Case R45

Judges:
MB Hogan Ch
P Gerber M
GW Beck M

Court:
No. 3 Board of Review

Judgment date: 11 May 1984.

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M.B. Hogan (Chairman)

I find myself in agreement with the decision of my colleague, Dr. Gerber, and would confirm the Commissioner's assessment in this reference, subject to the adjustments agreed between the parties prior to the hearing of the reference.

2. I write to present a further argument in support of the arguments advanced by Dr. Gerber. The Board was urged at length by counsel for the taxpayer to resort to the dictionaries in determining the meaning to be attributed to the word ``employment'' in the context in which it is used in sec. 23(qa) of the Assessment Act. In
Edwards v. Clinch (1982) A.C. 845 , the House of Lords had to consider the meaning of the word ``office'' as it has been used in r. 1 of Sch. E in the Income Tax Act 1842 and ``its successor para. 2 of Sch. 9 of the Income Tax Act 1952 ''. Lord Wilberforce in his speech at p. 860 had this to say relevant to his approach to the interpretation of the word in question:

``The word `office' has been in the income tax legislation all along: the Income Tax Act 1842, Schedule E, referred to `every public office'. Since 1922 the qualification `public' has disappeared so all offices are now taxed under Schedule E. At no time has any definition of `office' been provided, so the judges have been left to work out what the word included.

In performing this task, they naturally looked for a context. They found one in rule 1 of Schedule E in the Act of 1842 (quoted by my noble and learned friend Lord Bridge of Harwich ) which contemplated that the tax would be levied on the office as such over a whole year.

This it was, I think, which led to the well known Rowlatt definition of office, or, as it has later been called, a generally sufficient statement of the meaning of the word as used in the Act of 1842. An office was something

• `which was a subsisting, permanent, substantive position, which had an existence independent of the person who filled it, and which went on and was filled in succession by successive holders' (
  Great Western Railway Co. v. Bater (1920) 3 K.B. 266 at p. 274 )

- a definition or statement which was, I dare to say, bred into the bones of every practitioner in income tax matters, and, more importantly, was known to the legislature, and its drafting agents, on the many occasions when revisions of the Schedules were made or considered.

Because this was the origin of the income tax meaning of `office', I have doubts as to the value, or indeed legitimacy, of now resorting to a dictionary for a definition. Of course it would be desirable in an ideal world for expressions in tax legislation to bear ordinary meanings, such as the citizen could find out by consulting the Oxford English Dictionary . But it is a fact that many words of ordinary meaning acquire a signification coloured over the years by legal construction in a technical context such that return to the pure source of common parlance is no longer possible. I think that `office' is such a word.''

At pp. 860-861, Lord Wilberforce went on to emphasise that, despite his conviction that the word ``office'' had acquired ``a signification coloured over the years by legal construction in a technical context,... it was open to the courts, and right, to consider whether the ingredients of the Rowlatt definition are still appropriate, at least in their full force''. That passage also emphasises the interrelationship in the United Kingdom context of the words ``office'', ``employment'', ``profession'', ``trade'', or ``vocation'' - ``... (these are the various words used to tax people on their earnings)...''.

Lord Salmon and Lord Lowry along with Lord Wilberforce formed the majority in Clinch (supra), Lord Lowry specifically concurring with both Lord Wilberforce and Lord Salmon, the latter stating (at p. 866):

``I cannot agree that the dictionary meaning of the word `office' can or was intended to

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be of any real help in construing the word `office' in Schedule E, particularly having regard to the authorities to which I have referred.''

It can be taken that each of the majority in Clinch has rejected the use of dictionaries as a means of determining the meaning to be attributed to the word ``office'', a word in the context of the United Kingdom legislation clearly closely interrelated with the word ``employment''.

3. If one turns to the United Kingdom experience, it is found that Rowlatt J. again, in
Davies v. Braithwaite (1931) 2 K.B. 628 was, in 1931, the first to encounter the difficulty of having to interpret what he referred to as ``that unhappy word'' in the context of the United Kingdom legislation. Rowlatt J. found that Miss Braithwaite was not liable for tax under Sch. E. Miss Braithwaite was a well-known actress who received remuneration from appearances in stage plays, films and performances on radio for the BBC in the middle to late 1920s. Rowlatt J. took the generalised view that (at p. 635):

``... when the Legislature took `employment' out of Sch. D, and put it into Sch. E, alongside `Office', the Legislature had in mind employments which were something like `offices', and I thought of the expression `posts' as conveying the idea required.''

