Counsel and Solicitors D.H. Bloom QC and B.J. Sullivan

Government Solicitor

Counsel and Solicitors R.F. Edmonds instructed by

The respondent, Robert John Cooper, pay the costs of the appellant, Commissioner of Taxation, of the appeal.

The appeal to the Supreme Court by the Commissioner of Taxation be allowed.

Leave be reserved to either party to restore the matter to the list on seven days' notice on the question of costs of the appeal to the Supreme Court.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

The taxpayer, Robert John Cooper, is a professional footballer who played with the Western District Rugby League Football Club. He claimed as deductions under s. 51(1) of the Income Tax Assessment Act 1936 ("the Act") the expenditure incurred by him for the purchase of additional food and drink which he consumed, on the "instructions" of his coach, in order to maintain an "optimum playing weight" of about 16 stone and thus retain his strength to break the opponents' defensive line in First Grade Rugby League Football. He played with the Club as a forward.

2. The Commissioner of Taxation disallowed the deductions claimed by the taxpayer for the cost of the additional food for the years ended 30 June 1980, 1981 and 1982. The taxpayer objected to the disallowance and the objections were referred to a Taxation Board of Review which allowed the taxpayer's objections. The Commissioner appealed to the Supreme Court of New South Wales. The appeal was heard by Hunt J. who dismissed the appeal. The Commissioner appealed to this Full Court from the Supreme Court's judgment.

3. Hunt J. dismissed the Commissioner's appeal on two grounds. First, his Honour held that the appeal was incompetent because it involved no question of law. His Honour said that no question of law is involved where some principle of law was either necessarily applied by the Board in arriving at its decision or merely implicit or assumed in that position; the question must be one which was involved in the Board's decision and he referred to Boyded (Holdings) Pty Limited v Federal Commissioner of Taxation (1982) 13 ATR 127 at 130. His Honour found that there was no question of law involved in the Board's decision in this case. He said the question whether a particular set of facts comes within the terms of a statutory definition which uses words according to their common understanding is one of fact not of law and referred to Australian Gas Light Co. v Valuer-General [1940] NSWStRp 9; (1940) 40 SR(NSW) 126 at 137-8 and Hope v Bathurst City Council [1980] HCA 16; (1980) 144 CLR 1 at 7-8. His Honour noted a concession in argument that the case involved a question of fact and degree (Federal Commissioner of Taxation v Forsyth [1981] HCA 15; (1981) 148 CLR 203 at 215), that no submission was made to the Board of "no evidence" and that the Board did not rule upon that question expressly or by implication: cf Lombardo v Federal Commissioner of Taxation [1979] FCA 66; (1979) 10 ATR 310 at 314.

4. The second ground on which his Honour dismissed the Commissioner's appeal was that the food and drink purchased by the taxpayer was additional to that which he ordinarily consumed; that it was consumed, not to sustain the taxpayer because his ordinary consumption of food did that, but to ensure that he was able to derive a substantially greater income from that which he would otherwise have been able to derive because payments made to First Grade players are considerably higher than those made to players of lower grades. His Honour found that the outgoing was directly related to gaining that additional assessable income and that the essential character of the expenditure was to gain additional assessable income. His Honour relied on Lunney v Federal Commissioner of Taxation (1958) 100 CLR 478 at 497 and held that the expenditure was incurred pursuant to a contractual obligation to do so and not merely because the taxpayer had been "encouraged" to incur it, as the Commissioner contended. His Honour compared Federal Commissioner of Taxation v Hatchett [1971] HCA 47; (1971) 125 CLR 494 at 499. He held that the claim was a deduction allowable under the first limb of s. 51(1) of the Income Tax Assessment Act (1936) as expenditure incurred in gaining the taxpayer's assessable income.

5. The evidence before the Supreme Court consisted of the evidence given to the Board of Review (including oral evidence of the taxpayer), which was tendered by consent, two additional affidavits of the taxpayer and certain brief oral evidence of the taxpayer. Hunt J. accepted the taxpayer's evidence in its entirety.

6. I shall briefly state the relevant facts. The taxpayer was during the relevant years of income under a contract with the Western District Rugby League Football Club, made on 22 December 1979, to play for it in the Sydney Major Premiership Competition during the 1980 and 1981 seasons together with a "club option" for the 1982 season. Under the contract the taxpayer agreed (by clause 1) to:

"... do everything necessary to get and keep

himself in the best possible condition so as to

render the most efficient service to the Club

and will carry out all the training and other

instructions of the Club through its responsible

officials."

7. The contract gave to the Club the right to determine the contract forthwith if the taxpayer failed to discharge his obligations or if he was guilty of disobedience (clause 7). He was entitled to a "signing on" fee of $9,000 for seasons 1980 and 1981". Additional payments were to be made to him for each match, which varied in amount according to the particular grade in which he played and the results of each match (clause 3). A win when playing in First Grade paid five times the amount for a win in Reserve Grade. Substantial additional payments were to be made if the taxpayer was chosen to represent Australia or New South Wales.

8. When the taxpayer commenced playing in First Grade (some years before the first of the relevant years of income) he noticed that he lost weight from the beginning of the pre-season training which continued throughout the season. This coincided with the increased time which he was obliged to spend on training. He trained with the team three nights a week and he tried to train by himself on a further two nights a week. He found that after commencing at 17 stone, he would finish the season just under 15 stone. This weight loss affected the taxpayer's ability as a forward. It resulted in loss of strength which in turn diminished his ability to break the opposing team's defence line. That was the task expected of him, and such ability was important to his effectiveness as a forward and to the retention of his position in First Grade. His Honour found that if the taxpayer's ability to barge through his opponent's defensive line was reduced because of his loss of weight the taxpayer would have been dropped from First Grade (he was never in fact dropped from First Grade) and if he was so dropped his income derived as a professional footballer would be reduced by 80 percent until he was promoted back into First Grade if and when this were to happen. His Honour found that the loss of weight would accordingly have been directly responsible for the reduction in assessable income derived by the taxpayer as a professional footballer.

9. On 12 October 1979 the taxpayer's coach gave him the following "instructions" in writing:

" 12 October 1979

Mr R Cooper

3 Yara Close

BANGOR 2234

Dear Bob,

Now that the season has ended and in

preparation for next year's season I would like

you to follow the instructions below from this

date:

Fitness:

Ensure that you maintain your reflex speed

and endurance by playing squash at least once,

preferably twice per week, all year round.

Strength:

Attend a Gym, either locally or at Wests

League Club, to build up your physique and

strength, preferably once per week.

Weight:

As you have a tendency to lose weight

which affects your playing ability during the

season, I want you to eat the following items

each week in addition to your normal meals:

1. 3 kilos of steak, only medium

cooked.

2. Potatoes at each meal, 1 kilo per

week.

3. Bread at each meal, at least three

loaves per week.

4. Beer is an excellent method of

increasing weight, therefore at

least 1 dozen cans per week.

5. At least one glass of Sustagen per

day.

General Exercise:

Ensure that for general conditioning you

do as much running as possible.

I appreciate that the above will involve

you in extra expense but I am sure that you will

be recompensed by the Club when your contract

comes up for renewal.

Regards,

ROY MASTERS"

10. The taxpayer gave evidence before the Board that he understood he was under an obligation to do what Mr Masters said.

11. The taxpayer made estimates of the cost of the purchase of the additional food and drink consumed by him to carry out the instructions and they were $682, $751 and $640 for the three years of income respectively. The estimates were not challenged as to quantum by the Commissioner. The taxpayer was unable to relate specific amounts of money to the steak, potatoes, bread, beer and Sustagen purchased in addition to that which would otherwise have been purchased. He chose to eat a fourth meal each day, either during the afternoon or late at night, and said that he adhered as rigidly as possible to the "instructions" given by his coach.

