Keily v. Federal Commissioner of Taxation.

White J

Supreme Court of South Australia

Judgment date: Judgment handed down 22 April 1983.

White J.

These two appeals against amended income tax assessments for the years ended 30 June 1979 and 1980 were heard together. Mrs. Keily appeared in person. Although the substantive burden was upon Mrs. Keily as appellant to show that the amended assessments were incorrect, Mr. Lawson of counsel for the Commissioner agreed, for the sake of convenience, to accept the procedural burden of addressing me first on the law in order to demonstrate the basis of the Commissioner's claim that

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both assessments were accurate and in accordance with the provisions of the Income Tax Assessment Act 1936 (Cth.) (``the Act'').

Mrs. Keily has been an aged pensioner since she attained 60 years in April 1978. If her pension is taxable income (and she contended that it was not), her combined income from her pension and interest on her investments and her bank account was sufficient to justify the amount of tax levied in each year.

For the whole of the two financial years in question, that is, from 1 July 1978 to 30 June 1980, she received an aged person's pension under the Social Service Act (Cth.) now the Social Security Act (Cth.). Mr. Lawson made submissions based upon the various provisions of the Act which satisfied me (although the onus was not on the Commissioner) that an aged person's pension may be taken into account in arriving at the total amount of ``assessable income'', and that such pension is ``not exempt income'', within the meaning of sec. 25(1) of the Act which reads (insofar as is relevant):

``The assessable income of a taxpayer shall include -

  • ...
  • ... the gross income derived directly or indirectly from all sources in Australia,

which is not exempt income.''

``Income'' is not defined in the Act. It is an ordinary English word, the meaning of which must be determined ``in accordance with the ordinary concepts and usages of mankind''. See
Scott v. C. of T. (N.S.W.) (1935) 35 S.R. (N.S.W.) 215 at p. 219 per Jordan C.J.

Mr. Lawson referred me to a number of authorities relating to the characteristics of income during his submissions but all of them concerned payments, bonuses, gratuities, annuities, superannuation and pensions in the employment or post-employment context. Aged persons' pensions are quite unrelated to the employment context. An aged person's pension is often paid to a man or a woman who has never been employed at any stage of his or her life, either in the public or private sector. The characteristics of income of whatever kind are said to include recurrence, regularity and periodicity but these characteristics were developed in relation to other fact situations. They are helpful by way of analogy only.

I found the reference to
F.C. of T. v. Dixon (1952) 86 C.L.R. 540 more helpful than others because the payment made there had less connection with the previous employment and personal exertion than in other cases. In that case, a patriotic former employer gratuitously paid to a former employee, now a serviceman, the difference between his civilian pay and his military pay over a period of time. These payments, although gratuitous, were assessed as taxable income. In a joint judgment, Dixon C.J. and Williams J. said at p. 557:

``Because the £104 was an expected periodical payment arising out of circumstances which attended the war service undertaken by the taxpayer and because it formed part of the receipts upon which he depended for the regular expenditure upon himself and his dependants and was paid to him for that purpose, it appears to us to have the character of income, and therefore to form part of the gross income within the meaning of sec. 25 of the Income Tax Assessment Act 1936-1943.''

(Emphasis added.)

The surrounding circumstances there were the fact of a previous employment relationship, present war service, regularity of payment over a period, expectation of continuing payment, and payment as and for support of the soldier and his dependants. The fact of previous employment merely constituted an explanation for the continuing generosity and patriotism of the former employer and a yardstick for measuring the degree of material loss occasioned to a soldier and his family due to war service, that is, the difference between his former civilian pay and his present military pay.

In the case of an aged person's pension, the generally accepted characteristics of income (recurrence, regularity and periodicity) are all present. In addition, the pensioner has a continuing expectation of receiving periodic payments, an expectation arising out of established government policy with respect to the support and welfare of

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aged citizens. Pension payments form part of the receipts upon which a pensioner depends for support. And a pension is paid to the pensioner for that purpose. A pensioner, therefore, satisfies the criteria or characteristics of income discussed in Dixon's case.

