Kelly v. Federal Commissioner of Taxation.Judges:
Supreme Court of Western Australia
This is an appeal by the taxpayer Phillip Vincent Kelly against the determination of the Commissioner of Taxation whereby he deemed a $20,000 cash award, paid to the taxpayer during the financial year ended 30 June 1979, to be assessable income in respect of that year. The cash award of $20,000 was an amount paid to the taxpayer in conjunction with and because he was adjudged the winner of a league football award ``the Channel 7 Sandover Medal'' as fairest and best player for the 1978 football season in the football competition held between the teams of the various clubs comprising the West Australian National Football League (WANFL). The taxpayer commenced playing football with some success as a young boy in junior football competitions in the country town of Busselton. In 1975 he came to Perth to attend the University of Western Australia and to undertake a degree in physical education. He duly enrolled at the university and commenced such course in 1975 and at the appropriate time of the year commenced pre-season football training with the university football club. At about this time he was approached by a representative of the East Perth Football Club (hereafter called ``the club''), a member club of the WANFL, and was invited to train with that club's football team which invitation he accepted. He was selected to play for the club's team in the final ten WANFL games in the 1975 season having applied for and obtained a clearance from his Busselton football team to join and play for the club's team. He won the club's award that year for the best first-year player in its team. He continued to play for the club's team in the 1976 and 1977 seasons, over the same years continuing with his university studies. He was paid for each league match played by him and in 1977 was receiving $120 per league game, the club also contributing to lease payments payable on his motor vehicle. In 1977 he failed to pass certain of the university subjects necessary for his degree and decided to repeat those subjects in the 1978 academic year whilst also doing his teaching diploma. At the end of 1977 he went to New Zealand during university vacation and whilst away came to the decision not to play league football during 1978 because of the encroachment on his study time that a commitment to league football made. On 14 February 1978 he wrote to the general manager of the club telling him of that decision and on arrival back in Perth confirmed with the general
ATC 4285manager his intention not to play during the 1978 season. At about this time the club appointed one Barry Cable coach of its team. The appellant describes Cable as a man who ``had achieved great things in football both in Perth and Victoria and was something of a legend in football''. The appointment of Cable as coach gave him some cause to consider again his decision not to play during 1978 because of ``the prospect of playing under such a great player and to learn off him as well'', but he took no steps to cancel the advice given by him to the club. Shortly afterwards he was approached by Cable who encouraged him to play in the 1978 season and suggested a meeting to discuss the matter with him. A meeting was held to which Cable also brought one Ron Joseph of the North Melbourne Football Club and at which both Cable and Joseph applied themselves to persuade the appellant to play for the club in 1978. The upshot was that he was persuaded to so play and also, at the invitation of Joseph, who told him that at a later stage he would like him to go to Victoria and play football there, signed a Form 4 committing himself to play for the North Melbourne football team should he wish to play in Victoria. For this Joseph paid him $4,000. The appellant says that at that time he had no belief that he would go to Melbourne and considered the $4,000 a ``handy way to get money to help me through my studies in 1978''. He then started pre-season training with the club's team. In late March and before the commencement of the 1978 football season he became aware, through an announcement in the press, that TVW Enterprises Limited, which operated Channel 7 Television Station (hereafter referred to as ``Channel 7'') had agreed to pay $20,000 to the winner of the Sandover Medal which was and is a trophy awarded each year to the fairest and best player in the WANFL for the year in question, as determined by the umpires of the league matches played during that year. The appellant's evidence is to the effect that he did not consider himself a contender for the award and had no reason to think he was a contender as to then he had not achieved anything of any major significance in league football. During the 1978 season he played in the league matches for the club's team being paid $150 per match, the club again contributing to the lease payments on his car. He had no written contract with the club but received some document from it to the effect that as long as he played league football for the club he would be paid. He says there was no commitment by him to play for the club and no restriction on him leaving it, other than that in accordance with league requirements a clearance was needed before he could play for any other club. When football training conflicted with