Case N21

Judges:
KP Brady Ch
LC Voumard M
JE Stewart M

Court:
No. 2 Board of Review

Judgment date: 8 April 1981.

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K.P. Brady (Chairman); L.C. Voumard and J.E. Stewart (Members)

In August 1970, the taxpayer requesting this reference entered the service of a foreign shipping line (``the Line'') as a junior engineer. He remained with the Line until 1979, when he left the maritime industry, having in the interim become and served as a marine engineer, a post that carries officer status. During the period 1970-1979 he served aboard ships owned by the Line on a number of occasions. Although the periods varied, the practice seems to have been that after about 15 weeks continuous service at sea an officer would sign off the ship and go on about 11 weeks shore leave. In general, officers going on leave were treated as remaining available for another posting unless they gave notice that they were leaving the Line. An officer treated as available might be contacted by the Line during or after the leave period and asked whether he was available for posting to a particular ship. This happened to the taxpayer in May 1976

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ATC 125

and December 1976, and his affirmative answers led to him being posted to the ship ``T'' on each occasion as a marine engineer. He signed on on 31 May 1976, and served until 1 September, when he signed off. He again signed on the ``T'' on 31 December 1976, and signed off on 30 April 1977.

2. On each occasion of signing off he received a lump sum payment which represented accumulated leave. The first, of $3,172 before deductions, was said to have been made on 1 September 1976, and although his return of income suggests a signing-off date of 18 September, we accept the taxpayer's evidence that the earlier date was correct. The second payment, of $3,453 before deductions, was made to the taxpayer on 30 April 1977. In his return of income for the year ended 30 June 1977, the taxpayer claimed that each payment fell within sec. 26(d) of the Income Tax Assessment Act, which, as far as relevant, treats as assessable income ``5% of the capital amount of any allowance, gratuity or compensation where that amount is paid (whether voluntarily, by agreement or by compulsion of law) in a lump sum in consequence of retirement from, or the termination of, any office or employment...'' Accordingly, the return treated only $331 (five per centum of $6,625) as assessable income. The Commissioner, on the other hand, denied that sec. 26(d) applied, and treated the total amount of $6,625 as assessable income pursuant to sec. 25(1) or sec. 26(e) of the Act.

3. The submission made by the taxpayer's representative was to the effect that, on each occasion of joining the ``T'' and signing the ship's articles of agreement, the taxpayer entered into a contract of employment with the Line, a contract of employment which terminated on each occasion upon which the taxpayer signed-off the articles, and that each lump sum was paid to him in consequence thereof. For the Commissioner, it was submitted that there was no retirement from or termination of any office or employment upon the occasions of signing-off; that it was only in 1979 when the taxpayer notified the Line that he did not wish to work for it any longer that any such retirement or termination took place.

4. It is important to understand that the ships owned by the Line were registered outside Australia, and for that reason neither the ship ``T'' nor her crew were subject to any Australian maritime laws or industrial awards. There may be one qualification to this, for it was said that from some date not specified the Victorian workers' compensation legislation had been extended to officers and crew while they were aboard the vessel. But subject to this, the rights and obligations of the Line and the crews it employed depended entirely on the contracts between them. Unfortunately, the evidence given by the taxpayer and also the marine personnel superintendent (M) of the Line, who was called by the Commissioner, was by no means precise and free from contradiction. However, sufficient emerged to satisfy us that there was a general contractual arrangement between the taxpayer and the Line from the time he joined the Line in 1970 until he left in 1979. By virtue of the articles of agreement, additional terms were added to this general arrangement, operative during his periods at sea.

5. The articles of agreement signed by officers, in particular the taxpayer, were not tendered. The evidence as to their contents was sketchy, but it seemed that they covered such matters as the duties of officers while on the ship, rather than more general questions such as salary, leave and conditions of employment generally. Some of these latter matters were covered in a document displayed on the ship ``T'' entitled ``General Information for Applicants (Expatriate)'' (Exhibit 1). It is enough to refer to two of the items this document covered. Under the heading, ``Employment'', it was provided:

``After three months' continuous service, one month's notice must be given by either party, and service of less than three months' duration can be terminated by one week's notice being given by either party.''

The evidence contained no suggestion that this notice was given in connection with the signing off of the articles on 1 September 1976, and 30 April 1977, and the inevitable inference must be that if, as we believe, there was a general contract between the taxpayer and the Line (cf. the position of the woolclasser in Case B19,
70 ATC 88), that contract remained on foot until the taxpayer left the service of the Line in 1979.

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ATC 126

6. Exhibit 1 also dealt with leave. The relevant provision read:

``Leave is given on a 30-on 22-off basis and generally is given twice per annum, but period of service may be shorter to work in with other contingencies. To calculate leave entitlements use the.733 factor for each day served on articles.''

This meant that in respect of the second period of articles (31 December 1976 to 30 April 1977), the taxpayer was entitled to 89.446 days of leave, which in monetary terms entitled him to the lump sum payment of $3,453. But although his engagement as an officer on the ``T'' came to an end, his employment with the Line did not. Both he and the Line continued to be subject to correlative obligations and entitled to correlative rights imposed and conferred upon each other by the contract between them. Thus, if either party wished to put an end to the employment, notice was necessary, and there was no evidence that either party gave notice to the other during the year with which we are concerned. True, the Line was not obliged to re-engage an officer for ship duty before or after his period of leave expired, but the obligation of notice remained.

7. Finally, if the taxpayer were correct in his submission that by signing-off articles he terminated his employment, it must follow that in signing-on articles on 31 December 1976, he entered into another contract of employment. And the evidence given to us was to the contrary. Mr. M told us:

``An officer commences employment with (the Line) as soon as he fills in an application form and we accept the facts in the application form. After we consider him suitable for the position applied for, we offer him a job. Then we nominate the port and the date he is to commence. That is the commencement of his employment.''

And that could have been some years ago; in the case of the taxpayer, 1970.

8. In all the circumstances the taxpayer has not satisfied us that either of the sums in question falls within sec. 26(d), for the evidence does not support a finding that the taxpayer had retired from an office or employment. Nor could it be said that, having signed off the ``T'' on either occasion, he thereafter had no intention of resuming work with the Line. And, as was said in Case B19 (supra) at p. 91, adopting with approval what had been said by Mr. Nimmo in Case C103,
3 T.B.R.D. 602 at pp. 605-6, in order to establish, for purposes of sec. 26(d), that a taxpayer has retired from an office or employment, ``it is necessary to prove (a) that the taxpayer has in fact relinquished his office or employment, and (b) that at the time he relinquished it, he had no intention of ever resuming it''. In our opinion the taxpayer did not prove either of these facts. It follows that sec. 26(d) does not apply and that the two amounts received were correctly treated by the Commissioner as fully assessable.

9. For the above reasons, we would uphold the Commissioner's decision on the objection and confirm the assessment.

Claim disallowed