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11 Nov 10 Commissioner loses High Court appeal on youth allowance deductions - Anstis

The High Court (French CJ, Gummow, Heydon, Kiefel and Bell JJ) has dismissed the Commissioner's appeal against the decision of the Full Federal Court in FCT v Anstis [2009] FCAFC 154 (4 November 2009), and has held that expenditure incurred by a student in receipt of youth allowance payments was deductible, having been incurred in gaining or producing her assessable income, namely, the youth allowance.

During the relevant period, the taxpayer was enrolled as a full-time student undertaking a teaching degree at the Australian Catholic University. In her tax return for the year ended 30 June 2006, the respondent returned $14,946 as wages earned as a part-time sales assistant, and $3,622 received by way of youth allowance payments. She claimed as an allowable deduction an amount of $920 for "expenses of self-education", which was reduced from $1,170 by operation of s 82A(1) of ITAA 1936. The self-education expenses comprised the depreciation in value of a computer ($692), textbooks and stationery ($264), a "student administration fee" ($80), supplies for children during the respondent's teaching rounds ($75) and travel expenses other than to university ($59).

To qualify for the youth allowance under the Social Security Act 1991, the taxpayer had to satisfy a number of conditions, including that she was "making satisfactory progress towards completing [a course of education at an educational institution]".

The Commissioner's appeal involved three questions. The first was whether youth allowance is assessable income under ITAA1997. The second was whether the taxpayer's self-education expenses were incurred "in gaining or producing" her assessable income. The third was whether, if the expenses were so incurred, they were nonetheless to be disallowed as being of a "private" nature. In relation to these questions, the Court held that the income was assessable, the expenses claimed were deductible and that the expenses were not of a "private" nature.

In relation to the first question, French CJ, Gummow, Kiefel and Bell JJ (with whom Heydon J agreed) said, at paras 23 - 24:

"Youth allowance payments enable recipients to rely upon them for regular expenditure, and recipients can expect to receive those payments but only so long as they satisfy the various requirements of the social security legislation. It follows that such amounts are income according to ordinary concepts...Such a characterisation is consistent with the assumption...made by the Commonwealth Parliament in s 51-1 of [ITAA] 1997...that, but for their exemption in Item 2.1A of s 51-10, payments of "educational allowances" or "educational assistance" are amounts of income according to ordinary concepts."

In relation to the second question, their Honours said, at paras 30 -31:

"Essential to the inquiry of deductibility is the identification of that which is productive of the assessable income. To put it another way, one must ask how the assessable income was (or was expected to be) gained or produced. Contrary to what the Full Court said, the respondent was not "paid to undertake [study]" and that was not required to be so for the deductions to be allowable. Rather, as Ryan J said, the assessable youth allowance income received by the respondent was gained or produced by her entitlement to that payment consequent on the determination by the Secretary that she qualified for the payment. That statutory right to payment would be retained by her, without reduction, non-payment, suspension or cancellation, so long as she maintained her qualification for the payment by satisfying the activity test by undertaking full-time study so defined.

The reason or motive of the respondent for incurring those education expenses, which could be characterised, for example, as obtaining a qualification to undertake future employment as a teacher, is not determinative of the question whether they were incurred in gaining or producing income. The occasion of the outgoings was to be found in what the respondent did to gain or produce, by establishing and retaining her entitlement to, the receipts provided by the terms of the social security legislation." (Footnotes omitted.)

In relation to the third question, their Honours said, at para 38:

"...the respondent's desire to obtain a degree, whether to enable her to become a teacher or for some other reason, cannot 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. As Hill J recognised in Cooper [[1991] FCA 164], in relation to the consumption of food or drink, the concept of a particular type of expenditure being absolutely or always "private" cannot be sustained. There is no sufficient foundation for a conclusion that the expenditures by the respondent were essentially private in nature within the sense of s 8-1(2)(b) of [ITAA} 1997..."

FCT v Anstis [2010] HCA 40 (High Court; French CJ, Gummow, Heydon, Kiefel and Bell JJ; 11 November 2010).

 


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