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McCUNN v FC of T

Members:
J Block DP

Tribunal:
Administrative Appeals Tribunal

MEDIA NEUTRAL CITATION: [2006] AATA 431

Decision date: 18 May 2006

J Block (Deputy President)

Part A - Introduction and background

1. The objection decision under review relates to the year ending 30 June 2000, which is referred to in these reasons as the "Relevant Year". In June 2000, the Applicant received an amount of $86,770 in the circumstances set out later in these reasons. On 16 February 2004, the Applicant applied for a private ruling in respect of that amount, and to the effect that that payment did not attract taxation on the basis that it was not a taxable capital gain through the operation of section 118-37 of the Income Tax Assessment Act 1997 ("ITAA 1997"). The Respondent refused to issue a private ruling on the basis requested and the Applicant sought to object against that refusal. For reasons which it is not necessary to detail, that objection was not competent and more particularly because an assessment referable to that amount and in respect of the Relevant Year was issued on 7 August 2000. The Respondent however treated that objection as an objection against the relevant assessment (T page 3), and it is the disallowance of that objection which is before the Tribunal in these proceedings.

2. The Applicant was represented by Ms Barbara Beckett, a solicitor, while the Respondent was represented by Mr Keith Swan, an employee of the Respondent. The Tribunal had before it the lengthy T documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975. In addition and despite the fact that there was no oral evidence of any kind before the Tribunal, the Tribunal admitted Exhibits A1 and A2 and being a 2000 Group Certificate and an ETP Group Certificate respectively in respect of the Applicant and referable to the Relevant Year.

3. In addition to the documents referred to in clause 2 above, the Tribunal received Statements of Facts and Contentions and

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written submissions by both parties. The Respondent's written submissions contain a wealth of detail and including references to decided cases, and so much so that it is convenient for the Tribunal to draw on the Respondent's submissions and more particularly in relation to relevant case law.

4. When the matter commenced, Ms Beckett said that she did not have a witness statement for the Applicant in that the Applicant is presently and has for some time been in London; Ms Beckett said that she had not, in consequence been able to obtain a witness statement from the Applicant. As to why it was not possible, perhaps with the aid of legal advisers in London to obtain a witness statement from the Applicant was not clear. The fact that there was no witness statement by the Applicant (or anyone else) was resolved after an adjournment by agreement between the parties to the effect that T pages 28, 29, 66, 67, 82, 83 (1st paragraph only) and 140 (and also T pages 109 and 110 in which T pages 66 and 67 are repeated) could be accepted as a description of the events which gave rise to the payment of $86,770 referred to in clause 1 above and which is henceforth referred to as "the Payment". The parties having reached agreement to this effect, the hearing proceeded, but no oral evidence was called by or on behalf of the Applicant. During submissions, Ms Beckett made a number of statements, some of which might aptly be characterised as speculative and more particularly because Ms Beckett did not represent the Applicant at the time when the relevant events occurred, and could not have had any personal knowledge of those events.

5. The Payment was made pursuant to a Deed of Release made on 14 June 2000. T pages 32-36 contain the relevant Deed of Release (referred to henceforth as the "Deed". The Deed was made between the Northern Sydney Area Health Service described in the Deed and henceforth in these reasons as the "Employer" and the Applicant described in the Deed as the "Employee". The Deed is included in full in these reasons as follows:

"RECITALS

  • A. The Employee commenced employment with the Employer on 3 May 1999 as the Customer Services Manager of the Area Information Systems Department (the Employment ).
  • B. During the course of the Employee's employment, the Employee has made a number of complaints and grievances about the Employer and its officers and employees (the Complaints ).
  • C. The Employee has also alleged that she intends to bring various claims against the Employer and its officers and employees. These claims include but are not limited to:
    • (a) discrimination and/or harassment;
    • (b) victimisation;
    • (c) breach of contract;
    • (d) misrepresentation;
    • (e) assault; and
    • (f) negligence,

    • (together the Claims ).

    • The Employer denies any liability in relation to the Claims.

  • D. The Employee has agreed to resign from her employment with effect from the date the Employee provides the Employer with this executed Deed (the Resignation ).
  • E. The Employer and the Employee have agreed to settle all matters between them on the terms contained in this Deed.

OPERATIVE PROVISIONS

  • 1. INTERPRETATION
    • 1.1 In this Deed:

    • Group means the Employer and its officers, employees, contractors and agents engaged by the Employer at the date this Deed is executed.

    • 1.2 The recitals, schedules, annexures and descriptions of the parties to this Deed form part of this Deed.
  • 2. EMPLOYER PROVIDES BENEFITS TO EMPLOYEE
    • 2.1 Without admission of liability, the Employer will pay the Employee the amount of $86,770.00 as an eligible termination payment (the Payment ).
    • 2.2 The Employer will deduct tax from the Payment at the rate of 31.5 per cent. No other deductions will be

