Shugai and Commissioner of Taxation (Taxation)
[2024] AATA 3619
•10 October 2024
Shugai and Commissioner of Taxation (Taxation) [2024] AATA 3619 (10 October 2024)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2023/7298
Re:Alexander Shugai
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:R Cameron, Senior Member.
Date: 10 October 2024
Place:Melbourne
The Tribunal affirms the objection decision made by the respondent Commissioner of Taxation and subsequent assessment dated 28 September 2023.
................................[sgd]........................................
R Cameron, Senior Member.
Catchwords
Whether deductions claimed in gaining or producing assessable income - whether expenses of a private, capital or domestic nature – consideration of the positive and negative limb of s 8-1 of the Income Tax Assessment Act 1997 (Cth) - onus of proof – Tribunal not satisfied as to the requisite standard of proof - rules for general deduction – apportionment of claimed and Occupancy Expenses – decision affirmed.
Legislation
Taxation Administration Act 1953 (Cth)
Administrative Tribunal Act 1975 (Cth)
Income Tax Assessment Act 1997 (Cth)Cases
Gashi v Commissioner of Taxation [2013] 209 FCA 30
Bosanac v Commissioner of Taxation (2019) 374 ALR 425
Charles Moore v Commissioner of Taxation (1956) 95 CLR 344
Commissioner of Taxation v Forsyth (1981) 148 CLR 203
Lunny v Commissioner of Taxation (1958) 100 CLR 478
Commissioner of Taxation v Studdert [1991] FCA 593
Commissioner of Taxation v Anstis [2010] HCA 40
Federal Commissioner of Taxation v Faichney
Handley v Commissioner of Taxation (1981) 148 CLR 182
Commissioner of Taxation v Cooper (1991) 29 FCR 177
Federal Commissioner of Taxation v Faichney [1972] HCA 67
France and Federal Commissioner of Taxation (2010) 80 ATR 927Wells v Federal Commissioner of Taxation [2000] AATA 920
REASONS FOR DECISION
R Cameron, Senior Member.
INTRODUCTION AND BRIEF BACKGROUND
The applicant seeks review in this Tribunal of an objection decision made by the respondent, the Commissioner of Taxation, and subsequent assessment dated 28 September 2023.
This application concerns the applicant’s income tax return for the financial year ended 30 June 2022. The income tax return lodged by the applicant with the respondent Commissioner in August 2022 claimed a range of deductions. There were several classes or categories of deductions claimed. Those classes or categories of deductions claimed were, Occupancy Expenses, Running Expenses, Plant and Equipment Expenses, Consumable Expenses, Mobile Phone Expenses and Spouse Expenses.
In September 2022, the Commissioner commenced an audit of the applicant’s income tax return for the financial year ending 30 June 2022. Apparently, the reason for the audit was because the respondent considered that deductions claimed by him in that income tax return were greater than those claimed by taxpayers of comparable employment. The steps undertaken by both the Commissioner and the applicant during the conduct of the audit need not be addressed in much detail. Suffice to say that in conducting the audit there was an exchange of correspondence between the parties. Included in this correspondence were several responses from the applicant including receipts for expenditure incurred in the relevant income year.
One of the steps undertaken by the respondent Commissioner during the audit process was to serve on both the applicant and his employer a request to provide information and documents. Notices to this effect under section 353-10 of Schedule 1 to the Taxation Administration Act1953 (Cth) (‘the TAA Act’) were served on the applicant and his employer, Ice Data Services Australia Pty Ltd.[1]
[1] T11 of the T Documents, 267. In this regard, references to “T” documents are references to documents required to be given to the applicant under s 37 of the Administrative Tribunal Act 1975 (Cth) (‘the AAT Act’). See also, T12, 275, for the corresponding notice served upon his employer Ice Data Services Australia Pty Ltd.
Some facts provided by the applicant’s employer to the respondent Commissioner in response to the section 353-10 Notice warrant reference.
For the relevant period of 1 July 2021 to 30 June 2022, his employer in its response to the section 353-10 Notice, informed the Commissioner that the applicant was employed as a ‘Technical Architect’ from 9.00 AM to 5.00 PM Monday to Friday.
The section 353-10 Notice from the Commissioner to the applicant’s employer also contained a specific question requesting that it advise whether the applicant (employee) is required to work outside of their standard working hours. In response to this specific question the applicant’s employer stated, ‘yes, on occasion the employee may be required to be on calls with our global teams. These may occur outside of the standard work hours.’
Also produced by the applicant’s employer was a ‘Contract of Employment’ between him and his employer, which he admitted to the Tribunal in his evidence he had signed, of 25 November 2011. Reference to that document is made in full. However, several clauses should be specifically referred to for the purposes of these reasons.
Clause 3 - ‘Place of Work’ of the Contract of Employment, specifies that such place of work is an address in Malvern, Victoria.
Clause 10 – ‘Hours of Work’ of the Contract of Employment provides that the applicant’s ordinary Hours of work were an average of 37.5 hours per week worked during the company’s ordinary business hours of 9.00 AM to 5:30 PM Monday to Friday. The clause also provided that in addition to his ordinary hours, the applicant was also expected from time to time, in order to satisfactorily perform the duties of the position, to work reasonable additional hours.
Following completion of the audit on 20 June 2023, the respondent disallowed certain claims for deductions made by the applicant and advised him of adjustments that were made following the audit, under cover of a letter of that date together with an attached document entitled ‘Reasons for our Decision’.
On 29 June 2023, the applicant objected to the findings made in the audit conducted by the respondent.
Following a consideration of the applicant’s 29 June 2023 objection, it was allowed in part, with the Commissioner’s 21 September 2023 correspondence attaching ‘Reasons for our decision’, which resulted in further adjustments being made for deductions claimed by him.[2] A revised assessment was then issued from which the applicant now seeks review before this Tribunal.
[2] T21, 452.
ISSUES
Several issues arise for determination by the Tribunal with respect to this application.
The first issue is whether the applicant has discharged the burden of proof cast upon him by s 14ZZK(b) of the TAA. That section provides that on an application for a review of a reviewable objection decision (such as the reviewable decision in this application), the applicant has the burden of proving that the assessment is excessive or otherwise incorrect and what the assessment should have been. It also provides that in any other case the applicant has the burden of proving that the taxation decision concerned should not have been made or should have been made differently.
