Federal Commissioner of Taxation v. Genys.
87 ATC 4875
Judgment date: Judgment handed down 2 October 1987.
Northrop J.: The Commissioner of Taxation ("the Commissioner") appeals under sec. 44 of the Administrative Appeals Tribunal Act 1975 on a question of law from a decision of the Taxation Appeals Division of the Administrative Appeals Tribunal ("the Tribunal") [reported as Case U17,
87 ATC 175] constituted by Mr K.L. Beddoe, setting aside a decision of the Commissioner and allowing a claim by Heather Genys ("the taxpayer") for a deduction pursuant to sec. 51(1) of the Income Tax Assessment Act 1936 ("the Tax Act") for travelling expenses in respect of the year of income ending 30 June 1984.
Section 51(1) of the Tax Act provides that:
"51(1) All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such 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, or are incurred in relation to the gaining or production of exempt income."
The Commissioner is seeking to have the decision of the Tribunal set aside.
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The findings of fact made by the Tribunal are not in dispute and can be stated quite succinctly. The taxpayer is a nursing sister registered with the Nurses' Registration Board of Queensland. In April 1983, she began to work relief shifts on what was described as a sub-contract basis with various hospitals in and around Brisbane. That is, the taxpayer was not employed by any one hospital, but was registered with the Northern Nursing and Employment Agency, which specialises in obtaining and arranging casual work for nursing sisters. It appears that whenever hospitals are in need of additional nursing staff for a particular shift or shifts, they contact the agency, who, in turn, contact persons on their books such as the taxpayer, to undertake the particular shift or shifts requested by the hospital. These arrangements are often made at extremely short notice, particularly in intensive care units, which is the taxpayer's field of speciality.
In her return for the year ending 30 June 1984, the taxpayer claimed a deduction of $740 for travelling expenses and $192 telephone expenses. The deductions were disallowed by the Commissioner pursuant to a notice of assessment dated 12 December 1984. On 16 January 1985, the taxpayer lodged an objection to the assessment, and pursuant to this objection, an amended notice of assessment was issued, allowing the deduction for the telephone expenses, but disallowing the claim for travelling expenses. The taxpayer appealed to the Tribunal from that part of the assessment disallowing the deduction for travelling expenses.
Before the Tribunal, the taxpayer argued that because she worked at a number of different hospitals, it was necessary for her to use her home as an operating base, and that, in effect, her home doubled as her office. This contention may be summarised by quoting what was said by the taxpayer in her notice of objection:
"Because of the nature of relief shift work, I may work at a number of different hospitals during any one week. Accordingly, to be able to achieve continuity of work, it is necessary for me to use my home as my operating base. Any calls to me from my employment agency are made to my home, and therefore it is properly regarded as a place of work.
In turn, any enquiries by me to the employment agency or to the hospitals to arrange shift work are made from home. Further, I can be sent to any hospital at any time, day or night for a shift, and the only point at which I can be contacted is my home.
Because I am virtually on call 24 hours a day, it is not practical to operate from an office or premises which is not my home. Accordingly, my home doubles as my office or operating base."
Further, the taxpayer argued that it was necessary for her to travel by car because of the short notice she was given by the hospitals, which required her to keep her travel time to a minimum. The taxpayer alleged that her travel expenses for the year ending 30 June 1984, calculated on a rate per kilometre basis, amounted to $740. The Tribunal was not convinced that the basis upon which the claim for the expenses was made was a proper one, but was prepared to infer that the expenses totalled $740.
The Tribunal found as a fact that when the taxpayer set out from her home to travel to a hospital and return, she was travelling on her duties as an employee of the hospital that had contracted to employ her on that day. The Tribunal rejected the taxpayer's contention that she was carrying on a business from her home for the reason that the taxpayer did not make decisions as to where she would work or her hours of work. It held that the fact that while on duty she was constantly making decisions about the care of her patients, arose from her professional status and was not relevant in determining whether she was in a master/servant relationship. She was not required to make those decisions while at her home.
However, notwithstanding its finding that the taxpayer was not carrying on a business from her home, the Tribunal allowed the deduction pursuant to sec. 51(1) of the Tax Act on the basis that the taxpayer came within the principles laid down in
F.C. of T. v. Collings 76 ATC 4254, the Supreme Court of New South Wales constituted by Rath J., or, in the alternative,
F.C. of T. v. Wiener 78 ATC 4006, the Supreme Court of Western Australia constituted by Smith J., being decisions binding upon the Tribunal.
