Brandon v Commissioner of Taxation

The Appeal to this Court 8 The appeal to this Court is limited to an appeal on a question of law (Administrative Appeals Tribunal Act 1975 (Cth) s 44(1)). The question of law must be clearly identified in the notice of appeal. Where a notice of appeal does not identify a question of law, it may be struck out. 9 In addition to the respondent's notice of motion seeking an order striking out the notice of appeal, the applicant has brought a notice of motion seeking an order that he be granted leave to amend his notice of appeal.

The respondent's contention 10 The respondent's contention is simple and straightforward. It contends that the applicant cannot succeed unless he establishes that he transported his DP1 from his home to the army base. That is a question of fact and the respondent submits that the Tribunal decided that question of fact against the applicant. In other words, the Tribunal found that the applicant did not transport his DP1 from his home to the army base. The respondent contends that there is no error of law in relation to the finding of fact and that none is alleged by the applicant. The respondent submits that in those circumstances the existing notice of appeal should be struck out. The existing notice of appeal contends other deficiencies. The respondent submits that whilst the proposed Amended Notice of Appeal may overcome some of those other deficiencies it does not overcome the fundamental problem that the applicant cannot succeed unless he overturns the finding of fact and there is no appeal on a question of fact. It is necessary then to examine the basis of the Tribunal's decision.

The Tribunal's reasons 11 The Tribunal set out the relevant provisions of the ITAA 1997 which are as follows: 8-1 General deductions (1) You can deduct from your assessable income any loss or outgoing to the extent that: (a) it is incurred in gaining or producing your assessable income; or (b) it is necessarily incurred in carrying on a *business for the purpose of gaining or producing your assessable income. Note: Division 35 prevents losses from non-commercial business activities that may contribute to a tax loss being offset against other assessable income. (2) However, you cannot deduct a loss or outgoing under this section to the extent that: (a) it is a loss or outgoing of capital, or of a capital nature; or (b) it is a loss or outgoing of a private or domestic nature; or (c) it is incurred in relation to gaining or producing your *exempt income or your *non-assessable non-exempt income; or (d) a provision of this Act prevents you from deducting it. For a summary list of provisions about deductions, see section 12-5. (3) A loss or outgoing that you can deduct under this section is called a general deduction. For the effect of the GST in working out deductions, see Division 27. Note If you receive an amount as insurance, indemnity or other recoupment of a loss or outgoing that you can deduct under this section, the amount may be included in your assessable income: see Subdivision 20-A. 12 The Tribunal noted the respondent's reasons for the decision it reached. 13 The Tribunal then summarised the evidence of the various witnesses. It started with the evidence of the applicant. 14 The Tribunal noted the applicant's evidence about the following matters: 1. the applicant's need to have his DP1 available or accessible at all times; 2. the level of security for the storage of DP1s at the Woodside Barracks; 3. the applicant's activities during an ordinary day and the movement of the equipment in his DP1 as a result of those activities; 4. the applicant's evidence on similar topics in relation to the Steele Barracks; 5. the applicant's evidence in cross-examination about his assertion that he transported all of his DP1 in his motor vehicle on a daily basis; 6. the applicant's evidence about the frequency and nature of DP1 inspections; 15 The Tribunal also noted areas where the applicant acknowledged that aspects of his witness statement were not correct or which were deficient; and the fact that the applicant admitted that there were a few 'glaring inconsistencies' in his witness statement; 16 The Tribunal noted the evidence about DP1 inspections and whether they were 'full' inspections or 'spot' inspections. 17 The Tribunal summarised the evidence it heard from other witnesses. Those witnesses and the subjects they dealt with were as follows: 1. Mr Markus Scheidl gave evidence about, inter alia, the frequency of DP1 inspections. 2. Mr Paul Golding gave evidence about, inter alia, the storage of trunks and the need for a soldier to have his full DP1 available. 