Federal Commissioner of Taxation v. Slaven.Judges:
Full Federal Court
Bowen C.J., Lockhart and Sheppard JJ.
This appeal from the Supreme Court of Victoria (O'Bryan J.) [reported at 83 ATC 4387] concerns the question whether the receipt by Robyn Leanne Slaven (``the taxpayer'') of various sums of money aggregating $4,360 from the Motor Accidents Board (``the Board'') pursuant to sec. 25 of the Motor Accidents Act 1973 (Vic.), during the year ended 30 June 1981, were receipts of income or capital.
The taxpayer was injured in a motor car accident in Victoria on 18 July 1980. Due to the injuries sustained by her as a result of the accident the taxpayer was unable to work from the date of the accident until April 1981. She applied to the Board under sec. 25 of the Motor Accidents Act 1973 for a payment ``in respect of'' the ``deprivation or impairment of'' her ``earning capacity'' suffered as a result of the accident. The Board obtained information from the taxpayer's employer which showed that, over a six week period immediately before the accident, the taxpayer had earned $163.40 gross per week from which tax of $29.40 had been deducted, leaving a net weekly income of $134.
The Board made the following payments to the taxpayer:
$ (a) About 12 September 1980 for the period 24 July 1980 to 17 October 1980 (12.4 weeks) .............. 1,670.00 (b) About 12 November 1980 for the period 18 October 1980 to 7 November 1980 (3 weeks) ................ 410.00 (c) About 27 November 1980 for the period 8 November 1980 to 30 January 1981 (12 weeks) ................ 1,610.00 (d) About 29 January 1981 for the period 31 January 1981 to 27 February 1981 (4 weeks) ................ 510.00 (e) About 26 February 1981 for the period 28 February 1981 to 6 March 1981 (1 week) .................... 130.00
The total of the payments by the Board to the taxpayer was $4,360 and the total period covered by the payments was 32.4 weeks. As the learned primary Judge said, at p. 4391:
``... a simple arithmetical calculation will show that the Board determined to value the appellant's loss of earning capacity throughout the period at $134.57 which is marginally higher than her actual earning experience immediately before the accident. The Board had regard to the fact that in the first week after the accident the appellant received a sick leave payment from her employer of $134. The payment, made by the Board approximated very closely to the appellant's pre-accident earnings but was not identical with those earnings.''
The taxpayer disclosed the receipt of the $4,360 from the Board in her income tax return for the year ended 30 June 1981. The Commissioner treated that sum as assessable income of the taxpayer and assessed her accordingly. She objected to the assessment, but the Commissioner disallowed the objection. The taxpayer then appealed to the Supreme Court of Victoria which allowed her appeal. O'Bryan J. found that the receipt of the $4,360 was a receipt of capital and not of income under subsec. 25(1) of the Income Tax Assessment Act 1936 (``the Assessment Act''). His Honour also found that the receipt of that sum was not by way of indemnity for or in respect of a loss of income which would have been assessable income if the loss had not occurred, and was therefore not assessable income pursuant to para. 26(j) of the Assessment Act. O'Bryan J. found that the sum was received by the taxpayer for the deprivation of her earning capacity between 24 July 1980 and 6 March 1981 and
ATC 4079was received for the deprivation of a capital asset of the taxpayer. The Commissioner appealed to this Court from the Supreme Court's judgment.
It was first submitted by the Commissioner that the payments were income according to ordinary concepts and thus assessable income derived by the taxpayer under subsec. 25(1) of the Assessment Act. The payments totalling $4,360 were said to have been made and received for the purpose of providing recoupment of income lost by the taxpayer by reason of her injuries suffered in the accident.
It is necessary to refer to the Motor Accidents Act 1973 and subsequent amending legislation in some detail to comprehend the questions which arise in this appeal. The provisions of the Motor Accidents Act 1973 to which we shall now refer are those which were part of it in its form when first enacted in 1973. It was amended more than once, but relevantly for present purposes in 1979. The 1979 amendments are critical to this appeal. Hence it is convenient to refer first to the Motor Accidents Act 1973 in its original form and then to the relevant amendments made in 1979. We shall refer to the Motor Accidents Act 1973 in its form when enacted in 1973 as ``the Act'' and to the Act after the 1979 amendments as ``the Act as amended''.
