Grealy v. Federal Commissioner of Taxation
Judges:Northrop J
Spender J
Pincus J
Court:
Full Federal Court
Northrop, Spender and Pincus JJ.
This is an appeal under sec. 44 of the Administrative Appeals Tribunal Act 1975, against a Tribunal decision [reported as Case V80,
88 ATC 554]
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which affirmed a decision by the respondent disallowing an objection to an assessment under the Income Tax Assessment Act 1936 (the Tax Act).The assessment related to the year ended 30 June 1983, during which the applicant received a sum of $9,927, referred to below. The issue is whether that sum should be taxable in whole or as to 5% only.
On 23 November 1979, the Director of the Capricornia Institute of Advanced Education at Rockhampton, Queensland, offered the applicant employment as Lecturer II in the Department of Business for a three-year term and the applicant accepted that offer; the term commenced on 20 January 1980.
Before the three-year term was up, the applicant was offered appointment as Lecturer I (a higher level than Lecturer II), on a permanent basis, to be effective from 21 January 1983; he accepted. It was held by the Tribunal that the tenured appointment was to commence ``eo instanti with the termination of his fixed term appointment'' and that finding must be accepted.
As part of the fixed-term contract, the applicant was ``normally'' entitled to a ``gratuity'' of ``up to 15% of total salary earned... (in lieu of superannuation and repatriation benefits)... at the completion of the period of contractual agreement...''. That was varied during the fixed term so as to make the payment expressly a matter of discretion. The sum paid at the end of the three-year term was $9,927, which the respondent taxed as income in the ordinary sense of the word, under sec. 25(1), or under sec. 26(e) of the Tax Act. The applicant claimed before the Tribunal and before this Court that by reason of the provisions of sec. 26(d) of the Tax Act the sum of $9,927 should have been taxable as to 5% only.
Section 26(d), repealed in 1984, included in a taxpayer's assessable income:
``5% of the capital amount of any allowance, gratuity or compensation where that amount is paid (whether voluntarily, by agreement or by compulsion of law) in a lump sum in consequence of retirement from, or the termination of, any office or employment, not being -
- (i) an amount that, under any provision of this Act, is deemed to be a dividend paid to the recipient; or
- (ii) an amount to which section 26AC or 26AD applies;''
There is no possibility of applying para. (i) or (ii).
The applicant was unsuccessful before the Tribunal, which held that sec. 26(d) did not cover these circumstances. The applicant claimed in this Court that since there is no dispute of fact, the only question involved is one of law, namely the proper construction of the relevant parts of sec. 26(d).
The respondent, on the other hand, contended that the question is merely one of fact and degree.
Many income tax cases, of course, involve the question whether a word or particular collection of words to be found in the Act aptly describes a set of facts. Here the facts are common ground. Regrettably often, appeals to this Court in such cases, originating in the Tribunal, involve as one of the main issues the question of the Court's jurisdiction to entertain the matter. The legislation appears to be so drawn as ``to ensure that the obstacles of arid jurisdictional dispute will beset the path of the party who must invoke'' the jurisdiction of the Court - cf.
Fencott & Ors v. Muller & Anor (1983) ATPR ¶40-350 at pp. 44,222-44,223; (1983) 152 C.L.R. 570 at p. 609 per Mason, Murphy, Brennan and Deane JJ. From the reported cases it can be seen that some questions as to what the Tax Act means are legal questions, and some are not, but the difference between the two categories is a matter of some subtlety. If these persistent jurisdictional arguments, aptly described as ``arid'', are to be averted, some thought should be given to altering the language by which the Court's relevant jurisdiction is vested, perhaps by making all such appeals by leave only, or else by giving an appeal as of right where there is either a question of law or one of the meaning of some statutory provision.
Some recent cases which express or imply a view as to whether a question as to the effect of a statute is one of law are:
L.N.C. (Wholesale) Pty. Ltd. v. Collector of Customs (1988) 77 A.L.R. 347;
Rheem Australia Ltd. v. Collector of Customs (N.S.W.) (1988) 78 A.L.R. 285 at p. 306 and
Thorpe Nominees Pty. Ltd. v. F.C. of T. 88 ATC 4886 at pp. 4888-4889 and 4895-4896. They exemplify the obscurity of the distinction sought to be made.