      ATC 2194

      made from the payment without the prior written consent of the Employee. However, this clause will not operate as a bar to the payment of any debt due to the Employer by the Employee.
    • 2.3 The Employer will make the Payment (together with the Employee's statutory annual leave and outstanding salary due up until the date of the Resignation) by electronic funds transfer into the Employee's bank account within 48 working hours of receipt by the Employer of this executed Deed.
    • 2.4 The Employer will pay the Australian Graduate School of Management an amount of $2,510.00 for course fees for the Employee's attendance at Negotiation and Conflict Management course on 23 and 24 October 2000 within 7 days of receipt by the Employer of this executed Deed.
    • 2.5 The Employer will make a payment of $6,074.00 into the Employee's First State Superannuation account on the Employee's behalf within 7 days of receipt by the Employer of this executed Deed (the Superannuation Payment ).
    • 2.6 The Employer will provide the Employee with a Statement of Responsibilities and Achievements in the form set out in Schedule 1 immediately upon receipt by the Employer of this executed Deed.
    • 2.7 The Employee agrees that the Payment and the Superannuation Payment (together with the Employee's statutory annual leave entitlements and outstanding salary due up until the date of the Resignation), are the full amounts that the Group owes the Employee, whether for salary, wages, leave entitlements, damages, compensation, payment in lieu of notice, severance pay, superannuation or anything else connected with the Complaints, the Claims, the Employment or the Resignation.
  • 3. EMPLOYEE RELEASES THE GROUP FROM CLAIMS
    • 3.1 The Employee agrees that this Deed fully satisfies the rights (however described and however arising) that the Employee, and everyone who claims through the Employee, has or may have against the Group in connection with the Complaints, the Claims, the Employment or the Resignation.
    • 3.2 The Employee releases the Group from all claims and liability arising directly or indirectly out of the Complaints, the Claims, the Employment or the Resignation.
  • 4. EMPLOYER RELEASES THE EMPLOYEE FROM CLAIMS

  • The Employer releases the Employee from all claims and liability arising directly or indirectly out of the Employment provided that the Employee has acted in good faith for the purposes of executing her responsibilities.

  • 5. EMPLOYEE TO RESIGN

  • Simultaneously with providing the Employer with this executed Deed, the Employee will provide the Employer with a signed letter tendering her resignation. This letter will be in the form of the letter set out in Schedule 2.

  • 6. BAR TO PROCEEDINGS
    • 6.1 Each member of the Group may use this Deed, including as a bar, against the Employee in any court or other proceedings brought by the Employee (or anyone who claims through the Employee).
    • 6.2 The Employee may use this Deed, including as a bar, against the Employer in any court or other proceedings brought by the Employer (or anyone who claims through the Employer).
  • 7. RETURNING EMPLOYER'S PROPERTY

    • ATC 2195

      7.1 Prior to, or immediately upon execution of this Deed, the Employee must return to the Employer:
      • (a) all property belonging to the Group (for example, cards, keys, motor vehicles, equipment and materials) that the Employee has, or can reasonably get; and
      • (b) all material that the Employee has, or can reasonably get, that contains confidential information relating to the Group's business, organisation or affairs that is not in the public domain.
    • 7.2 In this clause, "material" includes anything on which information is recorded, for example, documents, computer disks and computer records.
  • 8. ACKNOWLEDGMENTS BY THE EMPLOYEE

  • The Employee acknowledges and agrees that:

    • (a) the Employee has obtained legal advice about the terms of settlement and this Deed;
    • (b) the terms of this Deed are fair and reasonable; and
    • (c) any previous understanding, agreement, explanation or representation between the parties is contained in and superseded by this Deed.
  • 9. KEEPING THIS DOCUMENT CONFIDENTIAL
    • 9.1 This Deed is confidential. The Employee must not disclose to anyone what it says, unless the Employer first agrees in writing.
    • 9.2 Clause 9.1 does not prevent the Employee disclosing information to her lawyer or accountant or where the law says information must be disclosed (for example, in a tax return).
  • 10. PROTECTION OF CONFIDENTIAL INFORMATION

  • The Employee acknowledges and agrees that she remains under an ongoing duty not to use or disclose any confidential information belonging to the Employer for as long as that information is not available in the public domain.

  • 11. STATEMENTS AND PUBLICATIONS

  • The Employee agrees not to make any statements or publications orally or in writing that may adversely affect the reputation of the Employer. The Employer agrees that it will not make any statements or publications orally or in writing that may adversely affect the reputation of the Employee.

  • 12. BENEFIT OF THIS DOCUMENT

  • As well as the Employer, each other member of the Group has the benefit of this Deed and may independently enforce it against the Employee.

  • 13. GENERAL PROVISIONS
    • 13.1 If a court decides that part of this Deed is invalid or unenforceable, that part of the Deed will be modified (if possible) so that it is enforceable. If that part cannot be modified, it will be severed and the rest of the Deed will continue to operate.
    • 13.2 A single or partial exercise of a right under this Deed does not prevent any other exercise of that right. Further, a waiver of a right under this Deed does not prevent the exercise of any other right.
    • 13.3 This Deed is governed by the law in force in New South Wales.
    • 13.4 The Employer will provide the Employee with access to the original copy of the Employee's personnel file for the purposes of initialling and numbering and taking copies of the file on execution of this Deed. Without the prior written consent of the Employee, the personnel file will not be altered or have documents added to it other than by the inclusion of the Employee's letter of resignation, termination pay advice and Statement of Responsibilities and Achievements.

EXECUTED as a Deed."

6. 

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The Applicant is a qualified medical practitioner although she does not (apparently) currently practise as such. On 29 March 2000, the Applicant was an employee of the Employer as Customer Services Manager ISD, and involved in the Relevant Year in particular in Y2K compliance, and as such deriving an annual salary somewhat in excess of $85,000.

7. On 29 March 2000, an incident involving Mr James Robinson (referred to henceforth as "Robinson") took place. I refer in this context to T pages 28-29 and which read as follows:

"ATTACHMENT TO PRIVATE RULING FOR LYNETTE McCUNN

PART 9.

