentence suggests to me that it may have occurred.
Now, I’m a little unsure on how I proceed with that because I understand the applicant bears the onus but in fairness I would rather just review the documentation and then assist the tribunal. That would be my preference, but I can say with the information that has been supplied, I’m unable to do - I’m unable to do that for you.
[31] Transcript 172.35-173.9
In her closing submissions Ms Hammond said this[32]:
In relation to the 20 per cent of the set-up cost, the only evidence that we have around that set-up cost relates to a period between 2002 and 2009 that appears to have been fully amortised - it’s not depreciated. It would be amortised. But the evidence around that is very shaky. I couldn’t point to anything concrete, and I raised yesterday as an issue the fact that we had concerns that this fee related to superannuation products, and there was no evidence that the fee had actually been paid or there had been an outgoing, let’s say, or a loss or an - there would be an outgoing. There was no evidence of an outgoing from Mr Ogden in his personal capacity to Mr McNeice.
It might be that Mr Ogden’s superannuation fund has paid a fee, possibly, but if that’s the case, Mr Ogden as an individual cannot claim that. The superannuation fund can, and it will be reflected in how much superannuation sits in the account, but he himself doesn’t incur that; the superannuation fund does. It’s certainly not an outgoing of his.
…
So … in order to discharge the onus in this tribunal, I say that what Mr Ogden had to show were the flows of funds out of his account personally to pay these fees, so not the flow out of an investment account to give you a net position but the flow of funds from his account to whomever he paid the fees to, whether it be Mr McNeice or not, that would not have been a difficult thing[33] for either Mr McNeice or Mr Ogden to have demonstrated in these proceedings.
For that reason, the claim should fail.
[32] Transcript 258.14-45
[33] I have corrected the transcript, which originally read “different thing”
Those observations are undoubtedly correct. The claim fails.
OTHER MATTERS
There are a number of claims that were made either in Mr Ogden’s tax returns, or to the auditor in response to issues raised during the audit, or in the notice of objection, but which Mr Ogden has abandoned, either early or late in the proceeding. It is appropriate to mention a handful of them because they are relevant to the question of imposition and remission of penalty.
The first one is the claim he made in his 2012 tax return for “payments to associated persons” – in the amount of $5,388. The basis of the claim is set out at T13-266:
Gary Ogden has paid his son [name deleted] to assist with answering the phone, cleaning the home office and filing. Under the age of sixteen years Gary was required by Industrial Law to pay his son a minimum of three hours each time he assists his father. [The son’s] date of birth [omitted for privacy reasons[34]]. The total wages paid were less than twenty five percent of the commissions received.
[34] At the beginning of the 2012 income year, the son was seven and a half years old
Although the claim had fallen away by the time Mr Ogden’s statement of facts, issues and contentions was prepared, it was explored in cross-examination[35]:
[35] Transcript 72.23-73.35
MS HAMMOND: Okay. In that same income year you also claimed an amount of secretarial services?
MR OGDEN: Yes.
MS HAMMOND: $5,388. That’s a payment you allegedly paid your son, who was seven and a half, in the income year?
MR OGDEN: Yes.
MS HAMMOND: And all the way through, up until you lodged this appeal and partway through this appeal you pressed this claim saying that your son provided you with secretarial services?
MR OGDEN: Yes.
MS HAMMOND: You’re no longer pressing that claim?
MR OGDEN: Correct.
MS HAMMOND: Now, in relation to this particular claim, what was it that you said to Mr McNeice around the claim? Did you say to him, “I wish to claim my seven and a half year old son”?
MR OGDEN: Look, I - I give David all the receipts, as I said earlier, and I - - -
MS HAMMOND: Sorry, can I pause you? What receipt would there have been? Did your son issue you with a receipt for - - - ?
MR OGDEN: No, no, let me finish. I’m trying to explain.
MS HAMMOND: Okay?
MR OGDEN: I just give him all my documents of everything that I do, I explain what has gone on so he has got a perspective of what my role is and what I’m actually doing and then he - he then puts the claims in accordingly. How it gets captured in the tax documents, I’m not averse with all those rulings and numbers and so forth, I rely on David’s judgment for that.
