Barkoczy, Stephen --- "Deductions for Travel between Home and Work" [1999] JlATax 26; (1999) 2(5) Journal of Australian Taxation 366
DEDUCTIONS FOR TRAVEL BETWEEN HOME AND WORK
By Stephen Barkoczy[*]
This article examines several of the leading cases dealing with claims for deductions for expenditure on travel between a taxpayer’s home and his or her work or business. In particular, the article evaluates the Full Federal Court case of FC of T v Payne 99 ATC 4391 which the Commissioner has sought special leave to appeal to the High Court.
1. INTRODUCTION
There is no doubt that the general deduction provision, formerly contained in s 51(1) of the Income Tax Assessment Act 1936 (Cth) ("ITAA36"), has spawned much litigation. A prominent Queen's Counsel has lamented that "[i]t is amazing that a provision couched in such simple terms...has given rise to so much jurisprudence."[1] One of the issues frequently in dispute between taxpayers and the Commissioner concerns the deductibility of travel expenditure.[2] This article examines the way in which the general deduction provision treats a specific category of travel expenditure, namely expenditure on travel between a taxpayer's home and his or her work. The article focuses on the leading judicial pronouncements on this issue[3] culminating most recently in the Full Federal Court decision in FC of T v Payne.[4]
2. THE GENERAL DEDUCTION PROVISION
As part of the Tax Law Improvement Project's rewrite of the tax laws, s 51(1) has been replaced with s 8-1 of the Income Tax Assessment Act 1997 ("ITAA97") from the commencement of the 1997/98 income year. The new provision essentially retains most of the wording of its predecessor and is only stylistically different. The Explanatory Memorandum accompanying the Bill that introduced the rewritten provision expressly indicated that the introduction of the new provision would not operate to effect any change in the law.[5] As a result, the vast body of existing common law dealing with s 51(1) will be equally relevant to the interpretation of s 8-1.
The general deduction provision provides a taxpayer deductions for losses or outgoings to the extent that they are:
1. "incurred in gaining or producing" the taxpayer's assessable income (s 8-1(1), corresponding to the "first positive limb" of former s 51(1)); or
2. "necessarily incurred in carrying on a business for the purpose of gaining or producing" the taxpayer's assessable income (s 8-1(2), corresponding to the "second positive limb" of former s 51(1)).
The general deduction provision denies deductions where the relevant losses or outgoings are of a capital, or private or domestic nature, or are incurred in gaining exempt income (s 8-1(2)(a) to (c), corresponding to the "negative limbs" of s 51(1)). The new provision also expressly denies deductions where a provision of "this Act"[6] prevents the claiming of a deduction (s 8-1(2)(d)).[7] This exclusion has particular relevance in the context of travel expenditure generally as the provisions contained in Div 900 of the ITAA97 specifically deny deductions for certain categories of expenditure unless substantiation requirements have been complied with. Whilst this article does not intend to deal specifically with the intricacies of the substantiation provisions, it is important to bear in mind that these provisions[8] deny deductions for a "work expense",[9] a "car expense"[10] and a "business travel expense"[11] unless specific documentary evidence[12] and, in certain circumstances, travel records[13] have been kept.[14] Moreover, it is also worthwhile bearing in mind that in relation to car expenses, deductions must be calculated under one of four methods[15] prescribed under Div 28 of the ITAA97.[16]
3. GUIDING PRINCIPLES
Before proceeding to examine the way in which the courts have dealt specifically with expenditure on travel between a taxpayer's home and work, it is useful to establish the guiding principles adopted by the courts in analysing key aspects of the general deduction provision.[17] In particular, it is instructive to focus on the way in which the judiciary has ascertained whether or not a requisite nexus or connection exists between an outgoing[18] and the taxpayer's income producing or business activities. The courts have demonstrated that in undertaking this process, they have focused on "the object which the person making the expenditure has in view."[19] The courts have granted deductions where expenditure is incurred "in the course of"[20] gaining or producing assessable income or where it is "appropriate" or "plainly adapted for" a business activity.[21] It has been observed that whether or not this is the case depends upon whether or not the expenditure is viewed as "incidental and relevant to the operations or activities regularly carried on for the production of income."[22] This in turn has prompted an analysis of the "nature or character" of the expenditure.[23] In the context of home to work travel expenditure specifically, the courts have been especially concerned with issues of characterisation as is illustrated by the leading case on the subject, Lunney v FC of T &; Hayley v FC of T.[24]
4. THE GENERAL RULE
In Lunney & Hayley, Dixon CJ observed that "the view has always prevailed that expenses of travelling from home to work or business and back again are not deductible."[25] This view finds its roots in various United Kingdom authorities[26] including the Court of Appeal decision in Newsom v Robertson (Inspector of Taxes)[27] in which a barrister was denied deductions for expenditure incurred in travelling between his home and his chambers. The Court of Appeal focused on the object of the taxpayer's journeys and found that they had not been undertaken for the purpose of his profession but, rather, because the taxpayer lived away from his chambers.[28] The Court distinguished between "living expenses" and "business expenses". In the words of Lord Denning:
A distinction must be drawn between living expenses and business expenses. In order to decide into which category to put the cost of travelling, you must look to see what is the base from which the trade, profession, or occupation is carried on... In the case of a barrister, it is his chambers. Once he gets to his chambers, the cost of travelling to the various courts is incurred wholly and exclusively for the purposes of his profession. But it is different with the cost of travelling from his home to his chambers and back. That is incurred because he lives at a distance from his base. It is incurred for the purposes of his living there and not for the purposes of his profession, or at any rate not wholly or exclusively, and this is so whether he has a choice in the matter or not. It is a living expense as distinct from a business expense.[29]
The Newsom decision was expressly followed by a majority of the High Court[30] in Lunney & Hayley to deny an employee ship joiner and a self-employed dentist deductions for their respective expenditure incurred in travelling between their homes and places of work. The High Court found that the relevant outgoings did not have the "essential character" of income-producing or business expenditure. In reaching this conclusion, the High Court declined to adopt a "but for" line of reasoning and rejected the argument that just because a taxpayer needed to get to work to earn income, the expenditure in getting to work should be treated as deductible.[31] In a joint judgment, Williams, Kitto and Taylor JJ reasoned as follows:
The question whether the fares which were paid by the appellants are deductible under s 51 should not and, indeed, cannot be solved simply by a process of reasoning which asserts that because expenditure on fares from a taxpayer's residence to his place of employment or place of business is necessary if assessable income is to be derived, such expenditure must be regarded as "incidental and relevant" to the derivation of such income ... It is, of course, beyond question that unless an employee attends at his place of employment he will not derive assessable income and, in one sense, he makes the journey to his place of employment in order that he may earn his income. But to say that expenditure on fares is a prerequisite to the earning of a taxpayer's income is not to say that such expenditure is incurred in or in the course of gaining or producing his income. Whether or not it should be so characterised depends upon considerations which are concerned more with the essential character of the expenditure itself than with the fact that unless it is incurred an employee or a person pursuing a professional practice will not even begin to engage in those activities from which their respective incomes are derived.[32]
Their Honours concluded with the following remarks:
Expenditure of this character is not by any process of reasoning a business expense; indeed, it possesses no attribute whatever capable of giving it the colour of a business expense. Nor can it be said to be incurred in gaining or producing a taxpayer's assessable income or incurred in carrying on a business for the purpose of gaining or producing his income; at the most, it may be said to be a necessary consequence of living in one place and working in another. And even if it were possible - and we think it is not - to say that its essential purpose is to enable a taxpayer to derive his assessable income there would still be no warrant for saying, in the language of s 51, that it was "incurred in gaining or producing the assessable income" or "necessarily incurred in carrying on a business for the purpose of gaining or producing such income".[33]
The outcome in Lunney & Hayley arose because the majority adopted a narrow approach to characterisation of the relevant expenditure. Essentially, the Court viewed the expenditure as being of a kind which was "too preliminary"[34] to be treated as a working or business expense. Expressed in another way, the Court treated the expenditure as a "cost of getting to work or business" rather than a "working or business expense". Whilst the restricted approach to characterisation adopted by the Court clearly prevents the opening of "floodgates" for travel related claims and, in this respect, the conclusion might be justified on policy grounds, one has sympathy for the taxpayer's simple "but for" reasoning. After all, the reason why one travels to one's work or business is to earn income and the purpose underlying the expenditure is therefore clear.[35] However, as Lunney &; Hayley and subsequent cases demonstrate,[36] "purpose" is not the test for deductibility, rather the issue is one of "characterisation".[37]
The restricted approach to characterisation of work related expenditure has transcended to other related areas.[38] For instance, in Lodge v FC of T[39] Martin v FC of T[40] and Jayatilake v FC of T[41] the relevant courts denied deductions for child-minding expenditure, the incurring of which enabled the respective taxpayers to engage in work.[42] Likewise, in Handley v FC of T,[43] expenditure relating to a barrister's home study[44] was held not to be deductible on the basis that it was seen as being "referable to the home".[45] A similar conclusion was reached in FC of T v Forsyth[46] where a barrister was denied deductions for rent paid for the use of a study in his home which was owned through his family trust. Yet another illustration is found in FC of T v Cooper[47] where a professional footballer who was instructed by his coach to increase his food and drink intake so that he could play football at his ideal weight was denied deductions for his extra food and drink costs. A majority of the Full Federal Court[48] held that the relevant expenditure was not "related to the income-producing activities of playing football or training"[49] – that is the taxpayer was employed to "play football, not to consume food and drink."[50]
When one reads the above quoted passages from the joint judgment in Lunney & Hayley, it is evident that in determining the "essential character" of expenditure the Court was actually focusing on its "relevance" to the taxpayer's income producing activities rather than whether or not it was private or domestic in nature.[51] Nevertheless, in a number of the cases mentioned in the preceding paragraph, the courts relied on Lunney & Hayley to characterise the relevant expenditure as being of a private or domestic expenditure. For example, in Handley, Mason J (as he then was) stated:
Expenditure related to the study is therefore referable to the home. The "essential character of the expenditure", to take up the expression used in Lunney v FC of T ... is therefore that of a "capital, private or domestic nature".[52]
Professor Parsons has observed that on this analysis:
The determination of "essential character"... goes not to determination of relevance but to the question whether an expense that may be relevant is to be denied deduction because of the private or domestic exception.[53]
It is evident that whilst the essential character test formulated in Lunney & Hayley was actually concerned with the nexus requirement under the positive limbs of the general deduction provision, it has been transposed to apply to the negative limbs of the provision. Whichever way the test is used, its result will be consistent. Expenditure which is characterised as not relevant or too preliminary to the taxpayer's income producing or business activities will be just as much non-deductible as expenditure which satisfies the positive limbs but which is characterised as private or domestic in nature. In any event, the issue would appear to be a moot point given Menzies J's observations in FC of T v Hatchett,[54] where his Honour stated:
It must be a rare case where an outgoing incurred in gaining assessable income is also an outgoing of a private or domestic nature. In most cases the categories would seem to be exclusive.[55]
5. ITINERANT TRAVEL
The rigours of the Lunney & Hayley principle have been curtailed to some extent by a number of decisions that have distinguished the case and relaxed the rigidity of what might appear, at first glance, to be a "blanket rule" enunciated by the High Court. For instance, the courts have been prepared to grant deductions for "itinerant travel"[56] between home and work where the home is regarded as a "base" from which work-related activities take place. Examples of this category of exception are found in a trilogy of well-known cases handed down in the 1970's, namely FC of T v Collings;[57] FC of T v Ballesty[58] and FC of T v Wiener.[59] Before examining these cases in detail, however, it is worthwhile to first examine a selection of leading United Kingdom authorities upon the subject which coincidentally were also handed down in the 1970's.
5.1 The United Kingdom Authorities
The relevant Australian authorities rely (in part) on the celebrated House of Lords decision of Owen v Pook[60] involving a claim for travel expenses incurred by a doctor in travelling between his home and the hospital where he worked. The doctor was on stand-by duty to deal with emergencies and usually gave telephone instructions to hospital staff regarding the treatment to be provided to patients before setting out for the hospital. A majority of the House of Lords held that the taxpayer performed the duties of his office in two places, namely the hospital and the place where he received telephone calls. The majority found that the taxpayer commenced his duties at the time of receiving the telephone calls and therefore his expenditure in subsequently travelling to hospital was deductible. The following passage from Lord Guest's judgment encapsulates the essence of the majority's reasoning:
In the present case there is a finding of fact that Dr. Owen's duties commenced at the moment he was first contacted by the hospital authorities. This is further emphasized by the finding that his responsibility for a patient began as soon as he received a telephone call and that he sometimes advised treatment by telephone ... There were thus two places where his duty is performed, the hospital and his telephone in his consulting room. If he was performing his duties at both places, then it is difficult to see why, on the journey between the two places, he was not equally performing his duties ... It follows that he had to get from his consulting room to the hospital by car to treat the emergency. The travelling expenses were, in my view, necessarily incurred in performance of the duties of his office.[61]
Owen v Pook was examined in another well-known House of Lords decision, Taylor v Provan.[62] This case concerned a Canadian brewery takeover and merger specialist who worked in various countries, including the United Kingdom. The House of Lords held that the taxpayer had several places of work rather than a fixed base and that the travelling expenditure was therefore deductible. In a well-known passage Lord Wilberforce stated:[63]
It is only if the job requires a man to travel that his expenses of that travel can be deducted, i.e. if he is travelling on his work, as distinct from travelling to his work. The most obvious category of jobs of this kind is that of itinerant jobs, such as a commercial traveller. It is as a variant upon this that the concept of two places of work has been introduced: if a man has to travel from one place of work to another place of work, he may deduct the travelling expenses of this travel, because he is travelling on his work, but not those of travelling from either place of work to his home or vice versa. But for this doctrine to apply, he must be required by the nature of the job itself to do the work of the job in two places: the mere fact that he may choose to do part of it in a place separate from that where the job is objectively located is not enough.
