Law
The issue in this case is whether the reward ticket is part of the assessable income of the taxpayer.
The Court ruled that the decision- reward tickets did not constitute assessable income under either: Section 25(1) of the Income Tax Assessment Act of 1936 and cannot be convertible into money. Thus, the monetary value of the ticket cannot not be considered as income within the definition of Section 25(1); or Section 26(e) since the reward ticket was a result of a personal contractual privilege of Payne, it cannot be included as benefit that is “allowed, given or granted” within the definition of Section 26 (e). In addition, the provision regarding the tickets fall within the nature of “in respect of, or for in relation directly or indirectly” to the employment and services performed by the taxpayer as an employee of KPMG and is cannot be considered as a “contributory cause” (Barkocczy, 2010).
In respect to Section 26(e) of the ITAA 1936, the Commissioner argued that the decision in Smith v. FC of T 87 ATC 4883 ruled that it was sufficient for the purposes of the section in case the employment relationship was a mere “cause sine qua non” of the benefit of the employee even though there was another cause for the benefit that is regarded as the predominant or effective cause. The mere fact that the travel points were earned by the taxpayer on the flights paid by the employer was sufficient to comply with the provision of Section 26(e) even if the predominant cause of the reward ticket was the personal contractual relationship of Payne and her employer, KPMG. The rewards ticket did not constitute as income that will fall under Section 25(1) since they cannot be converted to money or money’s worth. Further, the rewards tickets were available due to the accrual of the number of points that were earned by the Payne or her nominee and thus, cannot be transferred. If the tickets were sold, they will be cancelled. Since the rewards tickets cannot be considered as money, they cannot be converted to a pecuniary account (Barkocczy, 2010). Therefore, the reward ticket cannot be considered as income within the definition of Section 25(1).
The reward tickets are not assessable under Section 26(e) on the basis of two grounds:
- They resulted from the personal entitlement of Payne and cannot be considered as a benefit that was “allowed, granted or given” with the definition of the law; and
- The provision of the rewards tickets is not considered “in respect of, or directly or indirectly related” to the employment of Payne or for any services rendered by the taxpayer.
The free ticket given to Payne by her employer is a mere consequence of her employment and that the flights that she earned to complete the required number of points were undertaken during the course of her employment that were paid by her employer and cannot be considered as a “contributory cause” of her employment (Barkocczy, 2010). The contention of Payne is devoid of merit by alleging that the rewards ticket cannot be considered as income and did not fall within Section 25(1) or 26(e). Payne relied on the ground that the ticket cannot be considered income according to the ordinary concepts since they cannot be converted into money or money’s worth. She further alleged that Section 25(e) is not applicable the tickets occurred by virtue of her contingent contractual right that became absolute in nature.
Section 25-100 of the Income Tax Assessment Act 1997 (ITAA 1997) was included in the Australian income tax code on the basis of the decision of the High Court in the case of Payne. In this particular case of Payne, majority of the members of the High Court ruled that the disbursement or expenses that was used on travel between two isolated income that resulted from activities in work setting does not meet the first requirement in the general deduction provision of Section 8-1(1) of the Income Tax Assessment Act of 1997. The rationale of the law in including Section 25-100 is meant for the purpose of giving allowance for deductions for travel between two unconnected and unrelated “workplaces”’ (Boccabella, 2007). Nevertheless, this section of the law admits some exceptions to the rule in order to withhold the expenses for travel between disparate workplaces, such as in the case where the residence of the taxpayer cannot be considered as a place of work, within the concept of the tax provision. Boccabella (2007) stated that this is one of the internal exceptions that has a tendency to create vagueness or confusion in the sense that giving allusion to the place where a taxpayer resides to be considered as one of the internal exceptions, will create a probability that the rule included in this particular exception may also be transferred to the common deduction provision of the tax code (Boccabella, 2007). Otherwise, another likelihood will arise such that Section 25-100 has set out the rules that regulate the employee’s travel will be considered as an exclusion to section on the general deduction of the tax code. One of the tax experts suggested that the internal exception that is in connection to travel between the place of residence of the taxpayer and an income creating activity must be properly established to avoid any errors of interpretation. In order to do this, there must be a careful examination on other areas of Section 25-100 and the correlation between Section 25-100 with other deduction provision affiliated to the outflow of expenses used for travel between places of work as mentioned under Section 8-1 of ITAA 1997 (Boccabella, 2007).
References:
Barkocczy, S., 2010. Australian Tax Casebook, 10th ed. Australia: CCH Australia, Limited.
Boccabella, D. 2007. “Enactment of a Deduction Rule regarding Travel between Work places or
income producing activities can lead to errors”. Journal of Australian Taxation. 10(2), p.
137.
Payne v FCT 96 ATC 4407
Smith v. FC of T 87 ATC 4883
