Case F70

Judges:
JL Burke Ch
RE O'Neill M
CF Fairleigh QC

Court:
No. 1 Board of Review

Judgment date: 15 November 1974.

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J.L. Burke (Chairman); R.E. O'Neill and C.F. Fairleigh, Q.C. (Members): Two issues arise for consideration by the Board in this reference, first, whether the taxpayer is assessable in full or only on five per centum of an amount paid to him on 21 May 1971 in respect of recreation leave on the occasion of his resignation from the N.S.W. State Public Service and secondly, whether the taxpayer is entitled to a deduction for an amount of $73.25 paid by him to the Public Service Board in satisfaction of an assessed liability in terms of a bond which required three years' service with the State after graduation.

2. The taxpayer commenced duty with a State instrumentality on 11 July 1960 and thereafter was employed subject to the N.S.W. Public Service Act and Regulations. In early 1971 he sought appointment to a position in a Department of the Australian Public Service and in a memorandum dated 12 February 1971 addressed to the Secretary of that Department the Secretary of the Australian Public Service Board approved the taxpayer's appointment (subject to medical examination) in the following terms -

``The appointment of (the taxpayer) is subject to prior consultation between his present employer and the Public Service Inspector, Canberra who will be responsible for effecting the appointment. Subject to the Public Service Inspector being satisfied, as a result of his enquiries, in accordance with paragraph 8 of P.S.B. memorandum No. 1966/6, the appointment of (the taxpayer) will be without probation.

Subject to the normal conditions (including the required continuity of service) the service of (the taxpayer) with the New South Wales State Public Service will count for recreation leave, sick leave and furlough purposes. No special credit is given for seniority purposes.

Documentary evidence of resignation from present employment and date of commencement in the Commonwealth, should be forwarded to this office for covering approval to the granting of these benefits.''

3. On 23 April 1971 the taxpayer gave written notice of resignation to the personnel officer of the State statutory authority, stating that his duties were to cease on Friday, 21 May 1971. The letter tendering his resignation read in part as follows -

``My arrangements with the Commonwealth are for my superannuation, long service leave and sick leave to transfer with me. My accrued annual leave I would like paid to me. A provision of this arrangement is that I finish in my present position on the Friday of one working week and commence with the Commonwealth on the Monday of the following week.

I wish to take up duty with the Commonwealth on Monday 24th May, and thus tender my resignation to cease duty with this Office on Friday the 21st May. The accrued annual leave due to me at this period I will, as mentioned take in cash.''

4. In accordance with the notice the taxpayer ceased duty on the day specified and on Monday, 24 May 1971, commenced employment in the Australian Public Service.

5. The State Public Service instruction in force at the time of the taxpayer's resignation covering a cessation of employment by an officer of less than 60 years of age provided that the period of recreation leave accrued ``to the last day of active duty... 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.''

6. In the taxpayer's case the calculation made in accordance with the above instruction threw up an amount in lieu of recreation leave entitlement of $364.16 (11¾ days plus 1 further day accrued in respect of this entitlement) and this amount, which is the subject of the dispute, less tax and bond liability of $73.25, was paid to the taxpayer on 21 May 1971.

7. The Secretary of the N.S.W. Public Service Board, called as a witness by the Commissioner, confirmed that under the regulations as they then stood (they were altered as from 1 May 1972) the taxpayer's last day of duty was 21 May 1971 but his last day of service was 9 June 1971 upon the expiry of his

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ATC 423

recreation leave. Until the latter date the taxpayer remained an officer of the State Public Service. The Administrative Officer of the N.S.W. State Superannuation Board also confirmed that the taxpayer remained a ``contributor'' for all the purposes of the Superannuation Act until his resignation became effective on 9 June 1971.

8. By notice in the N.S.W. Government Gazette dated 6 August 1971 under the heading ``Resignations'' it was notified that His Excellency the Governor had accepted the taxpayer's resignation from the State Public Service, the last day of service being 9 June 1971.