The respondent’s counsel in an Outline of Submissions has helpfully identified several further issues (with which the Tribunal agrees) which arise for consideration by the Tribunal in determining this application. They are essentially as follows:
(a)Concerning the claims for deductions with respect to the Occupancy Expenses, Running Expenses, Plant and Equipment Expenses, Consumable Expenses, Mobile Phone Expenses and Spouse Expenses whether:
(i)they were incurred by the applicant in gaining or producing his assessable income pursuant to s 8-1(1)(a) of the Income Tax Assessment Act 1997 (Cth) (‘the ITAA’);
(ii)they were of a private or domestic nature pursuant to s 8-1(2)(b) of the ITAA; and
(iii)whether they should have been apportioned, and if so, whether the claimed basis of apportionment relied on by the applicant was appropriate.
(b)Concerning the claims for deductions with respect to Motor Vehicle Expenses, whether:
(i)the claimed travel was travel in the course of producing the applicant’s assessable income; and
(ii)the calculation of the business use percentage of 97.5% in the 2022 financial year was a reasonable estimate for the purposes of s 28-90 of the ITAA.
Some brief observations should be made about the operation of s 14ZZK(b) of the TAA. This section places the burden of proving each assessment is excessive on the taxpayer. The taxpayer also must establish what the assessment should have been. Additionally, the section does not place any onus on the respondent Commissioner to show that the assessment was correctly made.[3] The taxpayer cannot succeed in discharging the burden created by the section, through only demonstrating that the basis of the Commissioner’s assessment was in some respect erroneous.[4]
[3] Gashi v Commissioner of Taxation [2013] 209 FCA 30, [61].
[4] Bosanac v Commissioner of Taxation (2019) 374 ALR 425, [30].
Under s 8-1 of the ITAA a taxpayer can make a claim for a ‘general deduction’. Section 8-1 provides as follows:
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) it is incurred in relation to gaining or producing your exempt income or your nonassessable non-exempt income; or
(d) a provision in this Act prevents you from deducting it.
As is apparent from a consideration of s 8-1 of the ITAA there is both a ‘positive limb’ and a ‘negative limb’ to that section. Both limbs of the section must be satisfied by the taxpayer to make a successful claim for a deduction.
The section, and its predecessors, have been the subject of much consideration in recent cases, including several High Court decisions, over many years. Several aspects concerning its application briefly warrant mention.
An expense or an outgoing incurred by the taxpayer will only be deductible if it is incidental and relevant to the activities which generated their income as an employee.[5]
[5] Charles Moore v Commissioner of Taxation (1956) 95 CLR 344, 350.
Whether expenditure or an outgoing is connected to the gaining or production of assessable income is a question of fact and degree.[6] In addressing this question, a consideration must be undertaken of the ‘essential character’ of the expenditure itself as opposed to the purpose for which the expenditure was incurred.[7]
[6]Commissioner of Taxation v Forsyth (1981) 148 CLR 203,210; 213 (‘Forsyth’).
[7] Lunny v Commissioner of Taxation (1958) 100 CLR 478, 497.
Section 8-1(1)(a) of the ITAA establishes an objective test. As has been held in several cases, such a test ‘says nothing of purpose or motivation’.[8] Further, the reason or motive of the taxpayer for incurring the expense or outgoing is not determinative of the question whether such expenses or outgoings were incurred in earning or deriving income.[9] Rather, where expenditure is voluntarily incurred, the purpose of incurring that expenditure may constitute an element of its essential character.[10]
[8] Commissioner of Taxation v Studdert [1991] FCA 593, [20] (‘Studert’).
[9] Commissioner of Taxation v Anstis [2010] HCA 40, [31].
[10] Studdert (n8) [20].
THE APPLICANT AS A WITNESS
The applicant gave evidence on affirmation. He was carefully and searchingly cross-examined by Mr Molesworth appearing on behalf of the Commissioner.
The Tribunal found aspects of the applicant’s evidence somewhat unsatisfactory. He is clearly an educated, intelligent, and articulate man.
For instance, on several occasions rather than answer a perfectly proper and clear question directed to him by the cross-examiner, which he clearly must have understood, he responded with an unnecessary and sometimes provocative question rather than providing a direct answer to such question.
On other occasions, when asked a rational and perfectly comprehensible question, he would tend to embark upon some irrelevant loquacious excursion, or otherwise make a statement rather than properly respond to the question.
Also, at times the applicant’s evidence was given with a propensity towards exaggeration, embellishment and/or implausibility.
An example of the applicant giving evidence in an exaggerated embellished or implausible way concerned the circumstances of his employment and the hours he actually worked. As noted above, the applicant’s employer, in response to a section 353-10 Notice stated that his working hours were 9.00 AM to 5.00 PM Monday to Friday. It further stated that he was required to work outside of standard working hours on occasion to be on call with their global teams. There was of course the specific provision of Clause 10 of the Contract of Employment specifying the hours he was to work.
This topic was canvassed in cross-examination. The response of his employer was specifically put to him by Mr Molesworth. He was asked whether he agreed with what the employer said about his hours of work. The applicant’s first response to such questioning was to say that the recipient of the section 353-10 Notice was not his employer. He then somewhat flippantly stated, ‘I report to New York. My manager is in New York’. Further, he responded with words to the effect that the author of the response to the section 353-10 Notice wouldn’t know what he did concerning New York. The applicant then identified parts of Annexure A ‘Duties and Responsibilities’ to the employer’s response which stated that he would, ‘[p]rovide on-call support as part of a team rotation’. Having identified this part of the document he then stated that his, ‘team is in New York and work [sic] from 6.00 AM to 11.00 PM Melbourne time. I am present 365 days per year.’ He suggested that he works 365 days a year from 6.00 AM to 11.00 PM.
The assertion that the applicant’s employer is in New York is quite contrary to the documentary evidence before the Tribunal, particularly the explanation provided by Ice Data Services International Australia Pty Ltd which revealed that it was clearly the applicant’s employer. No entity employing the applicant in New York was identified by him. There was no documentation produced by the applicant to the Tribunal to verify such an assertion. Such explanation is also contrary to the Payment Summary produced by that company as his employer, not to mention the contents of his income tax return concerned which similarly revealed that company as his employer. If his employer was in New York, presumably paying him a salary, no foreign source income or tax paid on any foreign source income was disclosed in such income tax return as one would have expected.
Similarly, the suggestion that the applicant works 365 days a year from 6.00AM to 11.00PM also has all the hallmarks of implausibility, not to mention embellishment and exaggeration. If he was indeed working such hours, it seems inconceivable that his employer would not have reported that fact to the respondent Commissioner when furnishing its response to the section 353-10 Notice. The glaring inconsistency between the applicant’s evidence on his work hours and days per year worked and in his employer’s response to the section 353-10 Notice supports such a conclusion by the Tribunal. There is nothing in the material to suggest or otherwise invites the Tribunal to conclude that such response was so wrong. It does not do so.
