McIntosh v. Federal Commissioner of Taxation.Judges:
Supreme Court of Queensland
Andrews J.: This is an appeal to the Supreme Court of Queensland based upon an objection by the appellant against an assessment of income tax by the Commissioner of Taxation on income of the appellant derived during the year ended 30th June, 1976. The question, very briefly stated, is whether a capital sum paid to the appellant from a superannuation fund pursuant to an election made after retirement by the appellant to accept a capital sum in lieu of periodic pension payments payable upon retirement and being received by him, comes within the purview of sec. 26(d) of the Income Tax Assessment Act 1936 as amended.
The facts to which I refer are agreed between the parties.
The appellant was an officer of the National Bank of Australasia Limited from 15th May, 1930 until his retirement on 24th March, 1976 when he attained the age of 62 years. He was for a short time a temporary officer of the bank, but soon became a permanent officer. There were periods of absence because of illness and war service which I think have no particular significance here. On becoming a permanent officer of the bank he joined a fund then called the Officers' Guarantee and Provident Fund which is now named the Officers' Provident Fund. He remained a member of that fund. A copy of the Rules of the fund is Exhibit I in this appeal. Rule 2 of the fund provides, inter alia, as follows: -
``A. The fund (to which the bank on the 26th February, 1896, formally renounced all claim), consists of moneys and investments vested in the administrators under and subject to these rules and representing:
- 1. Grants, contributions and subsidies from the bank to the fund.
- 2. Contributions of officers to the fund.
- 3. Income and accretions from investments of the fund.
- 4. Other moneys or investments from time to time donated to the fund.''
The administrators of the fund are in similar position to trustees.
The appellant was obliged to make contributions during his membership, latterly at the rate of 6 per centum of his salary per annum. Rule 16 of the Rules of the fund provides that the bank pay to the fund an amount equal to 8 per centum of the rate of salary of each contributor under the age of 65 years. In addition the bank has undertaken to make voluntary contributions of an amount related to the rate of salary of each contributor, being a variable percentage for a variable period. Provision is made also in r. 16 that the administrators may, in their absolute discretion after actuarial consultation, make arrangements with the bank for payments of a subsidy to the fund.
Rule 17 provides, inter alia, as follows:
``Subject to r. 19 a contributor who has completed fifteen years' service or who is deemed to have completed fifteen years' service by payment of an entrance fee determined in accordance with the provision of r. 14, and:
- A. Attains the age of 62 years and thereupon or thereafter retires from the service at any age up to and including the age of 65 years shall become entitled to a normal pension calculated in accordance with Appendix 2.''
It is not necessary to record the details of the method of calculation specified in Appendix 2.
Rule 21 A provides, inter alia, as follows:
``A. All pensions shall be payable by monthly instalments in Australian currency on the last business day of each month.''
If the pensioner died within 8 years after retiring, the administrators had a discretion to pay to his dependants or to his legal personal representatives an amount not exceeding the present value of the number of monthly instalments up to 96 (r. 24B).
Rule 22 provides as follows:
``On the application of any contributor or pensioner, either before but not later than one calendar month after his retirement, the administrators shall commute for a lump sum payment that part he elects to commute which is either twenty-five per centum or fifty per centum of the total pension payable at retirement to him or such lesser amount only as may be permitted by the restrictions of the appropriate taxation and revenue authorities for a lump sum payment. Where a pension is payable under r. 17a or 17c the amount of any lump sum payment will be calculated in accordance with
ATC 4326Appendix 5. Where a pension is payable under r. 17b or r. 23 the amount of any lump sum payment will be assessed by the actuary as being the cash value of the pension so commuted. That part of the pension which has not been commuted will be payable as a pension.''
It is not, I think, necessary to refer to the details of method of calculation in accordance with Appendix 5 referred to in r. 22.
The appellant arranged for the commutation of 50 per cent of his pension. Before his retirement on 24th March, 1976 the appellant had made arrangement with the administrators for the payment of a pension to him from the fund. On 31st March, 1976, within the time after retirement permitted by the Rules for doing so, he elected to commute 50 per cent of his pension entitlement at retirement for a lump sum payment (see Exhibit 5). His application in that behalf was dealt with by the administrators at their meeting on 8th April, 1976 whereupon his pension was reduced by half and he received from the fund the sum of $27,006.84 with which we are concerned in this appeal. It is, I think, significant for the purposes of the appeal to note that he is required to make his election not later than one calendar month after retirement.
On behalf of the appellant, it was considered that if he made his election before retirement, no question would arise calling for the interpretation of sec. 26(d) of the Income Tax Assessment Act 1936 as amended, but that a different situation would arise if after having retired and become entitled to a pension he then elected to commute a part of the pension for a capital sum. The Commissioner included a sum equal to 5 per cent of the abovementioned sum of $27,006.84 in the appellant's assessable income for the subject tax year and it is this to which the appellant objects.