The learned primary Judge said, at p. 4389:
``By 1973 great hardship was being experienced in Victoria by many motor accident victims through long delays in the Courts and in the legal system generally, all too often experienced before damages were assessed at common law. One of the purposes of the Act was to alleviate hardship to persons injured by accelerating the payment of portion of their damages.''
The Act followed the establishment by the Victorian Government of a Committee to examine the feasibility of introducing a scheme of periodical payments similar to that applicable under the Workers Compensation Legislation of Victoria and on the basis of no-fault liability. The Act retained the system of liability in tort for negligence and established a no-fault liability scheme under which payments were to be made:
- (1) to road accident victims without delay and without consideration of possible negligence; and
- (2) directly to hospitals, doctors, ambulance bodies and other bodies providing similar services.
The Act established a body corporate known as ``the Motor Accidents Board'': sec. 5. The Board consisted of three persons appointed by the Governor in Council for a period not exceeding five years: sec. 6. The Board was liable to make payments provided for in the Act (subsec. 13(2)) to:
- (a) a person resident in Victoria who sustained injuries that were, or whose death was, caused by or arose out of the use in Victoria of a motor car;
- (b) a person who sustained injuries that were, or whose death was, caused by or arose out of the use in Victoria of a motor car which was registered;
- (c) a person who sustained injuries that were, or whose death was, caused by or arose out of the use in Victoria of a motor car the identity of which could not be established.
The Board was not liable to make payments to a person who was injured or died as a result of an accident if, when the accident occurred, he was in a train or tram or bus and the operator thereof did not have an agreement in force with the Board to contribute to the Board's funds: subsec. 13(3).
Where a person was entitled to compensation under the workers' compensation legislation in Victoria or its equivalent in another State or Territory, benefits were not payable under the Act but the Board retained a residual discretion to make payments notwithstanding this provision: sec. 15.
The Board was not liable to make payments to any person who was injured as a result of an accident which occurred in certain circumstances including driving a car whilst under the influence of intoxicating liquor or drugs, for which offence he was subsequently convicted, or whilst unlicensed: sec. 16.
The Board was not required to admit any claim which was for loss of income of less than $40.00 or for a period of incapacity of two days or less: sec. 17.
A person who was injured by the use of a motor car could apply to the Board within three years after the date of the accident for payments in respect of loss of income.
Section 25 provided that where a person injured as a result of an accident suffered a loss of income in the capacity of employee by reason of the injury and applied under the Act for payments under sec. 25 in respect of the loss of that income, the Board must pay to him an amount calculated in accordance with a specified statutory formula. The effect of the section was that the payment was to be 80% of the net amount earned after tax, having regard to the period of incapacity, any loss of capacity to work and any net income received as an employee during the period. The maximum period during which payments could be made to an injured person was 104 weeks during which income was lost, however, no one weekly payment could exceed $120.00: sec. 18-22.
In the event of the death of the income earner, periodical payments were to be made to a dependent spouse or the children who were wholly or mainly dependent. The basic amount was five-eights or 62.5% of the net income of the deceased but in no case could the benefit exceed $93.75 per week (sec. 26 and 27). The maximum period during which payments could be made to a dependent spouse or dependent child was 104 weeks less any period during which loss of income benefits were paid to the deceased between the date of the accident and the date of death. The Act contained other provisions where there were no dependent children or children living with a spouse. Provision was also made by the Act for a dependent spouse to receive a lump sum payment representing 15% of the total payments, which would have been payable to a dependent spouse on the basis that there were no dependent children: sec. 26.
The Board could, with the consent of the person who had been injured, settle matters in dispute in relation to the Board's liability to make payments relating to loss of income and could make a lump sum payment in settlement of that liability. The making of such a payment constituted a discharge of the Board's liability for income payments: sec. 29.
The Board was empowered to enter into agreements with hospitals within five years of the accident in respect of the payment of the reasonable fees or costs of the hospital for hospital services provided by it in Victoria in respect of injuries of a person of and from an accident: sec. 66. Similar agreements could be made by the Board with ambulance services and medical practitioners: sec. 67 and 68.
Where no such agreements were made, the Board could make payments to the injured person within the period of five years after the date of the accident of 70% of the reasonable costs of hospital services, 70% of the reasonable costs of ambulance services and 80% of the reasonable costs of medical services: sec. 30. The Board could also pay 80% of the reasonable costs incurred in Victoria for burial or cremation expenses of the injured person where he died within 104 weeks, 80% of the reasonable costs of nursing and therapeutic services for up to five years and a scale of percentages of the reasonable costs of other expenses: sec. 30 and 31.
