Federal Commissioner of Taxation v. Efstathakis.

Members:
Bowen CJ
Brennan J
Deane J

Tribunal:
Full Federal Court

Decision date: Judgment handed down 12 June 1979.

---

Bowen C.J.: In this appeal the Commissioner of Taxation of the Commonwealth of Australia appeals against a decision of the Supreme Court of New South Wales in its Administrative Law Division. The assessment objected to and disallowed by the Commissioner was made in respect of income derived by Joanna Laura Efstathakis, the respondent, during the year ending 30 June 1970. The Taxation Board of Review No. 1 upheld by a majority the taxpayer's objection against assessment. The Commissioner appealed from the decision of the Board to the Supreme Court pursuant to sec. 196(1) of the Income Tax Assessment Act 1936 as amended (hereafter called the ``Act'').

The taxpayer is a Greek national. Some time prior to August 1968 she became aware that a Press and Information Service was to be set up by the Greek Ministry of Foreign Affairs in a capital city in Australia and she made formal application for the position of secretary-typist in that Service. After taking the requisite examinations she was advised unofficially by the Ministry that she was suitable for the position but that an official reply would not be received by her for some time, as was usual in these cases. In May 1968 the taxpayer sought and was granted an assisted passage to Australia and in August arrived in Australia. Upon being advised by the Consul General that it would be some time before she received confirmation of her appointment she accepted employment in the private sector pending such confirmation.

The taxpayer was appointed to the position of secretary of the Greek Press and Information Service in Sydney by a ministerial decision of 12 December 1969 published in the Official Gazette of 13 December 1969. On 17 December she was advised of her appointment by an official certificate which states that she is employed ``as a secretary-typist of the Greek Press and Information Service, 250 Pitt Street, Sydney''. On 23 December she took an oath of office, thereafter becoming a permanent public servant with the Greek Government. As a member of the Greek Ministry for Foreign Affairs she was issued with a special identification card and a special staff passport for travel. It was obligatory for her to join her Government's superannuation scheme and all her income and salary were subject to income tax in Greece where, according to Greek law, she is considered to be domiciled. After such deductions had been made her salary was paid by cheques in U.S. dollars drawn by the Greek Government on a Greek bank and forwarded to the Greek Press and Information Service in Sydney. Payment to her was made by cheque handed over to her in Sydney. By the terms of her appointment, the taxpayer is subject to immediate transfer anywhere in the world on her Government's decision.

On 12 July 1969 the taxpayer married a Greek national who was engaged in permanent employment in Australia and who was granted Australian citizenship in November 1970. A daughter was born in November 1971 and in December 1972 the couple purchased a home unit. The taxpayer has made two visits each of a few weeks to Greece, in 1974 and 1975.

In the Supreme Court the respondent claimed that her income was exempt from income tax under four separate provisions:

---

ATC 4258

sec. 23AAA and 23(a)(ii) of the Act, art. 34 of the Vienna Convention on Diplomatic Relations and sec. 23(q) of the Act. The Supreme Court held against her as regards the first three provisions but upheld her claim that her income was exempt under sec. 23(q) of the Act. The present appeal is restricted to the Supreme Court's finding that the appellant's income was exempt under the provisions of sec. 23(q) of the Act.

The Commissioner conceded that the taxpayer was an Australian resident at all material times and that if the income was derived from sources within Australia and Papua New Guinea the income was not exempt from income tax in the country where it was derived. The sole issue in the appeal then is whether the income of the taxpayer was derived from sources out of Australia and Papua New Guinea.

The word ``derived'' in the context in which it is used in sec. 23(q) is synonymous with ``arising'' or ``accruing'' (
Harding v. F.C. of T. (1917) 23 C.L.R. 119 at p. 131 ;
F.C. of T. v. French (1957) 98 C.L.R. 398 at p. 420 ). The source whence the income is derived is not to be determined as a legal concept but as a finding of what a practical person would regard as the real source of income; and it is ascertained as a practical hard matter of fact (
Nathan v. F.C. of T. (1918) 25 C.L.R. 183 at pp. 189-190 ). It is a question to be decided upon a particular set of facts and previous decisions upon other sets of facts are often of little help (
F.C. of T. v. United Aircraft Corp. (1943) 68 C.L.R. 525 at p. 538 ; cf.
F.C. of T. v. Mitchum (1965) 113 C.L.R. 401 at pp. 406 and 408 ).

