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CASE 16/2000

Members:
G Ettinger SM

Tribunal:
Administrative Appeals Tribunal

MEDIA NEUTRAL CITATION: [2000] AATA 1080

Decision date: 8 December 2000

G Ettinger (Senior Member)

The decision under review before the Administrative Appeals Tribunal (``the Tribunal''), was Applicant's appeal against the decision of the Deputy Commissioner of Taxation (``the Deputy Commissioner''), dated 12 November 1998 (T7) the Respondent in these proceedings. The Deputy Commissioner, in response to the Applicant's objection dated 15 July 1998 (T6/17) against the decision issued 11 June 1998 for the income year ended 30 June 1997, found as follows:

``We have decided to allow your objection to the following extent:

Details                                               Amount

The taxpayer is a non-resident for taxation
purposes for the whole of the 1997 income year.

Only the portion of the taxpayer's accumulated
Long Service Leave which accrued whilst he was
an Australian resident (A$16 026) is to be
included in his 1997 assessable income.               22 864

Apart from the bona fide redundancy portion, the whole of the employer's
redundancy payment to this taxpayer is assessable income for Australian taxation purposes, as an eligible termination payment.''

ATC 245

2. The Applicant was represented by Mr T Iuliano of counsel instructed by Pricewaterhouse Coopers (``PWC'') and the Respondent Commissioner by Mr I Young of counsel instructed by the Australian Government Solicitor.

Issue before the Tribunal

3. The issue before the Tribunal was whether the Applicant's redundancy payment of $121,311.88 made by his then employer ``the Bank'' on 12 October 1996 (the amount as varied by the Notice of Decision of Objection made by the Respondent Commissioner of 12 November 1998 (T7)), could be characterised as an Exempt Non-Resident Foreign Termination Payment (``ENRFTP'') pursuant to section 27A(1) of the Income Tax Assessment Act 1936 (``the ITAA'').

Legislative framework

4. The relevant legislation in regard to this matter was the Income Tax Assessment Act 1936 (``the ITAA''), in particular sections 27A(1), 27CD, 27A(1)(ka) and 27A(1)(ma) which follow:

5. Section 27A(1) of the ITAA defines the terms ``eligible termination payment'', as relevant:

```eligible termination payment' , in relation to a taxpayer, means-

  • (a) any payment made in respect of the taxpayer in consequence of the termination of any employment of the taxpayer, other than a payment-

...

but does not include:

  • (ja) the tax-free amount of a bona fide redundancy payment, or of an approved early retirement scheme payment, made on or after 1 July 1994;
  • ...
  • (ka) an exempt resident foreign termination payment or an exempt non- resident foreign termination payment;
  • ...
  • (ma) a payment from a fund that is an eligible resident non-complying superannuation fund, or an eligible non- resident non-complying superannuation fund, when the payment is made;
  • ...''

6. An ``exempt non-resident foreign termination payment'' is defined in section 27A(1)(a) of the ITAA as:

```exempt non-resident foreign termination payment' , in relation to a taxpayer, means:

  • (a) a payment made in respect of the taxpayer to which the following subparagraphs apply:
    • (i) the payment is made otherwise than from a superannuation fund (as defined by subsection 6(1)) in consequence of the termination of the taxpayer's employment;
    • (ii) the payment would, apart from paragraphs (ka) and (ma) of the definition of `eligible termination payment' , be an eligible termination payment;
    • (iii) the employment was service in a foreign country as a holder of an office or in the capacity of an employee;
    • (iv) the payment related solely to a period of the employment during which the taxpayer was not a resident of Australia; or
  • ...''

Evidence before the Tribunal

7. The Tribunal had before it documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975, (``the T-documents'') which consisted of three different parts, T1 to T7, T8-T11 and T12, marked Exhibit R1.

8. Further documents tendered in evidence were as follow: 

+----------------------------------------------------------------------+
| ITEM                                | DATE              | NAME       |
|----------------------------------------------------------------------|
| Affidavit of the Applicant          | 11 September 2000 | Exhibit A1 |
|----------------------------------------------------------------------|
| Letter from Pricewaterhouse Coopers | 8 July 1999       | Exhibit R2 |
| (``PWC'')                           |                   |            |
+----------------------------------------------------------------------+

ATC 246

9. The Applicant gave oral evidence before the Tribunal.

Evidence before the Tribunal

10. The Applicant, who now resides in England, attended at the Tribunal and gave oral evidence during the Hearing. He said that he commenced his employment with the Bank as a graduate trainee on 11 March 1983, and worked in Sydney at various branches of the Bank until 7 March 1986. The Applicant spent from 8 March 1986 to 11 July 1990 in England, and was posted to New York from July 1990 to 15 February 1992. He was then offered employment in Sydney and later in London.

