Walker v. Federal Commission of Taxation †Free Samples for Students

Question: Discuss about the Walker v. Federal Commission of Taxation. Answer: Introduction The report discusses the case of Walker Vs Federal Commission of Taxation case describing the section of the Australian taxation breached in the case. It further discusses the decision which was made in the case and the act and the reason behind the same. Mr. Walker, who is a farm worker, who objects to the decision made on 12 November 2015. He applies for review against the same decision (Stewart, 2001). The decision relates to deductions claimed in the taxation returns, in respect of income for the years ending 30 June 2013 and 30 June 2014. During the audit of Mr. Walkers books of Accounts, the deductions claimed by him were disallowed by the commissioner and imposed penalties. Mr. Walker claimed the deductions in respect of following expenses Accommodation expenses, his vehicle expenses and caravan, mobile phone and internet expenses, meals and groceries. Mr. Walker claimed that travel expenses are deductible expense because the same have been incurred between work places, similarly he claimed the deduction of phone and internet expenses on the basis of that they have been incurred for work purposes (Groves and Lee, 2007). He also claimed the meal and accommodation expenses as deduction, on the basis that he was living away from the home on the temporary basis for work purposes. Section breached As per Section 8, of income Tax Assessment Act, 1997- It states that You can deduct from your assessable income any loss or outgoing to that: (a). it is incurred in gaining or producing your assessable income. However, you cannot deduct a loss or outgoing under this section to extent that: (a). it is a loss or outgoing in the private or domestic nature under this section, or (b) it is a capital nature loss or outgoing under this section. any loss or outgoing is called general deduction under this section (James, 2016). In order to claim deduction under this section, of Income Tax Assessment Act, 1997, there must be connection or series of connection between the taxpayers income producing activities and expenditure relating to producing activities. Mr. Walker is a farm worker or farm supervisor. He had his own farms, mainly strawberry farms. In 2012, he applied for and obtained a position with Benyenda Citrus located near Gayndah, in order to gain experience in other areas and learn about other produce other than strawberries. At Benyenda Citrus, the main produce was mandarins. In Benyenda Citrus, he worked as a sorter and supervisor (Harrison and Keating, 2014). He then moved to farm near Bowen, run by Crax crop, for employment, where the main produce was mini capsicums. His duties include stacking pallets, packing and sorting produce. He also supervised the pickers, perfumed some packing and oversaw some quality assurance. In order to travel between the farms he was required to provide his own transport. Through some acquaintance, he then found the work at Wrenco Produce at Stanthorpe (Barker, et. al., 2017). The crops in Wrenco were broccolini, Brussels sprouts. Mr. Walker performed variety of duties at Wrenco like part-time patch supervisor, fork-lift driver, shed supervisor. Wrenco has two farms. Mr. Walker was required to drive his own vehicle between the two wrenco properties, although not every day. Mr. Walker was accompanied by his wife. They both travelled to each of the three locations by the motor vehicle called caravan. While working for these three employers Mr. Walker and his wife lived in caravan (Marks, 2002). The caravan was parked at a Stanthorpe or Wrenco property or at a caravan park. Generally Mr. Walker and his wife travel from employment location to other employment location. Generally the work of Mr. Walker came to an end when particular season is finished, but Mr. Walker left his job at Benyenda Citrus, in order to get employment at Crax crop, despite at Benyenda Citrus there was still work available (Gullifer and Payne, 2015). He took employment in Crax crop because of better opportunities. Hence Mr. Walker worked for three employers i.e. Benyenda Citrus, Crax crop, Wrenco Produce for two years under consideration. Mr. Walker while calculating his income, he claimed deductions of his accommodation, food and groceries. He didnt claim the deduction of private travel, whereas he claimed the deduction of mobile expenses and internet expenses, which he considered to be work related. Mr. Walker and Mrs. Walker, on proportionate basis distributed the overall expenditure between them and claimed the deductions respectively incurred during the employment (Babovic, 2009). In relation to the income