PM Roach SM
Administrative Appeals Tribunal
P.M. Roach (Senior Member)
In this reference the applicant is an Australian-born married man aged 38 years. Since 1983 he has been married to an Asian lady five years his junior. She represented him at the hearing. The couple rank among the less fortunate in the community. They belong to a social group, many of whom are dependent upon the public purse for their support. That being so the measure of the well-being of many in that group is largely determined by decisions made by officers of the Public Service in the course of administration of the executive branch of government. From within that group many persons in the community from time to time find themselves in contention with that bureaucracy by reason of the refusal of the executive to grant them the measure of financial support which they seek. Such is the concern of the community to ensure that a just system operates for the determination of the claims of such persons, that provision is made for such claimants to have access without fee to the Social Security Appeals Tribunal (SSAT) - a body established to provide for an independent review of decisions made within the Department of Social Security; and, moreover, for a right in such persons as are dissatisfied with determinations of the SSAT, or by decisions not to give effect to such determinations, to have recourse without fee to this Tribunal - the Administrative Appeals Tribunal - to seek a further review of such decisions adverse to the interests of claimants.
2. However, the present applicant makes no claim upon the public purse. He, perhaps unwisely and possibly unnecessarily, prefers to be independent of public support. Despite being
ATC 400unemployed and, if his claim be correct, unemployable because of disability, he seeks nothing from the community in the matters giving rise to the present application. Rather he only asks that the Tribunal - the only independent tribunal capable of granting the relief he seeks - provides an independent review and grants relief to him from a claim made by the Commissioner of Taxation on behalf of the community. That claim is to retain the sum of $7,124.48 paid to the Commissioner by the applicant in July 1986 in satisfaction of a notice of assessment of income tax. That assessment was made against the applicant on 30 June 1986. It created an obligation in the applicant to effect payment of $7,124.48 on or before 1 August 1986 or, in default, suffer a liability to accrue to pay interest on that sum pending payment at the rate of 20% per annum. All that the applicant asks is that the community be held not entitled to maintain that claim against him.
3. I mention these matters because his personal circumstances and his social and financial position make him little different from many claimants upon the public purse and because, but for a timing factor of only a few months, instead of having the right to a two-tiered independent review without obligation to pay any fee, this applicant would only be entitled to an independent review of his claim upon payment of a fee of $240 for each year to which his application for review relates and then only to a single review. I express the hope that the Parliament or the Governor-General acting upon the advice of the executive council will soon act to restore to all taxpayers rights which will make it as practicable for them to seek an independent review as it is for the affluent.
4. What particularly prompts the comment at this time is the circumstances that in the same sittings I record appeals in the social security field. This applicant was poorer than some of the other appellants - something which can be clearly seen upon considering the reasons for decision delivered this day in
Vassallo v. Secretary to the Department of Social Security (W88/103)).
5. It is convenient to set out the relevant facts in chronological order.
1978 - The applicant and two of his brothers owned four hectares of land in Western Australia, which had been inherited from their father.
10 May 1978 - The State resumed the lands for public purposes in the way of parks and recreation. As a result, there vested in the Metropolitan Region Planning Authority (MRPA):
``An estate in fee simple in possession for the public work herein expressed, free and discharged from all trusts, mortgages, charges, obligations, estates, interests, rights of way or other reasons whatsoever.''
22 March 1979 - The MRPA wrote to the former owners offering $101,775 as compensation. The letter stated:
``Section 63(e) of the Public Works Act, provides that if the land resumed was not, at the date of resumption, producing any rent or profits, interest is payable in this instance [sic] at the rate of 10.35% from 15 August 1978.
If the amount offered is acceptable, would you please notify me as soon as possible in order that payment can be arranged.
Should you wish to reject this offer, an offer of an advance payment of the amount of $101,775 is hereby made in accordance with the provisions of Section 49A of the Public Works Act.
If this offer is not accepted within 30 days of the date of this letter, interest liability will cease under the provisions of Section 63(f)(ii) of the Act, in respect of the amount offered.
Acceptance of the advance offered in no way affects your rights under the Act to press for increased compensation if you so desire.''
