Hancox v Commissioner of Taxation

IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 332 of 2012

JUDGE: BESANKO J DATE: 29 July 2013 PLACE: ADELAIDE

introduction 1 This is an appeal pursuant to s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth). The appeal to this Court from the Administrative Appeals Tribunal ("the Tribunal") is limited to an appeal on a question of law. The applicant is Mr Andrew Hancox and the respondent is the Commissioner of Taxation. The applicant sought a review by the Tribunal of a reviewable objection decision made by the respondent and relating to his assessable income for the 2009/2010 income year (s 14ZZ(1)(a) Taxation Administration Act 1953 (Cth) ("TAA")). 2 During the 2009/2010 income year the applicant was employed by Downer EDI Engineering Power Pty Ltd ("Downer EDI"). Although his permanent place of residence was in Salisbury, South Australia he was employed by Downer EDI as an electrician on a permanent full-time basis at Port Hedland, Western Australia on a fly-in fly-out basis. Downer EDI would fly the applicant into and out of Port Hedland every four weeks and Port Hedland was never the applicant's home. 3 During the 2009/2010 income year, the applicant stayed at a work camp in or near Port Hedland for 16 weeks and temporary accommodation in Port Hedland for 36 weeks. Pursuant to the Downer EDI Collective Agreement 2009 ("the Collective Agreement") Downer EDI paid the applicant $500 per week whilst he lived in temporary accommodation in Port Hedland in lieu of providing him with food and board. It paid him a total of $18,000 for the 2009/2010 income year. 4 The applicant claimed that his accommodation costs during the period he lived in temporary accommodation in Port Hedland were $16,200 (later it seems that he increased his claim to $18,000) and that his food and sustenance costs were $18,235. The food and sustenance costs were calculated by reference to accepted allowances, but without production of any available expenses. There was a substantiation issue in relation to the food and sustenance costs. On the material before me there is some confusion about the precise figures, but it is of no moment on the appeal. What is clear and what is important is that the applicant claimed losses or outgoings for accommodation and food and sustenance totalling $36,124 in relation to his stay in temporary accommodation in Port Hedland. 5 In his taxation return for the 2009/2010 income year, the applicant included in his assessable income an allowance of $18,038, a deduction for work related travel expenses of $36,124 and a deduction for other work related expenses of $4,260. The reference to travel expenses is something of a misnomer. The expenses are the expenses of accommodation and food and sustenance referred to earlier. The respondent carried out an audit with respect to these various items and decided to make adjustments to the applicant's assessment by reducing the allowance from $18,038 to $38, by reducing the deduction for work related travel expenses from $36,124 to nil, and by reducing the deduction for other work related expenses from $4,260 to $2,540. On 10 March 2011 the respondent issued to the applicant a notice of amended assessment for the 2009/2010 income year whereby the applicant's taxable income was increased by $19,844 and a shortfall penalty of $4,703 was imposed for recklessness. The applicant lodged an objection, but relevantly for present purposes, the objection was disallowed. 6 Before the Tribunal and on the appeal to this Court the other work related expenses were not in issue. The matters in issue related to the allowance of $18,000, the expenses of $36,134 and the shortfall penalty of $4,703 and the Tribunal's decision with respect to these matters.

