Federal Commissioner of Taxation v Dixon
86 CLR 540(1952) 10 ATD 82
[1953] ALR 17
[1952] HCA 65
(Decision by: McTiernan J)
Federal Commissioner of Taxation
v Dixon
Judges:
Dixon CJ and Williams J
McTiernan JWebb J
Fullagar J
Subject References:
Taxation and revenue
Income tax
Assessable income
Enlistment of employee in defence forces
Remuneration
Difference between war service pay and civil remuneration paid by employer
Liability to tax
Legislative References:
Income Tax Assessment Act 1936 No 27 - ss 6; 23(5); 23B; 25; 26(d); 26(e)
Defence Act 1903 No 108 - s 118A(3)
Judgment date: 11 December 1952
SYDNEY
Decision by:
McTiernan J
McTIERNAN J. In my opinion the question in the case stated should be answered: No.
The Commissioner of Taxation contended that the sum of PD104, as to which the case was stated, was included by par. (e) of s. 26 of the Income Tax Assessment Act 1936-1943 in the respondent's assessable income. The material terms of this paragraph are "all allowances, gratuities, compensations, benefits, bonuses and premiums allowed, given or granted to him" (the taxpayer) "in respect of, or for or in relation directly or indirectly to, any employment of or services rendered". It may be conceded that the PD104 was of the nature of one or more of these amounts.
The question which arises is whether the grant of this sum of money had a relation to the employment of the respondent or to services rendered by him. If the grant of it had the relation required under par. (e) either to the respondent's employment as a clerk with Macdonald, Hamilton & Co or his military employment, the provisions of par. (e) would have been satisfied. Was this sum of money given to the respondent in respect of either of such employments? The case stated shows that it was not a remuneration relating to either employment. It shows, however, that, but for the circumstance that the respondent was in the employment of Macdonald, Hamilton & Co and left it in order to join the Army, they would not have paid the sum of money to him. It was not paid upon any legal basis: the whole of it was paid at the mere will of the firm. This fact, by itself, does not, of course, prevent the sum from being included by par. (e) in the respondent's assessable income. It is plain from the terms of par. (e) that taxation was not meant to be escaped by reason of the special fact that payments made to an employee in respect of his employment were voluntary.
The words of par. (e) are wide, but, I think, not wide enough to prevent an employer from giving money or money's worth to an employee continuing in his service or leaving it, without incurring liability to tax in respect of the gift. The relationship of employer and employee is a matter of contract. The contractual relations are not so total and all embracing that there cannot be personal or social relations between employer and employee. A payment arising from those relations may have no connection with the donee's employment. The contract creates the cash nexus upon which their mutual rights and obligations rest. The employee performs his part of the contract for money or money's worth, which may be paid as a matter of obligation or sometimes may be paid in part upon no legal basis. It is true to say of such amounts that they are paid or given in respect of the employment of the recipient, whether paid during the employment or after it has ceased.
The scheme under which Macdonald, Hamilton & Co paid the PD104 to the respondent grew out of relations engendered by the contractual relationship. The scheme was ultra that relationship. It had nothing to do with the cash nexus between the firm and the respondent. But for the circumstance that he was in their employment when he enlisted he would not have received the PD104. This is not a circumstance which necessarily made it a payment in respect of, or for or in relation directly or indirectly to, his employment. The case stated does not show that the sum flowed from the respondent's employment or his military service. It was a voluntary contribution made for a special purpose. The scheme under which it was paid was devised to save the firm's employees from financial loss due to enlistment. There was no connection between the payment and the services rendered by the respondent for Macdonald, Hamilton & Co or between the payment and his military duties.
The Court was referred to statutory provisions dealing with the industrial rights or privileges of employees while in the army. It is not possible to discern any connection between the payment and the statutory relations produced by these provisions.
The sum of PD104 was assessed as income from personal exertion. This class of income is defined by s. 6 (1) of the Act. The definition is exhaustive. It includes "allowances and gratuities received in the capacity of employee". The commissioner contended that the sum was in this category of income from personal exertion. The sum of PD104 was the total of a number of voluntary payments. All were made at the mere will of Macdonald, Hamilton & Co : none was made upon any legal basis. They were at liberty to decline to make any of them. Indeed they made it clear that they might at any time cease to continue the payments. These were accidental additions to the respondent's financial means, so long as he was on active service and his military pay was less than his civilian pay. Were these payments received by the respondent in the capacity of employee? Lord Alverstone cited in Cooper v Blakiston [F11] , at p. 697 some observations made by Stirling L.J. in Herbert v McQuade [F12] , at p. 650 which are in point.
"I think that a profit accrues by reason of an office when it comes to the holder of an office as such-in that capacity-and without the fulfilment of any further or other condition on his part". It was necessary for the respondent to fulfil two other conditions besides being an employee. These were, to join the Army and to be in receipt of military pay less than his pay as a clerk. The measure of the sum of PD104 was this difference. It did not relate back to his employment as a clerk: it was not a payment in respect of services rendered as such nor in respect of military services. The sum was paid under a scheme designed to give financial relief to those employees of the firm who suffered financially because they enlisted. The payment of this sum of PD104 to the respondent was determined by this personal equation. The fact that the payment was voluntary is not per se a reason why the sum should not be taxable. It is an element in the scheme. The sum was a special contribution made to the respondent by reason of the circumstance that he sacrificed some of his income by enlisting. This was the dominant and determining factor. The sum was in a sense paid to him honoris causa.
