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BOND v FC of T

Judges:
Mansfield J

Court:
Federal Court, Adelaide

MEDIA NEUTRAL CITATION: [2015] FCA 245

Judgment date: 25 March 2015

Mansfield J

INTRODUCTION

1. This appeal is from a decision of the Administrative Appeals Tribunal given on 4 February 2013. The appellant was an airline pilot employed by Qantas Airways Ltd (Qantas). The appeal concerns the question of law as to whether a lump sum payment he received upon the loss of his pilot's licence (LOL payment) following its cancellation as a result of his failure to pass a medical examination is assessable income under the Income Tax Assessment Act 1997 (Cth) (ITAA 1997).

2. The Tribunal affirmed a decision of the Commissioner of Taxation that it was assessable income on the basis that it is an "employment termination payment" (ETP), or if it does not have that character, because it is assessable under s 15-2 of the ITAA 1997, or as a taxable capital gain.

3.

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The propositions put forward by Mr Bond in a cascading sequence are as follows:
  • (1) the LOL payment is not an ETP because he received it for the loss of his pilot's licence, not in consequence of the termination of employment;
  • (2) if he did receive the LOL payment in consequence of the termination of his employment, it was a capital payment for, or in respect of, personal injury and therefore falls within an exception to the definition of ETP;
  • (3) if the LOL payment was not an ETP, it was subject to fringe benefits tax (FBT) in Qantas' hands and therefore is neither assessable income nor a taxable capital gain;
  • (4) if the LOL payment was neither an ETP nor subject to FBT, it was not an allowance, gratuity, compensation, benefit, bonus or premium provided in respect of, or for or in relation to, employment within s 15-2, primarily because it was paid in respect of the loss of Mr Bond's licence, rather than as recompense for his employment but alternatively because s 15-2 only taxes ordinary income; and
  • (5) capital gains tax (CGT) does not apply, either because the payment is subject to FBT or because of an exemption from CGT in s 118-37 for payments made to compensate an individual for any injury or personal illness.

4. The amended notice of appeal lists 11 questions of law which, it is said, identify the questions of law to be decided on the appeal within the meaning of s 44 of the Administrative Appeals Tribunal Act 1975 (Cth). The Commissioner filed a Notice of Objection to Competency, asserting that the so called questions of law are not in fact questions of law, so that the appeal is incompetent. The Commissioner also says that three of those questions do not "engage what the Tribunal decided".

5. It will be necessary to address those issues in the course of these reasons for decision.

THE BACKGROUND FACTS

6. The respective submissions provide a common factual base from which the matters raised by Mr Bond can be considered.

7. Mr Bond, as an airline pilot employed by Qantas, was required by the Civil Aviation Safety Authority (CASA) to hold a licence to fly and a current medical certificate that was appropriate to the licence. He held the appropriate licence for many years. On or about 6 October 2005, Mr Bond was found to be suffering from neuropsychological decline. He was suspended from flying duties on 10 October 2005 and between 2005 and 2007 he attended many examinations and consultations with various medical experts.

8. Mr Bond discussed with various Qantas Human Resources staff and a senior Qantas Flight Captain the possibility of assuming a "ground" role with Qantas. Those staff and the Flight Captain actively encouraged Mr Bond to pursue an alternative position within Qantas. Owing to the possibility of redeployment to a ground role, Mr Bond undertook a course at RMIT University in Melbourne in the field of Aviation Safety & Risk Management. Mr Bond also applied for the position of Aviation Safety Inspector with Qantas on or about 26 January 2007. Ultimately, however, Mr Bond's application for that position was not successful.

9. Under the Qantas Airways Limited Flight Crew (Short Haul) Certified Agreement 2002 (SHCA), Qantas provided "loss of licence insurance" under which Mr Bond was entitled to an LOL payment if he lost his licence for medical reasons. At the time Mr Bond lost his pilot's licence the relevant insurance policy was the Qantas Airways Limited Loss of Licence Reinsurance Policy between Qantas and Scottish Re Limited (Scottish Re Policy).

10. Under the Scottish Re Policy, Scottish Re Limited (the Insurer) indemnified Qantas against loss arising from Qantas' obligations to provide: "Loss of Licence benefits as agreed, to Technical Aircrew Employees which occur during the Period of Insurance". Mr Bond makes the point that the Scottish Re Policy does not require that a pilot's employment should terminate before Qantas would be obliged to make an LOL payment.

11. In or about February 2007, Mr Bond was diagnosed with an illness known as "cognitive disorder". On or about 14 March 2007, CASA wrote to Mr Bond to advise that he had failed to meet the "Medical Standard required for a

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Class 1 and 2 Medical Certificate". Mr Bond's licence was cancelled by CASA on or about 26 March 2007.

12. At or around this time, Qantas provided Mr Bond with information about the Loss of Licence Policy. By an email dated 24 July 2007, Scottish Re advised that it had approved Mr Bond's claim for an LOL payment.

13. After further communications between them, Mr Bond received a letter from Qantas dated 23 November 2007 confirming that his claim had been approved by the Insurer (the Letter of Approval). The Letter of Approval enclosed a Deed of Release which, according to the Letter of Approval, needed "to be signed and returned prior to payment". Mr Bond says he signed and returned the Deed of Release immediately, but Qantas apparently did not receive it. Mr Bond ultimately executed a further copy of the Deed of Release in 2008. Nothing turns on the fact that that first signed copy of the Deed of Release was not located.

14. On or about 19 March 2008, Mr Bond received a LOL payment from Qantas of $458,054.00 (after deduction of tax). Qantas treated the LOL payment as comprising a gross payment for Loss of Licence of $652,985.00 and an Ex gratia Payment Tax Free Component of $66,707.00 (i.e. the total pre-tax payment was $719,692.00). Mr Bond also received a payment in respect of accrued annual leave and long service leave on or about 31 January 2008. He did not receive any payment in respect of accrued sick leave as he had previously exhausted that entitlement. Mr Bond draws attention to cl 2.7 of the Deed of Release in this context, as it contains an acknowledgement of what constitutes the Final Termination Payment.

THE TRIBUNAL DECISION

15. The Commissioner assessed the LOL payment to Mr Bond as an ETP under s 82-130 of the ITAA 1997, as it relevantly applies under s 82-130(1)(a)(i) to a payment if:

  • (a) it is received by you:
    • (i) in consequence of the termination of your employment.

Mr Bond unsuccessfully objected to that assessment.

16. Mr Bond then sought review of that assessment by the Tribunal, where a number of other issues relevant to whether all, or what element, of the LOL payment should be assessable income.

17. The Tribunal identified six issues raised by Mr Bond. They are the same issues as those raised by Mr Bond on this appeal, save that issues 5 and 6 before the Tribunal have been telescoped into issues (5) set out in [3] above. Each of those issues was decided adversely to Mr Bond.

18. Consequently, there is a readily identified and direct correspondence between the steps in the Tribunal's reasoning and the issues required to be addressed on this appeal.

19. It is therefore necessary to refer separately to the Tribunal's reasons only briefly, as they will otherwise inform the consideration of the issues on this appeal.

