CASE 16/2006

Members:
R Hunt SM

Tribunal:
Administrative Appeals Tribunal

MEDIA NEUTRAL CITATION: [2006] AATA 980

Decision date: 20 November 2006

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R Hunt (Senior Member):

Summary

1. The taxpayer sought review of the Commissioner's decision of 31 May 2005 to disallow her objection to a notice of assessment issued on 3 June 2004 for the 2003 year of income. The taxpayer objected to taxation of the sum of $203,198.56, which she argued was an "exempt non-resident foreign termination payment" (ENRFTP), exempted under s 27CD, Income Tax Assessment Act 1936 (ITAA 1936). The Commissioner treated the amount as part of an "eligible termination payment" (ETP). These are terms defined in subsection 27A(1), ITAA 1936. The exemption of an ENRFTP is enlivened by s 27CD of the ITAA. The tribunal has decided that the whole of the taxpayer's termination payment should be treated as an ETP as she has not discharged the burden of proof that the Commissioner's assessment is wrong, should not have been made or should have been made differently.

Issue

2. At issue is the appropriate tax treatment of the amount of $203,198.56. The taxpayer's employer made a payment or payments, including this amount, upon termination of her employment. The taxpayer claimed the sum was not required to be included in her assessable income as an ETP pursuant to ss 27A(1) and 27CD, ITAA 1936. To be exempted, the payment must come within the definition of "exempt non-resident foreign termination payment" (ENRFTP), s 27A(1), ITAA 1936. The Commissioner treated the amount as one instalment of an eligible termination payment (ETP). The Commissioner accepts that if the payment claimed was an ENFTP, then it is exempt from income tax under s 27CD, ITAA 1936.

Consideration

3. Background events to this dispute are set out in a chronology which forms part of the Commissioner's outline of submissions. The taxpayer has not disagreed with this chronology but the parties put a different interpretation on some aspects, which are addressed later in these reasons.

4. On 6 August 1990, the taxpayer, who was then a resident of the United Kingdom and not a resident of Australia, was an employee of W, a United Kingdom company. She continued as an employee of W until 31 March 2001 although she took up a position in a related Australian company in 1997, under an arrangement with both employers.

5. W was a substantial shareholder in a takeover company, C, from about February 1992 until about September 2001. Before the takeover, the taxpayer had come to Australia in connection with her employment. W arranged for the taxpayer's secondment to O, a wholly owned subsidiary of C, from 1 October 1997. The taxpayer remained in Australia and has been a resident of Australia since October 1997. The taxpayer was an employee of O from 1 April 2001 until 29 November 2002, when her employment was terminated. Her employment with O was all served in Australia. The taxpayer's earlier employment, commencing in 1990, took place in the United Kingdom.

6. The taxpayer's position with her employers was set out in writing when she started in the United Kingdom with W in 1990 and when she was seconded to the Australian position with O in 1997. Her employment contract with W, dated 6 August 1990, sets out the terms and conditions. The 1990 contract of employment under which W originally employed the taxpayer cites her date of commencement with W as 1 September 1990. Under the heading 'Place of Employment', the contract sets out that W reserves the right, at any time, to require the taxpayer to work at any other group location within or outside the United Kingdom.

7. Similarly, her secondment in 1997 is set out in writing in the form of letters. On 29 July 1997, W wrote to the taxpayer that her secondment was expected to continue for a period of approximately three years and might be extended or shortened. The letter further said she would continue to be employed by W while working in Australia in accordance with her contract of employment dated 6 August 1990. The letter detailed a number of other features of the arrangement. For example, under the heading "6. Medical Expenses" the letter set out that, for the duration of the appointment, the taxpayer and her family would be covered by particular medical insurance through the preferred supplier.

8. 

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The taxpayer's new employment conditions in 2001 are also set out in writing. An entity related to W and O offered the taxpayer employment in writing on 1 January 2001. Among the many conditions spelt out in the letter of offer, it provided that the taxpayer or "the company" might terminate her employment at any time, by giving the other six months notice of termination, or by "the company" making a payment in lieu of notice. The opening sentence of the letter explains that "the company" means O. On 30 January 2001, W also sent a letter to the taxpayer. W's letter stated it should be read in conjunction with the letter of 1 January 2001 offering the taxpayer employment with O. In particular, the W letter set out that, "in moving to local terms", certain new conditions and arrangements would apply to the taxpayer.

