82 ATC 72
KP Brady Ch
LC Voumard M
JE Stewart M
No. 2 Board of Review
Judgment date: 25 March 1982.
K.P. Brady (Chairman); L.C. Voumard and J.E. Stewart (Members)
In this case the taxpayer, a self-employed airline pilot, claimed the following amounts as deductions in respect of the year of income ended 30th June, 1978:
- (i) $210, being the cost of a senior commercial pilot's licence course.
- (ii) $210, being the cost of two pilot engineering courses as follows:
- (a) $160 for specialised instruction in the engineering features of a new aircraft airframe;
- (b) $50 for more general instruction concerning the same aircraft.
2. In the original assessment which issued in respect of the abovementioned year, the total amount of $420 was wholly disallowed as a deduction. However, upon the taxpayer objecting to the assessment, the Commissioner allowed an amount of $170 as a deduction pursuant to the provisions of sec. 51(1) of the Act. That amount was arrived at by deducting from the total claim of $420 the amount of $250 which the Commissioner treated as expenditure on self-education and as a rebatable amount pursuant to the provisions of sec. 159U for the purpose of calculating the taxpayer's rebatable amount under sec. 159N. However, it is relevant for present purposes to observe that, as the total of the taxpayer's concessional rebates which were taken into account for the purposes of the latter section did not exceed $1,590, the taxpayer did not derive any tax benefit through either a reduction in taxable income or by the obtaining of an additional rebate as a consequence of expending the above amount of $250. In the circumstances, the question arising for our decision was whether the two abovementioned amounts of $210, totalling $420, constituted expenditure on self-education as prescribed in sec. 159U, with the consequence that the total of those
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amounts, conceded (quite properly in our opinion) by the Commissioner to be otherwise wholly deductible under sec. 51(1), should be limited to the excess over $250 pursuant to the provisions of sec. 82A of the Act.
3. In the second reference before us, which concerned the year of income ended 30th June, 1979, the taxpayer claimed an amount of $80 as a deduction in respect of gymnasium fees which were paid by him in that year. A ground of objection in respect of that year also raised the question of whether additional tax of $19.88 which had been imposed as a result of the late lodgment of the relevant return should be remitted. However, as the latter amount was less than the minimum amount prescribed by sec. 193(2)(a) as a limitation to the Board's power to review the Commissioner's decision to remit under sec. 226(3) additional tax imposed under sub-sec. (1) of the latter section, the Board is precluded from reviewing the Commissioner's decision in relation to that ground of objection. In the result, the matter before us in relation to the 1979 year was limited to the question of whether the gymnasium fees should be allowed as a deduction.
4. The taxpayer conducted his own case. From his evidence it emerged that subsequent to his discharge from the Royal Australian Air Force in 1946, where he had learnt to fly and where he had attained a high level of competence in handling aircraft by day and night and in all sorts of weather, he joined a commercial airline as a pilot where he remained until his retirement in 1968 on medical grounds. In that period the taxpayer was required to undertake many examinations which led to his acquiring the highest possible qualifications that could be obtained by a commercial pilot, including a first class airline transport licence, a flight navigator's licence and a radio telephony licence. However, on his retirement on medical grounds, those qualifications became null and void for all practical purposes and it was not until some 11 years later, on regaining the requisite physical standard demanded of airline pilots and then successfully undergoing again the many examinations required to progress from being the holder of a private pilot's licence to being the holder of a commercial pilot's licence, that he attained a pilot's status similar to that which he had held prior to his retirement.
5. In 1975 the taxpayer commenced a business on his own account which, as he said in evidence, was ``purely and simply an air charter operation'' and which was continued during the two years in issue. The nature of the taxpayer's business operations may conveniently be described by his explanation below, which was made in response to the following question:
``Q.... Could you tell the Board what it is you do and how you go about your (business) operations?
A. Now that I am fairly well-established it is not too difficult. You usually sit and wait for the telephone to ring, and these days it never seems to stop, which is terrific. What happens is a client will ring up - I will give you a case history. A man rang me this morning saying could I take him to P... tomorrow... P... is right up in the... Desert. Because I do not own aircraft of my own and having a fairly extensive background in aviation it is not a very great problem for me to get the particular type of aircraft I want to conduct these operations, so this is the first step in the procedure. Once the client tells me where he wants to go, what time he wants to go, what day he wants to go, what the load is, whether it is freight or passengers or a combination of both and whether he has any preference for one type of aircraft as against another type of aircraft, we proceed from there. My first step is to secure the best type of aircraft that will fit the operation. Once we have that, it is just a straightforward matter of getting the two parties together at the appointed time, either at... Airport or at... Airport, and doing the job.''