year ending 30 June 2013, Mr. Walker claimed deductions as follows:- Deduction Amount Accommodation $3,033 Meals and groceries $5,952 Incidentals $144 Motor Vehicle $3,700 Caravan costs $2,464 Mobile Phone Internet $480 27. TOTAL $15,733 In relation to the income year ending 30 June 2013, Mr. Walker claimed deductions as follows:- Deduction Amount Accommodation $2,440 Meals and groceries $6,968 Motor Vehicle $3,800 Caravan costs $2,500 Mobile Phone Internet $100 TOTAL $15,008 The travel expenses incurred by Mr. Walker during his employment were disallowed by the Commissioner of taxation. The principle to be applied in this case is that deductions of those outgoings to be allowed which are incurred in the course of deriving assessable income (Boccabella, 2007). Hence it is principle which excludes outgoings which are not incurred in the course of doing so, although incurred for the purpose of deriving assessable income. Decision of the case Referring to case of Lunney v. FCT , The Federal commissioner of Taxation, disallowed the travelling expenses incurred by the Lunney while travelling from the home to place of work, on the basis that the expenses incurred by the taxpayer in travelling between home and work place were not deductible. The question arises whether the expenditure incurred from home to place of work is to be allowed expense or not (ODonnell, 2005). The same to be allowed as expense if the same has been necessarily incurred in carrying on a business for the purpose of gaining or producing such income or incurred in producing and gaining the assessable income. Hence referring to the above case law of Lunney v. FCT, Travel expenses incurred by Mr. walker are not allowable deductions, nor his travel expenses incurred between his caravan and his work place, as these expenses has been incurred for the purpose of deriving the income but was not incurred in course of doing so. Mr. walker claimed that, travel expenses incurred by him were to be allowed because he is an inherent worker (Eden, et. al., 2005). This exception was stated by the Federal court in Federal Commissioner of taxation v (Genys), where Northrop J stated that an exception to the principle in case law of Lunney is where the taxpayer travels between the home and shifting places of work, that is, an occupation. In Genys case, the nurse was the taxpayer, who took up the employment in various hospitals. As and when hospitals required the additional staff, the hospital contracted with the agency for providing an additional staff. Each engagement undertaken by the taxpayer constituted a separate employment contract (O'neill, et. al., 2004). In Genys case, the Federal Court held that employment was not itinerant. In above case, after the commencement of her duties, the taxpayer was not required to travel between two places of work. Where a person who moves continually from one place to another place in order to exercises his trade and profession, and such person has no fix place. The nature of profession or trade is of an itinerant nature, the travelling expenses incurred by the person from his home to his place of work in order to exercise his trade and profession, will be wholly and exclusively expended for the purpose of that trade and profession. Another case law of itinerancy, was Federal Commissioner of taxation v Wiener, on which Mr. walker places reliance (Loutzenhiser, 2013). In this case law, teacher was required to attend more than two schools each day and travelling expenses incurred by the teacher was important part of his or her work. In order to perform his or her duties in different schools, travelling from one school to different school was important; hence it was an important element of the employment. From all above cases following characteristics were emerged (a) travel is an important part of employees work. (b) when a person is working for more than one place, he is required to travel from one place to another place of work without returning to his residence. (c) other factors are- the home of employee constitutes a base of operations. bulky equipments have to be carried from home to different Work places (Stacey, 2006). travel allowances are provided by employer to their employees. It is necessary to look into the individual circumstances in order to determine whether a person is an itinerant worker. A person who is taxpayer, who is engaged in seasonal work and performs his work from one location or different location or work for one employer or different employers, may or may not be an itinerant worker (Schizer, 2000). The same is dependent on different matters rather on specific matter. The Commissioner of Federal considered that the transport expenses by Mr. walker were incurred