9. When we come to the termination in 2002, the taxpayer's obligations to the employer, O, and the benefits she receives are again documented. A deed of release in the form of a deed poll dated 15 November 2002 was signed by the taxpayer.

Continuity of employment

10. Despite the new employment arrangements in 2001, several written indicators from the employers show acknowledgement of the taxpayer's continuity of employment from commencement with W. The letter of offer sets out under a heading regarding pension entitlement that, as a gesture of goodwill, vesting of benefits for superannuation purposes in the O plan would be based on total length of accredited service with O, being from the start of the taxpayer's work with W. The date of commencement was noted as 1 October 1997. In particular, clause 10 of the letter said:

"I can confirm that you are entitled to continuity of employment. In this regard, termination benefits such as redundancy would be calculated based on your full period of service since you originally joined [W]."

11. In any event, the Commissioner accepted in the written reasons rejecting the taxpayer's objection that the secondment was not intended to represent a severance of existing employment with W and that the new employment contract with O was also intended to represent continuity from commencement with W. The Commissioner went on to state that there was no termination of employment prior to 29 November 2002 when the taxpayer resigned from O. After acknowledging this continuity, the reasons, nevertheless, went on to say that:

"if you have received an amount which can be classified as an ENRFTP, it would have to be in relation to the termination of your employment from [O] on 29 November 2002."

12. The Commissioner's reasons accept the continuity for the purposes of calculating an "eligible service period" but do not hold there is a separate service period. This is made clearer in the following paragraphs of the reasons given.

13. The taxpayer resigned after the takeover of her employer but gave evidence that she was put in a position where she was forced to resign because of disagreements with management. She claimed the circumstances of her resignation explained her difficulty in demonstrating her entitlement to an exemption. Although the termination payment was for her benefit, her employers showed an unwillingness to give explicit recognition of the purpose of the termination payment in the deed of release. The taxpayer claimed the employer was concerned that it might set a precedent for other employees if it was clear she was remunerated for the work that she did before she came to Australia. Although the arrangements were supposedly confidential the taxpayer said that management were worried they would become known.

The payment

14. The taxpayer argued she received two discrete payments for two distinct periods of service and that the payments should be treated separately for tax purposes. That there were two payments separately calculated according to the two periods of service is something that the Commissioner does not accept. The Commissioner treated the two amounts as an aggregate or composite amount.

15. Employer O paid the taxpayer two amounts but treated them as a composite amount of $348,340.38, and as an ETP, when making internal calculations and when accounting to the Commissioner for tax

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purposes. The parties agree the component or amount of $145,141.83 is an ETP under s 27A(1). The component or instalment in dispute, the sum of $203,198.56, is an ETP under s 27A(1) if not exempted under the definition of "exempt non-resident foreign termination payment". This is the only possible distinguishing feature of the payment.

16. In order to obtain the tax exemption claimed, the payment must meet several requirements set out in the definition. There are four elements to the definition of "exempt non-resident foreign termination payment" in s 27A(1). For the amount of $203,198.56 to be exempt, it must meet all four requirements. Three positive elements are set out in subparas (1)(a)(i), (iii) and (iv) of the definition as well as the negative element in subpara (a)(ii). The three positive tests are that the payment is made otherwise than from a superannuation fund; that the employment was service in a foreign country as a holder of an office or in the capacity of an employee; and that the payment related solely to the period of the employment during which the taxpayer was not a resident of Australia. The fourth requirement is that the payment would be an ETP were it not for subpara (ka) or (ma). The exception set out under subpara (ka) concerns an exempt resident foreign termination payment or an exempt non-resident foreign termination payment. Subpara (ma) concerns certain payments from a superannuation fund.

17. The taxpayer's argument with the Commissioner mainly concerns those elements of the definition that require the disputed sum to be related solely to employment service in a foreign country. It is clear that the payment was made otherwise than from a superannuation fund and satisfies element (i). The fourth element is tied to the second and third elements as the payment will be an ENRFTP if it satisfies those elements and is otherwise an ETP. The second element, that the relevant employment was service in a foreign country as the holder of an office or in the capacity of an employee, is explored below under the heading "holding of an office". The third element, that the payment related solely to a period when the taxpayer was not a resident of Australia, is explored immediately below.