MS HAMMOND: So did [your son] issue you with a receipt for his secretarial services?
MR OGDEN: No. No.
MS HAMMOND: So what was it that you provided to Mr McNeice in order for this claim to be placed in your return?
MR OGDEN: Well, I can’t recall specifically what it was, but we just explained what we’ve done - as I said, explained what my role is, what I do, how I do it and so forth, and probably in the relevance of that conversation he might have drawn out something from me about working with [my son], but I can’t recall exactly the conversation.
MS HAMMOND: Was it your idea to claim this amount?
MR OGDEN: I just tell David what I do. I don’t know how to claim or what to claim, et cetera, all I do is just give him all my receipts and give him a view of what my - my role is.
MS HAMMOND: So you didn’t put, on your summary sheet to Mr McNeice, that you paid [your son] $5,388?
MR OGDEN: Correct. Correct.
MS HAMMOND: It was an amount that Mr McNeice came up?
MR OGDEN: Would have, yes.
DEPUTY PRESIDENT: You’re quite sure about that?
MR OGDEN: Yes, I - - -
DEPUTY PRESIDENT: You’re quite sure about that?
MR OGDEN: Yes. Correct.
DEPUTY PRESIDENT: The figure was 5388.
MS HAMMOND: Yes.
DEPUTY PRESIDENT: That’s $103 a week.
MS HAMMOND: Yes.
DEPUTY PRESIDENT: $103.61 a week for 52 weeks and do you have any idea where that figure came from?
MR OGDEN: Not - no.
And later[36]:
[36] Transcript 80.16-81.8
MS HAMMOND: How much work was [your son] doing for you? Assuming he was?
MR OGDEN: Minimal, very minimal.
MS HAMMOND: Do you think he provided $103 worth of services every week?
MR OGDEN: No.
MS HAMMOND: So why did you claim it?
MR OGDEN: As I said earlier I’m not familiar with all the components that get outlined and how it gets outlined. I just rely on David’s judgment - - -
MS HAMMOND: Come on, you signed a document?
MR OGDEN: Yes.
DEPUTY PRESIDENT: Mr Ogden?
MR OGDEN: Yes.
DEPUTY PRESIDENT: We’re talking about the second largest claim in that category [of “other work-related expenses”]?
MR OGDEN: Yes.
DEPUTY PRESIDENT: We’re talking about a total of $29,000 in that category?
MR OGDEN: Yes.
DEPUTY PRESIDENT: We’re talking over $5,000 for this particular line and look, I’m the first to understand that if you’re not a tax practitioner or closely involved in taxation matters you’re going to be flat out understanding a tax return. That much I understand?
MR OGDEN: Yes.
DEPUTY PRESIDENT: To some extent I’m in that category myself but this is not about understanding tax returns. This is an absolutely and relatively large amount of money?
MR OGDEN: Yes.
DEPUTY PRESIDENT: Within a larger amount of money which when added up becomes a very substantial deduction against your income?
MR OGDEN: Yes.
DEPUTY PRESIDENT: I’m struggling to understand - I do accept that you will have trouble with figures and working out which label a particular figure should go in on the tax return, okay? But let’s put that to one side. We’re talking about almost $5,500 here for secretarial services. You’re the person who knows your working habits better than anybody else in the world?
MR OGDEN: Yes.
DEPUTY PRESIDENT: You should have been able to make a call on that. You should have been able to look at that and say, “Hang on, what does that mean?” ?
MR OGDEN: I accept that, yes.
DEPUTY PRESIDENT: But you didn’t do that?
MR OGDEN: Correct. Correct.
I find that Mr Ogden’s son did virtually nothing for his father by way of secretarial assistance or anything of that nature. Indeed, the evidence established no more than that the son sometimes ran upstairs to the study when the phone was ringing, answered the phone and then handed it to his father.
I also find that Mr Ogden paid his son nowhere near $5,388 during the 2012 income year. It is quite likely that he paid him some modest amounts of pocket money but that would have been completely unconnected with the “minimal” work that he did for his father. This claim, probably more than any other, casts both Mr Ogden and Mr McNeice in a most unfavourable light.