during the discharge of his duties, the same arose from nature of his work. In order to perform or undertake work, Mr. walker has to travel to Gayndah, Bowen and Stanthorpe on a daily basis. Taking all the circumstances into account, including the arguments of Mr. walker, it was concluded that Mr. walker is not an itinerant worker. It is concluded that Mr. walker case falls outside the scope of case Lunney, hence he is not entitled to claim the travel expenses and this also includes the expenses incurred from his work place to caravan (Ketchemin, 2002). The other deductions like accommodation expenses, and the expenses incurred on holiday, and living expenses claimed by Mr. walker were also disallowed. On the basis of decision Of, Federal of Court in Roads and traffic Authority of New South Wales Vs Federal Commissioner of Taxation, Mr. walker is allowed to claim the deductions of meals and accommodation while living away from home for temporary purpose, despite he is found not to be an itinerant worker. Where an employee who is taxpayer is required to reside at a place that is work site other than his place of residence, for his work, as required by an employer, then any expenses incurred by such employee would be a private expenditure. In Mr. walker case, he was not required to reside at a place as compelled by his employer. It was Mr. walker choice to reside at the place where he wants and work where he did. Mr. walker claimed the deduction of travel expense between work locations, on the basis of section 25.100 of ITAA- Section states that- When a deduction is allowed (1) If you are individual, you can deduct a transport expense to the extent it is incurred in your travel between work places. (2) your travel between work places is travel directly between 2 places, to the extent that: (a) while you were at the first place, you were: - engaged in carrying on business for the purpose of gaining or producing your assessable income, or. -engaged in activities to gain or produce your assessable income; and (b) the purpose of your travel to second place was to: -engage in carrying on business for the purpose of gaining or producing your assessable income, or - engage in activities to gain or produce your assessable income. And you were engaged in above activities while you at second place. (3) if one of the places you are travelling between is a place at which you reside, then travel between two places is not said to be travel between workplaces. (4) travel between the two places is not said to travel between work place, at the time of your travel to second place: (a) the business in which you are engaged is ceased. (b) the arrangement under which you gained or produced assessable income at the first place has ceased. (5) deduction under subsection (1) is not allowed, if such expenditure is of capital nature. Mr. walker travel between the different work place doesnt fall within this provision. Federal commissioner was not satisfied that internet and telephone expenses can be claimed as deductions. They were incurred to arrange the employment but not in course of gaining assessable income. References Babovic, D., 2009, Deductibility of self-education expenses-making allowance for the youth allowance, Taxation in Australia, 44(6), p.318. 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James, K., 2016, The Australian Taxation Office perspective on work-related travel expense deductions for academics, International Journal of Critical Accounting, 8(5-6), pp.345-362. Ketchemin, E.P., 2002, A comparative analysis of the concept of fiscal jurisdiction in income tax law (Doctoral dissertation, University of Cape Town). Loutzenhiser, G. 2013, "Tax avoidance, private companies and the family", Cambridge Law Journal, 72, no. 1, pp. 35. Marks, D.W., 2002, Service agreements: everything has its season: a discussion of important matters for consideration when reviewing service entity agreements [Edited version of a paper presented at the Taxation Institute's North Queensland Convention, February (2002).], Taxation in Australia, 36(9), p.460. ODonnell, J., 2005, Quarantining interest deductions for negatively geared rental property investments, eJournal of Tax Research, 3(1), pp.63-113. O'neill, N., Rice, S. and Douglas, R., 2004, Retreat from injustice: human rights law in Australia, Federation Press. Schizer, D.M., 2000, Executives and hedging: The fragile legal foundation of incentive compatibility, Columbia Law Review, pp.440-504. Stacey, P., 2006, The GST Treatment of Bare Trusts, Austl. Tax'n, 9, p.36. Stewart, M., 2001, Commissioner of Taxation v. Payne-Deductibility of Travel Expenses: Is Australia Moving from Global to a Schedular Income Tax. Melb, UL Rev., 25, p.495.