This blog outlines the Tax Office’s response to a case which concerned whether the costs incurred by an employee teacher in respect of overseas travel and the purchase of newspapers and magazines were deductible from his income.
Brief Summary of Facts
The applicant was employed as an Assistant to the Principal of a high school in Victoria between 2003 and 30 June 2005. In 2005, he was also appointed as the head of the Studies of Society and the Environment (SOSE) faculty at the school for that year. The appointment to this position led to an increase in income.
The applicant used unpaid leave to visit various places in Asia, Europe and the UK from July to October 2004 accompanied by his wife. The trip consisted of general package tours and self guided visits to places mainly of historical interest and significance. The applicant was not formally required by the high school to undertake the trip, and did not attend any professional conferences or lectures or visit any schools on the trip.
During the 2005 income year, the applicant purchased daily newspapers and occasional magazines before school for the asserted primary purpose of taking cuttings to be used to provide students with writing tasks.
For the 2004 income year, the applicant claimed a deduction of $9,309 for work related travel expenses in respect of his overseas trip. For the 2005 income year, the applicant claimed a further deduction of $5,000 in respect of his overseas trip and $200 for the purchase of newspapers and magazines.
The Commissioner argued before the Tribunal that the expenses incurred on the overseas trip were essentially of a private nature and did not have a sufficient connection with the activities by which the applicant earned his income as an Assistant to the Principal during 2004, nor was there any evidence to show that the applicant received his appointment to the SOSE faculty in 2005 as a result of undertaking the trip.
Issues decided by the Court
The Tribunal decided that 75% of the overseas travel expenses incurred by the applicant were deductible from his income. The Tribunal was satisfied that the expenses not only directly contributed to his professional skill and knowledge, but also directly led to his advancement within the school as head of the SOSE faculty. The Tribunal decided that the dominant purpose of the travel was to improve the applicant’s knowledge and skills as a teacher and to enhance his promotional opportunities at the school. The Tribunal also found that the travel enabled the applicant to support his colleagues in developing the curriculum mandated by the State government. It was also found that a minor element of the travel would have been of a recreational character, for which a 25% reduction was appropriate.
The Tribunal decided that 15% of the purchase cost of the newspapers and magazines was deductible from his income. While the Tribunal was satisfied that the applicant used the publications to take clippings for use in his teaching activities, it considered that he would have simultaneously taken the opportunity to absorb the content for private purposes.
Tax Office view of Decision
The Commissioner considers that the decision is able to be viewed as being consistent with established general principles of deductibility in relation to expenses incurred by employees. The Tribunal noted that ‘each case must be considered on its own peculiar facts’, referred to the decision in Commission of Taxation v. Finn (1961) 106 CLR 60, and stated that … Factors taken into account by the High Court included
- the extent to which the taxpayer increased his knowledge as a result of the travel and whether that proved decisive in his subsequent career advancement;
- the extent to which his increased knowledge was recognised and valued by his colleagues;
- the extent to which the knowledge gained was necessarily incidental to the taxpayer’s work; and
- the extent to which the expenses related to the acquisition or enhancement of skills relevant to the taxpayer’s work.
The Tribunal found on the evidence that the applicant satisfied the criteria for deductibility as identified by the High Court in Finn , and that the applicant’s ‘dominant purpose’ in undertaking the overseas travel was work related.
The Commissioner initially lodged an appeal from the decision of the Tribunal to the Federal Court, but withdrew the notice of appeal after considering further legal advice.
The Tribunal’s acceptance of the applicant’s ‘dominant purpose’ in undertaking his overseas travel determined the outcome of this case.
About The Author
Warren Kruger is an Australian Tax Specialist and Advisor.
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Warren Kruger is an Australian Tax Specialist and Advisor. For a FREE Report “7 Essential Strategies to Reduce Your Taxation NOW!”,enter your name and email address in the Opt In Box located on the top right hand side of this article.
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