The taxpayer commenced employment at Northern Sydney Health Service on 3 May 1999 and was reporting to a Mr James Robinson.

In July 1999 a series of offensive emails concerning the taxpayer and directed to other staff members were circulated. As a result the taxpayer became concerned for her safety and raised issues with Mr Robinson to increase here [sic] safety by arranging for an employer provided car for journeys to and from work, as she often had to work back late or be in early.

As a result of various issues about the lack of treatment in accordance with her nominal seniority, the taxpayer contacted the Northern Sydney Health Service Human Resources Department (HR) as well as speaking to the relevant union HAREA which led to a further series of meetings in August 1999 out of which came a series of requirements to which Mr Robinson gave his commitment, but which did not eventuate.

After a six monthly review the taxpayer's performance was evaluated as being satisfactory and certain additional entitlements, such as the car eventuated. However other entitlements such as support for professional development programs and training which had been promised at the time of the initial appointment to the position were not forthcoming.

Although the review was completed in a timely manner, the actual documentation for the review was not formalised until much later.

The taxpayer was working on the Y2K project for Northern Sydney Health Service so the period leading up to 31 December 1999 was a period of intense activity. Nonetheless, she considered that Mr Robinson was going out of his way to create an adversarial environment, deliberately setting the taxpayer at odds with other employees reporting to Mr Robinson.

A meeting which had been scheduled as a result of the August 1999 mediation in October 1999 was delayed until lat [sic] November 1999, at which time the taxpayer was advised that she had no input to provide that meeting and was not given any formal minutes thereof.

In January and February 2000 the taxpayer was advised that her group of staff could not receive any extra resources as groups run by other managers were more important.

In March 2000 the taxpayer was advised that she was to have limited or no contact external to the organisation contributing to a further sense of professional isolation.

On 7 March 2000, at a meeting between the taxpayer, an employee reporting to her and Mr Robinson, Mr Robinson became physically aggressive to the employee. When the taxpayer reminded Mr Robinson of his professional capacity and the employee indicated that he would consider lodging a formal complaint, Mr Robinson left the meeting, returning to conclude the meeting. After the meeting, the employee complained to the taxpayer about his treatment at the hands of Mr Robinson, and advised that the treatment seemed to be the result of animosity by Mr Robinson to the taxpayer, which affected any employees reporting to the taxpayer.

On 12 March 2000 there was a meeting between the HAREA union representative, the employee the subject of the 7 March 2000 meeting, and a representative from Human Resources discussing the behaviour of Mr Robinson towards the employee.

On 17 March 2000, a female employee had to leave work partway through the day as a

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result of the aggressive behaviour displayed by Mr Robinson to her.

The taxpayer met with the chief executive officer of Northern Sydney Area Health Services on 24 March 2000, in order to attempt to resolve the situation. On 27 March 2000 Mr Robinson told the taxpayer that he was able to manipulate the department as he chose and had previously pushed out any person he did not like.

The taxpayer was working backing [sic] late on the evening of 29 March 2000, when Mr Robinson came into her office and locked the door behind him. He physically threatened her, coming towards her with clenched fists, causing her to back up against the office window, as well as pushing her against the window. She tried to leave the office, but he stepped in front of her, blocking the door. The taxpayer managed to open the door, but Mr Robinson refused to leave the office. She then called security, the Human Resources department and the HAREA representative. In addition the taxpayer called the police to report the assault.

On 26 April 2000, the taxpayer wrote formally to the Chief Executive Officer of Northern Sydney Area Health Services advising of a grievance and identifying the lack of professional courtesy, the professional mistreatment and the physical assault as the causes of that grievance.

Trauma counseling [sic] services were provided to the taxpayer by her employer subsequent to the assault. Legal representation was provided by HAREA."

8. The Applicant commenced with what were described as 'internal procedures'; reference was made in this context to the chronology contained in T pages 66-67 reading as follows:

"On 24 March I requested an audience with Dr Christley to bring to his attention my concerns about ISD management, the embargo on external contacts and the general treatment being meted out to my staff and me. I had taken copies of Memos and e-mails, which I presented, to him in support of my concerns.

I explained how I felt about my job, professional development activities and career aspirations. At the end of the discussions Dr Christley wanted to know what I wanted as an outcome of the meeting with him.

I requested that I be given a chance to settle into my job, address the staffing issues, be able to have a say in my professional development activities, be able to participate in NSW Health statewide activities and to review the process by which ISD Business Plans were developed to reflect a more clinical and business support model.

He said at the meeting that he knows that ISD had one of the poorest staffing records in the state but that issue was being addressed. He said participation in statewide activities had to be managed by Ms Smith to make the most appropriate use of resources.

He said he would discuss the other issues I raised with Mrs. Smith.

On 27th March 2000, Mr. Robinson again verbally threatened me about keeping my job. He told me he had no problems in the past pushing out the people he did not want and he would show me he was the Director of this Department and no woman was going to tell him how to run it. He said he enjoyed being the "ratpack" with his boys and that even though they were ratpack they were still popular in some quarters and there was nothing I could do about it.

On 29th March 2000, whilst working in my office, Mr. Robinson barged into my office and locked the door behind him. He was physically threatening and intimidating and belly charged me, causing me to keep stepping backwards. He kept backing me towards the window with his fists clenched.

At one stage he raised his right hand which caused me to fear for my safety. I asked him to leave my office as I was not prepared to discuss with him without my union and HR. He prevented me from leaving my office by standing in my way when I tried to get to the door, stepping in front of me.