11 April 1979 - The brothers accepted the offer of an advanced payment.
9 December 1980 - By their solicitors, the brothers gave formal notice of their intention to institute an action for compensation.
1981 - On a date unknown, the brothers instituted proceedings in the Supreme Court of Western Australia against the Minister for Works.
March 1982 - The Minister made an offer in writing to consent to judgment for the sum of $185,000 which sum is inclusive of the sum of
ATC 401$101,775 paid to the plaintiffs on 24 July 1979 and an allowance for compulsory acquisition under sec. 63(c) of the Public Works Act and costs; the defendant will in addition pay to the plaintiffs interest on the sum of $185,000 calculated at 10.35% per annum from 15 August 1978 up to 24 July 1979 and thereafter on the balance sum of $83,225 from 25 July 1979 until payment.
``... [sic] course of action for compensation for the resumption of their land...''
4 March 1982 - By their solicitors, the brothers accepted the offer.
12 March 1982 - The sum of $123,973.51 was paid through the solicitor to the brothers and I am satisfied it was fully accounted for by their solicitor. The amount received was made up as follows:
$ Compensation 185,000.00 Interest 40,748.51 ----------- TOTAL $225,748.51 Less paid 24 July 1979 101,775.00 ----------- Balance $123,973.51 ===========
6. By letter of 24 February 1986, the State Planning Commission, which had assumed the responsibilities of the MRPA, provided details to the respondent of all ``interest payments'' paid between 1 July 1980 and 30 June 1984 on land resumed by the Commission (then the MRPA). One of the interest payments so identified was that made to the brothers. However, it was not, as the applicant thought, the only interest payment referred to in that correspondence. The names of other payees had been deleted from the schedule of payees exhibited before me.
7. On 1 April 1986 an officer of the Commissioner left a card at the home of the applicant requesting him to make contact to arrange a suitable time for an interview. An interview followed at which the applicant was advised that it was the Commissioner's view that $13,582, being the one-third of $40,748.51 received by the applicant, constituted assessable income. Furthermore, the applicant was advised that it was his obligation to file an income tax return for the year of income ended 30 June 1982. I accept that the applicant had believed incorrectly that, as his taxable income would not exceed $3,827 and, therefore, would not give rise to any obligation to pay income tax, he had no obligation to lodge an income tax return. In response to the demand he lodged a return - it was not presented in evidence - acknowledging a taxable income of $3,827. He did so with the assistance of a local Member of State Parliament. He lodged the return with the Commissioner on 29 April 1986, together with a covering letter which stated:
``I refer to your letter of 22 instant and enclose completed tax return for the year ending 30 June 1982 showing all income received. This is, by way of interest on bank deposits on which I live. I do not draw any social security benefit.
The only other money received was by way of sale of land as per statement attached. This was divided three ways. I have been told that this is not taxable.''
Being distrustful of authority, he obtained a receipt for the return from the Commissioner. Although the income tax return was not placed in evidence I accept that, apart from the disputed item, the only assessable income derived was by way of interest on interest-bearing investments.
29 August 1986 - The applicant wrote to the Commissioner stating that:
``I would also wish to reject [sic] against the tax bill which I feel is false because all the money received from that transaction came from the sale of land.''
In that letter he recorded his view that the entitlement of the brothers had been to receive the market value of the land; plus 10% of the market value as an allowance for compulsory acquisition; plus payment of interest in the event of delay (to keep in line with inflation). In that letter he assumed that the market value of the land was $185,000 and that the allowance for the compulsory acquisition would accordingly be $18,500.
8 November 1988 - In July 1987 the applicant had lodged his 1987 income tax return using Form A for the purpose. By that return of income he disclosed income from fixed interest investments amounting to $5,391. I am satisfied that that provides a fair indication of the moneys which have been available to the applicant and his spouse in recent years for their support. For the rest they have been fortunate in that the two brothers of the
ATC 402applicant transferred their interest in the home in which the applicant and his wife reside so that the couple now have unencumbered title to a home, valued according to their estimate in 1988 at the sum of $60,000. However, having lodged that Form A return, they observed that the form was said to be appropriate for (inter alia) taxpayers:
``who derived any profit from property acquired and disposed of within 12 months or a capital gain or loss on asset acquired after 19 September 1985.''
