Case D41

Judges:
JL Burke Ch
RC Smith M
RE O'Neill M

Court:
No. 1 Board of Review

Judgment date: 15 August 1972.

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J.L. Burke (Chairman) and R.C. Smith, Q.C., and R.E. O'Neill (Members): The taxpayer commenced employment with a New South Wales State Government instrumentality on 20 September 1965. By letter dated 25 November 1969 he tendered a written resignation ``to be effective from 5.00 p.m. on 5 December 1969''. The taxpayer in fact ceased duty on 5 December 1969 and on that day was paid a gross amount of $473.88 being 19½ days salary made up of 18 days' accrued recreation leave to 5 December 1969 and a further 1½ days' recreation leave accrued during those leave days. He commenced employment with a Commonwealth instrumentality on 8 December 1969.

2. The taxpayer claims that the said amount of $473.88 falls within sec. 26(d) of the Commonwealth Assessment Act which provides that ``The assessable income of a taxpayer shall include - (d) five per centum of the capital amount of any allowance, gratuity or compensation where that amount is paid in a lump sum in consequence of retirement from, or the termination of, any

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office or employment, and whether so paid voluntarily, by agreement or by compulsion of law.'' The issue before the Board comes down to the question of whether there was a retirement from or termination of the taxpayer's office or employment on 5 December 1969 when he ceased duty or on 7 January 1970 when, according to the departmental calculation, his recreation leave expired. If the second mentioned date is the correct one then, in our opinion, the taxpayer's case fails for in those circumstances it cannot be said that the amount in question was received in consequence of retirement from or termination of an office or employment. Rather it would have been received in advance in respect of recreation leave due to the taxpayer prior to his resignation becoming effective.

3. The New South Wales State Public Service Board in the exercise of its regulatory powers has issued instructions covering payment for accrued recreation leave where there has been a cessation of employment. The instruction in force at the time the taxpayer ceased duty is contained in para. 8 of sec. 6 of the Procedure Handbook issued by the Board and reads as follows -

``8. Cessation of employment

(1)(a) In all cases where officers or employees resign, retire or their services are otherwise terminated, prior to their attaining 60 years of age, and the value of recreation leave accrued to the last day of active duty is payable, the period which such accrued leave covers shall accrue a further proportionate amount of recreation leave (i.e. such leave will be regarded as service for the accrual of recreation leave) and the last day of service shall be the date on which all accrued recreation leave would have expired. Payment for all accrued recreation leave should be made, in advance, on the last day of duty.

The money value of the leave is calculated for the period over which the leave would run had it been granted as recreation leave commencing from the first working day after the date of cessation of employment.

(b) Where an officer ceases to be employed at or after attaining age 60 he shall receive as a gratuity in lieu of leave, the monetary value of recreation leave for which he was eligible at the date of ceasing duty. Further recreation leave does not accrue in these circumstances.

(2) Entitlement shall be calculated to an exact quarter day where applicable - fractions other than an exact quarter day to be taken to the next highest quarter day.

(3) Statutory provision exists for the payment of the monetary value of accrued extended leave to all officers and employees as a gratuity on cessation of employment and approval has been given to the value of accrued recreation leave being paid as a gratuity in the case of officers and employees on cessation of employment on or after attaining 60 years of age. Taxation is, therefore, assessable on 5% only of such payments.

In the case of persons who cease to be employed prior to attaining 60 years of age, the Board is not prepared to approve of accrued recreation leave being paid as a gratuity. Such payments are made in advance only, and are liable to be taxed in full.''

4. The Assistant Secretary of the Public Service Board formally confirmed that in the taxpayer's case the last day of service (as distinct from the last day of duty) would have been 7 January 1970 and that date would have appeared in the gazettal notice formally recording his resignation. From the Board's point of view the taxpayer was on leave until 7 January 1970 and up to that date could, for example, have made application to withdraw his resignation. Cases had occurred where a resignation had been withdrawn during a period of recreation leave and in those circumstances where the withdrawal was accepted there was no loss of continuity of service. It may be noted that from May 1972 the Boards's instructions on the subject of recreation leave on cessation of employment have been varied so that the last day of duty is now taken to be the last day of service. Under the instructions at present in force the period of recreation leave for which payment

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is made in a lump sum does not accrue a further period of recreation leave.

5. The taxpayer was a contributor to the New South Wales State Superannuation Fund and the Secretary of the Superannuation Board has advised that for the purposes of the Superannuation Act (N.S.W.) the taxpayer's resignation became effective on 7 January 1970, contributions being made up to and including that date. The cheque covering the refund of the taxpayer's contributions was despatched to him on 9 January 1970. In response to a written inquiry directed to him by this Board after the hearing of the present reference had been completed the Secretary of the Board advised that under the Act as interpreted had the taxpayer died during the period 5 December 1969 to 7 January 1970 his widow would have been entitled to a pension on the footing that the taxpayer was a contributor when he died.

6. In all the circumstances we are forced to conclude that the taxpayer remained an employee of the State Public Service until the expiry of his recreation leave on 7 January 1970 and, as indicated earlier in these reasons, it follows that the taxpayer's case before the Board fails.

7. We would uphold the Commissioner's decision on the objection and confirm the amended assessment the subject of review.

Claim disallowed