In his Notice of Appeal the Commissioner relied on two main grounds to support his
87 ATC 4878
argument that the expenses were not incurred in gaining or producing assessable income and that as a result, they were not allowable deductions.
First, although it was not disputed that the taxpayer was an "employee", the Commissioner alleged that the respondent could not be regarded as an employee from the time she left her home to travel to her place of employment until the time of her return thereto. Rather, her employment began when she commenced her nursing duties at the hospital. Therefore, the expenses incurred by the taxpayer in travelling to and from the hospital were of a private or domestic nature.
Second, it was alleged that the Tribunal erred in law in holding itself bound by the decisions in Collings and Wiener on the primary facts as found by the Tribunal.
The starting point for a consideration of the principles regarding the deductibility of travelling expenses is
Lunney v. F.C. of T. (1957-1958) 100 C.L.R. 478. In that case, the Court settled the question of the deductibility of travel expenses as it arises in the simple case of an employee travelling day by day from his home to a sole place of work and back again by holding that such expenses were not "losses or outgoings" within the meaning of sec. 51(1) of the Tax Act. In coming to this decision, Williams, Kitto and Taylor JJ. in a joint judgment adopted the test which was formulated and developed in
Amalgamated Zinc (De Bavay's) Ltd. v. F.C. of T. (1935) 54 C.L.R. 295;
W. Nevill & Co. Ltd. v. F.C. of T. (1937) 56 C.L.R. 290 and
Ronpibon Tin N.L. and Tongkah Compound N.L. v. F.C. of T. (1949) 78 C.L.R. 47 that expenditure is invested with the requisite character if it is "relevant and incidental" to the derivation of assessable income. However, they held that a decision as to the deductibility of travelling expenses could not be arrived at by adopting the process of reasoning that unless travelling expenses are incurred in getting the taxpayer from his residence to his place of employment and back again, the taxpayer would not be able to engage in the activities from which his assessable income is derived, and that therefore, the expenditure is "relevant and incidental" to the gaining or producing of such income. Whether or not such expenditure is deductible, depends not on its purpose or whether it is an essential prerequisite to the derivation of income, but on whether the essential character is relevant and incidental to such derivation.
Williams, Kitto and Taylor JJ. proceeded to characterise the expense as a living expense, in accordance with the following observations of Denning L.J. in
Newsom v. Robertson (1953) 1 Ch. 7 which they quoted at p. 500:
"A distinction must be drawn between living expenses and business expenses. In order to decide into which category to put the cost of travelling, you must look to see what is the base from which the trade, profession, or occupation is carried on. In the case of a tradesman, the base of his trading operation is his shop. In the case of a barrister, it is his chambers. Once he gets to his chambers the cost of travelling to the various courts is incurred wholly and exclusively for the purposes of his profession. But it is different with the cost of travelling from his home to his chambers and back. That is incurred because he lives at a distance from his base. It is incurred for the purposes of his living there and not for the purposes of his profession, or at any rate not wholly or exclusively; and this is so, whether he has a choice in the matter or not. It is a living expense as distinct from a business expense."
Their Honours agreed with Denning L.J. that the essential purpose of the expenditure is not to enable a taxpayer to derive assessable income, but is a necessary consequence of living in one place and working in another.
Dixon C.J., with apparent reluctance, came to the same conclusion; McTiernan J. dissented.
However, the general proposition laid down in Lunney, notwithstanding that it remains good law, is not exhaustive. In
Garrett v. F.C. of T. 82 ATC 4060, the Supreme Court of New South Wales constituted by Lusher J. held that it had no application to the following situations:
- (a) where the taxpayer keeps necessary equipment or instruments at his home which he needs for the purpose of performing his work, and by reason of its bulk, such equipment needs to be transported by vehicle from the home to his place or places of work and where the equipment is used at home;
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- (b) where the taxpayer incurs expenses for travel between two places of business or work; and
- (c) where the employment can be construed as having commenced at the time of leaving home.
A fourth situation, not enunciated in Garrett, is where the taxpayer travels between home and shifting places of work, i.e. an itinerant occupation.
Before embarking upon a consideration of Lunney and the qualifications thereto outlined above, it is emphasised that neither the decision nor the qualifications are statutory law and should not be construed as though they were the words of an Act of Parliament. The question which this Court is called upon to decide is whether the travelling expenses incurred by the taxpayer are "losses or outgoings" incurred in gaining or producing the assessable income. The various categories referred to above are mere examples of how courts have applied sec. 51(1) in given circumstances. Keeping this in mind, I now turn to consider whether the facts of the present case come within the general principles of Lunney or any of the qualifications thereto.