20. Of course, the Tribunal referred to the relevant legislation. It is set out below. The Tribunal also referred to the evidence of Mr Bond and others on his review application. There was extensive documentary evidence. As the Tribunal heard together the review claims of Mr Bond, Mr Kentish and Mr Purvis (two other Qantas pilots whose LOL payments were similarly assessed by the Commissioner), the evidence of all three is referred to as well as that of Captain Kearns, formerly a Qantas pilot and at the time a consultant. There were no findings made on that oral evidence which, in my view, are directly material to the present appeal. Then the Tribunal referred to the respective submissions, and in sequence addressed the issues raised. As noted above, they were resolved adversely to Mr Bond.

THE LEGISLATION

21. The principal relevant legislation is as follows:

15-2 Allowances and other things provided in respect of employment or services

  • (1) Your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by

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    you (including any service as a member of the Defence Force).
  • …

82-130 What is an employment termination payment?

  • (1) A payment is an employment termination payment if:
    • (a) it is received by you:
      • (i) in consequence of the termination of your employment; or
      • (ii) after another person's death, in consequence of the termination of the other person's employment; and
    • (b) it is received no later than 12 months after that termination (but see subsection (4)); and
    • (c) it is not a payment mentioned in section 82-135.

82-135 Payments that are not employment termination payments

The following payments you receive are not employment termination payments :

  • …
  • (i) a capital payment for, or in respect of, personal injury to you so far as the payment is reasonable having regard to the nature of the personal injury and its likely effect on your capacity to derive income from personal exertion (within the meaning of the definition of income derived from personal exertion in subsection 6(1) of the Income Tax Assessment Act 1936);
  • …

118-37 Compensation, damages etc.

  • (1) A capital gain or capital loss you make from a CGT event relating directly to any of these is disregarded:
  • …
    • (b) compensation or damages you receive for any wrong, injury or illness you or your relative suffers personally;
  • …

22. In the course of submissions, reference was also made to the definition in s 995-1 of the ITAA 1997 that:

provide a fringe benefit or economic benefit includes allow, confer, give, grant or perform the benefit.

23. Reference was also made to s 170LT of the Workplace Relations Act 1996 (Cth) as in force ex June 2003, dealing with certifying an agreement; to the definition of "fringe benefit" in s 136(1) of the Fringe Benefits Tax Assessment Act 1986 (Cth) (FBTA); and to certain provisions of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936).

THE AMENDED NOTICE OF APPEAL

24. The Amended Notice of Appeal identified 11 questions of law and 12 grounds of appeal. They were addressed in groups under the subheadings set out below. For the sake of better understanding these reasons, they are as follows:

    Questions of law

  • 1. Whether the Tribunal misconstrued the Qantas Airways Limited Flight Crew (Short Haul) Certified Agreement 2002 ( the SHCA ) and the Scottish Re insurance policy in finding that they provided a relevant connection between the "loss of licence payment" ( LOL payment ) and the Applicant's termination of employment for the purposes of the definition of "employment termination payment" ( ETP ) in s 82-130 of the Income Tax Assessment Act 1997 (Cth) ( ITAA 1997 ).
  • 2. Whether the Tribunal erred in law by treating the Deed of Release and "loss of licence procedure document" as though they varied the SHCA to make the LOL payment conditional upon termination of employment.
  • 3. Whether the Tribunal misconstrued s 82-130 in finding that the LOL payment was an ETP by applying the wrong test for determining whether there was a relevant connection between the LOL payment and the termination of employment.
  • 4. Whether, having regard to the facts found by the Tribunal, it was necessarily the case that the LOL payment received by the Applicant was not an ETP under s 82-130 properly construed.
  • 5. Whether the Tribunal erred in law by taking into account an irrelevant matter when it took into account the understanding of Captain Wayne Kearns, Mr Douglas Kentish and the Applicant that the LOL

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    payment was intended to enable a pilot to get re-established or re-trained (at [32] and [33]).
  • 6. Whether the Tribunal misconstrued s 82-135 of the ITAA 1997.
  • 7. Whether, having regard to the facts found by the Tribunal, it was necessarily the case that the LOL payment received by the Applicant was an exempt capital payment for, or in respect of, personal injury under s 82-135 of the ITAA 1997.
  • 8. Whether, having regard to the facts found by the Tribunal, it was necessarily the case that the LOL payment received by the Applicant was not a "fringe benefit" as defined in s 136(1) of the Fringe Benefits Tax Assessment Act 1986 (Cth) ( FBTAA 1986 ).
  • 9. Whether the Tribunal misconstrued s 15-2 of the ITAA 1997 by finding that it could apply to amounts of a capital nature.
  • 10. Whether, having regard to the facts found by the Tribunal, it was necessarily the case that the LOL payment was not statutory income under s 15-2 of the ITAA 1997, but for the exception in s 15-2(3)(a) of the ITAA 1997, or if it was statutory income, that it was non-assessable, non-exempt income on the basis that it was a taxable fringe benefit.
  • 11. Whether, having regard to the facts found by the Tribunal, it was necessarily the case that if the LOL payment resulted in CGT event C2 happening under s 104-25(1) of the ITAA 1997, any capital gain is disregarded, either on the basis that the LOL payment is a fringe benefit, and therefore non-assessable, non-exempt income, or on the basis that it is compensation received for a wrong, injury or illness under s 118-37(1) of the ITAA 1997.

    • Grounds relied on

  • 1. The Tribunal erred in law in its construction of the SHCA and the Scottish Re insurance policy for the following reasons -
    • 1.1 It misconstrued clause 24.13.1 of the SHCA in finding that it provided a relevant connection between the LOL payment and the Applicant's termination of employment (at [29] and [30]).
    • 1.2 It erred in finding that there was a condition found in the Collective Agreements, read in light of the Scottish Re insurance policy and the "loss of licence procedure document", to the effect that termination of employment was a condition for, or prerequisite to, the LOL payments (at [33] and [35]).
    • 1.3 The Tribunal erred in its construction of the SHCA by deciding that termination of employment as a pilot was a prerequisite to payment and in that sense payment followed on from the termination of employment and had the necessary connection with it (at [33]) and that the LOL payment was received by the Applicant in consequence of the termination of his employment with Qantas (at [35]).
    • 1.4 The Tribunal should have found that the LOL payment was made under the Scottish Re insurance policy as a result of the loss of the pilot's licence, and that neither the SHCA nor the Scottish Re insurance policy made termination of employment a prerequisite for the LOL payment.
  • 2. The Tribunal erred in law (at [33] and [35]) in finding that the Deed of Release, the covering letters sent by Qantas and the loss of licence procedure document varied the SHCA because:
    • 2.1 the loss of licence procedure document and the covering letter were not intended by the parties to have any contractual effect and if they did have any contractual effect, were incapable of varying unfavourably the Applicant's rights under federal industrial relations law;
    • 2.2 the Deed of Release was inconsistent with the Collective Agreements and therefore unenforceable under federal industrial relations law; and
    • 2.3 the Tribunal failed to consider at all whether the Deed of Release was unenforceable insofar as it attempted to vary unfavourably the Applicant's rights under the

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      SHCA.
  • 3. The Tribunal erred in its construction of s 82-130 of the ITAA 1997 in finding that the LOL payment was an ETP because -
    • 3.1 the Collective Agreements "contemplate" that a pilot's employment will terminate as a result of the pilot's licence being cancelled or not renewed and the pilot receiving a LOL payment (at [29]); or
    • 3.2 "anticipate" the termination of employment of a pilot who receives a LOL payment (at [30]).
  • 4. The Tribunal ought to have construed s 82-130 as requiring a causal connection between the termination of employment and the LOL payment.
  • 5. Having regard to the facts found, if the Tribunal had -
    • 5.1 correctly construed s 82-130 of the ITAA 1997;
    • 5.2 correctly construed the SHCA and the Scottish Re insurance policy; and
    • 5.3 treated the Deed of Release as unenforceable insofar as it attempted to vary unfavourably the Applicant's rights under the SHCA -

    it ought necessarily have found that the LOL payment received by the Applicant was not an ETP under s 82-130 of the ITAA 1997.