The above passages sit comfortably alongside observations made by Brightman J in another United Kingdom case, Horton v Young,[64] where his Honour specifically referred to the concept of itinerant travel:
... where a person has no fixed place or places at which he carries on his trade or profession but moves continually from one place to another, at each of which he consecutively exercises his trade or profession on a purely temporary basis and then departs, his trade or profession being in that sense of an itinerant nature, the travelling expenses of that person between his home and the places where from time to time he happens to be exercising his trade or profession will normally be ... wholly and exclusively laid out or expended for the purposes of that trade or profession. I have used the adverb "normally" because every case must to some extent depend on its own facts.[65]
5.2 Collings
The House of Lords decisions in Taylor v Provan and Owen v Pook were followed by the Supreme Court of New South Wales in the first of the three Australian cases mentioned above. In Collings, a computer consultant who was on "24 hours call" and a "trouble-shooter" on a major project, was allowed deductions for expenditure incurred in travelling between her home and her employer's office outside normal working hours. Rath J found that the facts of the case gave rise to special circumstances which permitted the deductions. His Honour noted that the taxpayer often received work related telephone calls and gave advice over the telephone at any time of the day or night; and that where she could not resolve a problem over the telephone, or by use other portable terminal, she would return to the office from wherever she might have been. These circumstances led Rath J to conclude that the taxpayer had, in fact, two places of work, being her employer's office as well as her home.[66] The Court was able clearly to distinguish Newsom v Robertson which involved a taxpayer working from home based on "freeedom of choice" from the facts of the case where the nature of the taxpayer's employment mandated travel between home and work. Rath J took a pragmatic approach and noted that "it would, in a practical sense, be necessary for any person on duty 24 hours a day seven days a week to incur travelling expenses."[67] His Honour continued with the key segment of his judgment as follows:
... the journeys to and from home were made necessary by the very nature of the employment and of the taxpayer's duties. The taxpayer here, as much as in Taylor v Provan, had a "very special" employment ... She was not really in a position similar to those "thousands of employees" that Lord Donovan referred to (in Owen v. Pook [(1970) AC 244] p. 261) who have to be on stand-by duty at their homes and are required to obey a summons to cope with some emergency. It may or may not be that those "thousands of employees" cannot deduct the expenses of emergency travel; but the case of the present taxpayer is clearly different, for she was engaged upon a special assignment, and was continuously on duty, wherever she was. The taxpayer is not in this case choosing to do part of the work of her job in two separate places (cp. Lord Wilberforce in Taylor v Provan, at p. 215). Unless she were to spend all her time in the office with the computer, she must have more than one place of work. Hers is not the freedom of choice of a barrister who does some of his work at home (Newsom v Robertson (1953) 1 Ch 7). Her double work-location is not only not merely colourable, but the two places of work are a necessary obligation arising from the nature of her special duties ..."[68]
The outcome in Collings is not surprising given the close resemblance of the facts with those considered in Owen v Pook. In this respect, Rath J's conclusion of treating the case as an exception to the Lunney & Hayley principle would seem to be warranted. It is a little more difficult, however, to be so convinced by the circumstances involved in Ballesty.
5.3 Ballesty
In Ballesty, the Supreme Court of New South Wales took a broad view of the "base of operations" doctrine to conclude that a part-time professional footballer was entitled to deductions for expenditure incurred in travelling by car between his home and training grounds and his home and matches played on his home ground.[69] Waddell J held that the taxpayer's home was his base of operations from which he travelled as required under the terms of his contract. His Honour found that it was necessary for the taxpayer to travel by car between his home and his training grounds and away matches as public transport was not suitable since he needed to carry heavy and cumbersome football gear (weighing between 12 to 20 pounds) with him and this would detract from his effective service to the club. His Honour stated:
The occasion of the expenditure was, therefore, the necessity to comply with the terms of his contract and to fit himself to make the best contribution he could to the winning of the match or to the success of the training sessions to or from which he was travelling.[70]
It is submitted that Waddell J's conclusion represents a widening of the earlier view expressed by the same Court in Collings case.[71] Certainly, it is submitted that the facts in Ballesty are clearly distinguishable from those in Collings[72] where the taxpayer actually worked from home in that she answered telephone calls there. One wonders what (if any) actual duties of employment Ballesty performed at home. In this respect, in order to rationalise the case with Collings, one must place special weight on the finding that the use of the car for travelling between home and the relevant grounds was seen as necessary to ensure that Ballesty could perform at his best for the club.[73]
5.4 Wiener
The concept of itinerant travel is perhaps most aptly illustrated in Wiener involving a teacher engaged in a pilot scheme that required her to teach at five different schools during the day and use her home as a base for preparing lessons and keeping materials. The relevant issue in the case was whether she was entitled to deductions for travel from her home to the first school of each day and between the last school of each day and her home.[74] In holding that she was, the Western Australian Supreme Court found that the taxpayer's job required her to travel (indeed, it was an implied term of her employment that she provide her own means of transport) and that her duties were therefore inherently of an itinerant nature. According to Smith J, the taxpayer was involved in the performance of her duties from the moment she left home to the moment she returned. The practical approach to resolving the issue in the case is reflected in the following passage from his Honour's judgment:
Viewed objectively, it does not seem to me to be open to question that the taxpayer would not have been able to perform her duties without the use of her motor vehicle. On four of the five working days the taxpayer's contract of employment required her to teach at not less than four different schools and to comply with an exacting timetable which kept her on the move throughout each of those days. The nature of the job itself made travel in the performance of its duties essential, and it was a necessary element of the employment that on those working days transport be available at whichever school the taxpayer commenced her teaching duties and that transport remained at her disposal throughout each of those days. It was not said by the taxpayer in evidence that it was an express term of her employment that she provide her own means of transport, but it appears to have been tacitly understood that she would do so, as she was paid an allowance by her employer for the use of her motor vehicle in travelling between schools.[75]
5.5 Other Cases
Many taxpayers have sought to rely on the principles developed in the above cases to argue that their travel between home and work is itinerant. They have experienced various degrees of success. For example, in Burton v FC of T,[76] a Magistrate failed to convince the Western Australian Supreme Court that he was entitled to claim deductions for expenditure on car travel between his home and the main court at which he worked. This was so despite the fact that the Magistrate had argued that:
• he required to have his car at work as he was occasionally required, at short notice, to travel to various outlying courts (although this actually occurred on no more than nine occasions during the year);
• due to the nature of his office, it was advisable for him to avoid public places, including public transport; and
• on occasions, he was required to prepare decisions at home in the evenings and he therefore used his car to carry materials between home and work.
Smith J concluded that the taxpayer's trips to outlying courts were too infrequent to justify his job being treated as inherently itinerant. His Honour noted that it was not an express or implied term of the Magistrate's employment that he have his car available for use in the performance of his duties at his principal place of work each day. Accordingly, his Honour held that the use of the car for travel between home and work was therefore a matter of personal choice.[77]
Another unsuccessful attempt made by a taxpayer to fall within the itinerant travel category is found in FC of T v Genys[78] involving a nurse engaged by an employment agency to undertake relief shifts on a sub-contract basis, often at short notice. Northrop J pointed out that "[w]hether a home constitutes a taxpayer's place of work necessarily depends on the nature and extent of the activities undertaken by the taxpayer in the home."[79] His Honour held that the mere fact that the taxpayer received telephone calls from the agency requesting her to work a particular shift was not sufficient to render her home a place of work. She was under no obligation to accept the offer of work and therefore accessibility at home was not something that could be viewed as being required of her. His Honour found that the taxpayer's duties commenced, not on receipt of the telephone call, but on her arrival at the relevant hospital. The facts in Genys are easily distinguishable from those in Collings where the taxpayer was on 24 hour call and gave instructions from home.[80] Unlike in Collings,[81] the taxpayer's home was not a place where work was performed.[82] It was only when she got to the hospital that she commenced to perform work and for this reason, when travelling from home, she was not travelling on work but merely travelling to work.