Is the payment solely related to a period when the taxpayer was not a resident of Australia?

18. The deed of release records the terms of the taxpayer's undertakings to O and the benefits she is to receive from O upon her leaving that company's employ. The deed has been signed by the taxpayer only and is in the form of a deed poll. The taxpayer is to receive certain payments, not all of which are relevant to this dispute. The taxpayer gave evidence that the payments to her of $203,198.56 and $145,141.83, as set out in the deed of release, represented slightly less than a month's salary for each year of service since 1990. Respectively, she said, the two sums were calculated in relation to the seven years of service in the United Kingdom, commencing in 1990 and concluding in 1997, and for her five years of service in Australia. She said the sums were calculated at a rate of slightly less than a month's salary for each year of service. However, the deed does not express this calculation or set out a link to any particular period or periods of service.

19. Mathematically, the amount or amounts paid to the taxpayer do not accurately reflect a month's salary for each year of service, whether by reference to two periods or the whole period. The composite figure is slightly less than a month's salary for each year, the aggregate sum being approximately equal to 11 months' salary for the 12 years of service at the time of the taxpayer's termination.

20. The deed of release is not the only documentation before the tribunal that might illustrate the parties' intentions. The records prepared by O for tax purposes show only a composite sum of $348,340.38. An ETP Payment Summary shows the "eligible service period" commencing on 1 October 1990. A letter, dated 4 July 2003, addressed to Commissioner corrects the date for this purpose, explaining the start date of the eligible period was actually 1 September 1990. The letter sets out that the internal system did not permit the correct date to be shown on documents generated. Further internal working documents describe "payment in lieu of notice (months)" equivalent to 11 months' salary. There is no specific reference to length of service in either the United Kingdom or in Australia. The expression, payment in lieu, and

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the gross figure the taxpayer received appear in a "termination worksheet" and a document called "projection only" which are both dated 5 November 2002. An internal email of the same date concerning the taxpayer's payout advised:

"We are now in a position to finalise the deed of release today and have closed out the payment details."

21. The writer further advised the termination date was 30 November 2002 and that "12 months (including the time leading up to the 30^th November) treated as an ETP". The email also said the taxpayer was asking for 2 payments and asked if this was possible. These records and exchanges do not suggest any understanding by the employer or its officers as to the reason for splitting the termination payment other than an email reference to the taxpayer's tax adviser recommending this.

22. On 18 November 2002, a further email exchange took place between the same officers. This exchange refers to the termination date being moved back to 29 October 2002 and advises the "11 month payment is to be split into 2 and paid into separate bank accounts". An electronic version of the deed of release was attached. Further records include a pay record bearing signatures against the dates 5 December 2002 and 3 December 2002. This record shows payment in lieu of notice of $303,175.71 after lump sum tax. Another copy of this same record has a message added at the bottom that breaks up the amount of $303,175.71 into 3 payments. A "reasonable benefit limits" report and other documents prepared for tax purposes show the amount of $348,340.38 as a post June 1983 component of an ETP. No internal working documents or records of the employer before me show that any part of the termination payment should be treated as exempt or relate solely to a period when the taxpayer was not a resident of Australia.

23. The taxpayer's solicitor swore an affidavit on 8 August 2006 giving his account of conversations he had with former senior personnel of O about their recollections of negotiations surrounding calculation of the taxpayer's termination payment. He claimed the persons he contacted could not recall precisely how the settlement terms and figures were calculated. The taxpayer gave evidence that she could not produce any witness to verify her claim of the reasons for the apportionment. She attributed her inability to produce witnesses partly to bad relations between former employees and partly due to persons involved now having moved on to other employment.

24. Several drafts of the deed of release were prepared during the taxpayer's negotiations with O before the final version. One draft sets out calculations of all entitlements to be paid before 3 December 2002 and includes "$348,340.38 ($238.613.16 nett), that equates to 11 month's remuneration". The final deed of release was completed and signed by the taxpayer on 15 November 2002. Under its terms, the taxpayer was paid one amount of $203,198.56 gross ($139.191.01 net) and a further amount of $145,141.83 gross ($99,422.15 net). The deed did not state how these two amounts were arrived at and noted they aggregated $348,340.38 gross ($238,613.16 net). It is the nature of the two separate amounts that is disputed with the Commissioner. Again, these records do not show that any part of the termination payment should be treated as exempt or relate solely to a period when the taxpayer was not a resident of Australia.

