81 ATC 35
KP Brady Ch
LC Voumard M
JE Stewart M
No. 2 Board of Review
Judgment date: 20 February 1981.
K.P. Brady (Chairman); L.C. Voumard and J.E. Stewart (Members)
The issue in this reference is whether a proportional amount of the rental of a telephone installed in the taxpayer's home is deductible under sec. 51(1) as an expenditure incurred in gaining his assessable income.
2. The taxpayer is an ambulance officer and has been so since 1970. In 1973, he undertook a specialist course to enable him to man an intensive care ambulance called a MICA unit.
3. There are four such ambulances in the capital city in which the taxpayer lives and works, serviced by 40 specialist officers. As was the case with these officers, the taxpayer worked four days on and four days off as a continuous arrangement throughout the year. On the four days on, he worked two 10 hour shifts during the day and two 14 hour shifts during the night, averaging a 42 hour week (approximately) over a full year. The MICA units are operational for every hour of the day for every day of the year.
4. On his days off the taxpayer (as with all other specialist officers) was expected to make himself available either to replace MICA ambulance drivers who did not turn up for their regular shift because of sickness (it being mandatory that a MICA officer could only be replaced by another MICA officer), or to attend disasters such as bridge collapse or multiple road accidents.
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5. The Ambulance Services Board determination provided that if an officer was ill, and so precluded from going on duty, he needed only to give his employer one hour's notice of that fact.
6. Specialist ambulance drivers, such as the taxpayer, who worked in the capital city were not required by their Award to be on call to enable the Service to cope with the above emergencies. However, it was a requirement of their Award that they should readily make themselves available for extra duties when called upon to do so.
7. The Ambulance Service employed a rostering officer whose function it was to roster the officers operating the mobile intensive care units. Ten men manned each unit, with two officers being in the vehicle when the unit was operational on the road. In the event of an officer advising his inability to attend duty, his practice was to telephone another officer or officers in order to obtain a replacement.
8. The rostering office was manned on a five day week basis. If an illness took place on a normal working day, the rostering officer would consult a list of officers who were off duty and would telephone that officer whose turn it was to work overtime. As regards weekends, a list of officers was prepared who could be contacted in the event of a replacement officer being needed. Generally each officer tended to work approximately five days overtime per year. Although not required as a term of employment, all MICA unit officers to the personal knowledge of the rostering officer had telephones operative in their homes in the year of income under review, viz. that year ended 30 June 1978.
9. In that year of income, the taxpayer earned as salary income an amount of $15,158 which included overtime payments totalling $1,053. These latter payments were for overtime worked on eight days over five different months of the year. The taxpayer contended that those receipts arose directly from telephoned requests made of him by the rostering officer because of other officers' inability to work the shifts allocated to them. The taxpayer stated in his evidence:
``The only way I would have got those days overtime would be by the use of the telephone either woken up prior to the start of the shift, or in some instances when the shift had already started, due to an emergency they were unable to get anyone to work on that particular intensive care unit for that day.''
10. The taxpayer's contention is that having a telephone at his home was necessary in order that he could receive telephone calls to help out with personnel roster changes and emergencies, and derive the consequential overtime payments. Accordingly, in the year of income ended 30 June 1978, he claimed as a deduction from his salary and overtime earnings, the sum of $48, being one-half of the rental paid by him for his telephone. The Commissioner disallowed the claim on the grounds that the expenditure was not incurred in gaining or producing assessable income and, in any case, was expenditure of a private nature. This decision has now been referred to this Board for review.
11. The claim by the taxpayer, in order to be successful, has to satisfy the requirements of sec. 51 of the Income Tax Assessment Act. In so far as it is relevant to the situation before us, that section permits the deduction of outgoings ``incurred in gaining or producing the assessable income'', provided that they are not outgoings of a private, domestic or capital nature.
12. It has been judicially stated that it will be seldom that an outgoing of a private nature will also qualify as an outgoing incurred in gaining or producing assessable income (ref.
