We pay taxes almost for everything that is done for the public: various services, education, health care, etc. As Warburton and Hendy state, “In liberal democratic society, the community makes choices about how they want their society and economy to operate. One of the most fundamental choices in the balance between private and public provision of services”. (Woellner, Barkoczy, Murphy, and Evans 2009, p.3). These days, the system of taxes determines all business transactions. In this paper, we are going to examine three cases that deal with deductions and analyze the decisions provided in three cases, FC of T v Anstis 2009 ATC 20-142 with the decisions in Lunney and Hayley v FC of T (1958) 100 CLR 478 and FC of T v Maddalena 71 ATC 416.
First of all, let us consider every case that deal with deductions for students with taxable Commonwealth education payment. The first case under consideration is FC of T v Anstis 2009 ATC 20-142 that was listened in Full Federal Court, Melbourne. The main argument was around the question whether the costs of the text books and other expenses were included into the cost of earning income. In this case, the claimed amount was $ 920, “It seems the only chance a taxpayer has against the ATOs limitless budget is if, like Symone Anstis, their father is a solicitor” (“Self Education Expenses and Centrelink Payments” 2009, n. p.). The main point of the decision concerning this question can be illustrated by the words of the judge:
“the first limb of s 8-1 was concerned with whether the outgoing was incurred in the course of deriving assessable income, not whether the outgoing was incurred for the purpose of deriving assessable income: FC of T v Payne 2001 ATC 4027.” (“Self Education Expenses and Centrelink Payments” 2009, n. p.).
Providing the interpretation of this statement, it should be mentioned that ATO’s narrowed the key points of the deductibility of self education expenses. The judge allowed the taxpayer deductions. According to the taxpayer’s statement, the “expenses were incurred in order to produce assessable income, in this case being Youth Allowance payments” (“Self Education Expenses and Centrelink Payments” 2009, n. p.). Until this case, self education deductions were denied when a particular job was part of the process of qualification in profession. This case overturned the approach to the issue: “whether the expense is incurred in the course of deriving assessable income rather than for the purpose of, a simple link may be all that is necessary” (“Self Education Expenses and Centrelink Payments” 2009, n. p.).
The second case Lunney and Hayley v FC of T (1958) 100 CLR 478 was a leading one in disallowing travel from and to work. The decision taken in the case was the next one:
“to say that expenditure on fares is a prerequisite to the earning of a taxpayer’s income is not to say that such expenditure is incurred in or in the course of gaining or producing his income and it may be said to be a necessary consequence of living in one place and working in another” (“Draft Taxation Ruling” 1993, n. p.).
The judges interpreted the expenditure as “too preliminary” and in this light it could not be analyzed as a business expense. In other words, the Court judged the expenditure form the point of view of “cost of getting to work or business, but not as a “working or business expense”. This case is perfect example of the restricted approach to interpretation of expenditure related to work.
The third case deals with the deductibility of the management fees:
“The FCT v Maddalena applied to deny deductibility in respect of the management fees, the Court concluded that Mr Maddalena was not able to deduct expenses incurred in seeking and obtaining a new employment contract with a club because the expenses were not incurred in gaining or producing income from the new employment” (“Tax Update” 2009, p. 3)
Analyzing the cases provided, we can see that the three of them share the same theme: expenses are deductable only if they are directly incurred to derive the incomes. Only the first case had a positive outcome for the plaintiff, as Symone was able to prove that her educational expenses were deductible because they were enrolled in the field of her occupation and constituted essential prerequisite for her Youth Allowance. In other words, she proved that the case was not of a private or domestic nature, but was related to the occupation. Thus, the decision of the court provided the undergraduate students with the opportunity to claim educational expenses as tax deductible. As opposed to Anstis, the cases of Lunney and Hayley and Maddalena failed to provide sufficient evidences that their expenses had a “business” and not a “private” character. The prerequisite of the case was that travelling from home to work should be tax deductable as they compose the expenses to earn income. However, considering the fact that such sort of travelling has a private character (in other words, it is a private travelling and conditioned by the fact of living and working in different places), it cannot be a solid prerequisite for assessable incomes. Thus, in order to be eligible for the tax deductable expenses, the traveling between home and work should be incidental and relevant to the course of earning the income. The similar situation is with the contract of Mr Maddalena with the rugby league club. The denial of the case was based on the same reason: as it was the contact of employment and it was not incurred in the course of earning income payable in the employment it was concluded that Maddalena was not aimed at conducting a business, he was not entitled to deductions. Thus, we can outline the main similarities and differences between the three cases under consideration. Thus, all of them deal with the tax deductable expenses. The plaintiffs claimed to be eligible for deductions for expenses incurred to derive an income. However, each case had particular prerequisites that were taken as basic ones and influenced the outcomes. The main condition for the three cases was that the expenses should have a business and not a private character, which was proved only in the first case. Moreover, the cases are characterized by narrow approach to the problem that was centered on a particular issue and provided alternative interpretation of the case. In fact, the Courts were actually focusing on the “relevance” to the taxpayer’s income producing activities (Baxby & Brash 1994, p. 78). It can also be stated that there is a possibility to reconcile the outcomes in these cases if to apply a broader approach to the cases and prove that expenses (for travelling between home and place of work) is essential pre-requisite to earning income.
Thus, we have come to a conclusion that deductibility of the outgoing is always determined by the necessary character and should be closely related to the sourse of income, thus, it must not have a “private” character, as it is provided in the cases analyzed in this paper. Narrow approaches that were taken by Courts when providing their decisions were centered on particular issues and were relevant to the taxpayers’ producing activities. In other words, they focused on “essential character of the expenditure” (Baxby & Brash 1994, p. 78) which determined the final decisions.
Reference List
“Draft Taxation Ruling” 1993, Commonwealth of Australia. Web.
“Self Education Expenses and Centrelink Payments” 2009, BAN TACS Accountants Pty Ltd NEWSFLASH, no. 197. Web.
“Tax Update” 2009, MinerEllisonRuuddWatts. Web.
Baxby, D., & Brash, D. 1994, “Self Education Expenses and Receipts: Implications for Income Taxation and FBT in Light of FCT v MI Roberts”. Revenue Law Journal, vol. 4, no. 1, pp. 72 – 83
Woellner, R., Barkoczy, S., Murphy, S., & Evans, C. 2009, Australian Taxation Law. Sydney, CCH Australia Limited.