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It is of course unsatisfactory to say merely that each case depends on its own facts. That is true, but each also depends for its resolution on ascertaining the relevant law - that is, ascertaining the meaning of the relevant provisions of the statute. In our opinion there are at least two questions of law here. One is whether, if an employee's contract of employment is terminated and he immediately begins to work for the same employer under a new contract of a markedly different character, it may ever be said that there has been a termination of employment within the meaning of sec. 26(d) quoted above. Another is the meaning of the word ``office'' in sec. 26(d); the word is capable of a variety of rather different meanings.
The views expressed in
Hope v. The Council of the City of Bathurst 80 ATC 4386; (1980) 144 C.L.R. 1 give general support to the proposition that the issue raised by this appeal constitutes a question of law. In Hope's case two questions were raised, the first being whether Hope's activities, as found, answered the statutory description of being a question of law: see p. 4388. On that issue, Mason J. (as his Honour then was) said at p. 4389:
``Many authorities can be found to sustain the proposition that the question whether facts fully found fall within the provisions of a statutory enactment properly construed is a question of law. One example is the judgment of Fullagar J. in
Hayes v. F.C. of T. (1956) 96 C.L.R. 47 at p. 51, where his Honour quoted the comment of
Lord Parker of Waddington in Farmer v. Cotton's Trustees (1915) A.C. 922 at p. 932 which was adopted by Latham C.J. in
F.C. of T. v. Miller (1946) 73 C.L.R. 93 at p. 97, that where all the material facts are fully found, and the only question is whether the facts are such as to bring the case within the provisions properly construed of some statutory enactment, the question is one of law only. Fullagar J. then said:
- `... this seems to me to be the only reasonable view. The distinction between the two classes of question is, I think, greatly simplified, if we bear in mind the distinction, so clearly drawn by Wigmore, between the factum probandum (the ultimate fact in issue) and facta probantia (the facts adduced to prove or disprove that ultimate fact). The `facts' referred to by Lord Parker... are the facta probantia. Where the factum probandum involves a term used in a statute, the question whether the accepted facta probantia establish that factum probandum will generally - so far as I can see, always - be a question of law.''
His Honour then added a qualification, which has no application to the present appeal.
Further, it appears to us that where a particular type of question as to the effect of a statutory provision has been treated as one of law, for the sake of consistency it should continue to be so treated; the cases in this sphere are not easily reconcilable on any logical basis. Here, in the leading case, a similar dispute came before a Supreme Court by way of a case stated on a question of law under sec. 196(2) of the Tax Act, the facts being found by the Board of Review:
Reseck v. F.C. of T. 75 ATC 4213; (1975) 133 C.L.R. 45. That assumption was not adversely commented on in the High Court and it appears to us that it should be applied in this case. In our opinion, the Court has jurisdiction to hear the appeal.
The Tribunal pointed out [at p. 556] that:
``The applicant did not lose a single day's work, but continued his labours as a lecturer... all that changed were the conditions of employment.''
That appears to be an accurate description of what occurred, but perhaps understates the strength of the applicant's case. The difference in conditions was such as to give some plausibility to the assertion that the applicant obtained a different job - an employment of a distinctly different kind.
The principal differences in conditions relied on by the applicant were as follows:
- 1. The first contract was for a fixed three-year term; the second had more elaborate provisions as to time, which may be summarised as follows:
- (i) the appointments began with a probationary period of 12 months and was then subject to confirmation;
- (ii) if not confirmed, the probationary appointment might be terminated or extended for up to 12 months;
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- (iii) tenured staff ``normally'' retire on attaining the age of 65 years.
- 2. Conditions as to leave were substantially different, and in particular:
- (i) under the tenured contract, but not under the three-year contract, the applicant may accumulate recreation leave and take a cash equivalent on termination of service;
- (ii) under the tenured contract, the applicant is entitled, after 10 years, to 13 weeks leave on full pay and after further service to further similar leaves; there is no long-service leave under the three-year contract.
- 3. Tenured staff are required to contribute to a superannuation fund; the three-year employees are not so required.
