81 ATC 451
KP Brady Ch
LC Voumard M
JE Stewart M
No. 2 Board of Review
Judgment date: 16 October 1981.
K.P. Brady (Chairman); L.C. Voumard and J.E. Stewart (Members)
In this reference the taxpayer is a cinecamera operator employed by a statutory authority. His duties involved filming news programs for television, and to a lesser extent programs on current affairs and educational matters.
2. In his return of income for the year ended 30th June, 1979, he claimed as deductions against his salary income the cost of replacing a pair of sunglasses $34, and a watch $50, and a proportionate amount of home telephone expenses $81. The Commissioner disallowed all deductions, except $40 of the claim for telephone expenses. The taxpayer objected to the disallowances, and the case has come before this Board for review.
3. At the hearing before us, the taxpayer appeared in person and gave evidence. He was not represented.
4. Evidence was adduced as to the taxpayer's various claims for deductions as follows:
These were described as being of an optical flat type, and it would seem that they were no different to conventional sunglasses. They were used solely for work, the taxpayer having another pair which he used at the weekends and in non-working hours. It was the taxpayer's usual practice to drive his car to assignments, after picking up his equipment at his employer's office. He wore sunglasses when driving to reduce glare, and to enable his eyes to adjust more quickly, than would otherwise be the case, to changes in light. This had particular significance when news shots were required quickly (as was usually the case). Also, the wearing of sunglasses permitted the quicker adjustment of the eyes to evaluate the correct degree of exposure for particular shots.
The watch was a normal digital one, and the taxpayer's particular reason for purchasing it was because it had a built-in stop-watch. As was the case with the sunglasses, he possessed another watch, a conventional automatic one, which he wore in non-working hours. His main purpose in buying a stop-watch was to enable him to film action shots, and fit them into the specific time that a reporter had for delivering news information directly on camera. In other words, the film material was matched with the talking time.
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A photocopy of the appropriate Authority's receipt under date of 30th May, 1979, was tendered showing that a payment was made for the sum of $162.50, comprising advance rental of $42.50 and service installation fee of $120. The taxpayer claimed one-half of the total, $81, and it would seem that by disallowing an amount of $40 the Commissioner conceded that one-quarter of the total outlay was expenditure incurred by the taxpayer in deriving his assessable income. It was expected by the taxpayer's employer that it could contact the taxpayer at any time of the day or night to instruct him to go out to the scene of a news story and film that story. However, it was not a condition of the taxpayer's employment that he should be on call, nor was it a term of his employment that he have a telephone at his home. Prior to the year of income, a neighbour had been prepared to take calls for the taxpayer, but when that arrangement came to an end he arranged to have a telephone installed at his home to avoid any loss of income that might result from his employer's inability to contact him to go out on urgent assignments. He stated in his evidence:
``Now without that phone, my actual income loss over the course of a year could be as high as $500 to $600 by way of penalty time, overtime and changes of roster.''
On occasions when the taxpayer received a telephone call from his employer to proceed to a particular locality to film a news story, there was a need for him to telephone other crew members to arrange to pick them up. Apart from that circumstance, the telephone was used on purely private matters by the taxpayer and his wife.
5. A supervisor who had been in the employment of the taxpayer's employer for approximately 40 years, and who currently occupied the position of Supervisor - Production Facilities, was called by the Commissioner as a witness. He advised that the camera and the film used by the taxpayer were supplied by their employer. Normally 400 feet of film was loaded into a camera which gave a time exposure of little over 10 minutes. The amount of film used on an assignment was normally a matter for the cameraman's own discretion. The emphasis was on obtaining all necessary shots in order that the news item might have the maximum audience impact, rather than on conserving film by taking only a limited number of shots. Additional to the camera and film, three light meters were supplied to a cameraman together with all necessary lighting equipment, and tools and, where appropriate, protective clothing. No timing device was supplied other than the footage counter attached to the camera.
6. The witness considered that it was desirable but not essential for the taxpayer to have a telephone installed at his home and for him to wear a stop-watch when carrying out his duties. He could also envisage situations where a cameraman's work might suffer in quality as a result of that operator not wearing sunglasses.