When I managed to open the door, he refused to leave my office. I went back in to call HR, security and the union and he shut the door again, so I left him in my office.

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When I cam [sic] back he had left. I then called the police to report the incident and lodged a complaint with HR with the assistance of my union (LM 43a-g, 44)."

9. On 26 May 2000, an independent investigator was appointed. Ms Beckett noted that the Applicant was at that time still working in the same capacity for the Employer.

10. On 7 June 2000, a letter (T page 72) was written by the Employer (through its Chief Executive Officer, Dr S Christley) to the Applicant and in which the Employer offered an amount of $86,770 in settlement of all claims; that letter reads as follows:

"Dear Lynette

Grievance

I refer to your letter of 7 June 2000 received by David Dixon at 10.55am this morning.

I think it is appropriate to clarify a number of aspects of David's letter - written on behalf of the Area Health Service and dated 6 June 2000 - and your letter.

  • 1. Northern Sydney Area Health Service is prepared to pay you an amount equivalent to one year of your salary. This amount is $86,770.00.

  • It would also be prepared to pay on your behalf to an approved superannuation fund an additional amount of $6074.00. This represents the superannuation contributions Northern Sydney Health would have paid on your behalf over the course of one year.

  • I note that you are to review the tax position with respect to this payment.

  • 2. In relation to your 'AGM' provision, Northern Sydney Health had formed the view that you had withdrawn this request. Northern Sydney Health however would be pleased to support this. We note that this was one of the recommendations made by the investigators of the initial grievance lodged by you against Mr Robinson.
  • 3. In relation to copies of your 'personnel file' being provided to you, Northern Sydney Health had also formed the view that you had withdrawn this request. However we are agreeable to this proposal.
  • 4. A reference stating your duties and responsibilities will be provided.
  • 5. Rejected.
  • 6. Please see above in relation to the offer. This will be subject to the terms and conditions of David's letter of 6 June 2000 as modified by this letter.

This offer will remain open until 5.00pm Friday 9 June 2000.

Yours sincerely

Stephen Christley

CEO

Northern Sydney Health

Approved by Dr S Christley but signed in his absence by Mr David Dixon"

11. On 14 June 2000, the Deed was executed and the Payment was made to the Applicant by the Employer through an electronic transfer. The precise date in June 2000 on which payment was made is not certain; two possible dates were mentioned but nothing turns on when precisely payment was made. In addition to the Payment, the Applicant also received other amounts, as referred to in clause 2 of the Deed. Ms Beckett said that on the date on which the Deed was executed the Applicant resigned from her office and left the employ of the Employer.

12. Ms Beckett drew attention to the fact that the letter dated 7 June 2000 and in which one year's salary was offered was not in its terms conditional on the Applicant's resignation. That contention was of doubtful validity; it was merely one aspect of the chain of negotiations which led to the execution of the Deed; moreover clause 4 of that letter contained an undertaking by the Employer to provide a reference. In any event, the Deed made it altogether clear that payment and resignation were integral conditions. Clause 2.1 of the Deed provided that the Payment was an eligible termination payment ("ETP"). In clause 8 of the Deed the Applicant acknowledged that she had had legal advice and that the terms of the Deed were fair and reasonable.

13. The Applicant was provided with counselling at the expense of the Employer both during the negotiations and thereafter, and notwithstanding that she had left the service of the Employer, until the end of 2000.

14. 

ATC 2199

Ms Beckett thought it important that the Applicant made claims against the Employer while she was an Employee of the Employer and not after her employment had terminated. As she put it, the Payment resulted in the termination and not vice versa. Ms Beckett contended that if there had not been a payment the Applicant would have remained in the employ of the Employer. That statement, for which there was no evidence, was speculative and was one of a number of similar statements made by Ms Beckett and in respect of which she could not have had direct knowledge. In any event the Tribunal does not agree that this factor is determinative of the manner in which the Payment should be characterised.

15. Other evidentiary aspects were referred to by the parties. The Respondent drew attention to the annexure to his Statement of Facts and Contentions and being tax returns by the Applicant subsequently to the Relevant Year. I refer in this context to clauses 19 and 20 of the Respondent's Statement of Facts and Contentions dated 21 March 2006 reading as follows:

  • "19. On 13 October 2001, the Applicant lodged a tax return for the year ended 30 June 2001. The Applicant declared in the tax return that in the year ended 30 June 2001 the Applicant derived a salary of $97,423 from a company named Hutchison Telecommunications. (see 'Appendix A')
  • 20. On 16 September 2002, the Applicant lodged a tax return for the year ended 30 June 2002. The Applicant declared in the tax return that in the year ended 30 June 2002 the Applicant derived a salary of $31,466 from Hutchison Telecommunications and a further salary of $33,698 from another employer by the name of Blueshield Pty Ltd. (see 'Appendix B')"

16. Ms Beckett said that after her employment terminated the Applicant's personal exertion earning declined although not initially and not while counselling endured.

17. Ms Beckett said also that the Applicant had initially claimed, against the Employer an amount of $100,000. She noted however that although it was in excess of the Applicant's starting annual salary of $85,068, the Payment was probably approximately equivalent to the amount originally claimed if one took into account the other amounts which were paid to the Applicant and as set out in the Deed.

18. Ms Beckett drew attention to T page 140 which is a letter dated 14 May 2004 by Dr Martin Pearce, the psychologist provided by the Employer in which (somewhat surprisingly) the psychologist provided evidence which was somewhat outside his sphere of expertise as follows:

"Re: Lynette McCunn

This is to confirm that Lynette McCunn attended our Parramatta office at the end of 2000 for counselling regarding alleged sexual harassment in the workplace.

