Commissioner of Taxation v Payne

I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

The Proceedings 16 The taxpayer had two sources of assessable income in the financial years 30 June 1991 to 30 June 1994. One was his salary as a pilot employed by Qantas. The other was his earnings from a deer farming business conducted by him on a property at Duri, near Tamworth, where he also resided. 17 The issue before the Administrative Appeals Tribunal ("AAT") was whether the taxpayer was entitled to deduct the cost of travel between the farm property and the airport at Mascot, and associated accommodation expenses, as "outgoings ... incurred in gaining or producing the assessable income" within the first limb of s 51(1) of the Income Tax Assessment Act 1936 (Cth) ("Assessment Act"). If that issue were found in favour of the taxpayer, the AAT would have had to determine whether the outgoings were nonetheless of a "private or domestic nature" so as to be excepted from what would otherwise have been the operation of s 51(1). There is no necessary antipathy between a loss or outgoing incurred in gaining or producing assessable income, and a loss or outgoing of a private nature: John v Federal Commissioner of Taxation (1989) 166 CLR 417, at 431. 18 The AAT broke the issue down into two subsidiary questions: · First, are expenses incurred in travel between two places of unrelated income derivation "incurred in gaining or producing" assessable income? · Second, if the answer to the first question is in the affirmative, what, if any, bearing does the existence of the taxpayer's residence at one of those places have upon the matter? The AAT answered the first question in the negative and did not find it necessary to answer the second. The negative answer to the first question was sufficient to defeat the taxpayer's claim. 19 The AAT accepted that the expenses in question were necessary for the production of assessable income, in the sense that earning of income from both places would not be possible without expenditure upon travel between them. Nonetheless, it denied the claim for a deduction upon the basis that: "[T]he expenses of travel between two places of income derivation are not 'incurred in gaining or producing' assessable income if the most that can be said about them is that they are precursory (in the sense of a causal chain), even necessarily prerequisite, to the activities of both places which more directly earn the assessable income; in short, if they do no more than place the taxpayer in the position to earn his or her assessable income at either location." The travel expenses were not part of the cost of running the deer farming business, nor were they incurred in the performance of the taxpayer's duties as a pilot. They did no more than place the taxpayer in the position where he could earn assessable income as a deer farmer in Tamworth, and as a pilot in Sydney. That causal nexus was not sufficient to entitle the taxpayer to a deduction under the first limb of s 51(1). 20 The AAT said that the position would be otherwise, if the travel was between two related places of business. In such a case: "Where both the place of departure and destination are referable to the self-same business, employment or income earning operation or programme, it can be readily inferred that the travel is an aspect of the operations by which income is earned (although this is not invariably so). This is because the division of a single income earning operation into different spatial locations will ordinarily (but does not necessarily) imply that travel between the locations is a part of the operation itself." To adopt the language of Lord Wilberforce in his dissenting judgment in Taylor v Provan [1975] AC 194, at 215, a taxpayer, in such a case, will ordinarily be "travelling on his work". Hence the expenses involved will be deductible. 21 The taxpayer's appeal to this Court, brought pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth), is restricted to questions of law. The question of law which was treated as enlivening the Court's jurisdiction was whether, on the facts as found, the AAT had erred in law in failing to determine that the applicant was entitled to deductions, conformably with s 51(1) of the Assessment Act, for travel expenses between two places of income production. 22 The primary Judge identified a different error of law as enlivening the Court's jurisdiction. His Honour said: "In the present case Mr Payne's earnings in his employment as a pilot and from his business as a deer farmer combined to form his assessable income. The deductibility of his travel expenses depended upon the extent to which they were incurred in gaining or producing this composite income. I am satisfied that the reasoning in Lunney [Lunney v Commissioner of Taxation (1958) 100 CLR 478] does not require that, in approaching this task, the decision-maker should, as it were, break the assessable income into its component parts and then apply the Lunney 'prerequisite' test to each part. This is what the Tribunal has done in the present case. By doing so it has precluded itself from considering whether the taxpayer's travelling expenses were relevantly incurred in gaining the whole of his assessable income." The error upon which the trial Judge relied is as follows: "As a result of the approach taken by the Tribunal it has precluded itself from considering the overall earning pattern of the appellant and the relationship of his travelling expenses to that pattern." 23 Although the question of law was originally identified as an error in failing to determine, upon the basis of the facts found, that the applicant was entitled to deductions for travel expenses, his Honour remitted the matter to the AAT for reconsideration, in the light of the judgment. His Honour (at 30) took this course for the following reason: "Although there is no dispute as to the facts, their effect, when properly considered, in determining the deductibility or otherwise of the travel expenses involves questions of fact, degree and impression falling within the province of an original decision-maker."

