Federal Commissioner of Taxation v. Woite.

Mitchell J

Supreme Court of South Australia

Judgment date: Judgment handed down 17 November 1982.

Mitchell J.

This is an appeal by the Commissioner of Taxation from a decision of the Taxation Board of Review No. 2 (Case P66, 82 ATC 313) which allowed a claim by the respondent that the inclusion of the sum of $10,000 by the Commissioner of Taxation in the assessable income of the respondent for the year ended 30th June 1976 was wrong. An objection had been lodged on behalf of the respondent against the assessment and the objection had been disallowed by the Commissioner of Taxation.

The matter came on before me on agreed facts. They are as follow:

``1. At all material times Woite has been an Australian Rules League Footballer and also a member of the South Australian Police Force. He played League Football for the Port Adelaide Football Club in South Australia from 1969 to 1978 inclusive. He represented the State of South Australia in its State League Football Team in 1970, 1971, 1972, 1974, 1975, 1976 and 1977. In both 1974 and 1975 he was Vice Captain of the Port Adelaide League Team and a member of the Management Committee of that Football Club. In September 1975 he was announced the winner of the Magarey Medal, the annual South Australian prize for the fairest and most brilliant footballer in the League.

2. Woite has spent his life to date living and working and playing football in the State of South Australia.

3. On 7th April 1972 Woite signed a written contract with the Port Adelaide Football Club committing himself to play for that Club in the 1972, 1973, 1974, 1975 and 1976 football seasons.

4. After the 1975 football season ended in September of that year various Football Clubs contacted Woite with a view to engaging his services as a footballer. These included South Australian and Victorian teams, including North Melbourne Football Club from Victoria.

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5. After a series of negotiations with officials from the North Melbourne Football Club Woite received a payment of $10,000 in Adelaide on 19th November 1975 in exchange for his signature that day on a Victorian Football League form known as a `Form 4'. That payment was in consideration for that signature pursuant to an oral agreement reached between Woite and North Melbourne on the night before.

5A. Prior to the signing of the Form 4, on the 14th day of November 1975, the North Melbourne Football Club offered to pay to Woite the sum of $2,000 in exchange for his signature on a Form 4. At the same time a draft playing contract was presented to him for his consideration. Woite did not accept the offer of $2,000 or the draft playing contract.

6. On the 18th day of November 1975 Woite also received an offer from the Richmond Football Club of Victoria to pay to him the sum of $5,000 in exchange for his signature on a Form 4. That offer was not accepted by Woite.

7. At no stage was ant written contract executed between Woite and the North Melbourne Football Club or any other Victorian Football Club.

8. At no stage did Woite make any oral commitment to playing football in Victoria. At the time he signed the Form 4 and received the sum of $10,000 he had made and communicated no decision as to whether he would play football in 1976 in Victoria or in South Australia.

9. On 19th November 1975 Woite received oral confirmation from North Melbourne officials that the payment of $10,000 to him was in exchange for his signature on the North Melbourne Form 4, it then being up to North Melbourne to try and convince him and his wife to subsequently move to Victoria and for him to play football for North Melbourne.

10. Woite was under no obligation, having received the $10,000 to move to Victoria or play football in Victoria. In fact he never did move to Victoria or play football in the Victorian Football League.

11. Between 20th November 1975 and 12th February 1976 Woite had a number of discussions with officials from both the North Melbourne Football Club concerning playing for that club in 1976 and other years and his own club, the Port Adelaide Club concerning playing for that Club in 1976 and other years. In December 1975 the North Melbourne Club approached Woite with a draft contract to play with them which provided for various forms of remuneration and guaranteed wages for both the taxpayer and his wife, apart from football earnings. In January 1976 Woite was approached with a further draft contract which provided for greater benefits than the prior draft contract. In January 1976 he advised North Melbourne of his decision and subsequently in February 1976 he was offered a further $10,000 to go to North Melbourne. On 12th February 1976 Woite signed a new playing contract with the Port Adelaide Football Club. That contract superseded the earlier contract signed in 1972 so far as the 1976 football season was concerned and covered seasons 1976-1980 inclusive. The Port Adelaide Football Club advised North Melbourne of the signing of that contract on the 12th day of February 1976.

12. Subsequently the North Melbourne Football Club through its solicitors threatened and brought proceedings in the Adelaide Local Court trying to recover from Woite the sum of $10,000, alleging a breach of contract by him. It was alleged by the North Melbourne Football Club that Woite had entered into an agreement to play for that Club in 1976, 1977 and 1978 and that the payment of $10,000 was a payment made pursuant to that agreement. Woite through solicitors denied any breach of contract and denied the existence of any contract other than the oral agreement to sign the Form 4 and receive the sum of $10,000.

13. In due course the Adelaide Local Court case was heard by Acting Judge Greaves (as he then was).

14. Judgment was delivered in that case on 15th November 1977, the Judge dismissing the claim by North Melbourne

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and finding that no contract existed as alleged by North Melbourne, but only the oral agreement as alleged by Woite.

15. Woite played football for the Port Adelaide Football Club in seasons 1976, 1977 and 1978 and then subsequently transferred to the Glenelg Football Club (also in the South Australian League) during the 1979 season, playing for that Club until he retired part way during the 1980 season.''