  • 6. The Tribunal took into account an irrelevant matter when it took into account the understanding of Captain Wayne Kearns, Mr Douglas Kentish and the Applicant that the LOL payment was intended to enable a pilot to get re-established or re-trained (at [32] and [33]) because -
    • 6.1 Their subjective understanding is irrelevant to the construction of the Collective Agreements and the Scottish Re insurance policy.
    • 6.2 The Applicant could be retrained for a new career without terminating his employment (that is, the new career could be with Qantas).
  • 7. The Tribunal misconstrued s 82-135(i) in that it should have found that Parliament intended to change the meaning of the exemption in s 82-135(i) when it changed the wording in s 82-135(i) of the ITAA 1997 (from "consideration" in s 27A(1)(n) of the Income Tax Assessment Act 1936 ( ITAA 1936 ) to "payment" in s 82-135(i) of the ITAA 1997), so that the decision in
    Federal Commissioner of Taxation v Scully (2000) 201 CLR 148 no longer applied.
  • 8. If Scully's case did apply, on the facts found by the Tribunal it was necessarily the case that the LOL payment received by the Applicant was an exempt capital payment for, or in respect of, personal injury under s 82-135 of the ITAA 1997 because there was a rational connection or factual causation between the Applicant's injury or illness and receipt of the LOL payment.
  • 9. The Tribunal erred in law in deciding that the LOL payment received by the Applicant is not a "fringe benefit" as defined in s 136(1) of the FBTAA 1986 because:
    • 9.1 The Tribunal should have found that the LOL payment is not an ETP and therefore is not excluded from the definition of "fringe benefit" by subparagraph 136(1)(lc) of the FBTAA 1986.
    • 9.2 Having found at [41] that the LOL payment is not "consideration of a capital nature for, or in respect of, personal injury to a person" within the meaning of subparagraph 136(1)(m) the Tribunal erred in finding that the LOL payment therefore is not a "fringe benefit" within the meaning of s 136(1) of the FBTAA 1986. If the LOL payment is not "consideration of a capital nature for, or in respect of, personal injury to a person" within the meaning of subparagraph 136(1)(m), it is not excluded by subparagraph 136(1)(m) from the definition of "fringe benefit".
    • 9.3 The Tribunal erred in law by failing to find that the LOL payment is a "fringe benefit" within the meaning of s 136(1) of the FBTAA 1986 and, therefore, that s 23L of the ITAA 1936 treats the LOL payment as non-assessable, non-exempt income in the hands of the Applicant.
  • 10. The Tribunal misconstrued s 15-2 of the ITAA 1997 by finding that s 15-2 is not limited to amounts of an income nature but

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    also arguably includes an amount of a capital nature (at [43]).
  • 11. On the facts as found the Tribunal necessarily ought to have found that the LOL payment fell outside s 15-2 of the ITAA 1997 (but for the exception in s 15-2(3)(a) of the ITAA 1997) because:
    • 11.1 The Tribunal erred in law by failing consider at all whether the LOL payment was "in respect of, or for or in relation directly or indirectly to employment or services rendered" within the meaning of s 15-2(1) of the ITAA 1997.
    • 11.2 The Tribunal should have found that the LOL payment fell outside s 15-2 because it was not "in respect of, or for or in relation directly or indirectly to employment or services rendered" within the meaning of s 15-2(1) of the ITAA 1997.
    • 11.3 The Tribunal erred in law by finding that the amount assessable under s 15-2 is the value to the Applicant of the "benefit" being the amount of the LOL payment received by the Applicant (at [42]).
    • 11.4 The Tribunal should have found that, if s 15-2 applied at all, it applied to the right that the Applicant acquired under the SHCA to LOL insurance and that the value to the Applicant of that right was assessable to him when he entered into the SHCA and, therefore, the Applicant could not also be assessable at a later point in time when he received the LOL payment.
    • 11.5 The Tribunal erred in law by finding that the LOL payment was "allowed, conferred, given or granted or performed" and therefore "provided" by Qantas to the Applicant within the meaning of s 15-2(1) of the ITAA 1997 (at [42]).
    • 11.6 If the LOL payment is otherwise assessable under s 5-2, the Tribunal erred in law by failing to find that the LOL payment is a "fringe benefit" within the meaning of s 136(1) of the FBTAA 1986 and, therefore, that s 23L of the ITAA 1936 treats the LOL payment as non-assessable, non-exempt income in the hands of the Applicant.
  • 12. The Tribunal erred in law in failing to find that that if CGT event C2 happened, any capital gain would be disregarded on the basis that:
    • 12.1 The LOL payment is a "fringe benefit" within the meaning of s 136(1) of the FBTAA 1986 and, therefore, that s 23L of the ITAA 1936 treats the LOL payment as non-assessable, non-exempt income in the hands of the Applicant.
    • 12.2 Alternatively to 12.1, the Tribunal erred in law in deciding that any capital gain would not be disregarded under s 118-37(1)(b) of the ITAA 1997 (at [46]).

CONSIDERATION

(1) Is the Loss of Licence payment an Employment Termination Payment?

25. Mr Bond's submissions under this heading dealt with questions 1-6 together.

26. Section 82-130 prescribes when a payment is an employment termination payment. Relevantly, as both Mr Bond and the Commissioner agree, that directs consideration of whether the LOL was received by Mr Bond "in consequence of the termination" of his employment with Qantas.

27. The Tribunal referred to
Reseck v Commissioner of Taxation (1975) 133 CLR 45 (Reseck), a case directly concerning the meaning of eligible termination payment in the ITAA 1936. In that Act, that term also requires that the payment be in consequence of the termination of employment, so it is directly on point. As the Tribunal noted, that case decided that the severance payments then in issue calculated by reference to the work performed during the employment were payments made in consequence of the termination of employment, within the meaning of s 26(d) of the ITAA 1936 as then in force.

28. In that case, Gibbs J at 51 said that a sum is paid:

… in consequence of the termination of employment when the payment follows as an effect or result of the termination. … It is not in my opinion necessary that the termination of the services should be the dominant cause of the payment.

29.

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Jacobs J at 56 also said that the termination of the employment need not be the dominant cause of the payment, and added:

A consequence in this context is not the same as a result. It does not import causation but rather a "following on".

30. Mr Bond was prepared to adopt the respondent's public ruling TR 2003/13 that what is required is that the payment follows as an effect or result of the termination of employment. The Tribunal said it was required to ask whether or not the payments were related to, or were an effect or followed on from, the termination of Mr Bond's employment with Qantas.

31. Grounds 3-5 of the questions of law identified by Mr Bond assert that the Tribunal misconstrued s 82-130 by applying the wrong test for determining whether there was a relevant connection between his LOL payment and the termination of his employment. I do not think that he developed that proposition expressly, as the submissions focused more upon the proper construction of the relevant documents.