The factual background 24 The AAT observed that the facts were not in dispute and made the following findings:

(a) The taxpayer resided with his family on a grazing and farming property (at Duri, near Tamworth) where he carried out activities associated with the farming of deer. The taxpayer was also a pilot employed by Qantas and based at Mascot airport.

(b) The taxpayer's farming operation was a considerable undertaking, carefully structured, conscientiously managed, deriving substantial gross income, and requiring the dedication of much time, skill and experience. In the relevant years of income, the taxpayer had the occasional assistance of a worker, but carried out most of the tasks necessary for the successful running of the farm single-handedly. The deer farming activities of the taxpayer amounted to the carrying on of a business, and the property was a place of business.

(c) By the beginning of the relevant years of income, the taxpayer had amassed a number of years' experience with Qantas, and had achieved the rank of captain, having for many years commanded the control of international flights.

(d) The taxpayer was able to devote towards his property the considerable time necessary to meet the demands of deer farming, as well as fulfil the requirements of his airline employment, by virtue of a route allocation system utilised by the airline. In weekly terms, he was usually able to organise his flying duties such that he was absent from the farm for about three days in a week, and present at the farm for the remainder of the seven day period.

(e) In order to minimise the risk of being called from the property on short notice, the taxpayer, when placed on stand-by duty, usually travelled to and stayed in the vicinity of the airport for the duration of the stand-by period. Occasionally, he remained at the property whilst on stand-by, and on only one occasion during the relevant years whilst on stand-by, he chartered an aeroplane for the purpose of travelling to the airport.

(f) In the usual course during the relevant years, the taxpayer would, on the days he was due to report at the airport for flying duties, travel to the airport using a car, bus and train. When he had to attend training duties or medical checks at the airport, and on the one occasion when he was called from the property to the airport whilst on stand-by, he travelled by means of aircraft, train, bus and motor car. The taxpayer travelled from the property to the airport approximately 40 to 50 times during each relevant year.

(g) The taxpayer's routine was generally constant, involving his engagement in the activities of the farm immediately prior to and whilst leaving the property in order to travel to the airport.

(h) The respondent also attended to farming activities immediately upon arrival at the property when returning from the airport.

(i) When travelling to the airport, the taxpayer was required to carry with him various items of equipment, uniform and documentation pertaining to his employment as a pilot.

Section 51 - Some Authorities 25 As the Full Court pointed out in Federal Commissioner of Taxation v Riverside Road Pty Ltd (in liq) (1990) 90 ATC 4,567, at 4,573, because the circumstances that will give rise to a deduction under s 51(1) of the Assessment Act are "almost infinitely variable, the section is framed in broad general terms yet with great economy of expression". It is perhaps not surprising that the many cases that have "attempt[ed] to elucidate the concepts stated in the section" have themselves often resorted to general language that is not always easy to apply to particular circumstances. 26 The general principles governing the construction of s 51(1) of the Assessment Act are familiar. Under the first limb of s 51(1), outgoings incurred in gaining or producing the assessable income are deductible. The words "incurred in gaining or producing the assessable income" mean in the course of gaining or producing the assessable income: Amalgamated Zinc (De Bavay's) Ltd v Federal Commissioner of Taxation (1935) 54 CLR 295, at 303 and 309; Charles Moore & Co (WA) Pty Ltd v Federal Commissioner of Taxation (1956) 95 CLR 344, at 350. 27 The expression "assessable income" is defined in the Assessment Act, s 6(1), to mean all the amounts which, under the provisions of the Act, are included in the taxpayer's assessable income. The principles governing the meaning of the expression "the assessable income", in the first limb of s 51(1), were stated in Fletcher v Federal Commissioner of Taxation (1991) 173 CLR 1, at 16-17: "[a] point to be made about s 51(1) is that the reference in it to 'the assessable income' is not to be read as confined to assessable income actually derived in the particular tax year. It is to be construed as an abstract phrase which refers not only to assessable income derived in that or in some other tax year but also to assessable income which the relevant outgoing 'would be expected to produce'. ... It has also been said that the test of deductibility under the first limb of s 51(1) is that 'it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income or, if none be produced, would be expected to produce assessable income'." This statement of principle was recently endorsed in Steele v Deputy Commissioner of Taxation [1999] HCA 7, para 23, per Gleeson CJ, Gaudron and Gummow JJ.

