• Legal database
Legal database

Case L45

Judges: HP Stevens Ch

CF Fairleigh QC
JR Harrowell M

Court:
No. 1 Board of Review

Judgment date: 27 July 1979.

C. F. Fairleigh Q.C. (Member): The Commissioner adjusted the income of a medical practitioner for each of the years ended 30 June 1972, 1973 and 1974 by disallowing the greater part of deductions claimed for annual superannuation payments of $3,200 by the taxpayer for the benefit of his wife, a paid clerical receptionist in his medical practice. The taxpayer objected to the assessments which issued consequent thereon; the Commissioner decided to disallow the objections; those decisions have been referred to a Board for review, and the parties have concurred in having the references heard concurrently. There are amended assessments before the Board and the issues are confined to the Commissioner's allowance of $342 for 1973 and $388 for 1974, and his disallowance of the whole payment for 1972 by reason of what is discussed in para. 7 hereof.

2. My colleague Mr. Harrowell has analysed and reproduced the evidence in greater detail than I find to be necessary to reach a conclusion. Credibility of the witness, is not in issue and I adopt the findings of fact as made by my colleague.

3. The Commissioner has accepted that the deed, in form, complies with the requirements of a deed which establishes a superannuation fund for employees. The deed was entered into on 27 June 1972 and it recites that the medical practitioner has decided to establish a superannuation fund, and the deed appoints the practitioner and his wife as the trustees of the fund.

4. The stated purpose is to provide pensions, retiring allowances and other benefits for the taxpayer's present and future employees and/or for their respective dependants. The employer (the taxpayer) has an absolute discretion as to payments to be made by him to the fund and as to allocation of the contribution between members of the fund.

5. The deed states that the trustees shall pay out of the moneys of the fund such retiring allowances and other benefits to members of the fund or their dependants as shall fall due in pursuance of the rules.

6. The rules require any person who desires to become a member of the fund to make application for membership in the form prescribed by the trustees. It would seem that no form was prescribed by the trustees and no application for membership was made either by the taxpayer's wife or by his only other employee (his day-time secretary/receptionist/assistant) although each was eligible by reason of age, etc. Apparently the taxpayer and his wife rely on an equitable estoppel to sustain the claim that she alone benefits under the deed for all moneys paid into the bank account which has the title Dr.... Superannuation Fund. The Commissioner has not put this subject in issue.

7. The Commissioner has put in issue both in the reg. 35(1) statement and throughout the hearing of the references the question whether the first contribution made by the taxpayer to the fund was made in the

ATC 279

year in which it was claimed, the first of the years here in issue or in the next financial year. The sequence of events is as follows:
  • (a) 28 June - Cheque for $3,200 drawn by the taxpayer in favour of the superannuation fund.
  • (b) 29 June - Minute of trustees' resolution that $3,200 is to be paid into the fund by the taxpayer for the benefit of his wife.
  • (c) 30 June - That cheque is credited to the bank account of the fund.
  • (d) 3 July (Monday) - That cheque is debited to the taxpayer's bank account. (There is then a credit of $925.76 although this is the consequence of credits on 3 July of $2,900 and $349.30.)
  • (e) 3 July - Withdrawal of $3,000 from the fund's bank account.
  • (f) 7 July - Taxpayer's bank account is overdrawn.
  • (These two bank accounts were with different chartered banks in the same city.)

