Federal Commissioner of Taxation v French
98 CLR 398(Judgment by: Kitto J)
Between: Federal Commissioner of Taxation
And: French
Judges:
Dixon CJ
McTiernan J
Williams J
Kitto JTaylor J
Subject References:
Taxation and revenue
Income tax
Exempt income
Whether derived 'from a source out of Australia'
Legislative References:
Income Tax and Social Services Contribution Assessment Act 1936 (No 27) - the Act
Judiciary Act 1903 - s 18
Judgment date: 18 November 1957
SYDNEY
Judgment by:
Kitto J
I agree that the decisions of the House of Lords and the Court of Appeal to which we have been referred cannot be regarded as authorities on the construction of the Act we have here to consider. They are decisions on legislation very different in its terms and very different in its plan. The conceptions to which they give effect have been evolved in consequence of an important step in construction which was taken by the House of Lords in the case of Colquhoun v Brooks [F41] for the purpose of harmonising particular provisions of that legislation. In that case the expression "income arising from possessions out of the United Kingdom" was construed as referring to all that is possessed, in the widest sense of that word, out of the United Kingdom, and which is a source of income: see per Lord Herschell [F42] and Lord Macnaghten. [F43] In the universe of discourse thus created, discussion as to the identification of the "source" of income has necessarily put aside as irrelevant anything which, though it might be within the meaning of the word "source" in a different context, is not something which a person may be considered to "have" (Lord Macnaghten's word). So the profits of a trade or profession are held to be income from a possession; not because the work done to produce each individual item of income in the trade or profession is regarded as a possession which is a source of that item of income, but because the trade or profession itself-the business or practice, "the general state of activity" as Sir Wilfred Greene M.R. called it in Bennett v Marshall [F44] - is a possession and a source of income. In Foulsham v Pickles [F45] the same reasoning was applied to an employment, largely because the relevant Act itself linked employments with trades and professions as a source of income. It is important to note that it was the employment, as distinguished from any specific work done in it, which was held to be the possession; and I venture to think that it would not have been consistent with the cases relating to trade, although Romer L.J. in Bennett v Marshall [F46] thought that it would be, to hold that the activities exercised by the employee were the source (in the relevant sense) of the income derived from his employment. The great difficulty that has arisen is in the next step; granted that the employment is the possession which is the source of the income, what feature of the employment gives it the character of a possession out of (i.e. wholly out of) the United Kingdom? The decisions upon which the commissioner has mainly relied in the present case, namely Bennett v Marshall [F47] and Bray v Colenbrander; Harvey v Breyfogle, [F48] are addressed to that question. They have denied that the place where the employee's services have been performed is relevant, and have selected as the crucial factor the agreed place for payment of the remuneration, or, as perhaps one should say in the language of Romer L.J. in the former of the two cases
"the place either where the contract for payment is deemed to have a locality or where the payments for the employment are made, which may mean the same thing". [F49]
But even after those decisions, the Royal Commission on the Taxation of Profits and Income found it necessary to say in its report presented to Parliament in June 1955 (Cmd. 9474) at p. 93:
"But it has been made plain to us that it is extremely difficult to say whether an employment which contains elements of a foreign character is or is not to be treated as a foreign possession for this purpose. There is no statutory rule. In the absence of one the Courts have had to treat each question as one of fact and to decide it according to the balance of what seem to be the relevant considerations.
...
In our view the place in which the work is done is much the most important single test of the locality of an employment, though it is the one to which the courts have hitherto given least weight, if indeed they have not treated it as having no weight at all."
We are here concerned with a provision, s. 23 (q) of the Income Tax and Social Services Contribution Assessment Act 1936-1951 (Cth.), which uses the word "source", in relation to the derivation of income, in a context completely unaffected by the notion of a "possession". One has not to start, as under the United Kingdom legislation, with the conception that in the case of income from an employment the employment is the source of the income, so that the problem is to attribute a locality to the employment. The Australian Act, in such provisions as ss. 23 (q) and 25, assumes that it is possible to identify, with respect to every amount of income, some activity event or thing which may properly, though metaphorically, be described as the source from which that income has been derived; and it is settled by undoubted authority that to select for the description one out of all the many elements which, as a matter of history, have together culminated in the derivation is a practical task to be performed on substantial considerations.
