81 ATC 216
MB Hogan Ch
P Gerber M
No. 3 Board of Review
Judgment date: 10 June 1981.
M.B. Hogan (Chairman); Dr. P. Gerber (Member): In this reference, the taxpayer, a qualified accountant, employed by a firm of accountants, obtained a limited right of private practice from his employers. In the result, the taxpayer set up a separate room in his home as an office, furnished it with the usual office equipment, had some stationery printed and awaited his first clients. The first year in part-time private practice yielded gross fees in the amount of $580.
2. The issues before the Board are:
- (i) whether the car travel expenses incurred between taxpayer's residence/office and place of employment are an allowable deduction; and
- (ii) whether the amount of interest paid on a housing loan is an allowable deduction pursuant to the provisions of sec. 82KB and 82KC.
It was conceded by both parties at the hearing that the outcome of (i) above would determine the result in (ii).
3. Board of Review No. 2 in Case N35,
81 ATC 186, had occasion to review the law with respect to travel expenses between home and place of employment in circumstances which bear a striking resemblance to the facts of this case. That case, too, involved a salaried accountant who in addition carried on a small accountancy practice from his home. In denying the deduction in that case, No. 2 Board, in a joint decision stated (p. 187):
``In order that a deduction might be had under sec. 51(1), the travelling between the two places of income production must be seen to be travelling in the course of the taxpayer's income producing activities. But when one looks at the essential character of the outgoings incurred by the present taxpayer, it seems to us impossible to describe them with any degree of accuracy as outgoings incurred in gaining or producing his income or necessarily incurred in carrying on a business for that purpose. Rather do they possess the character of expenditure incurred to transport him from his residence to his city employment in the morning, and back to his residence at the end of the normal working day. In the light of the decision in Lunney and Hayley such outgoings are not deductible. To use the description given by Dixon C.J. in that case (100 C.L.R. at p. 485), the costs incurred `by ordinary people to enable them to go day by day to their regular place of employment or business and back to their homes' are a personal or living expense, and excluded from deduction under sec. 51 as being outgoings of a private or domestic nature. Whether this be considered anomalous, as it was by Menzies J. in
F.C. of T. v. Maddalena 71 ATC 4161 at p. 4162, is a matter which does not affect us, as it is not for a Board to seek to vary the law as established by the High Court.''
4. We respectfully concur with the above reasoning and would apply it to this case without further textual emendation were it not for the fact that a firmly held belief has gained currency that travel expenses incurred between two places of income production are automatically entitled to deduction. It was a belief held by the taxpayer in the case referred to above, and again shared by the taxpayer in this reference. We can do no better than to quote the explanation appended by this taxpayer to his return:
``Because of the close relationship of the income earned at the two places, I claim the costs of travelling between these places as expenses incurred in gaining income.''
The point was elaborated in the objection by reference, inter alia, to Case B9,
70 ATC 42 and Case B81,
70 ATC 374.
5. Case B81 was a case heard by this Board (as then constituted). The facts, taken from the headnote, were (p. 375):
``taxpayer, a public accountant and tax agent, had two places of business - one
81 ATC 218
in the city and one 26 miles away where she resided - at both of which she practised her profession.''
Mr. Gordon Thompson (Member), who wrote the principal decision, after reviewing the then current authorities, including
Owen v. Pook (1970) A.C. 244, concluded:
``18. In my opinion, at the present juncture, the following general propositions of law relevant to the deductibility of travelling expenses may shortly be stated -
- (a) Travelling expenses incurred by a taxpayer in travelling from his home to his place of business or employment are not allowable;
- (b) Where those expenses are incurred by a taxpayer in travelling between two places of business or employment, they are allowable;
- (c) The fact that taxpayer resides at one place of business or employment does not of itself mean that travelling expenses incurred in travelling from that place and another place of business or employment are excluded from deductibility. On the contrary they are allowable deductions.
19. It will be noticed that, in my opinion, based on the authorities, no distinction should be drawn between a place of business or employment - that is between the case where a taxpayer carries on business on his own account or in partnership, and that where he is engaged as an employee. On this particular subject, in addition to the main cases cited above, authority for the proposition in relation to deductions generally under sec. 51 may be found in
F.C. of T. v. Finn (1961) 106 C.L.R. 60; and in the majority reasons in Case A44,
69 ATC 251.''
The reference to Case B9 is to a decision of the same Board similarly constituted. Again, it reached the conclusion that the cost of travel between the home from where the taxpayer carried on business and his place of employment was allowable. Mr. Thompson adopted reasoning similar to his later decision in Case B81. Mr. Dempsey (Member) stated (70 ATC at p. 44):
``11. It is well established that the cost of travelling between a home and a place of employment or a place of business is not an allowable deduction, cf.
Lunney v. F.C. of T.; Hayley v. F.C. of T. (1958) 100 C.L.R. 478.
It is, I think, equally well established that the cost of travelling between places of business or places of employment is allowable as a deduction.