the relevant legislative provisions 7 At all relevant times for the purposes of this appeal, s 30(1) of the Fringe Benefits Tax Assessment Act 1986 (Cth) ("FBTAA") provided as follows: (1) Where: (a) at a particular time, in respect of the employment of an employee of an employer, the employer pays an allowance to the employee; and (b) it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for: (i) additional expenses (not being deductible expenses) incurred by the employee during a period; or (ii) additional expenses (not being deductible expenses) incurred by the employee, and other additional disadvantages to which the employee is subject, during a period; by reason that the employee is required to live away from his or her usual place of residence in order to perform the duties of that employment; the payment of the whole, or of the part, as the case may be, of the allowance constitutes a benefit provided by the employer to the employee at that time. 8 If the allowance of $18,000 fell within the terms of the above subsection, then two matters followed. First, the allowance or benefit would be neither assessable income or exempt income of the applicant (s 23L of the Income Tax Assessment Act 1936 (Cth) "ITAA 1936"). In other words, it would not be part of the applicant's assessable income by virtue of s 15-2 of the Income Tax Assessment Act 1997 (Cth) ("ITAA 1997"). Secondly, and as part of the decision that the allowance fell within the terms of s 30(1) of the FBTAA, the claimed expenses of $36,124 would not be deductible expenses within s 30(1) of the FBTAA and would not be deductible expenses within s 8-1 of the ITAA 1997. That second matter follows because it is clear in this case (and not in dispute) that the allowance of $18,000 is in the nature of compensation to the applicant for the additional expenses of $36,124. The respondent and then the Tribunal found that the allowance of $18,000 fell within the terms of s 30(1) of the FBTAA. 9 The applicant's case before the Tribunal was that the allowance was not within s 30(1) of the FBTAA and was part of his assessable income by reason of s 15-2 of the ITAA 1997. The expenses of $36,124 were deductible expenses within s 8-1 of the ITAA 1997 and as the allowance of $18,000 was in the nature of compensation for those expenses, it was not an allowance within s 30(1) of the FBTAA. The interpretation section of the latter Act defines "deductible expenses" as relevantly, expenses incurred by the employee in respect of which a deduction is allowable to the employee under s 8-1 of the ITAA 1997. That section is in the following terms: (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. 10 The relevant provisions in relation to the shortfall penalty of $4,703 for recklessness are in Schedule 1 to the TAA and are in the following terms: 284-25 Statements by agents This Division applies to a statement made by your agent as if it had been made by you. … 284-75 Liability to penalty (1) You are liable to an administrative penalty if: (a) you make a statement to the Commissioner or to an entity that is exercising powers or performing functions under a *taxation law (other than the * Excise Acts); and (b) the statement is false or misleading in a material particular, whether because of things in it or omitted from it. Note: This section applies to a statement made by your agent as if it had been made by you: see section 284-25. … 284-80 Shortfall amounts (1) You have a shortfall amount if an item in this table applies to you. That amount is the amount by which the relevant liability, or the payment or credit, is less than or more than it would otherwise have been. Shortfall amounts Item You have a shortfall amount in this situation: 1 A *tax-related liability of yours for an accounting period, or for a *taxable importation, or under the Superannuation (Unclaimed Money and Lost Members) Act 1999, worked out on the basis of the statement is less than it would be if the statement were not false or misleading

... 284-90 Base penalty amount (1) The base penalty amount under this Subdivision is worked out using this table and section 284-224 if relevant: Base penalty amount Item In this situation: The base penalty amount is: 1 … 2 You have a *shortfall amount as a result of a statement described in subsection 284-75(1) or (4) and the amount, or part of the amount, resulted from recklessness by you or your agent as to the operation of a *taxation law (other than the *Excise Acts) 50% of your *shortfall amount or part

… 298-20 Remission of penalty (1) The Commissioner may remit all or a part of the penalty.