It should also perhaps be observed that this evidence given by the applicant concerning the hours per week that he worked and who he worked for, was inconsistent with representations made by him in other documents that were in written evidence before the Tribunal. For instance, in an email of 4 September 2022, from the applicant to the respondent Commissioner, which was the applicant's response to a request for information, the applicant stated that he worked from his home office for ‘100+ hours a week’.[11] In another part of that document, the applicant stated, ‘I work from my home office 100 + hours weekly … approval for my occupancy expenses was given by ATO in final decision on my audit in 2014 [sic]’. [12] He also stated in that response, amongst other things, ‘I provide my consulting services to Interactive Data’. Also, in a further email to the respondent Commissioner of 12 October 2022, he stated, ‘I am required to do my support job and I provided enough evidence for my work 6 AM-11 PM x 7d x 365days a year’.[13] In fairness to the applicant, these inconsistencies with the evidence he gave on affirmation when compared with the contents of other documents and/or the employer’s response to section 353-10 Notice was not put to him in cross-examination.
[11] T5, 96, [5].
[12] Ibid 100.
[13] T9, 197.
The Tribunal is unable to accept these explanations from the applicant and considers that they have a complete air of unreality. It is demonstrably inconsistent with the response of the applicant’s employer to the section 353-10 Notice and the other documents referred to. The applicant was not able to or did not offer an explanation for this glaring inconsistency. He really evaded the point.
Another aspect of the applicant’s evidence which also was yet a further example of his propensity towards exaggeration, embellishment or unreality with his evidence arose, which will be canvassed hereafter. On several occasions when probed in cross-examination as to why he made a claim for a deduction based upon a particular percentage of the total expenditure incurred he offered several explanations. These explanations included, ‘I was told this by a senior ATO auditor in 2014 … They told me 25% full council rates, 70% for car, 70% for general expenses. It was also allowed in ATO audits in 2019-20.’
He also asserted that the basis for such claims arose from a ‘2014 Ministerial review by (then) Federal Minister Tudge. The purpose of the exercise was what I should be claiming.’ He also stated with respect to Minister Tudge, that ‘Tudge was the Assistant Treasurer. I claimed it because that was what I was told.’ The purpose of such evidence appeared to the Tribunal to be a misguided effort at contending that his claims for deductions had some Ministerial imprimatur. This evidence was fanciful. No documentary corroboration of such evidence was provided by the applicant. It defies belief.
This approach on the part of the applicant did not assist the Tribunal, let alone the applicant’s case. Collectively, these propensities on the part of the applicant in giving his evidence does lead the Tribunal to consider some aspects of it with caution. Some of this will be touched on in more detail later in these reasons.
The Tribunal concludes therefore that the applicant worked approximately the number of hours and days per week as recorded in the employer’s response to the section 353-10 Notice as described.
CONSIDERATION
Each category, or classification of deductions claimed by the applicant will be separately considered hereunder.
Home office occupancy expenses
The positive limb of s 8.1(1) of the ITAA and the claimed Occupancy Expenses
Home office occupancy expenses were claimed by the applicant for home insurance, council rates, waste disposal, water rates and home office repairs. The total of the deductions claimed for these items of expenditure was $7,995.23.
The applicant lives in a split-level residential dwelling with four other members of his family being his wife, children and father. His workspace is on the ground floor. He contends that the two rooms, a storage room, a bathroom, and a kitchenette on that lower level are used exclusively as a home office and a place of business. The applicant conceded, as one would imagine to be logically that case, that all the rooms were interconnected. One of the larger rooms apparently has a couch. Further, in his submission he asserts that this floorspace occupies 31% of the dwelling’s total floor area.
As observed earlier, the applicant contends that he works from this home office 365 days a year, for many hours each day, whatever the totality of those hours may be.
The Tribunal does not consider that the applicant has satisfied the positive limb of s 8-1(1)(a) of the ITAA with respect to his claim for the Occupancy Expenses. He has not discharged the burden of proof cast upon him. There are several reasons for this.
The Tribunal does not consider that the claim for Occupancy Expenses were incidental or relevant to the earning of assessable income.
The rooms concerned and the floor space they occupy were rooms in the applicant’s split-level residential dwelling on the lower floor. They were not physically separate from the remainder of the dwelling in any way and did not bear any distinctive physical characteristics. Such rooms were readily capable of other use for family purposes. The rooms were indistinguishable, on the evidence available to the Tribunal, from other rooms in the private living areas of his home.[14] In the context of the layout of the house it was occupied by the applicant and his family as just that, a family residence. The applicant’s dwelling was not by way of contrast, such as one used to come across more frequently in the past, where a general practitioner might live in a house and set aside specific front rooms for the daily conduct of their medical practice. The rooms set aside for the conduct of the practice are the general practitioner’s place of business.
[14] Handley v Commissioner of Taxation (1981) 148 CLR 182, 194 ('Handley’); Forsyth (n6) 215.
The rooms concerned do not cease to be part of the applicant’s home merely because he chooses to use them for his professional or work-related activities, even if that may be for the length of time he contended when giving his evidence, which for the reasons previously identified the Tribunal does not accept.
Similarly, there was no evidence before the Tribunal to suggest that at any time the applicant had engaged in other activities that might enable one to draw the conclusion that the areas concerned were used for face-to-face business meetings or were visited by members of the public and/or other business contacts. Had this been the case, qualities or features of the areas might be capable of being classified in a different way.
The fact that the home included the rooms used by the applicant predominantly or exclusively for work purposes is, nonetheless, quite consistent with the Occupancy Expenses being of a capital, private or domestic nature.
It is considered that notwithstanding that the applicant intended to use the rooms predominantly or exclusively for the purposes of his occupation, nonetheless the expenditure claimed has the qualities or features of a capital, private or domestic nature.
Another factor that persuades the Tribunal that the claim for Occupancy Expenses is of a capital, private or domestic nature arises because the evidence before it, which is accepted, is that there was no compulsion imposed on him by his employer to work from home. It should be repeated that the response of the applicant’s employer to the section 353-10 Notice was to produce a copy of the Contract of Employment for the period of 1 July 2021 to 30 June 2022, which the applicant signed and identified his place of work as Malvern, which was not the suburb of his residence.
For these reasons the Tribunal repeats that the positive limb of s 8-1(1)(a) of the ITAA has not been satisfied.
The negative limb of s 8.1(2) of the ITAA and the claimed Occupancy Expenses
This brings the Tribunal to a consideration of the negative limb of s 8.1(2) of the ITAA. As observed earlier this part of the section prevents a claim being made for a loss or outgoing of capital, or of a capital nature or of a private or domestic nature.
The Tribunal concludes that the Occupancy Expenses also had the qualities or characteristics of expenditure of a private or domestic nature as contemplated by the negative limb contained in s 8-1(2) of the ITAA.