32. To the extent that it is maintained that there was a question of law as to the proper construction of s 82-130, and error on the part of the Tribunal in the construction it adopted, in my view that contention is not made out. I consider that the Tribunal properly expressed the correct construction of s 82-130.

33. The Tribunal considered the authorities referred to it concerning the interpretation of s 82-130(a)(i). In addition to Reseck, reference was made to
McIntosh v Federal Commissioner of Taxation (1979) 45 FLR 279 and
Le Grand v Commissioner of Taxation (2002) 124 FCR 53 (Le Grand), with the latter referred to as reconciling "the different threads" in those earlier cases, reflected in a passage at [33] as follows:

I do not consider that the issue can simply be determined by seeking to identify the "occasion" for the payment. 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. The passages in the judgments to which I referred earlier make this clear. They also make it clear that there need not be identified only one circumstance which gives rise to a payment before it can be said that the payment is made "in consequence" of that circumstance. The passages to which I have referred make it clear that it can be said that a payment may be made in consequence of a number of circumstances and that, for present purposes, it is not necessary that the termination of the employment be the dominant cause of the payment so long as the payment follows, in the causal sense referred to in those judgments, as an effect or result of the termination.

34. The Tribunal is not shown to have misunderstood those cases or to have misstated their affect. It sought to address whether the LOL payment was received in consequence of the termination of Mr Bond's employment. It accepted that that required more than that the termination be the "occasion" for the payment, and sought to determine whether there was a relevant causal relationship between the LOL payment and the termination of employment. In my view, that was a correct approach, based upon the wording of s 82-130 and the decision referred to explaining that wording. There was no submission that the decisions referred to were not correct.

35. Of course, any paraphrase or re-expression of a statutory expression potentially involves the risk of diverting attention from the statutory expression itself. Goldberg J appears to have been alert to that risk, as there is some circumlocution in the passage quoted. It is clear that the words "in consequence of" require more than a temporal connection; they require some causal relationship between the relevant payment and the termination of employment. It is also clear that they do not require that the termination of employment be the only or dominant cause of the relevant payment. To revert to the words of Gibbs J in Reseck, the "consequence" requirement will exist when the payment follows as an effect or result of the termination of employment. That is a question of fact in the particular circumstances.

36. In Le Grand, Goldberg J at [35] found the "sufficient connection" in the "sequence

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of events which had a relationship and connection which ultimately led to the payment". In my view, that in essence is what the Tribunal asked itself. There was no submission that the approach of Goldberg J in Le Grand should not be followed. It reflects a practical approach to the statutory expression, by asking how (if at all) the termination of employment was related to the payment of the Loss of Licence Capital Payment. It recognises that there may be more than one operative cause for such a payment. That means that the fact that its obviously primary source is the SHCA does not of itself mean that the LOL payment was not and could not have been a consequence of the termination of employment. It requires, as the Tribunal did, a careful analysis of the relevant documentary material as part of the circumstances in which the LOL payment took place.

37. I have not overlooked what might be seen as an error on the part of the Tribunal at the conclusion of [27] of its reasons by using the conjunction "or" when apparently paraphrasing the analysis of Goldberg J in Le Grand at [33] of that judgment. As counsel for the Commissioner pointed out, the Tribunal in its reasons at [33] and [35] applied the analysis of Goldberg J correctly, that is by addressing the question whether the LOL payment followed on from, and (my italics) is an effect or result in a causal sense, of the termination of employment, despite the use of the conjunction "or".

38. The Tribunal, having identified the relevant question posed by s 82-130, then considered the documents referred to by Mr Bond, upon which it was argued that it was clear as a matter of fact that the LOL payment was not a consequence of the termination of his employment.

39. As Mr Bond's submission says, the mere fact that the LOL and the termination of his employment occurred at about the same time does not itself mean that the LOL payment was a consequence of the termination. So much is clear enough. The two events may be entirely coincidental.

40. I also accept, as did the Tribunal, that it is appropriate to identify how and why Mr Bond received the LOL payment.

41. Consideration of the material related to those questions invites consideration of Mr Bond's Questions of law 1 and 2 (that the Tribunal erred in its construction of the SHCA and/or of the Scottish Re Policy), and in part Questions of law 3 and 4 (that the Tribunal erred in its application of s 82-130 because it misapplied that test to the particular facts). I have above rejected the contention that the Tribunal misconstrued s 82-130.

42. Mr Bond's starting point is to assert that, if a taxpayer receives a payment under a contract, the terms of the contract ordinarily determine the "how and why" of the payment. That is an unexceptionable observation. But it does not mean, therefore, that a payment under a contract does not attract or fall within the scope of s 82-130. It is necessary to consider the application of s 82-130 to the particular facts and circumstances. Reseck makes it plain that the fact that the main, or dominant, basis upon which a contractual payment is made is the contract itself is not necessarily to exclude the application of s 82-130 in the particular circumstances. I do not consider that there is anything said in
Commissioner of Taxation v CSR Ltd (2000) 104 FCR 44, to which Mr Bond in his submission refers which gainsays that obvious proposition.

43. The SHCA was the subject of careful analysis in the course of submissions. Section B: Terms and Conditions of Employment include a detailed cl 13 dealing with Seniority, and more obviously relevant cl 21 dealing with the obligation to provide LOL insurance.

44. Clause 13 was addressed because it relevantly provides in cl 13.1.5:

13.1.5 A flight crew member who is transferred to non-flying duty on account of personal illness will continue to maintain seniority whether or not he or she maintains the licence required for his or her status (except where the licence has been cancelled) until the flight crew member is able to return to flying duty or until the date of retirement for medical reasons.

That indicates that, where the licence has been cancelled, there will or may be a loss of seniority. It does not, in the present circumstances, apply because there was a loss of licence.

45.

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Clause 13.1.16 provides that seniority ceases from the termination of a flight crew member's service with Qantas, or from the date on which a flight crew member accepts a permanent appointment with Qantas other than as a flight crew member. Clause 13.1.17 provides that a flight crew member who has lost seniority as a result of termination of employment will, if re-employed by Qantas as a flight crew member, commence seniority from the date of the re-employment. Those provisions are consistent with there being two alternative courses of action following a loss of licence: transfer to a different position with loss of seniority or termination of employment.

46. As noted, cl 21 relevantly provides for Loss of Licence insurance: Qantas "will provide benefits as specified in the Qantas Loss of Licence Insurance Policy (see Appendix B)". That, therefore, directs attention to the relevant policy.

47. It was common ground that, at the material time, the relevant insurance policy is the Scottish Re Policy, even though it is entitled the Qantas "Loss of Licence Reinsurance Policy" and the Insurer is described as "Reinsurer". Appendix B to the SHCA identifies a different insurer, so I assume the change simply reflects the insurer from time to time of Qantas (and other airlines) providing for LOL insurance.

48. The Scottish Re Policy contains the Schedule identifying the cover relevantly as being "Capital and Monthly benefits for - (i) Loss of Licence due to failure to meet required medical standards …' and has with it the Qantas "Loss of Licence Insurance Policy: Original Policy".

49. The policy indemnifies Qantas against its obligations to provide "Loss of Licence benefits as agreed" which occur during the period of insurance, subject to a significant excess payment in any one period of insurance.