During the period of his membership of the fund the appellant contributed to the fund monies amounting in all to $5,784.96. Exhibit 18 was tendered to demonstrate the fund, the amounts of contributions by the bank and officers and the nature of investments held by the fund.
Section 26(d) of the Income Tax Assessment Act 1936 as amended provides as follows: -
``The assessable income of a taxpayer shall include -
- (d) five per centum of the capital amount of pay 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:
- Provided that this paragraph shall not apply in respect of any amount which under of any amount which under any provision of this Act is deemed to be a dividend paid to the recipient, or in respect of deferred pay, including interest thereon, paid to a person who is or has been a member of the Defence Force in respect of his service as a member of that Force during any period before 1 July 1947, in respect of which the pay and allowances earned by the member were or are paid under the War Financial (Military Forces) Regulations or the Air Force (War Financial) Regulations or, in the case of a member of the Naval Forces, were or are pay and allowances which the Secretary to the Treasury, or a person authorized by him to give such certificates, certifies, for the purposes of this provision, are special war-time pay and allowances;''
Two questions were argued, the first being whether or not the payment of the lump sum was a payment in consequence of the appellant's retirement from his employment as distinct from being in consequence of his election to commute 50 per cent of his pension, the other being whether the lump sum payment was an allowance, gratuity or compensation as referred to in sec. 26(d) (supra). As to the latter it seemed to be common ground that it should not be regarded as compensation or gratuity. Some submissions were directed to the question whether it could be regarded as an allowance. I was directed to authorities to support a proposition that the payment was payment of a capital sum and in my view there is no real dispute has to this, and I proceed on the basis that the amount of $27,006.84 was the capital amount of an allowance which was paid in a
ATC 4327lump sum, having regard to the terms of sec. 26(d) (supra). Cases such as
Tilley v. Wales (1943) A.C. 386 which dwell upon the distinction, for the purposes of the English Legislation, between a profit from employment and a sum (whether capital or otherwise) received otherwise than as a profit for employment are of little help in the interpretation of the provision with which we are concerned here. However, I was, with respect, assisted as to a distinction between ``compensation'' on the one hand, and ``gratuity'' or ``allowance'' on the other by the statement of Jordan C.J. in
Scott v. C. of T. (N.S.W.) (1935) N.S.W.S.R. 215 at 221: -
``The first question which arises is, whether the sum in question can be regarded as an allowance or gratuity in the sense in which these words are used in cl. (i) and (j). An allowance is a definite portion or amount allotted or granted to meet requirements:
Buckingham v. F.C. of T. (3 A.T.D. 37) at 38). A gratuity is something given - generally without obligation and in return for services. Now, when one person ceases to be in the employment of another, there are two different characters in which money may be paid to him by his ex-employer in relation to such cessation. It may be paid to him as a recognition of, or as further remuneration for, his past services; or it may be paid to him as compensation for his being deprived of a right, or an opportunity, to continue in the service and earn further emoluments therein. In either case, the payment may be made ex gratia or in discharge of an obligation to make it. In every case it is a question of fact in which character it is made. If it is paid in the former character, `allowance' or `gratuity' may be an apt word to describe it, according to the circumstances. But if it is paid in the latter character, and is paid in discharge of an obligation imposed by law, it is certainly not a `gratuity', nor is it an `allowance', in any ordinary sense of either of those words.''
As to the last paragraph in that statement I would say that the context in which words appear may put a qualification upon the broad meanings which Jordan C.J. would put upon the words ``allowance'' and ``gratuity''.
Mutual Acceptance Co. Limited v. F.C. of T. (1944) 69 C.L.R. 389 at pp. 402-3 Dixon J. said: -
```Allowance' is one of the many words which take their meaning from a context rather than affecting or controlling the meaning of other words of the context in which they occur. For, considered alone and at rest rather than at work with other words, it means the allowing of a thing or a thing allowed. It is only by its application that you discover the kind of thing in mind.
In the present case I think that the whole context and subject matter shows that the definition of wages is dealing with the emoluments of employment paid in money or made over in kind to an employee by an employer. The figure of speech `pay-roll' used to describe the tax and supply a title to the Acts gives some indication of the subject taxed. In the definition of `wages' the two first words `wages' and `salary' refer to ordinary forms of remuneration for work done. `Commission' covers percentage rewards and `bonuses' occasional or periodical additions whether contracted for or voluntary. The next word `allowances' seems to me naturally to follow as an attempt to make sure that any other kind of gain or reward allowed or conceded by the employer to the employee for his work is brought within the definition. In language borrowed from Lord Esher, it is intended to cover any payment beyond the agreed salary of the employee for services or additional services rendered by him
Burgess v. Clark (1884) 14 Q.B.D. 735, at p. 738). That remuneration for work is the subject is further shown by the four specified cases I mentioned above as included in the definition.''