The result in Genys might be contrasted with that in Kerry v FC of T[83] involving a casual on-course totalisator operator who was required to attend more than one racetrack during a day. The Administrative Appeals Tribunal distinguished Genys and granted the taxpayer a deduction for her home to work travel on the basis that she had "shifting places of work" notwithstanding that she did not use her home as a "workbase". An identical conclusion to that reached in Kerry was arrived at by the Administrative Appeals Tribunal in Case T106[84] where Mr Roach held that an "off-sider" in the building industry who was continuously dispatched to sites at various locations was an itinerant worker and therefore allowed to claim home to work travel expenditure. Both these Administrative Appeals Tribunal cases have strong parallels with the facts in Weiner and are clearly supported by it.[85]
6. THE BULKY GOODS CASES
Over the years, a distinct line of authority has also emerged allowing taxpayers to claim deductions for the cost of travel expenditure between home and work where they are required to transport heavy, bulky or cumbersome goods between these places. Rather than being based on the itinerant travel concept, these cases appear to be founded on an independent pragmatic approach which takes into account the special nature of a particular taxpayer's income producing activities. For instance, deductions for travel expenditure between home and work were allowed by the New South Wales Supreme Court in FC of T v Vogt[86] to a professional musician who worked at various clubs and needed to transport heavy musical equipment.[87] Likewise, the Administrative Appeals Tribunal has allowed deductions for expenditure relating to travel between home and work in the case of a carpenter who was required to transport heavy tools (Case U29)[88] and in the case of an aircraft engineer in similar circumstances (Crestani v FC of T).[89] In a sense, the decision in Ballesty, sits more comfortably alongside these cases than the itinerant travel cases mentioned above.
It would appear that the concept of "necessity" as opposed to "convenience" underpins the results achieved in the above cases. It also explains the result in Case N78[90] where an aircraft engineer (who transported a heavy tool box between his home and work) was denied deductions for his car expenditure. The Board of Review found that the engineer could have stored his tools at work and that he transported the goods home with him largely for his own convenience.[91]
7. TRAVELLING BETWEEN TWO PLACES OF WORK WHERE ONE OF THOSE PLACES IS HOME
Collings demonstrates that the courts are quite prepared to allow deductions for expenditure on travel where the taxpayer works from home and travels to work in respect of the same job. The problems associated with the characterisation of expenditure on travel between home and work becomes more acute where the taxpayer's home is a distinct place of work separate from his or her other (unrelated) place of work conducted away from home.
The Supreme Court of New South Wales decision in Garrett v FC of T[92] and the Full Federal Court decision in FC of T v Payne[93] are authority for the principle that, as the law currently stands, travel between two distinct places of work can be deductible, even though one of those places might be the taxpayer's home.[94] The issue is, however, far from settled as the Commissioner has sought special leave from the High Court to appeal the decision in Payne.
7.1 Garrett
Garrett's case concerned a doctor who operated a farming and grazing business from his country home. The doctor was allowed deductions for expenditure incurred in using a plane to fly himself between his home and Sydney and various country centres being the places where he conducted his medical practice. The Supreme Court of New South Wales accepted that, if he had to rely on other transport, the doctor would not have been able to meet the demands of both his farming business and his medical practice. On this basis, Lusher J characterised the expenditure as essential to the taxpayer's income-earning operations which he considered involved travelling between his different places of business.[95] In the course of his judgment, Lusher J held that:
... where the travelling expenditure is incurred on journeys between different places of business or employment, the expenditure can be regarded as being a deduction within the subsection and this can be so even though one of the places of business may also be the home of the taxpayer, or the home can be so construed."[96]
His Honour relied, inter alia, on the early Victorian decision of In re The Income Tax Acts[97] to come to this conclusion. This case concerned a taxpayer that carried on a grazing business on the property upon which he lived. The taxpayer was allowed deductions for expenditure incurred in travelling between his property and Melbourne to attend meetings of companies in which he was a director. The deductions were allowed under s 9(2) of the Income Tax Act 1865 (Vic) which provided deductions for expenses that were "wholly and exclusively laid out or expended for the purpose of ... trade". The Supreme Court of Victoria granted the deductions on the basis that the travel was "necessary" and "requisite"[98] for the production of the taxpayer's income, in the sense that the derivation of such income was impossible without the travelling. In a passage that will be analysed further below, Holroyd J stated:
[The director's fees], like the profits of his business are part of his income, and the money which he employs in travelling up to Melbourne in order to earn them is expended for the purpose of enabling him to earn his income, and without paying those expenses, apparently, he could not earn it. I may say I do not understand the difference between the going and returning in such cases. If he goes to Melbourne, he comes back to where he lives; and in my opinion the expense of going and returning are both necessary for the purpose of earning the money.[99]
Lusher J was also persuaded by FC of T v Green[100] in which the Full High Court[101] had allowed a company director who lived and worked in Brisbane deductions for travelling between Brisbane and Northern Queensland to supervise and inspect his rental properties.
7.2 Payne
The decision in Garrett was relied on by the Full Federal Court majority in Payne. This most recent case concerned expenditure incurred by a Qantas pilot in travelling between his home, where he operated a deer farm, and Mascot airport from where he departed on flights. In their majority joint judgment, Sackville and Hely JJ concluded that travel from one place of business to another place of employment is capable of being deductible.[102] In coming to this conclusion, their Honours placed weight on Lusher J's above quoted comments in Garrett. In other words, the majority found that such expenditure can be treated as travel on work rather than travel to work. This conclusion is based on the view that an outgoing is deductible where it is incurred in gaining the taxpayer's assessable income generally and need not be confined to a particular job. Their Honours pointed out that "the expression 'the assessable income' in s 51(1) has been authoritatively interpreted as meaning assessable income which the relevant outgoing would be expected to produce. It is not confined to income from a particular job or a particular business."[103] In rejecting the Commissioner's contentions, the majority Justices stated:
The Commissioner accepted that travel by a taxpayer from one place of business to another is ordinarily a business or working expense, if the activities at each place are part of a single income earning operation. On this reasoning, if a solicitor in sole practice travels between his or her office in suburb A to another office of the same practice in suburb B, the expenses of travel are ordinarily deductible under the first limb of s 51(1) of the Assessment Act. Yet, according to the Commissioner, if the taxpayer has qualifications and practises as both a solicitor and (say) an engineer, the expenses of travel between his or her two separate income producing locations are not, without more, allowable deductions.
Similarly, we understand the Commissioner to accept that, where an employee is required by his or her employer to travel between two separate places of employment, the expenses of travel are normally deductible. According to the Commissioner, however, if a taxpayer finishes work for employer A at 2pm each day and then travels directly to the premises of employer B to commence a different job, the expenses of travel between the two places are not ordinarily deductible.
We find it difficult to accept that the "essential character" of the expenditure incurred by the taxpayer changes in each case simply because he or she is travelling between two places at which unrelated income earning activities take place. In our view, a taxpayer travelling from one place of business or employment, at which he or she derives assessable income, to another such place, in order to conduct activities from which he or she will derive assessable income, ordinarily is (to adopt the language of Lord Wilberforce in Taylor v Provan) "travelling on his [or her] work, as distinct from travelling to his [or her] work". The taxpayer's work requires his or her attendance at each place. It does not matter that "the work" is for different employers, or involves one or more businesses, or spans different occupations.
... If the purpose of the travel is exclusively to go from one income producing activity to another, it is difficult to see how the essential character of the expenditure is other than a business or working expense. [104]
Hill J delivered a strong dissenting judgment diametrically opposed to that of the majority. Whilst all judges accepted that expenditure on travel from one place of employment to another in respect of the same employment would be deductible and that a similar rule would apply where the travel occurs between one place of business and another in respect of the same business, Hill J disagreed with the majority that this necessarily means that travel between unrelated places of employment or business are therefore deductible. In simple terms, Hill J held that travel between distinct places of employment or business could not be regarded as connected with either income-producing activity and should therefore be treated as non-deductible expenditure involved in travelling to (between) work rather than on work. Hill J, it is submitted, correctly recognised that the majority view produces various practical dilemmas as are illustrated in the following questions that his Honour raised:
Does it change the situation if between two separate employments and before travelling from the first to the second the taxpayer engages in some private activity such as visiting a library or lunching? Would it matter if there was a large (or small) gap of time between the one employment commencing and the other ceasing? What if one commences at 7.00 am in the morning and continues until 1.00 pm and the other starts at 7.00 pm and goes to midnight? Why indeed, it may be asked, do divisions of time into days matter?[105]
His Honour went on to conclude that in the light of the above considerations a straightforward test which causes the least anomalies should be adopted, that is one should "ask whether the travel is on work (ie a working expense) or to work (ie a preworking expense)."