50. The "Interpretation" Section in Part 2, containing the conditions governing the application of the contract of insurance between Qantas and its employees, includes cl.1.1. It says that the conditions in Part 2 govern the LOL Insurance Agreement between Qantas and its employees. In cl 1.7 it defines "Capital Benefits" as the amount payable to an eligible employee under Part 2, Section 3, cl 3.1.1. It also defines the "Date of Commencement of Disability" as the date on which the Authority (relevantly) CASA cancelled Mr Bond's medical certificate. As noted, that was 26 March 2007.

51. Clause 2.4 relevantly provides that the insurance cover in respect of an individual Qantas employee ceases as soon as there is a payment of a "Capital Benefit", or cessation of employment, unless (as here) the claim had been made before the cessation of employment. Apart from limiting the extent of the cover, it appears to anticipate that, at least not uncommonly, the making of a claim will be accompanied by an anticipated termination of employment.

52. Section 3 of the Scottish Re Policy defines the benefits. Relevantly, the "Capital Benefits - Lump Sum Payments" in cl 3.1.1 provides for the Capital Benefit specified in Schedule A (fixed by seniority and age, and in the case of Mr Bond $692,678) to be paid where (as here) the employee's licence is cancelled as he no longer meets the medical standards and the medical condition giving rise to the failure is unlikely to alter in the next 24 months. It was accepted that Mr Bond would not be able to regain a valid licence in the following two years. That is, the entitlement arises when the relevant Technical Aircrew Employee (defined to include a pilot) can no longer be employed in that capacity. Clause 3.1.2 provides that the Capital Benefit is to be paid "less any payments previously made to [the relevant employee] under cl 3.2.1 "in respect of the same disability". That is, if monthly benefits have been paid, the amount of the Capital Benefit is reduced by the amount of those monthly benefits. Clause 3.2.1 provides for monthly benefits for up to two years and up to 1.5% of the appropriate Capital Benefit to be paid in the Insurer's discretion if a relevant employee of Qantas is, in effect, temporarily disabled from flying duties but only in certain defined circumstances including that there is an appropriate medical statement of unfitness for normal flying duties. Such payments under cl 3.2.1 do not preclude a later claim under cl 3.1.1 for a Capital Benefit (although its amount would be reduced in accordance

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with cl 3.1.2 Clause 3.4 contains a series of exclusions, none of which is relevant, other than cl 3.4.17 referred to below.

53. Section 4 deals with claims. Clause 4.1 requires notice to be promptly given of a condition which may reasonably be expected to result in loss of licence for medical unfitness, together with a claim. Clause 4.2 obliges the employee to submit to a medical examination at the request of the Insurer. Clause 4.3 provides for a dispute regarding the medical basis for a claim under cl 3.1.1 to be submitted to a medical referee.

54. Section 5 is headed "Classified Illness". It is said by cl 5.1 to protect the Insurer and Qantas against fraud and/or feigned illness or injuries. A Classified Illness is an exclusion from the entitlement to benefits under Section 3: cl 3.4.17. A Classified Illness is defined in cl 5.2 as being an illness or incapacity which is incapable of diagnosis. Relevantly for present purposes, cl 5.4.1 provides:

    Where a Technical Aircrew Employee has ceased employment as Technical Aircrew

  • 5.4.1 Where a Technical Aircrew Employee has ceased to be employed as Technical Aircrew and makes a claim for payment under Section 3 and such payment is refused under clause 3.4.17, she/he will nevertheless be paid the amount specified in Schedule B.

Clause 5.4.2 then provides, in certain circumstances, for Monthly Benefits. Schedule B specifies a considerably lower level of Capital Benefits, depending on age and seniority. In effect, therefore, in the case of a refusal of benefits under Section 3 because the relevant condition is a Classified Illness (i.e. not capable of diagnosis), the level of the benefit entitlement is greatly reduced.

55. The significance of this structure in Section 3 and Section 5 is that it confirms that the entitlement arises from and upon the cessation of employment as a Technical Aircrew Employee. Section 5 is, in a sense, complementary to Section 3 but where the disabling condition is not diagnosable. It makes explicit the eligibility requirement of the cessation of employment as a pilot, whereas cl 3.1.1 makes the same requirement but implicitly. Clause 3.2.1 allowing for monthly payments, with the maximum eligibility period of two years also ties in with that circumstance because cl 3.1.1 imposes the eligibility requirement for a Capital Benefit that the disabling condition be permanent, or as there expressed in cl 3.1.1(c) be one which is not likely to alter within a two year period.

56. The Scottish Re Policy, in its Schedule, has the Condition that claims procedures are:

… to be agreed by the Reinsurer [Scottish Re]. The Original Insured [relevantly, Qantas] must comply with all risk management procedures and claims procedures agreed between the Original Insured and the Reinsurer from time to time.'

57. The context of that obligation on Qantas is, as recorded in the section of the Schedule dealing with Conditions, that "Underwriters hereon" [Scottish Re] will retain full indemnity and claims control in respect of the Original Policy (that is, the Scottish Re Policy), and that Scottish Re is providing that service in consideration of the loss of control fee which is deemed to be included in the premium. In short, it contemplates specified claims procedures.

58. Finally, it is necessary to refer to the Deed of Release.

59. The Deed of Release recites uncontentious facts: Mr Bond on 26 March 2007 lost his licence on medical grounds; that he then claimed for LOL insurance; that his employment with Qantas ceased due to "medical termination" on 20 December 2007; and that "Qantas and [Mr Bond] have agreed to settle all matters between them on the terms" of the Deed of Release.

60. The agreement includes terms for Qantas to provide benefits in Mr Bond (cl 2) and for Mr Bond to release Qantas from "Claims" (cl 3). Clause 3 is an agreement by Mr Bond that the benefits, which include the LOL payment fully satisfy the rights that he has or may have against Qantas "in connection with the Employment or the Termination", and releases Qantas from all claims "arising out of the Employment or the Termination".

61. Clause 2 provides for Qantas, within 10 days, to make payment of the "entitlements as outlined in clauses 2.2, 2.3 and 2.4". As those

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clauses are directly relevant to the present appeal, they are set out:
  • 2.2 Without admission of liability, Qantas will pay the Employee upon medical termination a Loss of Licence lump sum payment of SEVEN HUNDRED AND NINETEEN THOUSAND, SIX HUNDRED AND NINETY TWO DOLLARS ($719,692), (" the Agreed Sum ").
  • 2.3 Without admission of liability, Qantas will pay the Employee accrued sick leave in accordance with clause 27.13 of the Qantas Airways Limited Flight Crew (Short Haul) Workplace Agreement (2007).
  • 2.4 The payment as at the date of termination, as outlined in 2.2, will be treated as an employment termination payment with the taxation rules governing an employment termination payment. The total payment represents all moneys owing to the Employee pursuant to his Employment and the Termination ( Final Termination Pay ). No payment in lieu of notice will be paid in the final termination pay.

62. Clause 2.7 is an acknowledgment by Mr Bond that the "Final Termination Pay" is the full amount that Qantas owes him:

  • whether for salary, wages, leave entitlements, redundancy pay, severance pay, bonuses, incentives, superannuation or anything else connected with the Employment or the Termination.