28 To be deductible, expenditure must be incidental and relevant to the operations or activities directed at gaining or producing the assessable income: Ronpibon Tin NL v Federal Commissioner of Taxation (1949) 78 CLR 47, at 56. What is incidental and relevant falls to be determined not by reference to the certainty or likelihood of the outgoing resulting in the generation of income, but to its nature and character, and generally to its connection with the operations which more directly gain or produce the assessable income: Federal Commissioner of Taxation v Smith (1981) 147 CLR 578, at 586.

29 However, even those general statements must be treated with some caution. In Lunney, the joint judgment (Williams, Kitto and Taylor JJ) said (at 497) that:

"the expression 'incidental and relevant' was not used in an attempt to formulate an exclusive and exhaustive test for ascertaining the extent of the operation of the section; the words were merely used [in cases such as Ronpibon Tin] in stating an attribute without which an item of expenditure cannot be regarded as deductible under the section". 30 Lunney itselfdecided that fares paid by taxpayers, whether employed or carrying on business on their own account, in travelling day by day from their homes to their places of employment and business and back again, are not deductible pursuant to s 51(1). Dixon CJ came to that conclusion on the basis of precedent and would have had misgivings about the conclusion if the matter were reconsidered afresh on bare reason. Williams, Kitto and Taylor JJ addressed the issue as one of principle. Their Honours said this (at 498-499): "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 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." 31 The joint judgment pointed out that the purpose of the journeys under consideration was as much to enable the taxpayer to reside at his home, as to attend his place of work or business. Their Honours concluded as follows (at 501): "Expenditure of this character is not by any process of reasoning a business expense; indeed, it possesses no attribute whatever capable of giving it the colour of a business expense. Nor can it be said to be incurred in gaining or producing a taxpayer's assessable income or incurred in carrying on a business for the purpose of gaining or producing his income; at the most, it may be said to be a necessary consequence of living in one place and working in another. And even if it were possible - and we think it is not - to say that its essential purpose is to enable a taxpayer to derive his assessable income there would still be no warrant for saying, in the language of s 51, that it was 'incurred in gaining or producing the assessable income' or 'necessarily incurred in carrying on a business for the purpose of gaining or producing such income'." 32 In Lodge v Federal Commissioner of Taxation (1972) 128 CLR 171, a taxpayer sought a deduction under s 51(1) of the Assessment Act for nursery fees for the care of her infant daughter. She did so on the basis that the expenditure was incurred for the purpose of enabling her to devote her time and attention to the preparation of bills of costs for solicitors, from the preparation of which she derived her income. 33 Mason J accepted that the expenditure was incurred for the purpose of earning assessable income and that it was an essential prerequisite to the derivation of that income. But its character as nursery fees for the taxpayer's child meant that the expenditure was neither relevant nor incidental to the preparation of bills of costs, being the activities or operations by which the appellant gained or produced assessable income. The expenditure was not incurred in or in the course of preparing bills of costs, and for that reason was not deductible. Mason J said (at 175): "The rejection in Lunney's Case of the claim that the expenses of travelling between home and work was an allowable deduction was based on the proposition that it is not enough to show that the expenditure was an essential prerequisite to the derivation of assessable income. The decision denied the notion that an expense was incidental and relevant to the derivation of income merely because it was necessary in that sense. The decision turned rather upon a view of the character of the expenditure incurred." 34 Commissioner of Taxation v Cooper (1991) 29 FCR 177 was a case in which a Full Court, by a majority, denied to a professional footballer a deduction for the cost of additional food which the taxpayer consumed, in addition to his normal meals, on the instructions of his coach, in order to maintain his optimum playing weight in the offseason. Lockhart J said this (at 184): "The question whether the additional expenditure of the taxpayer is deductible under s 51(1) cannot be answered simply by a process of reasoning that, because expenditure of this kind is a prerequisite to the earning of the taxpayer's assessable income (in the sense that it is necessary if assessable income is to be derived), it must be incidental and relevant to the derivation of income. It does not follow that such expenditure is incurred in or in the course of gaining or producing the income. The deductibility of the expenditure depends upon determining the essential character of the expenditure itself and not upon the fact that, unless it is incurred, the taxpayer will not be able to engage in the activity from which his income is derived." The taxpayer was paid money to train for and to play football, not to consume food and drink. His income producing activities did not include the consumption of food and drink, and for that reason a deduction for the expense was not available. 