It is safe to say that the source, in the sense in which the Act uses the word, of income which consists of salary or wages must often be the work done by the employee to earn that income. I should say that whenever a specific amount of remuneration has been paid to an employee for specific work which he has done-a case of piecework is the obvious example-the only practical view that can well be taken is that the work is the source of the remuneration. But I should not subscribe to the sweeping proposition that in every case of employment the source of the wages or salary paid in respect of a particular period is to be found in work done by the employee in that period. I think it must depend on the circumstances, and most of all on the terms of the employment. It is not always true that an employee's remuneration is earned by particular work that can be identified, or indeed by any work at all. Very often, of course, the right to remuneration depends upon the doing of work, but whether that is so in a particular case is a question depending on the terms of the particular contract: O'Grady v M. Saper Ltd, [F50] at p. 473. In respect of contracts making remuneration payable independently of the actual performance of service, I should not be prepared to say that it can never be right to regard the employer's obligation to provide the remuneration as the source from which the remuneration is derived. And what is one to say of cases where remuneration is payable for a period in which the employee is not bound even to be ready and willing to work? I have in mind cases in which wages are payable during a time of illness, as, for example, during sick leave provided for in industrial awards or in public service regulations, and cases in which wages are payable in respect of public holidays, or periods of annual leave or of long service leave. What is the source of the income in these cases? It seems to me that the practical answer may often be that the source is to be found in the obligation of the employer to make the relevant payments, and accordingly that the locality of the source is the place where, by the express or implied agreement of the parties, the employer was bound to perform that obligation. In the majority of cases, no doubt, that place will coincide with the place where the employee usually performs his service, but cases may readily be imagined in which it will not. Where, for instance, a ship's officer earns his salary by service rendered over an area remote from his employer's place of business, it may be that the source of his income for a period of work should be identified with the locality of his service in that period; but, even where that is so, I should think that the source of an amount of salary paid to the officer in respect of a period of leave may well be at the place, e.g. a place of business of the employer, from which it was agreed, expressly or by implication from words or conduct, that the payment should be made. Cf. Lord Morton's comment in Bray v Colenbrander; Harvey v Breyfogle [F51] upon an observation of the Master of the Rolls in Bennett v Marshall. [F52] I should add that I am not satisfied that in every case it is right to split up a continuous and coherent course of service according to the periods of time for which it has carried the employee to this place or that, to treat an entire payment of remuneration as if it were composed of separate amounts proportionate to such periods of time, and to regard each such amount as derived from a separate source. No doubt it is often in accordance with practical realities to do so; but is it necessarily right to do so where, for instance, an employee whose work is substantially confined to one place has to go to another place on an exceptional occasion or for a brief period for an incidental or subsidiary purpose? I am not prepared to hold as a matter of law that it can never be true in such a case that the whole remuneration ought to be regarded as derived from a source at the one place.
The main purpose of the case now before us is, I gather, to obtain a ruling upon the broad question whether, under s. 23 (q), the performance of an employee's service is always and necessarily irrelevant in determining the source of the remuneration. That purpose will be served if we hold, as in my opinion we should, that in many cases the performance of the service is relevant and may indeed be decisive. But the question actually propounded asks specifically whether a portion of certain salary paid to the respondent by his employer, namely a portion which the parties have joined in describing as payable in respect of a period during which the respondent performed certain services in New Zealand, was income derived by him from a source out of Australia, within the meaning of s. 23 (q). To be in a position to answer that question we need, I think, to know more of the facts. At least we should know enough of the terms of the employment to be able to decide whether the respondent's right to remuneration depended upon the actual performance of services. I am not sure that the possibility should be left unexplored that what the respondent did in New Zealand was merely incidental to the performance of his work in Australia, and that, when regard is had to the performance of his service generally, together perhaps with the express or implied agreement of the parties as to the place for payment of his salary, the most practical conclusion may not be that no part of the salary should be attributed to a source out of Australia. I describe it only as a possibility. The proceeding before us is a case stated, and we have no authority to give a decision based upon inferences or reached by a weighing of probabilities.
In my opinion we have not enough material to enable us to answer the question asked, and the case should go back so that further information may be obtained.