7. The taxpayer claimed that the expenditures were properly deductible under sec. 51(1) of the Assessment Act. That provision, to the extent it is relevant, states:
``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 capital, or of a capital, private or domestic nature...''
8. Because of the multiplicity of cases that have come before Courts involving interpretation of the above provision, various judicial pronouncements have been made as to the meaning of the words ``incurred in gaining or producing the assessable income''. One expression that has found favour is that the expenditure to be deductible must be incidental and relevant to the gaining of the assessable income (
Ronpibon Tin N.L. & Tongkah Compound N.L. v. F.C. of T. (1949) 78 C.L.R. 47 at p. 56). Also, the Full High Court in the same case considered that the words ``incurred in gaining or producing the assessable income'' meant ``in the course of'' gaining or producing such income. In the case of
Lunney v. F.C. of T. (1958) 100 C.L.R. 478 at p. 498, the High Court, in the joint judgment of Williams, Kitto and Taylor JJ., made the point that because expenditure might be considered necessary to earn income, it was not to be taken that it was incidental and relevant to the derivation of such income. Accordingly, they stated that expenditure on fares to and from work,
81 ATC 453
whilst necessary to put a taxpayer in a situation to earn income, was not incurred in the course of gaining such income. They further stated that fares in that kind of situation could not be categorised as a business expense, rather they were in the nature of a personal expense.
9. Looking now at the taxpayer's claim in the instant case, the ingredient common to the three items of expenditure is the personal nature of the possessions that resulted from his outlays.
F.C. of T. v. Hatchett 71 ATC 4184, Menzies J. stated at p. 4186 that:
``It must be a rare case where an outgoing incurred in gaining assessable income is also an outgoing of a private nature. In most cases, the categories would seem to be exclusive.''
11. Whether an expense, prima facie of a private nature, could be said to be incurred in deriving assessable income was examined again by the High Court in the following year (1972) in the case of
Lodge v. F.C. of T. 72 ATC 4174. In that case, Miss Lodge, a single mother who worked under contract as a law costs clerk, incurred nursery fees for the care of her infant daughter so that she might be better able to devote time and attention to the preparation of bills of cost which she undertook mainly at home. There, Mason J. held that whilst the expenditure was an essential prerequisite to the derivation of the taxpayer's income, its character as nursery fees was neither relevant nor incidental to the preparation of bills of cost, nor, if the taxpayer could be considered to be carrying on a business, could it be regarded as incurred in carrying on a business of preparing bills of cost. In any event, the learned Judge considered the expenditure to be of a private or domestic nature, that view being consequential upon his earlier conclusion that the expenditure fell outside the general provisions of sec. 51(1). He went on to say that he was not prepared to express an opinion on the wider question as to whether an expenditure which was incurred in gaining or producing assessable income might nevertheless be of a private or domestic nature.
12. The matter was again canvassed in the recently decided cases of
F.C. of T. v. Forsyth 81 ATC 4157, and
Handley v. F.C. of T. 81 ATC 4165. Each of those cases was concerned with a barrister using part of his home for work purposes, and for a claim for a deduction under sec. 51(1) of expenditures associated with that use. By a majority, it was decided in both cases that deduction could not be obtained because the outlays were of a private or domestic nature. In Handley's case, Mason J., speaking as one of the majority, stated at p. 4171:
``With Wilson J., I agree that outgoings incurred in gaining or producing assessable income and outgoings of a capital or domestic nature are not mutually exclusive. Whether the same is true of outgoings of a private nature is a question that may be left to some future occasion. The very form of sec. 51(1) recognises that there are some outgoings which, though incurred in gaining assessable income, nevertheless fall within the exception. Then, to the extent to which they have the latter character, they are not allowable deductions.''
13. Relating those judicial statements to the taxpayer's situation, we consider that the outlays on the sunglasses and stop-watch were private expenditures, and therefore, as was the case with the expenditure in Handley's case and Forsyth's case, they are not deductible. Also, we consider that whilst the taxpayer used the sunglasses and watch in his job as a cameraman, that fact in itself is not sufficient to establish deduction for their purchase under sec. 51(1) (refer judgment of Wilson J. in Forsyth's case (supra) at pp. 4162-4165).