12. Whether a question of law was involved in the appeal from the Board of Review to the Supreme Court has been considered by Hill J. in his reasons for judgment which I have read in draft form. I agree with him that more than one question of law was involved in the appeal and generally with his reasons in support of that conclusion. The Supreme Court therefore had jurisdiction to determine the appeal.

13. The substantial question in the case is whether the expenditure of the taxpayer on additional food and drink is deductible under s. 51(1) of the Act. As the taxpayer did not carry on a business it is only the first limb of the sub-section that can apply to confer the deduction. The primary question is therefore whether the expenditure was incurred in gaining or producing the taxpayer's assessable income. A related question arises whether the expenditure is nevertheless of a private or domestic nature and therefore excluded from deductibility by the concluding words of the sub-section.

14. The phrase "incurred in gaining or producing assessable income" in the first limb of s. 51(1) has been construed to mean incurred in the course of gaining or producing assessable income: Amalgamated Zinc (De Bavay's) Limited v Federal Commissioner of Taxation [1935] HCA 81; (1935) 54 CLR 295 per Latham C.J. at 303 and Dixon J. at 309; W. Neville and Co. Limited v Federal Commissioner of Taxation [1937] HCA 9; (1937) 56 CLR 290 per Dixon J. at 305; Ronpibon Tin NL v Federal Commissioner of Taxation [1949] HCA 15; (1949) 78 CLR 47 per Latham C.J., Rich, Dixon, McTiernan and Webb JJ. at 56-7.

15. For expenditure to be an allowable deduction as an outgoing incurred in gaining or producing the assessable income, it must be incidental and relevant to that end; Ronpibon at 56. This test of deductibility has been explained in subsequent judgments of the High Court, so that to be deductible the expenditure must be incidental and relevant in the sense of having the essential character of expenditure incurred in the course of gaining or producing assessable income. This formulation of the test has its origins in the joint judgment of Dixon C.J., Williams, Webb, Fullagar and Kitto JJ. in Charles Moore and Co. (W.A.) Pty. Limited v Federal Commissioner of Taxation [1956] HCA 77; (1956) 95 CLR 344 at 351. It has been applied subsequently in cases which include Lunney v Federal Commissioner of Taxation (1958) 100 CLR 478 at 497; Handley v Federal Commissioner of Taxation [1981] HCA 16; (1981) 148 CLR 182 at 194; Forsyth v Federal Commissioner of Taxation [1981] HCA 15; (1981) 148 CLR 203 at 210; John v Federal Commissioner of Taxation [1989] HCA 5; (1989) 166 CLR 417. The essential character test is also applied to determine if the expenditure is of a capital, private or domestic nature as these cases illustrate.

16. Outgoings incurred in gaining or producing assessable income and outgoings of a capital or domestic nature are not mutually exclusive; Ronpibon Tin at 56; Forsyth, John at 427. It was decided in John that 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 at 431.

17. It is relevant to have regard to the terms and conditions of a taxpayer's employment in determining whether expenditure incurred by an employee satisfies the first limb of s. 51(1): Finn v Commissioner of Taxation [1961] HCA 61; (1961) 106 CLR 60 per Kitto J. at 69; Hatchett v Federal Commissioner of Taxation [1971] HCA 47; (1971) 125 CLR 494.

18. In Handley the taxpayer claimed portion of payments made by him of interest on moneys borrowed on the security of his house and of municipal and water rates assessed on the house and of premiums for fire insurance on the house, as deductions from his assessable income earned in the course of his profession as a barrister. It was the taxpayer's case that he used the study in his home predominantly for professional work in the evenings and at weekends, for example, working on briefs and preparing opinions. He claimed that the expenditure was referable to his income earning activities. The High Court, by majority, disallowed the claims for deduction on the ground that, notwithstanding that the study was predominantly used for the purpose of the taxpayer's profession, it nevertheless remained an integral part of the home and the relevant expenditure had the essential character of a private or domestic nature. The study was in the home and not separate from it, having no distinctive physical characteristics and was readily capable of other use for family purposes and was in fact used for non-professional purposes from time to time. The expenditure was therefore referable to the home. The same principles were applied in Forsyth's Case which also involved the use by a barrister of his study at home.

19. The study cases of Handley, Forsyth and the earlier decisions of Thomas v Federal Commissioner of Taxation (1972) 46 ALJR 397 and Federal Commissioner of Taxation v Faichney [1972] HCA 67; (1972) 129 CLR 38 turned essentially on the question whether the study was an integral part of the taxpayer's house and whether the expenditure related essentially to the house of which the study was but a part and not a distinct part. They are helpful for present purposes as examples of the application of the essential character test.

20. Closer to the present case however is Lunney which held that fares paid by a taxpayer travelling day by day from his home to his place of employment and back again was not a deductible expense under s. 51(1). In Lunney Dixon C.J. said at 486:

"I confess for myself, however, that if the

matter were to be worked out all over again on

bare reason, I should have misgivings about the

conclusion. But this is just what I think the

Court ought not to do. It is a question of how

an undisputed principle applies. Its

application was settled by old authority long

accepted and always acted upon. If the whole

subject is to be ripped up now it is for the

Legislature and not the Court to do it."

In their joint judgment Williams, Kitto and Taylor JJ. said at 501, after referring to a number of English decisions:

"No doubt the legislative provisions which

required consideration in these cases were not

identical with s. 51, but the process of

reasoning by which they were decided

consistently rejects the notion that expenditure

incurred by a taxpayer in order to travel from

his home to his place of business is, in any

sense, a business expenditure or an expenditure

incurred in, or, in the course of, earning

assessable income. Indeed they go further and

refuse assent to the proposition that such

expenditure is, in any relevant sense, incurred

for the purpose of earning assessable income and

unanimously accept the view that it is properly

characterised as a personal or living expense.

This view agrees with that which we, ourselves,

entertain. 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

assessable income' or 'necessarily incurred in

carrying on a business for the purpose of

gaining or producing such income'."

21. Lunney's Case accorded with a well established view in the English Courts that for a person to live away from his place of employment or business is a matter referable to his private choice or domestic necessity. This process of reasoning has been much criticised and said to be illogical (see, for example, Handley per Stephen J. at 192-193 and Maddalena 71 ATC 4161 at 4162).

22. In Lodge v Federal Commissioner of Taxation [1972] HCA 49; (1972) 128 CLR 171 Mason J. denied a deduction of expenditure incurred by a taxpayer consisting of payment of nursery fees for her infant daughter whilst she was at work. His Honour held that child care expenses, because of their essential character, are not incurred in gaining or producing the assessable income of the taxpayer. He said at p 175-6:

"The expenditure was incurred for the purpose of

earning assessable income and it was an

essential prerequisite of the derivation of that

income. Nevertheless its character as nursery

fees for the appellant's child was neither

relevant nor incidental to the preparation of

bills of cost, 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 cost."

See also with respect to child care expenses: Martin v Commissioner of Taxation 84 ATC 4513.

23. 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.

24. 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.

25. The taxpayer relied on the fact that the taxpayer's coach said in his letter of 12 October 1979:

"As you have a tendency to lose weight which

affects your playing ability during the season,

I want you to eat the following items in

addition to your normal meals ..."

26. He also relied on his evidence that he thought he was obliged to follow what his coach said.

27. These are relevant considerations, but they are not determinative of the question of the deductibility of the expenditure. If it were determinative of the deductibility there would be an avalanche of letters of this kind to employees in many fields of income earning activities.