The next example I raise is very similar to the example of the Monte Carlo biscuits dealt with in [64] of these reasons. It demonstrates once again the indiscriminate claiming of deductions – this time for batteries. Mr Ogden’s reasoning is that he sometimes uses batteries for work purposes. Therefore, he adds up all the amounts that he pays for batteries and then claims a deduction equal to 89 per cent of the total cost. There is no recording, and no analysis, of the extent to which any of that expenditure may be deductible. An apparently arbitrary 89 per cent is fixed upon as the deductible portion and the claim is made on that basis.
This exchange comes from the transcript, at pages 196-200:
DEPUTY PRESIDENT: … And there was no great exploration or indeed any exploration of every single line item in this category, but I do note that there is a lot of lines identified as batteries. Globes we had a discussion about, my impression was that you purchased globes in case?
MR OGDEN: That - - -
DEPUTY PRESIDENT: Yes, to keep a store?
MR OGDEN: Multiple - yes. Correct.
DEPUTY PRESIDENT: To keep some stock?
MR OGDEN: Correct.
DEPUTY PRESIDENT: For when globes blow?
MR OGDEN: Correct.
DEPUTY PRESIDENT: Did you adopt the same process with batteries?
MR OGDEN: Yes. And I think when I originally put the receipts together in the original - was it submission - I just calculated the total of each receipt but didn’t go through any real due diligence process of working out what was private and what was work related.
DEPUTY PRESIDENT: Right. Now, due diligence is an expression that you’ve used twice this morning?
MR OGDEN: Yes.
DEPUTY PRESIDENT: Am I to assume that there was an element of due diligence undertaken at the time this document was put together?
MR OGDEN: I’m referring to when we went through the receipts, so when the audit was called I had to go through - because as I stated over the last couple of days, when I was doing my tax returns I would usually just put a summary together for David and give it to him and I’ve never been audited prior to 2010 so I thought that was what was required. But during the 2010 year and sort of beyond - well, during this period, because the 2010 return was getting done when this audit was on as well, I learnt the process of needing to go through and itemise each thing out of the receipts, so that’s what I’m referring to as due diligence. I had to sit down with David and his staff and just call out and mark up which items were private and which ones were work related.
DEPUTY PRESIDENT: Well, what you’ve just said is that there was some process of itemising?
MR OGDEN: Yes.
DEPUTY PRESIDENT: Itemise was - - - ?
MR OGDEN: Itemising - - -
DEPUTY PRESIDENT: Itemise was the word that was used?
MR OGDEN: Within the receipts. Within the receipts, yes.
DEPUTY PRESIDENT: But should I take from that that when there is an entry here on page 253 and 254?
MR OGDEN: Yes.
DEPUTY PRESIDENT: And it says “Batteries”?
MR OGDEN: Yes.
DEPUTY PRESIDENT: That at this stage, when this document was being prepared, there was actually some intellectual enquiry undertaken as to whether batteries should be put in this list?
MR OGDEN: Yes. Yes.
DEPUTY PRESIDENT: And who was it that undertook that intellectual enquiry?
MR OGDEN: Well, I think at the time David was asking - well, when I had my batteries and so forth calculated, he said, “Well what do you need the batteries for?” And I think that’s where he would capture things like my mouse and other devices, et cetera, that - I can’t recall all the devices that I listed but he would then take notes of that and put it in the submission back to - - -
DEPUTY PRESIDENT: Right. But you see there is no guidance for me here - - - ?
MR OGDEN: Yes.
DEPUTY PRESIDENT: On these pages as to, for example - - - ?
MR OGDEN: Yes.
DEPUTY PRESIDENT: - - - how many batteries there are?
MR OGDEN: Yes.
DEPUTY PRESIDENT: What types of batteries they are, what devices they’re used in?
MR OGDEN: Yes.
DEPUTY PRESIDENT: The guidance that I’ve got so far from these two pages is “Batteries $6, batteries $13.49”?