his university lectures (which occurred often two nights a week) he attended his lectures. His evidence was that his studies had priority and in fact he completed his degree and teaching diploma during the year 1978. He says that after reading the announcement of the $20,000 to be awarded he gave no further thought to the Sandover Medal. In 1978 there were a number of media awards, in the main based on votes cast for various players after each match which votes were progressively totalled over the season the count being made public each week. He did not receive or win any of those awards and in his words ``was not even ranked''. His own club had an award for the fairest and best league player in the club's team and he was runner up for that award. He was then invited to attend, as one of the representatives of the club, the function at which the Sandover Medal voting was to be counted. Each club had a number of representatives at this function and officials also attended, the count being in public and televised. The count was of the votes cast by the Number 1 umpire at each league match during the season for the player each such umpire judged as fairest and best on the day in the match umpired by him, he at each such match voting for three players in order of merit. The procedure was that the umpire's votes were then sealed in an envelope and delivered to the WANFL where the envelope was kept unopened until the official count for the medal on the night of the award. On the count of votes in 1978 the appellant was found to have won the Sandover Medal. He was then presented not only with the Sandover Medal but with a cheque for $20,000 drawn and presented to him by Channel 7 by way of the said award. It is this sum that is the subject of the appeal. Evidence as to matters taken into account by umpires in casting their respective votes, and as to matters which would disqualify a player from eligibility for the Sandover Medal and generally relative to the part played by umpires in voting was given by Mr D.R. Capes, a league umpire at the relevant time.
The decision to present the sum of $20,000 to the winner of the Sandover Medal was one taken by Channel 7 after discussions initiated by it with the WANFL and, according to Mr F. Moss the executive director of finance and administration of Channel 7, was taken to cement Channel 7's relationship with the league and to bring its name to the forefront in the Sandover Medal presentation. The object was to attract more viewers because of the financial reward which the recipient would receive and to promote Channel 7's image in the eyes of the viewing public. Channel 7 had televised the Sandover Medal count each year since 1963 and had decided that the fact of the medal being known as the Channel 7 Sandover Medal (the new name for the award agreed upon at the discussions by it with the WANFL) together with the cash award to the winner thereof would create additional public interest and attract many more viewers. The decision to make the award was announced on or about 22 March 1978 and was to the effect that it would be made for the ``next four years''. Channel 7 sponsored a number of other programs such as the Australian Derby (which became known as the Channel 7 Australian Derby), Telethon, Miss Australia Quest and the Two Rocks Birdman Rally, the purpose of sponsorship in each case being to promote the Channel's image in the eyes of the viewing public. It also had football awards of its own such as the Channel 7 Footballer of the Year Award judged on a similar basis to the Channel 7 Sandover Medal save that the votes were cast by a panel on its World of Sport program and disclosed progressively during the season. Mr Moss was referred by counsel for the respondent to comments reported to have been made by Mr J.W. Cruthers, chairman of Channel 7 at the time the decision to give the award was taken in a press announcement in respect thereof, that the award was made ``to award the fairest and best footballer in W.A. each year in keeping with his status as a professional'' and as to it being ``an incentive for players to produce their best, week after week''. Mr Moss was not prepared to accept that Channel 7 had in mind an award in keeping with a player's ``status as a professional''. Although he had not attended the discussions with the WANFL (which he said Mr Cruthers had attended), he had confirmed by letter the arrangements agreed with the WANFL. Those letters were produced in evidence and contained no references similar to Mr Cruthers' reported comments. In direct answer to a question relating to Mr Cruthers' reported comments to Channel 7's motives in making the award, he said: ``Yes I think that he himself personally felt that they were worthy motives. He took a very keen interest in football but I am quite sure that as far as TVW was concerned we had in mind that the program, the telecast, the Channel 7 Sandover Medal itself would be enhanced by the award and it was a business expense''. He was not prepared to say that ``one of the thoughts'' behind the decision to make the award was not (in the word of the question) ``to help football by encouraging professionalism among footballers, providing incentives to footballers to embark [upon] a career in footballing'', but added: ``But it wasn't the main reason by any means''.
