81 ATC 349
KP Brady Ch
LC Voumard M
JE Stewart M
No. 2 Board of Review
Judgment date: 21 August 1981.
K.P. Brady (Chairman); L.C. Voumard and J.E. Stewart (Members): The question at issue in these references is whether the taxpayers, both valuers employed by the Taxation Office, are entitled to a deduction for a proportionate amount of the cost of their purchases of daily newspapers according to the terms of sec. 51(1) of the Assessment Act. Because the expense incurred by each taxpayer was of the same nature and incurred in the same circumstances, it was agreed between them and the Commissioner that the references would be heard together.
2. Both valuers, whom we shall call ``A'' and ``B'', were employed in the same State Office in the year of income in issue, viz. that ended on 30 June 1979, as valuers grade 1. ``A'' had become qualified as an associate of the Australian Institute of Valuers in September 1977, having commenced employment with the Taxation Office as a valuer-in-training in March 1974. ``B'' had become qualified somewhat earlier in February 1976, after commencing with the Taxation Office in 1972. There were various grades of valuers employed in the Taxation Office rising from grade 1 to grade 5. The duties of a grade 1 valuer were set out in a duty statement dated 30 October 1975 (which was tendered in evidence by the two taxpayers), and were as follows:
``(a) Make (except in most difficult and complex cases) valuations of properties, analyse sales, building costs and other basic data and deduce standards of value.
(b) Prepare reports on disputed valuations and, where required, attend conferences with the parties involved.
(c) Give evidence before the relevant tribunal in valuation cases.
(d) Examine valuations made by private valuers and submitted for official purposes and recommend their adoption or otherwise.
(e) Make reports for the information of senior officers on conditions of the land market, costs of improvements and general matters affecting the land values.
(f) Assist in training valuing staff.
(g) Assist more senior staff in aspects of valuing work.''
3. The principal task of the two taxpayers in the year of income in issue was to make valuations of real estate. To assist in that particular matter and to enable the professional staff (which then approximated 27) to constantly up-date their knowledge of the property market in general, the Valuation Section obtained various technical magazines, and on a daily basis one copy of three daily newspapers. Additionally, the Section maintained information on microfiche relating to all sales of real estate in the State.
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4. The newspapers were delivered to the Section at approximately 9.30 a.m. each day and were circularised in the first instance to a supervising valuer who would peruse them and indicate articles to be cut out and filed in information folders which were available for study at any time by the valuing staff. Special attention was devoted by the Section to auction notices. All such notices were cut out and pasted on cards and were then circularised to the three supervising valuers who would then allocate particular auction notices to individual valuers according to the geographical areas in which they were then working. Subsequently the cards would be filed in the property file system. The newspapers themselves were never circularised to valuers grade 1.
5. The taxpayers contended that the above procedure was unsatisfactory on a number of counts:
- first, the papers arrived too late in the Section;
- secondly, an insufficient number was obtained;
- thirdly, the marking of articles for subsequent filing was not sufficiently comprehensive;
- fourthly, the allocation of auction notices was too narrow, the interest of staff in sales values being far wider than transactions conducted in their own areas only, also the notices were received too late to be of practical use;
- fifthly, the distribution of the newspapers themselves fell short of reaching them because of their relatively low seniority in the Section.
6. For all of the above reasons, the taxpayers felt constrained to purchase an additional newspaper each day, i.e. additional to what they would have bought for their respective households had they not been employee valuers of the Taxation Office, so that they could obtain the necessary reference material promptly and more comprehensively, in order that they might better carry out their duties.
7. The two taxpayers claimed that the cost of the additional daily newspaper was expenditure incurred in gaining assessable income and so was deductible under sec. 51(1). The Commissioner saw fit to disallow those claims, and so the matter has come before this Board for review.
8. Section 51(1), to the extent it is relevant in the instant cases, states as follows:
``All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income... shall be allowable deductions except to the extent to which they are losses or outgoings of... a private or domestic nature...''