- 4. There is provision in the contract relating to tenured staff for participation in ``professional experience programs'', which appear to be akin to sabbatical leave; there is no such provision for the three-year contract staff.
Essentially the difference is between a ``permanent'' appointment which normally is terminated on the employee attaining the age of 65 years but may be terminated before that time, and a fixed-term appointment which normally is an appointment for a specified period being a number of months or years. A permanent appointment is one having associated with it rights of a kind which one would expect to find given to holders of tenured positions in tertiary and academic institutions.
The effect of the decision of the High Court in Reseck's case (above) requires consideration. The case came to the High Court on appeal from the Supreme Court of Queensland, which was seised of it on a reference of a question of law by a Board of Review, under sec. 196 of the Tax Act. The appellant Reseck had two relevant contracts of employment with the same employer. The first was in the Hay Point district and that contract was terminated by the employer because work was no longer available in the district. On the day the first contract ceased, a Friday, the appellant applied to the same employer for work in another district and was engaged to begin work on the following Monday, which he did; see the account of the facts in the report of the Supreme Court decision 74 ATC 4325 and in the High Court 75 ATC 4213 at p. 4219; (1974) 133 C.L.R. at p. 55.
The appellant was entitled to what was described in the relevant award as a ``termination payment'' and also as a ``severance payment''. It was ``an additional $2 per shift, on satisfactory termination of employment...''.
Gibbs J. said that:
``In most cases in which a workman ceased his employment on a Friday and commenced employment again with the same employer on the following Monday it would be impossible to say that his employment had ever been terminated... it [is] necessary to emphasise that we have before us an unchallenged finding by the Board and that it is not open to us to hold the services of the taxpayer were not terminated.''
(ATC p. 4216; C.L.R. p. 50.)
His Honour also said, in effect (at ATC p. 4217; C.L.R. p. 51) that the requirement that the sum be paid in consequence of termination was satisfied because:
``... the allowance was paid in consequence of a number of circumstances, including the fact that the taxpayer's service had been satisfactory and that the industrial agreements provided for the payment, but it was none the less paid in consequence of the termination...''
Stephen J. would have dismissed the appeal for a reason which need not be stated, but his Honour added:
``In other respects... I would respectfully agree with the reasons for judgment of the other members of the Court; I would, in particular, wish to associate myself with all that is said by Gibbs J. concerning the unchallenged findings of fact which are before us and the light which they must cast upon the propositions for which this case will be authority.''
(ATC p. 4219; C.L.R. p. 54.)
Jacobs J. said at ATC p. 4219; C.L.R. p. 56 that the reference to consequence did not ``import causation'' but rather a ``following on''. We are not confident that we comprehend that point, but it is unnecessary to do so for the purpose of deciding this case. As to causation, the important point is that Reseck's case makes
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it clear that the requirement that the payment in question be ``in consequence of'' retirement or termination is satisfied in circumstances of this sort.What is not so clear is the present relevance of Gibbs J.'s remarks, with which Stephen J. specifically agreed, about the question of termination. Their Honours did not explain why it would be ordinarily impossible to say that a workman's employment had been terminated if he ceased employment on a Friday and began again with the same employer on the following Monday. The relationship of employment arises out of contract, and it is not immediately obvious why an employer and employee should not be able to agree to terminate the latter's employment on a Friday and make a new contract on the following Monday. The basis of the view expressed by Gibbs J. must be that, for the purposes of sec. 26(d), a short gap between two contracts of employment does not ordinarily produce the result that employment has been terminated within the meaning of that provision; it appears to follow that the expression ``termination of employment'' in sec. 26(d) is to be given a broad rather than technical meaning.
The difference between the broad and narrow view of termination of employment may be illustrated by considering the position of the parties during the short gap between two contracts of employment. As a matter of contract, neither is bound to the other; the first contract is at an end and there is no subsisting relationship of employer and employee. On the broader view which can be distilled from Reseck's case, however, the existence of the gap is not inconsistent with the employment's never having been terminated. That there are conceptual difficulties about this is evident, but in our view this Court should follow what appears to be the spirit of the remarks of Gibbs J., agreed with by Stephen J., and take a practical rather than technical view of the notion of termination of employment.