authorities in relation to s 30(1) of the FBTAA 11 Two decisions of this Court have explained the meaning and operation of s 30(1) of the FBTAA. The first decision actually dealt with an earlier version of the section, but there are no differences between the two sections which are relevant to the present discussion. 12 In Atwood Oceanics Australia Pty Ltd v Federal Commissioner of Taxation (1989) 20 ATR 742 a taxpayer employer appealed to this Court against a decision of the Federal Commissioner of Taxation. The taxpayer operated drilling rigs off the coast of Australia and it paid its employees an allowance described as a "living-away-from-home allowance" for each day spent on the rig. The Commissioner decided that the allowance fell within the terms of s 30(b) (now s 30(1)(b) of the FBTAA). The taxpayer contended that the allowance was paid in respect of the particular disabilities that arose from living on an offshore oil rig such as isolation from family and friends, lack of social amenities, lack of privacy and uncomfortable living conditions. Lee J upheld the taxpayer's contention and allowed the appeal. 13 In the course of his reasons Lee J addressed the meaning and operation of s 30(b). His Honour's observations were accepted as correct by Hill J in The Roads and Traffic Authority of New South Wales v Commissioner of Taxation (1993) 43 FCR 223 at 232-233 and neither party argued in this case that they did not represent the law. 14 First, Lee J referred to the phrase in the section, "it would be concluded" and said that that involved the view of a reasonable person applying an objective view that the allowance bore the character described in the paragraph. Secondly, Lee J noted that the section referred to "additional expenses" and "additional expenses … and other additional disadvantages" and said that "other additional disadvantages" were not restricted to disadvantageous pecuniary results. Thirdly, Lee J referred to the fact that the allowance is a benefit at the time of payment and said that that meant the provisions of the FBTAA were satisfied if the allowance had a general purpose of compensation rather than any direct connection between the compensation paid and the expenditure incurred by the employee demonstrated by vouching or substantiation. Furthermore, the section is concerned with additional expenses and disadvantages likely to be incurred or suffered during a period rather than expenses or disadvantages actually incurred or suffered in the relevant period. Fourthly, Lee J said that s 30 required proof of a causal connection between the likelihood of additional expenses and disadvantages and the requirement to live away from home for a period. Lee J said that an obvious example of such additional expenses would be extra costs for food and accommodation, "that would not be incurred if the employee were not required to live away from home". Finally, Lee J said that an allowance is not a benefit for the purpose of s 30 unless it was in the nature of compensation for additional expenses or additional expenses and additional disadvantages. It will not be such a benefit if it is in the nature of compensation for additional disadvantages alone. 15 Lee J analysed the history of the award under which the allowance was paid and he concluded that the allowance was not in the nature of compensation for additional expenses and therefore, it was not an allowance for the purposes of s 30. 16 In The Roads and Traffic Authority of New South Wales v Commissioner of Taxation, the taxpayer Authority paid amounts and provided facilities to employees at work sites and was assessed by the Commissioner to pay fringe benefits tax. Four categories of allowances or facilities were in issue, but only one - camping allowances - was classified as living-away-from-home fringe benefits under s 30 of the FBTAA. Hill J described the circumstances in which the camping allowances were paid in the following terms (at 233): The evidence in the present case shows that the allowances were paid to employees who were labourers, gangers, field-hands, plant operators or foremen. Employees were usually hired at a works office. There are approximately 38 work offices in New South Wales located in towns or cities. At the time workers were hired, they were told that they would be required to camp if the work site was located at a place where reasonable transport facilities were not available to enable them to proceed to and from their homes to the work site each day. Where workers worked at sites accessible to the town, the applicant or its predecessor provided a truck to transport workers from the works office to the work site. The practice in the relevant years was that the works engineer made a judgment as to whether a camp site would be established at or near a particular work site. That judgment took into account the distance of the work site from the works depot and the reasonable availability of transport. Relevant awards governing the conditions of work for employees required the applicant to provide camping facilities where the work site was more than 70 kilometres from an employee's place of residence. Where a camp site was established, workers allocated to that site stayed at the camp during the week, except in the case of illness or leave. Workers working from these camp sites worked on road or bridge construction or major rehabilitation works, generally in teams. The duration of work at a particular site varied from a few days to several months with a maximum of 12 months. Employees at camp sites were accommodated either in huts or in caravans. Generally these huts and caravans were situated on the side of the road, although there were occasions where accommodation was provided in caravan parks. 17 Hill J examined the history of the relevant awards and concluded that the camping allowance had two components, namely, an amount to compensate for the disadvantageous conditions of living in a camp and "as part compensation to employees for additional costs of food beyond the cost of living in their own homes and perhaps other expenses caused to them by camping". 18 Hill J said that the camping allowance was a living-away-from-home allowance within s 30(1) of the FBTAA unless, in respect of additional expenses for which the allowance was intended to compensate, those expenses would, if incurred by the employee, be deductible expenses. His Honour concluded that the additional expenses would be deductible expenses and that therefore the camping allowance was excluded from the category of living-away-from-home allowance benefits under s 30(1) of the FBTAA. I will return to the reasoning in this case as the applicant put it at the forefront of his submissions on the appeal.