Mr G.P. Bowler was in 1978 the general manager of the WANFL. He gave evidence that the Sandover Medal had been instituted by Sir Albert Sandover in 1921 as an annual award for the fairest and best player in the league, the Sandover family donating the medal each year since. As to the negotiations with Channel 7, his evidence was that Channel 7 approached the WANFL and offered to make available $25,000 prize money to be divided $20,000 to the winner of such medal, and two lesser prizes of $3,000 and $2,000 respectively for runners up, and to provide at its cost ``the function, the dinner, to run the Sandover Medal night, in return for which the medal was to be called `Channel 7's Sandover Medal'''. The offer was accepted, the WANFL considering that ``it would enhance the medal and offer something which they felt was worthy of the league's major award, or only real season award that also carried a cash bonus''. The fact of Channel 7 undertaking the costs of the function saved the league about $14,000.
The evidence was that the appellant was at no time employed by the WANFL, although if in fact he played in the State match he would have been paid a fee by the league for that match. The appellant's evidence was that he played a State match for the league in 1978. His evidence was that approximately 40 players would similarly have played in a State match. The evidence was clear that he was not employed by TVW Enterprises Limited, although if he appeared as a guest on a television football panel program he would
ATC 4287have been paid a fee. He was prepared to concede that in the relevant year he may have attended on the Sunday television show as a guest once or twice, but had no clear recollection. The organisation of league football was such that the individual clubs provided football teams which played in league competitions and on grounds arranged by the WANFL, the WANFL paying the individual clubs dividends from gate receipts and the clubs being individually responsible for their players, the payment thereof and the conditions under which they played. The Commissioner called no evidence.
I accept the evidence of all of the witnesses called, and accept as being the facts relevant to this appeal and my decision, those contained and referred to above.
Viewed objectively, on those facts, at the commencement of the 1978 football season, each team member of a WANFL club was and knew that he was eligible to be considered for and to receive votes for the Sandover Medal depending on the umpires' view of the standard and quality of his play, and that, provided he was not disqualified from eligibility by reason of a reportable offence, was eligible to win that award; and further, that if he won that award he would also receive the $20,000 promised by Channel 7. In terms of the announcement each such player knew that such would be the position for the next four years. The award was open only to players in league matches, no one else being eligible. Obviously some players would rate their chances of winning the award as greater than others with no one having any certainty that he would be the winner. In my view it is irrelevant whether subjectively any individual player rated his chances as high, low, or nil, the choice was determined by the umpires' votes and would depend upon the umpires' perception of the standard and quality of a player's play on a match by match basis. The clear inference from the evidence was that each player, at least in the club's team, received payment for each game played. The appellant at least received such a payment and in addition some financial contribution to the lease costs of his car. In my opinion on the evidence he was an employee of the club although only a part-time employee:
(F.C. of T. v. Maddalena 71 ATC 4161). His income tax return for the year 1979 as well as his oral evidence shows that he considered himself an employee and that the club deducted income tax instalments from payments made to him as an employee. He was obliged to attend club functions and other functions as directed by the club and to attend the club's training sessions unless excused, and when playing a game was subject to the direction of the club's coach. On his own evidence he was required to submit to the rules of the club and his obligation, as he understood it, was to play his best at all times. Thus it is clear that a nexus existed between the appellant's employment as a footballer and the benefit received by him in the form of the $20,000 award. The question, however, is whether that nexus was sufficient for it to be said that the payment to him was ``really incidental to his employment'' as a footballer with the East Perth Club, or alternatively, was payment for services rendered in respect thereof. It is quite clear that the $20,000 could not be said to be payment for services rendered, the real question being whether the payment thereof to him was a payment ``really incidental to his employment'' as a footballer.
