MUIR v FC of T

Members:
BH Pascoe SM

Tribunal:
Administrative Appeals Tribunal

MEDIA NEUTRAL CITATION: [2001] AATA 277

Decision date: 6 April 2001

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BH Pascoe (Senior Member)

These are applications to review decisions of the respondent to disallow objections against assessments of income tax for the years ended 30 June 1996, 1997 and 1998. The objections were against the inclusion of income received by way of a scholarship from the Microsurgery Foundation. The applicant argued that such amounts were exempt under section 23(z) of the Income Tax Assessment Act 1936 (``the Act'').

2. At the hearing the applicant was represented by Mr B. Flood, an accountant, and the respondent by an officer of the respondent. Evidence was given by the applicant, Dr A. Muir; Professor M. Cousins, Director of the Pain Management and Research Centre, Royal North Shore Hospital; and Mr G. Renton, Executive Director, Microsurgery Foundation.

3. Dr Muir obtained his degree in medicine at the University of Tasmania in 1983. He commenced to specialise in anaesthesia in 1986 and became a member of the Australian and New Zealand College of Anaesthetists. He acquired a Master of Science Pharmacology in London in 1988 and 1989. In 1995, when working as a staff specialist anaesthetist at a Sydney hospital, Dr Muir was approached by Professor Cousins with whom he had worked previously. Professor Cousins advised that a Melbourne group had sought his advice on establishing a pain management centre in Melbourne. He had advised that a suitable person to lead such a centre could be trained with a two year fellowship at the Royal North Shore Hospital Centre. Professor Cousins had recommended Dr Muir and advised him that a stipend from the Melbourne Microsurgery

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Foundation would be available at $60,000 pa being the equivalent amount payable to a senior registrar. It was accepted that a two year period was required involving training in other relevant disciplines, research and clinical exposure. Also involved was completion of the University of Sydney Master of Medicine (Pain Management) Degree and the College of Anaesthetists Certificate in Pain Management.

4. Dr Muir said that the Sydney Centre directed by Professor Cousins was recognised internationally and hosted visitors from other countries and Australia for training and experience. In 1996 there were three Senior Fellows including Dr Muir at the Centre obtaining training and experience. Dr Muir said that during his fellowship in 1996 and 1997 he worked some 65 hours per week involving clinical work for 3½ to 4 days per week, approximately 15 hours of study and approximately 12 hours research. He believed that the requirements of the College of Anaesthetists, the University and the Centre overlapped.

5. Dr Muir said that he was paid through the hospital payroll and understood that this was the easiest way to deal with his remuneration. He had never regarded himself as an employee of the hospital and assumed that it was inappropriate for Professor Cousins to set up a separate pay system for visiting fellows. He regarded his income as being a scholarship from the Microsurgery Foundation. Whilst he said that there was no specific relationship between microsurgery and pain management he understood that the support arose from a personal interest of the Chairman of the Foundation. Dr Muir said that, in 1996, he was appointed as a clinical associate of the Faculty of Medicine at Sydney University in view of his active participation in a teaching and research program. He said that his only commitment to the Microsurgery Foundation involved expressing an intent to pursue a career in pain management and to apply for a position of Director of a Melbourne Centre if it became available and was suitable to him. While he felt some obligation, any future role depended on a suitable offer being made and funding being available for the establishment and operation of such a Centre in Melbourne. Dr Muir said that the taking up of the fellowship at the Sydney Pain Management and Research Centre meant a substantial reduction in salary.

6. Dr Muir said that, when the position of Director of a Melbourne Pain Management Centre was advertised initially he did not apply as he was not satisfied that funding was available. Subsequently, Professor Cousins arranged for suitable undertakings in relation to funding to be provided. A Centre was established at St Vincent's Hospital. Dr Muir applied for the position of Director, was interviewed by a panel arranged by the Hospital with no Foundation representative and was offered and accepted the position.

7. Professor Cousins said that he heads a department of Sydney University involved in teaching, research and clinical care in pain management. In 1996 he had initiated a Diploma and a Masters Degree in pain management with the University with training undertaken at his Centre at Royal North Shore Hospital. In 1995 he had discussions with the Microsurgery Foundation regarding the development of a person who could head up a pain management Centre in Melbourne. He recommended a two year full-time training fellowship at his Centre. Discussions were held with the College of Anaesthetists regarding the establishment of a pain management faculty but this did not come into existence until after Dr Muir had completed his two year training. Professor Cousins said that he did not consider that the program undertaken by Dr Muir could have been done if the Centre had not been attached to the University. He said that it was common practice for positions funded by the University to have the funds paid to the hospital and for the hospital to pay the salaries. He believed that the Foundation funding for Dr Muir's salary could have been paid through the University but was unsure of the reason why this was not done. Professor Cousins accepted that Dr Muir could have been seen as providing some clinical care to patients of the hospital as part of the program. He maintained that without the funding by the Foundation, Dr Muir would not have been able to undertake the program at his Centre. He was firm, also, that there was no guarantee of a position in Melbourne as the Foundation did not control the establishment of a Centre at St Vincent's Hospital.