From the consultations I would perceive that any payments received were in the nature of compensation for injury rather than as payment for services.

Please do not hesitate to contact me if you require any further details.

Yours Sincerely

Davidson Trahair Corpsych

Martin Pearce

Consultant Psychologist"

19. The evidence before me indicates in summary that following the incident involving Robinson in March 2000 the Applicant claimed that Robinson had been guilty of conduct as referred to in Recital C to the Deed. The assault in March 2000 was based on what Ms Beckett said, to some extent technical, in that a hand was raised and the Applicant was prevented (after hours) from leaving the room in which the incident took place.

Part B - Eligible termination payment

20. The term "eligible termination payment" is defined in section 27A(1) of the Income Tax Assessment Act 1936 (the "ITAA 1936") which (confined effectively to paragraphs (a) and (n)) reads as follows:

"…

eligible termination payment , in relation to a taxpayer, means any of the following:

  • (a) any payment made in respect of the taxpayer in consequence of the termination of any employment of the taxpayer, other than a payment:
    • (i) made from a superannuation fund in respect of the taxpayer by reason

      ATC 2200

      that the taxpayer is or was a member of the fund;
    • (ii) of an annuity, or supplement, to which section 27H applies;
    • (iii) from a fund in relation to which section 121DA, as in force at any time before the commencement of section 1 of the Taxation Laws Amendment Act (No. 2) 1989, has applied in relation to the year of income commencing on 1 July 1984 or any subsequent year of income;
    • (iiia) from a fund that is or has been a non-complying superannuation fund in relation to any year of income;
    • (iv) of an amount to which section 26AC or 26AD applies; or
    • (v) of an amount that, under any provision of this Act, is deemed to be a dividend, or non-share dividend, paid to the taxpayer;

  • …

  • but does not include any of the following:

  • …

  • (n) consideration of a capital nature for, or in respect of, personal injury to the taxpayer, to the extent to which the amount or value of the consideration is, in the opinion of the Commissioner, reasonable having regard to the nature of the personal injury and its likely effect on the capacity of the taxpayer to derive income from personal exertion;

  • …"

21. It will be noted that in accordance with paragraph (a) of the statutory definition, there is included within the definition of an ETP "any payment made in respect of the taxpayer in consequence of the termination of any employment of the taxpayer…". Accordingly the words "in consequence of the termination" which are not defined in ITAA 1936 require consideration and indeed have been considered in a number of cases.

22. As noted previously, the Respondent in his written submissions provided references to relevant cases and also extracts from them, and in respect of the remainder of the content of this Part B, I am indebted to the Respondent's written submissions.

23. In
Reseck v Federal Commissioner of Taxation (1975) 75 ATC 4213, the majority of the High Court decided that the phrase "in consequence of the termination" does not require that the termination of employment be the dominant cause of the payment (per Gibbs J at 4216 and per Jacobs J at 4219). Both Gibbs J and Jacobs J interpreted the phrase "in consequence of" as requiring that the payment "follows on" as an effect or result of termination (Ibid.). Gibbs J said at 4216:

"… 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. It is not in my opinion necessary that the termination of the services should be the dominant cause of the payment…"

24. Similarly, Jacobs J said at 4219:

"… It was submitted that the words "in consequence of" import a concept that the termination of the employment was the dominant cause of the payment. This cannot be so. A consequence in this context is not the same as a result. It does not import causation but rather a "following on"…"

25. Brennan J, in
McIntosh v Federal Commissioner of Taxation (1979) 79 ATC 4325, quoted the two passages from the High Court's decision in Reseck (supra) and said at 4328:

"To say that a payment 'follows as an effect or result of the termination' imports causation as the relevant nexus between the termination and the payment, but it is clear that termination need not be the dominant cause of the payment.

…

His Honour denies the necessity to show that retirement is the dominant cause, but he does not allow a temporal sequence alone to suffice as the nexus. Though the language of causation often contains the seeds of confusion, I apprehend his Honour to hold the required nexus to be (at least) that the

ATC 2201

payment would not have been made but for the retirement.

…

It may not be appropriate to speak of conditions if a payment is made voluntarily, but if a payment is made to satisfy a payee's entitlement, the phrase 'in consequence of retirement' requires that the retirement be the occasion of, and a condition of, entitlement to the payment…"

26. Brennan, Toohey and Lockhart JJ all referred to the High Court's decision in Reseck (supra) and decided that the fact that the payment was made as a result of Mr McIntosh's decision to commute a pension did not mean that it was not "in consequence of the termination". Their Honours held that the payment was "in consequence of the termination" because the payment "followed on" from the termination.

27. In
Wheeler v Philip Morris Ltd (1989) 97 ALR 282, damages were awarded for breach of the relevant industrial award where the employee's dismissal was "harsh, unjust and unreasonable". The damages awarded were held to be paid "in consequence of the termination" of the taxpayer's employment and thus an ETP.

28. In
McMahon v Federal Commissioner of Taxation (1999) 99 ATC 2025, the Administrative Appeals Tribunal held that even though a settlement payment related to a defamation claim, it did not preclude the amount paid as compensation for defamation from being classified as having been made in consequence of termination of employment and was accordingly an ETP.