It is clear that the taxpayer does not come squarely within the principles laid down in Lunney, since hers is not the simple case where there is a sole place of work to which the taxpayer commutes each day from home. However, counsel for the Commissioner argued that the fact that the taxpayer had a number of employments at various hospitals did not make her position inherently different from that of a person with an ordinary term of employment at one place. In order to determine whether this is so, it is necessary to look at the nature of the exceptions to Lunney.
In particular, it is necessary to determine whether, first, the taxpayer could be said to have commenced her employment at her home, with the result that she would be engaged in her duties as an employee during her travel time or, alternatively, whether the taxpayer's occupation could be described as itinerant.
Counsel for the taxpayer argued that because the taxpayer received her work instructions from the agency over her home telephone - indeed this was their only method of contacting her - the taxpayer's home doubled as her work base. Hence, when the taxpayer set out in her car to travel to and from a particular hospital, she was travelling between one place of business and another. During the course of the hearing, the Court was referred to several cases where a deduction was permitted for the expenses of travel between home and work. It is not necessary to refer in detail to each of these cases, but three, in particular, are worthy of mention.
First is the case of
Owen v. Pook (1970) A.C. 244, where the taxpayer was permitted a deduction for travelling expenses incurred between his home and work. The taxpayer was in practice as a general medical practitioner and was on stand-by duty at specified times to deal with emergency cases at the hospital. During these periods, he was required to be accessible by telephone. Upon receiving a telephone call, the taxpayer usually gave instructions to the hospital staff as to the treatment to be given to the patient, and then set out for the hospital (although it was not always necessary for him to travel to the hospital). His responsibility for the patient began immediately upon receipt of the call. A majority of the House of Lords held that the taxpayer performed the duties of his office in two places, namely the hospital and the place where he received the telephone call, at which time his duties commenced. Therefore, the travelling expenses were incurred in the performance of his duties and, accordingly, were deductible.
Second is the case of
F.C. of T. v. Ballesty 77 ATC 4181, a decision of the Supreme Court of New South Wales constituted by Waddell J. In that case, the taxpayer was employed as a purchasing officer by a social club and was also a part-time employee professional footballer. The taxpayer claimed a deduction for car expenses in travelling from the social club at the end of his day's work to training and between his residence and matches, whether played on his home ground or on grounds other than his home ground. The taxpayer argued that he was entitled to a deduction because, inter alia, he had with him his football gear which weighed up to 20 lb. and also because of temperamental factors (e.g. stress) which necessitated travel by car and not public transport. He argued that he was under a contractual obligation to travel to and from training and matches in a manner which would enable him to perform at his best. Therefore,
87 ATC 4880
the activity was productive of assessable income. He further submitted that his place of residence was his base of operations and that the cost of travel between his home and matches and training was necessarily an expense incurred in gaining the assessable income.
The Court upheld the taxpayer's claim for a deduction under sec. 51. Waddell J. accepted that it was necessary for the taxpayer to travel by car in order to produce his best form and thereby fulfil the terms of his contract. He also held that the taxpayer had embarked upon the activities by which he earned his assessable income when he left home to travel to a training session or a match and as continuing in those activities on his journey home. Hence, his residence could properly be regarded as his base of operations.
Finally, in Collings, which the Tribunal treated as binding on it, the taxpayer was employed as a computer consultant. In addition to her normal duties, the taxpayer was on call 24 hours a day, seven days a week for the duration of a special project involving a major computer conversion operation. It was usual for her to receive telephone calls at her home requesting her advice whenever trouble arose. For this purpose her employer had installed a portable terminal at her house which was connected to the work computer through the telephone line. If the taxpayer could not solve the problem using her portable terminal, she was required to return to the office in order to revive the computer. The taxpayer estimated that she made several extra telephone calls and one additional trip per day, including weekends. The taxpayer sought a deduction for travel expenses between home and work outside her normal daily journey. The Court held that such expenses were incurred in gaining or producing her assessable income and accordingly were deductible. The Court held that the taxpayer had a double work location, which was not merely "colourable", but a necessary obligation arising from the special nature of her duties. When the taxpayer set out for the office after her normal hours, she was travelling between one place of work and another, since her duties began at home. The Court made some important observations on Lunney. At pp. 4261-4262 Rath J. said:
"It seems to me that the proposition that expenses of travel between the taxpayer's residence and his place of work are not allowable deductions under sec. 51 has its basis in a specific viewpoint that such expenses are of a private nature, and not in any compulsion of the words `incurred in gaining or producing the assessable income' or in any of the criteria formulated for applying those words in particular cases. That such expenses are essentially of a private nature has derived from a view that a man's choice of a home in a location different from his work is a decision relating to his private living...