11. In a letter dated 9 August 1994 (T11/40), the Bank offered the Applicant a senior position in London effective from September 1994. The letter stated that:

``Further details of your expatriate salary calculation are contained within your Expatriate Terms and Conditions Policy document...

The terms of the assignment will be 2 years with an option to extend for a further 12 months... At the conclusion of this assignment, should your next placement necessitate your return to Australia, i.e. your `home base', offer and acceptance will not apply.''

12. The Applicant was asked whether that letter offered him a contract from 1994 until 1996 with an option to extend for a year. His reply was that bank officers in his position worked off-shore until required to be elsewhere, and that that date could be sooner than the contract stipulated. He said that by way of example he had already been abroad for four years, so the time stipulated in the contract was not necessarily adhered to.

13. When asked about his ``home base'', the Applicant referred to a letter from the Bank dated 8 September 1994 (T11/42) detailing his options in respect of his housing needs in London. I noted that the options were available ``under... [the Bank's] expatriate housing policy''.

14. When questioned regarding membership of a union, the Applicant indicated that the Finance Sector Union (``FSU'') covered branch staff, but that persons in his position operated on individual contracts. When the Applicant's attention was drawn a set of conditions relating to ``Notice'' and ``Severance Payments'', of Bank Officials' (Federal) (Redeployment & Redundancy) Memorandum of Agreement 1992 between ``The Bank'' and the Finance Sector Union of Australia , (``the Bank/FSU Memorandum'') (Attachment D to T11, at T11/48), the Applicant said that he did not think that document applied to him because he was employed not under a union agreement, but pursuant to a separate contract. He indicated that bank branch staff were covered under FSU awards but did not think he was.

15. I noted at T4/13 that the Applicant was notified by letter dated 5 July 1996 from his Chief Manager, that he was redundant with immediate effect. The letter also indicated:

``As a consequence you will be repatriated to Australia where you will be able to participate in [the Bank's] career management programme and will be kept informed of any developments or redeployment opportunities as they occur.

You are requested to report to... Head of Human Resources... based in Sydney by Monday 22 July 1996. [Head of Human Resources] will then work with you in identifying suitable career opportunities for you.''

16. The Applicant was then questioned about a letter of PWC of 30 August 1996 (T11/105, Attachment G), addressed to [Head of HR]. The letter was headed ``Taxation Implications of Termination Payments upon Retrenchment''. The Applicant indicated that he had not seen the letter before.

17. I noted that the letter at T11/105 was written by way of advice to the Bank and posited four scenarios with regard to redundancy payments and the implications of the Australian and UK taxation consequences. When it was put to the Applicant that the wording of Scenario Three (T11/108) considered the role of a seconded employee and utilised similar wording to the letter of PWC dated 26 September 1996 (T11/115), the Applicant replied that the letter was intended for someone destined to return to Australia with retrenchment to follow, whereas he was retrenched in the UK. The Applicant was also asked about Scenario Four at T11/109 and the Applicant replied in respect of both scenario Three and Four that: ``Neither of them apply'' to his situation.

ATC 247

18. I noted at T11/115, Attachment M, a letter of PWC dated 26 September 1996 sent to Price Waterhouse, London with regard to the Applicant. As relevant it stated:

``We wish to advise that [the Bank], after considering the individual's tax status in the UK and Australia, will deduct Pay-As-You- Earn (`PAYE') tax instalments deductions from the termination payment at resident Australian tax rates.

While it is appreciated that some relief will apply from Australian tax for Long Service Leave accrued from UK service, both the annual leave (accrued prior to arrival in the UK) and the redundancy payment (which arises from termination of Australian employment of an Australian employee on secondment only to the UK), will be subject to Australian tax.''

19. The Applicant said that he was surprised and thought that the recipient of the letter, a woman who was employed by the London branch of Price Waterhouse held views different from those expressed in the letter.

20. The Applicant was also referred to a letter at T11/38, Attachment A, dated 30 August 1996 which gave him notice of redundancy to take effect six weeks from the date of the letter, that is effective 11 October 1996 adding that it would be ``based on Australian Terms and Conditions''. The Applicant replied that the reference must have been to terms in his expatriate contract.

