Federal Commissioner of Taxation v. ArklayJudges:
Full Federal Court
Sheppard, Wilcox and Hartigan JJ.
The applicant, the Commissioner of Taxation for the Commonwealth of Australia, appeals to this Court against a decision of the Administrative Appeals Tribunal (``the Tribunal'') made on 1 June 1988 in which the Tribunal allowed the objection of the respondent taxpayer (reported as Case V84,
88 ATC 584).
The appeal raises a question of law pursuant to sec. 44 of the Administrative Appeals Tribunal Act 1975. Put shortly the question that is raised by this appeal is the meaning to be given to the expression ``circumstances existed by reason of which it was reasonable to expect'' as it appears in sec. 82AAS(2)(a) of the Income Tax Assessment Act 1936 (``the Act'').
Section 44 of the Administrative Appeals Tribunal Act restricts proceedings in this Court to an appeal on a question of law. As a Full Court of this Court said in
Brown v. Repatriation Commission (1985) 60 A.L.R. 289 at p. 291:
``The existence of a question of law is not merely a qualifying condition to ground an appeal from a decision of the [Repatriation Review] Tribunal, rather it, and it alone is the subject matter of the appeal, and the ambit of the appeal is confined to it.''
This approach was affirmed with reference to the Administrative Appeals Tribunal by another Full Court of this Court in
F.C. of T. v. Brixius 87 ATC 4963; (1987) 16 F.C.R. 359. The question of the construction of sec. 82AAS(2)(a) of the Act is a question of law.
During the 1982 year of income the respondent had paid $120 to a superannuation fund (then known as the Wales Retirement Fund). In his income tax return for that year the respondent claimed a deduction under sec. 82AAT of the Act for that amount. It was not disputed in the Tribunal nor at the hearing of the appeal that the Wales Retirement Fund was a qualifying fund within sec. 82AAT. The Commissioner rejected the respondent's claim for the deduction when assessing the respondent to tax for the 1982 tax year.
Entitlement to such a deduction is dependent upon the taxpayer qualifying as an ``eligible person'' as that term is defined in sec. 82AAS of the Act. The Commissioner had formed the opinion that the respondent was not an
ATC 4565``eligible person'' as that term is defined. As a consequence the Commissioner determined that the respondent was not entitled to the deduction under sec. 82AAT. For the purposes of the definition in sec. 82AAS the Commissioner had decided that during 1982 it was reasonable to expect that superannuation benefits would be provided to the respondent upon his retirement other than from contributions made wholly by him.
The Tribunal in its reasons for decision made observations that set out the factual background of the case (at p. 587):
``6. During the 1982 year of income, the applicant was employed as a temporary porter with the Queensland Railways. He had commenced this employment with the railways on 9 June 1981, having previously worked with a bank for 12 years. Apparently, the applicant had suffered health problems and had some difficulty in coping with his position at the bank. He had therefore taken a less demanding position with the railways.
7. The applicant gave evidence that, while he intends to work until he is 60 or 65, he has no particular intention of remaining with the railways until he reaches that age; he did not rule out the possibility that he would in fact continue with the railways. He said in evidence, having referred to medical problems from which he was still suffering:
- `I am still having a few troubles with nervous dyspepsia of the stomach, and I will just, sort of, see what comes up. It does not mean to say I will stay with the railway until I retire. I could leave in two years; five years; 10 years. I am just undecided at the moment'.
8. In March 1983, that is to say, after the tax year with which the present question is concerned, the applicant was appointed to the permanent staff of the railways, but has not yet been invited to join the State superannuation scheme. A letter dated 25 January 1983 from the Office of the Chief Accountant, Queensland Railways, recited:
- `This is to advise that Peter Ross Arklay is employed as a Temporary Porter with the Railway Department at the Mayne Carriage Shed.
- As a temporary employee he is not elegible (sic) to contribute, to the `State Service Superannuation Scheme' however, once placed on the permanent staff, he can elect to join the Fund.
- Temporary employees however, are entitled to be paid a Retiring Allowance, if applicable upon Retirement from the Railway Department'.''
To the extent that they are presently relevant sec. 82AAS and 82AAT of the Act provide as follows:
(2) Subject to sub-section (3), a person (in this sub-section referred to as the `relevant person') is an eligible person in relation to a year of income for the purposes of this Subdivision unless -
- (a) during the whole or a part of the year of income circumstances existed by reason of which it was reasonable to expect that superannuation benefits would be provided for the relevant person upon retirement or for dependants of the relevant person in the event of death of the relevant person (whether or not any condition other than the retirement or death of the relevant person would be required to be satisfied in order that those benefits be provided); and
82AAT(1) Subject to sub-section (2), there shall be allowed as a deduction from the assessable income of an eligible person of a year of income the amount of any contribution, or the sum of the amounts of any contributions, made by the eligible person during the year of income and after 19 August 1980 to a qualifying superannuation fund, being contributions made to obtain superannuation benefits for the eligible person or, in the event of death of the eligible person, for the dependants of the eligible person.