the tribunal's reasons 19 The Tribunal noted that the applicant's PAYG payment summary for the 2009/2010 income year showed an allowance of $38.00. 20 The Tribunal referred to a letter from the applicant's employer and to evidence from a Mr McCormack who had been group taxation manager at Downer EDI. That evidence established that Downer EDI treated the allowance of $18,000 paid to the applicant as a living-away-from-home allowance under s 30 of the FBTAA. The allowance had a taxable and non taxable component. Downer EDI paid tax on the taxable component which related to the statutory food component of the allowance. 21 Mr McCormack said that the applicant was employed by Downer EDI under Enterprising Bargaining Agreements which referred to distant work employees and that under such agreements, employees were entitled to be provided with board and lodging at no cost to the employee. He confirmed that the weekly payment of $500 was made up of accommodation and food. 22 The weekly payment of $500 made by Downer EDI to the applicant was made pursuant to clause 39 of the Collective Agreement which was in the following terms: 39) DISTANT WORK EMPLOYEE a) For the purpose of this Agreement a distant work employee is an employee who is engaged or selected and advised by the Company to proceed to a place of work to perform duties under their contract of employment and the employee does so such that the employee cannot return to their usual place of residence each night. b) The Company shall obtain and the employee or job applicant shall provide the Company with a statement in writing of their usual place of residence and their current place of residence at the time the employee is engaged and no subsequent change of address shall entitle an employee to the provisions of this clause unless the Company agrees. c) Provided that documentary proof of address such as long service leave registration card or drivers license may be accepted by the Company as proof of the employees usual place of residence on engagement in lieu of the statement in writing referred to above. The employee shall inform the Company in writing of any subsequent change in their usual place of residence. d) Where an employee is a distant work employee under the terms of this Agreement the employee shall be entitled to the following in addition to any other wage rates, allowances and conditions provided elsewhere in this Agreement. e) Full board and lodging will be provided by the Company for distant employees at no cost to the employee while the employee continues to work in conformity with this Agreement. i) Effective 1 January 2009 a distant employee may with the approval of the Company be paid a Living Away from Home Allowance (LAFHA) of $500.00 per week in lieu of being provided with board and lodging. ii) The Company will deduct on a pro rata basis at the rate of one seventh of the LAFHA for each day an employee is not ready, willing and available for work in accordance with this Agreement or because of industrial action. ... 23 Clause 39(e)(i) refers to the allowance as a living-away-from-home allowance and states that it is paid in lieu of being provided with board and lodging. 24 The Tribunal referred to the decisions in Atwood Oceanics Australia Pty Ltd v Federal Commissioner of Taxation and The Roads and Traffic Authority of New South Wales v Commissioner of Taxation and set out passages from the reasons in those cases. It noted the applicant's submission that the latter case supported the proposition that the allowance related to additional expenses that were a travel allowance and therefore deductible expenses. 25 The Tribunal said that the facts in The Roads and Traffic Authority of New South Wales v Commissioner of Taxation were distinguishable from the case before it and then decided by reference to the Collective Agreement that the allowance of $500 per week "was described and properly treated as a living-away-from-home allowance". 26 It followed from that conclusion that the allowance was not part of the applicant's assessable income and that "what purports to be the deductions for work related travel expenses are no longer available". 27 In the circumstances, it was not necessary for the Tribunal to consider the issue of substantiation in relation to the expenses of $36,124. 28 As to the shortfall penalty, the Tribunal found that the statement made by the applicant was false or misleading. It considered the meaning of recklessness and concluded that the shortfall amount resulted from recklessness as to the operation of a taxation law. The Tribunal said at [35]: Mr Birdseye submitted that the applicant was not trying to be reckless or careless. As I have said, this matters not. Mr Birdseye is an experienced tax agent who, based on all the material available (particularly the material received from the applicant's employer), should have realised that the $500 weekly payment made to the applicant by Downer EDI was a living-away-from-home allowance and not a travel allowance. As such, the weekly payments did not constitute assessable income and the deductions for work related travel and other expenses were not allowable as deductions against the allowance. 29 The Tribunal then said that there were no grounds to exercise the discretion to remit all or part of the administrative penalty.