21. The Applicant's attention was also drawn to T11/39 a ``Retrenchment Payment Schedule - Packaged Officer'' indicating his gross severance pay at $121,311.88, calculated at 44.75 weeks relative to his Australian based salary of $141,508. The Applicant said that the formula arrived at was not necessarily derived from his own contract.

22. I noted at T11/35 that in reply to a request by the Australian Government Solicitor for ``A copy of the Policy document or statement applicable to or concerning the redundancy or cessation of employment of [the Applicant] on 12 October 1996'' the Bank replied:

``Attachment D:

Bank Officials (Federal) (Redeployment and Redundancy) Memorandum of Agreement 1992 between [the Bank] and the Finance Sector Union of Australia (the agreement). The 1992 agreement was extended through 94/95 EDA and the 96/98 EDA and was in place at the time that [the Applicant] was terminated.''

23. I noted that the Applicant's severance payment was based on the conditions listed in Clause 7. of the Bank/FSU Memorandum at T11/48, namely:

  • ``(i) Seven weeks' salary for the first full year of service, or pro-rata for those with less than one full year of service.
  • (ii) Three weeks' salary for each subsequent year of continuous service.
  • (iii) Plus a pro-rated payment for each completed month of service in the final part year of service.
  • (iv) The maximum payment under this subclause shall be 90 weeks pay.''

24. I noted from the evidence that the Applicant received his pay calculated on the above basis (T11/39) and his service of 13 years and seven months, and that it was calculated pursuant to the Bank/FSU Memorandum. I noted from T11/112 that the London and Sydney offices of the Bank shared the costs of the redundancy.

Submissions and conclusions

25. Having heard the evidence I had to take into account also the submissions, legislation and case law to make the correct and preferable decision and decide whether the Applicant's payment of $A121,311.88 (the amount as varied by the Notice of Decision on Objection made by the Respondent Commissioner of 12 November 1998), on his redundancy from the Bank could be characterised as an Exempt Non- Resident Foreign Termination Payment (``ENRFTP'') pursuant to section 27A(1))(a) of the Income Tax Assessment Act 1936 (``the ITAA'').

26. I noted that although section 23(r) of the ITAA and the United Kingdom Australian Double Tax Agreement (``Double Tax Agreement'') were dealt with by the Deputy Commissioner in his decision of 12 November 1998 and raised at the Hearing by Mr Young, Mr Iuliano agreed on behalf of the Applicant that notwithstanding the earlier reference to section 23(r) of the ITAA and the Double Tax Agreement, neither would be argued in the context of the present case. I accepted that and I

ATC 248

have therefore not considered these in coming to my decision.

27. By way of background, I noted that the Applicant was employed by the Bank from 11 March 1983, when he joined as a trainee, until 11 October 1996 when he was made redundant from his then held position as a Senior Manager which had required his secondment to London. I noted that he was posted from Australia to England from March 1986 to July 1990, to the USA from July 1990 to February 1992, followed by a short time in Australia, and that he was then posted to England again from September 1994 to 11 October 1996. His uncontroverted evidence was that he has remained living in England since the redundancy.

28. Mr Iuliano was quite content with the concept that his client was a non-resident of Australia for purposes of section 6(1) of the ITAA and relied on the authority of
FC of T v Jenkins 82 ATC 4098; (1982) 59 FLR 467. I was satisfied on the basis of the Applicant's counsel's submissions that the Applicant was a non-resident of Australia for taxation purposes at the relevant time.

29. I noted further that in the process of a restructure of the Bank during which he was made redundant, the Applicant was given a letter dated 5 July 1996 (T4) stating that ``... the requirements of the London... team have been assessed... your position as [a] Senior Manager... is redundant with immediate effect.''

30. I noted the Applicant's evidence that the terms and conditions of his employment were pursuant to a contract with the Bank. His evidence was that he was not a member of the FSU, and that such membership was referable to branch staff.

31. I also noted that the Applicant's redundancy pay was calculated pursuant to the Bank Officials (Federal (Redeployment and Redundancy) Memorandum of Agreement 1992 between [The Bank] and the Finance Sector Union of Australia (``the Bank/FSU Memorandum''). I noted from T11 of 14 January 2000 in reply to a summons issued in connection with these proceedings, that the 1992 Bank/FSU Memorandum was extended through 94/95 EDA and the 96/98 EDA was in place at the time of the Applicant's termination and applied to calculate his entitlements. A further letter of 8 September 1994 stated that the Applicant was employed under Australian terms and conditions (T11/42).