29. In
Le Grand v Federal Commissioner of Taxation 2002 ATC 4907, the Federal Court held that a settlement payment relating to a claim for wrongful dismissal, albeit also relating to a claim for damages under the Trade Practices Act 1974, is a payment in consequence of termination of employment and falls within the definition of an ETP. Goldberg J at 4914 referred to the decisions in Reseck (supra), and McIntosh (supra) and decided that:

"… The thrust of the judgments in Reseck and McIntosh is rather to the effect that a payment is made "in consequence" of a particular circumstance when the payment follows on from, and is an effect or result, in a causal sense, of that circumstance…"

30. Goldberg J at 4914 explained also that it is not necessary for the termination of the employment to be the dominant cause; the claim for damages under the Trade Practices Act 1974 was held to be related to the termination of employment (at para 4915). Goldberg J at 4914 concluded as follows:

"… I am satisfied that there is a sufficient connection between the termination of the applicant's employment and the payment to warrant the finding that the payment was made "in consequence of the termination" of the applicant's employment. I am satisfied that the payment was an effect or result of that termination in the sense that there was a sequence of events following the termination of the employment which had a relationship and connection which ultimately led to the payment…"

31. The Full Federal Court in Dibb v Commissioner of Taxation (2004) 136 FCR 388, applied the interpretation given to the phrase "in consequence of the termination" in Reseck (supra), McIntosh (supra), and Le Grand (supra). On this basis, the Federal Court decided that the payment received by the taxpayer under a Deed of Release to settle various causes of action against the former employer, following the termination of employment, was an ETP.

32. As to how in general terms the phrase "in consequence of the termination" should be interpreted, the Respondent's view, as stated in Taxation Ruling TR 2003/13 at paragraphs 5 and 6, is as follows:

  • "5. … the Commissioner considers that a payment is made in respect of a taxpayer in consequence of the termination of the employment of the taxpayer if the payment "follows as an effect or result of" the termination. In other words, but for the termination of employment, the payment would not have been made to the taxpayer.
  • 6. The phrase requires a causal connection between the termination and the payment, although the termination need not be the dominant cause of the payment…"

33. The Tribunal considers that the Payment was an ETP within paragraph (a) of the

ATC 2202

statutory definition and the Deed which described the Payment as an ETP was accurate. The Tribunal considers that the judgments in Le Grand (supra) and Dibb (supra) are particularly apposite in this context.

Part C - The personal injury exclusion

34. Paragraph (n) of the definition of ETP in subsection 27A(1) of the ITAA36 provides that an ETP does not include:

"(n) consideration of a capital nature for, or in respect of, personal injury to the taxpayer, to the extent to which the amount or value of the consideration is, in the opinion of the Commissioner, reasonable having regard to the nature of the personal injury and its likely effect on the capacity of the taxpayer to derive income from personal exertion;"

35. The Respondent made a number of submissions to the effect that the Payment did not fall within paragraph (n) of the statutory definition. It is not necessary for the Tribunal to deal with them in detail because on the evidence before the Tribunal (or more exactly the lack of evidence before the Tribunal) the Payment was made in order to settle the claims made by the Applicant and not for or in respect of personal injury. Putting it at its best for the Applicant she did not discharge the burden of proving that she suffered any personal injury; in the same context she did not discharge the onus of establishing what amount would reasonably be applicable to her alleged injury having regard to its nature and its likely effect on her ability to derive personal exertion income "greater than nil".

36. In this context also the Respondent furnished helpful references to relevant case law and I have again drawn on his submissions for the remainder of this Part C.

37. The meaning of the phrase "consideration of a capital nature for, or in respect of, personal injury" for the purposes of paragraph (n) of the definition of an ETP in subsection 27A(1) of the ITAA 1936 was considered by the High Court in
Commissioner of Taxation v Scully (2000) 201 CLR 148.

38. The taxpayer in Scully (supra) suffered, as a result of a car accident, brain damage which rendered her permanently incapable of undertaking remunerative work. The taxpayer lodged a claim of total and permanent disablement with her employer's superannuation fund. The claim was approved on the condition that the taxpayer resign from her employment, and which she subsequently did.

39. For the purposes of the High Court appeal, the parties had agreed on various issues so that the sole issue to be determined by the High Court was whether the payment was "consideration of a capital nature for, or in respect of, personal injury to the taxpayer."

40. The majority of the High Court came to the following conclusion, at 201 on how the word "consideration" in paragraph (n) should be interpreted:

"Consideration in para (n) therefore involves the notion of recompense - a payment or benefit to recompense the taxpayer for or in respect of a personal injury.

This construction of the word "consideration" is supported by the remaining words of par (n) which form the context in which it appears. In our opinion, the fact that the payment must be "reasonable having regard to the nature of the personal injury and its likely effect on the capacity of the taxpayer to derive income from personal exertion" envisages that the payment has been calculated by reference to the injury …" [emphasis added].

41. The majority of the High Court at 167-168 used this interpretation of the word "consideration" in order to explain the meaning of the phrase "consideration of a capital nature for, or in respect of, personal injury":

"… Given that 'consideration' in this paragraph involves the notion of recompense, it is not enough that there is a 'consideration' which can be said to have a connection with personal injury. The payment must be compensation for or in respect of the particular injury.

