Ordinary Income: FCT v Anstis (2010) 241 CLR 443; [2010] HCA 40; 2010 ATC 20-221

Caselaw in taxation: FCT v Anstis (2010)

  • The case:
    • The taxpayer was enrolled as a full-time student undertaking a teaching degree
    • She declared $14,946 from working as a part-time sales assistant and $3,622 Youth Allowance
    • She deducted self-education expenses of $920
    • The expenses consisted of travel expenses other than to university, supplies for children during teacher rounds, student administration fees, depreciation of a computer, and textbooks and stationery
  • The principles (para 13):
    • ITAA 1997 s 4-15(1) provides that taxable income for an income year is the result of subtracting a taxpayer’s deductions from assessable income.
    • The taxpayer’s assessable income includes “income according to ordinary concepts”, which is called “ordinary income” (s 6-5(1)).
    • The forms of receipt falling within the term “income”, and the principles to be applied to ascertain how much of those receipts ought to be treated as income, “must be determined in accordance with the ordinary concepts and usages of mankind, except in so far as the statute states or indicates an intention that receipts which are not income in ordinary parlance are to be treated as income”.
    • The reference to “ordinary parlance” and to the “ordinary concepts and usages of mankind” are “no mere matters of ritual incantation; they identify the essential nature of the inquiry”.
  • The decisions:
    1. AAT (Administrative Appeals Tribunal) affirmed the Commissioner’s objection decision, because:
      • Self-education expenses were only deductible where they enabled a taxpayer to improve or maintain professional skill or knowledge or would lead, or be likely to lead, to an increase in income from current income-earning activities
      • In this case:
        1. It was not sufficient that expenditure be incurred as a prerequisite of the derivation of the income
        2. Rather, the expenditure was incidental and relevant to putting the taxpayer into a position of qualifying as a teacher in order to commence earning income in that profession, not in gaining or producing assessable income.
    2. The taxpayer appealed to the Federal Court (209 ATC 20-098), and the appeal was allowed for the reasons below:
      1. The expenses were incurred as a necessary incident of pursuing a particular course of study.
      2. The Federal Court’s consideration was that, if the relevant requirements could only be satisfied by the expenditure of money, then that expenditure was incurred in gaining or producing the Youth Allowance within the meaning of s 8-1(1)(a)
    3. The Commisioner appealed to the Full Federal Court (Full Court):
      • The primary judge erred in concluding that the various eligibility and qualifying requirements for Youth Allowance could only be satisfied by the expenditure of money and that, in consequence, the expenditure was incurred in gaining or producing the Youth Allowance within the meaning of s 8-1.
      • But the Full Court rejected:
        1. The Full Court rejected the Commissioner’s characterisation of the taxpayer’s activities as a student as “qualifying” activities by reference to the Youth Allowance income as an exercise in semantics.
          In this case, the taxpayer was paid to undertake the course in which she was enrolled on condition that she did so in a particular manner to satisfy the Social Security Secretary that she was making satisfactory progress towards completing the course.
        2. The Commissioner’s “different way” of loking at the matter introduced a purpose test as a criterion for deductibility under the first limb of s 8-1, ie the taxpayer undertook her studies to obtain a degree and thereby qualify to teach. In other words, she did not undertake those studies and incur the expenditure to obtain the Youth Allowance.
    4. The Commissioner appealed to the High Court. The Hight Court dismissed the appeal:
      1. Youth Allowance was assessable income
        • Youth Allowance payments enabled recipients to rely upon them for regular expenditure, and recipients could expect to receive those ayments but only so long as they satisfied the various requirements of the social security legislation.
        • Such amounts were income according to ordinary concepts.
        • ITAA 1997 s 51-1: but for their exemption in item 2.1A of s 51-10, payments of “educational allowances” or “educational assistance” were amounts of income according to ordinary concepts
      2. The taxpayer’s self-education expenses were incurred “in gaining or producing” her assessable income
        • That the income was assessable not by reason of any personal exertion of property on the part of the taxpayer did not lead to a conclusion that there could be no deduction under s 8-1.
        • The statutory right to Youth Allowance payment would be retained by her so long as she maintained her qualification for the payment by satisfying the activity test by undertaking full-time study so defined.
        • The occasion (i.e., the reason) of the outgoings was to be found in what the taxpayer did to gain or produce he receipts provided by the terms of the social security legislation.
      3. If the expenses were so incurred, they were nonetheless to be disallowed as being of a “private” nature
        • The taxpayer’s desire to obtain a degree, whether to enable her to become a teacher or for some other reason, did not deny the circumstance that expenses occasioned by her enrolment, full-time study and satisfactory progress in that degree were incurred by her as a recipient of Youth Allowance.
        • The outgoings did not lose their connection with the “position” she held as a recipient of Youth Allowance simply because she might have been studying for reasons other than enjoying an entitlement to Youth Allowance.
        • Hence, there was no sufficient foundation for a conclusion that the expenditures by the taxpayer were essentially private in nature within the sense of s 8-1(2)(b).

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