28. Also, the status of the letter as an "instruction" is itself doubtful. Such letters between employers and employees would not be difficult to arrange and this one is no exception. Counsel for the Commissioner drew our attention in argument, without objection, to the fact that the taxpayer was represented before the Board of Review by his brother, an accountant, who in opening the taxpayer's case to the Board frankly said:

"Many years ago, about 1979, my brother and I

were sitting down - I used to have an accounting

practice and I used to do tax returns for a

number of people including my brother. One day

we were sitting down and he was telling me about

how his coach, who at that stage was Roy

Masters, Western Suburbs Rugby League Club, was

saying that he had a lot extra above his normal

meals and I said to him, 'Well, look if you can

get that in writing signed, by Roy Masters, then

I'll have a - I'll prepare a claim for the extra

above your ordinary meals."

29. For myself I would not interpret the letter as an "instruction" to consume additional food and drink. The coach's concern was obviously that the taxpayer maintain a weight appropriate for a forward. It is doubtful if he cared how this was done by the taxpayer, whether by consumption of food and drink or working-out at the gym or the taking of medicines or otherwise, provided that it was consistent with approved practices within Rugby League. The prescription of the menu was simply the means which the coach perceived as best way of ensuring the maintenance of the taxpayer's weight. Also the letter left it to the discretion of the taxpayer as to how and when he consumed the extra victuals. He chose to do so by eating a fourth meal each day.

30. However, I am content for the purposes of this appeal to take the letter at its face value. Even if the letter is treated as an "instruction" to the taxpayer to eat the additional food and drink prescribed in it there is no necessary nexus between the instruction and the playing of football by the taxpayer. His activity as a professional footballer did not include the consumption of additional food and drink.

31. The expenditure here was on food and drink additional to the staple diet of the taxpayer. The evidence is unclear as to what the taxpayer's customary consumption of food and drink was, but it would be surprising if it did not include meat, potatoes, bread and beer. A mere increase in the quantity of the consumption of those items appears to me to be a tenuous nexus with the taxpayer's activity of playing professional football. Nor is there any suggestion that the taxpayer suffered from any medical condition which caused him to lose weight.

32. In one sense the taxpayer consumed the additional food and drink for the purpose of deriving income as a professional footballer, just as employees incur expenditure on fares in travelling between their homes and places of employment.

33. 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.

34. 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.

35. In my opinion the taxpayer's expenditure on additional food and drink was not incurred in gaining or producing his assessable income and is therefore not deductible from his assessable income during the relevant years of income.

36. Furthermore, for the reasons already given I would regard the expenditure as being of a private nature and therefore within the exclusionary limb of s. 51(1).

37. I would allow the appeal with costs. I would set aside the orders of the Supreme Court and substitute an order that the appeal by the Commissioner be allowed with costs.

I have had the advantage of reading in draft form the respective reasons for judgment of Lockhart and Hill JJ., wherein the facts of the case are set out.

2. I agree with my colleagues that the Commissioner's appeal to the Supreme Court of New South Wales was competent. A question of law was involved, if only because the Board of Review made findings of fact which were not supported by the evidence. But, for the reasons given by Hill J., I also agree that the case is one within the fourth category identified by Bowen C.J. in Lombardo v Federal Commissioner of Taxation (1979) ATC 4542, namely that the circumstances of the decision was one where a particular set of facts had of necessity to be within or without the statute.

3. Turning to the substantial point in the case, the reasons of my colleagues each contain a comprehensive and erudite account of the leading cases on s.51(1) of the Income Tax Assessment Act 1936. But, with respect, I find myself unable to accept their view that the application of the principles enunciated in those cases leads to rejection of the respondent's claim to deduct from his taxable income the cost of the food and drink prescribed by Mr Masters.

4. Both Lockhart J. and Hill J. point out that the classic test of deductibility under s.51(1) is that usually associated with Ronpibon Tin NL v Federal Commissioner of Taxation [1949] HCA 15; (1949) 78 CLR 47; namely "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". As noted by Hill J., this test was reformulated in Charles Moore and Co (WA) Pty Ltd v Federal Commissioner of Taxation [1956] HCA 77; (1956) 95 CLR 344 at p 351 so as to refer to the connection between the loss or outgoing and the operations whereby the taxpayer gained, or sought to gain, assessable income. But, on either formulation, it seems to me that, upon the facts found by Hunt J. in the Supreme Court, the subject expenditure is deductible.

5. During the relevant taxation years the respondent was a professional footballer. He played in the first grade competition, at which level he was able to earn significantly higher match payments than if he were relegated to reserve grade. Hunt J. accepted the respondent's evidence that he tended to lose weight during the training and playing season and that this weight loss diminished his ability to break the opposing team's line. His Honour found that this was "the task expected of him in first grade; such ability was important to his effectiveness as a forward and to the retention of his position in first grade". As his Honour also found, if he was dropped from first grade:

"... his income derived as a professional

footballer would be reduced by

eighty per cent until he was promoted

back into first grade. The loss

of weight would accordingly be directly

responsible for the reduction in

assessable income derived by the

taxpayer as a professional footballer."

6. It was in this situation that the respondent incurred the subject expenditure. He did so on the advice of his coach, Mr Masters. I agree with Hill J. that this fact is not critical; although it had obvious evidentiary importance in persuading both the Board of Review and Hunt J. of the link between the respondent's employment as a footballer and his consumption of a fourth meal each day.

7. Not many taxpayers would be able to satisfy a Board of Review or a Court that the consumption of a particular amount of food and beer was an incident of their employment. But the respondent did so. It seems to me to follow that he showed that the occasion of his expenditure on this additional food and beer was his employment as a footballer (Ronpibon Tin) and that the expenditure was connected with his operations as a professional footballer (Charles Moore). The respondent brought his expenditure on this food and beer into the same category as expenditure incurred by professional sports people on more usual ways of maintaining fitness for their sport - for example, physiotherapy or gymnasium fees - the deductibility of which would scarcely be doubted.

8. During the course of their submissions, counsel for the Commissioner compared the position of the respondent with that of other footballers who consumed, as a matter of course, a quantity of food equivalent to the respondent's amplified intake. Counsel said that it would be anomalous to allow the respondent to deduct the cost of part of his food when others in a like position were unable to take a similar course. But this submission ignores a critical element in the findings of Hunt J.: that this respondent consumed the extra food only because of his need to maintain his optimum playing weight and thereby safeguard his income. It is not to the point that other taxpayers, even other professional footballers, might incur similar expenditure for reasons not connected with their employment; and which, therefore, is not deductible from their taxable income.

9. Counsel for the Commissioner also said that the respondent was employed by his club to play football, not to eat food. But, with respect, that is too simplistic an approach. A barrister is employed by a client to argue a case, not to read legal periodicals. Yet no one would doubt the deductibility under s.51(1) of a practising barrister's subscriptions to the legal periodicals necessary to equip him or her to argue the case. Similarly, selecting a case of an employee-taxpayer, a chef is employed by a restaurant to cook food, not to wear clothes. But there is no question about the deductibility of a chef's expenditure on specialised clothing such as a chef's hat and uniform.

