Case A59

Judges:
AM Donovan Ch
JD Davies M
GR Thompson M

Court:
No. 2 Board of Review

Judgment date: 12 September 1969.

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A. M. Donovan (Chairman), J. D. Davies and G. R. Thompson (Members): The taxpayer is a student who, in February 1965, entered into a written agreement with the Minister of Education for the State of South Australia pursuant to which, firstly, the taxpayer agreed to undergo training and instruction at a teachers training college for a term of four years and thereafter to teach for a further term of three years in such school or schools as the Director of Education should determine and, secondly, the Minister, for his part, agreed to pay to the taxpayer, during his training, an allowance at the rate fixed from time to time by regulation. It was a term of the agreement that if, before completion of his term of studentship or his term of service as a teacher, the taxpayer should inter alia, resign, then he should be liable to repay immediately to the Minister the total amount of the sums which had been paid to him by or on behalf of the Minister pursuant to the regulations, provided that that amount should be reduced in certain circumstances and provided that nothing in the agreement should be deemed to curtail or to derogate from the right of the Minister to damages or any other remedy in case of any breach of the agreement on the part of the taxpayer.

2. The taxpayer commenced his training at a teachers college early in 1965, but resigned from his position in February 1968. During his period of training he received, usually fortnightly, the payments provided for student teachers by the regulations. These payments totalled $2,448.67, and the taxpayer, on his resignation, entered into an agreement with the Accounts Branch of the Education Department to repay that amount over a period of two years. From 1 July 1967 to the date of his resignation, his receipts from the Education Department by way of allowance had totalled $431. On 21 June 1968, he

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ATC 335

paid to the Education Department, off the amount owing by him, an amount of $431.70. The receipt given to him showed the amount as having been received ``For bond (allowances received 1 July 1967 to 31 December 1967)''.

3. The taxpayer's return of income for the year ended 30 June 1968, disclosed $431 income received from the Education Department and claimed, as a deduction, $431.70 for ``Refund of earnings from 1 July 1967 to 31 December 1967, to Education Department due to resignation''. The Commissioner of Taxation, in making his assessment, disallowed the deduction claimed and the taxpayer, in due course, lodged an objection which stated-

``My agreement with the Minister of Education states in effect that should I resign I shall be liable to repay to the Minister the total amount of sums paid to me as allowances or otherwise during the course of my attendance or training as an Honours Teaching Scholar. As the amount of $431 was repaid in the same taxation year as it was received, it is my contention that it does not constitute income for that year.''

4. Before the Board, the taxpayer's representative did not challenge the decisions given in
(1958) 9 T.B.R.D. Cases J20 and J69 and
(1963) 14 T.B.R.D. Case P20, all of which determined that amounts paid by a trainee teacher to an Education Department on breach of his bond are not deductions allowable under the provisions of sec. 51(1) or any other section of the Income Tax Assessment Act. The case was put on the footing, as stated in the objection, that the amounts received by way of allowance, during the year of income, were received pursuant to an agreement under which they were to be repaid in certain circumstances and that, as one of those circumstances had occurred and the amounts had been repaid, no income for the year had been received from the Education Department.

5. The case was said to be analogous to that where annual leave is taken in advance in one of the State Public Services. In that Public Service, where leave in advance is applied for, the applicant is required to acknowledge that: ``I understand that this leave is granted on the condition that if I leave the Public Service before rendering service appropriate to the amount of leave granted, I will refund the money equivalent of the excess leave taken''. It was said that, in cases where an officer resigns from the Public Service and repays part or all of the pay previously received for recreation leave, that amount is not included in the officer's group certificate and the officer does not pay tax thereon. This practice was said to establish an analogous case. It is, however, of no assistance to the Board. In the first place, there is undoubtedly some justification for regarding the wages received during recreation leave in those circumstances as truly conditional receipts. In the second place, this Board cannot be influenced by the manner in which a State Public Service prepares its group certificates.

6. It was held in
(1950) 1 T.B.R.D. Case 71 and it has not since, we think, been challenged, that allowances of the type received by the taxpayer are assessable income of a trainee teacher when received. This decision, in our opinion, concludes the case against the taxpayer, for, if an amount is assessable income when received, it does not cease to be so by reason of a payment back made on the occurrence of some subsequent event. The fact that the receipt and repayment occurs in the one year of income is of no significance. The arbitrary dates adopted by the Income Tax Assessment Act for the years of income are of no moment in this regard. If money received is accepted conditionally, then it may be income not when received but only upon the fulfilment of the condition (see
Arthur Murray (N.S.W.) Pty. Ltd. v. F.C. of T. (1965) 114 C.L.R. 314; 14 A.T.D. 98). If, however, money received is not received conditionally in this sense but is assessable income as and when received, then it does not cease to be assessable income by virtue of something which subsequently occurs, though it may occur in the same year of income. We are not speaking, of course, of money received under a mistake of fact and subsequently repaid, an entirely different case with which we are not concerned. We can think of no authority, and none was suggested by the taxpayer's representative, to support the proposition put by him. The matter turns on general principles, and if we accept, as we think we must, and indeed the taxpayer's representative did not challenge, that the allowance received by the taxpayer formed part of his assessable income when received, then the matter is determined against the taxpayer.

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ATC 336

7. In view of the foregoing, it is unnecessary to consider the submission put to the Board by the Commissioner's representative that the payments made by the taxpayer to the Education Department were not repayments of the allowance received but were, rather, payments of penalty calculated by reference to the quantum of the allowance received.

8. For these reasons, we would uphold the Commissioner's decision on the objection and confirm his assessment.

Claim disallowed