32. It was clear to me therefore that even if the Applicant was not aware of it, he was employed pursuant to the terms and conditions of the Bank/FSU Memorandum, certainly as far as redundancy and notice conditions (Clauses 7. & 8.). I accepted from the evidence noted above that the Applicant was a non-resident of Australia for taxation purposes at the relevant time. I was satisfied that he had worked both within and outside of Australia on secondment from the Bank, (the Applicant's own evidence), and that he was retrenched in accordance with Australian terms and conditions (T11/38).

33. Mr Iuliano did not disagree that the method of calculation of the Applicant's termination/redundancy payment was according to formulae in the Bank/FSU Memorandum. However he argued that the document was used simply because it was convenient for the Bank to do so. The application of the formulae in the Bank/FSU Memorandum, he submitted, could not alter the character of the redundancy payment which was to compensate the Applicant for being made redundant, for the loss of his position as a Senior Manager in the London office of the Bank. It was, Mr Iuliano submitted, simply a convenient method of calculation and any other method could have been used.

34. Mr Iuliano submitted that the character of the payment was of prime importance, and submitted that the payment of $A121,311.88 was made to compensate the Applicant for the loss of his position as a Senior Manager and not for loss of the employment. That, he said, was clear from the letter of the Bank of 5 July 1996 (T4). I noted that the letter at T4/13 with regard to the redundancy stated as relevant:

``As a consequence you will be repatriated to Australia where you will be able to participate in [the Bank's] career management programme and will be kept informed of any developments or redeployment opportunities as they occur.

You are requested to report to [Head of Human Resources]... based in Sydney by Monday 22 July 1996. [Head of Human Resources] will then work with you in identifying suitable career opportunities for you.''

ATC 249

35. In the course of his submissions, Mr Iuliano referred me to
Reseck v FC of T 75 ATC 4213; (1975) 133 CLR 45 where he submitted that Gibbs J was of the view that a payment is sufficient ``if the payment follows as an effect or result of the termination.'' He submitted that Jacobs J was of the view ``in consequence of... does not import causation but rather a `following on''' presumably from the termination. The relevance of the above to the Applicant, Mr Iuliano submitted, was that the Applicant's payment followed on from his dismissal, or in consequence of it. He further emphasised that had the Applicant not been made redundant, there would have been no reason to make the payment or to do the calculation for it.

36. Mr Iuliano also referred me to
McIntosh v FC of T 79 ATC 4325; (1979) 45 FLR 279 where he submitted, Brennan J considered that the payment in that case was in consequence of retirement because it was that taxpayer's retirement that was the occasion, and a condition of the entitlement to the payment. Mr Iuliano also referred to the judgment of Toohey J where he said that the payment was in consequence of retirement because that was a prerequisite to the payment. Lockhardt J had considered, Mr Iuliano submitted, that it was enough that the retirement was a condition precedent to the payment.

37. Mr Young who appeared for the Deputy Commissioner agreed with the statements referred to by Mr Iuliano in Reseck (supra) and McIntosh (supra). I noted both counsels' submissions and was mindful of what Gibbs J and the other Judges stated in Reseck (supra) with regard, in that case, to whether a retirement allowance was to be characterised as capital or income. Gibbs J stated:

``Within the ordinary meaning of the words a sum is paid in consequence of the termination of employment when the payment follows as an effect or result of the termination. In the present case the payment did follow as a result of the termination of the taxpayer's services.... In the present case the allowance was paid in consequence of a number of circumstances, including the fact that the taxpayer's service had been satisfactory and that the industrial agreements provided for the payment, but it was none the less paid in consequence of the termination of the taxpayer's employment.''

38. I noted that in McIntosh (supra) Brennan J referred to the statements of Gibbs J in Reseck (supra) with approval, and in McIntosh (supra) found the payment was made in consequence of retirement because the taxpayer's retirement was the occasion of, and a condition of the entitlement to the payment.