8. EVALUATION OF THE PAYNE JUDGMENTS
It is submitted that the differences in opinions between the majority and minority judgments in Payne simply stems from their Honours' approaches to characterisation. Sackville and Hely JJ adopted a broad view of the nature of a working or business expense, whereas Hill J adopted a narrow view. With respect to the majority, it is submitted that Hill J's approach is less problematic and technically more consistent with the restricted view to characterising travel expenditure expressed in Lunney & Hayley. Hill J's judgment is also indirectly supported by cases like Lodge, Martin, Jayatilake, Handley, Forsyth and Cooper (discussed above) which demonstrate the judicial leaning towards a narrow approach to characterisation.
Hill J's reasoning, it is submitted, is highly compelling. If Lunney & Hayley is taken to establish a general principle, in cases where a taxpayer's work only commences when he arrives there, it is not logical to allow the taxpayer a deduction for travelling to work simply because the taxpayer departs for work from an earlier place of work. It is submitted that it makes little sense in disallowing expenditure on travel between home and work and allowing expenditure on travel between two places of unrelated work. As Hill J's judgment reflects, in neither case would the taxpayer be travelling on work, but simply travelling to work - albeit from different locations.
In the light of the above analysis, the apparently well accepted notion that travel between two places of work is deductible may well be a myth founded on questionable authority. It will be recalled that the majority in Payne relied on Lusher J's comments in Garrett for the conclusion that expenditure on travel between different places of business or employment is deductible. It will also be recalled that Lusher J had relied on, inter alia, the 1903 Victorian Supreme Court decision In re The Income Tax Acts for this conclusion. It is submitted that this decision may now be of questionable weight given the trenchant criticism levied in the High Court joint judgment in Lunney & Hayley of the above quoted passage from Holyrod J's Judgment:
The question in that case was whether expenditure so incurred by the taxpayer was "wholly and exclusively expended for the purposes of his trade" and may, perhaps, be said to differ substantially from that which arises in the present case. Possibly, if the learned judge had been required to apply the provisions of a section similar in terms to s 51 he would have found great difficulty in saying that the expenditure had been "incurred in gaining or producing" the taxpayer's assessable income." The ground's for his Honour's decision on the point did not, however commend themselves entirely to the other two members of the Court in that case and do not appear to have found acceptance on any other occasion on which not dissimilar problems have arisen for consideration.[106]
This criticism was addressed by the majority in Payne who adopted a narrow view of what the High Court had said. According to Sackville and Hely JJ, the criticism by the High Court Justices specifically focused on Holyrod J's Judgment and did not address the reasoning advanced by the other judges in the case. The Full Federal Court majority cited the following passage from a' Beckett J's judgment[107] (with which Hodges J concurred) and stated that the joint judgment in Lunney & Hayley "had nothing critical to say about the reasoning":[108]
With reference to the second question, I think it is material to observe that this is not a case in which the person who pays his expenses for the purpose of coming to Melbourne to attend a meeting of directors has a residence unconnected with any income earned at that residence, and selected without any reference to the desirability of that being a place of residence with a view to making an income. It is clearly stated by the case that the taxpayer's presence at 'X' is necessary for the conduct of the business there. That is the place - as the case states - where the business is carried on under his personal supervision. Therefore, in this case, when he leaves that place in which he is carrying on business - 'X' - for the purpose of coming up to Melbourne to attend a meeting of directors, he has to return to that which is another place at which he carries on business producing income, and that place is the place at which he resides; and it seems to me to be a distinction which may be or may not be important. I am not saying what the difference would be if he were a mere suburban resident coming and going from the place where he resided, and which he occupied without any reference to his carrying on business there. But here we have a taxpayer who comes and goes from the place at which he is carrying on business, over which his personal supervision is necessary, and at which it is necessary for him to be for the purpose of carrying on that business. When he goes from there - 'X' - to 'A' and 'B' it is necessary for him to return to 'X' to carry on the business at 'X'. So it is necessary for his business at 'A' and 'B' that when he goes from there to 'X' he shall return to 'A' and 'B'. We are dealing, therefore, with a case in which travelling is necessary to three places, at each of which his presence is requisite for the purpose of his carrying on the businesses from which his taxable income is produced.
With respect to Sackville and Hely JJ, the High Court in Lunney & Hayley whilst only specifically mentioning Holyrod J's judgment were actually addressing the general issue of whether the expenditure was "incidental and relevant" to the taxpayers' income-earning activities. It is submitted that the more appropriate construction of the High Court analysis is that their Honours disagreed with the decision in In re The Income Tax Acts in so far as it could potentially apply to s 51.[109] In other words, it can be inferred that their Honours would not have regarded the relevant expenditure incurred in the early Victorian case as having been "incurred in gaining or producing" the taxpayer's assessable income for the purposes of s 51.
It should also be recalled that Lusher J in Garrett had relied on the High Court decision in Green for the conclusion that expenditure on travel between different places of business or employment is deductible. It is submitted that the weight of this authority is also questionable given that Lunney & Hayley was handed down after Green. Moreover, the lack of any analysis of principles in the High Court judgment in Green is also of concern. When one reads the judgment it is apparent that the High Court did not cite any authorities for its conclusion. Indeed, the judgment is conspicuously brief.
On the other hand, it is apparent that Lunney & Hayley did not concern travel between two places of work and the decision can therefore be distinguished on its facts from those cases involving travel between two distinct places of work. Therefore, if special leave is granted in Payne, the High Court will, strictly speaking, not need to feel directly constrained by its earlier decision in Lunney & Hayley. Instead, it will be free to focus on the special facts involved in the case without being curtailed by the impediment of the views expressed in the earlier decision. The High Court could conceivably endorse both the Lunney & Hayley principle as well as a separate principle that travel between different places of work is generally deductible. The conceptual problem with this approach is that the High Court would be adopting inconsistent approaches to characterisation (that is, a restricted approach in the first situation and a broad approach in the second). However, another way of looking at the matter is that it would simply be creating another judicial exception to the general rule that travel between home and work is not deductible. Such an exception would be similar to the exceptions identified in the itinerant travel and bulky goods cases which are all based on the existence of "special facts".
The problem of characterising expenditure on travel between home and work or business becomes most acute where the home also represents a place of work or business. In such a case, the taxpayer is both living at home and working there. The home serves two distinct roles. If a broad approach to characterisation is to be preferred and Lunney & Hayley is to be distinguished, the better approach is to distinguish the following two kinds of cases:
1. The first kind of case arises where either:
(a) immediately prior to travel to a place of work away from home, the home is used as a place of work; or
2. The second kind of case arises where either:
(b) immediately after the taxpayer returns home from a place of work away from home, the home is used as a place of work.(a) immediately prior to travel to a place of work away from home, the home is used for private purposes; or
(b) immediately after the taxpayer returns home from a place of work away from home, the home is used for private purposes.