8. Mr Renton confirmed the evidence of Dr Muir and Professor Cousins of the role of the Microsurgery Foundation in providing $120,000 over two years in training Dr Muir. He said that the Foundation provided many

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other scholarships in a range of disciplines. Most of those were paid direct to a University. He regarded the amount paid for Dr Muir as a scholarship with the only difference as against other scholarships being that it was a greater amount of money than most other scholarships. He accepted that there was no commitment or guarantee of future employment.

9. Section 23(z) of the Act, as it applied to payments received on or after 1 July 1996, provided an exemption from income tax of:

``... income derived by way of a scholarship, bursary or other educational allowance or educational assistance (other than assistance provided by the Commonwealth for secondary education or assistance provided by the Commonwealth in connection with the education of isolated children) by a student receiving full-time education at a school, college or university, but not including-

• (i) an amount received by a student from a person or authority upon condition that the student will (or will if required) become, or continue to be, an employee of the person or authority;
• (ia) an amount received by a student from a person or authority upon condition that the student will (or will if required) enter into, or continue to be a party to, a contract with the person or authority that is wholly or principally for the labour of the student;
• (ib) an amount received by a student under a scholarship where the scolarship [ sic] is not provided principally for educational purposes;
• (ii) a Commonwealth education or training payment (see subsection 6(1)); or
• (iii) an education entry payment received under Part 2.13A of the Social Security Act 1991;

...''

The section was amended by Act No. 122 of 1997 to insert sub-paragraphs (ia) to (iii) and remove nine paragraphs which referred to specific amounts under various Commonwealth training and assistance schemes. These changes appear to have minimal effect in relation to the amount in dispute in this case. The elements which are required to be satisfied in order for the amounts in dispute here to be exempt under section 23(z) can be stated as:

• • the amount is by way of a scholarship, bursary or other educational allowance or assistance
• • the recipient is a student
• • the recipient is receiving full-time education
• • the education is at a school, college or university
• • there is no condition that the recipient will become, or continue to be, an employee of the payer
• • there is no condition that the recipient will enter into, or continue to be a party to, a contract with the payer for the labour of the recipient
• • the amount is provided principally for educational purposes

10. It was submitted for the applicant that the payments from the Microsurgery Foundation to Dr Muir via the hospital, satisfied all of these required elements of section 23(z). For the respondent it was submitted that the income in question was not by way of scholarship, bursary or educational allowance or assistance but salary and wages paid by the hospital. It was said that Dr Muir was not receiving full-time education as a substantial part of the two year program involved clinical work similar to that of an intern or registrar in a hospital who was training for some accreditation and obtaining experience. It was argued further that, even if education, it was not at a school, college or university. Involvement with the University in completion of the Masters Degree was said to be part-time with the balance of time not being part of any University course or required by the University. To the extent that it could be said that the amounts were received from the Foundation, it was said that Dr Muir was under an obligation to take up a position with a pain centre intended to be established by the Foundation.

11. The first element of section 23(z) to be considered is whether the amounts were by way of a scholarship, bursary or other educational allowance or assistance. In
FC of T v Ranson 89 ATC 5322, the Full Federal Court considered the position of the taxpayer receiving financial support from a life assurance company under a cadetship to undertake actuarial studies at a University. He was required to work for the

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company during summer vacations and, upon graduation, it was expected that he would be offered employment. After a discussion of the meaning of the words ``scholarship'', ``bursary'' and ``educational allowances'', Davies and Hill JJ said (at pages 5326-5327):

``Payment of scholarships, bursaries or educational allowances could in any particular case be either voluntary or paid in discharge of an obligation to pay. They could be paid as an inducement to take up or continue employment as for example, the present case, or as recompense for training for future qualified employment as in the case of an apprenticeship. Alternatively, they could be paid as in the case of university scholarships or international scholarships such as the Rhodes Scholarship, the Fulbright or Ford International Fellowships in circumstances which are not only voluntary but also quite unrelated to any subsequent employment.