14. Both the sunglasses and watch possessed no special attributes to take them out of the category of private outlays. The taxpayer conceded that the sunglasses were very similar to the pair he used in non-working hours, and it is now commonplace for watches to contain an ancillary stop-watch. Though both items were used by the taxpayer in his work, that fact did not change their essential character as private expenditures.
15. Regarding the telephone rental, we regard that outlay as an item of a domestic nature, the word ``domestic'' having the meaning ``of or belonging to the home, house or household'' (Shorter Oxford Dictionary); also refer to the discussion on its
81 ATC 454
application in sec. 51(1) as contained in Case 50,
5 C.T.B.R. (N.S.) 329 at p. 332. In F.C. of T. v. Forsyth (supra) Mason J., in discussing the matter of deductibility of the rental paid by Mr. Forsyth to his family trust, stated at p. 4164:
``I see no reason why it would not be a proper application of sec. 51 of the Act in the present case to say that if the proper conclusion on the facts was that the rent was prima facie an outgoing incurred in gaining or producing the assessable income then the exception with respect to outgoings of a domestic nature would operate to exclude it from deductibility.''
16. In the instant case, there was no prima facie case that the telephone rent should be regarded as an outlay incurred in gaining the taxpayer's assessable income. This taxpayer did not maintain the telephone at his home as a condition of his employment, and thus there was no ``perceived connection'' (to use the words of Menzies J. in Hatchett's case (supra)) between the outgoing and his income. That situation may be contrasted with that which appertained in Case G82,
75 ATC 573 (and on appeal cited as
F.C. of T. v. Collings 76 ATC 4254), where the No. 3 Board of Review as then constituted 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 computer consultant whose employment required her to be on call 24 hours a 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.
17. In giving evidence in the instant case, the taxpayer contended that he would lose $500-$600 per year in income if he did not have a telephone on hand at his home. As the telephone in question was not installed until the last month of the year of income, the taxpayer was not in a position to make an accurate assessment of such shortfall, and as no evidence was adduced to support the amount of loss, the statement remained an assertion only. In any event, we would consider the telephone rental, whilst necessarily outlaid for him to derive income, was not incurred ``in the course'' of earning his income (see
Nolder v. Walters (1930) 15 T.C. 380); it simply put him in a position to earn income.
18. Accordingly, we consider that the telephone rental was an expense of a domestic nature and so precluded from deduction by the words of exclusion contained in sec. 51(1).
19. Continuing with the matter of the taxpayer's claim for deduction of telephone expenses, we consider that the outlay relating to its installation was capital expenditure. In reaching that conclusion, we are aware of the difference in viewpoint on that matter as held by the No. 1 Board and the No. 3 Board. In Case M35,
80 ATC 260, the No. 1 Board was of the view that the cost of installing a telephone was a revenue expense, whilst only two months later the No. 3 Board in Case M53,
80 ATC 357, after considering the earlier decision, came to the contrary view that it was on capital account. The concept of capital expenditure is not defined in the Assessment Act, and so the Courts have necessarily relied on commercial standards in determining whether an expense was of a capital nature or was of a kind that was more properly treated as an operating expense. We would consider that the telephone represented to the taxpayer in the instant case an ``enduring benefit'' (see
British Insulated & Helsby Cables v. Atherton (1926) A.C. 205 at p. 213) in the sense that it was improbable that he would have it disconnected in the short term; it was positioned to stay rather than be moved. We would also consider that the taxpayer would regard the cost as made ``once and for all'' (see
Vallambrosa Rubber Co. Ltd. v. Farmer (1910) 5 T.C. 529 at p. 536) and therefore we would consider that the outlay was devoid of any notion of recurrence as exists with the payment of telephone calls and rental. To that extent we see a distinct contrast between the connecting fee, which we would regard as capital, and the rent and calls, which we would regard as domestic expenditures. We are therefore of
81 ATC 455
the view that the installation cost is not deductible under sec. 51(1), being expressly excluded as a capital expense.
20. For the reasons stated above, we would disallow all the claims for deduction made by the taxpayer. However, the Commissioner has seen fit to allow $40 of the telephone expenses, and we are not disposed to upset that allowance. Accordingly, we confirm the assessment.