issues on the appeal 30 The main submission made by the applicant was that the Tribunal erred in law in deciding that the expenses of $36,124 were not deductible expenses within s 30(1) of the FBTAA. He submitted that had that decision been made the allowance of $18,000 would not have been characterised as a living-away-from-home allowance and would have been held to be part of the applicant's income. He submitted that that aspect of his appeal was an appeal on a question of law because the facts were not challenged and the only question was whether the expenses as found were deductible expenses within s 8-1 of the ITAA 1997. 31 The respondent did not argue that this aspect of the applicant's appeal was not an appeal on a question of law and I think that he was correct to take that approach. 32 In order to consider the applicant's main submission it is necessary to examine the cases which have addressed whether travelling expenses and the expenses of accommodation and food and sustenance are allowable deductions. 33 In Lunney v Commissioner of Taxation of the Commonwealth of Australia; Hayley v Commissioner of Taxation of the Commonwealth of Australia (1958) 100 CLR 478 the High Court decided that the costs of an employee travelling to and from his or her place of employment, or the costs of a business proprietor travelling to and from his or her place of business, were not losses or outgoings to the extent to which they are incurred in gaining or producing the assessable income, or were necessarily incurred in carrying on a business for the purpose of gaining or producing such income. Had they been, they would have been allowable deductions except to the extent to which they are losses or outgoings of capital, or of a capital, private or domestic nature. Although the relevant section is now s 8-1 of the ITAA 1997 and not s 51(1) of the ITAA 1936, the principles remain the same (Commissioner of Taxation of the Commonwealth of Australia v Day (2008) 236 CLR 163 at 175 [21] per Gummow, Hayne, Heydon and Kiefel JJ). 34 The plurality of Williams, Kitto and Taylor JJ discussed the relevant principles. The plurality noted the various tests which had been formulated in the cases including whether the expenditure was incidental and relevant to the operations or activities regularly carried on for the production of income. The plurality said that the test is not one of considering whether the expenditure is necessary if assessable income is to be derived. The statutory test focuses more on the essential character of the expenditure itself. Their Honours said the character or colour of the expenditure in the case before them was not that of a business expense, but rather a personal or living expense. It was expenditure incurred as a necessary consequence of living in one place and working in another. 35 In Federal Commissioner of Taxation v Charlton (1984) 71 FLR 107 Crockett J of the Supreme Court of Victoria was called upon to consider whether a medical practitioner whose family home was in an inner Melbourne suburb could claim as an allowable deduction the rent he paid on a flat in Bendigo which he used in the course of regular trips to Bendigo where he performed autopsies. 36 The question before Crockett J was whether the rental or outgoing paid in relation to the flat was incurred in gaining or producing the taxpayer's assessable income. His Honour decided that it was like the expense of travelling to and from work and not deductible. He said (at 114): … if the taxpayer should choose to reside so far from the place where it is necessary for him to be in order to gain his income that he, not only needs to incur expense in travelling to that place but, also to incur expense in the provision to him of some accommodation transitory or discontinuous in its use and secondary to or temporarily supplemental of his actual home, then that expense, too, is for the same reason non-deductible. 37 That proposition was supported by the decision in Ricketts v Colquhoun [1926] AC 1, a decision which Crockett J said must be treated as carrying the approval of the High Court. Crockett J concluded on the facts (at 115) that: The taxpayer's election to live in Melbourne and not in Bendigo meant that the rental expended on the flat in order to enable him to secure accommodation in which to recuperate from the rigours of travel and the nature of his work was an expenditure dictated not by his work but by private considerations. 38 In Commissioner of Taxation v Cooper (1991) 29 FCR 177 the Full Court of this Court was required to consider whether a professional footballer, who at the insistence or request of his coach had incurred costs on food and drink additional to his staple diet, was entitled to deduct those costs as outgoings under s 51(1) of the ITAA 1936. A majority of the Court (Lockhart and Hill JJ; Wilcox J dissenting) held that the costs or outgoings were not allowable deductions. 