3. Mr Adam Valladares gave evidence about, inter alia, keeping equipment in his motor vehicle and the frequency of full and part DP1 inspections at the Woodside Barracks. 4. Lieutenant Colonel John McLean gave evidence about, inter alia, the need for equipment forming part of the DP1, the frequency of inspections, and the storage facilities at the Woodside Barracks. 5. Mr Nigel Sannholm was a tax advisor at the respondent's office and he gave evidence concerning the audit conducted. 6. Captain Selena Clancy gave evidence about, inter alia, the need for DP1 equipment at the Steele Barracks, the storage facilities at the Barracks, the frequency of DP1 inspections and the fact that she claimed that the applicant travelled to and from work on a motor cycle between February 2006 and the end of June 2006. 7. Mr Inger Lawes gave evidence about, inter alia, the frequency of DP1 inspections at the Woodside Barracks, whether there were daily DP1 inspections and the storage facilities at the Woodside Barracks. 18 The Tribunal then turned to consider the authorities dealing with motor vehicle expenses in the context of section 8-1(1) of the ITAA 1997. It referred to Ronpibon Tin NL & Tongkah Compound NL v Federal Commissioner of Taxation (1949) 78 CLR 47, Lunney v Federal Commissioner of Taxation (1995) 100 CLR 478 and it referred in some detail to Commissioner of Taxation v Vogt [1975] 1 NSWLR 194 ('Vogt') and Crestani and Commissioner of Taxation [1998] AATA 612; 40 ATR 1037. 19 The Tribunal described the essence of the applicant's case in relation to both the Woodside Barracks and the Steele Barracks (at [64] and [65]): 64. In the present case, the applicant's evidence was that he transported his DP1 daily in his motor vehicle to both Woodside Barracks and Steele Barracks. In his witness statement (Exhibit A1, paragraph 52), he said his chief reason for doing this at Woodside was because of the lack of secure storage, because of the lack of room within the bay allocated to his detachment for storage and because the bay could only be used if his equipment was stored on the floor of the bay. His equipment, to be kept at an appropriate standard, was required at work for the performance of his duties as an employee of the Army and included his duties as a soldier of the requirement for 'equipment readiness'. 65. In his witness statement (Exhibit A1, paragraph 90), the applicant said his chief reason for transporting his DP1 daily at Steele Barracks was because of the lack of secure storage for personal equipment or fragile items. Again, his equipment, to be kept at an appropriate standard, was required at work for the performance of his duties as an employee of the Army and included his duties as a soldier of the requirement for 'equipment readiness'. 20 The Tribunal accepted the applicant's submission that he could succeed either by bringing himself within the respondent's binding public taxation ruling TR 95/17 or within the relevant expense deductibility provisions in the ITAA 1997, in particular, s 8-1(1)(a). 21 The Tribunal also accepted the applicant's submission that the relevant paragraphs of TR 95/17 (that is, paragraphs 24, 229 and 230) contained three requirements, viz: 1. that the applicant's DP1 was 'bulky'; 2. that there was no secure area for the storage of the applicant's DP1; and 3. that the applicant's motor vehicle expenses were attributed to the transportation of bulky equipment, rather than to private transport between home and work. 22 The Tribunal found that the applicant's DP1 was 'bulky'. 23 The Tribunal found that there was a secure area for the storage of the applicant's DP1 at the Steele Barracks (at [71]). The Tribunal concluded that there was no issue but that there was adequate storage at the Woodside Barracks, and the question was whether it was secure. On that question the Tribunal said (at [74]): [74] … The objective evidence would seem to suggest that there were secure bays available, one was allocated to the applicant's detachment, of which he was in charge, and he could have stored his DP1 there. In view of the findings I make later in these reasons, it is not necessary for me to reach a concluded view on the question of secure storage of the applicant's DP1 at Woodside Barracks. 24 The Tribunal then turned to consider whether the applicant's motor vehicle expenses were attributed to the transportation of bulky equipment. It began by noting that the applicant was not required by his employment to transport his DP1 from his home to the army base. The Tribunal said that the applicant made a personal choice to transport his DP1 to and from work. The Tribunal referred to the evidence of Mr Lawes that adequate secure storage was provided to the applicant for his DP1 at Woodside Barracks. 