High Court of Australia Barwick, CJ Menzies, Windeyer, Owen and Walsh, JJ. Commissioner of Taxation (Cth) v Maddalena ORDER Order All questions asked by the case stated answered in the negative. The costs of the case stated to be paid by the appellant. 22 June 1971 Gibbs J Case Stated 1. The respondent first played Rugby League Football in the Illawarra District as a junior. He was a member of a family of which several members had played Rugby League Football and he set about at an early age to try to achieve eminence as a player and to obtain the greatest monetary rewards which he could from his ability as a footballer. 2. The respondent first registered as a Rugby League footballer with the Western Suburbs Rugby League Football Club, Unanderra, Wollongong (hereinafter called "Wests") at the age of 16 years and thereafter at all material times remained a player registered with the New South Wales Rugby Football League. A copy of the Constitution and Rules of Wests is hereunto annexed and marked with the letter "A". [1] . 1. "A". Copy of the Constitution and Rules of the Western Suburbs Rugby League Football Club (not included in this report) 3. At all relevant times Wests was affiliated with and subordinate to the Illawarra Rugby League which in turn was affiliated with and sub- ordinate to the Country Rugby Football League of NSW A copy of the Constitution, General Competition and Challenge Trophy Rules of the Country Rugby Football League of NSW is hereunto annexed and marked with the letter "B". [2] 1. "B". Copy of the Constitution. General Competition and Challenge Trophy Rules of the Country Rugby Football League of NSW (not included in this report). 4. The New South Wales Rugby Football League conducts competition matches in which teams from the Metropolitan District Rugby League Football Clubs take part. There are twelve such clubs taking part in competitions run in two divisions, the first division which is the premiership competition, and the second division. The premiership competition has three grades, the first, reserve and third grades, whilst the second division competition has two grades. In addition there are many other Rugby League Football competitions in the Metropolitan area and this other Rugby League Football is called Junior football. 5. There are approximately 50,000 Rugby League players in the Metropolitan area. Although all players except registered amateurs are able to receive payment for playing, the majority of players in the Metropolitan area of Sydney and in the rest of New South Wales received no payment for the playing of the game. However, the majority of the players playing Rugby League Football for the Metropolitan District Clubs in the first, reserve and third grade teams in the premiership competition are professional players who receive payment for playing, under contracts entered into with those clubs. There are approximately 1000 professional players in the Metropolitan area receiving payment for playing. All members of Metropolitan District Rugby League Football teams playing in the premiership competition are required to be members of their respective District Clubs. 6. At all relevant times the Country Rugby Football League of NSW was affiliated with and subordinate to the New South Wales Rugby Football League. A copy of the Constitution, Standing Orders and Competition Rules of the New South Wales Rugby Football League is hereunto annexed and marked with the letter "C". [3] 1. "B". Copy of the Constitution, Standing orders and Competition Rules of the NSW Rugby Football League (not included in this report). 7. The Country Rugby Football League of NSW is made up of a number of constituent groups comprising the Newcastle Rugby Football League and a number of football organizations with numerical group numbers which divide the country area of New South Wales into Divisions, and the Illawarra Rugby League. The Illawarra Rugby League conducted premiership competitions in first and second and third grade in which clubs affiliated with the Illawarra Rugby League took part. The majority of the players taking part in the premiership competitions are professional players who receive payment for playing. 8. At all relevant times the New South Wales Rugby Football League maintained a register entitled "Player's Contract Register" in which were recorded details of contracts entered into by players with Metropolitan first and second division Rugby League Football Clubs affiliated with the New South Wales Rugby Football League and with Rugby League Football Clubs affiliated with the Country Rugby Football League of NSW in those cases where particulars of the said contracts were forwarded by the said clubs to the New South Wales Rugby Football League. The said register contains the under-mentioned details in respect of the years ended 30 June 1967, 30 June 1968 and 30 June 1969:— 1967 1968 1969 Total Number of contracts registered 152 150 195 497 Comprised of:— Metropolitan first and second division District Clubs 258 Clubs affiliated with Country Football League of NSW 497 The foregoing contracts were for periods as follows:— 1 Season 2 Seasons 3 or more Seasons Total 310 71 116 497 9. There are many transfers of players from one club to another and in many instances appeals are made by players to the New South Wales Rugby Football League in the case of Metropolitan players and to the country Rugby Football League