10. Counsel for the Commissioner placed considerable weight on cases in which the High Court has adopted the "essential character" test to determine deductibility. They referred in particular to Lunney v Federal Commissioner of Taxation (1958) 100 CLR 478, a case involving the deductibility of the cost of travelling between a taxpayer's home and his place of work, and Handley v Federal Commissioner of Taxation [1981] HCA 16; (1981) 148 CLR 182 and Federal Commissioner of Taxation v Forsyth [1981] HCA 15; (1981) 148 CLR 203, both cases involving the deductibility of expenses related to a barrister's home study. They submitted that, in the present case, the essential character of the expenditure was the nourishment of the taxpayer. Given that the respondent already consumed three meals a day and that the relevant expenditure was for a fourth meal directed to the maintenance of his optimum playing weight rather than his mere sustenance, I would not myself have chosen this description. But even if their description is correct, or if one substitutes some other description such as food and drink, does this mean that the claim must be rejected?

11. The problem about the "essential character" test, of course, is that it tends to beg the critical question. Everything depends upon the ambit of the facts selected for inclusion in the description of essential character; so that the making of that selection predetermines the outcome of the case. Take the instance of a taxpayer visiting another city for business purposes. The taxpayer incurs expenditure for meals at his or her hotel. On one view, the essential character of the expenditure is the sustenance of the taxpayer. Such a purpose has no connection with the derivation of assessable income; other than in the broad sense - irrelevant because it is applicable to everyone - that one must eat to live and, therefore, to work and to earn assessable income. However, the expenditure may also be characterised as being the cost of sustenance incurred by the taxpayer because of his or her absence from home on business. The difference between the two characterisations is that the latter takes account of the occasion of the expenditure. When this characterisation is adopted, a work-connection immediately appears and a deduction is granted. So in the present case. If one characterises Mr Cooper's expenditure merely as food and drink, there is no nexus with the earning of assessable income; the claim must fail. If, on the other hand, the occasion of the expenditure is considered, it is seen as being for the additional food and drink necessary to maintain an optimum playing weight, and so safeguard the respondent's first grade status and earnings. The nexus with assessable income becomes clear.

12. I think that it is misleading simply to characterise the respondent's expenditure as being for food and drink and to say, therefore, that the claim must fail. The whole of the relevant circumstances must be looked at in order to determine whether the expenditure was incurred in gaining assessable income.

13. I turn to the question whether the expenditure is disqualified from deductibility because it was of a private nature. In John v Federal Commissioner of Taxation [1989] HCA 5; (1989) 166 CLR 417 at p 431, Mason C.J., Wilson, Dawson, Toohey and Gaudron JJ. remarked that they saw no "necessary antipathy between a loss or outgoing incurred in gaining or producing assessable income and a loss or outgoing of a private character", a position foreshadowed by some of the Justices in Handley and in Forsyth. But, to the best of my knowledge, it remains true, as was asserted in 1985 by Professor Parsons in "Income Tax in Australia" at para 8.2, "that there is no case in which an expense has been found to be incurred in gaining assessable income, but has been denied deduction as a private or domestic expense". At paras 8.7 and 8.8 Professor Parsons said:

"8.7 An excluding function for the private or domestic exception would

require the adoption of a view that expenses that are private or

domestic are to be denied deduction, however relevant to the

derivation of assessable income they may be. This would in turn

require the defining of private or domestic expenses in terms that

do not let in considerations of relevance to the derivation of

income. Such a view may be possible, but it would make little

sense. Eating, drinking, clothing oneself, sleeping and enjoying

shelter would be prime candidates for categorising as matters that

are absolutely private or domestic - absolutely in the sense that

they are such whatever their relevance to income derivation. If

they are so categorised it would follow that the cost of the

business lunch, the cost to the actor of refreshments taken in

actual performance of the Mad Hatter's Tea Party (Templeman J. in

Caillebotte v Quinn) (1975) 1 WLR 731 at 733), the costs of meals

and accommodation incurred by a commercial traveller while

travelling on business, and the costs of protective clothing

incurred by a taxpayer working in industry are not deductible.

8.8 There is no doubt a need to protect the base of the income tax

against a too-ready allowance of deductions which may reduce the

base to a point where the income tax becomes a tax on income

saved. An imaginative mind will find some relevance to income

derivation in any expense. Eating sustains a taxpayer's ability

to work and derive income, and to this extent the expense of

eating is always relevant to the derivation of income. The law

must insist that there be a 'sufficient' connection between an

expense and income derivation, and sufficiency imports questions

of degree which must always leave room for judgment. But it is

preferable to live with the questions of degree, than to attempt

via notions of matters that are absolutely private or domestic, or

'essentially' private or domestic in the language of Forsyth and

Handley, to maintain restraint in the allowance of deductions."

14. It is interesting to note that, in the present case, the Commissioner allowed Mr Cooper's claims to deduct from his assessable income the costs which he incurred in complying with Mr Master's advice about building up his strength and fitness by attending a gymnasium. But he baulked at the claim to deduct the cost of the food and beer consumed to build up his weight and sought to justify this position on the basis that food was an essentially private expenditure. Perhaps the Commissioner thought that, as all taxpayers eat but not all taxpayers attend a gymnasium, the food claim offered a greater threat to the tax base. But, whilst I can understand the Commissioner's caution, as it seems to me his position is both illogical and unnecessary. For most taxpayers, gymnasium fees will also be a private expenditure. In the respondent's case, as the Commissioner conceded in allowing the deduction, this was not so; the expenditure was linked to his employment. Unless there is something special about food, so that expenditure on food is always and necessarily a private expenditure, the same position ought logically to be taken in connection with the food claim. And, as the examples given by Professor Parsons demonstrate, there is nothing special about food. As to the necessity for the Commissioner's position, it seems to me that the facts of this case are most unusual. There would be very few taxpayers indeed who could make good a claim, if it were submitted to proper scrutiny, that their expenditure on home-consumed food and drink was connected to their employment.

15. It seems to me that, on the facts found by Hunt J., the subject expenditure was not a private expenditure.

The appellant, the Commissioner of Taxation, appeals from the judgment of the Supreme Court of New South Wales (Hunt J.) dismissing an appeal brought by the Commissioner of Taxation from a decision of a Board of Review in favour of the respondent, Robert John Cooper, allowing Mr Cooper's objections to assessments of income tax in the years of income ending 30 June 1980, 1981 and 1982 respectively.

2. The reasons of the Board of Review were delivered on 2 June 1986, shortly before the abolition of Boards of Review, and the conferral of a new right of appeal to the Administrative Appeals Tribunal in respect of objection decisions of the Commissioner. Accordingly, appeal lay to the Supreme Court of a State, provided a question of law was involved: s.196(1) of the Income Tax Assessment Act 1936 (Cth) ("the Act"). Following the repeal of s.196 of the Act by Act No. 48 of 1986, including the repeal of sub-s.(5) of that section, which conferred a further right of appeal by leave to this court from a decision of the Supreme Court, an appeal now lies to this court as of right: Pettigrew v Federal Commissioner of Taxation (1990) 90 ATC 4124.

3. The reasons of the Board, constituted by the Chairman (Mr Beddow), Dr Gerber and Dr Beck, were brief. At issue was the right of Mr Cooper to a deduction under s.51(1) of the Act for expenditure, admittedly incurred by him, upon food and drink over and above his normal expenditure on these items. No question of quantum arose. The sole question, on the facts of the case, was whether the expenditure was deductible under that sub-section. Section 51(1) of the Act provides:

"51(1) All losses and outgoings to the

extent to which they are incurred in gaining or

producing the assessable income, or are

necessarily incurred in carrying on a business

for the purpose of gaining or producing such

income, shall be allowable deductions except to

the extent to which they are losses or outgoings

of capital, or of a capital, private or domestic

nature, or are incurred in relation to the

gaining or production of exempt income."

4. Although some additional evidence in the form of two short affidavits was given in the Supreme Court (they were not the subject of cross-examination) the evidence in the Supreme Court otherwise consisted of a tender by consent of the transcript of Mr Cooper's evidence in the Board of Review. That evidence, as will be apparent, was not detailed and the additional affidavits in the Supreme Court added little to it.