F.C. of T. v. Green (1950) 81 C.L.R. 313 and
2 T.B.R.D. Case B107.
13. The question to be decided here is whether, under circumstances where a taxpayer carries on a business at his home and in addition has a place of employment, the travelling between the two places is to be regarded as travelling between his home and his place of employment and thus not allowable, or as travelling between his place of business and a place of employment and thus allowable.
14. In support of the latter proposition the Board was referred to the decision in
1 T.B.R.D. Case 59. This was a joint decision of Board of Review No. 2 as then constituted, and actually dealt with the question of travelling between two places of business.
15. However, at pp. 222 and 223 the Board said:
- `Although the Board was not referred to the reasons of the Chairman who dissented from the majority in Case No. 78 of 1945, the following extract from his reasons, which are obviously based upon his conclusion that the taxpayer derived income in the place where he lived as well as at the farm 200 miles away, reveals that he held a view of the scope to be given to sec. 51(1) similar to that to which the High Court in Green's case has now given judicial sanction. He said -
- `Where the assessable income is produced or earned by activities carried on by the taxpayer in several places the taxpayer's expenses of travelling from any one to any other of those places for the purpose of engaging in those activities are surely just as much incurred in gaining the assessable income as, and no more of a private
81 ATC 219
nature than, are the expenses directly arising out of those activities. And, in my opinion, it does not matter whether the activities in any of those places do or do not amount to the carrying on of a business: if the taxpayer were a director of two companies carrying on business in different States, or if he were an employee in one place and the proprietor of a business in another, it would still be prima facie necessary for him to go from one State or place to the other for the purpose of gaining or producing his assessable income. Nor, in my opinion, would it be a material circumstances that the taxpayer was living at one of several places in which he was carrying on income-producing activities. In normal circumstances it would be advantageous to the gaining or producing of his assessable income for such a taxpayer to live at one of those places, one obvious advantage being that he would save the expenses, which he would have otherwise incurred, of travelling between his home and that place. This leads me to the view that if a taxpayer lives at a place where his presence is required from time to time for the purpose of engaging in income-producing activities, his expenses of travelling between that and any other place where his presence is required for similar purposes not only are incurred in gaining or producing his income but also should not be held to be of a private nature merely because it suits his private convenience to live where he does or even because the selected place of residence is, for private purposes, the most suitable of the several places at which he carries on income-producing activities.'
- We agree with these observations.'
It will thus be seen that in this decision the Board considered that in circumstances such as exist in this case they would allow the deduction. With this decision I would agree...''
On each of these occasions, Mr. Dubout (Chairman) agreed with his colleagues.
6. As Board of Review No. 2 already noted in the recent case referred to in para. 1 hereof, that whilst it is highly desirable that there should be consistency in Board decisions, no Board is bound by any other Board decision. It is, after all, better to be ultimately right than consistently wrong. Like No. 2 Board, we are, with the utmost respect, unable to adopt the reasoning of this Board (as then constituted) in Cases B9 and B81, and in particular the view expressed in the two Board cases that Owen v. Pook is authority for the proposition that the cost of travel between two places from which income is derived is, as such, an allowable deduction. We note that the Board in both references cited the All England Reports (the authorised report had not been published at the time) where admittedly the headnote states:
``The taxpayer had, in respect of the employment in question, two places of work, and the expenses which were necessarily incurred in travelling between them in the performance of his duties properly fell within the scope of (the relevant provision of the U.K. Tax Act).''
Whilst this summary may be technically correct when applied to the facts of that case, it cannot be said to constitute a general statement of law, and the headnote in the authorised reports states with greater precision what the majority of their Lordships decided.
7. In Case L49, this Board took the opportunity of reviewing all the travel cases both before and after Owen v. Pook. We see no reason to repeat what we said on that occasion. Suffice it for present purposes that we adhere to the view we there expressed, viz., to be allowable as a deduction, the travel must be on one's work as explained in the decided cases. We would echo with respect the analysis of No. 2 Board in the recent case referred to in para. 3 hereof, viz. that (p. 187):
``... the travelling between the two places of income production must be seen to be travelling in the course of the taxpayer's income producing activities.''
Once the question is posed in this way, it becomes at once apparent that there is
81 ATC 220
nothing in the travel between this taxpayer's home and his city office on any normal working day which would confer any meaningful distinction on the outgoing sufficient to take it out of the principle laid down by the High Court in Lunney and Hayley. The fact that this taxpayer's home is, incidentally, used in the production of income is insufficient to make the travel between the taxpayer's home and his office an outgoing incurred in the production of assessable income - the journey retains its essential characteristic of travel between home and office.
8. To the extent that an amount was claimed for travel which involved calling on clients of the office, or his own, the taxpayer was unable to provide any meaningful estimate on the mileage involved since he kept no records of these trips. This claim for travel expenses must therefore fail.
9. Since it was conceded that if the claim for home office expenses should fail, the claim for interest must likewise fail, we have no alternative but to confirm the Commissioner's decision on the objection.