63. Counsel for Mr Bond, and Mr Kentish and Mr Purvis, referred to
Shop, Distributive and Allied Employees' Association v Karellas Investments Pty Ltd (No 2) (2007) 166 IRSI for the proposition that the SHCA cannot be diminished in its terms and effects by a contract of employment (see at [30]-[35]). I do not consider that this case is relevant to the present issue. That is because, as I have indicated, there is no issue about the entitlement to the relevant benefits under the SHCA. The first issue is whether the LOL payment is an ETP. The answer is that issue depends on the applicability of s 82-130 of the ITAA 1997 in the particular circumstances. The circumstances include the fact that, as the SHCA and the Scottish Re Policy prescribe, eligibility for the LOL payment is dependent on the relevant employee being no longer able to work as a pilot. The Deed of Release, as one of the steps taken by Qantas, reflects that situation. If Mr Bond were to have secured redeployment with Qantas, then the issue might have arisen whether it could or would have presented the Deed of Release in its terms to Mr Bond. That is, for present purposes, purely speculative. It might also be observed that, if Mr Bond were to have secured alternative employment with another employer at a level of remuneration equal to or greater than his remuneration with Qantas as a pilot, that matter would not be relevant to his eligibility for the LOL payment.

64. For the same reason, I do not derive any real assistance from the decision in
Australian Rail, Tram and Bus Industry Union v KDR Victoria Ltd trading as Yarra Trams [2013] FCA 330 (Yarra Trams). It was argued that the claims procedures agreed between Qantas and the Insurer, as contemplated by the Condition referred to in the Scottish Re Policy, could not operate to diminish or qualify the entitlement to an LOL payment under the SHCA.

65. The union in that case unsuccessfully argued that a clause of an enterprise agreement obliged an employer to apply the provisions of its internal disciplinary policy document referred to in that clause. The context is that, following the summary termination of an employee's employment, the employee sought to appeal for an independent review of termination under an internal disciplinary document.

66. That case was decided on the construction of the relevant provisions of the Fair Work Act 2009 (Cth) and the relevant enterprise agreement. In this matter, arguably by way of contrast, the Conditions in the Schedule to the Scottish Re Policy specifically required agreed claims procedures for the proper implementation of the policy (cf Yarra Trams at [23]). However, I do not need to decide if the claims procedures were specifically incorporated into the Scottish Re Policy and so, in turn, into the SHRC by that Condition. That is because, as discussed, the entitlement to an LOL payment is premised upon the relevant employee being unable to continue to work as an Aircrew Flight Employee, and consequently as one real

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prospect on the employment of that employee as an Aircrew Flight Employee being terminated.

67. The Tribunal, dealing with the claims of Mr Bond, Mr Purvis and Mr Kentish together, called their respective employment agreements the "collective agreements". There is no relevant difference between them. In the case of Mr Bond, it is the SHCA.

68. I have referred above to the relevant sections of the SHCA. The fact, as is self-evident, is that the SHCA does not expressly make termination of employment a condition of, or the occasion for, payment of the LOL payment. The Tribunal accepted that.

69. However, the Tribunal said at [29] of its reasons, in the light of Le Grand, that such an express requirement in the SHCA was not necessary to enliven s 82-130. The Tribunal further said that cl 24.13.1 of the SHCA, on close analysis, contemplates that a pilot's employment "will terminate as a result of a pilot's licence being cancelled or not renewed and the pilot receiving a capital sum under the loss of licence insurance plan".

70. The Tribunal added at [30] that cl 24.13.1 of the SHCA shows that the terms of employment anticipate the termination of a pilot who receives an LOL payment.

71. Further, the Tribunal noted at [31] that the agreed claims procedures under the Scottish Re Policy required Mr Bond to submit a claim form and supporting documents, and a request for the Capital Benefit being the LOL payment. The acceptance of the claim for the LOL payment was then conveyed by the Qantas (Business Support) document, with "the Deed of Release, Staff Travel Retired Employees Information and Qantas Superannuation Disability Information". As the Tribunal said, from the perspective of Qantas, "the benefits were directed to medically retired employees". The Deed of Release was part of the procedure set out in the loss of licence procedure document.

72. There was also material, to which the Tribunal referred at [32], that at least from the perspective of Qantas, the capital benefit from the LOL insurance plan was meant, in part, to recover the cost of a pilot retraining himself for a career other than flying, following a permanent loss of licence. That was also accepted by Mr Bond as a reason for the LOL payment.

73. The Tribunal at [33] nevertheless found that, because the Qantas loss of licence procedure document and consequential correspondence, including the Deed of Release, and the collective understanding about one purpose of the LOL payment, the condition was found in the SHCA "when read in the light of the Scottish Re Policy and the loss of licence procedure document". The conclusion of that paragraph says:

  • The connection between the payment and the termination of employment was not simply temporal. Termination of employment as a pilot (emphasis added) was a prerequisite to payment and in that sense payment followed on the termination of employment and had the necessary connection with it.

74. In my view, the entitlement to the LOL payment directly arises from the loss of licence. If Qantas had given Mr Bond (or gives a pilot upon loss of licence) redeployment to another position within Qantas, that entitlement would still exist. There is nothing in the Scottish Re Policy which necessarily imposes retirement from employment with Qantas as a condition before the entitlement to the LOL arises.

75. It is, on the other hand, apparent that there is a linkage between the claims procedures established by Qantas generally, which anticipate that the LOL payment will occur in relation to a medically retired (or retiring) employee, with the SHCA itself, and with the Scottish Re Policy.

76. The Scottish Re Policy, including of course its Schedule, is specifically identified as the source for fixing the level of benefits of LOL insurance in cl 21 of the SHCA (and see also cl 5.4 of the SHCA).

77. The SHCA in other respects appears to reflect the situation where the cancellation of the licence of a flight crew member will generally (though not necessarily) be accompanied by retirement of that employee. Clause 13.1.5 referred to above, addressing seniority in the case of illness and treats differently cases where the flight crew member's illness is

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accompanied by cancellation of licence. Clause 24.13.1 addresses sick leave entitlement on medical termination where the retiring employee has received an LOL payment. Clause 27.2 requires a flight crew employee to be available to perform more than the specified flying hours per week.

78. The "Loss of Licence Procedure" established by Qantas, and attached to the statement of Mr Bond makes it clear that, when a flight crew employee is permanently grounded by reason of loss of licence for medical reasons, the claim for the LOL payment must be made and assessed by the Insurer, and upon its acceptance there will be provided details of the Capital Payment, the Deed of Release, and details of the Staff Travel Retired Employees information and Qantas Superannuation Disability Information. In Mr Bond's case, that letter from Qantas was dated 23 November 2007. Payment of the LOL would then be made, upon receipt of the signed Deed of Release and then "Company Clearance: You will be sent a letter from People Relations outlining the Company's clearance procedure". That procedure clearly contemplates that, in the case of eligibility for an LOL payment, the employment of the effected employee will generally come to an end. Of course, there may be exceptions, such as redeployment, but the present circumstances do not give rise to that circumstance.

79. That is the process which Mr Bond followed. As noted above, following the cancellation of his licence on 4 March 2007, Mr Bond informed Qantas of his resignation by letter of 16 May 2007, effective from 16 June 2007.