The common thread behind the words `scholarship, bursary or other educational allowance' as used in the section is the educational purpose in the person who provides the allowance and it matters not whether he who provides the allowance is motivated by purely educational aims (as would be the case with university and similar scholarships) or has in mind some collateral advantage, as no doubt was the case with the T. & G. Society here: see
F.C. of T. v. Hall 75 ATC 4156 at p. 4164 where Rath J. said:

`a condition requiring services from the recipient, even present services, is not incompatible with a purpose of educating the recipient; indeed it is not incompatible with a purpose of providing him with full-time education.'

Section 23(z), it may be noted, is conditional upon the relevant scholarship, bursary or allowance being income. It may be possible to conceive of an educational allowance, paid in a lump sum or even periodically as being in a particular case a mere gift and accordingly as not having the character of income in ordinary concepts. Generally however a scholarship or bursary will be income because it consists of a series of periodical receipts.''

In
FC of T v Hall 75 ATC 4156 the taxpayer was offered a research fellowship by the Asthma Foundation. He registered as a candidate for Doctor of Medicine with a scholarship from the University supported by the Foundation. Rath J (at page 4163-4164) said:

``The words `scholarship, bursary or other educational allowance' appear to me to connote an educational purpose in the person who provides the allowance. It is not sufficient that the provider of the money does not object to some ancillary educational result being derived from the use of his grant. The founder of a scholarship may be motivated by purely educational aims, or he may have in mind some collateral advantage; but a grant does not in my view fall within these words in sec. 23(z) unless at least one of the purposes for which it is made is the education of the recipient. Such a view is not inconsistent with the construction of the words after `but' as a true exception, because a condition requiring services from the recipient, even present services, is not incompatible with a purpose of educating the recipient; indeed it is not incompatible with a purpose of providing him with full-time education, because the services required may be part of the education programme, or may be required to be performed outside the programmed hours of the full-time course. It is true that the exemption in sec. 23(z) relates to income in the hands of the scholar, and not to deductibility from income of the benefactor, and that this may be thought to provide a reason for looking at the character of the receipt from the point of view of the purposes of the scholar. Though there may be logic in this approach, I think it is inconsistent with the ordinary understanding of the phrase `scholarship, bursary, or other educational allowance'. In its ordinary meaning that collocation of words connotes a character in the income that attaches to it apart from and irrespective of the use the student makes of the money. A scholarship is a scholarship even if the student spends it on marihuana [sic]; income of the student derived from his own rent producing properties is not exempted from his assessable income by sec. 23(z) even if he devotes it to his education....''

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12. As can be seen from the decisions in Ranson (supra) and Hall (supra) the critical test is whether the payment is for an educational purpose. This concept ties in with the next two elements of whether the recipient is a ``student'' and ``receiving full-time education''. Again in Hall's case (supra) Rath J said (at pages 4162-4163):

``In Chesterman v. F.C. of T. Starke J. said ((1923) 32 C.L.R. 362 at 400) that the essential idea of education is training or teaching. Isaacs J. said (pp. 385-6) that for purposes to be educational they must provide for the giving or imparting of instruction. In his view education connotes the sense of imparting knowledge or assisting and guiding the development of body and mind. `Within that orbit', he said, `the field is wide, and extends from elementary instruction in primary schools to the highest technical scientific teaching in Universities'. In Lloyd v. F.C. of T. ((1955) 93 C.L.R. 645), Kitto J., after referring to these views, said (at p. 676): `The conception is unquestionably much wider than mere book learning, and wider than any category of subjects which might be thought to comprise general education as distinguished from education in specialized subjects concerned primarily with particular occupations'. In the same case Dixon C.J. referred (at p. 661) to `systematic methods or procedures for the inculcation of knowledge'.

On these authorities education involves the dual concepts of imparting of knowledge and system. In educational institutions the imparting of knowledge is performed by various methods and combination of methods. The simplest, and this is the one that features prominently in primary education, is the direct inculcation of knowledge by the teacher in the pupil. A more sophisticated form of instruction is discussion, the exchange of ideas between teacher and student, a form which finds classical expression in the dialogues of Plato. In advanced education the element of direct inculcation may have little prominence. The professor's lectures may be better understood by reading his notes than by hearing him speak. It is not unknown for the lecturer to deliver his lecture at a speed which permits of every word being taken down in long hand. There can be little or no understanding of the subject matter in such a procedure, and understanding come later from a study of the notes. In higher education much of the instruction come, not from the teacher, but from the books the student reads. Indeed the element in education that has been referred to as imparting of knowledge (thus suggesting a necessary teacher-student relationship) might be better described as learning; and the process of learning may be fostered in many ways, without stress on the teacher- student relationship.