As was observed by Mason J (as he then was) in Federal Commissioner of Taxation v Faichney, a study in a taxpayer’s home, no matter how great the extent of its dedication in point of use to the pursuit of those activities from which the taxpayer earns his income, is a part of that home.[15]
[15] [1972] HCA 67; Handley (n12) 43.
The Tribunal considers that the occupancy expenses, although sought to be apportioned and applied to the percentage of floorspace which the applicant says are applicable to his income earning activities, were not exclusively for his benefit whilst working. They were part of total payments made for a residential dwelling which is inhabited by members of his family. By reason of this fact, it continues to have a private or domestic character and therefore falls within the ambit of the second limb of s 8-1(2) and are not deductible.
Once again, the essential character of the Occupancy Expenses cannot be viewed solely through the use to which the applicable floorspace is used. Clearly, it is relevant, however, it is not determinative. As was observed by Mason J, as he then was, in Handley, the fact that the subject home included areas set aside for use for the purposes of the taxpayer’s profession or occupation are quite consistent with the expenditure being of a capital, private or domestic nature. The Tribunal considers that these observations are apposite to this case. It also should be viewed with a degree of realism; home insurance, council rates, waste disposal, water rates and home office repairs bear all the hallmarks or characteristics of expenditure being of a capital, private or domestic nature.
The applicant in his Statement of Facts, Issues and Contentions (‘A SFIC’), which was an extremely lengthy document sought in several sections of it to distinguish the application of the fact situation with respect to Faichney and Forsyth from his own.[16] This analysis was conducted in tabular form by reference to a series of subject headings and then identifying the facts that he said were different.
[16] See, A SFIC, 186-189 in which the table is referred to in its entirety.
The Tribunal is unable to accept the contention of the applicant concerning the differences that he says exist between the facts in his case compared with both those of Faichney and Forsyth. The reason for this is essentially that the comparison made by the applicant in many respects is predicated, or based upon the applicant’s assertions that he was working seven days a week 365 days of the year or was ‘always on call’ for that period. Earlier in these reasons the Tribunal has explained why this evidence is not accepted. Those findings are referred to and repeated for the purposes of consideration of the negative limb of s 8-1(2) of the ITAA.
Further, in several parts of that tabular analysis, he assumes certain facts of which there was simply no evidence before the Tribunal. By way of example, in a row of the table the subject heading is ‘[p]lace of work as directed by employer’. In one of the populated cells adjacent to this subject heading the applicant has referred to the Contract of Employment and a ‘“job description” letter’. Following that description, the applicant has recorded the following words:
You need to maintain a home office of your consultancy (known to employers since 2007 through use of my consultancy as employer contractor) to work from it to provide services in your new role for different time zones outside normal office hours.[17]
The Tribunal reiterates that there is simply no evidence to establish this fact and of course it is contrary to the response to the section 353-10 Notice provided by his employer to the respondent Commissioner. It has a complete air of artificiality to it.
[17] Ibid.
In another row of the tabular analysis comparing the applicant’s fact situation with those of Faichney and Forsyth a subject heading is entitled ‘[r]egularity of work from home’. The applicant refers to both Faichney and Forsyth and correctly records that in the case of both those taxpayers, who were practising barristers, the work from home was irregular, ad hoc and a personal choice. The applicant recorded in the final cell of that row that his regularity of work from home was: ‘[e]very single day and night including weekends and holidays: 6 AM-11+ p.m. BAU daily as requested by employer per job position in the follow-the-sun IT support model 21st-century [sic].’ There was no evidence of this fact, and it was contrary to the response provided by his employer to the section 353-10 Notice.
For these reasons, the Tribunal does not consider that the essential elements of the applicant’s claim for Occupancy Expenses is distinguishable from those in Faichney and Forsyth.
To some extent the Tribunal is engaging in a level of repetition and touches on the same analysis with respect to the positive limb, but the areas of the applicant’s dwelling set aside for work purposes were completely integrated with the rest of it. They were not separate or possessed distinctive physical characteristics. This is notwithstanding the fact that the property is a split-level home. The rooms used are indistinguishable from the other rooms in the private living area and do appear to be related in the physical sense to the life of the family as contemplated in several authorities.
Therefore, for these reasons the Tribunal considers that the applicant has not discharged his burden of proof. The claim for Occupancy Expenses is an outgoing of a private or domestic nature and therefore is not deductible.
The question of apportionment of claimed Occupancy Expenses
As is apparent from a consideration of the totality of the claims for Occupancy Expenses themselves, together with the supporting documentation submitted by the applicant with the respondent Commissioner in support of those claims, the subject expenses comprise a portion of the totality of those outgoings with respect to the dwelling concerned.
It has been held in the High Court of Australia that where the whole of a subject outgoing bears some association with a home, in this case a domestic dwelling, the process of apportionment does not deny a finding of a continuing domestic character to the portion of the outgoings so identified. To construe the section in such a sense would be to misread and apply it.[18]
[18] Forsyth (n6) 217.
The Tribunal is unable to accept that the Occupancy Expenses for which the applicant has claimed a deduction, which were a part or portion of the total outgoings incurred with respect to his dwelling, were not of a private or domestic nature, rather than incurred in the course of income producing activities. Much has already been said in these reasons why both the positive limb and the negative limb of s 8-1 have not been satisfied. The Tribunal is satisfied that such outgoings were of a private or domestic nature.
In any event, on the question of any potential apportionment, if they were in some way otherwise claimable, which the Tribunal has found they were not, the Tribunal cannot accept that the percentages claimed by him are appropriate or otherwise accurate.[19]
[19] See, T5, 99 where the amounts, and the percentages claimed as work-related by the applicant for each of the individual Occupancy Expenses are found in his response to the Commissioner's request for information dated 4 September 2022.
In arriving at a total figure of 31% of the total floor area of the dwelling the applicant has, as noted above, included the room from which he conducts his work activities plus a kitchen, bathroom and a storeroom. The Tribunal accepts the contention of the respondent Commissioner that at the very least, the bathroom and kitchen and more probably than not, the storeroom, could not conceivably have the characteristics or qualities of a “home office”. In a split-level residential dwelling, they are features of it which exhibit the hallmarks of being of private or domestic in nature. It also should be viewed with some degree of realism. To assert that almost 31% of a split-level home, is a home office for which that percentage should be applied to the Occupancy Expenses is manifestly implausible.
There is another feature of the applicant’s calculations which the Tribunal has some difficulty comprehending. The table of expenses and the work-related percentage and amounts claimed which was submitted to the Commissioner in the applicant’s email of 4 September 2022 do not apply a work-related percentage claim of 31%. The amounts claimed range from 25% for rates due to Yarra Valley Water (and council rates) and 100% for repairs and cleaning the office. It is not apparent to the Tribunal how these individual percentages were arrived at. There is reference in that submission to a Notice of decision from the Australian Taxation office issued 20 August 2014.[20] However, the Tribunal cannot see how that document, if it is otherwise relevant, which is not clear, could in some way bind the Commissioner in the way the applicant seeks to do.