25 The Tribunal made observations about unsatisfactory aspects of the applicant's evidence (at [77] and [79]). 26 The Tribunal then made the finding upon which the respondent relied (at [80]): On all the evidence, I am unable to accept that the applicant transported his DP1 daily to Woodside Barracks and to Steele Barracks. 27 The Tribunal referred to a number of matters in support of that conclusion. It said that the applicant had not mentioned daily DP1 inspections at Woodside Barracks (it was not suggested that daily inspections took place at Steele Barracks) in his witness statement and none of the witnesses called referred to daily inspections of DP1 at Woodside Barracks. It seems that the significance of these matters is that the holding of daily DP1 inspections was one of the reasons the applicant gave for transporting his DP1 on a daily basis. The Tribunal said that there must have been witnesses to the applicant taking his DP1 to and from work on a daily basis if it had occurred but no witnesses giving evidence to that effect were called. 28 The Tribunal referred to other criticisms advanced by the respondent of the applicant's credibility and reliability, but said that it did not need to address these, '[g]iven the conclusions that I have reached in relation to the applicant's evidence about his daily use of the DP1 and its transportation from his home to work' (at [82]). 29 In light of its conclusion that it was unable to accept that the applicant transported his DP1 daily to Woodside Barracks and to Steele Barracks, the Tribunal said that it was not satisfied that the applicant's travel expenses were attributed to the transportation of his bulky DP1 equipment, rather than to private transport between home and work. His claim did not meet the requirements of TR 95/17. 30 The Tribunal then considered deductibility under the ITAA 1997 and the cases dealing with exceptions to the 'rule' that expenditure on travel to and from work was not tax deductible. It considered various arguments raised by the applicant in its outline of argument. It rejected a submission that the applicant's income-earning operations should be described as a readiness 'at short notice for deployment to war or other semi-military or civilian catastrophe engagements'. It rejected a submission that there was a requirement, oral or written, for the applicant to have a motor vehicle. 31 The Tribunal referred to the decision of the Tribunal in Case 43/94 [1994] AATA 583; 94 ATC 387 and then distinguished the case before it from the decision in Vogt. The Tribunal then expressed a number of conclusions about the facts relevant to deductibility under the ITAA 1997. My summary of those conclusions is as follows: 1. that it was not a requirement that the applicant take his DP1 home each day; 2. that there was no compelling employment-related reason for the applicant storing his DP1 at home; 3. that there was no connection between any transport by the applicant of his DP1 and the earning of his income (my emphasis); 4. that the applicant was not required by his employment to transport his DP1 and he had acknowledged that he made a personal choice to do this; 5. that there was adequate secure storage available for the DP1 at both Woodside Barracks and Steele Barracks; 6. that the applicant's employment did not create the need, as matter of practical necessity, for him to transport his DP1 from his home to his place of employment. The mode of transporting the applicant's DP1 was simply a consequence of the means adopted by him in conveying himself to and from his place of employment. 32 The Tribunal expressed the following conclusion (at [90]). In the circumstances, I find that the expenditure involved in transporting his DP1 did not have the essential character of a business expense, nor can it be said to be incurred in gaining or producing the applicant's assessable income. 33 The Tribunal said that a number of matters followed from its previous conclusions. First, the motor vehicle expenses of the applicant in the 2005/2006 tax year were not incurred in gaining or producing his assessable income, so as to be deductible under s 8-1(1)(a) of the ITAA 1997. Secondly, the motor vehicle travel expenses were of a private or domestic nature and, as such, are precluded as a deduction under s 8-1(2)(b) of the ITAA 1997. Thirdly, the applicant had failed to discharge the onus under s 14 ZZK(b) of the TAA 1953 of proving that his amended assessment for the 2005/2006 tax year was excessive.

