FEDERAL COURT OF AUSTRALIA

Ogden v Commissioner of Taxation [2014] FCA 1111

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    There be no order as to costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

Background

1    On 20 June 2014, the Administrative Appeals Tribunal (“Tribunal”) handed down its decision in reference 2012/5365, varying the objection decision of the respondent (“Commissioner”) as indicated in the Reasons for Decision (“R”) published at the same time: Garry Ogden v Commissioner of Taxation [2014] AATA 385.

2    The applicant is a professional sales commission agent (R [1]).

3    The applicant lodged a return for the 2010 income year declaring taxable income of $21,377 and claiming deductions in the amount of $97,162 (R [2]). The Commissioner disallowed many of the applicant’s deductions (R [3]). By the time of the hearing, additional material had been provided and the dispute was confined to the deductibility of certain “work related travel expenses” ($483), work related clothing / laundry expenses ($833), “other work related expenses” ($19,640), the cost of managing the applicant’s tax affairs ($8,216) and “trust distribution deductions” ($29,828) (R [22]).

4    The Tribunal identified the issue as whether “the Applicant has satisfied me that the necessary nexus exists between the outgoings and the gaining or producing of his assessable income pursuant to section 8-1 of the ITAA, such that [the applicant] is entitled to claim a deduction” for each item referred to above (R [22]).

5    The Tribunal relevantly held that the applicant had failed to substantiate the following amounts claimed as deductions:

(a)    “work related expenses” – $483 (R [25]–[27])

(b)    “work related clothing / laundry expenses” – ($811) (R [34])

(c)    “heating and lighting” – $802 (R [53]–[55])

(d)    “staff and client amenities” – $1,300 (R [63]–[66])

(e)    “cost of managing tax affairs” – $240 (R [78] and [80])

Notice of Appeal and Objection to Competency

6    On 7 July 2014, the applicant filed a notice of appeal from the Tribunal’s decision in the NSW District Registry of this Court claiming that the Tribunal erred in failing to allow these amounts as allowable deductions.

7    On 18 July 2014, the Commissioner filed a notice of objection to the competency of the appeal on the ground that the notice of appeal fails to state a question of law to be raised on the appeal: see s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) (“AAT Act”); Rule 33.12(2)(b) of the Federal Court Rules 2011 (“Rules”).

8    On 13 August 2014, I ordered both parties to file and serve written submissions on the Commissioner’s notice of objection to competency and further ordered that, pursuant to s 20A(2) of the Federal Court of Australia Act 1976 (Cth), determination of that matter be dealt with on the papers without an oral hearing.

9    Written submissions have been filed on a timely basis and I now proceed to determine the objection to competency.

The Court’s Jurisdiction

10    Section 44(1) of the AAT Act provides:

A party to a proceeding before the Tribunal may appeal to the Federal Court of Australia, on a question of law, from any decision of the Tribunal in that proceeding.

11    Section 44(3) relevantly provides that this Court has jurisdiction to hear and determine appeals instituted in the Court in accordance with s 44(1).

12    Rule 33.12(2) prescribes the content of a notice of appeal for an appeal commenced under s 44 of the AAT Act:

The notice of appeal must state:

(a)    the part of the decision the applicant appeals from or contends should be varied; and

(b)    the precise question or questions of law to be raised on the appeal; and

(c)    any findings of fact that the Court is asked to make; and

(d)    the relief sought instead of the decision appealed from, or the variation of the decision that is sought; and

(e)    briefly but specifically, the grounds relied on in support of the relief or variation sought.

(Emphasis added.)

13    In an oft-cited passage in TNT Skypak International (Aust) Pty Ltd v Federal Commissioner of Taxation (1988) 82 ALR 175 at 178, Gummow J explained the change wrought by the enactment of s 44 of the AAT Act: “The existence of a question of law is now not merely a qualifying condition to ground the appeal, but also the subject matter of the appeal itself”: cited with approval in Mulherin v Commissioner of Taxation [2013] FCAFC 115 at [7]; see also Price Street Professional Centre Pty Ltd v Commissioner of Taxation (2007) 243 ALR 728 at [40] and [73]. In Branson v Commissioner of Taxation (2008) 73 ATR 864 at [36], Emmett J observed of the question of law that: “[I]t and it alone, is the subject matter of the appeal and the ambit of the appeal is confined to that question of law”.