25. Although the calculations of the two amounts set out in the deed do not exactly coincide with the taxpayer's length of service taken together or separately, I accept that the composite equates roughly to her length of service from 1990 and the two amounts equate roughly to the length of overseas service and Australian service respectively. This is no doubt the basis on which the taxpayer negotiated with her employer. The difficulty in making a conclusive finding that the larger instalment is exempted is that no documentation before me shows that the employer proceeded on the basis argued for by the taxpayer. The employer calculated the taxpayer's gross payment on the basis of 11 months in lieu of notice without regard to location and split the payment at her request with no acknowledgement of any calculation based in accordance with her own view of her entitlements. Further, as the employer treated the aggregate amount as an ETP in its reporting to the Commissioner, it is

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plain that the employer regarded no portion of the payment as exempt.

26. The letter of offer, dated 1 January 2001, provided that the taxpayer or O might terminate her employment at any time, by giving the other six months notice of termination, or by O making a payment in lieu of notice. O used this formula in its working records and calculations regarding the termination payment. It consistently described the payment as being in lieu. Apart from the taxpayer's oral explanation, I can find no support for the taxpayer's construction that an amount was paid to her for service in a foreign country as a holder of an office or in the capacity of an employee (para (iii)); and that the payment related solely to the period of the employment during which the taxpayer was not a resident of Australia (para (iv)).

Must the employer make the "payment" in the context of s 27A(1)?

27. The payment is not, in my view, prevented from being an ETP nor an ENRFTP because it was made by the Australian employer rather than the former employer in the United Kingdom. It is not a requirement of para (a) of the definition of "eligible termination payment" in subs 27A(1) that the payment be made by the person who was the employer of the employee at the time of termination of the employment. See
McIntosh v Federal Commissioner of Taxation 79 ATC 4325; [1979] 45 FLR 279 per Brennan J at 282.2 in relation to former s 26(d). See also
DIBB v Federal Commissioner of Taxation 2004 ATC 4555; [2004] 136 FCR 388 per the Full Court of the Federal Court at [15] and [16] and
Federal Commissioner of Taxation v Pitcher 2005 ATC 4813; [2005] 146 FCR 344 per Ryan J at [40] to [46] and
McCunn v Federal Commissioner of Taxation [2006] ATC 2191 per Block Deputy President at [20] to [33]. In addition, the Commissioner has issued a public ruling on this issue, TR 2003/13 dated 22 October 2003.

28. It follows that the claim of the taxpayer is not affected by any argument that her employer in the United Kingdom did not make the payment to her of the sum she claims covered her period of service in the United Kingdom.

"Eligible service period" - can the payment be divided and related to specific periods of employment?

29. The decision under review makes reference to the "eligible service period" covered by the payment or payments received by the taxpayer. The Explanatory Memorandum to the Bill that introduced s 27A, No 3 of 1984, notes that "eligible service period" is defined in four ways and that the particular aspect of the definition appropriate to a payment will depend on the nature of that payment. In the present matter the relevant definition is contained in s27A(1)(a), that is:

"Where the relevant eligible termination payment is an eligible termination payment bv virtue of paragraph (a) or (aa) of the definition of eligible termination payment - the period, or the aggregate of the periods, of the employment to which the relevant eligible termination payment relates;

…"

30. The Explanatory Memorandum notes that the intention of this provision is to cover the situation where a taxpayer has been employed by several companies in a group and the termination payment:

"Is made in recognition of the total period of service of the taxpayer with the group."

31. In this situation, the Explanatory Memorandum says that the relevant eligible service period "would be that total period". The Commissioner's decision under review referred to the definition of "eligible service period" and the object of the provision to aggregate periods as a reason for rejecting the taxpayer's claim that they should be treated separately. However, I note that the eligible service period concept is not imported into the definitions of ETP and ENRFTP. The aggregation of periods of service takes place for calculation of the tax payable and not as a determining factor for exemption as an ENRFTP. I do not find that the aggregation of service as an eligible service period determines whether part of the payment is solely related to a period of overseas service or otherwise for determining whether a payment is exempt as an ENRFTP. Significantly, the Explanatory Memorandum does not seem to contemplate the

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situation whereby a taxpayer might have served part of the eligible service period overseas. I have therefore relied on the evidence before me of the intentions of the parties in making my findings.