F.C. of T. v. Hatchett 71 ATC 4184 at p. 4186, and
F.C. of T. v. Faichney 72 ATC 4245 at p. 4249). Also it is worth noting that Mason J., in
Lodge v. F.C. of T. 72 ATC 4174 at p. 4176, was not prepared to express an opinion on the general question whether an expenditure incurred by a taxpayer in gaining his or her assessable income might nevertheless be of a private or domestic nature. In any event, it is proposed to first consider the taxpayer's claim for deduction of the telephone rental on the basis that it was incurred in gaining his income, as taxpayer's counsel, Mr. Wray-McCann, directed the bulk of his arguments to the operative provisions of sec. 51 rather than to the words of exclusion.
13. In the case of
Amalgamated Zinc (De Bavay's) Ltd. v. F.C. of T. (1935) 54 C.L.R. 295, the Full High Court explained that the
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expression ``incurred in gaining or producing'' must be understood as meaning incurred in the course of gaining or producing. It is in this sense that the phrase has to be interpreted when a taxpayer's claim calls for consideration by a Board or Court.
14. Because of the almost limitless ways of incurring expenditure to derive income, it is inevitable that expenses which allegedly relate to the derivation of income will do so in varying degrees. Accordingly, when Courts have had to consider whether particular expenses were incurred in the course of deriving assessable income for the purposes of sec. 51 of the Act, they have sought to explain the degree of relevance required. Thus, in
Ronpibon Tin N.L. & Tongkah Compound N.L. v. F.C. of T. (1949) 78 C.L.R. 47 at p. 58, the Full High Court stated that the outgoing had to be ``incidental and relevant'' to the production of income. In
Lunney v. F.C. of T. (1958) 100 C.L.R. 478, the outgoing was said to require ``a business character''. In Hatchett's case (supra), Menzies J. preferred the description ``perceived connection'', whilst in
F.C. of T. v. White 75 ATC 4018, Helsham J. adopted the phrase ``part and parcel''.
15. Useful as these explanations are, they cannot be accepted as substitutes for the provisions of the Act itself. Similarly, the actual decisions in the cases in point, although of assistance, are no more than examples of situations where the requirements of the Act have been regarded as satisfied or not satisfied as the case might be.
16. In the case before us, Mr. Wray-McCann submitted that the gaining of the taxpayer's assessable income by way of overtime of $1,053 was directly referable to his client having a telephone at his premises.
17. Also, he submitted that had he not had a telephone at his premises during the year of income under review, he would not have been in a position to derive that income. This would have been the situation, he contended, because the rostering officer would have contacted another ambulance officer who had a telephone, stemming from the degree of urgency involved in securing a replacement officer, and the consequential impracticability of sending someone out in a vehicle to the taxpayer's home.
18. In confirmation of these submissions, a witness for the taxpayer, the Ambulance Service's rostering officer, stated:
``Usually an officer calls us, notifies us that he is going to be sick - really, the only obligation he has is to tell us he is going to be sick. So we might only have, at the worst, a few minutes notice, hopefully he is able to give us quite a few hours.
In the event that we have short notice, then we only have recourse to using the phone. An ambulance can only go on the road when it has two operatives on it. So I am afraid that men with a phone are the first cab off the rank when we are selecting anybody.''
19. The basic tenor of the taxpayer's arguments was the necessity for him to have a telephone on his premises in order to derive overtime income. In Lunney's case (supra), dealing with a claim for deductibility of fares to and from work, the High Court ruled that the matter of deductibility under sec. 51(1) could not be solved simply by arguing that because expenditure on fares is necessary to get to work in order to derive assessable income, it follows that such expenditure must be regarded as incidental and relevant to the derivation of income. The decision in that case negated the proposition that an expense was incidental and relevant to the derivation of income merely because it was necessary.