(2) The deduction allowable to a taxpayer under this section from the assessable income of a year of income shall not exceed $1,200.''
Section 6(1) of the Act defines ``superannuation benefits'' as follows:
``6(1) `superannuation benefits' means individual personal benefits, pensions or retiring allowances.''
The case concerns the effect of a scheme for the payment of retiring allowances to certain railway employees under railway by-laws. Paragraph 26 of by-law 690 made by the Queensland Commissioner of Railways, so far as relevant, provided as follows:
(b) Should it become necessary for any employee to be retired from the service for any of the foregoing causes, or because he has attained the age fixed by the Government as the age at which employees of the Commissioner shall be retired, there shall be paid to him as a retiring allowance a sum equal to salary or wages at the rate he was receiving at the date of his retirement for a period according to the following scale, but in no case, excepting with the special approval of the Commissioner, shall such rate be more than the rate applicable to his permanent classification: -
- To any such employee who has for a period of at least fifteen years continuously been in the service, three months; to any such employee who has for a period of at least twenty years continuously been in the service, four and a-half months; to any such employee who has for a period of at least twenty-five years continuously been in the service, six months; a proportionate time and pay being allowed for intermediate service between the periods: Provided that the Commissioner may grant to any such employee who has for a period of at least ten years but not more than fifteen years continuously been in the service a retiring allowance for a period equal to that proportion of three months that the periods such employee has continuously been in the service bears to fifteen years: Provided further that an employee who at 31st March, 1965, was an employee who had attained the age of 30 years shall be paid a Retiring Allowance for a period, extending beyond 25 years of continuous service as prescribed, according to the following scale - after 30 years of continuous service, 7½ months on full pay; after 35 years of continuous service, 9 months on full pay; after 40 years of continuous service, 10½ months on full pay; after 45 years of continuous service, 12 months on full pay; with proportionate time being allowed for intermediate service between the periods, including intermediate service between 25 years and 30 years: Provided, also, that for any such period herein referred to no employee shall be entitled to receive any emoluments other than salary.
- Under no circumstances shall an employee who has had more than one period of service with the Commissioner, be paid retiring allowance (inclusive of any retiring allowance which may have been paid to him in respect of any previous period or periods of service) for a greater period than that to which he would have been entitled had his periods of service with the Commissioner been aggregated and had such aggregated period been regarded as continuous service.''
The question of who is an eligible person for the purposes of sec. 82AAS of the Act has been considered by Taxation Boards of Review and the Tribunal in a number of cases: see Case R44,
84 ATC 365; Case R77,
84 ATC 532; Case R78,
84 ATC 538 and Case V42,
88 ATC 359. We have considered the views expressed in those cases.
Some assistance can be gained as to the meaning of the expression ``by reason of which it is reasonable to expect'' as it appears in sec. 82AAS of the Act from the judgments of the Full Court of this Court in
Attorney-General's Department & Anor v. Cockcroft (1986) 64 A.L.R. 97. In that case the Full Court considered the meaning to be given to the expression ``could reasonably be expected to prejudice the future supply of information'' as it appears in sec. 43 of the Freedom of Information Act 1982. In the joint judgment of Bowen C.J. and Beaumont J. it was said (at p. 106) that:
``[I]n our opinion, in the present context, the words `could reasonably be expected to prejudice the future supply of information' were intended to receive their ordinary meaning. That is to say, they require a
ATC 4567judgment to be made by the decision-maker as to whether it is reasonable, as distinct from something that is irrational, absurd or ridiculous, to expect that those who would otherwise supply information of the prescribed kind to the Commonwealth or any agency would decline to do so if the document in question were disclosed under the Act. It is undesirable to attempt any paraphrase of these words. In particular, it is undesirable to consider the operation of the provision in terms of probabilities or possibilities or the like. To construe s. 43(1)(c)(ii) as depending in its application upon the occurrence of certain events in terms of any specific degree of likelihood or probability is, in our view, to place an unwarranted gloss upon the relatively plain words of the Act. It is preferable to confine the inquiry to whether the expectation claimed was reasonably based (see
Kioa v. Minister for Immigration & Ethnic Affairs (1985) 62 ALR 321 per Gibbs CJ and Mason J).''
Sheppard J. said (at pp. 111-112):
``I do not myself feel able to derive from the presence of the word `reasonably' in the relevant expression a great deal of assistance. The difficulty is to give full weight to the meaning of the word `expected'. It is only then that one can turn one's mind to the question of the significance of the qualification of it by the word `reasonably'. The words are expressed in the passive voice - `could reasonably be expected'. What is required is that the decision-maker act reasonably. For the document to be exempt his conduct must be taken to be that of the reasonable man. But then comes the difficulty. So acting, the decision-maker must expect that disclosure of the document could prejudice the future supply of information. In my opinion he will not be justified in claiming exemption unless, at the time the decision is made, he has real and substantial grounds for thinking that the production of the document could prejudice that supply. But, stringent though that test may be, it does not go so far as to require the decision-maker to be satisfied upon a balance of probabilities that the production of the document will in fact prejudice the future supply of information.''