14    As outlined in more detail below, with the exception of the “administrative penalty” issue, the parts of the decision of the Tribunal that are complained of in the notice of appeal concern the deductibility of amounts under s 8-1 of the Income Tax Assessment Act 1997 (Cth) (“1997 Act”).

15    In Commissioner of Taxation v Brixius (1987) 16 FCR 359, the Full Court considered whether s 44(3) of the AAT Act conferred jurisdiction on the Court to hear and determine an appeal from a decision of the Tribunal concerning the deductibility of rent paid by the taxpayer (who was employed by the Department of Education) to the extent that it was referrable to the taxpayer’s home study under s 51 of the Income Tax Assessment Act 1936 (Cth) (“1936 Act”), being the antecedent provision of s 8-1 of the 1997 Act: there is no material difference between the two provisions: see Commissioner of Taxation v Citylink Melbourne Ltd (2006) 228 CLR 1 at [90] per Crennan J (Gleeson CJ, Gummow, Callinan and Heydon JJ concurring).

16    In Brixius the Tribunal determined the issue in the taxpayer’s favour and the Commissioner appealed to this Court pursuant to s 44 of the AAT Act. The Commissioner identified the issues in the appeal as whether the rent was an outgoing “incurred in gaining or producing assessable income” and whether it was of a “private or domestic nature” within the second limb of s 51(1) (at 362). The Commissioner submitted that the Court’s jurisdiction was enlivened by reason that the “Tribunal had wrongly applied the relevant law to the facts before it” (at 362–363).

17    In the joint reasons delivered by the Court for dismissing the Commissioner’s appeal, the Court stated that (at 365–367):

The difficulty which confronts the Commissioner is that, once having identified the correct principles of law (a matter which was not challenged) the question for determination by the Tribunal is, in a matter of this nature, essentially a question of fact, or of fact and degree.

As a matter of law the question for determination on the first limb of s 51(1) is whether the outgoing has the necessary relation to the gaining of assessable income, that is, has it the essential character of an outgoing incurred in gaining such income? The Tribunal correctly identified this principle and the Commissioner did not contend to the contrary. Its task was then to apply the law to the facts as found. The application of s 51(1) in this manner is in the varied circumstances of each case very much a matter of fact and degree. These factors were so stated by Wilson J who gave the principal judgment of the majority of the High Court in Commissioner of Taxation (Cth) v Forsyth (1981) 148 CLR 203 [referencing passages at 210, 213 and 215).

…

Likewise in respect of the exception to s 51(1) the question is whether the outgoing has a private or domestic character. Murphy J said at 197 of Handley v Commissioner of Taxation (Cth) (1981) 148 CLR 182 when dealing with the domestic character of the outgoings, “These are all questions of degree”. Mason J said at 195 of Handley’s case:

“The application of the provisions of s 51(1) gives rise to difficulty in some cases. That is because there is an infinite variety of factual situations to which it may apply. It is not always easy to distinguish one case from another when, in order to apply the section, it is necessary to take a number of factors into account.”

Both Forsyth and Handley were cases dealing with claims for deduction of rent or interest paid in respect of home studies. Earlier Rich J in Maryborough Newspapers Co Ltd v Federal Commissioner of Taxation (1929) 43 CLR 450 at 453 said of a like provision in an earlier Income Tax Act:

“All the cases emphasise the necessity of determining as a matter of fact, what the purpose of the expenditure was, and whether it was made wholly and exclusively for the production of assessable income.”

In the circumstance that after identifying the relevant principle of law its application is very much a matter of fact and degree, it is necessary to turn to the Commissioner’s grounds of appeal and the contentions he put before this Court. ...

…

... [I]n our view the Commissioner has not identified any question of law which affected the Tribunal’s decision and in respect of which he contends it has erred. The decision of which he complains arises exclusively out of the application of the correct principles of law to the facts. As such, the matters which he would wish to argue before this Court are matters of fact and degree, and this Court has no jurisdiction. Therefore we acknowledge that we are not empowered to substitute our view for that of the Tribunal ...

18    See also Price Street Professional Centre at [37]–[44].

Identification of the question(s) of law

19    The question(s) of law enlivening the Court’s jurisdiction under s 44 of the AAT Act should be “properly and precisely framed” in the notice of appeal: Rule 33.12(2)(b); P v Child Support Registrar [2014] FCAFC 98 at [27]. Permitting an appellant to prosecute an appeal without complying with the Rules places the respondent in a “difficult if not invidious position” where the respondent’s interest “can easily be prejudiced”: Arifin v Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2014] FCAFC 61 at [30].