However, the payment in this case cannot be said to be compensation for or in respect of the personal injury. Clauses 2.4.1 and 3.5.1, pursuant to which the respondent's payment was calculated, make no attempt to place a monetary value on a member's injury. They

ATC 2203

do not even provide for a formula, roughly comparable to the manner in which a court or tribunal might assess damages in a claim for personal injury, to quantify the amount of the payment…"

42. The majority of the High Court in Scully (supra) therefore decided that the amount was not "consideration of a capital nature for, or in respect of, personal injury" because the amount was not calculated by reference to the injury. This is evident in the concluding paragraph of their Honour's judgement (at 171):

"In our opinion, the payment in this case cannot be characterised as 'consideration … in respect of, personal injury'. The fact that the payment is not calculated by reference to the nature and extent of the injury or likely loss to the respondent and the fact that the other benefits are similar to that for total and permanent disablement point inevitably to the conclusion that the payment was 'consideration … for, or in respect of' the respondent's termination of employment and her rights under the trust deed and was not 'consideration … for, or in respect of' her injury."

Part D - Personal injury (continued)

43. The Respondent referred in this context to my decision in
McMahon v Federal Commissioner of Taxation (1999) 99 ATC 2025 and more particularly clauses 26 and 27 reading as follows:

  • "26. The Tribunal also notes the stipulation in the concluding portion of s. 27A(1)(n) of the Act that the amount of consideration for personal injury is to be regarded as an ETP only to the extent that it is reasonable having regard to the nature of the injury and the taxpayer's capacity to derive income from personal exertion. The Tribunal considers that the inclusion by the legislature of the words "from personal exertion" tends to confirm that the section is intended to exclude from the definition of ETP payments in respect of injuries to the person, where such injuries being physical injuries or mental illnesses which have an assessable and identifiable impact on the capacity of the taxpayer to earn income. The Tribunal considers in summary that an injury to person is distinguishable from an injury to a person's reputation.
  • 27. For the Reasons set out previously, (and bearing in mind that the decision in Graham v Robinson is binding on the Tribunal), the reputation payment was not made in respect of personal injury within s. 27A(1)(n) of the Act which does not operate to exclude it from the provisions of s. 27A of the Act; accordingly the reputation payment was correctly assessable as an ETP."

44. Earlier in my decision in McMahon (supra) I quoted from
Graham v Robinson (1992) 1 VR 279 (at 281) in the following terms:

"In the absence of express authority, I have come to the conclusion that the expression "personal injury" does not extend beyond physical injury and mental illness to include emotional hurt. I am encouraged to this view by the fact that the law has rejected grief or sorrow as a form of injury which can be relied on to mount a claim in negligence: Mount Isa Mines Ltd. v. Pusey (1970) 125 CLR 383, at p. 394 and Jaensch v. Coffey (1984) 155 CLR 549, at p. 587. It is true that damages are awarded for pain and suffering in the typical personal injury case. They are awarded, however, where pain and suffering flow from and are connected with physical or mental injury and may therefore be said to be damages "in respect of personal injury".

45. In a letter dated 15 March 2004 the Respondent invited the Applicant to furnish details as to her alleged injuries and including information as to the extent to which the injuries effected her ability to work or seek employment, treatment received for injury, the prognosis for recovery and other relevant matters. In her reply dated 6 April 2004 the Applicant referred to the chronology which has been quoted earlier in these reasons.

46. The evidence before the Tribunal in this case consisted of the T documents and (apart from two exhibits) nothing else. The T documents establish only that the Applicant made claims against the Employer in respect of injuries as described in the Deed but she did not establish that those injuries were in fact sustained. Nor did she establish that the Payment was, as required by Scully (supra) made in compensation for and referenced to those injuries. The Applicant did not give

ATC 2204

evidence herself and did not call evidence by anyone else. The evidence of the Employer would have been relevant. It is conceivable that it would not have been provided willingly but it might have been compelled. The certificate by Dr. Pearce referred to earlier in these reasons was of little value. In any event the Applicant is confronted with another difficulty and that is that she executed the Deed containing the terms to which reference has been made previously in these reasons; in respect of the Deed and its effect see clauses 48 and 49 of these Reasons for Decision (and the cases referred to therein) below.

Part E - Conclusion

47. In its terms, the Deed as I have said made it clear that the Employer would make the Payment conditionally upon termination of the Applicant's employment and that the Payment would constitute an ETP. The Deed as I have said, provided that the Applicant had legal advice before executing it.

48. In
Metaskills Pty Ltd v Federal Commissioner of Taxation 2005 ATC 2204 I referred to a number of cases as to the effect of written contracts (and the Deed of course was a written contract).

49. Clauses 13 and 14 of my decision in Metaskills (supra) read as follows:

  • "13. The Tribunal refers also to the important restatement of the principle set out in the preceding clause by the High Court in Ermogenous v Greek Orthodox Community (2002) 209 CLR 95 at pages 105 and 106 as follows:

    'Because the search for the "intention to create contractual relations" requires an objective assessment of the state of affairs between the parties (49) (as distinct from the identification of any uncommunicated subjective reservation or intention that either may harbour) the circumstances which might properly be taken into account in deciding whether there was the relevant intention are so varied as to preclude the formation of any prescriptive rules. Although the word "intention" is used in this context, it is used in the same sense as it is used in other contractual contexts. It describes what it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened (50). It is not a search for the uncommunicated subjective motives or intentions of the parties…'

  • 14. The Tribunal refers also and in the same context to Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 79 ALJR 129; in paragraphs 35 and 36 the High Court said:
    • 35. A striking feature of the evidence at trial, and of the reasoning of the learned primary judge, is the attention that was given to largely irrelevant information about the subjective understanding of the individual participants in the dealings between the parties. Written statements of witnesses, no doubt prepared by lawyers, were received as evidence in chief. Those statements contained a deal of inadmissible material that was received without objection. The uncritical reception of inadmissible evidence, often in written form and prepared in advance of the hearing is to be strongly discouraged. It tends to distract attention from the real issues, give rise to pointless cross-examination and cause problems on appeal where it may be difficult to know the extent to which the inadmissible material influenced the judgment at first instance.
    • 36. In Codelfa Construction Pty Ltd v State Rail Authority of NSW [(1982) 149 CLR 337], Mason J observed:

      'We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.'