9. The taxpayer seeks to bring the amount of $364 within the terms of sec. 26(d) of the 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 office or employment, and whether so paid voluntarily, by agreement or by compulsion of law:''

10. On the facts the reference cannot be distinguished from Case D41,
72 ATC 237 in which this Board, as then constituted, made a finding adverse to the taxpayer on the footing that the taxpayer remained an employee of the N.S.W. State Public Service until the expiry of his recreation leave on the last day of service. The Board put it this way (at p. 238) -

``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.''

11. The basal contentions in the case advanced by the taxpayer are that he could unilaterally and without the concurrence of the State Government terminate his employment in the Public Service of that State; that there is no distinction to be drawn between cessation of duty and termination of employment; that his employment in the Australian Public Service from 24 May 1971 ipso facto meant that he was not from that date onwards an employee of the Public Service of N.S.W.

12. It is clear that a public servant who proposes to resign from the State Public Service may tender his resignation but whether resignation is permitted and if so from what date is a matter for the Executive of the State Government. In the present case resignation was effective from 9 June 1971 and in the interim the taxpayer had all the advantages as well as disadvantages of continuing employment in the N.S.W. State Public Service; the cessation of duty on 21 May 1971 is not determinative of the date of termination of employment and the distinction is not one of semantics as suggested by the taxpayer; sec. 91(1)(a) of the Australian Public Service Act enables an Australian Public Servant with the express permission of the Public Service Board to continue to hold an office in or under the Government of any State and the evidence indicates that the Board was aware of all the material facts in the present case (vide the taxpayer's letter tendering his resignation - para. 3 hereof) and if there was a technical breach arising from an absence of express permission it could not affect the taxpayer's liability to taxation on the sum in issue. There is not a conflict between State and Federal law on this point as was suggested by the taxpayer; and his reliance on sec. 109 and 117 of the Constitution is ill-founded.

13. The taxpayer has submitted that under sec. 47E of the Australian Public Service Act he ``could have transferred his accrued State leave, resigned from the Commonwealth after transfer and been taxed on 5% only, that is the accrued leave would have been considered a gratuity.'' Of course, it is of no avail to the taxpayer to claim, or for that matter to prove,

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ATC 424

that if he had pursued a different course of action his liability to tax would have been altered.

14. The taxpayer has devoted some time to the principles of law enunciated in
Buckley v. Tutty (1971) 125 C.L.R. 353 which was a case in equitable jurisdiction in respect of a contractual tie between a football player and a club. No useful purpose would be served by a discussion of that case, the subject matter of which was agreements in restraint of trade.

15. On the first matter in issue, and applying this Board's finding in Case D41 (supra), we uphold the Commissioner's decision on the objection.

16. As to the second matter in issue, the facts are that the taxpayer was granted a part-time scholarship with the N.S.W. Public Service Board to undertake studies in the Faculty of Arts at the University of Sydney. He entered the Faculty in 1964 and graduated with Honours in 1968. In terms of the scholarship the taxpayer was under a bond to render three years' service to the Public Service Board after graduation. At the date of resignation the taxpayer had not completed the required service and the Public Service Board assessed his liability for the unexpired period as being $73.25 which said amount was deducted from that due to him for leave entitlement.

17. The taxpayer claims that the amount of $73 is allowable under sec. 51(1) as being a loss or outgoing incurred in gaining or producing his assessable income with the Commonwealth and relies on the case of Buckley v. Tutty (supra) and
F.C. of T. v. Finn (1961) 106 C.L.R. 60 to support his proposition. In our opinion the cases cited by the taxpayer are not helpful to his argument. On the other hand there is a line of authority against him. We refer in particular to Case P20,
14 T.B.R.D. 97 in which this Board, applying Cases J20 and J60 decided by Board No. 2, rejected a claim which was on all fours with the taxpayer's. Generally speaking expenditure by an employee in changing from one job to another is incurred in getting, not in doing, work as an employee and so it is not incurred in the course of gaining or producing assessable income. See per Menzies J. in
F.C. of T. v. Maddalena 71 ATC 4161.

18. For the foregoing reasons we uphold the Commissioner's decision on the objection and confirm the assessment the subject of review.

Claim disallowed