The Board was empowered to make payments under the relevant Part of the Act at such times and by such instalments as it determined: sec. 32.
The Act established a Motor Accidents Tribunal to hear appeals from certain decisions of the Board: sec. 37.
Section 54 enabled the Board to recover the amount of payments made by it in respect of injuries or death from a person, other than an authorised insurer or a person with whom the Board had made an agreement under sec. 70-74, who appeared to be liable to pay damages or to indemnify a person liable to pay damages in respect of the injury or death: sec. 54.
The Board was empowered to recover payments made by it where a person who had received such payments had recovered damages, the amount recoverable being the amount paid by the Board or, if the amount of the damages recovered was less than the amount paid by the Board, then the amount of the damages: sec. 55. Where a person's right to recover damages was reduced through contributory negligence, the Board's right in the circumstances mentioned in sec. 54 or 55 to recover payments made to the person was proportionately reduced: sec. 56. Section 57 enabled the Board to require a person who received payment from the Board to institute proceedings to recover damages and, where a person failed to do so, the Board could institute proceedings at its own expense.
Section 79 provided that a person was prohibited in a common law action from seeking to recover damages from an insured person or a nominal defendant in respect of a loss of income during a period arising by reason of the injury if, before the date of commencement of the hearing
ATC 4081of the common law action, he was entitled to make a claim against the Board under sec. 25 in respect of the loss of income during that period and did not in fact make such a claim before that date. Further, where judgment was obtained in common law proceedings to recover damages in respect of the injury of a person resulting from an accident, the Board is not, up to the date of judgment, liable to make payments in respect of that injury or death to a person to whom damages are awarded.
The Act by sec. 87 also amended the Motor Car Act 1958 (Vic.) by providing that the fund out of which the Board should discharge the liabilities imposed on it by the Act was to be derived from a proportion of the premiums payable under the scheme of compulsory third party motor car insurance prescribed by Pt. V of the Motor Car Act.
The Act also provided for contributions to be made to the fund out of which the Board's liabilities were to be discharged from other persons who had incurred or who might be likely to incur liability to pay damages in respect of injury or death resulting from the use of a motor car in Victoria but whose contribution to the fund had not been secured or was thought not to be sufficiently enlarged in amount by the statutory diversion of third party premium income to the Board's fund: sec. 70 to 74.
Tinkler v. F.C. of T. 78 ATC 4565, the Supreme Court of Victoria (Jenkinson J.) held that the Commissioner had correctly treated sums aggregating $2,371.20 paid to Miss Tinkler by the Board pursuant to subsec. 25(1) of the Act as assessable income of the taxpayer under sec. 25 of the Assessment Act. Miss Tinkler was injured as a result of a motor car accident and the injuries prevented her from working throughout the year of income ended 30 June 1975. She was entitled to claim payments under Pt. III of the Act and during the year the sum of $2,371.20 was paid to her in 22 individual amounts.
The Supreme Court found (at p. 4,571) that plurality of payments was contemplated by subsec. 25(1) and that each payment effected the discharge of a separate liability in respect of a particular period of incapacity. His Honour found that an injured person who was entitled to payment under subsec. 25(1) during a substantial period was enabled to ensure that a payment was made regularly. His Honour found (at p. 4571) that the entitlement to payment under subsec. 25(1) was to an amount ``in respect of the loss of that income''
``... not only in the sense that the amount has been measured by reference to the diminution of income caused by the injury, but in the sense also that the amount is, substantially, a statutory substitute, pro tanto, for the salary or wages lost. And in my opinion an amount to payment (sic) of which entitlement arises by force of sec. 13(1) and 25(1) acquires the character of income which the salary or wages had, whether that amount be in respect of a loss of a week's income or of many weeks' income, and whether or not it was received in the course of regular periodic payments.''
His Honour rejected the submission of counsel for Miss Tinkler that the entitlement under subsec. 25(1) was to compensate for loss or impairment of capacity and not for the loss of income by reference to which the compensation was quantified. His Honour said that he was unable to find in the provisions of the Act a basis for regarding a payment received in pursuance of subsec. 25(1) as a receipt of a capital nature and that those provisions afforded no basis for treating payments under that subsection, whether singly or in the aggregate, as compensation for a capital loss or as compensation for loss or impairment of an evaluated capacity.