80. It is also significant that his letter of resignation reflects the notice period in his contract of employment. He was employed by contract on 19 December 1989 by Australian Airlines Ltd (subsequently taken over by Qantas in about 1992). The contract was for Mr Bond to work as a pilot, with its conditions relating only to that role. The termination notice period under cl 5A(ii) was one month.

81. It was upon the whole of that material that the Tribunal reached its view.

82. I consider that the Tribunal is not shown to have been in error, on either a question of fact or on a question of law, in deciding that in the particular circumstances of Mr Bond, the LOL payment was received in consequence of the termination of his employment.

83. It is correct, as Mr Bond through his counsel submitted, that his entitlement to the LOL payment directly arose from the SHCA. In other circumstances, for instance if he had remained employed by Qantas in another capacity following the cancellation of his licence, he may nevertheless have been entitled to such a payment. To make that observation, however, does not provide the answer to whether his LOL payment was made in consequence of the termination of his employment so as to be an ETP within the scope of s 82-130 of the ITAA 1997 in the particular circumstances.

84. Mr Bond had an entitlement to benefits for the loss of his capacity to earn as a pilot for medical reasons under cl 18B of his contract of employment, which by its terms required him to work as a pilot. It is evident that that contract provided for that benefit when and if, for medical reasons, his employment as a pilot came to an end. Then, as noted, the SHCA consistently with that provides for the LOL payment entitlement to arise when a flight crew employee, such as Mr Bond, can no longer work as a pilot. That is, it arises when he cannot perform his employment. It anticipates, understandably, that often that will be accompanied by termination of employment because the eligibility is premised upon a long term condition which prevents the employment from being carried on. That is the relevant path which was followed in this matter, as contemplated by the Scottish Re Policy, the Conditions provided for in the Schedule to that policy and the claims procedures followed by Qantas, and Mr Bond, including by the execution of the Deed of Release.

85. It is in that factual setting that s 82-130 is to be considered. In my view, and as the Tribunal found, the LOL payment was an ETP. To use the words of Goldberg J in Le Grand, the LOL payment followed on from, and was an effect or result in a causal sense of the termination of Mr Bond's employment with Qantas. It was a consequence of the termination of his employment, in the

ATC 16911

circumstances, because he was no longer able to work as a Flight Crew Employee. That was his employment. He accepted that his employment would come to an end for the same reason as his entitlement to the LOL payment arose. Whether the LOL payment might have been made if the circumstances were different, for example if he were to have maintained his employment with Qantas in a non-flying role, is not a question which needs to be addressed.

86. I have reached that conclusion without regard to the evidence of Mr Bond and others (including Captain Kentish) that they understood the LOL payment was understood by them as a payment intended to enable a pilot who can no longer hold a licence to get re-trained. The Tribunal did refer to that material as part of the reasons for its conclusion. Mr Bond says now that it was not entitled to do so (ground 6 of his grounds of appeal).

87. As I consider the Tribunal correctly determined the issue as to whether the LOL payment was an ETP, strictly speaking it is not necessary to address this matter discreetly. It is sufficient to observe that, in my view, this matter as considered by the Tribunal was an independent cumulative factor to the Tribunal's conclusion, but not one which was critical to its conclusion. I observe also that the subjective belief of Mr Bond about the purpose of the LOL payment was part of the evidence he considered relevant, as his statement expresses that view.

88. Accordingly, I do not consider that Mr Bond has established any of the grounds 1-6 in his amended notice of appeal or error in any of the questions of law 1-5 in that document.

The application of s 82-135 of the ITAA 1997

89. Section 82-135 provides that certain payments are not ETPs in any event. Relevantly, Mr Bond says that the LOL payment is not an ETP because it falls within subcl (i) of the list of categories of such payments.

90. In short, Mr Bond contended before the Tribunal that the LOL payment was made for, or in respect of, personal injury to himself.

91. The Tribunal rejected that contention, for the reasons advanced by the Commissioner. They were that:

  • (1) the "personal injury" suffered by Mr Bond was not the reason for, or in respect of which, the payment was made save that his condition was the reason for the cancellation of his licence;
  • (2) for the purposes of determining his eligibility for the LOL payment, there was no assessment of the effect or likely effect of his condition on his capacity to derive income from personal exertion, save that his condition had led to the cancellation of his licence;
  • (3) the amount of the LOL payment was assessed, once he became eligible to receive it, by reference to his age and seniority (as prescribed by Schedule A of the Schedule of Benefits in the Scottish Re Policy) and not by reference to his condition or the reasonableness of the LOL payments having regard to the nature of his condition.

92. Consequently, the Tribunal said that there was no basis for concluding that the amount of the LOL payment was reasonable having regard to the nature of his condition and its likely effect on his capacity to derive income from personal exertion. There had been no such calculation made: cf
Commissioner of Taxation v Scully (2000) 201 CLR 148 at [26] (Scully) addressing a similar provision in s 27A(1)(n) of the ITAA 1936.

93. The Commissioner accepted that the condition suffered by Mr Bond, upon which his licence was cancelled, amounted to "personal injury" for the purposes of s 82-135(i).

94. Mr Bond says, on this appeal, that Scully does not apply as it concerned a materially different provision, and because its facts were materially different.

95. Section 27A(1)(n) of the ITAA 1936 exempted from an ETP a payment in terms which, in my view, are relevantly not materially different from s 82-135(1). One difference is that it exempted "consideration of a capital nature" rather than "a capital payment". Another is that it applied "to the extent to which the amount or value of the consideration" is reasonable, rather than "so far as the payment" is reasonable. A third difference is that it made the judgment to be the opinion of the Commissioner, whereas s 82-135(1)(i) does not do so. Fourthly, as Mr

ATC 16912

Bond points out, s 27A(1)(a) and (b) defines an ETP relevantly as any payment made in consequence of the termination of any employment of the taxpayer other than a payment made from a superannuation fund by reason of the taxpayer being a member of the fund, and any payment made from a superannuation fund by reason of the taxpayer being a member of the fund, but so as not to include the payment inferred to in subcl (n).

96. In my view, the textual differences are not of apparent significance. The majority (Gaudron A-CJ, McHugh, Gummow and Callinan JJ), decided at [24]-[41] that subcl (n) did not apply. In doing so, their Honours at [24] accepted that there was a real, discernible and rational connection between the superannuation payment and the personal injury to the taxpayer. However, their focus was upon the word "consideration" as conveying in addition that the payment had been calculated by reference to the injury: at [26], and at [29] in a passage cited by the Tribunal:

  • 26. 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. Furthermore, no support for the Full Court's conclusion is given by the reference in pars (m) and (n) to "amount or value" and to reasonableness. Those terms are used for the entirely different purpose of permitting the Commissioner to disallow an excessive or fraudulent claim for an exclusion by a taxpayer.
  • …
  • 29. In this case, it is clear that the payment is a form of consideration passing between the member and the trustees of the Fund in that the payment is made by the Fund in satisfaction and discharge of its obligations to the member. This does not, of course, answer the question whether such "consideration" is "for, or in respect of, personal injury to the taxpayer". 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.

97. In Scully, there had been no attempt to place a monetary value on the taxpayer's injury, or to provide a formula, roughly comparable to the manner in which damages for personal injury might be assessed.

98. I think it is clear that the Court there is speaking of whether the amount in issue was reasonable, as described in both s 27A(1)(n) of the ITAA 1936 and s 82-135(i) of the ITAA 1997, so that the Tribunal did not err in deriving guidance from the remarks in Scully to which it referred.