9. In the case of
F.C. of T. v. White 75 ATC 4018, the Supreme Court of New South Wales had cause to examine whether travelling expenses and meal expenses incurred by an employee of an accounting firm in attending an accountancy course at night were deductible under the above provision. The presiding judge, Helsham J., considered that such expenses would qualify for deduction only if the studies could be said to be part and parcel of the employment, meaning that the expenditures were incurred in the process of carrying out the employee's duties, or if they were not, they could be seen to have a direct effect on the taxpayer's income. That summation followed upon a detailed analysis which he had made earlier in his judgment of two of the leading cases concerned with deductibility under sec. 51(1) where the taxpayer was an employee, viz.
F.C. of T. v. Finn (1961) 106 C.L.R. 60, and
F.C. of T. v. Hatchett 71 ATC 4184.
10. Hatchett's case was concerned with a school teacher who claimed as allowable deductions under sec. 51 two separate expense items, one involved with gaining a Teacher's Higher Certificate, and the other being University fees incurred during the pursuit of an Arts degree. The obtaining of the Certificate automatically brought a higher salary to the person obtaining it, as well as putting him or her in a position to earn more in the future. Expenses incurred in order to obtain it were held to be deductible under sec. 51 because the holding of the Certificate had a direct and immediate effect on income. On the other hand, the University fees were held to be non-deductible because the pursuit of the degree had no obvious effect upon the taxpayer's income, nor could any future effect be predicted.
81 ATC 352
11. Finn's case involved the expenses of an overseas trip made by a senior architect employed by the Western Australian Government. During the trip he devoted himself exclusively to the study of architectural matters, his purpose being to improve his capacity to do the work for which he was engaged and to further his chances of promotion. The High Court held that the expenses of the trip were incurred by the taxpayer in gaining his assessable income, a significant factor being that all of the taxpayer's studies whilst overseas were done ``while he was in the employment of the Government, earning his salary, and acting in accordance with the conditions of his service'' (emphasis added).
12. In a subsequent case of
Burton v. F.C. of T. 79 ATC 4318, when Finn's case was closely analysed, the Supreme Court of Western Australia had cause to examine the question of deductibility of car expenses incurred by a stipendiary magistrate in travelling between his home and his place of work at the central magistrates' court in Perth.
13. The case went to the Supreme Court upon appeal by the taxpayer from the decision of this Board, as then constituted (ref. Case K21,
78 ATC 187), the reasons for the Board's decision having been given by the legal member, Mr. R.K. Todd. There, Smith J. stated (at p. 4322-4323):
``To my mind determination of this case turns not so much upon the need `to characterise the expense incurred' as Mr. Todd expressed it in his reasons but upon whether on the facts the proper conclusion is that the expense of conveying the appellant's car from his home to his principal place of work and return each day was an expense incurred expressly or impliedly by reason of or in pursuance of the contract of employment...
The question then, in this case, is whether the proper inference from the primary facts is that a necessity in the objective sense existed for the appellant to have his car available for use in the performance of his duties at his Beaufort Street chambers at all times and hence that it was an implied term of the contract of employment that he incur the expense involved in bringing the car to work each day. It is clear from the authorities to which I have referred that the only necessity which is relevant is an objective necessity arising from the nature of the office itself. Necessity from the personal circumstances or the personal preferences of the taxpayer is not enough.''
In the result, Smith J. held that it could not be inferred from the surrounding circumstances that it must have been a term of the appellant's employment, although tacit, that he have his car available for use in the performance of his duties at his principal place of work. Accordingly, he dismissed the taxpayer's appeal.
14. Applying the principles as enunciated in the several cases referred to above, it seems clear that the two taxpayers can only succeed in their claims if they can demonstrate either that the expense had a direct effect on their incomes, or the expenditures arose through their compliance with a term, express or implied, of their employment.
