Case K67

Judges:
HP Stevens Ch
CF Fairleigh QC
JR Harrowell M

Court:
No. 1 Board of Review

Judgment date: 23 November 1978.

---

H.P. Stevens (Chairman): The question at issue in this reference is whether the taxpayer, who received in the year ended 30 June 1977 an advance payment for leave which commenced in that year and ended in the next year of income, has been correctly assessed in the first year on the total amount received in that year of income.

2. An employee since 1956, the taxpayer applied, by way of three separate applications dated 24 August 1976 and 22 October 1976 (two applications), for furlough and recreation leave covering the period 16 May 1977 to 2 February 1978 inclusive. It was indicated that she would be ``overseas - visiting my family'' and each application requested prepayment in respect of her leave - one application stated ``please pay at least 4 weeks beforehand to enable me to pick up my air tickets''. The leave was approved and, on 15 April 1977, she was paid an amount of $5,406.07 which was included in her group certificate as representing ``taxable earnings for the year ended 30 June 1977''. On the basis that this amount of $5,406.07 could be dissected into separate periods an exhibit was tendered showing that $1,467 represented amounts for the year ended 30 June 1977 and $3,939.07 for the year ended 30 June 1978. This dissection was on a notional basis only and, whilst I would not accept it in its entirety, it is useful as indicating the basis of the taxpayer's complaint.

3. Briefly stated the complaint is that, if the leave had not been prepaid but only as and when each pay period during that leave occurred, her income for the year ended 30 June 1977 would have been $3,939.07 less than it was (and that for the year ended 30 June 1978 correspondingly higher) and her overall tax liability for both years would have been less - due to the effect of the additional amount for 1977 being taxed at a higher rate than it would have been taxed if included in the 1978 year.

4. It is unfortunate that the prepayment should have had this effect but, under a rating system containing a number of steps, this is always a possibility even if the rates of tax for each year are identical. It is something that the Commissioner and a Board of Review - both being required to follow the legislation laid down by Parliament - are powerless to adjust. As a result, if the prepayment truly constitutes income of the year ended 30 June 1977, then, no matter how sympathetic one is, the assessment must be upheld.

5. In the case of
F.C. of T. v. Thorogood (1927-28) 40 C.L.R. 454 Issacs A.C.J. said in relation to the term ``derived'' - a taxpayer being assessable in terms of sec. 25(1) on the gross income derived by him - at p. 458: -

``Derived is not necessarily actually received, but ordinarily that is the mode of derivation.''

and this test has been consistently applied in holding that employees are assessable upon the amounts actually received by them in a particular year of income (irrespective of whether some part could be said to relate to another year of income). As a consequence I think it suffices to refer to two earlier decisions both of this Board as previously constituted. The first, Case A78,
69 ATC 422 , dealt with arrears of salary received in a subsequent year where it was claimed that the arrears should be assessed in the earlier year, and Case D7,
72 ATC 38 , which dealt with leave payments received in two instalments where it was claimed that despite the actual receipt of the second instalment in a later year it should have been assessed in the earlier year.

6. Consistent with the principles on which the above decisions were based there is no option but for me to uphold the Commissioner's decision on the taxpayer's objection and confirm the assessment for the year ended 30 June 1977.

---

ATC 666