It is submitted that in the first kind of case, the taxpayer should be entitled to claim a deduction for travel expenditure, whereas in the second kind of case, the taxpayer should not. For instance, it is submitted that if a taxpayer who works from home simply wakes up one morning and travels to another unrelated workplace, the taxpayer should be in no different position to an "ordinary taxpayer"[110] that does the same thing. In both cases, the taxpayer is travelling from a place which at the relevant time was being used as his or her home. No doubt this approach would raise questions as to whether or not a sufficient degree of work activities are undertaken at home at the relevant time in order to warrant a deduction. Furthermore, the issue of whether a relevant activity takes place "immediately" prior to or after travel may, in certain cases, create some application problems.[111] Notwithstanding these matters, it is submitted that the above approach is at least based on a sound principle and should provide equitable results between taxpayers.
The law has applied a test not dissimilar to the one proposed to the characterisation of the deductibility of interest. The "use test", as it has become known, treats interest on borrowed funds as deductible where the borrowings are used for income producing or business purposes.[112] Likewise, it is submitted that travel to and from a home should be deductible where, at the relevant time,[113] the home is used as a base of work or business, but not where, at such time, it is used for private or domestic purposes. This view would seem to find support in two distinct passages from Professor Parsons' work. In the first passage, he states:
No authority would be necessary to deny a deduction of travel expenses on those occasions when work is not taken home. The fact that home may on some occasions be a place of business does not make it a place of business on those occasions when no work is in fact carried on at home.[114]
Subsequently, in dealing specifically with the issue of travel between unrelated places of work or business, Professor Parsons observes:
Deductibility must ... be dependant on actual work in each place of business on the occasion of travel. A taxpayer who has a place of business at home in relation to one business or employment and a place of business in relation to another business or employment elsewhere, will not be entitled to a deduction of the cost of travel on an occasion unless the travel follows immediately on the performing of work in his business at home, and there is worked performed on arrival at the place of the other business.[115]
9. CONCLUSION
The above discussion demonstrates that the courts have been prepared to circumvent the rigours of the Lunney & Hayley principle in those cases where they have felt justified that special circumstances have warranted this. Clear examples of this are found in the itinerant travel and bulky goods cases. Ultimately, whether or not a taxpayer will fall within these categories of exception will depend on the particular facts involved and each case will need to be considered on the basis of its special circumstances.
The unresolved issue at present clearly concerns Payne's case. If the High Court grants the taxpayer special leave to appeal the Full Federal Court decision, it will be interesting to see whether it takes a broad or narrow approach to the characterisation of the expenditure concerned. In recent times, it has been difficult to predict the outcome of many High Court tax disputes.[116] The High Court could conceivably adopt a broad approach and distinguish Lunney & Hayley. Such a "progressive" approach would be welcomed by the many taxpayers who have more than one employment or business. On the other hand, a narrow approach to characterisation along the lines of Hill J's dissenting judgment in Payne would be more conservative. On balance, such an approach would be more consistent with Lunney & Hayley and the many cases handed down since that decision which have also adopted narrow approaches to characterisation.
Stephen Barkoczy is an Associate Professor at Monash University and a Consultant at Blake Dawson Waldron. He has consulted to the Australian Taxation Office and was formerly National Tax Director at Pannell Kerr Forster. Stephen has published many articles on taxation law and is a contributor to three books. He is also a member of various Advisory Boards and Law Institute of Victoria Committees.
[*] The writer thanks Vince Morabito and Primrose Mroczkowski for their helpful comments on earlier drafts of this article. The views expressed in this article are the personal views of the author and not those of any organisation with which the author is associated.
[1] IV Gzell, "Allowable Deductions: The Coles Myer and Fletcher Decisions" (1993) 28 Taxation in Australia (Blue Edition) 275.
[2] The relative importance of this category of deduction is highlighted by the fact that work related travel and car deductions are dealt with specifically as separate items in income tax returns. The reason for this is principally for Australian Taxation Office audit purposes.
[3] The Commissioner's views on this topic are peppered throughout a number of his rulings and determinations, including: Income Taxation Rulings IT 112, IT 117, IT 2199 and IT 2543; Taxation Rulings TR 94/16, TR 95/15 and TR 95/34; and Taxation Determinations TD 93/113 and TD 94/17. This article does not intend to specifically examine any of these rulings or determinations. Instead, its aim is essentially to focus upon the body of case law that has evolved in this field.
[4] 99 ATC 4391 ("Payne").
[5] "The Bill rewrites subsection 51(1) with a clearer structure but does not disturb its language and is not intended to effect previous interpretations" Explanatory Memorandum to the Income Tax Assessment Bill 1996, 44.
[6] Defined to include the ITAA36 and Pt IVC of the Tax Administration Act 1953 (Cth) insofar as it relates to the provisions of either the ITAA97 or ITAA36.
[7] Whilst s 51(1) did not contain similar express wording, it was widely accepted that the provision operated in an identical fashion.
[8] Subject to certain limited exceptions.
[9] A "work expense" is defined in s 900-30(1) as a loss or outgoing incurred in producing "salary or wages". By virtue of s 900-12, the relevant provisions also apply to a "PAYE earner" (that is, an employee defined in s 221A of the ITAA36). A work expense includes a "travel allowance expense" (as defined in s 900-30(3): s 900-30(2)) but does not include "motor vehicle" expenditure, unless it relates to travel outside Australia, or is a taxi fare or similar outgoing (s 900-30(6)).
[10] Broadly, a "car expense" is a loss or outgoing to do with a car, operating a car, or depreciation of a car (other than a loss or outgoing for travel outside Australia or on a taxi fare): s 28-13. A "car" is defined in s 995-1 as a "motor vehicle" (except a motor cycle or similar vehicle) designed to carry a load of less than one tonne or fewer than nine passengers.
[11] Defined as a "travel expense" (that is, an expense for travel involving the taxpayer being away from his or her ordinary residence for at least one night) in so far as it is incurred in producing assessable income other than salary or wages: s 900-95(1). Motor vehicle expenses (other than for travel outside Australia or on a taxi fare) are excluded: s 900-95(5).
[12] See ITAA97, Subdiv 900-E.
[13] See ITAA97, Subdiv 900-F.
[14] For a general discussion of the substantiation rules, see R Woellner, T Vella, L Burns, S Barkoczy and R Krever, 1999 Australian Taxation Law (9th ed), 798-803.
[15] The "cents per kilometre", "12% or original value", "1/3 of actual expense" or "log book" methods.
[16] Again, for a general discussion of these provisions, see Woellner et al, above n 14, 795-796.
[17] Much has been written on the judicial tests used to interpret the provision. See further: Gzell, above n 1; I Wallschutzky andG Richardson, '"The Extent to Which Expenditure is Deductible" (1994) 6(2) CCH Journal of Australian Taxation 47; G Richardson, "Section 51(1): Unlegislated Tests of Deductibility" (1995) 24 Australian Tax Review 153; JV Durack, "Deductions for Personal Expenditure - Having your Cake and Eating it Too" (1994) 23 Australian Tax Review 205; S Barkoczy, "Section 51(1): Characterising Deductible Outgoings" (1995) 3 Taxation in Australia (Red Edition) 206; and AH Slater, "The Character of the Advantage Sought" (1997) 26 Australian Tax Review 131.
[18] Throughout this article the term "outgoing" has been substituted with the more commonly used expression "expenditure".
[19] W Nevill & Co Ltd v FC of T [1937] HCA 9; (1937) 56 CLR 290, 301; [1937] HCA 9; (1937) 4 ATD 187, 193 (per Latham CJ) ("Nevill"). Whilst this case actually concerned the predecessor of s 51(1) (s 23(e) of the Income Tax Assessment Act 1922 (Cth)), the relevant words have been adopted by the High Court in the context of s 51(1), see Ronpibon Tin NL v FC of T [1949] HCA 15; (1949) 78 CLR 47, 57; [1949] HCA 15; (1949) 8 ATD 431, 435 (per Latham CJ, Rich, Dixon, Mc Tiernan and Webb JJ) ("Ronpibon").