Thus the question in the present case resolves itself into whether a principle, that appears to (be) grounded in history rather than in reason, should be extended to a case such as the present when a business element is present in the journey from home to work, if not from work to home. I am not concerned with those normal daily journeys that have their sole relation to a person's choice of his place of residence; I am concerned with journeys which begin as a result of performance of the duties of the employment at the taxpayer's home. The journey from home to the office is undertaken, not to commence duty, but to complete an aspect of the employment already under way before the journey commences. The journey home again has not this same character, but it might be looked upon as the completion of a process that began when the taxpayer whilst at home (or perhaps elsewhere, such as at a cinema) was called upon to resolve some problem of malfunction of her employer's computer. On the other hand, the taxpayer was free to choose her place of residence (provided, at all events, that it was in Sydney), and to the extent that her expenses of travel reflect her exercise of that choice it is arguable that they are personal living expenses, and that there is no difference in principle between the ordinary and special journeys."
His Honour referred to the decisions of Owen v. Pook (above) and
Taylor v. Provan (1975) A.C. 194 and stated at p. 4267:
"Such a rigid view... is no longer tenable following the decisions of the House of Lords in Owen v. Pook and Taylor v. Provan; and it is reasonable to approach the construction of sec. 51(1) in the light of these later cases. Those cases establish that
87 ATC 4881
if a man has several places of work, travelling between them constitutes travelling on his work, even if one of the places of work is also his place of residence."
Hence, the fact that one's residence is one's choice does not prevent the residence being regarded as a place of work. The element of choice is the location of one's residence and except in the simple case of a regular daily journey, does not automatically deny a taxpayer a deduction. To interpret sec. 51(1) of the Tax Act in this manner is to read into it a "preconceived limitation".
The question that falls to be decided by this Court is whether, on the facts of the present case, the taxpayer's home could be said to be her place of work. Whether a home constitutes a taxpayer's place of work necessarily depends on the nature and extent of the activities undertaken by the taxpayer in the home. In the present case, I am of the opinion that the mere receipt of telephone calls from the agency requesting the respondent to work a particular shift is not sufficient to constitute the respondent's home a place of work. The respondent is under no obligation to accept the offer of work, hence, accessibility at home is not something that could be said to be required of her in the course of her employment. Nor does the respondent commence her duties upon receipt of the call, as did the taxpayers in Owen v. Pook and Collings. In those cases, the taxpayers gave advice and instructions from the home, so that if it was necessary for them to travel to their places of work they could be said to be travelling on their work, not merely to their work. Here, the taxpayer's duties did not commence until her arrival at the hospital.
I am not helped by the argument that the taxpayer had to travel by car in order to keep her travel time to a minimum and that if she went by public transport she would not be fulfilling the requirements of her particular employer. I am of the opinion that the taxpayer, despite the short notice she was often given, and the exigency of car travel, was in a similar position to those "thousands of employees" that Lord Donovan referred to in Pook v. Owen, who have to be on stand-by duty at their homes and are required to obey a summons to cope with some emergency. Such employees do not have two places of employment and neither, in my view, does the taxpayer.
The decision in Ballesty seems unduly wide and difficult to reconcile with the clear principles stated in Collings.
I now turn to the other exception to Lunney, namely whether the taxpayer is engaged in itinerant employment. If so, it is not essential in order to qualify for a deduction that the taxpayer establish that the home is a place of work, because the deduction is allowable not because the home is a place of work but because the expenses are a consequence of the different locations of work. Again, Lunney has no application because the expenses cannot be described as a consequence of the taxpayer's choosing to live away from her work.
The best statement of this principle is to be found in
Horton v. Young (1972) Ch. 157, where Brightman J. said at pp. 1163-1164 [sic]:
"There are, however, some occupations in which the self-employed person does not have any location which can readily be described as his place of business but, rather, a number of places at which from time to time he exercises his trade or profession. It seems to me that there is a fundamental difference between a self-employed person who travels from his home to his shop or his office or his chambers or his consulting rooms in order to earn profits in the exercise of his trade or profession and a self-employed person who travels from his home to a number of different locations for the purely temporary purpose at each such place of there completing a job of work, at the conclusion of which he attends at a different location. I do not think it matters in the latter type of case whether the taxpayer does nor does not effectively carry on any trade or professional activities in his own home. The point is that his trade or profession is by its very nature itinerant. When the chimney sweep leaves his home in the morning and goes from house to house with the aid of his car or van, it appears to me unrealistic to deny that he incurs all such travelling expenses wholly and exclusively for the purposes of his trade. There must be plenty of other self-employed persons whose jobs are similarly itinerant. The test cannot be whether the job keeps the taxpayer at a
87 ATC 4882
particular location for perhaps two hours, as in the case of the chimney sweep, or three weeks, as in the case of Mr Horton.