8. The principles of law relevant to the point taken by the Commissioner are briefly stated as follows:

  • (a) A cheque (in proper form and neither post-dated nor stale) is payable on demand ( Hals. 4th ed. vol. 4 p. 145 para. 334).
  • (b) A cheque is presumed to stand upon the basis of a valuable consideration ( ibid. p. 164 para. 379).
  • (c) The statutory definition of consideration is more extensive than consideration at common law ( ibid. p. 164 para. 380).
  • (d) The holder of the cheque must present it to the bank for payment within a reasonable time after its issue ( ibid. p. 185 para. 421).
  • (e) The duty and authority of a bank to pay a cheque drawn by a customer is determined by countermand of payment, commonly known as stopping a cheque ( Hals. 4th ed. vol. 3 p. 50 para. 64).
  • (f) Unless payment is countermanded by the customer, a bank is bound to pay cheques drawn on it by the customer in legal form, provided that the bank has sufficient and available funds of the customer for that purpose, or provided the cheques are within the limits of an agreed overdraft (vol. 3 ibid. p. 38 para. 50).
  • (g) A disposition of money by cheque is not made until the cheque is paid, in the case of a gift ( Hals. 4th ed. vol. 19 p. 323 para. 605).
  • (h) If there is an original debt, a cheque taken in payment is conditional payment, and if the cheque is dishonoured payment of the original debt may be enforced as if the cheque had not been taken ( Hals. 4th ed. vol. 9 p. 348 para. 502).
  • (i) If a cheque is accepted for an original debt and paid, payment is deemed to be made at the date of handing over the cheque (vol. 9 ibid. p. 348 para. 501 note 3).
  • (j) Where a cheque is credited by the bank as cash prior to receipt of payment, the customer is only entitled to draw on it at once if there is an agreement express or implied to that effect; and if a cheque received or collected is dishonoured the bank is entitled to debit its customer's account accordingly ( ibid. vol. 3 p. 80 para. 104).

9. The deed empowers the taxpayer as employer to nominate the beneficiary of the payment at ``the time of making the relevant contributions''. This means, as I understand it, that at the time of handing over his cheque in favour of the superannuation fund the taxpayer is to make the allocation, rather than that he must wait until the cheque is debited to his own bank account before he makes the allocation; furthermore the rules contain a provision that the determination notified in writing by the employer to the trustees of the allocation of the contribution is irrevocable by the employer. Thus, immediately the taxpayer has handed over his cheque with a notification of allocation it appears that he cannot escape from a liability to make the payment; i.e., there is an original debt due by him to the superannuation fund from the point of time of handing over the cheque. Accordingly, in my opinion, as that cheque was accepted and paid in the ordinary course of events, therefore payment is deemed to have been made at the date of

ATC 280

handing over the cheque (
Felix Hadley & Co. v. Hadley (1898) 2 Ch. 680 ;
Marreco v. Richardson (1908) 2 K.B. 584 at p. 593 ;
Ullrich v. Commr. of I.R. (N.Z.) (1964) N.Z.L.R. 386 ).

10. The conclusion is that the first contribution of $3,200 was made by the taxpayer to the superannuation fund for the benefit of his wife in the year ended 30 June 1972. Although the Commissioner has not raised the point, there is a similar question with a similar answer for the year ended 30 June 1974.

11. Apart from what is discussed in para. 7, 9 and 10 hereof the Commissioner has not raised any issue as to the moneys paid into the fund being set apart or paid for the benefit of the taxpayer's wife or being fully secured, notwithstanding questions introduced by members of the Board as to contributions by the taxpayer appearing to be made after his bank account had been augmented for that purpose and some of the payments to the fund appearing to come back after a short space of time directly or indirectly to the taxpayer or to a company or an account under his control. The Commissioner apparently considers that subject to be irrelevant and has not pursued it. I am accepting that the payments by the taxpayer to the superannuation fund account were genuine and not colourable gifts (cf. as to that expression, Williams (
Inspector of Taxes) v. Davies (1945) 1 All E.R. 304 at p. 307; 26 T.C. 371 at p. 379 ;
Johnston (Inspector of Taxes) v. Heath (1970) 3 All E.R. 915 at p. 923; 46 T.C. 463 at p. 471 ).

12. The Commissioner has acknowledged in the reg. 35(1) statement that the amounts paid by the taxpayer to his wife as salary for each of the years ended 30 June 1973 and 1974 are reasonable in terms of sec. 65(1). No distinction could be drawn on that score in respect of the amount paid to her as salary for the year ended 30 June 1972.

13. In the following table the wages paid to the wife are set out as (a); the wages paid to the other (``day-time'') secretary/receptionist/assistant are set out as (b); and the award wages payable to a secretary/receptionist/assistant who is not required to do ``shorthand'' are set out as (c): 

               1971      1972      1973      1974

                 $         $         $         $

      (a)     2,586     3,250     3,417     3,876

      (b)     2,538     2,949     3,417     3,944

            1.7.71  to 30.6.72   1.7.72 to 30.6.73   1.7.73 to 30.6.74

            ------------------   -----------------   -----------------

                    $                   $                   $

      (c)        3,088.10            3,258.60            3,963.80

14. The taxpayer's wife was capable of rendering and did render during the whole of his time in sole practice, viz., from 1949 to the present, assistance of special value to him in the conduct of his practice. Prior to her marriage she was an officer in a branch of the Defence forces whereby she had held an administrative position in Government hospitals; she was a qualified and competent typist who was familiar with the completion of forms for repatriation and workers' compensation purposes.