English authorities to the effect that the source of income is the place of payment have little or no bearing for the purpose of the Act ( F.C. of T v. French (supra) at pp. 406 and 412). The source of income which is derived from salary or wages consists in three elements. Those elements are the circumstances of obtaining the contract of employment which often include personal exertion involved in negotiating, the activity of performing the services, and, obtaining payment for the services (
C. of T. (N.S.W.) v. Cam & Sons Ltd. (1936) 36 S.R. (N.S.W.) 544 at p. 548 ). The principles applied in English decisions relating to income derived from trade or business activities require that most significance be attached to the place where the activity takes place (
Bennett v. Marshall (1938) 1 K.B. 591 at pp. 612-613 ). Those principles were adopted as a guide by Williams J. in the context of the contract of employment in F.C. of T. v. French (supra at p. 413). The appropriateness of that approach is aided by the fact that sec. 6 of the Act contains a definition of income from personal exertion and also a definition of income from property ( F.C. of T. v. United Aircraft Corporation (1943) 68 C.L.R. 525 at p. 536; F.C. of T. v. French (supra at p. 413) per Williams J.).

In French's case a taxpayer resident employed and paid in New South Wales was sent by his employer to work in New Zealand for a short period. The sum payable in respect of that period was included without distinction in payments of salary into his Sydney bank account. The taxpayer objected to the inclusion of the sum by the Commissioner in his assessable income. The objection was upheld by a board of review and then a case was stated for the Full High Court.

Dixon C.J. agreed in the conclusion and reasoning of Williams J. (at p. 405). Taylor J. reached the same conclusion upon slightly different grounds. His Honour agreed that the English decisions were not apposite and made no reference to the usefulness by analogy of the English cases relating to income derived from trade or business activities. His Honour agreed with the observations of Jordan C.J. in C. of T. (N.S.W.) v. Cam & Sons Ltd . (1936) 36 S.R. (N.S.W.) 544 and concluded upon the basis of practical considerations alone that the source of income was found in the place where the taxpayer performed the services rather than the place of the contract or the place of payment (at pp. 421-422).

Kitto J. held that there was not enough material relating to the terms of the taxpayer's contract before the Court to enable it to determine the source. In many cases the performance of the service is relevant and may indeed be decisive. Yet his Honour refused to subscribe to the proposition that in every case of employment the source of the wages or salary is to be found in the work. The terms of the contract may make remuneration payable independently of the actual performance of service,

---

ATC 4259

either generally or in relation to specified periods such as public holidays, annual leave or long service leave. The employer's obligation to provide remuneration under an industrial award or public service regulations may in some cases determine the source of income (at p. 419).

In each case, the terms of the contract of employment must be examined to determine whether the right to remuneration depends upon the activity of performing services. A term of the contract requiring service in a particular place or places is not decisive because all the facts, including those extrinsic to the contract, must be taken into account. The performance of activities in a particular place may on the facts of the case be merely incidental to the performance of activities generally.

In F.C. of T. v. Mitchum (1965) 113 C.L.R. 401, a non-resident taxpayer derived income from services performed in Australia under a contract of service entered into with a Swiss company which had lent the services of the taxpayer to the London subsidiary of a Californian company. All the contracts were executed outside Australia. The benefit of the loan agreement was assigned by the Swiss company to another company. The taxpayer was throughout entitled to payment only from the Swiss company whose obligation to the taxpayer was finally discharged by payment in America by the assignee company. Under the terms of the contract the taxpayer was to advise on selection of cast, train the cast, consult with the producer and act in two motion pictures as directed by the company at such studios and places and on such locations as the company from time to time designated. His services were required for a period of 12 weeks plus two weeks free and there was provision for payment in excess should his services be required for a longer period.