I think that the statements in the joint judgment in
Constable v. F.C. of T. (1952) 86 C.L.R. 402 at pp. 417-418 support a proposition that a pension such as that received by the appellant and also the lump sum payment received by him are an allowance made in respect of his services as an officer of the bank and are no less an allowance because they are made in respect of such services. In
Reseck v. F.C. of T. 75 ATC 4213 at p. 4219; (1975) 133 C.L.R. 45 at p. 56 Jacobs J. said: -
``I do not think that the word `allowance' can be given a meaning which excludes payments by agreement, particularly when sec. 26(d) refers specifically to payments of this kind.''
The term is a very wide one but I think that looking at sec. 26(d) it is intended to relate to a capital amount paid in a lump sum in consequence of retirement from any office a payment which may be voluntary, by agreement or compulsion of law and that the words ``gratuity'' and ``allowance'' are intended to be broadly descriptive rather than definitive. As Dixon J. said, these are terms which take up meaning rather from their context.
As to the other point I have in fact made reference to the Shorter Oxford Dictionary, Volume 2, for the meaning of the prefix ``com'' and find that it has the meaning ``together, together with, in combination or union'' which provides as well a meaning for the prefix ``con'' in the word ``consequence''. I have considered as well the prefix ``sub'' and the word ``subsequence'' but do not find any persuasive assistance there having regard to the context in which the phrase ``In consequence of'' occurs here. It seems to me that given a meaning according to ordinary common usage the phrase certainly refers to something more than mere temporal progression.
It was suggested in argument that there might be some disagreement between Gibbs J. at ATC pp. 4215-17; C.L.R. pp. 49-51 and Jacobs J. at ATC pp. 4219-20; C.L.R. p. 56 signified by their statements in Reseck v. F.C. of T. (supra). It seems to me that there is no basic disagreement demonstrated by these statements. At ATC pp. 4216-17; C.L.R. p. 51 Gibbs J. said: -
``Within the ordinary meaning of the words a sum is paid in consequence of the termination of employment when the payment follows as an effect or result of the termination. In the present case the payment did follow as a result of the termination of the taxpayer's services. It is not in my opinion necessary that the termination of the services should be the dominant cause of the payment. The reasons for holding that `purpose' in sec. 26(a) refers to the main or dominant purpose actuating the acquisition of the property have no place in the different context of sec. 26(d). For example, a retiring allowance is plainly intended to be within sec. 26(d) but such an allowance is made in consequence of the employee's past service as well as in consequence of his retirement and in many cases it could not be said that the retirement rather than the service was the substantial cause of the payment or that the former cause predominated over the latter. Moreover, in many cases allowances, gratuities or compensation are paid in consequence of the provisions of an industrial agreement or of the industrial law but the words appearing immediately before the proviso to para. (d) of sec. 26 show that the paragraph will nevertheless be applicable. In the present case the allowance was paid in consequence of a number of circumstances, including the fact that the taxpayer's service had been satisfactory and that the industrial agreements provided for the payment, but it was none the less paid in consequence of the termination of the taxpayer's employment.''
At ATC pp. 4219; C.L.R. p. 56 Jacobs J. said: -
``I have no doubt that the amounts were allowances to the appellant, that they were paid in lump sums and that they were paid in consequence of the termination of his employment. It was submitted that the words `in consequence of' import a concept that the termination of the employment was the dominant cause of the payment. This cannot be so. A consequence in this context is not the same as a result. It does not import causation but rather a `following on'.''
I think it clear that the statement of Jacobs J. refers to something more than the occurrence of events in a purely temporal progression and that it connotes a relationship between events or states of things and the payment in question to which some persons might apply the adjective causal, while others would see the link in that one or more of such events or states of things must necessarily exist or occur as precedent to the payment, so as to constitute a condition or conditions precedent, both meaning the same thing. But, in my view, one thing stands out clearly from these statements upon a consideration of the need to point to a ``dominant cause,'' namely that they do strongly support a proposition that a payment may be made in consequence of retirement, notwithstanding, that it is made as well in consequence of something else, for example, the rendering of services or a term in an industrial agreement or award and that it is not essential that a payment come within sec. 26(d) that the retirement be the last event
ATC 4329immediately preceding receipt of the payment in order to bring it within the ambit of sec. 26(d).
I was referred to
Hochstrasser v. Mayes (1960) A.C. 376 but statements made there relate to English Legislation and are concerned with the question whether there is a link between payment and employment which is not, in my view, relevant to the matters to be considered here in an interpretation of sec. 26(d). These statements are not in any way concerned with the question of directness or proximity. In my view there is no doubt that, notwithstanding the sequence of events in this matter, the payment in question was the capital amount of an allowance paid in a lump sum in consequence of retirement from an office or employment and that 5 per centum of that amount was correctly included in the assessable income of the appellant for the year in question.
In the result then the appeal is dismissed with costs to be taxed.