MR OGDEN: Yes.
DEPUTY PRESIDENT: “Batteries $8.99, batteries $18.99”?
MR OGDEN: Yes.
DEPUTY PRESIDENT: “Batteries $14.99”, that’s on page 254. And then on 253 there’s “Batteries $7.18” and “Batteries $11.” Now, I do have a calculator here and I could add that all up but it - it’s about $85 worth of batteries. $85 worth of batteries, my own knowledge of AA and AAA batteries is that, you know, I mean depending on how good a shopper you are, you can probably pick up a pack of 20 for about $5. That looks like a lot of batteries?
MR OGDEN: Yes, it is. Yes.
DEPUTY PRESIDENT: It is a lot of batteries?
MR OGDEN: Well, yes, it was, based on - yes. I think what we have done is - - -
DEPUTY PRESIDENT: But I’m not told here - - - ?
MR OGDEN: Yes.
DEPUTY PRESIDENT: I’m not told here, how many, what type, or what they’re used in?
MR OGDEN: Understood.
DEPUTY PRESIDENT: And using my calculator I can work out that $928 is 89 per cent of $1,038.31 but I don’t know - and I don’t know whether you can tell me but I’m now asking you if you can tell me, was that part of the intellectual exercise that was gone through? Did someone add these up and multiply by 89 per cent to come up with $928?
MR OGDEN: No. I think - I think with batteries and things like light globes - well, you - - -
DEPUTY PRESIDENT: Or - just to give you another option - or was the exercise more like this: Well, all of those things add up to $1,038 but that looks a bit much so we will claim 928. Was it that?
MR OGDEN: Yes, no, we went through and took out - I think we itemised and some of those receipts we went through over the last couple of days had my writing on it where we have taken out all the personal items, from like the Officeworks receipts. So that - the stuff that turns out to be Officeworks and stationery, the dollar figure listed was a number from those receipts and then we - it was just a percentage of the batteries. Like if you said that the battery was a $5 set, only for example $2 or $3 of that $5 might have been claimed, it was just purely a number pulled from - - -
DEPUTY PRESIDENT: Just then you have said only $2 or $3 might have been claimed but you can’t say with any certainty that it was?
MR OGDEN: No, well what - yes. There was - I’m sure there was a separate document that was put together to support our case for why we’re claiming that amount for it. I don’t know - there’s - I’ve been across lots of documents over the three years going through this audit and I’m not too sure. But there was some document, I’m sure, we outlined - we itemised the individual components.
…
I asked Mr McNeice if he could explain the methodology for the claims and he took me to various documents that established that the batteries had been purchased by Mr Ogden, rather than (as the auditor had initially suspected) his wife. The discussions continued at pages 206-208:
DEPUTY PRESIDENT: Here’s the problem from my perspective. Those documents that you’ve taken me to could support a finding that Mr Ogden purchased those items.
MR McNEICE: Yes.
DEPUTY PRESIDENT: Those documents tell me nothing about what those items were used for, the extent, if any, to which they were used for income related purposes. And they are the issues that I need to address. So to the extent that a review officer says they’re disallowed because they’re not in his name, and you establish perhaps that they were actually bought by him. I would probably come to that conclusion on the basis of those invoices, but they tell me nothing about what they were used for, nothing. So, where does that get us? It gets us to a point where a review officer has said certain claims are allowed, and certain other claims are disallowed for these reasons. You meet the review officer’s criteria, but they might not be my criteria, because my criteria are, what were they used for and to what extent were they used for income generating purposes? A lot of those questions remain a mystery to me.
MR McNEICE: Well, can we have another look at those invoices for Gary Ogden.
DEPUTY PRESIDENT: The invoices aren’t going to tell me what he used them for.
MR McNEICE: No, but possibly Mr Ogden can tell us now.