This prompted the applicant to write to the Commissioner stating that the case was agreed and settled out of court in February 1982.
``The money received by way of sale of the land is to settle payment delayed to keep within inflation on the unpaid balance. Otherwise where is the 10% compulsory quisition [sic] which the M.R.P.A. should pay under sec. 63C(i) under the Public Works Act and cost for resuming Lot 168... in 1979.
The tax law was only issued on 19 September 1985. Why do the Taxation Office had [sic] to send a false bill to claim the interest/compensation component of the sale of the land in May 1986 after four years whereas the lawyer... said there was no bill to come after.''
8. What is clearest about this application is that neither the applicant nor his spouse have any understanding of the issues or as to how it is that the Commissioner asserts a liability in the applicant to pay tax upon the ``interest'' received. I am satisfied that they are both completely genuine in their bewilderment. I also recognise that it is quite unlikely that they will ever be capable of coming to an understanding as of what has happened, or why. In their endeavours to expose the claim against the applicant as unsound, they have grasped at straws.
9. As they see it, what the applicant received, and the entirety of what the applicant received, on resumption of his interest in the land was compensation; something entirely lacking the characteristics of ``income''. They see the entirety of the compensation moneys as constituting a capital fund which was to be the source of their future income and their sole means of providing a livelihood for them. Underlying that view was an assertion that the solicitor who had acted for them in the compensation proceedings had advised them that the payment made to the brothers in March 1982 constituted a full and final settlement of the matter and that there would be no further claims against them or any entitlement in the brothers to make any further claims upon the resuming authority. The applicant has understood the observation made in the context of a compensation claim between citizens and the State of Western Australia, as a comment extending in its application to the relationship in taxation matters between the applicant and the Commonwealth of Australia. I find that there is no basis at all for imputing dishonesty or incompetence to the solicitor in relation to any advice given by him as to the ``finality'' of the compensation proceedings. The misunderstanding may seem to be a foolish one in the eyes of the wise but not everyone is wise.
10. However, having that conviction they have proceeded to misunderstand much of what they have read. They have looked at the notice of resumption and to the phrase referring to the vesting of ``an estate in fee simple in possession... freed and discharged from all trusts... obligations, estates, interests...'' and have completely misunderstood the reference to ``interests''. They have failed to understand that the phrase was used to indicate that the estate in fee simple which would pass to the Crown would be unfettered by any ongoing claim by the former owners. It meant that following the resumption the applicant would no longer have any ``interest'' in the land. It was saying nothing about the characteristics of any compensation moneys for income tax purposes, let alone for the purpose of the revenue laws of the Commonwealth. Similarly in desperation they seized upon the reference in the State Planning Authority letter to the period ``between July 1, 1980 and June 30, 1984'' as erroneously suggesting that the moneys had been paid to the applicant and his brothers at some date later than March 1982. That too was a complete misunderstanding of the letter. Then again the passage quoted from the 1987 Form A Income Tax Return was based upon another misunderstanding. The comment in the form may have been prompted by the introduction of a capital gains tax with effect from 19 September 1985, but it in no way reflected the
ATC 403passage of any new legislation relevant to the fixing of the liability of the applicant.
11. Against that background it should hardly be considered surprising that neither the applicant nor his spouse recognised as a possible contention a solution that was applied by the High Court of Australia in
McLaurin v. F.C. of T. (1961) 104 C.L.R. 381. The argument would have been that what was received by way of compensation should have been characterised as being wholly a matter of capital. But the circumstances in this case were unlike those considered by the Court in McLaurin. In this case from the moment of resumption there was a statutory right to compensation and, in circumstances provided for by the legislation, to interest. The litigation commenced and the Minister on behalf of the State offered to pay two amounts of money. The first amount was to be a fixed sum of $185,000. It was not proposed as the value of the land. It was proposed as being a sum which would provide for:
- (a) compensation for the resumption of the land;
- (b) an allowance for compulsory acquisition under sec. 63C(i) of the Public Works Act; and
- (c) costs.
It was to be "inclusive of the sum of $101,775 paid to the plaintiffs on 24 July 1979. Secondly, the Minister offered to pay:
``interest on the sum of $185,000 calculated at 10.35% per annum from 15 August 1978 up to 24 July 1979 and thereafter on the balance sum of $83,225 from 25 July 1979 until payment.''