Does a finding there was one payment prevent exemption of part?

32. The Commissioner placed some importance on dealing with the sums that the taxpayer received as being one payment rather than two separate payments. Conversely, the taxpayer argued she received two separate and distinct payments.

33. Historically, the manner of payment was important. With regard to the former s 26(d), Bowen CJ and Blackburn J in
Federal Commissioner of Taxation v Knight 83 ATC 4096, held that the term "lump sum" must be read as referring to the manner of payment. Their Honours remarked that "One cannot simply disregard the words 'paid in a lump sum'". They continued: "This would largely reverse the operation of s 26(d) which is so specific as to exhibit a contrary intention."

34. However, under the current definitions in s 27A(1)(a), "Payment" is not required in a "lump sum", unlike the former s 26(d) ITAA 1936. According to the Explanatory Memorandum (supra) which accompanied the introduction of s 27A(1)(a), "payment" was intended to be defined broadly and exhaustively. Thus, under s 27A(1)(a) "payment" is not limited to a single imbursement. Rather, as the Explanatory Memorandum sets out:

"Whereas paragraph 26(d) of the Principle Act, which is being repealed by this Bill, applies only to amounts paid "in a lump sum" the term "eligible termination payment" is not so limited. As a result, the provisions of proposed Subdivision AA will apply where, for example, a taxpayer's entitlement to a benefit from a superannuation fund is paid by way of two or more instalments. The definition will accordingly overcome the Federal Court of Australia in the case of Federal Commissioner of Taxation v Knight."

35. There is no prohibition in the definition of either ETP or ENRTP preventing separate treatment of parts of a composite sum. As well, the Federal Court in
Federal Commissioner of Taxation v Comber 86 ATC 4171; 64 ALR 451 held, if a payment is made in a lump sum, it is possible for the payment to be comprised of several components. In Comber, Lockhard J treated a payment as divisible as to a dividend and a balance not affected by the operation of former s 109, in relation to former s 26(d). His Honour found this was the only sensible construction to give to the subsection in the circumstances.

36. In my view, the simple question of whether there was one payment or two is not fatal to the applicant's claim. As the object of the legislation was to make clear there was no necessity for payment in one lump sum, I am not persuaded that it is relevant whether the taxpayer's receipt consisted of one payment or two. The important determining factors in the present case are whether the amount claimed was for service in a foreign country and paid solely in connection with a period when the taxpayer was not a resident of Australia.

Is there a termination of employment when an employee transfers to another group company?

37. There are two views on whether termination of employment results when a person transfers from one group or company to another. In Income Taxation in Australia, Professor Alan Parsons refers to
Henly v Murray [1950] 1 ALL E.R. and says, with regards to ETPs and terminations of employment:

"An employment may not necessarily be terminated if the employee continues to serve, though he serves under a contract of service whose terms differ from the earlier contract."

In Professor Parsons' analysis, when a person ceases to work under a contract of employment but immediately transfers to another group company, there is no termination of employment. According to Parsons, the employee may be said to continue in the same employment.

38. Professor Parsons' view differs somewhat from the position adopted by the Commissioner of Taxation in Taxation Determination 93/140. In that determination,

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the Commissioner considered whether a payment made by a company to an employee will be an ETP where that company ceases carrying on a business and transfers that business to an associated entity. The Commissioner ruled that such a payment could be regarded as an ETP:

"Provided the payment is, in fact, made in consequence of the termination of employment of the former employee."

39. Moreover, TD 93/140 affirmed Taxation Ruling IT 2152, where that ruling said:

"Where a company or other employer ceases carrying on a business which has been transferred to another associated entity, it will be accepted that the employees of the company have been terminated."