The Applications 34 The existing notice of appeal is discursive and argumentative and it quotes from the evidence given to the Tribunal. In so far as any particular matter is identified as a ground of complaint it appears to be a question of fact not a question of law. Furthermore, it contains serious allegations of blackmail and the harassment of witnesses. Counsel for the applicant said that the applicant did not seek to pursue those particular allegations. 35 In my opinion, the existing notice of appeal must be struck out because it does not state a question of law as it is required to do by O 53 r 3(2) of the Federal Court Rules: see Birdseye v Australian Securities and Investments Commission (2003) 76 ALD 321 at 325 [18] per Branson and Stone JJ. This Court has the power to strike out a notice of appeal in such circumstances (see Federal Court of Australia Act 1976 (Cth) s 23; Federal Court Rules O 53 rr 3(3) and 15; Bittman v Australian Securities and Investments Commission (No 2) [2006] FCA 1786; Australian Telecommunications Commission v Lambroglou (1990) 12 AAR 515. 36 The proposed Amended Notice of Appeal dated 7 December 2010 contains a statement of the questions of law said to be raised by the appeal which is in the following terms: 2.1 Whether the Tribunal failed properly to construe the expression incurred in gaining or producing your assessable income used in section 8-1(1)(a) of the Income Tax Assessment Act 1997 (ITAA97) in making its finding that the decision of the Applicant to use the motor vehicle in the course of the performance of his duties as a member of the Australian Defence Forces was a matter of personal choice and that accordingly the motor vehicle expenses (Expenses) of the Applicant in the 2005 - 2006 financial year (Financial Year) were not deductible. 2.2 Whether the Tribunal in making its findings that the decision of the Applicant to use the motor vehicle in the course of the performance of his duties as a member of the Australian Defence Forces was a matter of personal choice failed to find and should have found, on the evidence before the Tribunal, the extent (even if not the whole), to which the Expenses for the use of the motor vehicle in the Financial Year were properly a loss or outgoing incurred in gaining or producing assessable income as provided for by section 8-1(1) of the ITAA97. 2.3 Whether the Tribunal in making its findings that the Applicant did not convey the whole of his DP1 kit daily in the course of the performance of his duties as a member of the Australian Defence Forces failed to find and should have found, on the evidence before the Tribunal, the extent (even if not the whole), to which the Expenses for the use of the motor vehicle in the Financial Year were properly a loss or outgoing incurred in gaining or producing assessable income as provided for by section 8-1(1) of the ITAA97. 2.4 Whether on the facts found, the evidence before the Tribunal and how the case was conducted at the hearing by the Respondent, the Applicant was entitled pursuant to section 8-1(1) of ITAA97 to deduct the Expenses in the Financial Year either in whole or in part as the occasion of those losses and outgoings were found in the activities of the Applicant that were productive of the income of the Applicant. 2.5 Whether the Tribunal failed properly to construe the expression loss or outgoing of a private or domestic nature used in section 8-1(2)(b) of ITAA97 and the inter-relationship of that provision with section 8-1(1)(a) of ITAA97 when it found that the Expenses claimed by the Applicant in the Financial Year were of a private or domestic nature and therefore led itself into error as to the interpretation of section 8-1 of ITAA97. 2.6 Whether the Tribunal made findings as to the application of section 8-1 of ITAA97 unsupported by the evidence before the Tribunal. 2.7 Whether the Tribunal was required to give reasons as to why the Expenses were of a private or domestic nature and therefore precluded by section 81(2) of ITAA97 as deductible either in whole or in part and accordingly whether the decision is bad in law. 2.8 Whether the Tribunal, in finding that the Tribunal and the Respondent were bound by Taxation Ruling TR 95/17: Taxation Ruling Income tax: employee work-related deductions of employees of the Australian Defence Force (TR 95/17), failed to properly construe section 43(1) of the Administrative Appeals Tribunal Act 1975 (AAT Act), Parts 3 & 4 of Schedule 2 of the Tax Laws Amendment (Improvements to Self Assessment) Act (No 2) 2005 and either or both of: 2.8.1 Part IVAAA of the Taxation Administration Act 1953 (TAA) and section 170BA of the Income Tax Assessment Act 1936 (First Provisions); or 2.8.2 Part 5.5 of Schedule 1 of the TAA (Second Provisions); in respect of the taxation affairs of the Applicant for the Financial Year and if either or both of the First Provisions and the Second Provisions bound either or both of the Respondent and the Tribunal how they should have consequently been applied to the Applicant in respect of the Financial Year or any parts of it based on the objective and uncontroverted evidence before the Tribunal. 