[20] Amalgamated Zinc (De Bavay's) Ltd v FC of T [1935] HCA 81; (1935) 54 CLR 295, 303; [1935] HCA 81; (1935) 3 ATD 288, 293 (per Latham CJ); W Nevill [1937] HCA 9; (1937) 56 CLR 290, 305; [1937] HCA 9; (1937) 4 ATD 187, 193 (per Latham CJ) and Ronpibon [1949] HCA 15; (1949) 78 CLR 47, 57; [1949] HCA 15; (1949) 8 ATD 431, 435 (per Latham CJ, Rich, Dixon, McTiernan and Webb JJ).
[21] FC of T v Snowden & Willson Pty Ltd [1958] HCA 23; (1958) 99 CLR 431, 436-437; [1958] HCA 23; (1958) 11 ATD 463, 464 (per Dixon CJ); followed in Kidston Goldmines Ltd v FC of T 91 ATC 4538, 4546 (per Hill J). See also, FC of T v Foxwood (Tolga) Pty Ltd 81 ATC 4261, 4263 (per Gibbs CJ).
[22] Nevill [1937] HCA 9; (1937) 56 CLR 290, 305; [1937] HCA 9; (1937) 4 ATD 187, 196 (per Dixon J); followed in Ronpibon [1949] HCA 15; (1949) 78 CLR 47, 56-57; [1949] HCA 15; (1949) 8 ATD 431, 435 (per Latham CJ, Rich, Dixon, McTiernan and Webb JJ) and reiterated in Lunney v FC of T & Hayley v FC of T [1958] HCA 5; (1958) 100 CLR 478, 497; [1958] HCA 5; (1958) 11 ATD 404, 412 (per Williams, Kitto and Taylor JJ) ("Lunney & Hayley").
[23] Charles Moore & Co (WA) Pty Ltd v FC of T [1956] HCA 77; (1956) 95 CLR 344, 351; [1956] HCA 77; (1956) 11 ATD 147, 149 (per Dixon CJ, Williams, Webb, Fullagar and Kitto JJ). Whilst this case, related to a "loss" as opposed to an "outgoing", the principle has nonethelessbeen applied to outgoings, see eg, Lunney & Hayley [1958] HCA 5; (1958) 100 CLR 478, 498-499; [1958] HCA 5; (1958) 11 ATD 404, 413 (per Williams, Kitto and Taylor JJ) and Fletcher & Ors v FC of T [1991] HCA 42; (1991) 173 CLR 1, 18 (per Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ) ("Fletcher").
[24] [1958] HCA 5; (1958) 100 CLR 478; (1958) 11 ATD 404.
[25] Ibid CLR 485; ATD 405.
[26] See eg, Andrews v Astley (1924) 8 TC 589 and Nolder v Walters (1930) 15 TC 380.
[27] (1952) 2 All ER 728 ("Newsom").
[28] "[T]he object of the journeys, both morning and evening, is not to enable the man to do his work but to live away from it." Ibid 732 (per Lord Romer).
[29] Ibid 731.
[30] Dixon CJ, Williams, Kitto and Taylor JJ; McTiernan J dissenting.
[31] Incidentally, a "but for" argument was also rejected by the High Court some years earlier in a different context involving a former general deduction provision (s 23(1)(a) of the Income Tax Assessment Act 1922 (Cth)). In FC of T v Munro [1926] HCA 58; (1926) 38 CLR 153 the High Court declined to allow a deduction for interest incurred on a loan secured over the taxpayer's income producing property in spite of the taxpayer arguing that if the interest was not paid, the lender would foreclose on his property and he would therefore not receive rental income (that is, the taxpayer had argued that "but for" the payment of interest, his income producing asset would be lost). Contrast, however, Begg v FC of T [1937] SAStRp 18; (1937) 4 ATD 257 and Yeung & Anor v FC of T 88 ATC 4193. See, further, the discussion relating to Munro (below).
[32] Lunney &; Hayley [1958] HCA 5; (1958) 100 CLR 478, 498-499; [1958] HCA 5; (1958) 11 ATD 404, 412-413.
[33] Ibid CLR, 501; ATD, 414.
[34] Contrast, in a different context, the observations about preliminary kinds of expenditure made in Softwood Pulp and Paper Ltd v FC of T 76 ATC 4439, 4450-4451 (Menhennitt J) and FC of T v Maddalena 71 ATC 4161, 4163 (Menzies J; Barwick CJ, Windeyer, Owen and Walsh JJ concurring).
[35] McTiernan J's dissenting judgment in Lunney & Hayley [1958] HCA 5; (1958) 100 CLR 478, 490; [1958] HCA 5; (1958) 11 ATD 404, 407 encapsulates the dilemma: "In my opinion it is an unduly narrow construction of the initial part of s 51(1), in the case of an employment, to confine its operation to expenditure made by the taxpayer within the bare physical or temporal limits within which he performs his work or labour and to disregard any expenditure made outside those limits even though it has a necessary relation to the purpose of earning income for which the taxpayer carries on employment. It is shown by the stated case that the taxpayer could not in the circumstances under which he was situated earn any assessable income by his employment without incurring the cost of travelling which he claims to be an allowable deduction. I cannot see the difference in principle between an expense incurred in gaining income and one incurred necessarily for the purpose of earning it." (emphasis added)
[36] See eg, Fletcher [1991] HCA 42; (1991) 173 CLR 1, 18 (per Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ): "The question whether an outgoing was, for the purposes of s 51(1), wholly or partly 'incurred in gaining or producing the assessable income' is a question of characterisation."
[37] Purpose may nevertheless play a part in the process of characterisation in "colourable" cases: Fletcher [1991] HCA 42; (1991) 173 CLR 1. Note particularly the observations made in Magna Alloys Research Pty Ltd v FC of T 80 ATC 4542, 4547 (per Brennan J): "Though purpose is not the test of deductibility nor even a conception relevant to a loss involuntarily incurred, in cases where a connection between an outgoing and the taxpayer's undertaking or business is affected by the voluntary act of the taxpayer, the purpose of incurring that expenditure may constitute an element of its essential character, stamping it as expenditure of a business or income-earning kind." See further FC of T v Ilbery 81 ATC 4661, 4667 (per Toohey J) and also Ure v FC of T 81 ATC 4100.
[38] Contrast, however, FC of T v Edwards 94 ATC 4255 and Mansfield v FC of T 96 ATC 4001 in which broad approaches to characterisation were adopted by the courts.
[39] 72 ATC 4174.
[40] 84 ATC 4513.
[41] 91 ATC 4516.
[42] The position is aptly described in Martin v FC of T 84 ATC 4513, 4515 where Bowen CJ, Toohey and Lockhart JJ remarked: "It may be accepted that the placing of her child in a kindergarten (and the incurring of expenses thereby) was a prerequisite to the taxpayer's employment. It was not suggested that any other course was open to her if she was to take on any of the three jobs in question. But it is clear, at least since Lunney, that such a consideration is not of itself sufficient to attract the operation of s 51(1). And it was for that reason that in Lodge Mason J rejected the taxpayer's claim. The character of the expenditure in that case was found by his Honour to be neither relevant nor incidental to the particular work upon which Miss Lodge was engaged."
[43] 81 ATC 4165.
[44] The relevant expenditure consisted of a relevant portion of the interest paid on the barrister's home loan and rates and insurance relating to the property.
[45] 81 ATC 4165, 4171.