39. Having considered the submissions as noted above, and the case law, I was satisfied that the Applicant's termination/redundancy payment from the Bank was made as a consequence of his redundancy from the Bank, and I was satisfied it had been calculated according to formulae in the Bank/FSU Memorandum. I was mindful however that for his redundancy payment to be characterised as an ENRFTP, which the Applicant sought, the Applicant would have to meet the requirements of all four sub-sections of Section 27A(1)(a) of the ITAA. I have therefore reproduced them here. Section 27A(1)(a):

```exempt non-resident foreign termination payment' , in relation to a taxpayer, means:

  • (a) a payment made in respect of the taxpayer to which the following subparagraphs apply:
    • (i) the payment is made otherwise than from a superannuation fund (as defined by subsection 6(1)) in consequence of the termination of the taxpayer's employment;
    • (ii) the payment would, apart from paragraphs (ka) and (ma) of the definition of `eligible termination payment' , be an eligible termination payment;
    • (iii) the employment was service in a foreign country as a holder of an office or in the capacity of an employee;
    • (iv) the payment related solely to a period of the employment during which the taxpayer was not a resident of Australia; or
  • ...''

40. Mr Young did not disagree with Mr Iuliano as to the application of the Applicant's situation to sub-sections 27A(1)(a)(i) and (ii) of the ITAA. I accepted from the facts before me that sub-section 27A(1)(a)(i) of the ITAA was not in contention because the payment made to the Applicant on his redundancy was made in

ATC 250

consequence of the termination of his employment (Reseck (supra) and McIntosh (supra)).

41. Mr Iuliano submitted that the Applicant also satisfied paragraphs (ka) and (ma) of the definition of eligible termination payment. As relevant those paragraphs follow;

  • ``(ka) an exempt resident foreign termination payment or an exempt non- resident foreign termination payment;
  • ...
  • (ma) a payment from a fund that is an eligible resident non-complying superannuation fund, or an eligible non- resident non-complying superannuation fund, when the payment is made;''

42. Mr Young also submitted that both parties were in agreement with regard to section 27A(1)(ii) of the ITAA, that is but for paragraphs (ka) and (ma) the payment would be an eligible termination payment. I accepted that there was no disagreement between the parties, as to sub-section 27A(1)(a)(ii) of the ITAA, and I agreed that the Applicant's situation satisfied the requirements of that sub-section.

43. Mr Iuliano submitted further that the Applicant satisfied the requirements in relation to sub-section 27A(1)(a)(iii) and (iv) of the ITAA which were whether:

  • ``(iii) the employment was service in a foreign country as a holder of an office or in the capacity of an employee;
  • (iv) the payment related solely to a period of the employment during which the taxpayer was not a resident of Australia, or
  • ...''

44. The main disagreement between the parties, and source of the dispute really centred around sub-section 27A(1)(a)(iv) of the ITAA, and as to whether the Applicant's termination/ redundancy payment related solely to a period of employment during which he was not a resident of Australia.

45. Mr Iuliano submitted that pursuant to section 27A(1)(a)(iii), the Applicant's position was that he was the holder of an office, that of a Senior Manager of the Bank in London and that was the position that was made redundant. He referred to the fact the Applicant had a contract for two years with a one year option, stating that this had not been exercised, and referring to the Applicant's evidence that once overseas, the expectation was that the Bank's employee would remain in the country of his posting. He submitted therefore that the redundancy payment had been made to compensate the Applicant for the loss of that position, and was not related to service with the Bank as a resident of Australia, thus rendering the character of the payment an Eligible Non- Resident Foreign Termination Payment (``ENRFTP''). He submitted that the formula referred to, which had been used to calculate the redundancy payment to the Applicant did not dictate what the payment was; it was just a formula he said. The payment was, he said, not for past services rendered, rather for the position which became redundant. Mr Iuliano submitted that the Applicant had not known about the Bank/FSU Memorandum until these matters arose. I had noted that that was indeed his evidence. Mr Iuliano submitted:

``It's a formula for calculating the payment to be made to this person... for the loss of his position. That's what redundancy is all about. It's not the loss of the employment, it's the loss of the position. The position has been made redundant.''

46. He submitted that the formula did not dictate what the payment was and agreed that if the payment had indeed been made for service or past service, then the amount would be taxable. However, Mr Iuliano emphasised on behalf of the Applicant that when the payment was characterised as payment for a redundant position then it always remained such payment. For that reason, he submitted the Applicant satisfied all four limbs of section 27A(1)(a) of the ITAA and his redundancy payment was therefore an ENRFTP.