20. However, we consider that the decision in Lunney's case is not completely pertinent to the instant case because the character of the expenditure is very different. Fares to and from work can only at best be an essential prerequisite to the derivation of income. On the other hand, expenditure on maintaining the use of a telephone can, because of its very nature, be properly deductible under sec. 51, obviously so when installed and used in a place of business, and not infrequently when installed in private premises so long as it is used in the production of assessable income. The nub of the issue is: was the taxpayer's telephone expenditure incurred in deriving assessable income or was it more in the nature of the Lunney type situation of simply putting him in a position where he could earn assessable income?
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21. In the case of
Burton v. F.C. of T. 79 ATC 4318, which dealt with the cost of car travel between the taxpayer's home and his place of employment, Smith J. stated at p. 4321:
``... counsel for the appellant sought to exclude the operation of the principle laid down in
Lunney and Hayley v. F.C. of T. (1958) 100 C.L.R. 478 that expenditure by a taxpayer on travelling between his place of residence and place of work is prima facie a personal or living expense, whether the taxpayer is an employee or self-employed.
There are exceptions to this principle, but a perusal of the authorities since Lunney's case was decided shows that in respect of an employee the question invariably has been whether the evidence supported the conclusion that the outlay on travelling was incurred expressly or impliedly by reason of or in pursuance of the contract of employment.''
22. On the authority of this case, it would seem that an employee claiming expenditures as a deduction under the first limb of sec. 51 is, at the very least, in a stronger position than he would otherwise be if he incurs such expenditures as a term of his employment. At this stage we merely note the fact that the maintaining of a telephone by the taxpayer at his home was not a condition of his employment, express or implied.
23. A case close to the taxpayer's situation is the English case of
Nolder v. Walters (1930) 15 T.C. 380. In that case an aeroplane pilot was employed by a limited company and in pursuit of his duties he was bound to respond to any telephone calls by the company at any time of the day or night. Generally, however, he was telephoned between the hours of 9 o'clock and 10 o'clock on the previous evening to tell him what he was expected to do the next day. As with other employee pilots, the taxpayer found it necessary that a telephone should be installed in his residence in order to be notified of the times of his duties, and for any special calls which might be made upon him. His claim for deduction for the upkeep of a motor car to convey him between his home and the aerodrome and a proportionate amount of the rental of the telephone installed at his home (and calls) was disallowed. In giving judgment, Rowlatt J. said:
``... of course his employers would not be liable for what he did while he was driving his motor car to the office. He is not under their commands while he is going to the office, not in the sense that they govern his going. He has to be at the office, wherever he has to start from, and I think the telephone is in the same position. It is a mere question of communicating with him with a view to him coming to the office to do his duties which begin when he gets there; and of course when I say the office I mean in this case the aerodrome, the place of employment.''
24. In Lunney's case (supra), the High Court at p. 501, in referring to Nolder v. Walters, and other English cases on the same issue, said:
``No doubt the legislative provisions which required consideration in these cases were not identical with s. 51, but the process of reasoning by which they were decided consistently rejects the notion that expenditure incurred by a taxpayer in order to travel from his home to his place of business is in any sense, a business expenditure or an expenditure incurred in, or in the course of, earning assessable income. Indeed they go further and refuse assent to the proposition that such expenditure is, in any relevant sense, incurred for the purpose of earning assessable income, and unanimously accept the view that it is properly characterised as a personal or living expense. This view agrees with that which we, ourselves, entertain.''
25. The case now before us appears to fall squarely within the res decisa of Nolder v. Walters and, bearing in mind that the case is now 50 years old, we consider that it induces us to come to the conclusion that the taxpayer's claim must fail unless the law has changed in the interim.