And in paragraph 42 the High Court said:

  • 42. Consistent with this objective approach to the determination of the rights and liabilities of contracting

    ATC 2205

    parties is the significance which the law attaches to the signature (or execution) of a contractual document. In
    Parker v South Eastern Railway Company [(1877) 2 CPD 416 at 421], Mellish LJ drew a significant distinction as follows:

    'In an ordinary case, where an action is brought on a written agreement which is signed by the defendant, the agreement is proved by proving his signature, and, in the absence of fraud, it is wholly immaterial that he has not read the agreement and does not know its contents. The parties may, however, reduce their agreement into writing, so that the writing constitutes the sole evidence of the agreement, without signing it; but in that case there must be evidence independently of the agreement itself to prove that the defendant has assented to it.'

And (just as relevantly) the High Court said in paragraph 38:

  • 38. It is not in dispute that Mr Gardiner-Garden was authorised by Richard Thomson to sign the Application for Credit, and that when he signed that document he did so intending that it would affect the legal relations between Richard Thomson and Finemores. So much was acknowledged in the course of argument in this Court. Counsel for Richard Thomson said that there was no suggestion that the document that was signed was not intended to create legal relations.

The High Court then went on to cite Ermogenous (supra) and the passage from Ermogenous included previously in these reasons, and noted 'that the point at issue on this appeal concerns not the creation of legal relations but the nature of the legal relations created'.

50. In this matter also there was as, I have said, a written contract. There was no evidence before me which would suggest that the Deed did not correctly reflect the terms of the contract between the Applicant and the Employer and including the fact that the Payment was made in settlement of the Applicant's claims, and conditionally upon termination of her employment.

51. It must be remembered that the Applicant is a medical doctor although she was not employed as such by the Employer. Ms Beckett informed the Tribunal that the Applicant is a graduate of universities both in Nigeria and New Zealand. In particular there is no reason based on the evidence before me, to doubt that the Payment was just as the Deed said, an ETP.

52. The plain fact is that the Applicant made a number of claims against the Respondent based on Robinson's conduct. Those claims led to an offer in settlement of a year's salary and which was impliedly (and despite Ms Beckett's contentions to the contrary) conditional on termination of employment. It is possible that the Payment was made in consideration of injuries sustained by the Applicant; it is equally possible (and perhaps given the terms of the Deed more likely) that it was made in order to procure the termination of her employment. The Deed which as I have said, contained the relevant terms made it clear that the Payment and termination were integral terms and again as set out previously the Deed made it clear that the Payment was an ETP. The fact that the claim was made at a time when the Applicant was in the employ of the Employer does not in my view have any significant bearing on the manner in which the words "in consequence of the termination" contained in paragraph (a) of the statutory definition are to be interpreted. The connection between the Payment and the termination was, as the Deed makes clear very close indeed. I refer in this context also to the cases cited earlier in these reasons which indicate that it is not necessary that termination be the only or even the dominant purpose.

53. Ms Beckett contended that the description in the Deed of the Payment as an ETP did not preclude the Tribunal from analysing the position and forming its own opinion as to the reason why the Payment was made. As she put it, the Tribunal is entitled to form its own view. That contention however suffers from the defect that it ignores the onus on the Applicant under s 14ZZK of the Taxation Administration Act 1953. As I have noted, the Applicant executed a deed which described the payment as an ETP. There was

ATC 2206

again as set out previously, no evidence which would suggest that the description was inaccurate; there was moreover no evidence that the Applicant was in any way coerced in respect of the execution of the Deed. As I have indicated, the Tribunal must in the absence of any proof to the contrary, have regard to the terms of the Deed which the Applicant herself executed.

54. To the (limited) extent that this aspect may be relevant, attempts by Ms Beckett to relate the Payment to personal injury on the basis of the Applicant's diminished earning capacity must fail in the light of the evidence as to the Applicant's earnings in the two years subsequent to the Relevant Year. Ms Beckett said also that thereafter (after the two years subsequent to the Relevant Year) the Applicant's earnings declined. However there was no evidence which would link any such decline to what occurred some years earlier. Her personal exertion earnings might have declined for one of a number of reasons and in particular that she did not work. The Applicant is after all a medical doctor apart from her computer skills. She has been in London since last year, and presumably not working which might be a matter of personal choice.

55. As I have indicated the Respondent provided the Tribunal with detailed references to decided cases as to certain aspects; he referred also to the onus upon the Applicant pursuant to section 14ZZK of the Taxation Administration Act 1953. The Tribunal considers also that in any event the case authorities cited in Metaskills (supra) compel the conclusion that the Payment was an ETP.

56. At the conclusion of her submissions, Ms Beckett said that in her view, the conduct of which Applicant complained was particularly bad and would have justified a much higher payment than the amount in fact paid. This is not to the point. The fact is that Ms Beckett had no personal knowledge of the circumstances and certainly no personal knowledge of what in fact did or did not occur.

57. Putting it at its best for the Applicant, the Applicant entirely failed to discharge the onus upon her pursuant to section 14ZZK of the Taxation Administration Act 1953.

58. In the circumstances the objection decision under review must be affirmed.


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