35 Hill J, referring to Lunney, said (at 198) that the disallowance of the expenditure of a taxpayer in travelling to and from work might be thought to be a "somewhat anomalous" consequence of a longstanding line of decisions. But his Honour thought that the decision could also be justified on the basis that the connection between the outgoing and the income producing activity was lacking, because the outgoing was simply the consequence of living in one place and working in another. However, his Honour said the case was important for two further reasons: "First, it emphasises that the question of deductibility has to be decided by reference to the essential character of the expenditure. The essential character of expenditure on travel to and from work is not itself that of a business or working expense, and for that reason the claim to deductibility must fail. Second, the Court emphatically rejected an argument that an outgoing is deductible because it is a sine qua non of deriving assessable income ...". 36 There are three other decisions to which we should refer in this context. The first is that of Rath J in Federal Commissioner of Taxation v Collings (1976) 76 ATC 4,254. That was a case in which the taxpayer's expenses in respect of her travelling between her home and work, outside the normal daily journey, were held to be deductible. Rath J, after a comprehensive review of the authorities, concluded that the proposition that expenses of travel between the taxpayer's residence and her place of work were not allowable deductions under s 51(1) had its basis in a specific viewpoint that such expenses were of a private nature. The proposition, in his view, was not compelled by the words "incurred in gaining or producing the assessable income", nor by any of the criteria formulated for applying those words in particular cases. In Collings itself, the taxpayer, who was a highly trained computer consultant on call 24 hours a day, did not journey from home to the office in order to commence her duties, but to complete an aspect of her employment already under way. The expense was incurred in travelling on the taxpayer's work, as distinct from travelling to and from her work, and was therefore deductible. 37 Garrett v Federal Commissioner of Taxation (1982) 58 FLR 101, concerned a medical practitioner who lived on a country property on which he carried on a farming and grazing business. The taxpayer used an aircraft to fly himself to medical practices which he maintained in Sydney and in various country centres, including his home town. He also used the aeroplane to transport vaccines necessary for his medical practices. Lusher J held that the leasing costs of the aircraft and its fuel and repair costs were deductible under s 51(1). 38 His Honour acknowledged that money expended on travelling expenses between a taxpayer's home and his place of employment is usually not properly deductible, either because such expenditure is of a private or a domestic nature or because it is not a business expense or an expense incurred in gaining or producing assessable income. His Honour said (at 106): "On the other hand, where the travelling expenditure is incurred on journeys between different places of business or employment, the expenditure can be regarded as a deduction within the subsection and this can be so even though one of the places of business may also be the home of the taxpayer, or the home can be so construed". His Honour found that the essential character of the expenditure incurred by the taxpayer was that it was part of the operations by which the taxpayer earned his income and was essential to the performance of them, there being no other practical or reasonable way of transporting himself and his vaccines. The expenditures were thus allowable deductions. 39 The third case is Commissioner of Taxation v Genys (1988) 17 FCR 495. Northrop J again reviewed the authorities and concluded that the decision in Lunney was subject to four exceptions. In his view, Lunney has no application where: · the taxpayer keeps heavy equipment at home which needs to be transported by vehicle to the taxpayer's place of work;

· the taxpayer incurs expenses for travel between two places of business or work;

· the employment can be construed as having commenced at the time of leaving home; and

· the taxpayer travels between home and shifting places of work, that is, an itinerant occupation.

Northrop J said (at 498) that the first three exceptions had been identified in Garrett, while the fourth had been established by other authorities dealing with s 51(1).