40. In the present case, there was no termination of employment when the taxpayer transferred to her Australian position or when she accepted new arrangements within the group in 2001. This is consistent with Professor Parson's view that termination does not necessarily occur when an employer transfers within a group. The taxpayer's secondment in 1997 and employment under new conditions with O in 2001 did not take place as a result of W ceasing in business. It follows that termination according to the Commissioner's rulings did not occur on those dates. Termination occurred in 2002 in accordance with the Commissioner's rulings as well. Accordingly, the arrangements made in 1997 and 2001 do not prevent a finding that termination occurred in 2002. However, this does not assist as to whether a part of the payment to the taxpayer was in consequence of the termination of her employment with W. Once again, it is a separate issue whether the figure of $203,198.53 was payment in recognition of the tax payer's foreign service.

Holding of an office

41. The taxpayer put that she still was contemporaneously employed or held an "office" in the United Kingdom when she was posted to Australia "on secondment" and that this made her entitlement to a discrete payment plain. The Commissioner did not dispute her continuity of employment but held the whole payment was related to her employment in Australia. The Commissioner's reasons for decision set out that there was no termination before 2002 but went on to suggest that the termination then was related to her employment by O in Australia.

42. The notion of receiving a payment for termination of employment can include a payment for ceasing to hold an office.
Case U75 87 ATC 453 deals with such a situation. In that case, Senior Member Roach found that the taxpayer received a payment for termination of his "office". This payment was not ordinary income and the Senior Member thought that the concept of "office" in s 27A should be treated as capable of termination in the same way as any employment. The taxpayer in that case was seconded to Australia and received a payment for the termination of his office when his secondment ended even though it was a short term appointment. The Senior Member followed the interpretation of the High Court in
Reseck v Commissioner of Taxation 75 ATC 4213; 133 CLR 45 (supra) in finding the taxpayer's receipt was for termination of his office. The taxpayer did not seek the exemption claimed by the current taxpayer. Section 27CD, which exempts an ENRFTP was not enacted until 1994, well after Case U75 was decided in 1987.

43. In Case U75 Mr Roach, at paragraph 13, said:

"Section 27A succeeds Section 26(d) which had as its subject amounts paid in consequence of retirement from or determination of an office of employment. I do not think a different meaning is to be attributed to concept of office under 27A. In the circumstances I am satisfied that as Chief Executive of Ausco the taxpayer did in fact hold an office. I do not think the concept of office in these times is to be confined to public employment. Keeping with Blackstone's view it is appropriate - and that is the old view - as a right to exercise a public or private employment."

Then Mr Roach refers to Rowlatt J in
Great Western Rly Co v Bater (1922) 8 T C 231 at 235, when His Honour was considering whether an experienced clerk held an "office". His Honour said:

"It [an office] refers to a subsisting permanent substantive position which had an existence independent of the person who

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filled it, which went on and was filled by successive holders. If you merely had a man who was engaged on whatever terms to do duties which were assigned to him, his employment to do those things didn't create an office."

Then in paragraph 15 he says:

"I further hold that the payment to him was made in consequence of the termination of that office as that phrase has been interpreted in Wessex's case. That being so, I am satisfied that the taxpayer is entitled to succeed."

44. The taxpayer contends that similarly she still held "office" with her UK employer as well as her Australian position. This was part of her continuity of employment with W. When her position with O ended her office with W ended as well. This resulted in a causal connection with her prior employment in the United Kingdom. It followed that the termination and release entered into between the taxpayer and O in Australia ended not just her employment in Australia but her office.

45. I accept that the taxpayer did still have some claim to an "office" or employment in the United Kingdom when she first took a secondment to Australia. However, this does not further her claim in my view. The employer's records about the termination payment did not relate the payment or payments to the taxpayer's residual rights stemming from her employment or former office in the United Kingdom. The employer made its calculation by reference to payment in lieu of notice as contemplated in the letter of offer of 1 January 2001. In the cases above, the nexus between the employer's payment and termination of the particular office was clear. The taxpayer has not established such a clear nexus as in Case U75 and Reseck. It follows that the possible continuous holding of office in the UK does not compel a finding that the disputed payment was made in this connection. I have considered nexus further in the following paragraphs.

Nexus between the payment and the overseas office or employment

46. The opening words in the definition of ETP are that the payment is "in relation to" a taxpayer. Paragraph (a) says the payment must be "in consequence of" the termination of employment. The definition of ENRFTP states the payment must be "in relation to" a taxpayer and para (a) of the definition says it must be "in respect of" the taxpayer. Bearing in mind that an ENRFTP is a payment that would be an ETP if not exempted, both types of payment are therefore in consequence of the termination.