In my view, where a person has no fixed place or places at which he carries on his trade or profession but moves continually from one place to another, at each of which he consecutively exercises his trade or profession on a purely temporary basis and then departs, his trade or profession being in that sense of an itinerant nature, the travelling expenses of that person between his home and the places where from time to time he happens to be exercising his trade or profession will normally be, and are in the case before me, wholly and exclusively laid out or expended for the purposes of that trade or profession. I have used the adverb `normally' because every case must to some extent depend on its own facts."
The Court of Appeal dismissed the Crown's appeal against the judgment of Brightman J., but found in favour of the taxpayer on the ground that his home constituted the base from which the taxpayer carried on his business - indeed, it was the only point at which he could be contacted.
At the hearing before this Court, counsel for the Commissioner sought to establish that the taxpayer's employment was not of an itinerant nature, because the essential nature of the duties of a nurse does not involve travel, as do the occupations of, for example, a travelling salesman, bricklayer, plumber, etc. Also, the taxpayer is not required to travel in the course of her work - once she arrives at a hospital she undertakes no further travel during the shift. Her travel was not, therefore, of sufficient frequency to enable it to be regarded as part of her employment.
Counsel contrasted the facts in Wiener. There, the taxpayer was a schoolteacher in Western Australia. From Monday to Thursday, she was required to teach at five different schools each day spending approximately one hour per day at each school. The taxpayer sought to deduct her car travel expenses not only for travel between schools, but for travel between her home and the first school, and from the last school to her home. The Court allowed the deductions, finding that the nature of the job itself made travel in the performance of its duties essential and it was a necessary element of her employment that transport remain at her disposal throughout the day. The Court held that travel expenses claimed by the taxpayer fell into the first of Lord Simon's categories in Taylor v. Provan (supra) at p. 221, namely "where the office or employment is of itself inherently an itinerant one, so that the taxpayer may be said to be travelling in the performance of her duties from the moment of leaving home to the moment of return, the expenses are deductible".
In addition to deciding whether or not the taxpayer's employment involves sufficient travel to warrant giving it the description "itinerant", it is necessary to determine what difference, if any, arises from the fact that the respondent is employed on a casual basis by several employers. On the issue of casual employment, counsel for the Commissioner directed the Court to Case R8,
84 ATC 157, a decision of a Taxation Board of Review. That case involved a nurse who was engaged in agency work and who was on call 24 hours per day, seven days per week. The work involved was relief work at hospitals who had staff away ill and also for the Cancer Council. As in the present situation, the taxpayer was contacted at her home and could refuse any employment offered to her. The only significant difference between that case and the present one was that the taxpayer was paid by the agency, not the hospital.
The Board refused to regard the taxpayer's home as her base of operation, as it found that the taxpayer was doing no more than travelling from her home to her place of employment. Hence the case could not be elevated to the height necessary to distinguish it from Lunney.
The Board did not explicitly address its reasons to where a taxpayer has more than one employer, but presumably did not accord much weight to this fact.
After anxious consideration, I have come to the conclusion that the taxpayer's employment cannot be regarded as "itinerant". The main distinction, which I draw, between this case and the factual situations referred to in Horton v. Young and Wiener is that here, the taxpayer does not travel between two places of work after the commencement of her duties; she simply drives from home to work and back again.
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By contrast, in the situations referred to in Horton v. Young, the taxpayer (whether a salesman, plumber, chimney sweep, etc.) travels from home to work, but also travels from that first place of work to other places of employment throughout the course of the day before his return home. this was also the case with the schoolteacher in Wiener, where the taxpayer travelled to five different schools per day, not one school per day for five days (which would make it comparable to the present case).
In conclusion, in my opinion, the mere fact that the taxpayer in this case does not have a regular place of employment in the sense of a permanent employment at one hospital is not sufficient to take her outside the general principles expressed in Lunney.
I would therefore set aside the decision of the Tribunal and remit the matter to the Tribunal for determination according to law.
THE COURT ORDERS THAT:
1. The decision of the Administrative Appeals Tribunal be set aside.
2. The matter be remitted to the Administrative Appeals Tribunal for determination according to law.