47. In putting the Respondent's viewpoint with regard to sections 27A(1)(a)(iii) and (iv) of the ITAA, Mr Young accepted that the Applicant's ``employment'' in section 27A(1)(a)(iv) was defined further in section 27A(1)(a)(iii) as either ``service in a foreign country as a holder of an office or in the capacity of an employee''. For purposes of this application I did not consider it of significance to decide whether the Applicant was an office holder or an employee and accepted the Applicant's situation came within the first three sub-sections of 27A(1)(a). However Mr Young emphasised that to meet the requirements of section 27A(1)(a)(iv), the Applicant's termination payment had to relate solely to a

ATC 251

period of the Applicant's employment during which he was not a resident of Australia.

48. Mr Young submitted that the Respondent considered the concept of ``solely'' as it appeared in section 27A(1)(a)(iv) of the ITAA, namely ``payment related solely to a period of the employment during which the taxpayer was not a resident of Australia'' rather differently from the Applicant. ``Solely'', he submitted meant ``exclusively''. Mr Young submitted that the Respondent did not consider that the payment received by the Applicant was an ENRFTP because it failed to meet the requirements of section 27A(1)(a)(iv) of the ITAA. He submitted that the redundancy payment made to the Applicant did not relate ``solely'' to his period of work in the UK, and he did not therefore satisfy the requirements for section 27A(1)(a)(iv) of the ITAA. Mr Young drew attention to the fact that of the Applicant's 13 years and seven months service for which he was compensated in his redundancy payment, he spent only six years in the UK. The calculation was not an arbitrary one Mr Young submitted, because the Bank/FSU Memorandum was the governing document. He submitted that the cap of 90 weeks as specified in Clause 7(a) of the Bank/FSU Memorandum was not relevant to this matter as the Applicant would have had to serve another fifteen years or so before reaching it. Mr Young submitted that it was clear through the application of the Bank/ FSU Memorandum, Understanding Retrenchment Payments and Processes; A Guide for H.R. Managers (``HR Guide'') (T11/54 Attachment F) and the letter of 30 August 1996 (T11/38) sent to the Applicant with his retrenchment schedule attached, that there was a ``clear and consistent thread as to the quality and quantity of the payment. It took its quality from the total period of service, not exclusively to that time period when he was a non-resident.''

49. I have considered the submissions of both Counsel and the evidence before me, including the letter of PWC which all dealt with the nature of the redundancy payment made to the Applicant. I was mindful from the Applicant's evidence that he agreed he was seconded to his overseas posting in London, and that his employment emanated from Australia. I was mindful of the Applicant's evidence that his contract for two years with a one year option was not adhered to the first time the Applicant was seconded to an overseas posting, and that the time in the contract had no particular bearing on the event of redundancy. It was clear to me that the Applicant's entitlements to redundancy were calculated according to the Bank/FSU Memorandum, and, noting clause 1.2 of the HR Guide's, ``Retrenchment Payments Schedule'', that the whole period of the Applicant's employment with the Bank, from the date of joining was taken into account (T11/60). Clause 1.2 of the Retrenchments Schedule stated that: ``All calculations of retrenchment payments are based upon an officers Length of Service expressed as years and whole months . Length of service is calculated from Date Entered Service to Date for Calculation of Payments inclusive, less any periods of Parental Leave, Leave Without Pay etc.'' The Applicant's severance pay was 44.75 weeks (T11/39 Attachment A) and calculated as follows using the Bank/FSU Memorandum:

``7 weeks (clause 7(a)(i) for the first year, and

36 weeks (clause 7(a)(ii); 3 weeks for each of the next 12 years service, and

1.75 weeks (clause 7(a)(iii) - 7/12 times 3 weeks''

50. I noted that an amount of $32,611. held to be exempt, was a tax free amount of bona fide redundancy payment. Similar figures appeared in The Retrenchment Payment Schedule at T11/39 and the Statement of Termination Payment at T11/113.

51. Ultimately however, I needed to consider whether the period taken into account related ``solely'' to the Applicant's period of employment during which he was not a resident of Australia. I was mindful of the submissions both counsel made with regard to the concept of ``solely'' as relevant to section 27A(1)(a)(iv) of the ITAA.

52. Mr Iuliano referred in his written outline of submissions (paragraph 19), to a definition from the Shorter Oxford Dictionary noting that it defined ``relate'' to mean ``to connect to establish a relation between'', and that the dictionary defined ``solely'' as ``only, merely exclusively''. He said at paragraph 20:

``The payment made to the applicant is only and exclusively connected or establishes a relationship between itself (ie the payment) and the period of employment of the applicant in London. If the period of

ATC 252

employment did not come to an end as a result of [the Bank] making the position redundant then the applicant would not have received the payment in question. Consequently the payment in question related solely to a period of employment during which the applicant was not a resident in Australia.''

53. I noted Mr Young's analysis of a number of cases where the concept of ``sole use or solely'' had been interpreted. They included
BHP Petroleum (Timor Sea) Pty Ltd v Minister for Resources (1994) 49 FCR 155,
Ryde Municipal Council v Macquarie University (1978) 139 CLR 633 and
FC of T v Manchester Unity IOOF 94 ATC 4235; (1994) 50 FCR 85.

54. Mr Young also referred to the case of Ryde Municipal Council v Macquarie University (supra), a sole use or sole purpose case. There he submitted, the question turned on the use of the land in question. The issue was that a land tax exemption could be founded if the land was used solely for the purposes of the University. I was mindful that the Court in that case held that the land was used exclusively, by the University, and a land tax exemption was granted. In Ryde Municipal Council v Macquarie University (supra) Gibbs ACJ referred to the observations by Kitto J in
Lloyd v FC of T (1955) 93 CLR 645 at 671 citing as follows:

``Such words [solely] confine the use of the property to the purpose stipulated and prevent any use of it for any purpose however minor in importance, which is collateral or independent, as distinguished from incidental to the stipulated use...

The word `solely' may do no more than add emphasis, or perhaps precision.''

55. This was a clear indication of how their Honours in Ryde Municipal Council v Macquarie University (supra) defined ``sole use'' to mean ``exclusive use'', and of guidance to me for purposes of this case.

56. I noted by way of contrast as Mr Young submitted, referring to the judgment of Beaumont J in BHP Petroleum (Timor Sea) Pty Ltd v Minister for Resources (supra) that the term ``sufficiently related'' as interpreted in that case, was ``a bit looser than related solely... so that a less rigorous standard would be satisfied in respect of the expression''. Mr Young drew my attention to the fact that Beaumont J had in that case, drawn together all the dictionary definitions of concepts such as ``related, connection'' and so on. In the context of the present case, the concepts were ``sole'' or ``solely'' he submitted, which signified an exclusive one to one direct connection.

57. Mr Young also referred to the ITAA, and section 82KZ(6) of the ITAA, submitting that in that section of the ITAA, the reference to employee allowances allowed relaxation of substantiation provisions if the allowance ``relates solely or principally to travel outside Australia''. ``Principally'' in that context, he submitted, was a lesser degree of connection than required in ``solely'', the test for the Applicant's case.

58. Mr Young also gave the example of the legal professional privilege test of sole or dominant purpose regarding material coming into existence for the purpose of litigation as an example of the difference between ``sole'' and ``dominant.'' ``Dominant'' he submitted, signified some lesser degree of connection than ``sole''.

59. Mr Young also drew attention in his oral submissions to the use of the phrases ``related solely'' and ``related exclusively'' used interchangeably by Judges of the Full Federal Court in Manchester Unity IOOF (supra).

60. I found Mr Young's submissions helpful and was satisfied on the basis of the dictionary definition and cases cited above that the meaning of ``solely'' in section 27A(1)(a)(iv) of the Act signified ``exclusively''. I was satisfied that in the Applicant's case this meant that his termination/redundancy payment had to be a payment related solely to his employment with the bank during the periods when he was a non-resident of Australian to come within section 27A(1)(a)(iv) of the Act.

Conclusions

61. I was satisfied from the evidence before me that the Applicant had been employed by the Bank since 1983 and was on secondment in London when he was made redundant in 1996. I was further satisfied that the terms and conditions of his employment were according to the Bank/FSU Memorandum and that his termination/redundancy payment was calculated and made according to that document, in particular Clause 6. of which Clause 6.(b) was the most relevant in relation to these proceedings. I noted from the

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correspondence before the Tribunal that the Applicant was given six weeks notice of the redundancy pursuant to Clause 6.(b):

``All officers to be retrenched will be given the maximum practical forewarning... however no officer will be given less than six weeks written notice or, at the Bank's election, payment in lieu of that notice.''

62. I was satisfied from the evidence before me the Applicant's entitlements in redundancy had been calculated pursuant to the Bank/FSU Memorandum (T11/44) by inputting the total years of service, 13 years and seven months. This explained how the number of 44.75 weeks arose which were used to calculate the redundancy payment of $121,311.88 (T11/39). I accepted that the true characterisation of the payment remained as described in Clauses 7. & 8.