39 Lockhart J held that the relevant test was to determine the essential character of the expenditure and that that was to be applied in determining whether the expenditure was incurred in the course of gaining or producing assessable income and in determining whether the expenditure was of a capital, private or domestic nature. Lockhart J said (at 183-184): These are the relevant principles to apply in determining the deductibility of the taxpayer's expenditure in this case. The application of s 51(1) gives rise to difficulty in some cases because there is a large variety of factual situations to which it may apply. The deductibility of expenditure on food, clothing and housing poses difficult questions. In one sense expenditure on food is always relevant to the derivation of income because a person must eat to enable him to live and therefore to work. Obviously that alone is not a sufficient connection with the earning of assessable income to permit a deduction. On the other hand a person whose business is the publication of a food guide may buy and taste food in the course of his business, so there is a clear nexus between the expenditure and the derivation of income. The cases that lie in between the two extremities give rise to the difficulty and this case is one of them. 40 His Honour made the point that it is not enough that the expenditure is necessary if assessable income is to be derived. His Honour said (at 185): Food and drink are essential to sustain life. Diet, metabolism and the propensity to put on weight varies from person to person. The quality and quantity of food and drink consumed by professional footballers doubtless varies considerably from one to another. Some would maintain their desired weight by eating more than others. Some would not have difficulty in maintaining weight by eating less than others. It would be a curious result if some professional footballers obtained a deduction for expenditure on basic items of food and drink and others did not because the former chose to consume more than the latter, whether pursuant to an "instruction" of their coaches or not. The taxpayer incurred the expenditure on additional food and drink for the purpose of increasing his weight and thus to play professional football and earn assessable income. But its character as the cost of additional food and drink is neither relevant nor incidental to the training for and playing of football matches, which is the activity by which he gained assessable income. The expenditure was not incurred in or in the course of that activity. The taxpayer was paid money to train for and play football, not to consume food and drink. His income-producing activities did not include the consumption of food and drink. 41 His Honour concluded that the expenditure was not incurred in gaining or producing the taxpayer's assessable income. Furthermore, his Honour concluded that the expenditure was of a private nature. 42 Hill J also referred to the relevant authorities and said that the expenditure was not incurred in gaining or producing the taxpayer's assessable income because the income-producing activities were training for and playing football and did not include the taking of food, although unless food was eaten, the player would be unable to play. His Honour also said (at 200): Expenditure on food, even as here "additional food" does not form part of expenditure related to the income-producing activities of playing football or training. 43 Hill J also said that expenditure was of a private nature. He said (at 201): Food and drink are ordinarily private matters, and the essential character of expenditure on food and drink will ordinarily be private rather than having the character of a working or business expense. However, the occasion of the outgoing may operate to give to expenditure on food and drink the essential character of a working expense in cases such as those illustrated of work related entertainment or expenditure incurred while away from home. No such circumstance, however, intervenes here. In particular, the mere fact that Mr Masters suggested or even directed Mr Cooper to eat particular food does not convert the essential character of the food as private into a working expense. 44 Wilcox J dissented. His Honour did not disagree with the test applied by the majority but said that on the facts the relevant "nexus" between the expenditure and the assessable income was established. His Honour also said that the expenditure was not of a private nature. 45 In Commissioner of Taxation of the Commonwealth of Australia v Payne (2000) 202 CLR 93 the High Court was called upon to consider whether a taxpayer's travelling expenses in moving between two unrelated places of employment were allowable deductions within s 51(1) of the ITAA 1936. A majority (Gleeson CJ, Kirby and Hayne JJ; Gaudron and Gummow JJ dissenting) decided that they were not. 46 The majority noted that the section was not expressed in terms of outgoings incurred "in connection with" the derivation of assessable income or outgoings incurred "for the purpose of" deriving assessable income. The majority said that in considering whether outgoings were incurred in the course of gaining or producing assessable income it is appropriate to apply the test stated in Ronpibon Tin NL and Tongkah Compound NL v Federal Commissioner of Taxation (1949) 78 CLR 47. That test involved the question of whether the occasion of the outgoing should be found in whatever is productive of actual or expected income. 