[20] This contention is also contained at T5, 99. The notice of decision referred to was not attached to that email.
In cross-examination for instance, the applicant was probed about his claim of 50% for council bins. He boldly stated that half of the bins were for business use. Quite understandably, it was suggested to him that all of his work was done electronically. His response was that there were, ‘still scraps of paper.’ To suggest that the applicant from his business activities which clearly were overwhelmingly of an electronic nature, would generate the same waste as a household of 5 people, once again smacks of total unreality. It is yet again an example of the applicant’s propensity to give his evidence in a manner of exaggeration, or embellishment or unreality.
Similarly, with respect to the claim of 25% for water rates, the applicant’s evidence on this topic is extremely difficult to accept. It seems unlikely that the applicant’s business activities would use 25% of the total water consumption in a household occupied by 5 people with a swimming pool and a private garden. When this proposition was put to the applicant in cross-examination, he in an almost flippant way, stated, ‘I claimed 25% because I was told this by the ATO’. The Tribunal cannot accept this evidence.
Bearing in mind that the applicant bears the onus of proof to establish to the requisite level of satisfaction that such claimed portions are appropriate, the Tribunal considers that such claims cannot be established. On this question, it should also be observed that amongst the claims for Occupancy Expenses was 100% of repairs totalling $7,000.52. The Tribunal cannot comprehend how a claim for 100% can be made. None of those individual items of expenditure which collectively comprise the claim for Occupancy Expenses by the applicant have been apportioned at the rate of 31%. Given that they have not been apportioned at the rate of 31% and the Tribunal observes that several other percentages have been applied, the applicant has not discharged his burden of proof. To do so he would have had to satisfy the Tribunal to the requisite standard that appropriate percentages of apportionment have been applied. The Tribunal concludes that he has not done so.
Home office running expenses
The applicant has claimed three categories of expense concerning the running of his home office.[21] The total of such claims is $3,398.06 and are itemised as follows:
·Gas, $2,710.82 with a 50% apportionment, $1,355.41;
·Power, $2867.49 with a 40% apportionment, $1,147; and
·Internet, $895.65 with a 100% apportionment, $895.65.
[21] An outline of the amounts claimed by the applicant for Running Expenses are located at T2, 11.
The Respondent Commissioner made certain concessions with respect to this aspect of the applicant’s claim.
It was conceded that the Commissioner accepts the applicant undertook income earning activity from the ground floor area of the dwelling during the financial year ended June 2022.
It is also conceded by the Commissioner that running expenses incurred for a home office may be deductible where they are appropriately apportioned.
Notwithstanding these concessions by the Commissioner, the claims for Home Office Running Expenses have been disallowed on the grounds that either the applicant has not properly established an entitlement to such deductions or otherwise appropriately apportioned them between private or work-related activities.
It is not readily apparent to the Tribunal how or why the applicant has adopted the percentages for the apportionment of each of the individual items comprising this claim. As noted earlier, he did contend that 31% of the floor area of the dwelling was solely devoted to his income earning activities. The Tribunal has addressed this question earlier in these reasons and that consideration is referred to and repeated for the purposes of this aspect of his claim. There are several other factors that emerge from the material that lead the Tribunal to conclude that these Home Office Running Expenses are not deductible.
For reasons already canvassed, the Tribunal does not consider that the applicant has discharged the burden of proof cast upon him with respect to the storage room, kitchenette and bathroom. They are not used by him for work purposes. They have qualities or features of domestic or private use. It is not possible to conclude that these rooms have been used for the purposes of earning assessable income by the applicant. Therefore, the foundation of the applicant’s claim derived from a calculation of 31% of the floor space of the dwelling is fundamentally flawed.
Another reason why the Tribunal cannot accept this claim, given the percentage apportionment applied by the applicant, is that on his evidence the dwelling was occupied by 5 family members. Yet there has been a 100% claim for internet expenses, 50% for gas and 40% for power. It does not seem plausible, that given all the other members of the household, who it seems must have used these services, that these calculations are appropriate.
In cross-examination, the applicant conceded that the house had a single electricity metre and gas metre. Whilst this is in no way determinative it does point to the fact that these expenses claimed with respect to gas, and power are more probably than not of a private or domestic nature.
The applicant was probed in cross-examination about the claim for a deduction amounting to 50% of the gas bill. He was asked how such a claim was necessary or related to his employment activities when there were five people living in the house using gas for cooking and heating. His response was, ‘I am the only person in the house now using heating.’ When further probed as to how he calculated 50% of the gas usage is being business-related or work-related he contended that the biggest gas appliance in the house was a gas heater which he needed to turn on in full during the colder months whilst he was working. He also stated, ‘I am the biggest user of gas.’ He even went so far as to say that he was still using gas hot water as well whilst he was working because he washed his hands.
Concerning the 100% claim for the internet, the applicant contended that it was exclusively used for his business purposes. In cross-examination, he was probed as to whether the other members of the household use the internet connection concerned. The applicant denied this and stated that those other members of the household had their own internet connections which were not land-based. He described them as 4G and 5G. The Tribunal finds this evidence on the part of the applicant very difficult to accept. Logically, one would have thought that if there were one internet connection, and these days more likely than not to be broadband, even quite possibly fibre to the home, there seems no rational reason why the other members of the household would not use that internet connection rather than maintain separate internet accounts.
Once again, this evidence of the applicant has an air of total unreality to it. The Tribunal cannot accept it.
Another contention advanced by the respondent Commissioner, which the Tribunal accepts, is that the applicant has not, once again in the discharge of the burden of proof cast upon him, properly established to the satisfaction of the Tribunal the exact time that he did spend in the principal room used by him for work purposes. Previously, in these reasons, observations have been made concerning the applicant’s evidence about the number of hours per day and days per year that he worked. This evidence has been rejected by the Tribunal, and in the absence of any other positive evidence establishing the precise hours he did work, it is not possible to reach a conclusion concerning such time for the purposes of calculating some other alternative method of apportionment.
The Commissioner did also submit that in undertaking a proper exercise to calculate the proportion of running expenses incurred in connection with earning assessable income other methods were open to the applicant. The Tribunal agrees with this submission. One approach postulated by the Commissioner which would enable such calculation to be achieved with a reasonable degree of accuracy was for the applicant to have maintained, or adopted, the logbook method of recording exact hours worked at home. When those hours were recorded for the entire financial year, an appropriate multiplier could be applied to it relying on a correct percentage of the floor space of the dwelling devoted to such income earning activities. This has not been done.