Reasoning 40 We propose first to consider the question posed by the present case from the standpoint of principle, having regard to the authorities to which we have referred. We shall then consider whether the conclusion we reach is consistent with the particular authorities to which the AAT referred. In the present case, it may be accepted that the taxpayer's travelling expenditure was not incurred in the course of his employment as a pilot, nor in the course of his deer farming business. The expenditure was incurred before he began to perform his duties as a pilot, or after he had fulfilled those duties. Similarly, in relation to the deer farming business. It is important to keep in focus the statutory question, which is whether the expenditure was incurred in (the course of) gaining or producing the assessable income, by whatever means the taxpayer chose to pursue that end. As we have pointed out, the expression "the assessable income" in s 51(1) has been authoritatively interpreted as meaning assessable income which the relevant outgoing would be expected to produce. It is not confined to income from a particular job or a particular business. 41 The critical question involves an examination of the scope of the operations undertaken by the taxpayer (in this case pilot and deer farmer) and the relevance of the expenditure to those operations. The expenditure must be incidental and relevant to the derivation of assessable income from those operations and, in addition, its essential character must be that of a business expense. The relevance of the expenditure should be determined having regard to the overall income producing activities of the taxpayer, and not by reference to individual sources of income. 42 It is of course established that the essential character of expenses incurred in travel from home to work is not that of a business or working expense. Lunney decides that it makes no difference that expenditure of that character is necessary in order for the taxpayer to get to his or her place of employment or business. 43 Because the AAT has not yet expressed any conclusion on the second of the questions it identified (par 18), we are required to deal with the matter upon the basis that the essential character of the travelling expenses here in question is that of expenses incurred in travelling between two places of income derivation, for the purpose of deriving assessable income at each place. It was a fact that the taxpayer resided in one of the two places, but the AAT rejected his claim simply on the basis that travel expenses between two unrelated places of income derivation are not deductible under s 51(1) of the Assessment Act. Thus the fact that the taxpayer resided at the deer farm was irrelevant to the AAT's conclusion. Consistently with the AAT's approach, it was the Commissioner's contention in this Court that no deduction was available to the taxpayer, irrespective of the answer which might be given to the second question. 44 The Commissioner accepted that travel by a taxpayer from one place of business to another is ordinarily a business or working expense, if the activities at each place are part of a single income earning operation. On this reasoning, if a solicitor in sole practice travels between his or her office in suburb A to another office of the same practice in suburb B, the expenses of travel are ordinarily deductible under the first limb of s 51(1) of the Assessment Act. Yet, according to the Commissioner, if the taxpayer has qualifications and practises as both a solicitor and (say) an engineer, the expenses of travel between his or her two separate income producing locations are not, without more, allowable deductions. 45 Similarly, we understand the Commissioner to accept that, where an employee is required by his or her employer to travel between two separate places of employment, the expenses of travel are normally deductible. According to the Commissioner, however, if a taxpayer finishes work for employer A at 2pm each day and then travels directly to the premises of employer B to commence a different job, the expenses of travel between the two places are not ordinarily deductible. 46 We find it difficult to accept that the "essential character" of the expenditure incurred by the taxpayer changes in each case simply because he or she is travelling between two places at which unrelated income earning activities take place. In our view, a taxpayer travelling from one place of business or employment, at which he or she derives assessable income, to another such place, in order to conduct activities from which he or she will derive assessable income, ordinarily is (to adopt the language of Lord Wilberforce in Taylor v Provan) "travelling on his [or her] work, as distinct from travelling to his [or her] work". The taxpayer's work requires his or her attendance at each place. It does not matter that "the work" is for different employers, or involves one or more businesses, or spans different occupations. 47 It may be objected: what business is the taxpayer engaged on when travelling between Tamworth and Sydney? But to put the matter in that way is to distort the language of the statute. As earlier indicated, the question is: is expenditure to that end in the course of gaining or producing assessable income? Where travel is between places from which income is derived, for the purpose of deriving income from activities conducted at those sources, there is the contemporaneity between expenditure and income earning activity which is implicit in the notion of "in the course of" gaining or producing the assessable income. Moreover, the expenditure has a substantial business character. If the purpose of the travel is exclusively to go from one income producing activity to another, it is difficult to see how the essential character of the expenditure is other than a business or working expense. 48 This conclusion is supported, but is not dependent on, considerations of equity among taxpayers. It is far from obvious why a taxpayer who holds one full-time job should be entitled to a deduction for travel between two places of employment, but a taxpayer who holds two part-time jobs, and who must travel to get from one to the other, is not entitled to a deduction. It is of course true that the legal application of the Assessment Act is not necessarily determined by questions of fairness or equity. But if the language of the Assessment Act, as interpreted by the High Court, is consistent with an equitable construction of the legislation, that construction should be preferred over a less equitable alternative. 49 In our opinion, assuming that the essential character of the expenditure under consideration is that of expenses incurred in travelling between two places of income derivation for the purpose of deriving assessable income at each, the AAT made an error of law in finding that it was precluded by the decision in Lunney from concluding that the expenses were incurred in gaining the whole of the taxpayer's assessable income. To that extent, we agree with the reasons for decision of the trial Judge. In our opinion, the AAT erred in concluding that the travel expenses were not incurred in gaining or producing assessable income by reason only of the fact that the travel was between two places of unrelated income derivation. However, insofar as the judgment of the primary Judge suggests that entitlement to a deduction is dependent upon the taxpayer establishing a "close organisational connection between his flying duties and his earning activities at the deer farm", or upon some "synergy" between the two operations, we are, with respect, unable to agree. It was contended by the taxpayer that the time spent and hours worked in each activity were in fact regulated by the requirement that the taxpayer be available at certain times for one or other of the activities. There was thus an interrelationship or "agglutination" between the two income earning activities. The AAT did not make any express findings on this issue, but the primary Judge referred to aspects of the evidence indicative of an integration of the two income earning activities. We do not doubt that some tailoring of the two activities was necessary if the taxpayer was to be able to pursue each of them. However, in our opinion, it is neither necessary nor sufficient that this be so before the costs of travel can be characterised as being in the course of gaining or producing assessable income. That is not to say that factors such as these are necessarily irrelevant to a consideration of the second question identified by the AAT.