DEPUTY PRESIDENT: Well, we don’t have to have a look at the invoices for that purpose. I’ve already raised - I’ve raised an issue already about batteries. Now, batteries are not the biggest issue confronting me in this case, but they create a picture. They create a picture of purchases of items that might qualify for deduction, but why? They’re batteries. They could’ve been batteries for toys. They could’ve been batteries for a smoke alarm. They could’ve been batteries for a torch. I mean a taxpayer who uses a battery in a work related mouse can’t go out and buy $100 worth of batteries and say, “I use a battery in a mouse, and that’s work related, so I get a $100 deduction.” You understand that.
You might think that it’s trivial for me to focus on batteries, but I need something more than the repetition of the word “batteries” and a bunch of numbers next to them. I have no doubt that somewhere in these thousand-odd pages I could find receipts for batteries. I could find receipts for batteries that probably reconcile to the amounts that are set out in these lists. But so what? They could be for toys. The light globes could be for anything. The light globes could be for the bathroom, they could be for the outside patio. I repeat, a taxpayer needs to do more than say, “I’ve bought $100 worth of batteries.” A taxpayer could say, for example, “I bought $100 worth of batteries, but 85 of them were used in the kids’ toys. Now, the remaining 15, well, on 2 March I took one battery out of my stock and I put it in my mouse, and I only ever use the mouse for income generating purposes. And that’s the only battery out of that whole stock of batteries that I’ve ever used in the income [generating activity], so therefore I’m claiming $1.13 on that battery.”
Now, is anything that I’ve just said wrong in principle?
MR McNEICE: No, Deputy President.
DEPUTY PRESIDENT: Well, that’s the case that this taxpayer has to make.
MR McNEICE: Those discussions were had with the auditor and - - -
DEPUTY PRESIDENT: But I’m not the auditor. You know the routine well enough, Mr McNeice. I’m the independent review body that reviews the Commissioner’s decision in circumstances where the taxpayer bears the burden of proof. Now, the burden of proof rises higher than, “I paid $100 for batteries.”
MR McNEICE: Yes, I understand that, and I was under the - - -
DEPUTY PRESIDENT: And right at the moment I haven’t got a clue - I haven’t got a clue how much of the - and I’m saying $100. It’s more likely from that list about $85. How much of the $85 spent on batteries is dedicated to income generating activity, because that - that, even though we’ve been going for over two days, remains a mystery to me.
MR McNEICE: Yes.
DEPUTY PRESIDENT: I’ve got no idea. And you know what the answer is if I’ve got no idea, don’t you. The answer is, zero.

Unfortunately, as must be abundantly clear by now, the indiscriminate claiming of deductions pervades Mr Ogden’s approach to his taxation obligations – an approach which is overseen by Mr McNeice.
Without wishing to labour the point, I note that Mr Ogden also claimed, as deductible “stationery”, the following items – a wall chart, Texta colour pens, a “Dora the Explorer” pencil case, heart and star shaped stickers, crayons and art brushes. For the avoidance of doubt, I find that none of those were used in the course of gaining or producing his assessable income. Plainly, they are items purchased for use by his children.
Mr Ogden also claimed a deduction for depreciation (to the extent of 50 per cent) of an outdoor patio setting comprising a table and several chairs. It was described as a “work table” and it seems that it was Mr McNeice who assessed it as being used for work purposes for 50 per cent of the time[37]. Mr Ogden conceded that this was a setting that the family would “ordinarily” use[38]. There was no reasonable basis for a depreciation claim to any extent, let alone 50 per cent. And yet a claim was made. At 50 per cent. For a patio setting, disguised as a “work table”. Disgraceful.
[37] Transcript 156.35-158.45
[38] Transcript 156.40
ADMINISTRATIVE PENALTY
Administrative penalty was imposed at the rate of 25 per cent of the tax shortfall amount. That rate applies where a shortfall arises as a result of the failure of the taxpayer (or the taxpayer’s agent) to take reasonable care to comply with a taxation law: table item 3 in s 284-90(1) in Schedule 1 to the TAA.
At first blush, and in the circumstances described in these reasons, an administrative penalty imposed for failure to take reasonable care may appear to be somewhat generous to Mr Ogden. A dispassionate observer might think it more appropriate that penalty should be imposed at the rate of 50 per cent for recklessness on the part of the taxpayer or the taxpayer’s agent, or even perhaps 75 per cent, in some cases, for intentional disregard of the law: table items 2 and 1 respectively in s 284-90(1) in Schedule 1 to the TAA.
