Deductibility of Travel Expenses: Is Australia Moving from a Global to a Schedular Income Tax?
Stewart, Miranda, Melbourne University Law Review
GUMMOW J: It seems to me that logic is not going to help you. The only thing that really helps you are the considerations that moved Sir Owen Dixon.
GLEESON CJ: The proposition there has been too much water under the bridge. (1)
The decision of the High Court in Payne, (2) handed down on 8 February 2001, concerned whether expenses incurred by the taxpayer in travelling between two unrelated places of work were allowable deductions under s 51(1) of the Income Tax Assessment Act 1936 (Cth) in determining the taxable income of the taxpayer. The High Court, by majority (Gleeson CJ, Kirby and Hayne JJ), disallowed a deduction for travel expenses claimed by Mr Payne, who was a full-time pilot, between his place of employment as a pilot and his full-time business of a deer farm, at which he also had his home.
The High Court decision in Payne was delivered after the Administrative Appeals Tribunal (`Tribunal') and four judges in the Federal Court had voiced significant differences of opinion. The Tribunal found for the Commissioner of Taxation that the travel expenses were not deductible. (3) On appeal by Mr Payne to the Federal Court, Foster J found an error of law and remitted the case to the Tribunal. (4) The decision of Foster J was upheld by majority in the Full Federal Court (Sackville and Hely JJ), albeit on slightly different reasoning from that of the primary judge; Hill J dissented. (5) The Commissioner appealed to the High Court, which by majority joint judgment overturned the Full Federal Court decision. Gaudron and Gummow JJ wrote a joint judgment in dissent.
Others have already written in considerable depth on deductibility of travel expenses and on the Payne case. (6) In his article discussing the Federal Court decision in Payne, Stephen Barkoczy correctly predicted the High Court result in his analysis which traced the narrow approach to characterisation taken by the High Court, particularly in respect to the boundary between personal or private expenses and working deductible expenses. (7)
This note analyses the Payne case in the context, first, of the history and structure of Australian income tax law and, second, of the fundamental distinction between public and private that underlies the income tax system. Is it true that `logic' cannot help us in considering the deductibility of travel expenses? (8) Must deductibility of such expenses in situations like that of Mr Payne be decided solely on the basis that `them has been too much water under the bridge'? (9) What is the `logic' underlying our income tax law and can it be applied consistently in the myriad of different factual situations that must arise in our diverse work (and travel) practices? What are the policy goals that are motivating the courts in this well-travelled area of law -- and are these policy goals adequately articulated in judicial decisions?
The note first sets out the facts, an overview of the current state of the law and discussion of the various court decisions in Payne. I then analyse the approach of the High Court majority, as compared with that of the dissenting judgment in the High Court and the Federal Court majority.
II THE FACTS
Mr Payne claimed a total of $15 510 in deductions for the fiscal years ending 30 June 1991 to 30 June 1994 under s 51(1) of the Income Tax Assessment Act 1936 (Cth). This sum represented expenses incurred by Mr Payne in travelling between the place of his farming business and residence, and the place of his employment as a pilot. Mr Payne travelled from the property to the airport approximately 40 to 50 times during each of 1991, 1992, 1993 and 1994. In 1991, Mr Payne claimed $2092, in 1992 he claimed $2988, in 1993 he claimed $5337, and in 1994 he claimed $5093.
On 13 December 1995, the Commissioner issued amended assessments for Mr Payne in respect of the years 1991 to 1994, disallowing the deductions. …