5. Mr Cooper, in the years of income, was a professional footballer, engaged by the Western Suburbs District Rugby League Football Club ("the Club") pursuant to a contract with that Club made on 22 December 1979, to play during the seasons 1980 and 1981, with what the contract described as a "Club option". The remuneration payable under the contract was in the form of a signing-on fee for each year, plus match payments which varied depending upon whether Mr Cooper was selected to play in first grade, reserve grade or in the under-23 grade, qualified for representative selection, as well as the results of the games in which he played.

"... The Player shall do everything necessary to

get and keep himself in the best possible

condition so as to render the most efficient

service to the Club and will carry out all the

training and other instructions of the Club

through its responsible officials."

7. Mr Cooper played with the Club as a forward. The evidence was that he would start a playing season with a weight of 17 1/4 stone and after spending the season in matches and training, the latter involving training with the team three nights a week, and by himself a further two nights a week, he would finish the season weighing just 15 stone. This weight loss affected his ability as a forward and resulted in a loss of strength, which in turn diminished his ability to break the opposing team's line, and this put in danger both his effectiveness as a forward and his retention in the first grade team.

"... I found that ... my optimum playing weight

was around about sixteen to 16 1/2 stone. ... I

had a lot more strength. I could bust a line a

lot better. But once I got around the fifteen

stone mark I found that I did not have that

ability to break the line. That extra stone

seemed to make a hell of a lot of difference in

regard to my strength. ... if you did not play

first grade ..., your earning capacity was

limited. And that is the reason. I just wanted

to keep my weight on."

9. Although in fact Mr Cooper was never dropped from the first grade team (the reasons of the Board of Review erroneously indicate that he was) it may be accepted that there was a risk of that happening, and a consequent risk that the income he derived as a professional footballer could be reduced by up to 80% until he was reselected to play first grade.

10. On 12 October 1979, Mr Cooper's coach, Mr Roy Masters, issued to him on the letterhead of the Western Suburbs District Rugby League Football Club, a letter in the following terms:

"Dear Bob,

Now that the season has ended and in preparation for next

year's season I would like you to follow the instructions below from

this date:-

Fitness:

Ensure that you maintain your reflex speed and endurance by

playing squash at least once, preferably twice per week, all year round.

Strength:

Attend a Gym, either locally or at Wests League Club, to

build up your physique and strength, preferably once per week.

Weight:

As you have a tendency to lose weight which affects your

playing ability during the season, I want you to eat the following items

each week in addition to your normal meals:-

1. 3 Kilos of steak, only medium cooked.

2. Potatoes at each meal, 1 kilo per week.

3. Bread at each meal, at least three loaves per week.

4. Beer is an excellent method of increasing weight,

therefore at least 1 dozen cans per week.

5. At least one glass of Sustagen per day.

General Exercise:

Ensure that for general conditioning you do as much running

as possible.

I appreciate that the above will involve you in extra

expense but I am sure that you will be recompensed by the Club when your

contract comes up for renewal.

Regards,

ROY MASTERS"

11. Mr Cooper understood the letter to impose upon him an obligation to do as Mr Masters said. As a result, he incurred expenditure over and above the expenditure for his normal consumption of food and drink. The evidence in the Board of Review, or for that matter the Supreme Court, does not suggest that he followed Mr Masters' prescription precisely. He said that he ate an additional meal a day, although unless his normal diet consisted of potatoes and bread at each meal, this was not what Mr Masters' letter required. It may, however, be accepted in general terms at least, that he complied with Mr Masters' prescription.

12. There was no dispute that the amounts claimed represented a reasonable estimate of the expenditure he incurred additional to the expenditure on his normal diet.

13. The Board of Review found the expenditure to be deductible within s.51(1). It suggested that Mr Cooper suffered from a rare condition known as "a weight loss problem". If this was intended as a serious comment, there was no foundation for it in the evidence. The tone of the reasons of the Board is somewhat flippant, and not particularly illuminating. The Board referred to Mr Cooper as having an inbuilt error of metabolism. Again, there was no foundation for this comment in the evidence. The reasons of the Board, brief as they may be thought to be, are to be found in paras.3 and 4 and are expressed as follows:

"3. Given that this taxpayer seems to suffer

from some inbuilt error of metabolism which

requires substantially more food than the amount

consumed, on average, by other professional

footballers, I am not persuaded that this

additional food assumes the characteristics of a

'meal' strictu sensu as opposed to being part

and parcel of the process by which he earns

assessable income. This taxpayer is like a

badly tuned racing car burning an excessive

amount of fuel. It would seem that some fine

turning with the carburettor will fix the

problem, but that is a job for an A-Grade

mechanic, not the Commissioner for Income Tax.

Whilst there may not be many taxpayers fortunate

enough to be able to consume a carton of beer

each week and toast the Commissioner's good

health with every can, this taxpayer is one of

them.

4. In the result, I find that the claimed

outgoing is not of a private or domestic nature

so as to introduce the exclusionary provisions

of section 51(1). Evidence was given that the

claimed outgoing was calculated on estimated

cost of the various food items claimed in the

relevant years and no serious challenge was

mounted on quantum."

The appeal to the Supreme Court: was a question of law involved?

14. From the Board's decision, the Commissioner appealed to the Supreme Court. For that court to have jurisdiction, it was necessary, pursuant to the then s.196(1), that a question of law be involved in the appeal: cf s.44(1) of the Administrative Appeals Tribunal Act 1975 (Cth), which now confers a right of appeal from the Administrative Appeals Tribunal only "on a question of law". For relevant purposes, there are two essential distinctions between these provisions. The first, is that it was necessary under s.196(1) merely that a question of law be involved. It was not material whether that question was decided correctly: Federal Commissioner of Taxation v Sagar [1946] HCA 6; (1946) 71 CLR 421 at 423; Krew v Federal Commissioner of Taxation (1971) 45 ALJR 324 at 325. Second, once a question of law was identified as being involved, the appeal to the Supreme Court operated as a rehearing on both fact and law, rather than as now merely an appeal confined to the question of law on which the appeal is based: Ruhamah Property Co. Limited v Federal Commissioner of Taxation [1928] HCA 22; (1928) 41 CLR 148 at 151; Federal Commissioner of Taxation v Miller [1946] HCA 23; (1946) 73 CLR 93 at 103-104; Krew v Federal Commissioner of Taxation (supra) at 326 and cf Waterford v The Commonwealth [1987] HCA 25; (1987) 163 CLR 54 at 77 per Brennan J.

15. The Commissioner's appeal to the Supreme Court of New South Wales was met with a submission that the appeal was incompetent because no question of law was involved, a submission upheld by Hunt J. Before his Honour, the Commissioner identified two questions of law said to have been involved. These questions were stated by Hunt J. as follows:

"The first is said to have been that raised by

any claim for an outgoing of a private nature

under s 51(1), as discussed by the Hight Court

in John v F.C.T. [1989] HCA 5; (1989) 166 CLR 417. The second

question of law is said to have been that

involved in the application of s 51(1) to the

facts of this particular case."