In his evidence the taxpayer went on to say that the types of aircraft flown by him on his operations depended largely upon the requirements of, and/or the requests of, his clients and on the flying conditions to be encountered on each flight. Where (as in most cases) the client does not own the aircraft to be flown, it is the taxpayer's responsibility to hire it and to pay the hire charges incurred.
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6. However, it appears that a prerequisite to the taxpayer embarking on the abovementioned operations is that his commercial pilot's licence is current and that it is suitably endorsed by the appropriate authority (understood to be the Department of Transport) to the effect that he is authorised to fly the particular type of aircraft to be used. It appears that all aircraft vary as to layout and in their handling characteristics and that, before an endorsement is made relative to a particular aircraft, it must be recorded by the abovementioned authority of the pilot seeking it that he has successfully undertaken its prescribed courses of study in pilot engineering and associated matters and that he has fulfilled its requirements concerned with flying instructions received and hours flown. On some occasions the taxpayer takes the initiative in undertaking a course of study for a new or a particular type of aircraft to be flown and personally pays the expenses incurred. On other occasions the initiative is taken by a client for the taxpayer to undertake such a course at no cost to the latter. In the year of income ended 30th June, 1978, the expenses in issue were incurred on the initiative of the taxpayer and were paid by him. It would appear that, in normal circumstances, it would not be necessary for the taxpayer to repeat the senior commercial pilot's course in years subsequent to 1978, with the consequence that any costs associated with it would not be expected to arise in future. On the other hand, it would appear to be necessary for the taxpayer, for the purposes of enabling him to carry on his business into the future, to undertake further pilot engineering and similar courses and (where necessary) to pay for them. That action would appear to be necessary because of the on-going requirement that suitable endorsements be made to his pilot's licence as a prerequisite to his flying new and/or different aircraft. For present purposes, it is not considered to be an adverse factor from the viewpoint of allowing the taxpayer's claims that the engineering courses undertaken in the 1978 year did not result (for reasons not here relevant) in his pilot's licence being endorsed so that he could fly commercially the plane studied.
7. From the evidence it would appear that the senior commercial pilot's licence course, comprising a series of lectures extending over some 6-7 weeks, which was undertaken by the taxpayer, was conducted by an authorised flying school which provided the necessary tuition in those subjects required to be passed in examinations as prescribed by the Department of Transport. In the circumstances of the case, we have no hesitation in concluding that the flying school and the qualification obtained by the taxpayer, together with the associated expenses, satisfied the requirements of the definitions of ``prescribed course of education'' and ``expenses of self-education'' as found in sec. 159U(5). It is observed that a similar conclusion was reached in Case J1,
77 ATC 1, where the Board of Review No. 1 held that a similar course of instruction undertaken by a chartered accountant to obtain a private pilot's licence came within the (former) sec. 82JAA definition of a ``prescribed course of education''. As already indicated, the consequence of our decision in relation to the cost of the senior commercial pilot's licence course is that sec. 82A applies to deny a deduction of the amount of $210 otherwise allowable under the provisions of sec. 51(1) (see para. 1(1) above).
8. However, we do not consider that the engineering courses abovementioned were undertaken at ``a school... or other place of education...'' within the meaning of those terms as contained in sec. 159U(5) abovementioned, even though those courses could, perhaps, be described loosely as ``a course of education''. Our reasons for our conclusion in this matter are similar to those advanced by Mr. L.C. Voumard (Member) at p. 81 in Case M11,
80 ATC 78, in reaching his conclusion that the professional year of study required to be completed by candidates for membership of the Institute of Chartered Accountants in Australia may constitute ``a course of education'' without at the same time satisfying the requirements of the term ``prescribed course of education'' as defined.
9. On the evidence it would appear that the specialised engineering course lasted some 3-4 days and comprised lectures with working models and a cut-away of an actual engine. It appears that that course was undertaken at the premises of a large engineering firm; the course was apparently repeated every two to three months and was basically of a
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workshop kind. The more general course was said to have been conducted in a similar fashion and, in our understanding, for a similar period of time; however, it was conducted at a commercial complex which also provided, as an adjunct to its normal activities, pilot training facilities for some of its employees.