More significant perhaps is the element of system. In all educational establishments there is a planned course of learning. It is primarily for the educator to plan the course of study, and the procedures of learning. Typically these procedures will involve reading, discussion and teaching, with the first two having the predominant role as the level of education advances.

It may be that a fully qualified expert, engaged in research, is outside the field of education. He may, it is true, learn from his research; but he plans his own research, and although it may have a system, it is not a system laid down by an educational authority. Thus research performed by the professor himself, or as a leader of a team, may not be a process of education for him. But that sort of research is different in kind from the research performed under supervision and direction by a student for a higher degree. In the present case, Dr. Hall's activities were settled for him by an educator, and were selected by the educator as being capable of qualifying Dr. Hall himself to become a competent planner and co-ordinator of research projects. Thus in my view it would be wrong to deny to Dr. Hall's activities the character of education. There is no ground in the evidence for dividing his activities into two kinds, educative and non-educative, the non- educative being some more routine aspects of his work in the analysis of the survey. All of the activities, on the evidence, were regarded by the University as having a necessary instructional character for him because the results of his work may have values for others of a non-educational kind.''

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13. In the case of Dr Muir it might be said that his two years at the Pain Management and Research Centre was somewhat akin to an apprenticeship or traineeship in that it was a mixture of formal study, research and clinical experience. Whilst the attainment of a masters degree and a certificate in pain management was an element of the work, a substantial part was the training and experience to enable him to become a specialist in pain management and to fit him for a position as director of a pain management centre. It was under the supervision of Professor Cousins and it was a course of study, research and clinical work set down by Professor Cousins. On balance, and with some reservations, I am prepared to accept that it constituted full-time education. Equally, I am prepared to find that the relevant income constituted a scholarship, bursary or educational assistance. The funds were paid to Dr Muir by the Hospital through its payroll system but this was done as a matter of convenience and, in my view, as agent for the Foundation. The funds were paid to the Hospital by the Foundation for the specific purpose of paying Dr Muir.

14. The next element is whether the education of Dr Muir was at a school, college or university. Mr Flood sought to include the College of Anaesthetists as a ``college'' for the purposes of section 23(z) on the basis that, until the 20th century, the Royal College of Physicians was the only body in England which provided training in medicine. However, in 1951 when section 23(z) was inserted in the Act, it is unlikely that the legislators had in mind any college other than that described in the first meaning of the word in the Macquarie Dictionary 2nd Revision as ``post-secondary, diploma awarding, technical or professional school''. In any event, Mr Flood accepted, as he had to, that Dr Muir was not receiving ``full- time education at... a college''. The more appropriate question is whether it was full-time education at a university. I am prepared to accept that the education of Dr Muir was full- time. However, I am unable to accept that it was at a university. The Royal North Shore Hospital is associated with Sydney University as part of the northern precinct of the University. The Masters Degree of the University in pain management is undertaken at the Pain Management Centre in that Hospital under the supervision of Professor Cousins. However, the work done by Dr Muir over the two years included a significant amount which, while under the supervision of Professor Cousins was unrelated to any then prescribed course of study or training by the University. It differed in many respects to an undergraduate pursuing a medical degree who spends the major part of the latter years of the degree working as a student in a hospital attached to the relevant university. In that case the work is a necessary and prescribed requirement of the university and an integral part of the university course of study. Here it was a privately arranged period of study, research and clinical work within the Pain Management Centre of the Hospital. Some of it, only, related to a university course of study. The balance, while performed in a hospital recognised by a university did not require to be done at a facility within or associated with a university. As in Case 63
(1965) 12 CTBR(NS) (New Series) ``...it was not an essential condition of the making of the grant that the research should be done at a school, college or university''. It happens that the Centre has an association with a university but this was not an essential factor in the payment of the scholarship.

15. Having found that Dr Muir was not receiving full-time education at a school, college or university, it is unnecessary to find whether the relevant amounts were excluded under paragraphs (i) or (ia) of section 23(z). However, for completeness, I do not believe that they would be so excluded. The funds were provided by the Microsurgery Foundation. There was no legal or moral obligation to provide services then or in the future to the Foundation. The Melbourne Centre was ultimately established at St Vincent's Hospital with what would appear to be encouragement by the Foundation only. It did not exist and was a hope or expectation at best when the Foundation entered into the arrangement with Dr Muir. There may have been that hope or expectation in the minds of both the Foundation and Dr Muir at the time but, of necessity, limited to a prospect that, if the Centre could be established, Dr Muir would have the training and expertise to become its Head. In my view, the circumstances do not fit the words of the exclusions in section 23(z).

16. It follows from the foregoing that the decision under review should be affirmed.