16. The Commissioner's submissions were dealt with by Hunt J in the following passage:

"It was conceded by the Commissioner that the

Board did not in fact deal with either question

of law, but it was submitted that both were

necessarily involved in every case such as the

present. I do not agree. There is no necessary

antipathy between an outgoing incurred in

gaining assessable income and one of a private

nature: John v F.C.T. at 431. No question of law

is involved where some principle of law was

either necessarily applied by the Board in

arriving at its decision or merely implicit or

assumed in that decision; the question must be

one which was actively involved in the Board's

decision: Boyded (Holdings) Pty Ltd v F.C.T. (1982)

13 ATR 127 at 130. That was not the case here.

Moreover, the question whether a particular set

of facts comes within the terms of a statutory

definition which uses words according to their

common understanding is one of fact, not of law:

Australian Gaslight Co v Valuer-General (1940)

40 SR 126 at 137-138; Hope v Bathurst City

Council [1980] HCA 16; (1980) 144 CLR 1 at 7-8. It was

eventually conceded in argument that the present

case, like so many of them, involved a question

of fact and degree (F.C.T. v Forsyth (1981) 148 CLR

203 at 215), and that no submission of 'no

evidence' had been made to the Board and ruled

upon by it either expressly or by implication:

cf Lombardo v F.C.T. [1979] FCA 66; (1979) 10 ATR 310 at 314.

The Commissioner's appeal is therefore

incompetent, and it must be dismissed on that

basis."

17. With respect, I do not agree. In my opinion, more than one question of law was involved in the appeal. First, there was the matter of the findings of fact made by the Board, which had no foundation in the evidence. So few were the facts narrated by the Board in a judgment that was just over a page of typing, it must be assumed that the matters set out by the Board as facts, loomed large in the Board's reasons. There can be no doubt that a question of law would be involved where there is no evidence upon which the Board could have reached its decision. It goes without saying that in such a case it is unnecessary for any submission to have been made to the Board, for the case is one where the Board has itself fallen into error in its reasons.

18. In Lombardo v Federal Commissioner of Taxation [1979] FCA 66; (1979) 40 FLR 208, Bowen C.J., set out a number of cases where a question of law will be involved, albeit without attempting an exhaustive summary. His Honour said (at 212):

"1. If it was expressly raised and the Board

made a ruling on it as a relevant factor in its

decision;

2. If it is obvious from the decision or

transcript of the case that the Board in

arriving at its decision has misunderstood the

law in some relevant particular;

3. Technical words had necessarily to be

construed before the statute could be applied:

4. Where a particular set of facts had of

necessity to be within or without the statute;"

19. The present case falls, in my opinion, within the fourth test suggested by his Honour.

20. There is a long line of authority that a question of law will be involved in any case where the facts are not in dispute and the only question is whether the case necessarily falls within or outside the statute: Federal Commissioner of Taxation v Western Suburbs Cinemas Limited [1952] HCA 28; (1952) 86 CLR 102 at 104; Inland Revenue Commissioners v Alexander von Glehn and Co. Ltd. (1920) 12 TC 232 at 242 per Warrington L.J.; Bean v Doncaster Amalgamated Collieries Ltd. (1946) 27 TC 296 at 307-308 per du Parcq L.J.; Rolls Royce Limited v Jeffrey (1962) 1 All ER 801 at 802-803 per Viscount Simonds; Farmer v Cotton's Trustees (1915) AC 922 at 932 per Lord Parker of Waddington, quoted with approval by Latham C.J. in Federal Commissioner of Taxation v Miller [1946] HCA 23; (1946) 73 CLR 93 at 97; and by Fullagar J. in Hayes v Federal Commissioner of Taxation [1956] HCA 21; (1956) 96 CLR 47 at 51. The rationale for this view is particularly apparent in a case where, only one conclusion being open on the facts, the Board arrives at a different conclusion. Since the facts were not in dispute, it follows that the Board must have applied some wrong principle of law, albeit that it has not stated the principle upon which it has relied.

21. It is a different question, of course, and one of fact only, if the issue is whether, a number of results being open, a particular result arrived at was correct, for in such a case the matter is one of degree only.

22. There are, as Hunt J. observed, also cases where it has been held that the meaning of an ordinary English word or phrase used in a statute is a question of fact, and the question whether a particular set of facts comes within the description of such a word or phrase, will also be a question of fact: Federal Commissioner of Taxation v Broken Hill South Limited [1941] HCA 33; (1941) 65 CLR 150; Australian Gaslight Co. v The Valuer-General [1940] NSWStRp 9; (1940) 40 SR (NSW) 126 at 137; Hope v The Council of the City of Bathurst [1980] HCA 16; (1980) 144 CLR 1 at 7; Brutus v Cozens [1972] UKHL 6; (1973) AC 854.

23. It may be thought that these two principles are in conflict and that the judgment of Mason J. in Hope casts doubt on the first principle. However, a careful perusal of his Honour's judgment makes it clear that this is not so, as his Honour's discussion (at 7-8) of the judgment of Kitto J. in NSW Associated Blue Metal Quarries Limited v Federal Commissioner of Taxation [1956] HCA 80; (1956) 94 CLR 509 reveals. The Associated Blue Metal Case concerned the question whether certain activities of the taxpayer were "mining operations upon a mining property" within the meaning of s.122 of the Act. That, as Kitto J. observed, involved a mixed question of fact and law. As Mason J. observes (at 8), Kitto J. went on to explain why this was so in the following passage:

"First it is necessary to decide as a matter of

law whether the Act uses the expressions 'mining

operations' and 'mining property' in any other

sense than that which they have in ordinary

speech."

24. Kitto J. answered that question in the negative and noted that the common understanding of ordinary words is a question of fact. He then continued (at 512):

"The next question must be whether the material

before the Court reasonably admits of different

conclusions as to whether the appellant's

operations fall within the ordinary meaning of

the words as so determined; and that is a

question of law ... If different conclusions are

reasonably possible, it is necessary to decide

which is the correct conclusion; and that is a

question of fact ..."

25. Although, as Mason J. observed in Hope, the meaning of the word "business", if used as an ordinary English word, is a question of fact, where the issue was whether on the facts as found, any conclusion was open other than that the activities of Mr Hope amounted to a business, a question of law was, in the view of Mason J., involved.

26. The case before us is a case where all the facts are known and undisputed. The issue of law raised is whether any conclusion is open other than that the expenditure incurred by the applicant was an allowable deduction under the section. That question is a question of law.

27. Counsel for the Commissioner also submitted that the Board misapplied the law in that it had dealt only with the non-private nature of the outgoings, without determining whether the outgoings incurred came within the first limb of the sub-section. Thus, it was said, there was necessarily a question of law involved in the decision, namely, one of construction of the Act and the relation of the positive and exclusory limbs of s.51(1). It is true that the reasons of the Board were brief and that it did not elaborate on the first limb of the sub-section, but it can not be assumed that the Board overlooked it. Further, it would seem that before the Board, no issue as to the first limb arose, the argument being centred on the exclusory limb of the sub-section. Although the question of the construction of s.51(1) is obviously a question of law, the relationship of the first limb of the sub-section to the exclusory limb of it was not, in the present case, a matter involved in the Board's decision.

28. It is a prerequisite of jurisdiction that the question of law as identified be really and not colourably involved: Fisher v Deputy Federal Commissioner of Taxation (1966) 40 ALJR 328; Lombardo (supra) at 215 per Franki J. As Toohey J. pointed out in Lombardo, where the Board does not expressly refer to the question of law it is necessary that the decision at least "imply or entail the question" so that (at 219):

"If a perusal of a Board's decision shows that

some step, although not expressly referred to,

must have been taken by the Board in arriving at

its conclusion, that matter was involved in the

decision. And if the matter, on examination, is

shown to be a question of law, then a question

of law will have been involved."