Is this Result precluded by the Authorities? 50 We have already referred to the principal authorities. It follows from what we have said that we consider the reasoning in them to be consistent with the conclusion we have reached. However, in deference to the detailed and careful reasoning of the Senior Member of the AAT, we refer to his analysis of certain of the authorities. 51 As we have seen, the Senior Member expressed the opinion that Lunney supports the proposition that the expenses of travel between two places of income derivation are not "incurred in gaining or producing assessable income", if the most that can be said about the expenses is that they are "precursory" or "even necessarily prerequisite" to the activities conducted at both places at which the assessable income is more directly earned. If the Senior Member's reading of Lunney is correct, it would at the least provide a persuasive reason for concluding that the AAT did not make an error of law in the present case. However, with respect, we do not read Lunney as supporting the proposition identified by the Senior Member. 52 Lunney, of course, involved travel between a taxpayer's home and (in one instance) a place of employment or (in the other) a place of business. It did not involve travel by a taxpayer between two places of derivation of income. Nonetheless, the Senior Member considered it significant that the joint judgment in Lunney had criticised the reasoning of Holroyd J in In re the Income Tax Acts (1903) 29 VLR 298 (FC). The relevant passage in Lunney is as follows (at 498): "In that case the learned judge was concerned, inter alia, with the question whether a taxpayer was entitled to claim as a deduction expenditure incurred in travelling to and fro between his private residence and the city of Melbourne where he performed duties which enabled him to earn fees as a director of a company. His Honour said: 'These fees, like the profits of his business, are part of his income, and the money which he employs in travelling up to Melbourne in order to earn them is expended for the purpose of enabling him to earn his income and without paying those expenses, apparently, he could not earn it. I may say I do not understand the difference between the going and returning in such cases. If he goes to Melbourne, he comes back to where he lives; and in my opinion the expenses of going and returning are both necessary for the purpose of earning the money'. The question in that case was whether expenditure so incurred by the taxpayer was 'wholly and exclusively expended for the purposes of his trade' and may, perhaps, be said to differ substantially from that which arises in the present case. Possibly, if the learned judge had been required to apply the provisions of a section similar in terms to s 51 he would have found great difficulty in saying that the expenditure had been 'incurred in gaining or producing' the taxpayer's assessable income. The grounds for his Honour's decision on the point did not, however, commend themselves entirely to the other two members of the court in that case and do not appear to have found acceptance on any other occasion on which not dissimilar problems have arisen for consideration." 53 The Senior Member thought that this passage was significant because "[t]he facts in In re the Income Tax Acts and those of the present matter are substantially similar". The Senior Member had in mind that, in the Victorian case, the taxpayer lived on a farm (described in the judgments of the Full Court as "X") where he carried on business as a grazier, and travelled to Melbourne to attend Board meetings of companies unrelated to the grazing business. He earned director's fees for attending those meetings. At issue was the deductibility of the expenses of travel between the farm (X) and Melbourne, for the purpose of attending Board meetings and of returning to the farm. 54 In the passage quoted from the joint judgment in Lunney, their Honours characterised the issue facing Holroyd J as whether the taxpayer was entitled to claim a deduction for the cost of travel between his private residence and Melbourne. This characterisation reflected the way in which Holroyd J approached the issue confronting him. He said (at 304) that the taxpayer was obliged "to travel from his private residence at 'X' up to Melbourne in order to perform the duties [as a director]" (emphasis added). The joint judgment in Lunney criticised Holroyd J's approach because his Honour had accepted that the expense of travel between a private residence and a place of employment had been incurred "for the purpose of enabling him to earn his income" and, for that reason, was deductible. Holroyd J's analysis was inconsistent with the view taken in Lunney, that the expenses of travel between a private residence and a place of income derivation are not deductible. Holroyd J did not see the case before him as involving travel between two places of income derivation; nor did the joint judgment in Lunney perceive his judgment in this way. 55 It is significant, in our view, that the joint judgment in Lunney made no criticism of the approach taken by a'Beckett and Hodges JJ in In re the Income Tax Acts. On the contrary, the joint judgment in Lunney pointed out that the grounds for Holroyd J's decision "did not commendthemselves entirely to the two other members of the court." This comment is of some significance since a'Beckett J, with whom Hodges J concurred, reasoned as follows (at 305-306): "With reference to the second question, I think it is material to observe that this is not a case in which the person who pays his