15. The taxpayer's wife was born in 1920 and it was said that her expected ``date of retirement'' was the anniversary of her birthday in 1980. The Board was asked to obtain her life expectancy as 20 years from 1980 by accepting life expectancy tables which show that number of years (approximately) for a woman of her age. It matters little in the present circumstances but there is a fallacy in using those tables to give the life expectancy of a known individual (cf. reg. 33(1) of the Estate Duty Regulations 1917 held ultra vires in
Chesterman v. F.C. of T. (1923) 32 C.L.R. 362 reversed by the Privy Council without that point being considered (1926) A.C. 128 ; 37 C.L.R. 317 ).

16. The first year in which the taxpayer made any payment to his wife as wages was 1955. During the preceding six years, although she was rendering him assistance much to the same extent as later, there was not a contract of service (employment) nor a contract for services (agency). The general rule with respect to work done voluntarily is

ATC 281

that the one who does the work and so confers a benefit on another cannot make that other pay for it against his will ( Hals. 4th ed. vol. 9 p. 476 para. 697); yet where there is an express or implied request for services to be rendered it may be possible to imply a contract under which there is a promise to pay a quantum meruit for those services (ibid.). On the one hand, the employment of a person in a professional capacity (here a qualified typist/secretary/receptionist) raises a rebuttable presumption to pay for those services (ibid.) ; and on the other hand where the person who does such work is the spouse there is a presumption that the parties do not intend to create legal relations in the arrangements made between them ( ibid. vol. 9 p. 179 para. 305) whereby one of the essentials for a valid contract ( ibid. p. 95 para. 224) is lacking. Here I hold that there was no intention during the period 1949-1955 that there be a contractual relationship of employment or of agency.

17. It is pointed out in the joint judgment in
Ronpibon Tin N.L. and Tongkah Compound N.L. v. F.C. of T. (1949) 78 C.L.R. 47 at pp. 59-60; 8 A.T.D. 431 at p. 437 that the Commissioner is forced by the exigencies of administration to provide his assessors, in some circumstances, with some fixed rule which is a more or less arbitrary expedient to which it is scarcely possible to resort judicially. Therefore a Board which is deciding a reference inter partes in a quasi-judicial way should not blindly follow the practice of the Commissioner even though his practice, generally speaking, has been found to produce an adequate allowance under the relevant statutory provision. At times the Commissioner as a guide to tax agents makes known by an official circular the practice followed by his assessors.

18. A rigid rule (whether or not set out in such a circular) treated as universally applicable is an erroneous procedure ( Chesterman v. F.C. of T. (1923) 32 C.L.R. 362 at pp. 380, 388, 397, 398 and 400); furthermore the finding of fact in an earlier decision of a Board of Review (or in several such decisions) as to the special circumstances which result in the allowance to an employer of a deduction for an amount of superannuation fund contributions greater than the statutory minimum as in sec. 82AAE(a) has no standing as a precedent (as the Board is only an administrative tribunal) or even as evidence on the present references ( Hals. 4th ed. vol. 16 Estoppel p. 1041 para. 1543; vol. 17 Evidence p. 143 para. 197;
Zielke v. Voak (1961) Q.D.R. 440 at p. 450 ;
Bridges v. Directors of North London Railway Co. (1873) 7 H.L.C. 213 at p. 236 ; Seminars on Evidence at p. 25 ``... a finding on the evidence in the individual case unhampered by any knowledge of the findings of fact made in other cases, however similar'').