His Honour found (at p. 4574):
``The payments by the Board were in my opinion made with a substantial regularity which suggests a characterisation of those payments as income received by the appellant. Regularity of payment in prompt discharge of the Board's successively accruing liabilities under sec. 25(1) is in my opinion to be expected upon a consideration of the subject matter of the Motor Accidents Act and of its provisions. That expectation has been fulfilled in this case and thereby the conclusion is fortified that the payments in question formed part of the appellant's assessable income by virtue of sec. 25(1)(a) of the Income Tax Assessment Act.''
An appeal by Miss Tinkler to a Full Court of this Court was dismissed: Tinkler v. F.C. of T. 79 ATC 4641. Brennan J. said (at p. 4644):
``From the taxpayer's viewpoint, the payments were received at intervals during the period when she was not earning income,
ATC 4082consequent upon her application for the payment of benefits under sec. 25(1). The periodic receipt of subventions in amounts which varied only in accordance with the working days in each period is powerful to suggest that the receipts were of an income nature. The purpose of the payments and the circumstances of their receipt combine to establish the income character of the amounts paid.''
Deane and Fisher JJ. in joint reasons for judgment referred to the well known distinction between the character of a payment and the manner of its calculation or quantification and emphasised (at p. 4648) that the method of calculation or quantification ``may provide a quite misleading guide to the character of the payment''. Their Honours went on to say, however (at p. 4648), that where:
``... as in the present case, the method of calculation comprises an integral part of the provisions under which the entitlement arises, it can legitimately be regarded as a relevant factor in determining the character of the payments. In so far as the method of calculation is so regarded in the present case, it supports the view that payments under both sec. 25(1) and sec. 25(2) are in substitution, pro tanto, for income which could otherwise have been earned. It follows from what has been written above that we are not persuaded that the payments made pursuant to sec. 25(2) of the Act should be characterised as capital payments for loss or impairment of earning capacity as distinct from payments in partial substitution for earnings which would have been earned but for the relevant accident. In these circumstances, sec. 25(1) falls to be considered uninhibited by preconceived notions as to the character for income tax purposes of a payment under sec. 25(2).''
Their Honours agreed with the Supreme Court that the payments received by Miss Tinkler were in substitution pro tanto for income which she would have earned were it not for the accident and constituted income pursuant to para. 25(1)(a) of the Assessment Act.
The Act was amended in 1979 by the Motor Accidents (Amendment) Act 1979 which came into operation on 18 December 1979 (``the 1979 Act''). Relevantly for present purposes the amendments were as follows:
(a) Paragraph 22(1)(a) of the Act was amended by substituting the words ``payment of compensation'' for the word ``payments''.
(b) Two new subsections were added to sec. 22 in the following terms:
``(8) Notwithstanding anything in this Act, the Board may refuse to make any payment under section 25 to a person injured as a result of an accident in respect of so much of a deprivation or impairment of earning capacity as relates to any period ending more than three months prior to the date on which the Board is furnished with such medical evidence relating to the injury as the Board may reasonably require.
(9) Where the Board determines pursuant to sub-section (8) to refuse to make any payment under section 25 to a person injured as a result of an accident in respect of so much of a deprivation or impairment of earning capacity as relates to any such period as is mentioned in that sub-section, the Board shall, notwithstanding anything in sub-section (4) or (5), inform that person by notice in writing that it refuses the application for that payment.''
(c) A new sec. 25 was substituted for the old section in the following terms:
``25.(1) Where a person injured as a result of an accident suffers deprivation or impairment of his earning capacity by reason of the injury and makes an application under this Act for a payment under this section in respect of that deprivation or impairment, the Board shall, subject to this Act, pay to that person -
- (a) such amount as, in the opinion of the Board, will adequately compensate that person for the deprivation or impairment of earning capacity which he has suffered; or
- (b) $20,800 -
whichever is the lesser.
(2) The Board shall, for the purposes of determining under paragraph (a) of subsection (1) an adequate amount of compensation in relation to any person, have regard to the loss of earnings which that person has incurred and the likely loss of future earnings which that person will incur by reason of the injury.
(3) In sub-section (2) `earnings' means such amount as, in the opinion of the Board, the person concerned would have received by way of income from personal exertion but for the injury less such amount as the Board reasonably considers to be the amount of income tax that would have been payable on those earnings under the Income Tax Assessment Act.