29. In Boyded (Holdings) Pty Limited v Federal Commissioner of Taxation (1982) 82 ATC 4236, Mahoney J.A. (at 4239) suggested that it was not sufficient if a principle of law was necessarily implied or that it was implicit or assumed in the decisions such as would give rise to an issue of estoppel. Rather, it seems that his Honour was of the view that the question of law be an "active" and not a "passive" one. No doubt what his Honour had in mind, was a case such as the present, where the parties had chosen to run the case solely on the basis of the exclusory limbs of s.51(1) and subsequently it was sought to argue the Board had necessarily applied a view as to the relationship between the two limbs, to which its attention had not been drawn at all.

30. However, in the present case, there are at least two questions of law involved in the appeal, and accordingly the Supreme Court of New South Wales had jurisdiction to determine it. The decision to the contrary by Hunt J. must be set aside.

31. It is necessary, then, to turn to the substantial issue in the case.

32. In the Supreme Court, Hunt J. emphasised that the claim of Mr Cooper was for the additional food he ate, not for the food which he ordinarily consumed to sustain him. He said, that the additional food was consumed:

"... to ensure that he was able to derive five

times the income which he would otherwise have

been able to derive. The outgoing was directly

related to gaining that additional assessable

income. The taxpayer spent more in order to

earn more. The essential character of the

expenditure in question was to gain additional

assessable income: Lunney v F.C.T. (1958) 100 CLR

478 at 497. It was not the remote connection

for which the Commissioner contended. It was

incurred pursuant to a contractual obligation to

do so, and not merely because the taxpayer had

been 'encouraged' to incur it, as the

Commissioner contended: cf F.C.T. v Hatchett (1971)

[1971] HCA 47; 125 CLR 494 at 499."

"The outgoings in question in the present case

were incurred in gaining the taxpayer's

assessable income and, in the circumstances,

they were by their nature excluded from the

category of private or domestic outgoings."

The relation of the positive limbs of s.51(1) to the exclusory limb relating to private expenditure.

34. To be deductible under s.51(1), a loss or outgoing must satisfy the tests contained in what are often referred to as the "positive limbs" of the sub-section, and be not excluded from deductibility by the exclusory limbs. It was early suggested that private and domestic expenses were, by their very nature, excluded from deductibility as not being outgoings incurred in gaining or producing assessable income, or necessarily incurred in carrying on a business for that purpose: J.P. Hannan, Principles of Income Taxation, Law Book Company of Australasia Pty Limited 1946 at 306. This view of the law, so far as it is related to the exclusion of outgoings of a domestic nature, was found to be misconceived in Handley v Federal Commissioner of Taxation [1981] HCA 16; (1980-1) 148 CLR 182 at 191-192 per Stephen J., at 194 per Mason J., and in Federal Commissioner of Taxation v Forsyth [1981] HCA 15; (1980-1) 148 CLR 203 at 216 per Wilson J. Notwithstanding the reservation expressed by Wilson J. in Forsyth (at 216), with whose judgment Mason J. agreed, as to whether the same could be said about outgoings of a private nature, the High Court in John v Federal Commissioner of Taxation [1989] HCA 5; (1989) 166 CLR 417 at 431, made it clear that there was no necessary antipathy between a loss or outgoing incurred in gaining or producing assessable income, and a loss or outgoing of a private nature. Thus, it is necessary to first consider, in respect of any loss or outgoing, whether it falls within one or other of the inclusory limbs, and if it does, to then proceed to consider whether the loss or outgoing is of a private nature.

35. In the present case, Mr Cooper was an employee of the Club: Buckley v Tutty [1971] HCA 71; (1971) 125 CLR 353; Commissioner of Taxation v Maddalena (1971) 45 ALJR 426; Adamson v West Perth Football Club Inc. [1979] FCA 81; (1979) 39 FLR 199 at 228. Accordingly, it is necessary to consider only the first limb of s.51(1) as the taxpayer does not carry on any business.

Was the expenditure incurred in gaining or producing the assessable income?

36. Given that s.51(1) is intended to apply over an extensive range of factual situations, it is expressed in language which is both simple and general. The concepts enshrined in the sub-section have been elaborated upon over many years by the High Court. They are conveniently summarised in the judgment of Lockhart J. in Federal Commissioner of Taxation v Total Holdings (Aust.) Pty Ltd (1979) 43 FLR 217 and more recently again by the full court of this court in Federal Commissioner of Taxation v Riverside Road Pty Ltd [1990] FCA 205; (1990) 23 FCR 305 at 311-314. It is unnecessary to repeat what is said there. What is important is that the concept enshrined in the first limb of the sub-section, is one of the deductibility of working expenses.

37. It should be noted at the outset that the sub-section does not express the right to a deduction in terms of outgoings incurred to earn income, although of course many outgoings which are incurred will, of their nature, represent expenditure which has been outlaid to enable a taxpayer to derive income. An obvious example is interest on moneys borrowed for income-producing purposes.

38. One reason why the sub-section is not so expressed is that there will be many cases where the outgoing incurred may relate not to the year of income in which the outgoing is incurred, but to an earlier or later year. The words "the assessable income" as used in the sub-section, refer to the assessable income of the taxpayer generally, without division into annual accounting periods: AGC (Advances) Limited v Federal Commissioner of Taxation [1975] HCA 7; (1975) 132 CLR 175 at 189 per Barwick C.J. and 196-197 per Mason J. Another reason is that no income might be derived at all as a result of an outgoing being incurred. A good example is the case of Federal Commissioner of Taxation v D.P. Smith [1981] HCA 10; (1981) 147 CLR 578, where the payment of a premium by an employee on a loss of income policy in the event of sickness or accident, was held deductible, irrespective of the fact that no income might ever be derived under the policy.

39. The true principle, which seems to have had its initial formulation in Amalgamated Zinc (De Bavay's) Ltd v Federal Commissioner of Taxation [1935] HCA 81; (1935) 54 CLR 295 at 309, but which is usually attributed to the decision of the High Court in Ronpibon Tin N.L. v Federal Commissioner of Taxation [1949] HCA 15; (1949) 78 CLR 47 at 57, is as follows:

"In brief substance, to come within the initial

part of the sub-section 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."

40. This statement of principle was reformulated in Charles Moore and Co. (WA) Pty Ltd v Federal Commissioner of Taxation [1956] HCA 77; (1956) 95 CLR 344 at 351 and thereafter cited with approval in Federal Commissioner of Taxation v D.P. Smith (supra) at 585 in the following terms:

"What matters is their (i.e. the loss or

outgoing) connection with the operations which

more directly gain or produce the assessable

income." (emphasis added)

41. It will often, therefore, be necessary to analyse with some care what the operations or activities are that are regularly carried on by the taxpayer for the production of income, and to determine whether the outgoings (or where relevant the losses) are incidental and relevant to those operations or activities.

42. In some cases, the outgoing in question may precede the income producing operation or activity, so that it comes at a point too soon to be incidental and relevant to that activity. A clear example of such a case is the expenditure found not to be deductible by the High Court in Commissioner of Taxation v Maddalena (supra), by a footballer who had incurred expenditure on travel to Sydney to negotiate with a metropolitan club, to which he desired to move from his former Wollongong club, and legal expenses in negotiating the new contract. That expenditure was incurred in getting work, rather than doing it. In other words, the expenditure did not itself qualify as a "working expense".