Barwick C.J., with whom Menzies and Owen JJ. concurred, held that French's case did not lay down that for the purposes of the Act the source of remuneration for services performed is necessarily, in default of special circumstances, in the place where the services are performed (at pp. 408-409). In answer to the stated case the Court held first that it was not bound to hold that the income was derived by the taxpayer directly or indirectly from a source in Australia within the meaning of sec. 25(1)(b) of the Act, and second that it was open to the Court to hold that the income was derived directly or indirectly from a source in Australia within the meaning of sec. 25(1)(b) of the Act.

Those answers do not indicate an approach different from that adopted in French's case to solving the question of fact before the Court. It might be noted that in Mitchum's case the contract contained provisions by which the taxpayer agreed to restrict his activities in a number of directions. Moreover, the taxpayer was entitled to be paid the salary even if the Swiss company failed to utilize his services, provided he fully and faithfully performed on his part all the other terms and conditions. In such a case he could not sue for damages.

In the present case, the answer is not to be found in the cases, but in the weighing of the relative importance of the various factors which the cases have shown to be relevant. The taxpayer's employment arising from her appointment by the Greek Government required her to perform the duties of a secretary-typist. There was no evidence before the Court as to restrictions upon her obtaining concurrent employment. Moreover, the only duties whose performance gave rise to an entitlement to remuneration were the duties ordinarily performed by a secretary-typist. The evidence does not suggest that had the Greek Press and Information Service refused to utilize the taxpayer's services, she would have been entitled to remuneration. The official certificate announcing the appointment of the taxpayer as a consulate employee makes specific reference to her place of employment in Sydney. The taxpayer stated that as a permanent public servant of the Greek Government she became subject to immediate transfer anywhere in the world in accordance with the Government's decision. However, as a matter of practical fact the taxpayer would have resigned rather than allow herself to be transferred to a country which was not ``something much better'' than Australia. The circumstances of the taxpayer's marriage, reflected later in the birth of her daughter and the purchase of a home, afford some indication that compliance with a

---

ATC 4260

transfer requirement would not be automatic but the outcome of serious deliberation.

The circumstances under which the employment was obtained and the remuneration paid do include some factors occurring outside Australia. The application, examination and unofficial offer of employment, which required the physical presence and activity of the taxpayer, all took place in Greece. The Ministerial decision, gazettal and mailing of the offer of employment took place in Greece after the departure of the taxpayer. Receipt of the formal offer and acceptance upon the taking of the oath of office occurred in Australia. Her entry upon the employment and her taking of the oath of office occurred in Australia. In my view, the personal exertion expended in Greece in obtaining the position was not significant enough to outweigh the importance of the other factors relating to the employment which took place in Australia.

The obligation of the Greek Government to pay the taxpayer was discharged in Australia by a cheque in payment received in Australia. The significance of the fact that her net pay, after deductions on account of tax and superannuation, was compiled in Greece and the fact that the cheque was drawn upon a bank in Greece must also be weighed. However, in my view, these lastmentioned factors are of little significance in comparison with the factors occurring in Australia including the performance of the services.

Upon the basis of practical considerations the residence of the taxpayer in Australia and the facts that the services were performed and payment received here are of greater significance. The payment of remuneration depended upon actual performance of the services. That Australia was the place of employment was not merely incidental but central to the earning of the income, to the personal circumstances of the taxpayer and to the nature of the employment.

My opinion, arrived at after having given respect and weight to the conclusion of the trial Judge, is that his Honour was wrong. Whichever view I adopted of the proper role of an appellate court faced with a finding of a trial Judge, I would still arrive at the same decision. In my opinion the income of the taxpayer was derived from a source within Australia within the meaning of sec. 23(q) of the Act.

The Commissioner appealed to this Court pursuant to leave granted on 16 October 1978 on condition that the order for costs of the Supreme Court be not disturbed; that the Commissioner pay to the respondent the reasonable costs of the appeal in any event, including Senior Counsel's fees; and that the Commissioner pay to the respondent the costs of the application for leave to appeal including Senior Counsel's fees.

I would allow the appeal. I would make orders for costs in accordance with the conditions imposed when leave was granted.