(4) In determining for the purposes of sub-section (1) the extent to which the earning capacity of any person has been impaired by reason of an injury, the Board shall have regard to all relevant matters and in particular to -
- (a) the nature of the injury;
- (b) the nature of the trade, business, profession or vocation in which that person is engaged or is likely to be engaged; and
- (c) medical evidence relating to the injury.
(5) The Board shall in every case take into account in reduction of the sum assessed by it under paragraph (a) of sub-section (1) the aggregate amount of any benefits or other payments (not including an award of damages recovered in any court) which -
- (a) the person concerned has received or is entitled to receive by reason of the injury; and
- (b) are, in the opinion of the Board, payable by way of compensation to that person for the deprivation or impairment of earning capacity which he has suffered.
(6) In sub-section (3) `income from personal exertion' in relation to any person means the amount that is the income of that person 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, the proceeds of any business carried on by that person either alone or as a partner with any other person, any amount received as bounty or subsidy in carrying on a business, the income from any property where that income forms part of the emoluments of any office or employment of profit held by that person, and any profit arising from the sale by that person of any property acquired by him for the purpose of profit-making by sale or from the carrying on or carrying out of any profit-making undertaking or scheme, but does not include -
- (a) interest, unless that person's principal business consists of the lending of money, or unless the interest is received in respect of a debt due to that person for goods supplied or services rendered by him in the course of his business; or
- (b) rents or dividends.''
(d) A new sec. 32 was substituted which, so far as material, is in the following terms:
``32.(1) Where the Board is liable to make any payment under this Part to any person, the payment may be made at such times and by such instalments as the Board determines.
(2) Where pursuant to sub-section (1) the Board determines to make any payment to any person by instalments, the Board may pay to that person interest, at such rate, on such basis and at such time as the Board determines, upon any moneys held by the Board on behalf of that person.
(3) Subject to section 82, where the Board has determined -
- (a) to make a payment under section 25 to a person injured as a result of an accident; and
- (b) to make that payment by instalments -
and that person dies at a time when the Board is holding the whole or any part of that payment on behalf of that person, that payment or that part of the payment, as the case requires, shall -
- (i) if that person died as a result of the accident within the period of two years after the date of the accident leaving a dependent spouse or dependent child be deemed for the purposes of this Act and any other Act not to have been payable to that person as from immediately prior to the death of that person and be deemed for the purposes of section 26 and section 27 not to have been made
ATC 4084to the deceased person prior to his death;
- (ii) in any other case, be deemed for the purposes of this Act and any other Act to form part of the estate of that person.''
(e) By sec. 13 of the 1979 Act, sec. 29 of the Act was repealed, and by sec. 19 of that Act subsec. 79(1) was amended by substituting the words ``deprivation or impairment of earning capacity'' for the words ``loss of income during a period'' and by substituting the words ``that deprivation or impairment of earning capacity'' for the words ``the loss of income during that period''.
Jenkinson J.'s judgment in Tinkler's case was given on 10 October 1978. The judgment of the Full Court on appeal was given on 14 December 1979. Although the 1979 Act was assented to on 18 December 1979 the motion for the second reading of the Motor Accidents Amendment Bill, which became the 1979 Act, was moved by the responsible Minister in the Legislative Assembly of Victoria on 29 November 1979, that is, after the judgment of Jenkinson J. but before the judgment of the Full Court affirming that judgment.
We have read the second reading speeches of the relevant Ministers before the Legislative Assembly and the Legislative Council of Victoria in relation to the Motor Accidents Amendment Bill 1979 from which it is plain beyond argument that the principal problem which the 1979 Act was intended to overcome was the attraction of income tax to benefits paid under the Act.
The starting point for the determination of the character of payments which the Board is liable to make under the Act as amended, and which the recipient is entitled to receive must be the terms of that Act itself. Section 25 is the key provision. We have already set out its terms. What the Board is liable to pay to a person injured as a result of a motor accident is not described by subsec. 25(1) as a payment for loss of income or in substitution pro tanto for income which would otherwise have been earned by the person. It is described, and consistently described, throughout the Act as amended as payment of an amount as compensation ``for the deprivation or impairment of earning capacity'' which the person has suffered: see for example, subsec. 22(8), 25(1) and (5), para. 26(a), and subsec. 27(1) and 79(1).