That notion is illustrated by remarks made in the Full Court of the Supreme Court of Victoria in
O'Connor v. The Argus and Australasian Ltd. (1957) V.R. 374; the leading judgment was that of O'Bryan J. The journalist whose employment was in question was employed as an ``A'' grade journalist; the terms of employment were governed by an award. He was downgraded to ``B'' grade and that constituted, so the Court said, a breach of his contract of employment (p. 387.9). The Court said there was evidence to justify a finding that the employer terminated the contract of employment (p. 388.2). The judgment goes on:
``It was none the less terminated because Mr Moyser accepted an engagement under the offer to continue his employment (in the wider sense) in a different classification.''
The Court went on to say that the word ``employment'' in the provision of the award in question was not used in the sense of ``employment under a particular contract of service''. Later, the Court said that it was used ``in the sense of continuous employment whether under one or more contracts of service...''.
The High Court, as it seems to us, has extended this idea a little further, so as to accommodate a time gap between two contracts.
The applicant argued that it would be unfair to read sec. 26(d) as inapplicable merely because he recommenced employment on new terms. It does not appear to us that any question of fairness or unfairness arises. The effect of sec. 26(d) was to give a taxation advantage to employees receiving a particular kind of remuneration, namely lump sum payments on termination. As Reseck's case illustrates, that advantage was able to be obtained on termination of each of a series of fairly brief employments. Putting the matter more broadly, the policy of sec. 26(d) was to tax very lightly termination payments, even if they represented merely the sum of moneys accumulated at so much per day or per shift. Some may be found to question the soundness of the policy underlying sec. 26(d) in so far as it could operate so as especially to favour workers receiving severance payments during their working lives, as against those whose employment did not produce such payments; but the Court is not concerned with the fairness of the operation of the legislation so much as with its true construction. In particular, in our opinion, the Court should not endeavour to expand the scope of operation of sec. 26(d) so as to avoid alleged unfairness perceived by noting that if the facts had differed somewhat, the taxpayer would have been substantially less heavily taxed.
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A possible view, sufficient to warrant the upholding of the decision appealed against, is that an employment is not terminated if the employee continues to work for the same employer without a break. On that view, if at the end of a tenured career a university professor retired from his chair but immediately accepted a temporary post with the same institution, a payment made on retirement would not fall within sec. 26(d). It is unnecessary to decide whether the broad rule just enunciated is correct, for we are satisfied that here the employment was not terminated, although the first contract of employment was terminated and replaced by another.
The applicant continued to perform the same work for the same employer for about the same remuneration. His new contract gave him, in our opinion, about the same status as did the old, although it has to be conceded that a tenured appointment is regarded by tertiary staff as one of a significantly different kind. Using the broad notion of continuity of employment which appears to us inherent in Reseck's case, it appears to us that one cannot avoid the conclusion that there was no termination of the applicant's employment when the three-year contract expired.
The applicant also argued that there was a termination of an ``office''. He relied upon the decision in
F.C. of T. v. Sealy 87 ATC 5076; (1987) 78 A.L.R. 387 where it was held that the position of managing partner of a substantial grazing partnership constituted an ``office'' for the purpose of sec. 26AD of the Act. In that case, the Court doubted the relevance of certain English authorities, defining the word in a different context, to the problem of its meaning in sec. 26AD of the Act, but did not attempt to define the terms for the purpose of that provision. We accept that, as in sec. 26AD, here the word should not be confined to positions of a public character or a high degree of permanency. But however widely the term is used in sec. 26(d), one would not ordinarily speak of a lecturer at a tertiary institution working on a short fixed term as holding an ``office''. It has to be conceded that the word is capable of a variety of meanings, and its definition greatly troubled the Court of Appeal in
Great Western Railway Company v. Bater (1921) 2 K.B. 128, especially at pp. 138 and 142. The word ``office'' usually connotes a position of defined authority in an organisation, such as director of a company or tertiary educational body, president of a club or holder of a position with statutory powers. The applicant's job is not of this sort, nor has it any other characteristic which would tend to make one use in relation to it the description ``office''. The applicant, like other holders of professional employments, is not made an office holder merely because his position has a name.
In our view, the application should be dismissed with costs.
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