47. The nexus between a payment and the termination of employment has been considered in a number of decisions. Most of the authorities consider terminology denoting nexus, such as "in relation to", "in respect of", "relating to", "related to" and "with respect to", as analogous. Furthermore, Pearce and Geddes in "Drafting Expressions", Statutory Interpretation in Australia, 6^th edition, point out that the courts have frequently referred to one or other of these terms when considering the effect of another similar term. Pearce and Geddes point to
Henderson v Pioneer Homes Pty Ltd (1980) 29 ALR 597 at 610,
Hatfield v health Insurance Commn (1987) 15 FCR 487 at 490-1,
ASC v Bank Leumi Le-Israel (Switzerland) (1996) 69 FCR 531 at 547 and
Air Services Australia v Canadian Airlines International Ltd (1999) 202 CLR 133 at 219.

48. Context influences interpretation of "in respect to", and of "in relation to". In
Workers' Compensation Board of Queensland v Technical Products Pty Ltd (1988) 165 CLR 642 at 653, Dean, Dawson and Toohey JJ remarked:

"[The phrase in respect of] gathers meaning from the context in which it appears and it is that context which will determine the matters to which it extends."

Similarly, in
Technical Products Pty Ltd v State Government Insurance Office (1988) 167 CLR 45, Brennan, Dean and Gaudron JJ observed the words "in respect of" have "A chameleon-like quality in that they commonly reflect the context in which they appear".

49. More important, in my view, is construction of the words "in consequence of". The relationship between the payment and the taxpayer is clear but there is room for argument about whether the termination was purely in consequence of the end of employment by O or partly in consequence of termination of employment or office with W.

50. 

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The Commissioner's public ruling, TD93/140, adopts the approach taken by Goldberg J in
Le Grand v Commissioner of Taxation 2002 ATC 4907; [2002] FCA 1258. What Goldberg J says, in effect is that a payment can be in consequence of termination as long as there is a causal connection with the termination and as long as the payment would not have been made but for the termination. This does not mean it is the dominant reason for the payment. The taxpayer has demonstrated a causal connection with her two periods of employment as to length of service. However, I do not agree that the taxpayer has established a causal connection with her employment in the UK for a payment related to that source alone. The causal connection is in consequence of continuity of employment from her time in the UK to the end of her employment.

51. The taxpayer seeks to establish a causal connection to termination of her office in the UK. This requires illustration of agreement by O to discharge the obligation of W to her and calculation of the appropriate amount payable in connection with that service in the United Kingdom. Although I have some sympathy for the taxpayer and her expectation of recognition by O of her entitlement for the period of overseas service, the evidence before me does not support a conclusion that she was recompensed for loss of her office or employment in the United Kingdom. The records of O provide evidence to the contrary. Internal records show O made its calculations on the basis of payment in lieu for 11 months. Email exchanges later in the negotiated settlement phase do not show figures were adapted by reference to the period of service in the United Kingdom but simply that O agreed to divide the sum for payment in lieu into two amounts at the taxpayer's request. Unlike Case U75, the payment was not clearly related to overseas service but has been explained this way by the taxpayer according to her expectations or perceptions of what was fair.

52. The case also bears some resemblance to that in
AAT Case [2000] AATA 1080 heard by Senior Member Ettinger. The Senior Member found in that case that the taxpayer's employment was based on Australian terms and conditions, including his redundancy payment. This was so even though he was then based in the UK. Although in the present case, the Australian employer acknowledged the UK employment, the taxpayer's position is governed by Australian terms and conditions. W's letter to the taxpayer, on 30 January 2001, stated it should be read in conjunction with the letter of offer dated 1 January 2001 offering the taxpayer employment with O, and explained that, "in moving to local terms", new conditions and arrangements would apply to the taxpayer. In my view, this supports a finding that the employment from this time onwards was governed by Australian terms and conditions. Further, these terms and conditions provided that O or the taxpayer could terminate the employment and that O would make a payment in lieu of notice. These are the terms and conditions that govern the taxpayer's termination payment and they do not take into account any nexus with employment or holding of office in the UK other than a continuous period of service.

