JUDGMENT No. | 785¥ SZ... IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY No. G 3386 of 1987 GENERAL DIVISION wwewww No. G 3387 of 1987 BETWEEN : AUSTRALIAN TAXATION OFFICE Applicant AND: JOHN ALAN SPEECHLEY 2 December 1987 Ls, REASONS FOR JUDGMENT 1 1FEB 1988 { \ . \ FEDERAL COURT OF , oN AUSTRALIA "sy PRINCIPAL PRGISTIOY OCKHART J. These are two appeals by John Alan Speechley in taxation matters. One appeal relates to the year of income ended 30 June 1983 and the other to the year of income ended 30 June 1984. The same questions of fact and law relate to each year, hence the two matters are by consent being heard together. Mr. Speechley was at the relevant time, as he still is, a taxi driver. He does not own the cabs that he drives. During the relevant years he drove cabs for the ABC Radio Taxi Co-Operative Limited. Its base was at Cremorne, until it later changed its base from Cremorne to Artarmon during the year of income ended 30 June 1985, but nothing turns on this for present purposes. Mr. Speechley, either wholly or in the main, drove what were called "managed cabs", that is to say cabs owned by individuals most 2. of whom did not drive the cabs themselves, but some of whom drove their cabs a little but did not wish to make all the necessary administrative arrangements for others to drive them. So they delegated to or deputed the ABC co-operative itself to act as their Manager for the purpose of engaging drivers. Mr. Speechley at relevant times drove the night shift, that is 3.00 p.m. to about 3.00 a.m. He finished his shift at various times in the early hours of the morning, generally speaking about 2.00 a.m. Mr. Speechley lives at Epping, and he drove his own motor car, a Holden Statesman sedan, to and from the base each night to pick up the cab for the purpose of driving it and later to return the cab to that base. He would then drive his own car back from his base to his home at Epping. The base was either the radio base of the ABC co-operative itself or the house of the cab owner whose car he drove. Mr. Speechley's precise legal status is not entirely clear. He has certain of the characteristics of both employer and employee. Interestingly enough in the cab industry drivers such as Mr. Speechley are called "bailee drivers", doubtless because the view is taken that the relation between the cab owner and the driver in these circumstances is that of bailor and bailee for value, arising from what is perceived to be the bailment of the taxi cab. It does not seem to me that Mr. Speechley was an employee of the ABC company or of the cab owner. He drove the cab and paid to the cab company or to the owner, as the case may be, a fixed or set amount each night. Mr. Speechley was entitled to retain the difference between that amount and his gross takings, less relevant expenses. I 3. said ina sense that he is an employer in so far as he is not an employee of the cab company or the cab owner. It may be argued that he carried on his own business of driving cabs for others, be they the cab company or the owners of the cabs themsleves. It does not seem to me, however, that the precise nature of the relationship of Mr. Speechley to the cab company or the owner or the precise legal category into which his engagement falls matters for present purposes. Mr. Speechely has made a claim for deduction of his estimate of the costs incurred by him in running his motor car, and his assessment is that one-third of the expenses of running the motor vehicle arise from the estimate costs relevant to the return journey from base to his home each night on which he drove the cabs. The essential use to which his car was put was related to getting to and from his place of engagement. Some element of the one third represents his estimate of costs of the car relating to the journey from place of residence to place of work but that is only a de minimis proportion. No challenge is made by the Commissioner for the purposes of these appeals to the quantum of the deduction claimed by Mr. Speechley. The Commissioner has conducted the case on the basis of seeking a ruling on general principle rather than fine analysis of the dollars concerned. The deductability of expenses of this kind 15 a matter that has vexed the courts for many years and has not given rise to any precisely defined principles. This is hardly surprising when it is remembered that there are multifarious examples of persons who may 4. seek to claim as deductions travelling expenses incurred by them to and from their place of residence and place of work. There are quite a few cases in both England and Australia on the point but the governing case is the decision of the High Court in Lunney v. Commissioner of Taxation (1958) 100 C.L.R. 478. In that case the Chief Justice, Sir Owen Dixon said at p. 485: "These two cases stated raise a question of income tax law which has been accepted as settled for the last two generations. It is whether the fares paid by ordinary people to enable them to go day by day to their regular place of employment or business and back to their homes are deductible expenses allowable against the assessable income earned by the employment or business. Both in Australia andin England the view has always prevailed that expenses of travelling from home to work or business and hack again are not deductible." In the joint judgment of Mr. Justice Williams, Mr. Justice Kitto and Mr. Justice Taylor, their Honours said at pp. 498 and 499: "The question whether the fares which were paid by the appellants are deductible under 5s. 51 should not and, indeed, cannot be solved simply by a Process of reasoning which asserts that because expenditure on fares froma taxpayer's residence to his place of employment or place of business is necessary if assessable income is to be derived, such expenditure must be regarded as 'incidental and relevant' to the derivation of such income. No doubt both of the propositions involved in this contention may, 1n a limited sense, be conceded but it by no means follows that, in the words of the section, such expenditure is 'incurred in gaining or producing the assessable income' or 'necessarily incurred in carrying ona business for the purpose of gaining or producing such income'. It is, of course, beyond question that unless an employee attends at his place of employment he will not derive assessable income and, in one sense he makes the journey to his place of employment in order that he may earn his income. But to say that expenditure on fares is a 5. 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. Whether or not it should be sO characterised depends upon considerations which are concerned more with the essential character of the expenditure itself than with the fact that unless it is incurred an employee or a person pursuing a professional practice will not even begin to engage in those activities from which their respective incomes are derived." Those observations of their Honours were of course in the context of s. 51 of the Assessment Act which is the relevant section here under which Mr. Speechley claims his deduction and that section so far as relevant provides in sub-s. 51(1) that: "All losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable 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 passages from the judgment of Sir Owen Dixon and the joint judgment of Mr. Justice Williams, Mr. Justice Kitto and Mr. Justice Taylor in Lunney's Case, to my mind are directly in point in the present case. Whether Mr. Speechley carries on a business or not is perhaps, as I said, an arguable question. I am inclined to the view that he does not do so, although he is not strictly an employee. But it does not matter for present purposes whether he carries on a business or not. Applying the test enunciated by the majority of the High Court in Lunney's Case, in my opinion the expenditure which is claimed se ' by Mr. Speechley, although it is a prerequisite to the earning of his income, is not expenditure properly characterised as expenditure incurred in or in the course of gaining or producing that income. The test is what is the essential character of the expenditure itself. When that is examined, the expenses at issue are the applicant's expenses of operating his own motor car primarily from his place of work to his place of residence, notwithstanding that his use of the vehicle occurs in the early hours of the morning when public transport is, I am prepared to accept, not available in any relevant sense, if at all. This does not seem to me to establish that it is expenditure either incurred in gaining or producing the assessable income or, if he be carrying on a business, necessarily incurred in carrying on the business for the purpose of gaining or producing that income. If it were expenditure which answered either the first or second limb of sub-s. 51(1) I would in any event incline to the view that it is expenditure of a private or domestic nature. Accordingly, the claim for deductibility is not sustainable and the appeals are dismissed. The appeal is dismissed with no orders as to costs. I certify that this and the preceding five (5) pages are a true copy of the reasons for judgment herein of the Honourable Mr. Justice Lockhart. Associate AVR, — Date: 2 December 1987