expenses for the purpose of coming to Melbourne to attend a meeting of directors has a residence unconnected with any income earned at that residence, and selected without any reference to the desirability of that being a place of residence with a view to making an income. It is clearly stated by the case that the taxpayer's presence at 'X' is necessary for the conduct of the business there. That is the place - as the case states - where the business is carried on under his personal supervision. Therefore, in this case, when he leaves that place in which he is carrying on business - 'X' - for the purpose of coming up to Melbourne to attend a meeting of directors, he has to return to that which is another place at which he carries on business producing income, and that place is the place at which he resides; and it seems to me to be a distinction which may be or may not be important. I am not saying what the difference would be if he were a mere suburban resident coming and going from the place where he resided, and which he occupied without any reference to his carrying on business there. But here we have a taxpayer who comes and goes from the place at which he is carrying on business, over which his personal supervision is necessary, and at which it is necessary for him to be for the purpose of carrying on that business. When he goes from there - 'X' - to 'A' and 'B' it is necessary for him to return to 'X' to carry on the business at 'X'. So it is necessary for his business at 'A' and 'B' that when he goes from there to 'X' he shall return to 'A' and 'B'. We are dealing, therefore, with a case in which travelling is necessary to three places, at each of which his presence is requisite for the purpose of his carrying on the businesses from which his taxable income is produced." (The references to "A" and "B" in this passage are to two other properties in Victoria, where the taxpayer carried on the trade of dairying.) 56 It may be going too far to interpret the joint judgment in Lunney as approving the reasoning of a'Beckett and Hodges JJ, although that is a possible construction of their Honours' observations. At the very least, however, the joint judgment in Lunney had nothing critical to say about the reasoning adopted by a'Beckett and Hodges JJ, to the effect that the cost of travel between three places of business, one of which is entirely unrelated to the other two, may be an allowable deduction. 57 The AAT Senior Member also analysed a number of decisions permitting deductions for the cost of travel between two places of business. Of these, the most important are Federal Commissioner of Taxation v Green (1950) 81 CLR 313 (cited with apparent approval by the joint judgment in Lunney, at 487) and Garrett v FCT, to which we have already referred. The Senior Member considered that these cases involved travel between two related places of employment or business and thus did not support the proposition that the cost of travel between two unrelated places of employment or business can be deductible under s 51(1). 58 In Green, the taxpayer was allowed a deduction for the expenses of travel from Brisbane, where he lived, to Townsville and Cairns, for the purpose of inspecting and supervising properties let to tenants, from which he derived rental income. The Senior Member pointed out that the taxpayer in Green maintained a properly equipped office at his residence for his "rent producing concern" (the Senior Member's words). It followed that the permitted deduction was for two related places of business. The Senior Member saw the travel expenses incurred by the medical practitioner in Garrett in a similar light. 59 It may well be true that the expenses in Green and Garrett can be seen as concerning travel between two related places of business. But this does not mean that the Court in each case saw the fact that the activities at each place of business were related as significant to the outcome. In Green, the Court observed (at 319) that the expenditure was incurred: "... in relation to the management of the income-producing enterprises of the taxpayer. If this is so it is immaterial that there might be a difficulty in holding that the taxpayer was carrying on in a continuous manner an identifiable business of some particular description. Section 51, it should be observed, is not limited to deductions from income derived as being the proceeds of a business. Section 51 is a general provision relating to deductions claimable in relation to expenses, losses or outgoings incurred in gaining or producing any income whatever and not merely in relation to income derived from a business." This language does not suggest that the Court thought it critical that the income producing enterprises at Townsville and Cairns were related to the record-keeping and accounting work performed at the taxpayer's home. 60 In Garrett, Lusher J, in a passage already quoted, accepted the principle that travelling expenditure incurred on journeys between different places of business or employment can be regarded as a deduction within s 51(1) of the Assessment Act, even though one place of business is the taxpayer's home. This statement of principle, for which Lusher J cited (inter alia) In re the Income Tax Acts and Green, is not expressed so as to require a particular relationship between the activities conducted at the two places of business. 61 For these additional reasons, we do not think that either the AAT or this Court is precluded by authority from concluding that travel between two unrelated places of business or employment can be deductible pursuant to s 51(1) of the Assessment Act.