of NSW in the case of country players against either a refusal to put them on the transfer list of their club or against the transfer fee placed upon them. During the years ended 30 June 1967, 30 June 1968 and 30 June 1969 the number of such clearances and transfers and the number of appeals heard respectively by the New South Wales Rugby Football League and the Country Rugby Football League of NSW was as under:— New South Wales Rugby Football League Clearance and Transfers Appeals 1967 260 82 1968 501 32 1969 190 93 Country Rugby Football League of NSW Clearance and Transfers Appeals 1967 260 82 1968 501 32 1969 190 93 Country Rugby Football League of NSW 1967 1,701 158 1968 1,670 150 1969 1,856 146 Clause 30(c) of the Constitution, Standing Orders and Competition Rules of the New South Wales Rugby Football League is in the following terms: "A player who signs as a professional player should note carefully that he is in effect tied to his club and cannot subsequently sign for any other club unless he is released—either by transfer or by the club agreeing to strike his name from their list of registered players." The validity of this rule is in issue before the High Court in the case of Tutty v Buckley . 10. The respondent first received payments from Wests at the age of 19 years when he played reserve grade with the club. This was in the 1964 season. The payments were based upon matches actually played with the club. 11. Prior to the commencement of the 1966 season the respondent requested Wests to place him on transfer but the club informed him that they wished to retain his services and the respondent then orally agreed to sign a contract to play with Wests for one season in return for a signing on fee of $800 and further additional sums in respect of matches actually played. In the event a written contract was not entered into by the respondent with Wests but the respondent did in fact play for Wests during the 1966 season as a member of its first grade team. 12. Whilst playing with Wests during the 1964 to 1966 football seasons the respondent was in full time employment, firstly as an electrical apprentice and later as an electrician and since then the respondent has at all material times been in full time employment as an electrician. 13. At the end of the 1966 football season a sum of $1180 was paid by Wests to the respondent being the said sum of $800 signing on fee, $80 for matches played and $300 being 5 per cent of the transfer fee received by Wests in respect of the transfer of the respondent hereinafter referred to. He also received $272 from the Rugby League Football Board of Control in respect of games played in representative sides and $80 by way of newspaper awards for outstanding play. All the foregoing were disclosed by the respondent as assessable income for the year ended 30 June 1967 and were assessed to tax. 14. At all relevant times the management of Wests rested with a Management Committee. A separate body within the club, designated the Selection Committee, was responsible for deciding in what team and in what matches any individual member of the club should play. A registered player in the club, whether under contract or not, was required to play in whatever team the Selection Committee nominated and to present himself at an appointed time and place to play in whatever matches the Selection Committee nominated. The respondent was from time to time during 1966 so required. The said committee frequently promoted and demoted registered players from one team to another. The Selection Committee determined in consultation with the coach what position on the field individual players should occupy. 15. Training sessions were conducted for players by a coach employed by Wests. From the time that the trial matches commenced, attendance at training twice a week at the appointed time and place was compulsory for all players including the respondent. The Selection Committee determined the time and location of training sessions. Training was always carried out at Figtree Oval, the home ground of Wests. Players trained under the orders of the coach who concentrated on the individual weaknesses of players as well as being concerned with the general training of the team and carried out the type of training he directed. If players failed to attend training without reasonable excuse or disobeyed the orders of the coach with respect to training, they were liable to be demoted or to be dropped from the team. It was, however, the responsibility of the individual players to keep themselves fit and to be in proper condition to take their place as a member of the team, and apart from training done as aforesaid the respondent and other professional players in the same team throughout the season regularly trained without supervision and without the guidance of the club coach on at least two nights each week. This further training consisted of running, physical exercises and calisthenics and attendance at a gymnasium for weight lifting, exercise and to take sauna baths. Training of this nature commenced some months prior to the commencement of the football season and continued regularly throughout the season. 