Given these considerations, the Tribunal accepts the contention of the respondent Commissioner that it is simply not possible for this Tribunal to arrive at any other reasonable apportionment of each of the constituent parts of this claim for Home Office Running Expenses. The applicant has not discharged the burden of proof cast upon him. This is because such expenses:
a)were not wholly incurred in gaining or producing the applicant’s assessable income as required by s 8-1 (1)(a) of the ITAA; and/nor
b)were losses or outgoings of a private or domestic nature within the meaning of s 8-1(2)(b) of the ITAA; and
c)in any event such Home Office Running Expenses have not been properly apportioned in a way that enables the Tribunal to reach a conclusion as to an alternative and proper basis for apportionment.
Plant and Equipment Expenses
The amount claimed by the applicant for this category of expenditure or outgoings was $10,348.97. It was said by him to comprise ‘Office IT: computer parts-office computer plant.’ He claimed a 100% deduction.[22]
[22] See, an email from the applicant to the respondent Commissioner of 4 September 2022 which includes these details, T5, 99.
Following the audit, the Respondent Commissioner allowed as permissible deductions for these outgoings an amount in the sum of $4,324.59. There is a challenge by the applicant to the remaining amount of $6,024.38 that was disallowed by the respondent.
In addressing this aspect of the applicant’s claim to deductions the respondent Commissioner, quite understandably, directed the Tribunal’s attention to the response to the section 353-10 Notice by his employer. In that response it was stated that the applicant was:
(a)provided with “computer equipment (laptop and monitors etc), but not other tools, materials and equipment that they may use to work from home (desk, chair, etc)”;
(b)reimbursed for tools, materials, and equipment expenses; and
(c)able to claim reimbursement for tools, materials and equipment expenses.[23]
[23] R SFIC dated 12 April 2024, 20.
One should observe, yet again, that this response from the applicant’s employer to the section 353-10 Notice does not sit well with the claims that he has made for the items of expenditure falling within this category or class.
Another feature of this component of the applicant’s claim to deductions are that the evidence in support of the lump-sum of $10,348 is largely non-existent. There was a distinct lack of corroborating documentary evidence in support of the majority these claims. What documentary material there was related to relatively small amounts of expenditure save for a mobile phone, being a Samsung Galaxy S22+ and screen cover.
In cross-examination when this paucity of documentary evidence was put to him the applicant robustly stated, ‘that is completely fabricated’. Apart from being non-responsive to the question at hand, it did not assist the applicant’s case at all. He must have known better. Further features of the applicant’s evidence in cross-examination concerning this aspect of the claim are also puzzling. The Respondent Commissioner had allowed several items of expenditure within this category or class of claimed deductions. Included in the allowed deductions were claims for 3 gaming chairs, 3 gaming keyboards and 3 gaming mice in that financial year. This was raised with the applicant, and he rather boldly stated, ‘I don’t admit that I bought 3 gaming mice’. Later he qualified this response by saying that he purchased 2 gaming mice and 1 normal mouse. This really was not helpful to the Tribunal, let alone the applicant’s case, and yet again, was an unsatisfactory feature of his evidence.
It is hardly a novel proposition that for expenditure or outgoings incurred by a taxpayer to be an allowable deduction as an outgoing incurred in gaining or producing assessable income it must be relevant to that end. Incurred in gaining or producing assessable income means in the course of gaining or producing such income. The Tribunal simply is unable, on the relatively limited material before it, to reach a conclusion that this class or category of expenditure claimed was indeed incidental and relevant to the earning of the applicant’s assessable income.
Therefore, by reason of the matters addressed above, the Tribunal accepts the respondent Commissioner’s contentions that with respect to Plant and Equipment Expenses claimed by the applicant it cannot conclude that they are allowable deductions. There are several reasons for this.
He has not discharged the onus of proof cast upon him under s 14ZZK of the TAA, by producing sufficient evidence, including appropriate documentary records, which might more accurately cast light on the merits of these claims for deductions. Alternatively, if such expenditure was incurred with third parties, there is simply no evidence from them that might otherwise corroborate these claims.
Further, the applicant has not satisfied the Tribunal to the requisite standard that the classes of expenditure constituting Plant and Equipment Expenses were incurred in gaining or producing assessable income as required by s 8-1(1) of the ITAA.
Finally, concerning this class or category of expenditure claimed as a deduction by the applicant, he has not satisfied the Tribunal that they were not losses or outgoings of a private or domestic nature as contemplated by s 8-1(2)(b) of the ITAA.
Consumable expenses
The applicant has claimed a deduction for a range of expenditure which were generically described for the purposes of this application as ‘consumables’ or ‘consumable expenses’. In support of this claim for a deduction the applicant included in his email to the Commissioner of 4 September 2022 a significant bundle of receipts with respect to this category of expenditure.[24]
[24] See e.g., the applicant's email to the respondent Commissioner of 4 September 2022 at document T5, 94. The attached receipts comprise document T6, 104 -179.
It is not necessary to microscopically examine each and every receipt contained in that bundle submitted to the Commissioner by the applicant. However, what emerges from an examination of such receipts is that on their face they are for goods or services of a private or domestic nature. For instance, there was a music book, toilet paper, medications, private personal health insurance, milk, tea, coffee, bottled mineral water, sugar and insect spray. There was even a claim for fees incurred in VCAT. He has made a claim for a deduction of 100% of this expenditure incurred on the grounds that they were solely work-related.
The applicant was fairly searchingly cross-examined about each item of expenditure comprising this category for which a deduction was claimed. His responses to several of them varied. By way of example when he was questioned about expenditure claimed at ‘Chemist Warehouse’, which such claim included an item known as “Tiger Balm”, he said that he was told by someone at the ATO that he could claim up to $50 for medicine or a first-aid kit. Further, he stated, ‘if you have a home office you have to have a first-aid kit’. He somewhat reluctantly acknowledged that he did not purchase these items to earn an income.
There was also a claim for expenditure at Coles for bandaids. In cross examination, with respect to this claim, the applicant sought to justify it because when he carried out his own computer repairs, he cut himself. When questioned about whether he used the bandaids for personal use his response was that personal use items were kept upstairs separate from those allocated to his workplace.
To be deductible it has been long held that such expenditure must be relevant or incidental to the derivation or earning of the taxpayer’s income. As has been observed in several cases, in one sense expenditure on such items as food is always relevant to the derivation of income because a person must eat to enable them to live and therefore to work. However, that fact alone is not a sufficient connection with the derivation or earning of assessable income so as to permit a legitimate claim for a deduction to be made.