43. Although the disallowance of expenditure of a taxpayer in travelling to and from work may be thought to be "somewhat anomalous" and is to be explained by a long-standing line of decisions (Maddalena (supra) at 427), the decision of the High Court in Lunney v Commissioner of Taxation (1957-8) 100 CLR 478 may also be justified on the basis that the connection between the outgoing and the income-producing activity is lacking as the judgment of Williams, Kitto and Taylor JJ. demonstrates (at 500-501). Lunney's Case is of importance, however, for two other 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, an argument having some parallel with the argument of the respondent in the present appeal (Lunney at 498-99):

"The question whether the fares which were paid

by the appellants are deductible under s.51

should not and, indeed, cannot be solved simply

by a process of reasoning which asserts that

because expenditure on fares from a taxpayer's

residence to his place of employment or place of

business is necessary if assessable income is to

be derived, such expenditure must be regarded as

'incidental and relevant' to the derivation of

such income. No doubt both of the propositions

involved in this contention may, in a limited

sense, be conceded but it by no means follows

that, in the words of the section, such

expenditure is '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'. 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."

44. Similar considerations apply to child-minding expenditure, as was pointed out by Mason J in Lodge v Federal Commissioner of Taxation [1972] HCA 49; (1972) 128 CLR 171 at 175-176 where his Honour said:

"The expenditure was incurred for the purpose of

earning assessable income and it was an

essential prerequisite of the derivation of that

income. Nevertheless its character as nursery

fees for the appellant's child was neither

relevant nor incidental to the preparation of

bills of cost, 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."

45. Cases in the United Kingdom have taken a similar view, although on language which is different from that in the Australian Act. Thus, in Norman v Golder (1945) 1 All ER 352, expenditure incurred on medical expenses was held not to be deductible. Lord Greene MR said (at 354):

"It is quite impossible to argue that a doctor's

bills represent money wholly and exclusively

laid out for the purposes of the trade,

profession, employment or vocation of the

patient. True it is that if you do not get

yourself well and so incur expenses to doctors

you cannot carry on your trade or profession,

and if you do not carry on your trade or

profession you will not earn an income, and if

you do not earn an income the Revenue will not

get any tax. The same thing applies to the food

you eat and the clothes you wear. But expenses

of that kind are not wholly and exclusively laid

out for the purposes of the trade, profession or

vocation. They are laid out in part for the

advantage and benefit of the taxpayer as a

living human being."

46. Similarly, in the United Kingdom, travelling expenses from work to home have been held not to be deductible: Ricketts v Colquhoun (1926) AC 1. In that case Viscount Cave said (at 4):

"The expenses in question ... are incurred, not

because the appellant holds the office of

Recorder of Portsmouth, but because ... he must

travel to that place before he can begin to

perform his duties as Recorder and, having

concluded those duties, desires to return home.

They are incurred, not in the course of

performing his duties, but partly before he

enters upon them, and partly after he has

fulfilled them."

47. The income-producing activities to be considered in the present case are training for and playing football. It is for these activities that a professional footballer is paid. The income-producing activities do not include the taking of food, albeit that unless food is eaten, the player would be unable to play. 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.

48. It would seem that the Supreme Court, and perhaps also the Board of Review, were influenced in arriving at the result they did, by the letter from Mr Masters. Assuming that that letter was a direction lawfully given under Mr Cooper's contract, it does not follow that the expenditure must be deductible. An employer may require an employee to travel to and from work by a particular mode of transport, but the fact that the employee is required, as a term of his employment, to incur a particular expenditure does not convert expenditure that is not incurred in the course of the income-producing operations into a deductible outgoing. If it did, then, no doubt, employers would be besieged by employees with requests that the employer should require the particular expenditure to be incurred. There may be cases where the fact that expenditure is required to be made assists an employee to show the relevant connection between the outgoing and the activities which produce assessable income, but the decision of the High Court in Commissioner of Taxation v Finn [1961] HCA 61; (1961) 106 CLR 60, shows that there was no difference in the availability of a deduction for overseas travel expenditure, between those expenses which the taxpayer there incurred in travelling to South America at the request of his employer, and those which he incurred in travelling to Great Britain and Europe in his own vacation time. There was, in each case, the necessary connection between the expenditure and the taxpayer's income earning activities as an architect.

49. Finally, reference should be made to one important feature of the present case. The expenditure in question was described throughout the appeal by counsel for Mr Cooper as "additional" expenditure. The word "additional" was used in the sense of additional to Mr Cooper's normal expenditure on food and drink. There was, however, no evidence to suggest that Mr Cooper suffered some medical condition which caused him to lose weight. Nor was there any evidence of expenditure which other forwards might normally make on food and drink. It may well be the case, the evidence is silent on the matter, that the ordinary expenditure of Mr Cooper on food and drink was considerably less than the ordinary expenditure on food and drink of other forwards. To allow to Mr Cooper a deduction for expenditure, which may ordinarily be incurred by other players as part of their normal expenditure, merely because the food upon which the expenditure was outlaid is in excess of Mr Cooper's normal food intake, seems illogical. Add to that the circumstance that Mr Masters might, in a particular case, direct a player totally to discontinue the diet he ordinarily undertook and substitute for it a completely new diet, and it is obvious that the intervention of Mr Masters should make no difference to the question of the deductibility of the expenditure.

50. I should say, although it does not affect the outcome of the present case, that there is much to be said for the view that the letter of Mr Masters was not a prescription which Mr Cooper was obliged to follow, but rather a suggestion as to the diet Mr Cooper should undertake. If not, there would be a serious question arising as to Mr Masters' power to direct Mr Cooper to eat a particular diet, particularly between seasons, given that the contract between the Club and Mr Cooper is a contract to play football in the football season.

51. In my view, the expenditure in question was not incurred by Mr Cooper in gaining or producing his assessable income; it lacked the necessary connection with his income-producing activities.

52. The essential character test is relevant also to the resolution of the question whether an outgoing is excluded from deductibility as being of a private nature: Handley (supra at 194); Forsyth (supra at 210).

53. For the Commissioner, it was submitted that, except in a rare case, the essential character of food was always private. Exceptions for the cost of entertainment (now excluded from deduction legislatively) and for meals taken while the taxpayer was away from home on a business activity, were acknowledged. It was submitted, however, that in each of these two cases, the occasion of the outgoings stamped them with the essential character of business expenses rather than being outgoings of a private nature. The present case, however, it was said, lacked the necessary factual background so to do.

54. For Mr Cooper it was submitted that two matters stamped the essential character of the outgoings here in question as being business or working expenses: the first being the fact that Mr Cooper was required to expend the money, and the second being the direct relationship that was said to exist between the outgoing and the assessable income. By way of analogy, it was said, that if a footballer needing bulk to play effectively in first grade football was prescribed medication to that end, there would be little doubt that the cost of that medication would be a business expense and deductible under the first limb and not to be disallowed as private expenditure. The present expenditure was, so it was submitted, in no different position.

55. There is, of course, by necessity, considerable overlap between these submissions and the matters already discussed under the first limb of the sub-section. It need only be said that the fact that a taxpayer is obliged to incur expenditure by his employer, will not convert private expenditure into deductible expenditure. An example is Blackwell v Mills (1945) 2 All ER 655, where a taxpayer was required by his employer to prepare for a final examination for a degree. The taxpayer was given, by his employer, time off and the employer paid half the fees. It was held, nevertheless, that the taxpayer was not entitled to a deduction for what was, in essence, private expenditure. Nor will the fact that it is necessary to spend money to gain money, convert private expenditure into deductible expenditure, as the case of Norman v Golder (supra) demonstrates in respect of medical expenditure of a private nature.

56. 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.

57. In my view, the expenditure in question fails to be deductible because its essential character remains private. The analogy with medication is not an apt one even if it be correct that such medication be deductible. The medication does not have the essential character of a private expense to start with.

58. In my view, the appeal should be allowed, and the respondent should pay the Commissioner's cost of it. The orders made by the Supreme Court should be set aside and in their place an order made that the appeal by the Commissioner of Taxation be allowed.