Further Conduct of the Proceedings 62 It follows from what we have said that the appeal fails. However, the matter should be remitted to the AAT for determination according to law, rather than according to the reasons of the learned primary Judge, since our reasons differ in some respects from his. 63 This means that the AAT should approach the case on the basis that the expenses of travel by a taxpayer between a place of business and another place of employment are capable of constituting allowable deductions pursuant to s 51(1) of the Assessment Act. Of course the AAT will need to determine whether the travelling expenses in this case were incurred in the course of gaining or producing the assessable income to which s 51(1) refers. It is not necessarily the case that the cost of travel between two places of business, or a place of business and a place of employment, is deductible pursuant to the first limb of s 51(1). 64 Particularly is this so where the taxpayer happens to live at one of the places. In the present case, whether the expenses are deductible may depend, for example, upon whether the predominant character of the farm is as a place of business or a home, and upon the purpose underlying the journeys in question. If a particular journey was undertaken simply so that the taxpayer could return home for the weekend, the fact that home was used as a place of business on some days of the week would not make the expenditure on travel deductible. 65 And, of course, the negative limb of s 51(1) needs to be addressed. It is fair to say that Boards or Tribunals have treated travel expenses between two places of work at one of which the taxpayer also resided, as non deductible: see, for example, Case P9 (1982) 82 ATC 48 - but contrast Case B9 (1970) 70 ATC 42. But, in our opinion, (contrary to the views expressed by the Board of Review in Case F43 (1974) 74 ATC 245, at 248) there is no legal compulsion to reach a conclusion to that effect. Rather there are two questions which are essentially factual in character: is the expenditure within the positive limb and is it excluded from the operation of s 51(1) by the negative limb?

The taxpayer contended that the AAT committed an error of law in failing to determine whether the Commissioner was obliged to issue an assessment in accordance with public ruling TR95/19 if the public ruling was contrary to law. In view of the conclusion which we have reached, it is not necessary for detailed consideration to be given to the various problems which are or may be associated with the taxation ruling. It is sufficient to say that this matter was not raised before AAT for its determination and that this may well be an insurmountable barrier to the taxpayer being able to rely on the point in this Court: see Glennan v Federal Commissioner of Taxation, (unreported, Full Federal Court, 26 March 1999). Conclusion 66 Paragraph 2 of the orders made by the primary Judge should be modified to read as follows: "2. The matter should be remitted to the Tribunal for reconsideration in accordance with law." Otherwise, the appeal should be dismissed. The Commissioner should pay the taxpayer's costs of the appeal. I certify that the preceding fifty-one (51) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Sackville & Hely.

Counsel for the Appellant: Mr D H Bloom QC with Mr S W Gibb

Solicitor for the Appellant: Australian Government Solicitor

Counsel for the Respondent: Mr D B McGovern with Mr A J O'Brien