16. Prior to the commencement of competition matches and also at half time, directions were issued by the coach to members of the teams on tactics to be followed and the way the game was to be played. On the field the captain gave instructions to members of the team and had the authority to change players' positions, but this latter power was rarely exercised. However, the player was expected to use his own initiative on the field of play in the many situations which arose in the course of a game and to decide for himself upon the best way in which to respond to the emergencies of each particular situation. 17. All registered players were required to keep in a fit condition during the season and to obey directions by the coach on any matter relating to the maintenance of physical fitness. Failure to comply with directions resulted in a player being fined, dropped from the team, demoted or in an extreme case having his contract with the club cancelled. 18. Whilst he was still playing with Wests the respondent considered the way in which he might best equip himself to reach the top as a player of Rugby League Football and achieve the best monetary results from playing football. The respondent decided that as soon as his play had reached a standard high enough to enable him to play in first class company he would try to obtain a contract to play with a Sydney Rugby League Club. 19. Towards the end of the 1966 football season whilst still a registered player with Wests, the respondent decided to endeavour to obtain a contract to play football with a Sydney Rugby Football Club and engaged the services of Mr J. V. Comans, Solicitor, to assist him in negotiating and obtaining the best contract possible with a Sydney club. 20. The respondent visited a number of Sydney clubs who were interested in signing him on as a player for the 1967 season and onwards. At the invitation of these clubs the respondent visited their headquarters and for this purpose travelled from his place of residence at Wollongong as shown hereunder:— Club Visited (From Wollongong) No. of Return Trips Mileage per Trip Total Mileage Estimated Cost per Mile Total Cost of Travel Manly 3 130 390 10c $39 Canterbury-Bankstown 3 100 300 10 30 South Sydney 3 100 300 10 30 St. George 1 100 100 10 10 Newtown 3 100 300 10 30 Balmain 2 120 240 10 24 15 $163 21. At all relevant times Newtown District Rugby League Football Club (hereinafter called "Newtown") was affiliated with and subordinate to the New South Wales Rugby Football League. A copy of the Constitution, Rules and By-Laws of Newtown is hereunto annexed and marked with the letter "D". [4] 1. "D". Copy of the Constitution, Rules and By-laws of Newtown District Rugby League Football Club (not included in this report). 22. On or about 22 December 1966, the respondent signed an agreement with Newtown whereby he agreed to play for Newtown for the 1967-1970 inclusive playing seasons upon the terms and conditions therein set out. A copy of the said agreement is hereunto annexed and marked with the letter "E". [5] . 1. "E". Copy of an agreement between the respondent and Newtown District Rugby League Football Club (not included in this report) 23. At the end of the 1966 playing season Wests placed the respondent on the transfer list and fixed a transfer fee of $6400. The respondent appealed to the Qualification and Permit Committee of the Country Rugby Football League of NSW against the quantum of the transfer fee. In connexion therewith the respondent travelled to Sydney to see his solicitor on five occasions covering a total distance of 500 miles at a total cost of $50 calculated at an estimated cost per mile of 10 cents. The respondent further incurred legal expenses of $88 in connexion with the negotiation and execution of the said contract with Newtown and the said appeal. 24. All the travelling done by the respondent referred to in paragraph (20) and (23) hereof was in his own car driven by him. 25. As a member of the Newtown Club and pursuant to the contract entered into with that club, the respondent played football with the club for the 1967 season and received payments in accordance with the said contract. 26. At all relevant times the management of Newtown rested with the General Committee of sixteen persons. A separate body within the club designated the Retention Committee attended to matters of finance, the buying and selling of players and all disciplinary matters which arose with regard to players. Another body designated the Selection Committee was responsible for deciding in what team and in what matches any individual member of the club should play. At all relevant times Newtown ran three teams. 27. After he signs his contract or otherwise registers with Newtown a player leaves an address where he can be contacted. In due course he is notified when training commences and this may be as early as November or the break for Christmas. The player is notified of the time and place where training will take place and at its commencement training takes place usually one evening per week and Saturday mornings. The notification is given by Newtown to all registered players. At this time no player is selected for any individual team or any individual position. The club had 58 registered players in 1967 and they were all notified of the commencement of training. 28. At the training field there are usually three coaches, a sprint trainer and possibly a physical training instructor. Players are given various exercises to perform and are timed for the various exercises, sprints and other distances. The programme is varied according to the needs of the individual player. In February the training is stepped up to two nights a week and continues thus throughout the season. Training periods were approximately 80 minutes to 2 hours and at the end of each session there were further instructional talks. 