We are of the opinion that the phrase with which we are concerned in the context of sec. 82AAS of the Act requires a determination whether or not circumstances exist by reason of which the decision-maker is able to expect on reasonable grounds that superannuation benefits would be provided as stipulated in the section. That test is an objective one. However, in applying the test the decision-maker, in considering the circumstances, should have regard to any relevant matters concerning the taxpayer personally. Put another way our understanding of the meaning of the expression is one which involves the application of an objective test, but, as one of the concomitant elements of that test, the subjective intentions of the taxpayer may be relevant.
An example of an objective test which nevertheless accommodates the subjective intentions of a particular person is to be found under the Social Security Act 1947; cf. the decision of the Full Court of this Court in
Secretary, Department of Social Security v. Copping & Anor (1987) ASSC ¶92-099 at pp. 90,327-90,328; (1987) 73 A.L.R. 343 at p. 348 and see Dineen v. Secretary, Department of Social Security (Federal Court of Australia, Woodward J. 6 December 1988, unreported).
We also mention the decision of the High Court in
Shapowloff v. Dunn (1981) CLC ¶40-707; (1981) 148 C.L.R. 72. In that case one question which arose was whether a person had at the time of contracting a debt ``no reasonable or probable expectation'', after considering his other liabilities, of being able to pay the debt. Although the language of the statute there under consideration was phrased in somewhat different words from that here in question, the approach of the High Court to the construction of the phrase there being considered is instructive. Thus Wilson J. said (at CLC p. 33,134; C.L.R. p. 85):
``The prosecution must prove beyond reasonable doubt that at the time of contracting the debt the defendant himself had no expectation, reasonably grounded in the whole of the circumstances then existent as he knew them, of being able to pay the debt. It will be seen that the test involves a blending of subjective and objective considerations. The test of reason imports an objective standard, but it is to be applied to the facts as known to the defendant.''
When applying sec. 82AAS the Commissioner should consider all the relevant facts and circumstances, including the taxpayer's subjective intentions, if they shed light on the matter, that pertain to the particular year of income which is in question. The existence of a potential superannuation benefit and the expressed relevant intentions of the taxpayer will usually be the most important facts and circumstances to be considered in a given case. In a case where the taxpayer remains in employment for a considerable period of time, but expressing always an intention to leave that employment, less weight may well be given by a decision-maker to those expressed intentions when applying the section. Conversely, the mere fact that a superannuation benefit is available on the occurrence of some contingency, however remote, although relevant, will not have the significance it would have in a case where there is a real prospect of the taxpayer receiving a benefit under a provision such as the by-law here in question.
With these matters in mind, we are quite unable to perceive how it could be said that the Tribunal fell into error in the way it applied sec. 82AAS to the facts before it. The Tribunal in its reasons for decision stated (at p. 588):
``the question of whether there is `reason to believe' that superannuation benefits will be payable on retirement to a person is whether there are grounds, presently existing, on which one can predict with confidence that the event will happen. In the present context `to expect' means `to regard as likely to happen'. In other words, there is `reason to believe', when there are grounds presently existing on which one can regard the payment of a retiring allowance to the applicant as likely to happen.
18. In the opinion of the Tribunal, this test of who is `an eligible person' accords with the statements of intention in the explanatory memorandum. In our view, it gives effect to the perceived purpose of Subdiv. AB of Div. 3 of the Act.
19. The circumstances against which the question is to be answered, are those existing in the relevant year of income.
20. So understood, the question becomes one of whether a person is an `eligible person' is one of fact and degree.''
The Tribunal's reasons make it plain that the Tribunal considered objectively whether the circumstances of the case, including relevant matters personal to the respondent, should lead it to conclude that it was reasonable to expect that superannuation benefits would be provided for the applicant. That appears from the following passage from the Tribunal's reasons for decision (at p. 589):
``that the applicant was, in the 1982 year, an `eligible person'. At that time, he was a temporary porter in the railways. He had started in the railways only on 9 June 1981. Whether he would remain with the railways until retirement, i.e. at least 31 years, was one very serious aspect of whether there was reason to believe he would be paid a retiring allowance. That question also involved whether he would be appointed to the permanent staff; and, if so, whether he would elect to join the State superannuation scheme. Such joining would disentitle him to any entitlement to the retiring allowance. Given the background of the applicant, his status during the relevant tax year, his expressed uncertainty as to his future employment by the railways, the uncertainty at that time as to his attaining permanent status, the prospect in reality of his continuing in the service of the railways until at least age 60 years, and whether, during that service, he would have chosen to join the State superannuation scheme, the Tribunal is of the opinion that the applicant was not a person of whom there was reason to believe that a retiring allowance would be provided for him on his retirement.''
We consider that the Tribunal correctly construed and applied sec. 82AAS and 82AAT to the facts of the case before it. The Tribunal did not fall into error on any question of law and we dismiss the appeal with costs.