10. The word ``school'' is not defined in the Assessment Act, and in the Shorter Oxford English Dictionary its general meaning is given as ``an institution in which instruction of any kind is given (whether to children or adults)'', or as Barwick C.J. said at p. 221 in the case of
Cromer Golf Club Limited v. Downs & Anor. (1973) 47 A.L.J.R. 219, when, it would seem, the learned Judge was considering the general meaning of the word for the purpose of sec. 41 of the Public Works Act, 1912 (N.S.W.), as amended:
``... a `school' is a place where people, whether young, adolescent or adult, assemble for the purpose of being instructed in some area of knowledge or of activity. Thus there are drama schools, ballet schools, technical schools, trade schools, agricultural schools and so on.''
However, we are of the opinion that, for the purposes of the definition of ``prescribed course of education'', a ``school'' does not have its ordinary or general meaning and that a need for a narrower meaning to be attributed to the word flows necessarily from its placement immediately before the words ``college, university...'', which connote place of instruction in ascending order of educational gradation. Without seeking to exhaustively analyse the meaning of the word in the context in which it appears, it seems to us that, for present purposes, a ``school'' should be regarded as a place (not being a college or university) at which organised or systematised instruction, usually in class form, is given on a regular and a continuing basis. We do not think that, on the evidence, the engineering courses under consideration fall within the limits set by the suggested criteria, with the consequence that they do not fall within the meaning of ``school'' for present purposes. Further, if, as we think, it is proper to apply the ejusdem generis rule of construction, it is also obvious that the courses could not be said to have been provided by any ``other place of education''.
11. In our opinion, therefore, the costs of the engineering courses, totalling $210, were not ``expenses of self-education'' within the meaning of sec. 159U, with the consequence that sec. 82A does not apply to limit the deduction of that amount under the provisions of sec. 51(1). In calculating his allowable deduction of $170 (see para. 2 above), the Commissioner deducted the amount of $250 from the taxpayer's total claim of $420. In these circumstances and in consequence of our decision to uphold the Commissioner's decision relative to the cost of the senior commercial pilot's licence course, a further amount of only $40 may be deducted pursuant to sec. 51(1), being the difference between the costs ($210) of the engineering courses and the abovementioned amount of $170.
12. The 1979 matter before us concerning the question of whether gymnasium fees are deductible under sec. 51(1) must, in our view, be decided against the taxpayer. Even though the taxpayer's claim, because of his status as a self-employed person, falls initially for consideration under both positive limbs of sec. 51(1), there are decisions of the Courts which lead us to the conclusion that it could not be permitted under either of those limbs and that, in any event, it would fall within the exclusion provisions of the subsection as an expense of a private nature. In a case recently considered by us, reported as Case N72,
81 ATC 383, we decided that the taxpayer there, an employee commercial airline pilot, was not entitled to a deduction under sec. 51(1) for the cost of undertaking a fitness course to reduce his weight (which was undertaken in consequence of medical advice), because, first, it did not qualify as a deduction under the first limb of that subsection and, secondly, because it was private expenditure and therefore precluded as a deduction by the words of limitation found also in the subsection. We do not think that our decision in that case and the reasons therefor (including the case law there relied upon) require any basic variation in deciding the instant case in which the facts are similar, notwithstanding that the taxpayer's status in this case is that of a self-employed person. Support for this conclusion may be found in a number of Court decisions, the most recent of which appears to be the case of
F.C. of T. v.
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Forsyth, 81 ATC 4157, which concerned the question of deductibility under sec. 51(1) of certain expenses in connection with a ``home office'', where Wilson J. at p. 4161 stated that:
``Having regard to the definition of `business' in sec. 6 of the Act, which includes a profession, the taxpayer may rely on either or both of the two criteria of deductibility which are described in positive terms in this provision. The second alternative probably prescribes a test which is different, if not wider, than the first, but I do not think that in the circumstances of this case any distinction is material. This Court in
Ronpibon Tin N.L. & Tongkah Compound N.L. v. F.C. of T. (1949) 78 C.L.R. 47 at pp. 56 and 57 observed that the words `incurred in gaining or producing the assessable income' mean `in the course of gaining or producing such income', and that they have a very wide operation and will cover almost all the ground occupied by the alternative phrase.''
13. As indicated, we do not think that the gymnasium fees in issue fall for deduction under either of the two criteria for deductibility which are described in positive terms in sec. 51(1). In any event, we are of the opinion that the fees, which were personal to the taxpayer, are essentially private in character and that therefore they are precluded as a deduction by the excluding provisions of the latter section.
14. For the above reasons, we would allow the taxpayer's claims to the extent of $40 in respect of the year of income ended 30th June, 1978, and direct that a further amended assessment be issued to give effect to that decision. We confirm the assessment in issue in respect of the year of income ended 30th June, 1979.
Claim allowed in part