63. As relevant, they follow:

``7. SEVERANCE PAYMENTS

...

  • (i) Seven weeks' salary for the first full year of service, or pro-rata for those with less than one full year of service.
  • (ii) Three weeks' salary for each subsequent year of continuous service.
  • (iii) Plus a pro-rated payment for each completed month of service in the final part year of service.
  • (iv) The maximum payment under this subclause shall be 90 weeks' pay.

...

8. OTHER PAYMENTS

In addition to severance payments outlined in clause 7, a retrenched officer shall also be paid:-

  • (a) Annual Leave
  • Each officer shall be paid pro-rata in lieu of any annual leave accrued but not yet taken, plus any loadings which would otherwise have been placed on that leave, up to the pro-rata value of the maximum loading specified in Appendix clause 24(k)(1).
  • (b) Long Service Leave
  • Each officer will be paid for untaken long service leave in accordance with the provisions of the Bank Officials' (Long Service Leave) Award, 1965, provided that long service leave on a pro-rata basis will also be paid to all officers who have completed more than five years continuous service.
  • (c) Superannuation
  • Officers will receive all superannuation benefits as they relate to resignation, preservation and portability in accordance with the rules of their respective scheme.

...''

64. For his termination/redundancy payment to be classed as an ENRFTP, the Applicant would have to have satisfied all four sub- sections of section 27A(1)(a)(i)-(iv) of the Act. For the reasons given above, I was satisfied the Applicant came within sub-sections (i) - (iii) of section 27A(1)(a) but he could not satisfy the requirement in subsection (iv) because his termination/redundancy pay was calculated by taking into account the whole period of his service of 13 years 7 months (served both within and outside of Australia). He was clearly a non-resident for only part of that time.

65. I have also considered the application of section 27CD of the ITAA in this case. I am mindful that section 25(1) of the ITAA applies to tax income from all sources both Australian and overseas in the case of residents, or in the case of non- residents, from Australian sources. Eligible termination payments however come into a taxpayer's assessable income by way of section 27B of the ITAA with exemptions occurring through the application of section 27CD of the ITAA which provides as follows:

``If an exempt resident foreign termination payment or an exempt non-resident foreign termination payment is made in relation to a taxpayer, the taxpayer's assessable income does not include that payment.''

66. There was no disagreement between the parties, and I accepted that the Applicant was a non-resident of Australia for part of the relevant period related to his redundancy payment. His Eligible Termination Payment cannot be considered as exempt from inclusion in the Applicant's assessable income pursuant to section 27CD of the ITAA.

67. Ultimately I was not satisfied the Applicant's termination/redundancy payment could be characterised as an ENRFTP. To succeed he needed to show that he came within each of the four sub-sections of section 27A(1)(i) - (iv) of the ITAA, and whilst his

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situation was one which could come within sub- sections 27A(i)(a)(i), (ii) and (iii) of the ITAA, he could not come within the threshold in section 27A(1)(iv). I could not be satisfied that the Applicant's redundancy payment related ``solely'' to a period of employment during which he was not a resident of Australia. I was satisfied his terms and conditions, certainly those relating to redundancy payments which for purposes of this matter were the most relevant, were calculated using quite specific formulae in the Bank/FSU Memorandum, taking into account the whole of his employment with the Bank from 1983 to October 1996. The letters of PWC of 30 August 1996 and 26 September 1996 (T11/115 Attachment M) explored all the options and scenarios applicable to the Applicant (in particular scenarios 3 & 4 in the letter of 30 August 1996), before matters were finalised for the Applicant. PWC was contracted to be the employer's adviser, it looked after the Applicant's tax returns in England, and PWC did not appear in those letters to consider that the Applicant's redundancy payment related ``solely'' to a period of employment during which the Applicant was not a resident of Australia.

68. The Applicant has does not meet the tests in section 27A(1)(a)(iv) of the ITAA, and even though he meets those in sections 27A(1)(a)(i) - (iii), that is insufficient to render his termination payment from the Bank in 1996 an ENRFTP.

Decision

69. The Administrative Appeals Tribunal affirms the decision of the Deputy Commission of Taxation dated 12 November 1998 that ``apart from the bona fide redundancy portion, the whole of the employer's redundancy payment to this taxpayer is assessable income for Australian taxation purposes as an eligible termination payment.''


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