53. The amount for which the taxpayer is seeking exemption was a negotiated amount agreed between the taxpayer and O. The breakdown has been explained by the taxpayer and is supported to a degree by the mathematical calculations put to the tribunal expressed as two payments in the deed of release. While the payments made to the taxpayer were approximations and not accurate reflections of her precise entitlements under her contractual arrangements in either the United Kingdom or Australia, there is a proportional relationship. Vagueness in calculation of the payments by reference to the approximate periods of service might be of little consequence if similarly referenced by the employer or employers. There is, however, no agreement in writing on the part of the employers, O or W, that the amount claimed by the taxpayer is calculated according to the formula she suggests. It is clear that O accepted that the taxpayer was entitled to continuity of employment. But O made no clear connection to the working out of a discrete payment for foreign service or solely related to the period of service while the taxpayer was not a resident of Australia.

Interpretation of an exception provision

54. I note that there is authority that legislation bestowing an exemption should be

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interpreted beneficially and have considered these authorities in the context of the exemption for an ENRFTP. In
Burt v Federal Commissioner of Taxation (1912) 15 CLR 469 Barton J held that where the construction of an exemption provision is in doubt:

"The interpretation should favour those whose claims are based upon the exceptions."

55. A liberal approach in favour of the taxpayer has been applied as recently as 1989. See
Shell's Self-Service Pty Ltd v DCT 89 ATC 4233; (1989) 98 ALR 165 at 178. Moreover, in
Diethelm Manufacturing Pty Ltd v FCT 93 ATC 4703; (1993) 44 FCR 450, French J held:

"An exemption which exists for the purpose of encouraging, rewarding or protecting some class of activity is not to be given a narrow application. The liberal construction of provisions of Customs and Excise legislation allowing rebates on duties and excise payable in respect of fuel used in mining operations is one application of that general proposition…"

56. Nevertheless, I have difficulty in allowing a generous application of the exemption in the present case. Firstly, the definition of ENRFTP is clear to the extent that it requires the employment was service in a foreign country (para (iii)) and that it was related solely to a period of employment when the taxpayer was not resident in Australia (para (iv)). There is little evidence that the payment transaction should be perceived as the taxpayer wishes. Her proposition might be overcome by the simple production of records showing O calculated the payment by reference to these considerations or by evidence from a reliable witness to support her construction. The taxpayer has been unable to produce any such witness. I consider the evidence leads to a conclusion that no part of the payment the employment was in connection with or in respect of service in a foreign country (para (iii)) or related solely to a period of employment when the taxpayer was not resident in Australia (para (iv)).

Burden of proof

57. The taxpayer has not discharged the burden of proof under s 14ZZK(1) of the Taxation Administration Act 1953 (Cth). This requires her to establish that the assessment is excessive (para (b)(i)) or that the taxation decision concerned should not have been made or should have been made differently (para (b)(iii). She has not shown that the Commissioner's assessment is excessive or incorrect as to the treatment of her termination payment. Her employer has accounted to the Commissioner on the basis that the whole of the sum aggregated or composite, is an ETP. The employer has not treated any element as an ENRFTP. While the taxpayer may have been entitled to a sum equivalent to the component which she claims is an ENRFTP, she has not established that this was how the employer made the payment or payments. She has not demonstrated any agreed formula related back to the period of her foreign service. She has not shown that any particular amount was paid "in respect of" this service. The termination payment made to her was at the discretion of her employer with input from her taken into account to the extent that the ETP was divided into 2 payments. There is no indication from the documentation before me that the taxpayer ever influenced the actual gross amount paid to her. It seems that it was always based on 11 months in lieu. She has not succeeded in showing how the employer arrived at this quantification although she has explained it in terms of being roughly 1 month for each year of service. The employer calculated her gross payment on the approximate basis of 11 months in lieu of notice and split the payment at her request with no recorded calculation made in accordance with her own view of her entitlements.

58. It follows that I am unable to make a finding that the taxpayer's claims alter the nature of the payment that she claims. The whole of the payment made to her on termination of employment was dealt with by the employer and by the Commissioner as an ETP. I find that this treatment was correct in view of all the evidence before me.

Decision

59. The decision under review is affirmed.