Commissioner of Taxation v Anstis

Commissioner of Taxation v Anstis - [2010] HCA 40 - HCA 2010 case summary — Zoe

[8]

FRENCH CJ, GUMMOW, KIEFEL AND BELL JJ. The central issue in this appeal is whether certain expenses incurred by a student undertaking university studies may be deducted under s 8‑1 of the Income Tax Assessment Act 1997 (Cth) ("the 1997 Act") from the assessable income of that student as a recipient of a "youth allowance" payment. Provision for that payment is made by Pt 2.11 (ss 540-567F) of the Social Security Act 1991 ("the Social Security Act")[1].
During the relevant period, the respondent (Ms Anstis) was enrolled as a full-time student undertaking a teaching degree at the Australian Catholic University. In her tax return for the year ended 30 June 2006, the respondent returned $14,946 as wages earned as a part-time sales assistant, and $3,622 received by way of youth allowance payments. She claimed as an allowable deduction an amount of $920 for "expenses of self-education", which was reduced from $1,170 by operation of s 82A(1) of the Income Tax Assessment Act 1936 (Cth) ("the 1936 Act"). The self-education expenses comprised the depreciation in value of a computer ($692), textbooks and stationery ($264), a "student administration fee" ($80), supplies for children during the respondent's teaching rounds ($75) and travel expenses other than to university ($59).
The Commissioner of Taxation ("the Commissioner") maintains that such expenses are not deductible by the recipient of a youth allowance under s 8‑1 of the 1997 Act. The Commissioner disallowed the deduction of $920, and later disallowed an objection by the respondent against the amended assessment issued to her. The respondent unsuccessfully sought review of the Commissioner's decision in the Administrative Appeals Tribunal. However, her application to the Federal Court (Ryan J) to "appeal" against the decision of the Tribunal was successful[2]. Thereafter, the Full Court (Finn, Sundberg and Edmonds JJ) dismissed an appeal by the Commissioner against the decision of Ryan J[3].
The resolution of the Commissioner's appeal to this Court turns upon three questions. The first is whether youth allowance is assessable income under the 1997 Act. The second is whether the respondent's self-education expenses were incurred "in gaining or producing" her assessable income. And the third is whether, if the expenses were so incurred, they were nonetheless to be disallowed as being of a "private" nature. For the following reasons, the income was assessable, the expenses claimed were deductible and not of a "private" nature, and the appeal should be dismissed with costs.

[17]

In forming an opinion under par (d) of s 541B(1), the Secretary was to have regard to the guidelines set by the Minister by legislative instrument (ss 541B(3A)-(3B)). Those guidelines provided that, in the respondent's case, satisfactory progress generally meant completion of the course within the standard minimum length of the course plus an additional period for completion of one uncompleted subject or unit that was part of the course[4].
Part 3, Div 2 of the Social Security (Administration) Act 1999 (Cth) ("the Administration Act") deals with the determination by the Secretary of claims made under s 11 of that Act for a "social security payment". Section 3(2) of the Administration Act provides that, unless the contrary intention appears, expressions used in the Social Security Act bear the same meaning when used in the Administration Act. Thus a "social security payment", as defined in s 23(1) of the Social Security Act, includes a "social security benefit", which in turn includes youth allowance.
Section 37(1) of the Administration Act provides that the Secretary must determine that a claim be granted if satisfied that the claimant is qualified for the payment and the payment is payable. Youth allowance becomes payable to a qualified person on his or her "start day" (s 41(1)). This, if the person is qualified for the payment on the day on which they make a claim for the payment, is the day of the claim (Sched 2, Pt 2, cl 3(1)). It follows that youth allowance became payable to the respondent once she was qualified under Pt 2.11 of the Social Security Act and had made a claim for the payment.
Section 43(1) of the Administration Act stipulates that a "social security periodic payment" is to be paid in arrears, and by instalments relating to such periods, not exceeding 14 days, as the Secretary determines. Those periodic payments are defined to include a social security benefit such as youth allowance (Sched 1, cl 1(1)). The instalments are to be paid at such times as the Secretary determines (s 43(2)).
The rate of youth allowance payable to the respondent was determined in accordance with a formula set out in s 1067G of the Social Security Act (s 556(1)). In essence, s 1067G provides for a basic rate of allowance (Module B) which may be subject to certain additions or reductions, depending upon the means and circumstances of the recipient and, in some cases, the recipient's parents or partner. The additions include amounts supplementary to the basic rate such as a pharmaceutical allowance (Module C) or remote area allowance (Module K). Further, an amount of "rent assistance" may be added to the person's basic rate under Pt 3.7 of the Social Security Act "to help cover the cost of rent" (s 1070A).
The rate of youth allowance payable was liable to reduction for a period if the respondent committed an "activity test breach" by failing to satisfy the activity test without reasonable excuse (ss 550A(a) and 556(2)). If she committed three or more breaches within a period of two years, the payment would not have been payable to the respondent for a period (ss 550 and 550B). It follows that the respondent would have been liable to a period of reduction or non-payment of youth allowance if she was no longer undertaking full-time study without reasonable excuse. Section 80(1) of the Administration Act also provided that, if satisfied that a person is not or was not qualified for their payment or that their payment is not or was not payable, the Secretary "is to determine that the payment is to be cancelled or suspended". Thus it appears that during the relevant time it was also possible for, if not required of, the Secretary to cancel or suspend the respondent's youth allowance payment if she was not qualified for it due to her ceasing to undertake full-time study or make satisfactory progress in her course[5]. In any event, a sufficient failure, or number of failures, to satisfy the activity test would have resulted in either a period of reduction or non-payment under the provisions outlined above, or a cancellation or suspension of payment under s 80(1).