Counsel also referred me to the definition of ``income from personal exertion'' in sec. 6 of the Act. That definition is, however, heavily loaded with references to employment or past employment:

```income for personal exertion' or `income derived from personal exertion' means income consisting of earnings, salaries, wages, commissions, fees, bonuses, pensions, superannuation allowances, retiring allowances and retiring gratuities, allowances and gratuities received in the capacity of employee or in relation to any services rendered...''

(Emphasis added.)

The definition is not exhaustive, but merely indirectly indicative, of what ``income'' is. See
Scott v. F.C. of T. (1966) 117 C.L.R. 514 especially per Windeyer J. at p. 524:

``As Jordan C.J. pointed out in Scott v. C. of T. [supra], the definition of that expression [income from personal exertion] is not a definition of income - for the simple reason that `the word `income' appears on both sides of the equation'. The definition does not I think bring anything into charge as income. It refers to what is already by its nature income. The distinction between income from personal exertion and income from property has, since 1954, ceased to be of any relevant importance. By describing what `income from personal exertion' is, the definition is indirectly indicative of what income is. That is all: but otherwise it is irrelevant.''

(Emphasis added.)

In relation to a pension being income, I am not assisted by the definition of ``income from personal exertion''. It seems strange to me that no pensioner has previously challenged the assessment of tax on his or her aged person's pension. Lack of challenge may be due to the fact that an aged pension is obviously ``income'' within the meaning of sec. 25 and ``not exempt income'' within the meaning of that section; or it may be that no one has thought of making the challenge.

In my opinion, an age pension is clearly ``income'' within the meaning of sec. 25 of the Act.

Having also considered the various provisions of the Act bearing upon ``exempt income'', it is also clear that an aged person's pension is ``not exempt income'' within the meaning of sec. 25 of the Act.

Mrs. Keily did not challenge any of this. Her point accepted all of the above and proceeded upon the basis that it was unjust that she should be ``taxed twice'' on the same income. As I understand her argument, she said that the government had already ``taxed'' her by depriving her each fortnight of a proportion of her pension due to the fact that her investments and interest (or her interest alone) were high enough for some reductions to be made from the pension payments which she would normally expect to receive if she had no such investments or income. Instead of receiving a full pension each fortnight, she received only a part pension. The government's retention of some of the normal unreduced pension payments which she would otherwise receive constituted a tax, in her submission. She argued that she was being financially penalised (in other words ``taxed'') by reason of her receipt of income from investments. Having thus paid one form of ``tax'' by way of reduced pension, she was now, by these income tax assessments, called upon to pay ``another tax'' on the proportion of the pension which she did receive. This, she said, amounted to double taxation. There is kind of logic in her argument which at first sight attracts sympathy, however irrelevant it is in law. Mrs. Keily supported her argument by a vague appeal to some authoritative statement she had read somewhere that pensioners were entitled to a 50% rebate on their assessments or only paid tax on 50 cents in the $1 on the part pension which they did receive. She could not produce that authority or document or identify when or where she had read it.

Mrs. Keily did produce a document bearing on the appeal, namely, a pensioner pamphlet which gave certain advice to pensioners about their pensions and the incidence of income tax. The author of that

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pamphlet took the view, correctly in my opinion, that an aged person's pension becomes taxable when sufficient additional income is earned to bring the combined income within a taxation range.

In my view, the short answer to Mrs. Keily's argument is that her pension payments are reduced, not by way of tax, but by reason of the defined qualifications for the receipt of such pensions. There is only so much money to go around for the payment of pensions to various classes of claimants. The claims of each class are expanded or contracted for policy reasons. Some pensions are subject to tax and some are not, again for policy reasons. Her complaint is that the effect of having saved some money and of receiving a separate income is that she suffers, in a sense, a financial deprivation in the form of reduction of pension payments in comparison with those who have not saved and receive full pensions. That is a complaint about government policy in formulating the criteria for pension payments and in deciding to tax pensions. I am powerless to help her on the appeal as her complaint is no answer to the assessments.

Mrs. Keily has other complaints against the Commissioner including his making an original assessment which was grossly erroneous and for garnisheeing money from her bank account on the basis of that erroneous assessment. She has written many letters complaining of that action, to the Commissioner personally, to the former Treasurer, to the Governor-General and to the Queen - more than once. She indicated to me that she will appeal against any decision which I might make.

For the sake of completeness, I indicate that I have not overlooked an argument of the Commissioner that an age pension may be income because it might be described as an ``annuity''. This was a further and alternative argument presented by Mr. Lawson for the Commissioner, an argument which has superficial attraction but not for Mr. Fairleigh of the Board of Review in Case M29,
80 ATC 191 at p. 213, column 2, nor for me.

Pursuant to sec. 199 of the Act, I confirm the amended assessments issued against Mrs. Keily with respect to the years 1979 and 1980. At the hearing I informed Mrs. Keily that I was against her submissions and that the appeal would be dismissed. The Commissioner asked for costs to be taxed and I indicated then that I would make such an order.

The appeal is dismissed with costs to be taxed. I direct that these reasons be posted to Mrs. Keily.

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