26. This view led us to an examination of a case decided by the No. 3 Board, as then constituted, and cited as Case G82,
75 ATC 573, and on appeal cited as
F.C. of T. v. Collings 76 ATC 4254. In that case, the Board of Review allowed a claim for telephone costs incurred by the taxpayer at her home; also a claim for car running expenses. The taxpayer in that case was a
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computer consultant whose employment required her to be on call 24 hours per day. Outside normal office hours she used a computer terminal, which, with the aid of a telephone, enabled her to do computer work. The Board found as a fact that she used the telephone in carrying out her duties at her home outside of normal working hours, and that it was a condition of her employment that she do so. The case went on appeal to the Supreme Court of New South Wales as regards the car running expenses, ref. F.C. of T. v. Collings (supra), but the Commissioner accepted the Board's findings in relation to the telephone expenses. The Court also held that the taxpayer's expenses in travelling between her home and work outside the normal daily duties were outgoings incurred in gaining or producing her assessable income. In fact, she had two places of work, one at her home and another in the office. Also the Court found that the expenses were not of a private or domestic nature, and were accordingly deductible under sec. 51.
27. The Court was assisted in its deliberations by being able to find that the facts were analogous to those which appertained in the English case of
Owen v. Pook (1970) A.C. 244. The taxpayer in that case was a general medical practitioner who held two part-time appointments at a neighbouring hospital situated some 25 kilometres from his home. Under the terms of his appointments, he was on stand-by duty at specified times of the day for specified days of the week. During these periods he was required to be accessible by telephone. All his work in connection with these appointments was concerned with emergency cases at the hospital. On receipt of a telephone call from the hospital, he gave instructions to the hospital staff and normally then set out immediately to the hospital by car. Sometimes he advised treatment by telephone and then awaited a further report. Not every telephone call resulted in a visit to the hospital. His responsibility for a patient began as soon as he received a telephone call. Under the terms of his appointment, the doctor received from the hospital only part of his travelling expenses between his home and the hospital, and claimed the balance as a tax deduction as wholly, exclusively and necessarily incurred or expended in the duties of his office. His claim was disallowed. Eventually his appeal reached the House of Lords, where it was decided by a three to two majority in his favour, that Court ruling that the taxpayer had two places of employment, with his duties actually commencing at his home. Therefore, the travelling expenses were incurred in the performance of the duties of his appointment and were accordingly deductible.
28. The law which emerges from these decisions seems to us to be that telephone expenses, i.e. rental, in the context in which the taxpayer incurred them, can only be deductible for tax:
- (a) if it was a term of his employment, express or implied, that he maintain a telephone in his home; and
- (b) his home was a place in which he performed duties from which he derived assessable income.
29. In both Collings' case and Owen v. Pook, it was a term of the taxpayer's appointment that she/he maintain a telephone, and both did in fact use the telephone as an integral part of their duties in the gaining of assessable income, as distinct from the position in Nolder v. Walters where the telephone was simply a means ``of communicating with him with a view to him coming to the office to do his duties''.
30. We do not consider that the factors which distinguished both Collings' case and Owen v. Pook from Nolder v. Walters appertained in the taxpayer's case, and in fact we view the instant case as being on all fours with the latter case.
31. For completeness of examination, we studied a number of recent cases where car running expenses normally categorised as of a private nature arising out of the context in which the car was used, were in fact allowed as deductions under sec. 51. These cases comprised
F.C. of T. v. Vogt 75 ATC 4073,
F.C. of T. v. Ballesty 77 ATC 4181 and
F.C. of T. v. Wiener 78 ATC 4006. Our conclusion, however, is that they do not assist the taxpayer in the case now before us as we regard them as having been decided very much on their own facts.
32. Because of the view that we hold that the telephone rental is not deductible, we are not required to examine the validity of the
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percentage of 50% which the taxpayer claimed as being reasonable. No evidence was led as to the basis of computation, but because the taxpayer's counsel spent no little effort in arguing that it was reasonable, we advance the view that the full amount was deductible, if deductible at all, on the basis that not one call could have been received (or made) unless the rental was paid.
33. For the reasons detailed above, we would uphold the Commissioner's decision on the objection and confirm the assessment.