29. In February/March pre-season matches are played and the Selector Coach and the Selection Committee make the necessary selections. In pre-season matches different players are tried out in different positions. The fact that a player played in a certain grade team the previous season did not make his selection in that team automatic. 30. Once the premiership games start, night training is increased by Newtown. The training is in the exclusive discretion of the coach who may call in the entire team for training or only such individual members as he considers require extra training. There is no limit in theory to the number of nights a player may be called on to train but in fact players are not called on more than three nights a week. 31. In addition to supervising the training of the team the coach seeks to ensure the fitness of members of the team in other ways. He restricts, if need be, the amount of drink consumed by a player or ensures that the player obtains sufficient sleep Disobedience to the coach's orders constitutes a breach of the player's contract and may be punished either by the coach or by the Retention Committee in more serious cases. 32. Before big championship games Newtown teams are sometimes booked into hotels for a week or a few days beforehand and in those circumstances players are required to obtain leave from other employment and confine themselves to football. 33. For the purpose of games players were issued with directions by the coach both prior to the commencement of the match and at half time. The directions embraced tactics to be followed and the way the game was to be played. On the field the captain gave instructions to members of the team and had the authority to change players' positions, but this latter power was rarely exercised. 34. Whilst so playing with Newtown during the 1967 football season the respondent trained three nights each week at Henson Park, Newtown, for approximately two hours on each evening. The training consisted of running, calisthenics, ball work, etc. In addition thereto, the respondent on one other night of the week but at his own option, trained on his own away from Henson Park. Training of the foregoing nature took place from January 1967 until the end of August 1967. Training of a light nature was recommenced in November 1967 and continued into December 1967. On nights when the respondent was not engaged in training as aforesaid he went to the gymnasium for weight lifting and exercise and to take sauna baths, in order to relax and relieve the stiffness from prior play and to prepare for the ensuing weekend game. Some of the competition matches in the Sydney first grade competition each week are played on a Saturday and the remainder on Sundays. 35. The respondent's contract with Newtown expired at the end of the 1970 playing season and he thereupon negotiated a further contract to play with Newtown for the 1971, 1972 and 1973 playing seasons upon the terms and conditions therein set out. A copy of the said Agreement is hereunto annexed and marked with the letter "F". [6] . 1. "F". Copy of an agreement between the respondent and Newtown District Rugby League Football Club (not included in this report) 36. In his return of income for the year ended 30 June 1967 the respondent claimed by way of deduction, inter alia, the several amounts of $163 referred to in paragraph (20) hereof and the sums of $50 and $88 referred to in paragraph (23). The appellant disallowed the said claims. 37. The respondent objected to the disallowance by the appellant of his claims to deduction of the amounts referred to in paragraph (36) hereof by Notice bearing the date the 8th day of March, 1968, a copy whereof is hereunto annexed and marked with the letter "G". [7] The appellant disallowed the objection in so far as the amounts referred to in the said paragraph were concerned. 1. "G". Copy of the respondent's objection (not included in this report). 38. The respondent required the appellant to refer his objection to the Board of Review for hearing and on 24 April 1970 the Board of Review upheld the respondent's appeal and directed that the amended assessment of the appellant be further amended accordingly. A copy of the reasons of the Board of Review is hereunto annexed for the information of the Court and marked with the letter "H". [8] 1. "H". Copy of the Reasons of the Board of Review (not included in this report, but see 15 CTBR (NS) Case 85). 