The Board is not empowered to determine the appropriate amount of payment to be made to the injured person by a formula based on lost earnings. It is directed by subsec. 25(1) and (4) of the Act as amended for the purpose of determining the extent to which the earning capacity of the person has been impaired by reason of an injury, to have regard to:
``all relevant matters and in particular to -
- (a) the nature of the injury;
- (b) the nature of the trade, business, profession or vocation in which the person is engaged or is likely to be engaged; and
- (c) medical evidence relating to the injury.''
The Board is required, for the purpose of determining under para. 25(1)(a) an adequate amount of compensation in relation to a person, to have regard to the loss of earnings which that person has incurred and the likely loss of future earnings which that person would incur by reason of the injury: subsec. 25(2). ``Earnings'' is defined for this purpose by subsec. 25(3) as meaning such amount as in the Board's opinion the person concerned would have received by way of income from personal exertion but for the injury less such amount as the Board reasonably considers to be the amount of income tax that would have been payable on those earnings under the Assessment Act.
The Board is required in every case to take into account, in reduction of the sum assessed by it under para. 25(1)(a) the aggregate amount of any benefits or other payments (not including an award of damages recovered in any Court) which the person concerned has received or is entitled to receive by reason of the injury and which are, in the Board's opinion, payable by way of compensation to that person for the deprivation or impairment of earning capacity which he has suffered: subsec. 25(5).
The exercise in which the Board is required to engage by the Act is not merely one of assessing lost earnings. It is in fact an exercise in valuation. It is true to say that the amount of compensation payable to an injured person is quantified by a consideration of what the use of the lost or diminished earning capacity might be expected to produce. In some simple situations
ATC 4085the amount of lost earnings may be a certain and ready guide to the amount of entitlement. But the Board's task is essentially to determine the compensation payable to a person having regard to the deprivation or impairment of his earning capacity by reason of the injury. The distinction between loss of earnings and loss of earning capacity is well established; it is by no means fictional. See for example:
Paff v. Speed (1961) 106 C.L.R. 549 per Windeyer J. at pp. 566-567;
Graham v. Baker (1961) 106 C.L.R. 340 per Dixon C.J., and Kitto and Taylor JJ. at pp. 346-347;
Skelton v. Collins (1966) 115 C.L.R. 94 per Windeyer J. at p. 129; and
Atlas Tiles Limited v. Briers 78 ATC 4536; (1978) 144 C.L.R. 202 per Barwick C.J. at ATC p. 4540; C.L.R. p. 210. Nothing in the judgment of the majority in
Cullen v. Trappell 80 ATC 4185; (1980) 146 C.L.R. 1 detracts from what Barwick C.J. said on this topic in the Atlas Tiles case.
Further, there is no statutory requirement that payments under the Act as amended be on a regular or periodic basis. Regular periodicity of payment has been said to assist in the characterisation of payments as income:
F.C. of T. v. Dixon (1952) 10 A.T.D. 82 at pp. 86 and 91-92; (1952) 86 C.L.R. 540 at pp. 557, 567 and 568. However, the regularity and periodicity of a payment will generally not be a decisive consideration: Dixon's case (supra) at A.T.D. p. 92; C.L.R. p. 568;
F.C. of T. v. Harris 80 ATC 4238 at p. 4241; (1980) 30 A.L.R. 10 at p. 14. It is true that the Board may make payments by instalments pursuant to sec. 32, but the presence of this power does not aid the Commissioner's argument that payments made pursuant to sec. 25 are in substitution for loss of earnings, not as payments in compensation for deprivation or impairment of earning capacity. At best for the Commissioner sec. 32 has a neutral operation for present purposes. As the evident purpose of the Act as amended is to make payments to road accident victims without delay, the existence of a power in the Board to make payments by instalments is to be expected. The scheme of the Act as amended, as we perceive it, is that before authorising any payments to applicants for compensation, the Board must be satisfied that the person has suffered deprivation or impairment of his earning capacity, but it need not then determine the full amount of compensation payable. Indeed, the ascertainment of that amount may in some cases require extensive investigation of various matters including the nature of the injury, the past or future earning capacity of the person concerned and medical evidence relating to his injury. Although the Act as amended does not spell out in precise terms the relevant powers of the Board, in our view the Board may authorise the making of payments to persons pending the final assessment of the total amount of compensation whether they be described as interim payments or payments on account or as instalments. We note also the capacity of the Board to vary its own determinations: see subsec. 33(2).