[46] [1981] HCA 15; (1981) 148 CLR 203.
[47] 91 ATC 4396.
[48] Lockhart and Hill JJ; Wilcox J dissenting.
[49] 91 ATC 4396, 4414 (per Hill J).
[50] Ibid 4403 (per Lockhart J).
[51] See further, R Parsons, Income Taxation in Australia, 471 where the author observed: "The determination of essential character involves the adoption of a description of the expense which affords an answer to the question of relevance. The description in effect asserts the relevance or want of relevance of the expense. The analysis tends to cloak rather than to reveal the process of decision. No analysis can deny the evaluation that must be made in concluding that an expense is relevant or irrelevant."
[52] 81 ATC 4165, 4171.
[53] Parsons, above n 51, 471.
[54] 71 ATC 4184.
[55] Ibid 4186.
[56] Taxation Ruling TR 95/34 contains the Commissioner's views on what constitutes "itinerant travel".
[57] 76 ATC 4254 ("Collings").
[58] 77 ATC 4181 ("Ballesty").
[59]78 ATC 4006 ("Wiener").
[61] Ibid 256-257.
[63] Ibid 215.
[65] Ibid 164.
[66] It should be noted at this point that whilst the taxpayer had two places of work, the two places related to the same employment The case does not deal with travel between two different places of unrelated work such as where a taxpayer travels between different jobs or businesses (this separate issue is discussed further below).
[67] Collings 76 ATC 4254, 4268.
[68] Ibid.
[69] The Commissioner accepted the taxpayer's claim that he was entitled to deductions for expenditure incurred in travelling between the team's social club (following a day's work) and training grounds and between his home and matches played away from his team's home ground.
[70] Ballesty 77 ATC 4181, 4184.
[71] This widening has been criticised by Northrop J in FC of T v Genys 87 ATC 4875, 4881 (discussed below) where his Honour remarked: "The decision in Ballesty seems unduly wide and difficult to reconcile with the clear principles stated in Collings."
[72] On a similar basis, the circumstances of the case are also distinguishable from those in Owen v Pook.
[73] See further the discussion of this case in the context of the "bulky goods" principle (discussed below). The Commissioner's views on Ballesty's case are expressed in Taxation Ruling IT 112.
[74] The Commissioner did not dispute that she was entitled to claim deductions for travel between the different schools.
[75] 78 ATC 4006, 4010.
[76] 79 ATC 4318.
[77] For further discussion of this case, see G Lehman and C Coleman, Taxation Law in Australia (4th ed), 462. The authors have observed that the "condition of employment test" applied in Burton has since been "firmly rejected": FC of T v Wilkinson 83 ATC 4295, 4303 (per Williams J).
[78] 87 ATC 4875 ("Genys").
[79] Ibid 4881.
[80] For the Commissioner's views on travel expenditure incurred between home and work by taxpayers on stand-by duty, see Taxation Ruling IT 112, para 21.
[81] And also unlike in Owen v Pook.
[82] This point was recently recognised in Pitcher v DFC of T 98 ATC 2190 (per Mr Block (SM)). On this basis, it is submitted that different outcomes in Collings and Genys are easily reconcilable.
[83] 98 ATC 2295 ("Kerry").
[84] 86 ATC 1192.
[85] The cases also have parallels with Taylor v Provan [1975] AC 194.
[86] 75 ATC 4073.
[87] The Commissioner indicates that, based on Vogt's case, he will allow deductions for travel where a taxpayer performs his duties at several places "by using his own equipment which he brings to the place of performance; the equipment is of substantial value and of such bulk that it can only be conveniently transported by the use of a motor vehicle; and, there are justifiable reasons for the taxpayer to keep the equipment at home": Taxation Ruling IT 112, para 21.
[88] 87 ATC 229.
[89] 98 ATC 2219. See also Case U107 87 ATC 229 for a similar result.
[90] 81 ATC 403.
[91] Mr Harrowell explained his conclusions as follows: "On the taxpayer's evidence the need to carry the chest of tools in his car was to enable him to engage in his hobby of repairing and servicing outboard motors and vehicles where any resulting income apparently formed no part of his assessable income. The other reason put forward that the place provided for his tools by his employer at his place of work was not secure I can understand and accept but to me that is an exercise of a personal preferencenot a requirement under his terms of employment." Ibid 404.
[92] 82 ATC 4060.
[93] 99 ATC 4391.
[94] See further In re The Income Tax Acts (1903) 29 VLR 299; FC of T v Green [1950] HCA 20; (1950) 81 CLR 313 and Owen v Pook (1970) AC 244.
[95] Some time after the decision in Garrett was handed down, the Commmissioner issued Taxation Ruling IT 2199 in which he indicated that he would allow deductions for the cost of travelling "directly between two places of employment, two places of business or a place of employment and a place of business ... where the taxpayer does not live at either of the places and the travel has been undertaken for the purpose of enabling the taxpayer to engage in income producing activities". However, the ruling goes on to indicate that (subject to limited exceptions) the Commissioner will generally disallow a deduction for the cost of travel between home and work where a taxpayer has full-time employment or carries on a business away from home and also conducts a part-time income producing activity from home; or where the taxpayer carries on business from home and also has part-time employment or business activities away from home.
[96] 82 ATC 4060, 4063. Note that this passage was specifically relied on by the majority Justices in Payne 99 ATC 4391, 4399. See further the discussion of this point below.
[98] Ibid 306 (per a 'Beckett J).
[99] Ibid 304.
[100] [1950] HCA 20; (1950) 81 CLR 313; (1950) 9 ATD 142.
[101] Latham CJ, McTiernan, Webb, Fullagar and Kitto JJ.
[102] In the outcome, the majority Justices did not, however, decide whether or not the relevant expenditure incurred by the taxpayer in the case was deductible. They preferred instead to remit the matter back to the Administrative Appeals Tribunal so that it could make specific findings of fact such as whether or not the farm constituted a place of business or a home.
[103] 99 ATC 4399.
[104] Ibid 4400.
[105] Ibid 4393-4394.
[106] [1958] HCA 5; (1958) 100 CLR 478, 498; [1958] HCA 5; (1958) 11 ATD 404, 412.
[107] [1903] VicLawRp 89; (1903) 29 VLR 298, 305-306.
[108] 99 ATC 4391, 4402.
[109] Interestingly, this was the interpretation adopted by the Administrative Appeals Tribunal at first instance in Payne (Case 26/97 97 ATC 296).
[110] That is, a taxpayer that does not have a base of operations at home.
[111] One of the anonymous referees of this article has asked to what extent would the fact that a taxpayer stops on the way home, or after having arrived home, to have a cup of coffee, or lunch, breach the immediacy requirement. It is submitted that the answer to this question will, to use classic legal terminology, depend on the facts of the case and is perhaps best left to the commonlaw to resolve.
[112] The "use test" was formulated by the High Court in Munro [1926] HCA 58; (1926) 38 CLR 153 and has since been widely applied: see eg, FC of T v Roberts and FC of T v Smith 92 ATC 4380, 4388 (per Hill J).
[113] That is, immediately before or after travel.
[114] Parsons, above n 51, 475.
[115] Parsons, above n 51, 477.
[116] Indeed, in the author's opinion, the High Court has delivered a number of controversial and arguably surprising tax judgments in the last decade. See, for example, Hepples v FC of T [1992] HCA 3; (1992) 173 CLR 492, Coles Myer Finance Ltd v FC of T [1993] HCA 29; (1993) 176 CLR 640, FC of T v Orica Ltd 98 ATC 4494 and FC of T v Montgomery 99 ATC 4749.