In the joint judgment of Dixon C.J. and Williams J. in
F.C. of T. v. Dixon (1952) 86 C.L.R. 540 at p. 556 it was said:
``In the definition of `income from personal exertion' the expression `allowances and gratuities received in the capacity of employee or in relation to any services rendered'... does seem to indicate that no contractual right to the allowance or payment need exist. Indeed, it is clear that if payments are really incidental to an employment, it is unimportant whether they come from the employer or from somebody else and are obtained as of right or merely as a recognized incident of the employment or work.''
In my opinion, having regard objectively to the facts as they existed at the commencement of and during the 1978 football season and up to the time of the award, the possibility of receipt of the $20,000 payment from Channel 7 was a clearly recognisable and recognised incident of the appellant's employment as a footballer with the club, notwithstanding that he gave himself no chance of winning it. In fact, because of the pursuit by him of such employment, i.e. the playing of football to the best of his skill and ability in each of the matches played by him, he secured the necessary votes of umpires to win the Sandover
ATC 4288Medal and, as a consequence, the $20,000 payment which it was known flow from such a win. The fact that he gave himself little or no chance of securing any or sufficient votes in the weekly matches to win the Sandover Medal and therefore the cash benefit is irrelevant. The fact that it was open to any player in the league to win the medal and the money was obvious and recognised, and in my view was a fact incidental to the employment of such players. The pre-season announcement was to the effect that the payment of $20,000 would be made to the winner of the Sandover Medal in each of the years 1978, 1979, 1980 and 1981. The fact that the appellant did not believe he could win the medal and the cash payment in 1978, even if relevant, cannot be taken to mean (nor was it his evidence) that he excluded himself from ever winning it by his skill and ability in his employment as a footballer, or to exclude as an incident of his employment the fact that he might in any one of the four years win the medal and cash benefit.
The appellant urged that substantial weight be given to the motive of the donor Channel 7 in making the award - that is, to secure benefits to itself by aligning itself with the award of the Sandover Medal thereby increasing its viewer coverage. The donor's motive may in some cases be found to be relevant to the determination but it cannot be the determining factor. As was said by Windeyer J. in
Scott v. F.C. of T. (1966) 117 C.L.R. 514 at p. 526 in a helpful passage:
``Whether or not a particular receipt is income depends upon its quality in the hands of the recipient. It does not depend upon whether it was a payment or provision that the payer or provider was lawfully obliged to make. The ordinary illustrations of this are gratuities regularly received as an incident of a particular employment. On the other hand, gifts of an exceptional kind, not such as are a common incident of a man's calling or occupation, do not ordinarily form part of his income. Whether or not a gratuitous payment is income in the hands of the recipient is thus a question of mixed law and fact. The motives of the donor do not determine the answer. They are, however, a relevant circumstance.''
His Honour then quoted from the judgment of Kitto J. in
The Squatting Investment Co. Ltd. v. F.C. of T. (1953) 86 C.L.R. 570 at pp. 627-628:
``The question whether a receipt comes in as income must always depend for its answer upon a consideration of the whole of the circumstances; and even in respect of a true gift it is necessary to inquire how and why it came about that the gift was made.''
In my view the overall circumstances show in this case that Channel 7 was providing for a period of years a sum of money which in the end result would in each year be paid to a footballer playing in the league competition as a consequence of him playing in that year to such a standard that he would receive sufficient votes to win the Sandover Medal. From the point of view of the recipient it was a sum which he was eligible to receive (unless disqualified as previously mentioned) by virtue of his employment if he could play well enough to secure the most votes from umpires as fairest and best player. In the appellant's case at least this followed from the pursuit of his employment. If he secured those votes he would receive not only the Sandover Medal but the money. This is not a case such as that of Scott v. F.C. of T. referred to above where the payment was referable to the attitude of the donor personally to the donee personally. In each year the award was to be a sum made available to a player who, if he was employed as a footballer to play league football, in the course of his employment played well enough to secure the necessary votes to give him the entitlement to the Sandover Medal and consequently the money. In my opinion the payment to and receipt by the appellant of the sum of $20,000 was directly related to his employment by the club as a footballer. In considering the words ``directly or indirectly'' as used in sec. 26(e) of the Income Tax Act, Dixon C.J. and Williams J. at pp. 553-554 of their joint judgment in Dixon's case referred to above said:
``A direct relation may be regarded as one where the employment is the proximate cause of the payment, an indirect relation as one where the employment is a cause less proximate, or, indeed, only one contributory cause.''