2.9 Whether it is a valid exercise of the powers given to the Tribunal by section 43(1) of the AAT Act to determine that the Tribunal is bound by TR 95/17. (Original emphasis.) 37 The applicant's application for leave to amend his notice of appeal is supported by an affidavit from his solicitor. That affidavit contains a description of the circumstances surrounding the preparation of the existing notice of appeal and the circumstances which have led to the application to amend. The respondent does not suggest that he will suffer any prejudice if leave to amend is granted. Nevertheless he opposes the application on the ground that it is not possible for the applicant to identify a relevant question of law in the decision of the Tribunal. In other words, while there were matters of law addressed by the Tribunal and some of these matters are stated in the proposed Amended Notice of Appeal, none of them are relevant because the factual finding made by the Tribunal (see [10] above) is decisive on any sensible view of the law. 38 There was some debate before me about the proper legal test on the application for leave to amend the notice of appeal. It seems to me that the argument has moved from whether the notice of appeal states a question of law to whether the applicant can identify a question of law. Reference was made to s 31A of the Federal Court of Australia Act 1976 (Cth) and there was debate before me about whether I should proceed on the basis that an amendment should not be allowed if the amended claim is liable to be the subject of judgment under s 31A. I am prepared to proceed on that assumption (without deciding the point) because I have reached the conclusion that even on that assumption leave to amend should be granted. 39 To succeed the applicant must establish an error of law which arises on the facts as the Tribunal has found them to be, or which vitiates the findings made, or which led the Tribunal to omit to make a finding it was legally required to make. There is no error of law simply in making a wrong finding of fact: Waterford v The Commonwealth (1987) 163 CLR 54 at 77 per Brennan J (as his Honour then was). 40 In the context of considering whether the applicant's claim fell within the TR 95/17 the Tribunal appears to make a clear finding that the applicant did not transport his DP1 daily to Woodside Barracks and Steele Barracks or at least that it could not be satisfied that he did. However, when it comes to consider deductibility under the ITAA 1997 it does not mention this finding, which as I understand it, would have been an answer to that claim. Clearly, the Tribunal is entitled to consider all arguments and it may be that all the Tribunal was doing was considering the arguments on the assumption that its factual finding was wrong. That may be the ultimate conclusion reached by the Court but I do not think it is sufficiently clear at this stage. I should mention in this context that my hesitation in embracing the respondent's submission is supported by the fact that at one point in its reasons the Tribunal states that there is no need to decide whether the storage at the Woodside Barracks was secure and at another point it states that it was secure (see [23] and [31] above). 41 The other reason I would not accept the respondent's submission is that the applicant contends that there were various ways in which it puts its case that were not considered by the Tribunal. As I understand the applicant's submission it is that the Tribunal ought to have considered a case that the applicant took his DP1 on some days, a case that he took part of his DP1 on all or some days, a case that he took other equipment between his home and the army base and a case that there were other features about the use of his motor vehicle and his DP1 and other equipment that brought his case within the deductibility provisions. There appears to be real force in the respondent's submission that the applicant could not and did not run these alternative cases or at least some of them in view of the case he did run. It may be that this is the ultimate conclusion of the Court. However, I do not think on the submissions so far advanced that I can reject all of the arguments on the basis that they are unarguable. 42 There are difficulties with the nine 'questions of law' stated in the proposed Amended Notice of Appeal. Some of them, for example, questions 1 and 2, are formulated at a high level of generality, and with respect to others dealing, for example, with the binding nature of the Tax Ruling (question 8) and the relationship between s 8-1(1)(a) and s 8-2(2)(b) of the ITAA 1997, it may be questioned whether, even if successful, they will lead to a different result. Despite these matters I think the preferable course is for the proposed Amended Notice of Appeal to go forward in its present form.

conclusion 43 I will make an order striking out the existing notice of appeal. I will grant leave to the applicant to amend his notice of appeal in the form of the proposed Amended Notice of Appeal dated 7 December 2010. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.