15. No evidence was adduced to show that the taxpayers received increases in salary through their purchases of newspapers. Taxpayer ``A'', however, did state:
``I think it fair to say that there may have been some effect on my income through actively pursued reading papers and keeping up to date and reaching a certain standard in my occupation,''
but the statement remained an assertion only, however circumspect the choice of words. Both had been granted accelerated promotion relatively recently, which was dependent on admission to the Australian Institute of Valuers plus two years' work experience thereafter, as well as the possession of well-developed investigatory and other skills, but again no evidence was led to show a causal link between their promotion and purchases of newspapers.
16. In the absence of such evidence, we find that their expenditures had no direct effect on their incomes and so deductibility under sec. 51(1) cannot be afforded on the grounds that found favour in Hatchett's case.
17. No express terms of employment were submitted by the taxpayers in evidence, the
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duty statement alluded to in para. 2 representing guidelines only as to their duties. However, might it not be said that there was an implied term of their employment that they purchase newspapers to update their knowledge on a day-to-day basis, and so render the newspapers a deductible expense?
18. In our view, for that proposition to be valid, the implied term must be one to which the Taxation Office, acting as a reasonable employer, would have agreed at the time of the expenditure; refer third Australian edition of Cheshire and Fifoot's Law of Contract, p. 176, also refer to
Heimann v. Commonwealth of Australia (1938) 38 S.R. (N.S.W.) 691, where Jordan C.J. at p. 695 emphasised the caution with which a court must proceed when implying a term which the parties have not expressed for themselves.
19. In the case of
Shirlaw v. Southern Foundries (1926) Ltd and Federated Foundaries Ltd. (1939) 2 All E.R. 113 at p. 124, MacKinnon L.J. enunciated in the following words his officious bystander test as to whether it was proper to imply a term:
``Thus, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common: `Oh, of course'.''
That approach, emphasising the inevitability of response, was approved by the House of Lords in
Lister v. Romford Ice & Cold Storage Co. Ltd. (1957) 1 All E.R. 125 at pp. 133 and 134, and more recently in
Pritchard v. Briggs & Ors. (1978) 1 All E.R. 886 at p. 897.
20. In the instant case, we cannot help but feel that if the two taxpayers had said to their employer, ``Of course, you will agree that it is necessary for us to buy daily newspapers in order that we may keep in close contact with the real estate market'', the Taxation Office's reply would have been anything but a voice of compliance or approval. The taxpayers stated in their evidence that they believed their expenditure on newspapers was an implied condition of their employment but such a belief, however sincerely held by one contracting party, does not render it a term of that agreement; the situation must be one where it could reasonably be concluded that the other party would have agreed that such expenditure was a term of the employment.
21. At best it might be said that there was an implied term that the valuers should keep themselves up-to-date on the real property market because it was necessary that they not only achieve a measure of competence but that they maintain it for the whole of their period of employment. (In any event, it was stated in evidence that such up-dating process was a requirement of their own professional institute.) In our view, the extent of the alleged implied term cannot be pushed beyond that point. Accordingly, if the two taxpayers, however laudable their quest for up-to-date information might have been, considered that their access to the office information was inadequate and consequently purchased their own newspapers to overcome that deficiency, that purchase became a matter of their own personal choice.
22. Support for that view, we consider, is obtained from the following further considerations:
- (i) The duty statement made no mention of a requirement that newspapers, or indeed any resource materials, should be studied much less purchased by an employee.
- (ii) The two taxpayers were never directed by their employer to make a purchase of newspapers.
- (iii) No request was made by the taxpayers of their Section senior officer to have a greater number of newspapers supplied by the General Services Department, although it was stated in evidence by the Assistant Director of that Department that such a request would have been complied with had a need been demonstrated and the necessary finance been available.
23. For the above reasons, we would uphold the Commissioner's decisions on the objections and confirm the assessments before us.