39. The appellant appealed to this Court and the appeal coming on to be heard before me and the facts herein before set out being agreed between the parties (subject to relevance), I state the following questions for the opinion of the Full Court:— (1) On the facts appearing from this case and the annexures hereto is the said sum of $163 deductible either in whole or in part from the assessable income of the respondent. (2) On the facts appearing from this case and the annexures hereto is the said sum of $50 deductible either in whole or in part from the assessable income of the respondent. (3) On the facts appearing from this case and the annexures hereto is the said sum of $88 deductible either in whole or in part from the assessable income of the respondent. DATED this 22nd day of June, 1971. (sgd.) H. T. GIBBS (Judge). Barwick, CJ I am content to dispose of this case stated in the sense proposed and for the reasons given by my brother Menzies, whose judgment I have had the advantage of reading. The cost to an employee of obtaining his employment does not form an outgoing incurred in the course of earning the wages payable in the employment. That cost is not deductible under s 51 of the Income Tax Assessment Act 1936-1967. In my opinion the questions asked in the case stated should be all answered in the negative. Menzies, J Although the argument of this case stated, arising out of an appeal by the Commissioner against a decision of the Taxation Board of Review in favour of the taxpayer, ranged over a wide field, the actual issue between the parties is one which, I think, fits into a narrow compass. The question is whether the taxpayer, who earns his living as an electrician and as a professional footballer, is entitled to deductions under s 51 of the Income Tax Assessment Act of travelling expenses, and under s 51 and s 64A of the Act of legal expenses, incurred by him in seeking and obtaining a new contract with a new club to play football. For some years up to and including 1966 the taxpayer played with the Western Suburbs Rugby League Football Club of Wollongong. During the 1966 season, while still playing with "Wests", as that club is called, he spent the money in question to obtain a contract with the Newtown District Rugby League Football Club of Sydney, "Newtown" as that club is called. He travelled to and fro from Wollongong to Sydney on a number of occasions for interviews with the officials of clubs with which he might play and he had the advice of a solicitor in the negotiation and settlement of a contract with the General Committee of Newtown. He claimed as deductions travelling expenses between Wollongong and Sydney to interviews and to see his solicitor and the solicitor's charges. It is established that fares paid for travel between the taxpayer's residence and his place of work are not allowable deductions: Lunney v Federal Commissioner of Taxation (1958), 100 CLR 478; 7 AITR 166. Upon this authority the Commissioner relied. It is also established that the expenses of an employee on leave to travel in order to equip himself to do his work better are deductible: Federal Commissioner of Taxation v Finn (1961), 106 CLR 60; 8 AITR 406. Upon this authority the taxpayer relied. I accept the authority of both decisions, but I do not regard either of them as providing a basis for proceeding further either in the restriction of, or the extension of, allowable deductions under s 51. The first proposi- tion, as was recognized in Lunney v Federal Commissioner of Taxation, supra, may be somewhat anomalous and is to be explained by a long-standing line of decisions; the second proposition is one that was decided in Federal Commissioner of Taxation v Finn , supra , as a conclusion from the particular facts of the case there under consideration. To my mind this appeal is concerned with an issue upon which neither of the cases cited has any substantial bearing. I have no doubt that the occupation of a professional footballer vis-a-vis his club is as an employee. As to this I differ, with respect, from the conclusion that commended itself to the Board of Review in the decision under appeal. The agreement made by the taxpayer with Newtown, which is, no doubt, typical of a professional footballer's agreement, is a contract of service whereby the player agrees to play football for the club and to do so "well and faithfully and to the best of his ability and skill". His obligation is to play for the club "in any team and in any grade as to when and where he may be from time to time called on by the said club so to do". He submits himself to carry out "all the training and other instructions of the club through its responsible officials". He also agrees "to abide by and observe the Constitution, Rules and By-Laws of the Club in their entirety and to observe all rules directions or additional rules (if any) which may from time to time be made by the Club". It is unnecessary to consider afresh the various indicia that are to be looked for in determining whether a particular agreement does or does not create the relationship of master and servant, for here everything in the agreement points to the existence of that relationship, and I have found nothing of countervailing weight. Of course, in his career as a professional footballer, a player who is successful ordinarily moves from grade to grade and from club to club. His employment is part-time and it is common for a player to play football in representative teams as well as with his club. Thus, for instance, in the agreement between the taxpayer and Newtown it is provided that "the player shall not be restricted or debarred from training and/or playing with any Australian Inter-State Combined Sydney Combined Country Group, Inter Group or other representative team for which he may be selected". When playing with such a representative team the player would not be playing as a servant of his club. Nevertheless, while training and playing with Newtown, I consider that he does so as a servant of that club. Furthermore, it is common knowledge that because a man is a successful professional he can earn fees from advertising and other