20    This is an unusual case in that the applicant is not represented by a legal practitioner but rather by Mr McNeice who describes himself as a “Chartered Taxation Adviser” and “Registered Tax Agent”. Insofar as it might be suggested that some allowance in relation to compliance with the Court Rules ought be made by reason of the applicant’s choice of representation, the Court’s recent cautions in this regard in relation to self-represented litigants are equally applicable to the applicant’s situation. Firstly, while some allowance may be given to an unrepresented litigant concerning the articulation of the question of law, this does not detract from the fundamental point that the Court’s jurisdiction is only enlivened where a question of law is raised for determination: P v Child Support Registrar at [28].

21    Secondly, in Arifin, which concerned a question of whether the Court’s jurisdiction was enlivened under s 44 of the AAT Act, the Full Court in its joint reasons referred to the practice of courts looking beyond court rules to the substantive merits of an application in circumstances in which a party is self-represented, and cautioned as follows (at [30]): “It is respectfully considered that greater hesitation and caution may be required before too readily departing from requirements imposed by the Federal Court Rules 2011. Those Rules, after all, are there for the benefit of all parties and the public interest in ensuring the proper administration of justice”.

The applicant has not identified a question of law

22    No question of law is stated in the notice of appeal. Rather, under the heading “Questions of law”, the applicant alternatively makes the non-sequitur “Income Tax law – not entertainment” for each item that involved provision of meals/refreshments, and otherwise baldly asserts that there has been an “incorrect application of the law”.

23    Nor do the “grounds replied upon” shed further light on the “question of law”. For amounts claimed in relation to provision of meals/refreshments, the applicant’s grounds are that the deduction should be allowed “in accordance with IT 2675 and TR97/17”. For other amounts, the applicant generally baldly asserts that the “claims are allowable in accordance with Section 8.1 [sic] of the 1997 Income Tax Assessment Act”.

24    Finally, in the applicant’s written submissions, the applicant asserts that the Tribunal made “errors of law” in relation to:

(1)    “Work related expenses” by finding that “the Modern Award” does not apply to the applicant (para 8) and by “not correctly applying Income Tax Ruling 2004/6” (para 10);

(2)    “work related clothing” by “not correctly [applying] the decision in the Federal Court of Australia. Morris v Commissioner of Taxation (2002) [sic] FCA 616” (para 17).

(3)    “heating and lighting” by “not correctly [applying] Taxation Ruling 93/30 to the cost of heating and lighting as substantiated by diary record” (para 24).

(4)    “staff and client amenities” by failing to take “into account Income Tax Ruling IT 2675 and Taxation Ruling TR 97/17 (paras 30–31).

(5)    “cost of managing tax affairs” by again failing to take into account IT 2675 and TR 97/17 (para 34).

25    Not only do the documents filed by the applicant identify no question of law, it is readily apparent that the applicant seeks to have this Court reconsider whether the evidence adduced by the applicant discharged the onus of proving that there is the necessary nexus between the derivation of income and the expenditure, and that the essential nature of the expenditure is not of a private or domestic nature. These are questions of fact and degree rather than questions of law: see Brixius at 365–367; Price Street Professional Centre at [37]–[44]. Consequently, the applicant’s appeal in this respect must be dismissed as incompetent.

Administrative penalty

26    The applicant also seeks to appeal the Tribunal’s decision to affirm the imposition of an administrative penalty of 25% (see R [91] et seq.). The Tribunal’s reasons for affirming that decision were that the applicant “made false or misleading statements in his 2010 tax return” and that the applicant and his tax adviser (Mr McNeice) “failed to take reasonable care” (R [98]–[103]).

27    The applicant identifies the “question of law” in the notice of appeal as: “Section 284–225 of Schedule 1 to the Taxation Administration Act”. The grounds of appeal are essentially that: “There has been a full disclosure by [the applicant] at the audit stage”. The applicant makes no reference to this issue in his written submissions.

28    No question of law has been identified. The applicant’s appeal is incompetent in this regard.

Interest

29    The applicant seeks to raise issues in relation to interest in this appeal. The Tribunal’s decision was not concerned with any interest on a refund payable to the applicant. It is not a matter in respect of which this Court’s jurisdiction is enlivened. This part of the applicant’s appeal is also incompetent.

Conclusion

30    The applicant’s appeal must be dismissed by reason of incompetence. I do not propose to make any costs order. Each party should pay its own costs.

Associate:

Dated:    16 October 2014