Whether a receipt constitutes income or capital must, of course, depend upon a consideration of all the circumstances. It is the character of the receipt in the hands of the taxpayer as recipient that must be determined:
Hayes v. F.C. of T. (1956) 11 A.T.D. 68 at p. 72; (1956) 96 C.L.R. 47 at p. 55;
Scott v. F.C. of T. (1966) 14 A.T.D. 286 at p. 293; (1966) 117 C.L.R. 514 at p. 526;
Federal Coke Company Pty. Limited v. F.C. of T. 77 ATC 4255 at p. 4264; (1977) 34 F.L.R. 375 at p. 388.
The Parliament of Victoria cannot determine by its own legislation whether the receipt of a statutory payment answers the description of income or capital in the hands of the recipient within the meaning of sec. 25 of the Assessment Act, a Commonwealth Act. But the purpose of a statutory payment, as disclosed by the terms of the statute itself, must be a powerful, though not conclusive, aid to the determination of the character of the payment and in particular as to whether its receipt constitutes income in the hands of a taxpayer.
These considerations do not support the notion that payments made pursuant to determinations of the Board are in partial substitution for earnings which would have been earned but for the relevant accident. The essential character of those payments is in our opinion, as compensation for loss or impairment of earning capacity. The receipt of those payments is a capital receipt.
It was argued, on behalf of the Commissioner, that damages awarded at common law for personal injuries were taxable in so far as they included a component for loss of earning capacity. In our opinion this argument is unsound. Damages for personal
ATC 4086injuries may include, as one component, compensation for loss of earning capacity; but this is but one of a number of components of the general award of damages for injuries, even if it is capable of separate quantification. It is not income according to ordinary concepts within subsec. 25(1) of the Assessment Act, nor is it income within para. 26(j) of the Assessment Act; see
Groves v. United Pacific Transport Pty. Limited (1965) Qd. R. 62 per Gibbs J. at p. 65;
Polites v. The Hydro-Electric Commission 78 ATC 4013;
Williamson v. Commr. for Railways  S.R. (N.S.W.) 252 per Walsh J. at p. 281; and, see generally the Atlas Tiles case (supra); Cullen v. Trappell (supra); and Fox v. Wood (1981) 55 A.L.J.R. 562.
Under sec. 79 of the Act as amended an injured person's right to recover damages at common law in respect of the deprivation or impairment of his earning capacity arising by reason of the relevant injury is taken away if he is entitled to make a claim under sec. 25 in respect of that deprivation or impairment of earning capacity but does not make such claim. As damages for personal injuries at common law (including a component of compensation for loss of earning capacity) are not assessable income under the Assessment Act, it would be odd if different revenue consequences were attracted to payments made under the Act as amended for loss of the same asset and, more particularly, as the injured person who recovers damages at common law is liable to repay to the Board the amount paid by it to him.
In the present case the Board made five payments to the taxpayer aggregating $4,360. The evidence surrounding the making of those payments and of the Board's determination to make them is rather sparse. The primary Judge said, at pp. 4390-4391:
``The Board determined, on or about 8th September, 1980, to make a payment to the appellant under sec. 25 to adequately compensate her for the deprivation or impairment of earning capacity she had suffered. The Board further determined that being liable to make a payment under sec. 25 the payment ought to be made by instalments at times to be determined, pursuant to sec. 32. And so it happened that the appellant received a payment of $4,360 for deprivation of earning capacity between 24th July 1980 and 6th March 1981.''
The evidence is perhaps open to more than one construction. It is not entirely clear whether the Board determined that the payment or payments should be made by instalments or interim payments or payments on account of an amount to be finally assessed when all relevant material was before the Board. But whatever may be the correct analysis of the evidence the Board must, in our view, in the absence of cogent evidence to the contrary (and there is none), be presumed to have acted regularly in making its determination and payments in favour of the taxpayer. We note that before authorising each of the five payments the Board appears to have had regard to the matters to which its attention is directed by sec. 25.
In our opinion, the receipt by the taxpayer of the amounts totalling $4,360 was of a capital nature and therefore did not constitute assessable income derived by the taxpayer under subsec. 25(1).
As we have found that the payments made pursuant to subsec. 25(2) of the Act as amended should be characterised as capital payments for deprivation or impairment of earning capacity as distinct from payments in partial substitution of earnings which would have been earned but for the accident, there can be no room for the application of para. 26(j), so we need not consider that provision further.
In our opinion the appeal should be dismissed with costs.