sources which, of course, form part of his assessable income. Nothing I say in this judgment bears upon expenditure to earn such fees. Here it is the agreement with Newtown that the taxpayer spent money to secure. Does then the expenditure in question fall within the description of an outgoing "incurred in gaining or producing" his assessable income, or was it an outgoing "necessarily incurred in carrying on a business"? I think not. It is, I think, worthwhile looking at the taxpayer's earnings as an electrician to illustrate what I regard as the decisive difference to be observed here. Had the taxpayer claimed as a deduction the expenses of changing from one job to another as an employee electrician his outlay would not have been an allowable deduction. The expenditure would have been incurred in getting, not in doing, work as an employee. It would come at a point too soon to be properly regarded as incurred in gaining assessable income. Nor would the expenditure have been an outgoing in carrying on a business. There is a difference of first importance for present purposes between an electrician who seeks work as an employee and an electrician who seeks contracts to do work as a principal. In the former case the electrician would not have a business; in the latter he would. In the latter, therefore, what he spent to obtain contracts to do electrical work would be properly regarded as an outgoing of his business. There is, however, a clear distinction between the two cases. What I have said about the taxpayer as an electrician is, I think, equally applicable to him as a professional footballer, and moneys spent to obtain a new employment are not allowable deductions for income tax purposes under s 51. The claim for a deduction under s 64A for legal expenses incurred "in carrying on a business for the purpose of gaining or producing assessable income" fails for the same reasons. Accordingly, I think the Board of Review was in error and that the questions asked in the case stated should be answered "No". Windeyer, J I agree in the judgment of Menzies, J. Owen, J I agree with the reasons given by my brother Menzies for holding that the questions asked in the stated case should be answered "No". Walsh, J The Board of Review's decision in the matter to which this case stated relates was based upon a conclusion that for the purposes of the definition of "business" in s 6 of the Income Tax Assessment Act, the respondent was not an "employee" of the club for which he played in the year 1966 or of the Newtown District Rugby League Football Club for which he played subsequently. In reaching that conclusion the Board of Review found strong support for it in a judgment of Hardie, J., in the Supreme Court of New South Wales in Elford v Buckley, [1969] 2 NSWR 170. But in that case the Court was concerned primarily with the relationship which existed between the plaintiff in the suit, on the one hand, and the New South Wales Rugby Football League, on the other hand, and with the nature of the obligations imposed upon the plaintiff by the rules of that body. The present case is concerned only with the relationship between the respondent and his club created by the contract under which he agreed to play football when called on by the club to do so. It is true that, in his agreement with the Newtown Club, the respondent agreed to observe and be subject to the rules of the New South Wales Rugby Football League. It is true also that he was a member of the club and as such had the rights and obligations which were conferred or imposed upon its members by its rules. But such circumstances as these are, in my opinion, extraneous to the question which calls for decision. Although the relationship of the respondent to the New South Wales Rugby Football League and the relationship between him and his club as a member were associated with the contract which regulated his engagement as a professional player, I am of opinion that they did not affect the nature of the relationship created by that contract which, as a player, he had with the club. It is on that point that I differ with respect from the Board of Review, whose members thought that the relevant relationship of the respondent to his club was not to be characterized simply by reference to the same criteria as are usually applied in distinguishing a contract of service from a contract for services. In my opinion, the question whether the respondent, when rendering his services as a professional footballer, was occupied "as an employee" is to be determined by the same considerations as are ordinarily applied in deciding whether or not the relationship of master and servant exists. If the respondent was engaged as an employee in playing football and if in consequence he cannot be held to have been carrying on a business, I am of opinion that the argument submitted to this Court that the respondent was entitled nevertheless, under the first limb of s 51(1) of the Act, to have allowed the deductions which are in dispute, should not be accepted. On the question whether or not the respondent was an employee of his club and on the further question to which I have just referred, I agree with the reasons given by Menzies, J., whose judgment I have had the advantage of reading, for answering both questions adversely to the respondent. I am of opinion that the three questions asked in the case stated should be answered "No".