[30]

The Solicitor-General emphasised in his submissions that youth allowance is a periodic "living allowance", enabling the recipient to rely upon the payment as regular expenditure for the recipient and any dependants. The provisions of the Social Security Act do not stipulate or limit the manner in which payments of youth allowance may be expended. Recipients are not required to account to the Secretary for the manner in which payments are in fact expended. But as is made clear in Dixon, actual reliance by the taxpayer is not required to give a receipt the character of income.
In the present case, the respondent was paid periodically in accordance with s 43 of the Administration Act. It is apparent from the terms of Pt 2.11 of the Social Security Act that the legislative purpose of youth allowance is the provision of income support to young Australians who are unemployed and looking for work, who have medical conditions impeding their ability to study or work, or who are undertaking apprenticeships or full-time study[26]. Insofar as that policy reflects the character of the expenditure by the Commonwealth as payer, it is not determinative of the character of the receipt in the hands of the taxpayer as recipient[27], but it nonetheless explains why the respondent received the payments. In the present case, the reasoning of White J in Keily applies with some force. Youth allowance payments enable recipients to rely upon them for regular expenditure, and recipients can expect to receive those payments but only so long as they satisfy the various requirements of the social security legislation. It follows that such amounts are income according to ordinary concepts.
Such a characterisation is consistent with the assumption[28] made by the Commonwealth Parliament in s 51‑1 of the 1997 Act that, but for their exemption in Item 2.1A of s 51‑10, payments of "educational allowances" or "educational assistance" are amounts of income according to ordinary concepts. At least since 1951, when the exemption in s 23(z) was inserted in the 1936 Act[29], amounts in the nature of youth allowance were considered to be income as that term is understood in ordinary usage[30]. And since 1985, when par (v) of s 23(z) was inserted adding a further exception to the exemption[31], amounts received by students under tertiary education assistance schemes have not enjoyed the benefit of that exemption.

[39]

The circumstances giving rise to the present appeal are, as Ryan J noted[36], quite different from the authorities[37] dealing with "self‑education expenses". In those cases the taxpayer carried on a business, or was already in employment, to which the studies related. The prospect of the future employment of the respondent as a teacher was not the basis on which her education expenses have been held to be deductible. Rather, the question is whether the occasion of her expenses was productive of her "passive income"[38], in the form of youth allowance, and assessable on the basis of the reasoning in Dixon and Keily.
It may be said that the income was assessable not by reason of any personal exertion or exploitation of property on the part of the respondent. However, contrary to the submission by the Commissioner, that does not inexorably lead to a conclusion that there may be no deductions of any kind allowed under s 8‑1 of the 1997 Act. The notion of "gaining or producing" income within the meaning of s 8‑1(1)(a) is wider than those activities which may be said to earn income. According to its ordinary meaning, to "gain" means not only to "earn or obtain (a living)" but to "obtain, secure or acquire" or to "receive"[39]. Similarly, the ordinary meaning of the verb "produce" is to "bring (a thing) into existence"[40] and is not limited to bringing something into existence by mental or physical labour.
Essential to the inquiry of deductibility is the identification of that which is productive of the assessable income[41]. To put it another way, one must ask how the assessable income was (or was expected to be) gained or produced. Contrary to what the Full Court said, the respondent was not "paid to undertake [study]"[42] and that was not required to be so for the deductions to be allowable. Rather, as Ryan J said[43], the assessable youth allowance income received by the respondent was gained or produced by her entitlement to that payment consequent on the determination by the Secretary that she qualified for the payment. That statutory right to payment[44] would be retained by her, without reduction, non-payment, suspension or cancellation, so long as she maintained her qualification for the payment by satisfying the activity test by undertaking full-time study so defined.
The reason or motive of the respondent for incurring those education expenses, which could be characterised, for example, as obtaining a qualification to undertake future employment as a teacher, is not determinative of the question whether they were incurred in gaining or producing income[45]. The occasion of the outgoings was to be found in what the respondent did to gain or produce, by establishing and retaining her entitlement to, the receipts provided by the terms of the social security legislation.

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