The sum of $83,225 represented the difference between $185,000 and the initial payment of $101,775. Calculation confirms that the amount of ``interest'' so payable was to be $40,748.51.
12. The offer to pay those two sums was accepted by the applicant and his brothers. In consequence they received $40,748.51 as interest and the applicant received one-third of that sum - $13,582. In those circumstances the decision of Rich J., sitting as a Justice of the High Court of Australia in
Federal Wharf Company Ltd. v. D.F.C. of T. (1930) 1 A.T.D. 70 applies. In that case his Honour was considering moneys paid pursuant to the provision of the Harbors Act 1913 of South Australia following the acquisition of property. His Honour said [at p. 72]:
``The true question is, whether sums received pursuant to s. 26 of the Harbors Act, 1913 are of a capital nature, or of an income nature. In considering this question, it is important to observe first that the sum is calculated and payable in respect of time; second, that the time in respect to which it is so calculated commences when the owner is deprived of the actual profitable enjoyment of his property by the entry of a Minister; third, that the period ends with the payment of compensation which represents the capital of that property; and fourth, that the interest is calculated upon the sum ascertained to represent the capital value of the property of which the owner has been deprived. It is true that s. 26 says that the interest is to be added to the amount of any compensation to be paid, but this statement manifests no intention that it shall be considered capital, whether as against the revenue or between life-tenant and remainderman, or for the purposes of the internal management of a company. Indeed, for the purposes of the Federal tax it would matter little if it did, for such an intention could not alter its true character... It is quite clear that interest upon the balance of purchase money payable upon the sale of real property is income... In my opinion, the character of the interest payable under s. 26 is that of recompense for loss of the use of capital for a period of time in which it would earn income. It represents the annual value of capital. It is paid because the owner has been deprived of a capital asset which he had and has not received a fund which is to be substituted for the capital asset. The interest is the flow of that fund. In my opinion it is income.''
13. In the circumstances I have no alternative than to reach the same conclusion as his Honour: the interest component of the total settlement moneys constitutes assessable income. Accordingly, there has been no excessive assessment of the taxable income of the applicant for the year of income ended 30 June 1982.
14. It is appropriate before concluding that I should address one further question, although no evidence and no argument was presented to me in relation to it by the applicant. In
ATC 404assessing the applicant as liable to pay the sum of $4,228.48 in income tax the Commissioner also assessed the applicant as liable to pay $2,896 as additional tax for late return. That imposition was made pursuant to the provisions of sec. 222(1) of the Income Tax Assessment Act. The Act provides:
``Where a taxpayer... fails to furnish... a return... relating to a year of income..., the taxpayer is liable to pay, by way of penalty, additional tax equal to double the amount of tax payable by the taxpayer in respect of the year of income.''
15. I am satisfied that the applicant was in default of his obligations in that regard and that that default continued from 31 August 1982 to 29 April 1986. However, because of that default, additional tax by way of penalty might have been assessed at $8,456.96. However, the Commissioner exercised his power to remit in part that penalty and he did so by claiming only $2,896 based upon the following calculations:
$ Interest at 10% per annum from 31 August 1982 to 13 February 1983 on $4,228.48 (163 days) .................................. 188.81 Interest at 20% per annum from 13 February 1983 to 29 April 1986 on $4,228.48 (1,169 days) ................................ 2,708.00 --------- $2,896.81 =========
That being so there is no power in the Tribunal to further remit penalties (cf. sec. 193 of the Act).
16. However, having said that, for the benefit of the applicant, I observe that even if such a power to review had existed I doubt that [the Tribunal] would have been disposed to exercise it. The effect of the imposition was only to place the applicant in the same situation he would have been in had he lodged his return when he should and been correctly assessed, only to thereafter defer payment of the tax assessed. The hardship for the applicant lies in the circumstance that, had he correctly returned his income in the first place, he could have paid the assessment immediately thereby avoiding liability to interest, just as he did pay the assessment when it issued in 1986 and avoided liability to interest thereafter.
17. For the foregoing reasons the determination of the Commissioner upon the objection under review shall be affirmed.