The test to be applied in determining whether the claimed expenditure is deductible depends upon determining the essential character of the expenditure in itself and not upon the fact that unless it is incurred, the taxpayer will not be able to engage in the activity from which his income is derived.[25]
[25] Commissioner of Taxation v Cooper (1991) 29 FCR 177, 183-184.
When one examines the constituent items of this claim for Consumable Expenses it has to be concluded that such expenditure or outgoings are essentially of a private or domestic nature and further, were not incurred in gaining or producing assessable income by the applicant. The essential character of such expenses are of a nature or type that are private or domestic. For instance, bottled mineral water and coffee fall into this category. By way of analogy, it cannot be seriously contended that if an employee working in a city office were to purchase coffee or mineral water during a lunch break, that such expenditure would be deductible against their taxable income.
For these reasons the applicant has failed to discharge the burden of proof cast upon him with respect to this category of expenditure known as ‘Consumable Expenses’. The Tribunal accepts the contentions of the respondent Commissioner, that the applicant has not established to the requisite standard that such expenditure was:
(a)incurred in gaining or producing his assessable income for the purposes of s 8-1(1) (a) of the ITAA; and
(b)not losses or outgoings of a private or domestic nature, for the purposes of s 8-1(2) (b) of the ITAA.
Mobile phone expenses
The applicant claimed 100% of his yearly mobile phone expenses amounting to the sum of $420. Of that sum the respondent Commissioner has disallowed $370.
The evidence before the Tribunal reveal that the applicant was the recipient of a mobile phone allowance from his employer of $420 per year.
In a submission to the respondent Commissioner, the applicant stated that he used his mobile phone 100% of the time for work-related activities. He also repeated that he is on call for a 6.00 AM to 11.00 PM seven days a week 365 days a year. Additionally, he contended that a 100% deduction for mobile phone expenses had been previously allowed in the 2014, 2019 and 2020 income years.[26]
[26]T9, 198.
During his interactions with the respondent Commissioner, the applicant was requested to provide supporting or corroborating documentation identifying both data usage and call usage of his mobile phone so as to enable consideration of whether such expenses could be properly apportioned. The applicant refused to furnish such evidence on the grounds that it was a breach of privacy of both him and his family members. He reiterated this approach when in the witness box and further, stated that he had provided all invoices and material concerning call usage and data usage. On the material before the Tribunal this was not the case. It was yet again, an unfortunate feature of the applicant’s evidence.
Further, and in the alternative, the respondent Commissioner contends that no entitlement to a deduction for mobile phone expenses arises because the applicant has been reimbursed by his employer. This fact was verified by the applicant’s employer in its response to the section 353-10 Notice.[27] Accordingly, s 51AH (1)(a)(ii) of the ITAA applies. The effect of that section is that a deduction is not allowable in favour of a taxpayer where a third party reimburses such taxpayer in respect of an outgoing incurred by them. By reason of the application of this section the applicant’s claim for a deduction of 100% of his mobile phone expenses must be disallowed.
[27] T14, 283.
By reason of the forgoing analysis the Tribunal is satisfied that the applicant has not discharged the burden of proof cast upon him with respect to the claim for a deduction for Mobile Phone Expenses. He has not established that such expenses were:
(a)incurred in gaining or producing his assessable income for the purposes of s 8-1(1)(a) of the ITAA; and
(b)not in fact losses or outgoings of a private or domestic nature, for the purposes of section 8-1(2)(b) of the ITAA; and
(c)otherwise not deductible as the applicant received reimbursement for such sums incurred with respect to them.
Motor Vehicle Expenses
The sum of $5,327.93 is claimed for Motor Vehicle Expenses. A claimed business use percentage of these expenses sought by the applicant as a deduction is 97.5%.
In support of his claim for a deduction amounting to 97.5% of his total Motor Vehicle Expenses, the applicant produced a logbook which contains entries recorded over a period of 12 weeks from 7 April 2022 to 30 June 2022.
Section 28-15 of the ITAA specifies the methods to be adopted in calculating deductions for motor vehicle expenses. They are:
(a)the “cents per kilometre” method; and
(b)the “logbook” method.
For the sake of completeness, reference should be made to the fact that subdivision is 28-G and 28-H of the ITAA outline the requirements cast upon a taxpayer in keeping a logbook when a claim for a deduction is made for the use of a motor vehicle for the purposes of producing assessable income. In short, those requirements are that the logbook should be kept for a 12-week period, entries should be made in it recording journeys relevant to producing assessable income and odometer readings with respect to such journeys. Once completed for that 12-week period the entries recorded in the logbook can be totalled to enable an arithmetic calculation to be made of the percentage of business use. That percentage is then applied to enable the taxpayer to make a claim for a deduction in the relevant income year.
A copy of the logbook maintained by the applicant for his BMW motor vehicle was in evidence.[28] As was contended by the respondent Commissioner, an examination of the entries in the logbook reveal that the main or dominant purpose of the applicant’s motor vehicle usage was to purchase work related items at a local shopping centre. Many of these items were in fact the Consumable Expenses, which for the reasons referred to above have been held by the Tribunal not to be deductible.
[28]T10, 237.
Several other entries in the logbook are recorded for the purposes of a ‘refill’ which appears to be for the purposes of purchasing fuel.
Another matter that of course is relevant to determining this aspect of the applicant’s claims for deduction arises from his employer’s response to the section 353-10 Notice. The employer was specifically asked whether the applicant used his private vehicle for work purposes. The response to such a question was ‘Not Applicable’.[29] Additionally, Clause 12 Travel and Expenses of the applicant’s Contract of Employment, provides amongst other things, that the applicant would be reimbursed for all reasonable expenses incurred in the proper performance of his duties.[30] Clearly, the applicant’s employer during the relevant income year concerned has not directed or otherwise required the applicant to use his private motor vehicle in connection with his employment.
[29] T14, 283.
[30] T13, 281.
There are in the logbook several entries that are described as ‘Client service call’. Where the entries record a ‘Client service call’ the name and address of the client is not identified.[31] In properly completing such a logbook one would expect the name and address of the client, upon whom a service call had been made by the applicant, to be recorded. The respondent Commissioner invited the applicant to provide further details of such entries. Despite such request, he has failed or declined to do so. It seems surprising that the applicant is not able to provide such fundamental evidence in support of a claim for a deduction with respect to such a journey. In failing to properly record the name and address of the client upon whom he made a service call and failing or declining to produce further details concerning such service calls, the applicant has not discharged the burden of proof cast upon him.
[31] T10, 237 – 240.