He went on to elaborate, in the context of Braithwaite (supra):

``When a person occupies a post resting on a contract, and if then that is employment as opposed to a mere engagement in the course of carrying on a profession, I do not think that is a very difficult term of distinction...''

going on to observe:

``... where one finds a method of earning a livelihood which does not consist of the obtaining of a post and staying in it, but consists of a series of engagements and moving from one to the other... each of those engagements cannot be considered an employment but is a mere engagement in the course of exercising a profession...''

The rather confusing addendum to that clear enough finding is:

``... and every profession and every trade does involve the making of successive engagements and successive contracts and, in one sense of the word, employments.''

It appears to end in a play on the word ``employments''; certainly, in the light of the overall decision, quoted by my colleague, it cannot be taken to infer that the exercise of a profession constitutes an employment in terms of Sch. E.

4. The question is of course whether this decision of Rowlatt J. is, to use the words of Lord Wilberforce in Clinch, ``still appropriate'' or whether resort should be had to dictionaries. There can be no doubt that Rowlatt J. gave a legal technical meaning to the term ``employment'' and clearly defined his view of its lack of operation in circumstances involving the ``exercise of a profession'' such as occurs in this reference. So far as the United Kingdom is concerned, the thrust of that decision was applied as recently as 1972 in
Fall v. Hitchen (1973) 1 All E.R. 368 . Certainly, in his decision, Pennycuick V.-C. expressed some reservation as to the use of the word ``post'', observing that the word ``does not seem to be very apt to cover the countless instances of employment in the sense of a contract of services'' (at p. 376), but was plainly prepared to adopt the concept of ``post'' in distinguishing those instances where a person pursuing a profession might be chargeable under Sch. E in relation to an employment ``notwithstanding that he is at the same time carrying on his profession, the income of which will be chargeable under Sch. D'' and goes on to instance the example of a musician cited by Rowlatt J. as putting the point ``very nicely''. The reservation of Pennycuick V.-C, in Hitchen (supra), finds an echo in the speech of Lord Salmon in Clinch in the passage at p. 866:

``The meaning of `employment' cannot, in my view, by any means, always have the same meaning as that of `office' in Schedule E. This, in my opinion, is because the meaning of `employment' in Schedule E obviously refers very often to the host of persons being employed to work for no more than a salary or wage which will be taxed under that Schedule. In
McMillan v. Guest (1942) A.C. 561 , Lord Wright said, at p. 566:

• `To hold that the director of a company... does not have an office within the meaning of [Schedule E] would... be an abuse of language... The word `employment'... has to be construed with and takes its colour from the word `office'.'

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In a contract of employment between a company and a person, the contract of employment sometimes in the commercial field has a clause which gives the person employed an office as a director. This may be what Lord Wright had in mind when he said:

• The word `employment', in my opinion, has to be construed with and takes its colour from the word `office'.''

Thus, though the decision may be seen not to be ``still appropriate, at least in... (its) full force'' (per Lord Wilberforce in Clinch at p. 861), that part of the decision relevant to the conduct of a profession, has received relatively recent endorsement.

5. The phrase ``any office or employment'' used in sec. 23(qa) appears to have been imported into the Australian Assessment Act in 1936, when the words were introduced in the then new sec. 26(d) which expanded and replaced sec. 16(f) of the 1922 Act. The 1936 Act arose out of the 1932-34 Royal Commission on Taxation. Though the provenance is not complete, there appears to be no reason to doubt that the phrase, well known since 1922 in its present form in the United Kingdom legislation, was adopted from that legislation and carried with it in the minds of the parties concerned the legal technical meanings there established. The word ``employment'' has never been the subject of any specific consideration in the Australian Courts, but in
Reseck v. F.C. of T. 75 ATC 4213 , there was ready acceptance by the Full Court of the view that the payment to that taxpayer - ``a workman'' to use the description of Gibbs J. (as he then was) at p. 4216 - fell to be considered under sec. 26(d) as an allowance paid in a lump sum in consequence of ``the termination of the employment of the taxpayer'' (per Gibbs J. at p. 4216) and ``in consequence of termination of his employment'' (per Jacobs J. at p. 4219). That acceptance aligns the High Court with the reservations raised by Pennycuick V.-C. in Hitchen and Lord Salmon in Clinch but does nothing to disturb the concept of employment based on a post that Rowlatt J. developed in Braithwaite; nor, having regard to the majority in Clinch, and, in particular the expressed views of Lords Wilberforce and Salmon, raise any grounds for resort to dictionaries as an aid to interpretation of the word ``employment''.

6. I believe, then, that the concept of a post developed by Rowlatt J. in Braithwaite is appropriate to be considered in the determination of the question arising in this reference. It can be postulated that, were the taxpayer to take a temporary post as a special Crown prosecutor, that would be an employment, and I believe that to be correct, vide the view of Pennycuick V.-C. in Hitchen at p. 376, quoted by my colleague Dr. Gerber. But the evidence here is of ``a series of engagements and moving from one to the other'' which Rowlatt J. found to be ``the course of exercising a profession'' in such a manner as not to fall within the concept of ``employment''. Guided by that authority, I would confirm the Commissioner's decision on the objection and would confirm the assessment, subject to the making of the mutually agreed adjustments.