47 The majority said that the expenses were not incurred in the course of the taxpayer's employment as a pilot or in the course of his deer farming business. Their Honours said that the expenses were occasioned by the need to be in a position where the taxpayer could set about the tasks by which assessable income would be derived and that in that respect they were no different from expenses incurred in travelling form home to work (at 101-102 [14]). Their Honours also said that the distinction between outgoings incurred in the course of deriving income and other expenses was a distinction which applied generally and not just in relation to travel expenses (at 102-103 [17]). 48 In Commissioner of Taxation of the Commonwealth of Australia v Day the High Court was called upon to consider whether expenses incurred by a taxpayer who was a customs officer and who faced charges under the Public Service Act 1922 (Cth) were allowable deductions under s 8-1 of the ITAA 1997. A majority (Gummow, Hayne, Heydon and Kiefel JJ; Kirby J dissenting) held that they were. Their Honours said that expressions found in the cases such as the expenses being "incidental and relevant" to the income producing activities or the expenses having an "essential characteristic" should be approached with some caution and should not be used to unduly expand or narrow the words in s 8-1(1)(a) (178-179 [29]). Their Honours also made the point that the words of s 8-1(1)(a) are intended to cover many factual and legal situations and it is not possible to have one formula capable of application to the circumstances of each case. Their Honours endorsed "the occasion of the outgoing" question as a guide and said that critical to the inquiry was a determination of what it was that was productive of assessable income (at 179 [30] [31]). 49 As I have said, the applicant put at the forefront of his submissions the reasons for judgment of Hill J in The Roads and Traffic Authority of New South Wales v Commissioner of Taxation and in particular, the following passages (at 240): Where a taxpayer is required by his employer, and for the purposes of his employer, to reside, for periods at a time, away from home and at the work site, and that employee incurs expenditure for the cost of sustenance, or indeed other necessary expenditure which, if the taxpayer had been living at home, would clearly be private expenditure, the circumstance in which the expenditure is incurred, that is to say, the occasion of the outgoing operates to stamp that outgoing as having a business or employment related character. … The facts of the present case are quite different. First, each of the persons deemed hypothetically to have incurred the expenditure are employees. They are not carrying on their own business. Secondly, they are required, as an incident of their employment, by their employer and for the purposes of the employer to live close by their work site for relatively short periods of time. No question arises of their choosing to live in these places. Each of the persons in question has a permanent house in which he lives when not in camp. None of the employees spend inordinate periods of time in the camps so that the camp becomes their home. Their house is retained and the employees in question travel home at weekends. They do not remain in the camps. The costs in question here are an incident of the employment. The costs in Toms were not. 50 Those passages must be read in the context in which they were made. There are two factual matters which distinguish The Roads and Traffic Authority of New South Wales v Commissioner of Taxation from this case. First and importantly, in that case the employees were required to live in the camp. In this case, the applicant chose to live in South Australia and to travel (and stay) in Port Hedland for the purpose of his employment. Secondly, the additional expenses in that case were relatively modest additional costs of food "beyond the cost of living in [the employees'] own homes and perhaps other expenses caused to them by camping". In this case, the "additional expenses" are the cost of accommodation and food and sustenance. 51 I briefly restate the main facts. The applicant is an electrician by occupation. He was employed by Downer EDI as a leading hand maintenance electrician at or near Port Hedland. The applicant's usual place of residence was in South Australia. He paid his airfares from Adelaide to Perth and Downer EDI paid for his travel from Perth to Port Hedland. The applicant incurred losses and outgoings for accommodation and food and sustenance while staying in temporary accommodation in Port Hedland. 