99. The factual difference is said to be first that the LOL payment is made by the employer, Qantas, rather than a superannuation fund, and secondly that there is an attempt to place a value on the injury suffered because it is the injury which caused the loss of licence and consequent inability to work as a pilot which attracts the LOL payment.

100. Having regard to the Schedule of Benefits, Schedule A under the Scottish Re Policy, and the varied range for the LOL Capital Benefit set out depending upon age and seniority, I do not think it can be said that the amount of the Capital Benefit is "for or in respect of" Mr Bond's condition or can be assessed to be reasonable having regard to the nature of the injury and its likely effect on the capacity to derive income from personal exertion, in the way that "reasonable" is explained in Scully at [30]. For a pilot, the Capital Benefit is the same for any illness or injury causing loss of licence for any age up to age 54, although it then drops significantly for each year after that age. It is the same for all senior officers, whether Captains, First or Second Officers, or Flight Engineer Officers. It is the same irrespective of the nature of the injury, although the nature of the injury and consequential disability must be relevant to the ongoing capacity to derive income. It is the

ATC 16913

same whether the relevant employee is or is nor re-employed, and irrespective of the actual earnings in any new position.

101. I do not consider, therefore, that the LOL payment can be said to be a capital payment "for or in respect of" Mr Bond's condition. In Scully at [37] and [38] there is consideration of the taxpayer's contention that there was a sufficient causative nexus between the payment and the injury to apply the exception in subclause (n). Their Honours said at [38]:

  • In our opinion, however, the set-off cases, while not conclusive in the present context, are not relevantly distinguishable. Once "consideration" is construed to require something in the nature of recompense so that it is sensible to speak of a payment or benefit as recompense (consideration) for the injury, the set-off cases become immediately applicable. Any payment which satisfies par (n) would be a payment which would be set off against damages for personal injury. If the word used was "payment", rather than "consideration", then a "rational connection" or factual causation would be enough. The use of "consideration", however, connotes something different and additional: to use the criteria of Dixon CJ and Windeyer J in Espagne it is the "character" and "purpose" of the payment, rather than the "cause", which is relevant.

102. It is, of course, clear that reference to "a capital payment" in s 82-135(i) is a different expression from the introductory words of s 27A(1)(n). However, as there said, as a matter of construction the focus is on the character and purpose of the payment rather than its cause. There is no doubt that the cause of the LOL payment is the condition of (injury to) Mr Bond. But the limiting words following focus on the character of the payment, and in my view the approach of the majority at [30] of its reasons in Scully applies to the task of identifying that character.

103. Accordingly, I do not accept the contentions of Mr Bond in relation to grounds (7) and (8) of his amended notice of appeal or questions (6) and (7) of the questions of law set out in it.

Is the Loss of Licence payment a "fringe benefit" within s 136(1) of the Fringe Benefits Tax Assessment Act 1986 (Cth)

104. This issue arises under ground (9) of the amended notice of appeal and question (i) of the questions of law.

105. In the cascading sequence of propositions referred to earlier in these reasons, I have reached the view that no error on a question of law has been shown on the part of the Tribunal in its reasoning to the point that it had concluded that the LOL payment was an ETP, and that it maintained that character notwithstanding s 82-135(i) of the ITAA 1997.

106. Section 136(1) of the FBTA) contains a series of definitions including "fringe benefit". It is defined so as to exclude an ETP: see (1c) of that definition.

107. If, contrary to the views I have reached, the LOL payment is not an ETP, Mr Bond contends that the LOL payment is not a fringe benefit as defined, being a benefit provided to Mr Bond by Qantas as his employer in respect of his employment, because the definition also excludes:

  • (m) consideration of a capital nature for, or in respect of:
    • …
    • (ii) personal injury to a person;

108. As is apparent, that expression would appear to attract the analysis of the majority in Scully referred to above, although it does not include the complex adjectival phrase which describes the payment in s 82-135(i), or s 27A(1)(n) of the ITAA 1936. Alternatively, it is said that it is subject to FBT and is non-assessable to Mr Bond.

109. The Tribunal noted the exclusion of an ETP under subcl (1c) of the definition of fringe benefit, and the exclusion under subcl (m)(ii) of the definition. Adopting the analysis in Scully referred to above, the Tribunal said the latter exclusion using the words "consideration of a capital nature" involved the concept of "recompense". Then it concluded that as the LOL payment depended only on the employee's age and seniority, the nature of the injury was not taken into account except for its effect being the cancellation of Mr Bond's

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licence. That was not reflective of any real recompense, so that exclusion did not apply.

110. It is common ground that the LOL payment is a benefit provided by Qantas as employer to Mr Bond as employee. As an alternative, it may be described as a right to an LOL payment under the SHCA as a contract of insurance: see
Australian Health Insurance Association Ltd v Esso Australia Ltd (1993) 41 FCR 450 at 487. In either event, but for the exclusions, the LOL payment was a fringe benefit as defined in the FBTAA.

111. Reflecting the reasoning in the preceding sections of this judgment, in my view the Tribunal is not shown to have erred on a question of law in concluding that the LOL payment was an ETP, and in concluding that it was not a capital payment (or consideration of a capital nature) for or in respect of personal injury to Mr Bond under s 82-135(1) of the ITAA 1997 so as to take it out of the status of an ETP. It would follow, as Mr Bond accepts, that the LOL payment is within the exclusions in subcl (1c) of the definition of fringe benefit.

112. Strictly speaking, that is sufficient to deal with this issue.

113. However, it is common ground on the other hand that, if the only relevant exclusion is that in subcl (m)(ii), the Tribunal erred by treating the LOL payment as excluded from the definition. I agree. Its conclusion appears to reflect the addition of a further negative. Because the element of recompense is lacking, the exclusion is not engaged, and if this were the only relevant exclusion, the LOL payment would be a fringe benefit.

114. That error does not affect the ultimate conclusion as to the correctness of the Tribunal's decision, or more accurately does not affect the conclusion that the Tribunal is not shown to have erred on a question of law in a way which affects the correctness of its conclusion.

Is the Loss of Licence Payment Statutory Income under s 15-2 of the ITAA 1997?

115. As I have not disturbed the Tribunal's conclusion that the LOL payment is an ETP, it is not necessary to address this issue. Section 15-2(3)(a) expressly excludes an ETP from assessable income.

116. It is therefore not necessary to deal further with this question, or grounds of appeal (10) and (11) in the amended notice of appeal and questions of law (9) and (10).

Is the Loss of Licence Payment assessable as a capital gain under s 118-37(1)(b) of the ITAA 1997?

117. Again, as the Tribunal's conclusion that the LOL payment is an ETP has not been set aside, it is not necessary to address this issue. It concerns ground of appeal (12) in the amended notice of appeal and question of law (11) in it.

Conclusion

118. For the reasons given, the Tribunal is not shown to have erred on a question of law in any way which affects its final conclusion. It will be apparent from my consideration of the issues that in significant respects they raised questions of substance. In view of the outcome, I do not need to formally address the Commissioner's Objection to Competency that the substantial questions raised did not relate to questions of law so that the appeal itself was incompetent. I do not wish to be taken as acceding to that contention by the Commissioner.

119. The appeal is dismissed. I will hear the parties as to costs.


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