7. There is one further matter that I believe I should deal with for purposes of completeness. The words describing the types of income embraced by sec. 23(qa) have quite apparently been derived from the long-standing definition of ``income from personal exertion'' presently included in sec. 6(1) of the Assessment Act. In searching for some indication of the scope of the word ``earnings'' in sec. 23(qa), it would appear appropriate to examine the scope of the word ``earnings'' in the definition. The word ``earnings'' in the definition of ``income from personal exertion'' appeared in the definition in the 1922 Act where it was clearly limited to ``earnings... received in the capacity of an employee''. In the 1936 Act, the definition was adjusted to embrace ``income consisting of earnings... received in the capacity of an employee or in relation to any services rendered...''. That extended definition appears, at first blush, to expand the concept of ``earnings'' in sec. 6(1), and consequently in sec. 23(qa), beyond earnings in the capacity of an employee. If contrary to what I have found above, the exercise of the taxpayer's profession were found to be encompassed by the word ``employment'', the taxpayer would then appear to have a substantial claim under sec. 23(qa).

8. However, the Explanatory Handbook showing and, to some degree, explaining the differences between the 1936 and 1922 Acts, issued under the authority of the Commonwealth Treasurer of the day in August/September 1936, contains a footnote specifically explaining the words ``or in relation

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to any services rendered'' added in the definition of ``income from personal exertion'' in the following terms:

``These words are designed to include secret commissions. It has been held that allowances in the nature of secret commissions were not subject to taxation under the previous Act (1922) as they were not made to a person in the capacity of any employee . The person receiving them is seldom an employee of the donor. There is no reason why such amounts should not be treated as assessable income.''

The preface to the Handbook makes it clear that the 1936 Act adopts a model bill drafted by the Royal Commission on Taxation; the footnotes to the Handbook are stated in the preface to be ``explanatory of such new provisions as differ in any substantial way from the terms of the previous Act''. It is apparent that the footnote reflects the explanation of the purpose of the adjustment to the definition of ``income from personal exertion'' incorporated in the 1936 Act, as it was presented in bill form to Parliament.

9. The question of whether regard should be had to such materials as are comprised in the Handbook for the purpose of interpreting a statute, is a vexed one dealt with at some length by Mason J. in
F.C. of T. v. Whitfords Beach Pty. Ltd. 82 ATC 4031 at pp. 4040-4042 . At p. 4041, Mason J. stated:

``As I said in
Wacando v. Commonwealth (1981) 37 A.L.R. 317 at pp. 335-336 , generally speaking, reference cannot be made to what is said in Parliament for the purpose of interpreting a statute. But in my opinion there are grounds for making an exception for the case where a bill is introduced to remedy a mischief. Then, to have regard to the purpose for which the legislation was enacted as stated by the Minister in charge of the bill would confirm to the rule that extrinsic material is admissible to show the mischief which the statute is designed to remedy. I acknowledge that the inadmissibility of Parliamentary debates, as an aid to the construction of statutes is supported by powerful authority. (See generally
Bitumen & Oil Refineries (Australia) Ltd. v. Commr. for Government Transport (1955) 92 C.L.R. 200 ;
Australasian United Steam Navigation Co. Ltd. v. Hiskens (1914) 18 C.L.R. 646 at p. 672 ;
S.A. v. The Commonwealth (1942) 65 C.L.R. 373 ;
S.A. Commr. for Prices & Consumer Affairs v. Charles Moore (Aust.) Ltd. (1977) 139 C.L.R. 449 ;
Davis v. Johnson (1979) A.C. 264 .) But there is a case for treating the Minister's statement, particularly when it is not contested, as cogent evidence of the mischief aimed at, evidence certainly as cogent as the extrinsic materials from which the Court would draw an inference in many cases.''

Against this background, it seems the Board may well advert to the footnote in interpretation of the word ``earnings'' in the definition in sec. 6(1) and in sec. 23(qa). That would mean that the word ``earnings'' is so circumscribed in its ambit as to embrace only earnings by employees. In these circumstances, and having regard to the obligations imposed by sec. 15AA of the Acts Interpretation Act 1901 (Cth.) with its direction in subsec. (1):

``In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act (whether that purpose or object is expressly stated in the Act or not) shall be preferred to a construction which would not promote that purpose or object.''

I would not be prepared to find that the word ``earnings'', as used in sec. 23(qa), could have application to earnings derived from the practice of a profession.