52 The cases to which I have referred strongly suggest that the losses or outgoings in relation to accommodation (i.e., in this case rent) and food and sustenance were not incurred in the course of gaining or producing assessable income. As far as accommodation is concerned, Federal Commissioner of Taxation v Charlton is directly on point. Like the taxpayer in that case, the applicant chose to reside so far away from his place of employment that he incurred accommodation as well as travelling expenses. Like the travelling expenses, the accommodation expenses are not deductible. As far as food and sustenance is concerned, although the deductibility of expenditure on food can pose difficult questions, I do not think it does in this case. The income producing activities of the applicant were those associated with his work as an electrician. To adopt the approach of Lockhart J in Commissioner of Taxation v Cooper, the applicant was employed to perform the functions of a leading hand maintenance electrician at Downer EDI's Port Hedland site, not to consume food and drink. The decision in The Roads and Traffic Authority of New South Wales v Commissioner of Taxation is distinguishable. The food expenditure in that case was the additional cost of food by reason of living in the camp and the employees had no choice but to live away from home. In this case, the applicant could have had his usual place of residence in Port Hedland. 53 The application of the test of whether the occasion of the expenditure on accommodation and food and sustenance is to be found in the applicant's activities as a leading hand maintenance electrician leads to the same result. The occasion of the expenditure is the applicant's choice to live in South Australia rather than in Port Hedland. 54 In my opinion, the expenses of $36,124 were not incurred in gaining or producing the applicant's assessable income and were not deductible expenses within s 8-1(1)(a) of the ITAA 1997. It is not necessary for me to consider whether the expenses were of a private nature within s 8-1(2)(b) (Handley v The Commissioner of Taxation of the Commonwealth of Australia (1981) 148 CLR 182; Commissioner of Taxation v Cooper). As the expenses were not within s 8-1(1)(a), they were not "deductible expenses" within s 30(1) of the FBTAA. The allowance of $18,000 fell within s 30(1) and the Tribunal did not err in so concluding. 55 The applicant submitted that even if his main challenge to the Tribunal's decision should fail, nevertheless the Tribunal erred in law in concluding that the base penalty amount should be worked out on the basis that the shortfall amount resulted from recklessness by the applicant or his agent. In other words, the challenge was to the Tribunal's characterisation of his conduct as amounting to recklessness rather than to whether the pre-requisites for the imposition of a shortfall penalty were satisfied. 56 The Tribunal referred to the observations of Cooper J in BRK (Bris) Pty Ltd v Commissioner of Taxation [2001] FCA 164 (at [77]) as follows: Recklessness in this context means to include in a tax statement material upon which the Act or regulations are to operate, knowing that there is a real, as opposed to a fanciful, risk that the material may be incorrect, or be grossly indifferent as to whether or not the material is true and correct, and that a reasonable person in the position of the statement-maker would see there was a real risk that the Act and regulations may not operate correctly to lead to the assessment of the proper tax payable because of the content of the tax statement. So understood, the proscribed conduct is more than mere negligence and must amount to gross carelessness. 57 This statement was referred to with approval in Federal Commissioner of Taxation v R & D Holdings Pty Ltd (2007) 160 FCR 248 at 260-261 [70] per Heerey and Edmonds JJ; 270 [109] per Stone J (see also Howard v Commissioner of Taxation [2012] FCAFC 149 at [56] per Middleton, Perram and Dodds-Streeton JJ). 58 It is clear then that the Tribunal stated the law correctly. I have set out above a passage from the Tribunal's reasons where it applies the law to the facts (at [28]). There were matters suggesting a lesser fault characterisation than recklessness. There were the passages in the reasons for judgment of Hill J in The Roads and Traffic Authority of New South Wales v Commissioner of Taxation and the fact that the allowance of $18,000 was included in the applicant's assessable income. However, the difficulty for the applicant is that I cannot detect any error of law in the Tribunal's approach. It stated the law correctly and in view of the material from Downer EDI it cannot be said that there was no material to support its conclusions. I do not think the applicant's appeal in relation to the Tribunal's characterisation of his agent's conduct as reckless is an appeal on a question of law. 59 There is no other error of law in the Tribunal's approach to penalty.

conclusion 60 For these reasons the appeal should be dismissed with costs. I certify that the preceding sixty (60) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.