Section 196(1) of the Income Tax Assessment Act 1936 as amended provides that there is an appeal to the Supreme Court from any decision of the Board involving a question of law. Counsel were agreed that a question of law was involved, as it clearly was. See the dictum of Lord Parker of
Waddington in Farmer v. Cotton's Trustees (1915) A.C. 922 at p. 932, adopted by Latham C.J. in
F.C. of T. v. Miller (1946) 73 C.L.R. 93 at p. 97 and by Fullagar J. in
Hayes v. F.C. of T. (1956) 96 C.L.R. 47 at p. 51, that:

``where all the material facts are fully found, and the only question is whether the facts are such as to bring the case within the provisions properly construed of some statutory enactment, the question is one of law only.''

The onus of proof that the Commissioner erred in his assessment remains upon the respondent.
McCormack v. F.C. of T. 79 ATC 4111; (1979) 143 C.L.R. 284. It is for him to satisfy me on the balance of probabilities that the $10,000 was not assessable income within the meaning of sec. 25(1) of the Act.

Mr. Robertson submitted that the respondent had not established that the $10,000 paid to him was not a reward received by him as a professional footballer and that such an award was subject to taxation. The Board of Review had rejected this argument and said that it treated the sum of $10,000 as ``a non-assessable receipt of a capital nature'', and as ``a payment for giving up a permanent asset and no more'' (82 ATC 313 at p. 317). That view was challenged by Mr. Robertson who sought to distinguish the ratio decidendi of
Jarrold v. Boustead (1964) 3 All E.R. 76. That was a decision of the Court of Appeal in relation to an agreement made between a taxpayer and a Rugby League football club. The taxpayer agreed to play for the club during the ensuing season at a specified sum per match and the club agreed to pay him $3,000 on his signing professional forms, including a form consenting to be registered as a professional football player for the club. A player who had relinquished amateur status could never regain it. The Court of Appeal held that the signing-on fee was a capital sum paid to the taxpayer in consideration of his relinquishing his amateur status for the rest of his life and was not taxable as an emolument of the taxpayer. Mr. Robertson submitted that the basis of the decision was that the player in question was relinquishing permanently a substantial asset but I do not think that the objective value of the asset weighed with the Court of Appeal. Lord Denning M.R. at p. 80 gave an illustration of a payment which he would regard as not being a payment which he would regard as not being a payment of income and said:

``It is a payment for relinquishing what he considered to be an advantage to him.''

(Emphasis added.)

Danckwerts L.J. referred to the different situation of several players, one of whom had already lost his amateur status before the agreement was made, and said that it would be ``merely a difference in the situation rather than in principle'' (p. 81).

Diplock L.J. at p. 81 referred to the payment as being one ``for giving up permanently a status which had for them some advantage''.

Of course, if the advantage which was given up was shown to be merely illusory, there might be reason for saying that the payment was not in fact for the surrender of this advantage but for some other purpose and the taxpayer might not then discharge the onus of establishing that the payment was not income. In the present case, however, the effect of the signing of Form 4 by the taxpayer was that he deprived himself of the opportunity, which otherwise would have been open to him, of accepting any offer, which might be made at any time by any Victorian Football Club other than North Melbourne Football Club, to play professional football in Victoria. In the events which happened he remained in South Australia until his retirement from playing football but the bar to his acceptance of a

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contract with any football club other than the North Melbourne Football Club remained and still remains. The payment of the $10,000 did not in any way affect the income from football which the respondent received in South Australia.

Had the signing of Form 4 by the respondent been followed by a contract with the North Melbourne Club to play football for that club it may well have been difficult, if not impossible, for the respondent to discharge the onus of establishing that the $10,000 was not income. In Case A14
69 ATC 80 the Board of Review considered a restrictive covenant under which the taxpayer, a footballer of international standard, entered into a contact with the Metropolitan Rugby League Football Club to play football for that club for three years and covenanted not to play football with any other club in the metropolitan area for a further period of three years. The majority of the Board held that the payment for the restrictive covenant represented the rewards of professional football as much as did the signing-on fee and match payments in that the amount was paid in consideration of his services as a footballer being available to the club and as such amounted to income. The remaining member was of the view that the amount paid as consideration for the restrictive covenant did not have the character of income. The decision in
Riley v. Coglan (1967) 1 W.L.R. 1300 was based on similar reasoning to that of the majority of the Board in Case A14. In the instant matter the amount was paid solely for the agreement not to play for any other club in Victoria.

It seems to me that a useful analogy is to be found in
Dickenson v. F.C. of T. (1958) 98 C.L.R. 460 in which the High Court, by a majority, held that payments made to a garage and service station proprietor in return for a covenant to restrict his sales of certain products to the products of the company making the payments were of a capital nature and did not form part of the appellant's assessable income. Kitto J. said at p. 492, after discussing
Higgs v. Olivier (1952) Ch. 311 which, he suggested, might have been decided against the taxpayer if it arose under the Commonwealth Act:

``But a lump sum payment for a restriction of a garage and its proprietor to one brand of petroleum products for a period of 10 years, effectuated by means of a lease and sublease of the premises as well as by personal covenants, seems in the nature of a sale price for a substantial and enduring detraction from pre-existing rights. The restriction does not strike my mind as an obligation undertaken incidentally to the carrying on of the business. Rather does it take a substantial piece out of the ordinary scope of the business activities to which otherwise the appellant might apply himself...''

In the case at bar the restriction was not an obligation undertaken incidentally to the playing of football for reward by the taxpayer. It did not affect his playing in South Australia for which he received income. It simply restricted him from seeking or accepting a contract with all but one of the football clubs in Victoria.

I do not find it necessary to canvass the other authorities to which counsel referred in their careful arguments. In my opinion the taxpayer has discharged the onus upon him of establishing that the sum of $10,000 was not income within the meaning of sec. 25(1) of the Act. The appeal will be dismissed.

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