In cross examination, the applicant was probed about several aspects of the claim for Motor Vehicle Expenses. With respect to several entries, he confirmed that the journeys were undertaken to buy office supplies. As noted earlier, the purchase of such supplies being claims for expenditure which the Tribunal has found were not a legitimate deduction. The provisions of Clause 12 of his Contract of Employment were specifically put to him. He was asked whether he accepted that such a contract allowed him to claim for work related travel. In puzzling evidence, his response was: ‘[n]o it does not. It is only for particular work travel’. On a true and proper construction of Clause 12 of the applicable Contract of Employment one cannot accept this evidence from the applicant.
It was then further put to him that in the 2022 financial year he did not travel for any valid work purposes. The applicant responded by stating that he did travel for work purposes and that his employer would not allow him to be reimbursed. This explanation appears not to have been provided prior to the applicant giving his evidence at the hearing of the matter. To the Tribunal it bears the hallmarks of a comparatively recent invention. Specifically, he said his employer would not reimburse him for travel to a shopping centre. It was then put to him that such journeys were of a private or domestic nature which he steadfastly denied.
Overall, when one considers the evidence before the Tribunal with respect to this category or class of expenditure being for Motor Vehicle Expenses, they are outgoings of a private or domestic nature. The essential characteristics of this expenditure do not to the Tribunal bear the qualities or hallmarks of being incidental and relevant to the gaining or producing of assessable income.
Therefore, the Tribunal accepts the contentions of the respondent Commissioner that the applicant’s claim for Motor Vehicle Expenses are not deductible in the relevant income year because the applicant has not discharged his burden of proof in establishing they were:
(a)incurred in gaining or producing his assessable income for the purposes of s 8-1(1) (a) of the ITAA; and
(b)not in fact losses or outgoings of a private or domestic nature for the purposes of s 8-1(2)(b) of the ITAA.
Spouse Expenses
The applicant has claimed a total of is $11,420 for payments made to his spouse for tax management, office cleaning and document management/storage. A claim for a deduction of 100% of this sum has been made by him.
The applicant’s spouse rendered to him invoices for each of the items of expenditure that comprise this claim for a deduction.
With respect to the claim for a deduction in the sum of $1,640 being for ‘[t]ax management’ the respondent Commissioner highlights that a taxpayer is precluded from claiming a deduction in any sum for the management of their tax affairs unless the provider of such services is a registered tax adviser under s 25-5(2)e of the ITAA. There is no evidence to suggest that the applicant’s spouse is such a person or is so qualified. Therefore, the Tribunal considers that this claim for a deduction must be disallowed.
Whilst the applicant’s spouse may well have performed services for him at his request described as ‘document management’, for her to render an invoice for same in the setting described has a degree of artificiality to it. It may well be that his spouse rendered services of such a nature which was of value to him, however, such services were undertaken for his convenience and had the qualities of being private or domestic in nature. They are therefore not deductible. Insofar as such services were rendered by the applicant’s spouse to him there is an element of private convenience to them. Also, the applicant’s spouse did not give evidence about what she actually did in rendering such services described as ‘[d]ocument management/storage’. This may have assisted the Tribunal in resolving the question.
With respect to this element of the claim for a deduction, the Tribunal does consider the observations of McCabe SM (as he then was) in Re: France and Federal Commissioner of Taxation concerning a similar matter are apposite.[32] The Senior Member explained that in considering these situations one must look to the totality of the relationship when characterising it. Following that reasoning the Tribunal considers that in this case the relationship between the applicant and his spouse was just that, a spousal relationship in which one of the spouses attended to a variety of family affairs in support of an income earning member of the household. Such outgoings were therefore of a private or domestic nature and not deductible.[33]
[32] (2010) 80 ATR 927, [18] ('France’).
[33] See also reference to Wells v Federal Commissioner of Taxation [2000] AATA 920, [20] - [24].
Another matter raised by the respondent Commissioner which does shed some light on this aspect of the applicant’s claim for deduction with respect to ‘[d]ocument management/storage’, also arises from the terms of the Contract of Employment. There is a fairly carefully drafted clause concerning ‘Confidential Information’. The clause casts on the applicant an obligation to keep all documents and information confidential and not to share them unless disclosure is necessary for the performance of his obligations under the contract or required by law. He is not permitted to delegate these duties to other parties. Therefore, it is contended that insofar as his spouse may have undertaken activities with respect to confidential documentation, they were not done for the purposes of gaining or producing the applicant’s income. There is some strength to this consideration.
Also, another feature of the applicant’s employment that really was not canvassed in the evidence to any significant extent should be mentioned. It was readily acknowledged by the applicant in cross examination that the overwhelming majority of his work was in electronic form on a computer. As previously recorded, he did say that there were scraps of paper produced which had to be disposed of. However, he did not give any evidence indicating that in the course of discharging his duties as an employee he generated paper or hard copy documents that were required to be filed, held or otherwise stored, nor did he provide any details, if they were, of just how this was achieved. This significant gap in the evidence on the part of the applicant also leads the Tribunal to conclude that, concerning this portion of the claim for Spouse Expenses, the applicant has not discharged his burden of proof.
Finally, with respect to the claim for office cleaning of $6,480.00 paid to his spouse the Tribunal cannot realistically see how this is an allowable deduction. Once again, whilst any cleaning services provided by the applicant’s spouse would have been of some value to him, such services are inherently of a private and domestic nature. Their essential character in this setting, does not lead one to conclude that they are sufficiently connected to the applicant’s activities in gaining or producing assessable income. Once again one is minded to reiterate the observations of McCabe SM in France that the totality of the relationship between the parties is a spousal relationship in which one of the spouses attended to the management of the family’s affairs. In this instance cleaning the house. It is therefore essentially a private and domestic task.
Therefore, the Tribunal accepts the contentions of the respondent Commissioner that the applicant’s claim for Spouse Expenses are not deductible against his employment income because he has failed to discharge the burden of proof cast upon him. He has failed to establish that such expenses were:
(a)incurred in gaining or producing his assessable income for the purposes of s 8-1(1) (a) of the ITAA; and
(b)not in fact losses or outgoings of a private or domestic nature, for the purposes of s 8-1(2)(b) of the ITAA.
CONCLUSION AND DECISION
By reason of the foregoing matters the Tribunal considers that the correct and preferable decision is to affirm the objection decision made by the respondent Commissioner of Taxation and subsequent assessment dated 28 September 2023. Such decision is affirmed.
I certify that the preceding 134 (one hundred and thirty-four) paragraphs are a true copy of the reasons for the decision herein of R Cameron, Senior Member
......................[SGD]...........................
AssociateDated: 10 October 2024
Date(s) of hearing: 15 July 2024 Applicant: Self-Represented Advocate for the Respondent: Mr Lachlan Molesworth, Counsel Solicitors for the Respondent: Ms Vivienne Sasse and Mr Preesan Pillay, Litigation branch of the Australian Tax Office
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