In my view these words, though made in the context of sec. 26(e) are appropriate to a consideration of the general concept of
ATC 4289assessable income, but in any event even could it be said that the payments were not directly related to the employment they are, in my view, clearly indirectly related thereto and consequently caught if not by sec. 25 then by sec. 26(e) of the Act. The ``cause'' of the payment on the facts of this case is the employment of the appellant by the club as a footballer which firstly rendered him eligible to receive the payment if he could win the Sandover Medal, and secondly obliged him to play to the best of his skill and ability which, if sufficient, would and in fact did, secure for him the necessary votes to win the medal and the money. It cannot fairly be said, as was submitted by counsel for the appellant, that this is a case such as that considered in
Hochstrasser v. Mayes (1958) 3 All E.R. 285 in which the moneys were not paid to the employees in their capacity as employees and for no consideration other than their services, but were paid under a separate and collateral contract as entered into between them and the employer. Here the payment is directly related to the performance by the recipient of his duty as an employee of the club which performance itself secures the votes of umpires and results in receipt of the payment. Further it can be distinguished from the facts of
Moore v. Griffiths (1972) 3 All E.R. 399 - a case relied on heavily by the appellant - firstly because that case is a decision based on the provisions of the United Kingdom Income Tax Act 1952 and is not necessarily determinative of the law in Australia. The differences between the statutory provisions of the two countries were pointed out by Bowen C.J. in
F.C. of T. v. Harris 80 ATC 4238 at p. 4242. I consider the following observation made in vol. 1 of the Australian Federal Tax Reporter published by CCH Australia Limited at ¶ 11-720 dealing with sec. 25 and commenting on the decision F.C. of T. v. Harris to be a correct statement of those differences:
``... the question in the United Kingdom is whether the item falls within Schedule E as a payment in respect of an office or employment, or within Schedule D as a profit or gain arising or accruing from an office or employment. If either of these conditions is satisfied, the amount would also be assessable in Australia but in this country it is also necessary to consider whether, even though a series of voluntary payments are not incidental to an office or employment or a profit or gain arising or accruing from an office or employment, they have the character of income according to ordinary usages and concepts.''
Because that statement was made in relation to F.C. of T. v. Harris it refers to ``a series of voluntary payments''. In my opinion the statement is equally applicable to a case such as is presently under consideration. Secondly, the present case can be distinguished from Moore v. Griffiths by the specific difference in facts which are identified in the headnote together with the reasons given why the payment made by the football association in that case was held to be not taxable. The case can further be distinguished in respect of payments made by the company Nicholas Products, in that the reasons set out at p. 411 of the judgment make it clear that the decision relating to those payments was based on the donor's motives in making the payments, no other facts being there brought into consideration, possibly because of the nature of the case stated with which the action dealt. A number of other cases were cited in support of the appellant's case, but in my view each is distinguishable on its own facts and is of little assistance. In so far as I am assisted at all by the cases quoted they do not lead me to alter my findings on the facts of this case.
I find that the sum of $20,000 paid to and received by the appellant by Channel 7 upon him being voted the Sandover Medal winner in respect of the 1978 football season is assessable income in the appellant's hands within the meaning of sec. 25 and 26(e) of the Income Tax Act in respect of the financial year ended 30 June 1979. I confirm the assessment appealed from and dismiss the appeal.