19. It is in the light of the matters set out in the preceding paragraph that consideration is to be given to the Commissioner's circular to Tax Agents No. 1/1970 on superannuation funds reasonable benefits. That circular refers to the scale used by the Commissioner in his administration of sec. 23F(2)(h) and says with respect to employees of public companies and to arm's length employees of private companies that for the purpose of estimating an employee's remuneration at retirement it will usually be acceptable to project current remuneration (including salary, director's fees and regular bonuses) to retirement age at the rate of four per cent per annum simple interest; and that in relation to an associated employee of a private company the amount of reasonable benefit may be scaled down, in some circumstances including those (a) where that employee will not have had 20 years' service at retirement; (b) where that employee is not fully employed in that service; (c) where sec. 109 has been applied; and that if it should appear that the benefit payable from a superannuation fund to an employee on his retirement or death is likely to exceed seven times his final average salary a certain course should be taken.

20. The importance of regarding each year of taxation separately has been referred to in
Henderson v. F.C. of T. 70 ATC 4016 at pp. 4018-4020; (1970) 119 C.L.R. 612 at pp. 647-649 and in
F.C. of T. v. Applegate 79 ATC 4307 . Nonetheless, attention may have to be directed to several years so as to be able to understand the effect of what has been or is being done (cf.
J. Rowe & Son Pty. Ltd. v. F.C. of T. 71 ATC 4157 at pp. 4158-4159; (1971) 124 C.L.R. 421 at p. 448 ); also the profit-emerging basis has regard to the expectations of a series of years (
Perrott v. D.F.C. of T. (N.S.W.) (1925) 40 C.L.R. 450 ;
F.C. of T. v. Thorogood (1927) 40 C.L.R. 454 ;
C. of T. (Qld.) v. Burke (1926) 38 C.L.R. 314 ).

ATC 282

Furthermore, if there is occasion to look to years beyond that in issue and at the date of the hearing of the reference or appeal the facts of such years are known then the facts are taken into account rather than surmise as to possibilities (see the authorities collected in Case K66,
78 ATC 642 at p. 662 and
F.C. of T. v. Total Holdings (Aust.) Pty. Ltd. 79 ATC 4279 at p. 4285 ).

21. The pervasiveness of superannuation for an employee is indicated in the joint judgment of Evatt C.J. and Murray J. In
The Marriage of Bailey (1978) FLC ¶ 90-424 at p. 77, 141; (1978) 33 F.L.R. 10 at p. 17 :

``In modern society superannuation is becoming an increasingly important benefit of employment. Many and varied can be its provisions. Some superannuation funds are discretionary in their nature in order to protect the beneficiary against death duties - some give a pension right - some give an absolute right to a lump sum. Some give the option of converting one to the other. Whether the superannuation benefit is property within the meaning of sec. 79 ( scil. of the Family Law Act ) will depend on the provisions of the deed or legislation setting up those benefits. In most cases the right to superannuation is not immediately realisable and therefore seldom able to be dealt with directly under sec. 79. It is however, always a very important factor to be taken into account when the adjustment of property rights between spouses is sought, although quantification of such a factor can be very difficult. Contribution by one spouse to superannuation usually means the loss of moneys available for the current support of the family in order to provide security for both spouses on the retirement of the contributing spouse. Loss of the right to share in the superannuation by a divorced non-superannuated spouse is an important financial consequence of the dissolution of the marriage.

Indeed the Court is specifically enjoined by sec. 75(2)(f) of the Family Law Act to have regard to `the eligibility of either party for a pension, allowance, or benefit under any law of Australia or of a State or Territory or under any superannuation fund or scheme, or the rate of any such pension, allowance or benefit being paid to either party'.''

22. If the inquiry concerns the benefits under a superannuation fund of a woman who is employed by her husband in his business or profession, it is unreal to adopt the procedure set out in the Commissioner's circular No. 1/1970. The movement of progressive societies from status to contract (cf.
Johnson and Anor. v. Moreton (1978) 3 All E.R. 37 at p. 53 per Lord Simon of Glaisdale ) has not yet reached the point where there is any demonstrable need (comparable with that ordinarily arising in employment) for a husband to maintain a superannuation fund for the benefit of his wife who is his full or part-time employee; even if society now has the description given to it by Lusink J. In
The Marriage of Putrino and Jackson (1978) FLC ¶ 90-441 at p. 77,254; (1978) 33 F.L.R. 94 at p. 104 . Doubtless the husband may still do so; and, if the Commissioner challenges the payment, the issue is to be resolved without reference to the rights of a spouse under sec. 75(2)(f) or sec. 79(1) of the Family Law Act.