The commissioner relied strongly upon the following statement made by Buckley L.J. in Cooper v Blakiston [F13] . "The question is not what was the motive of the payment, but what was the character in which the recipient received it? Was it received by him by reason of his office?" If this test is applicable here, it seems to me that it is not to the commissioner's advantage to apply it. What was the character in which the respondent received the sum of PD104? I should say, that upon the facts found by the stated case, the respondent did not receive the sum in the character of an employee. He would not have received it unless he ceased to be an employee and it was not in any sense an augmentation of the remuneration paid to him as a civilian. As regards his military capacity, it was extraneous to that employment and a mere fortuitous addition to his military pay. It came to him merely in consequence of the bounty of his former employers. They made the payment in respect of his enlistment from their service. It was an acknowledgment of that fact not of his services for them. The bounty would diminish if he was promoted or his military pay was increased. The sum was not paid to impose any obligation upon the respondent to resume his former employment. If it is a material matter the respondent did not request that the payment be made. Neither the firm nor he contemplated that if he enlisted it would be a term of his employment that he would receive such a payment. The scheme contemplated that no payment would be made until further service with the donors was impossible owing to the respondent's enlistment. The respondent had no right to receive anything under the scheme.
All the facts clearly point to this not being a payment in respect of the respondent's employment or in respect of services rendered by him or a payment to the respondent in his capacity as an employee.
The case of Cooper v Blakiston [F14] concerned Easter offerings received by the incumbent of a benefice. That decision was unfavourable to him. It seems to me that the decision proceeded upon distinctions which are very favourable to the respondent in the present case. Lord Loreburn said in the course of his judgment upon the appeal [F15] :"In my opinion, where a sum of money is given to an incumbent substantially in respect of his services as incumbent, it accrues to him by reason of his office. Here the sum of money was given in respect of those services. Had it been a gift of an exceptional kind, such as a testimonial, or a contribution for a specific purpose, as to provide for a holiday, or a subscription peculiarly due to the personal qualities of the particular clergyman, it might not have been a voluntary payment for services, but a mere present". An earlier case of Turner v Cuxon [F16] dealt with a voluntary payment to which the second part of these observations would apply. Subsequent cases which provide examples of payments of the same kind are Cowan v Seymour [F17] ; Seymour v Reed [F18] ; and Corbett v Duff [F19] . In my opinion the PD104 could be classed with payments of the kind which Lord Loreburn said were not taxable. However, decisions upon the English Act need to be used with care in interpreting the present Act. I refer to them only because they were used to support the commissioner's contention that the PD104 was assessable income.
Stedeford v Beloe [F20] is another case in which the taxpayer succeeded. There the question was whether an annual pension granted out of the school funds to a headmaster on his retirement was taxable. The governing body of the school which granted the pension had the right at any time to rescind it and to cease making payments to the headmaster. Viscount Dunedin said:"It (the pension) is not given to him in respect of his office as headmaster, because he no longer holds that office of headmaster. It is only given to him because he is no longer headmaster. ... Now it must be a real profit under Schedule D, and it has been held again and again that a mere voluntary gift is not such a profit because it is not, in the true sense of the word, income. It is merely a casual payment which depends upon somebody else's good will" [F21] . Lord Warrington of Clyffe said: "Here each payment is wholly voluntary. The case is only an instance of a succession of voluntary payments, each of which is voluntary and none of which need necessarily be continued" [F22] . Lord Thankerton adopted this quotation to describe the pension [F23] . "It was a mere donation given each year with no certioration that it would be repeated the year following". Lord Macmillan concurred. The sum of PD104 resembles the headmaster's pension in these respects. It was a succession of voluntary payments: it had the quality of periodicity: it became payable when the respondent left the civil employment: it was in the absolute discretion of the firm whether it would carry out the scheme: it was not bound to make any payment to the respondent.
Lord Phillimore said in delivering judgment in Seymour v Reed [F24] :"My Lords, I do not feel compelled by any of these authorities to hold that an employer cannot make a solitary gift to his employee without rendering the gift liable to taxation under Sch. E. Nor do I think it matters that the gift is made during the period of service and not after its termination, or that it is made in respect of good, faithful and valuable service". The authorities in question were in the line of cases upon which the commissioner relied. The judgment in the case of Stedeford v Beloe [F25] shows that Lord Phillimore's observations could be extended to a succession of mere voluntary payments.
The case for the inclusion of the sum of PD104 is no stronger because its measure was the difference between the military and civil pay. If the measure were different, more or less-that circumstance could not have distinguished any greater or smaller sum, for the purposes in hand, from the present sum of PD104.
In my opinion, as already stated, the question should be answered in the negative.