During the hearing, in a discussion with Ms Hammond, I indicated that the Tribunal probably lacked the power to increase the penalty rate, even if it was minded to do so[39]. I also expressed my surprise that the Commissioner had not applied the 20 per cent uplift in s 284-220(1)(c) in circumstances where Mr Ogden had had penalty applied previously[40].
[39] The discussion commences at Transcript 260.40
[40] Transcript 261.12-13
Since reserving my decision I have given further thought to the question of the Tribunal’s power to increase the penalty, either by fixing upon a higher base penalty amount, or by applying the 20 per cent uplift, or both. It is not clear to me that the position I outlined during the hearing is correct: see for example Stevenson v Commissioner of Taxation (1991) 29 FCR 282 and Roche Products Pty Ltd and Commissioner of Taxation [2008] AATA 639. However, since Mr Ogden and Mr McNeice are entitled to assume, on the basis of what I said then, that the Tribunal lacks the power to increase the penalty, it would not be appropriate for me even to consider doing so without giving Mr Ogden the opportunity to address me on the issue.
There is the further point that the Commissioner may be content to leave the penalty as it is. If the Commissioner wished to revisit the penalty position, then the following questions would need to be considered:
·which of the statements made by Mr Ogden, whether in the tax returns, in the responses at the audit stage or in the notices of objection or since then, were false or misleading;
·what amount of tax would have been payable by Mr Ogden on the basis of those statements, and the difference between that amount and the amount that would have been payable if the statements had not been false or misleading; and
·whether any of the consequent tax shortfalls could properly be regarded as having resulted from recklessness or intentional disregard of the law by either Mr Ogden or Mr McNeice or both of them.
None of that would be a simple exercise, especially in light of the large number of statements that Mr Ogden has made, the way the statements have changed over time, the fact that different levels of culpability may apply to different statements, and the very complex task of analysing how the amount of tax payable by Mr Ogden may vary by reference to those changing positions.
Nevertheless, the Commissioner should be given the opportunity of reconsidering his position.
I will grant leave to the Commissioner to reconsider the penalty question, and specifically to consider whether the base rate of penalty is appropriate, and whether or not to apply the 20 per cent uplift in s 284-220. I will wait for the Commissioner’s response before deciding whether any further action needs to be taken.
DISPOSITION
I will set aside the objection decisions in relation to the assessments of primary tax and remit those matters to the Commissioner for reconsideration in accordance with those reasons.
However, for the time being I will not dispose of the penalty matters. In the circumstances I will allow the Commissioner 28 days from the date of publication of these reasons to reconsider and, if he wishes, to make further submissions on the penalty position.

I certify that the preceding 128 (one hundred and twenty-eight) paragraphs are a true copy of the reasons for the decision herein of Deputy President S E Frost
..........................[sgd]..............................................
Associate
Dated 29 January 2016

Date(s) of hearing 9-11 September 2015

Advocate for the Applicant D McNeice, MoneyWise Accounting

Solicitors for the Respondent V Hammond, ATO Review and Dispute Resolution Group

Division	TAXATION & COMMERCIAL DIVISION
File Number(s)	2014/5943; 2014/5957; 2014/6763; 2014/6764
Re	Gary Ogden
APPLICANT
And	Commissioner of Taxation
RESPONDENT

Tribunal	Deputy President S E Frost
Date	29 January 2016
Place	Sydney

Label and Deduction category	2011	2012
D1: Work related car expenses	29,408	17,543
D2: Work related travel expenses	3,857	1,907
D3: Work related clothing expenses	0	830
D5: Other work related expenses	20,806	29,039
D10: Cost of managing tax affairs	9,223	4,154
Total	63,294	53,473

Date(s) of hearing	9-11 September 2015
Advocate for the Applicant	D McNeice, MoneyWise Accounting
Solicitors for the Respondent	V Hammond, ATO Review and Dispute Resolution Group