23. The exhibits project a salary from July 1974 to July 1980 on a growth level of 4%, but there is no evidence of the actual salary paid by the taxpayer to his wife for the years from 1 July 1974 to the present. The general tenor of the evidence is that there has been no change to the present in the services rendered by her in the years subsequent to those in issue. On the aspect of future events, I say only that it is not improbable that, as suggested in evidence, the taxpayer's wife will in a year or so (i.e., about 1980) retire from the work which she now does. As to the fund which will then be available, see para. 11 hereof.

24. The amount paid by the taxpayer into the superannuation fund for the benefit of his wife is almost equal to her salary for the first year in issue and only a small percentage short of her salary for each of the other two years. The immediate impression (and it is confirmed on close examination) is that those payments into the superannuation fund are grossly inflated because of

ATC 283

relationship; and that an ordinary employee would not receive such generous treatment.

25. The probabilities are that the taxpayer's day-time secretary/receptionist/assistant was not told of the existence of the fund at any material time; or if told of it was not invited to join it; and that if she had applied for and obtained membership then the contributions, if any, which would have been made by the taxpayer for her benefit would have been but a small fraction of what he paid for the benefit of his wife. The issue under sec. 82AAD is decided against the taxpayer.

26. The onus is on the taxpayer to prove under sec. 82AAE(b) that ``special circumstances'' exist; or to put it another way, the taxpayer has to establish that the facts which are asserted to be ``special circumstances'' are such within the meaning of the phrase in its statutory context (
Bourke Investments Pty. Ltd. v. D-Jay's Pty. Ltd. (1952) V.L.R. 206 ; and cf.
Air Force Association v. White Manufacturing Co. (Aust.) Pty. Ltd. (1951) V.L.R. 85 ;
Looke v. Parbury Henty & Co. Pty. Ltd. (1950) V.L.R. 94 ;
Phillips v. Forsyth (1952) V.L.R. 344 , re ``special circumstances'' under the (Victorian) Landlord and Tenant Act 1948).

27. The major question for resolution is whether regard should be had as special circumstances to facts such as:

  • (a) no payment was made by the taxpayer to his wife for six years from 1949 during which period she ``unselfishly devoted herself to her duties without pay'';
  • (b) the payments made by the taxpayer to his wife from 1955 to the present as wages may perhaps be less (and are asserted to be less) than he would have found it necessary to pay to an outsider who was on ``stand-by'' to take telephone messages and to attend to callers at his home surgery at odd hours as well as carry out the normal duties of a secretary/receptionist/assistant during, and immediately before and after, surgery hours when the day-time assistant was off duty. (Obviously, there is no proper comparison unless the assumption is made that the ``outsider'' has all the privileges and perhaps, obligations, of a member of the taxpayer's household.)

28. There is cause to doubt that an earlier non-contractual rendering of services (para. 16 hereof) is a special circumstance in arriving at an appropriate contribution to superannuation funds pursuant to sec. 82AAE(b). The only basis that I see for accepting it as such is that the taxpayer might have rewarded his wife for the 1949-1955 years of service by a cash bonus then or belatedly; and there was a bonus paid to her and to the other employee of $300 each in 1972. With more certainty, it can be said that para. 27(b) contains a special circumstance.

29. The resolution of issue as in para. 28 hereof in favour of the taxpayer still leaves quantum to be decided.

30. The Commissioner has not specifically entered upon the matter of quantum for special circumstances in his assessment. Therefore the position is different from that where the Board is asked to consider whether another amount (more or less arbitrary) should be substituted for that which has been adopted by the Commissioner - see the authorities cited in Case L5,
79 ATC 20 .

31. The gross over-payment to the superannuation fund (para. 24 hereof) is not fully explained away by accepting that there are special circumstances as outlined in para. 26 and 27 hereof. The evidence provides very little guide to quantify the same, yet it seems to me that 25% of salary is in round terms the appropriate allowance.

32. I would uphold the several objections to the extent of allowing deductions for payments to the superannuation fund as follows: 

         Year ended 30 June 1972       $811

         Year ended 30 June 1973       $854

         Year ended 30 June 1974       $969

and I would amend the amended assessments accordingly.


Back to top

This information is provided by CCH Australia Limited Link opens in new window. View the disclaimer and notice of copyright.