CASE Y53

Judges:
P Gerber

Court:
Administrative Appeals Tribunal

Judgment date: 28 October 1991

Dr P Gerber (Deputy President)

In August 1985 and September 1986, the applicant, Jack Boot, a highly talented rugby league player of international standing, received amounts of $7,500 and $14,685 respectively from the Queensland Rugby Football League Limited (``QRL''). The issue before the Tribunal is whether those amounts, or any part thereof, are/is assessable income under sec 25(1) of the Income Tax Assessment Act (``the Act'') and, if not, whether those amounts, or any part thereof, are/is net capital gain(s) under Part IIIA of the Act, thus forming part of the applicant's assessable income in the year(s) of income under review.


ATC 465

2. At all relevant times, the applicant played for a District Rugby League Football Club (referred to hereafter as ``Blue Hills'') under a contract with that club, pursuant to which he received substantial sums of money. He was also, at various times, selected for Brisbane, Queensland and Australian representative rugby league teams.

3. The applicant, for reasons which have no bearing on the outcome of this case, ceased playing rugby league in the latter part of the 1986 season.

4. A letter from QRL to the applicant, dated 10 October 1983, subsequently countersigned by him (``the 1983 agreement''), was tendered at the hearing (exhibit ``B'') and reads:

``Dear Jack

I am writing to confirm the financial arrangements between yourself and the Queensland Rugby Football League Limited for the 1984 & 1985 seasons as agreed upon during your recent discussions with the Chairman of the Queensland Rugby League, Mr Ron McAuliffe.

The Queensland Rugby League is prepared to pay you an amount of $5,000 for each of the 1984 & 1985 seasons, plus an additional amount of $1,000 if you are selected to represent Australia.

This financial arrangement is based on the condition that you will agree to stay in Queensland in the 1984 & 1985 seasons.

Yours faithfully

R.A. LIVERMORE

General Manager

I, Jack Boot, agree to the arrangements abovementioned

(sgd) Jack Boot.''

5. On 22 August 1985, the applicant and Mr Livermore, as Secretary of QRL, signed a fresh document (exhibit ``C'') headed:

``Queensland Rugby Football League Claim Form

Particulars of claim for goods/services as detailed hereunder

      Retention payment for 1985
           season                              $5,000.00
      + Rep. Australia 1985                    $1,000.00
      Additional payment agreed
            upon                               $1,500.00
                                              -----------
                                   TOTAL:      $7,500.00
                                              -----------''
              

6. It is common ground that QRL subsequently paid the applicant the sum of $7,500.

7. The events set out above highlight, yet again, the problems created when laymen draw up contracts purporting to incorporate ``arrangements... as agreed in recent discussions''. Had the contract accurately reflected what the parties had agreed in their discussions, it may well be that the applicant's advisers might have given him less encouragement to appeal the Commissioner's decisions on objection.

8. The applicant gave evidence that the discussions referred to in the letter of the 22nd August:

``revolved around the fact that Mr McAuliffe did not want to see the best players in Queensland being signed by Sydney clubs, and he was taking some steps to keep the best players - and I assume the ones who were involved in the State of Origin football at that time, of which I was one - in Queensland. He and I discussed mostly the amount that the contract would be for.''

9. The following exchange took place during cross-examination of the applicant on this point:

``Mr McGILL: `When you had discussions with Senator McAuliffe, that was discussing making an arrangement that was recorded in the letter [exhibit `B'], but it was in the context of concern that the better players in Queensland might go and play in New South Wales? - Yes, that was the lead-up to our discussions - that over the years there had been a multitude of Queensland's best enticed to play in Sydney because they were getting paid more money.'

Mr McGILL: `And in view of your prominence at the time, did you know whether or not it was a prospect that you might have been able to make more money


ATC 466

as a professional footballer if you were playing in New South Wales? - Certainly. When I first represented Australia, we toured England, and I had a fairly successful tour, and during and after that time there was some interest expressed from clubs in Sydney.'

...

Mr McGILL: `Would the New South Wales clubs have paid you more than you would have got in Queensland prior to that 1983 agreement? - Yes, they would have.'

Mr McGILL: `What was being discussed, I suggest, in the meeting with Senator McAuliffe was a proposition that the QRL would pay you some money, pay you some additional (money), if you would agree to stay in Queensland? - Yes.'

...

Mr McGILL: `I suppose, to simplify it, in your case, you were at Blue Hills, so what was being discussed with Senator McAuliffe was that the QRL would pay you this additional money if you stayed as a professional player for the Blue Hills club? - No. The discussions were that they would pay me to play in Queensland; not to go to New South Wales or to a Sydney club. The club I played with in Queensland was of my own choice. I could go and play in the country; I could play with Blue Hills, I could change and play with another Brisbane club if I wished. That was none of their concern.' (my emphasis)

...

Mr McGILL: `Well, was your discussion with Senator McAuliffe a discussion about where you would play football, that is, in Queensland or New South Wales, rather than, for example, where you would live? - The discussions were, you know, general. The scenario was: Was I happy in Queensland? Did I want to stay in Queensland? So the possibility of choice of where I wanted to live, I suppose, was raised, and I was happy. I was employed here; I was happy living here, and he saw this as another way - I did not want to leave, but I would if, financially, it was better for me, and we discussed how much I would - additional money that I would receive if I stayed in Queensland.'

...

Mr McGILL: `Yes, and that was why this conversation was held? - The conversation was held to keep the nucleus of a good State of Origin side playing in the Brisbane competition, so the Queensland Rugby League team was strong.' (my emphasis)

Mr McGILL: `Yes. It was to keep good players playing in Queensland? - True.''

10. In his evidence, the applicant maintained that the $5,000 and $1,000 were simply the payments due to him pursuant to the agreement between the parties (exhibit ``B''). He added that Mr Livermore explained to him that the $1,500 ``Additional payment agreed upon'', referred to in exhibit ``C'':

``was a figure that was suggested by the QRL to be given to me as upgrading of the contract due to my performances. Queensland and Australia performed well, and I played quite well, and it was decided that my contract should be boosted and upgraded to that sum.''

11. In his evidence, the applicant stated that he believed all players who represented Queensland had signed agreements in the form of exhibits 1-3 (the ``representative agreements'') and entered into similar contracts with QRL as he had done, albeit for varying amounts. On this point there was some disagreement. Mr Livermore, called by the respondent, stated that most, but not all, of Queensland representative players had what he referred to as an ``elite player's agreement''. He added that there were players who had elite player's agreements but who were not at that time representing Queensland. The witness did, however, confirm the applicant's belief that the elite player agreements were for varying amounts which had been negotiated with the individual players. When asked what considerations determined the amount QRL was prepared to pay under one of these agreements, he said:

``Well, I took over from Ron McAuliffe in negotiating them, and I used the criteria of looking at the age of the player, what he had achieved in the way of loyal service, what football career was left... But I could not say that was Ron McAuliffe's criteria when he negotiated.''


ATC 467

12. On completion of Mr Livermore's evidence, I asked some questions of the witness to clarify for my benefit some aspects of the administration of rugby league football with which I was not familiar. This elicited the following:

``(a) there were as a rule at most 30 players who had elite player agreements (out of a total of some 15,000 senior players in Queensland);

(b) the amounts received under those agreements were in addition to any amounts received by those players from their local clubs;

(c) those clubs were not informed that the player/s in question had entered into such agreements and were thus unaware of the terms of those agreements.''

13. Dealing firstly with the $1,000 component, paid to the applicant by QRL for having been selected to represent Australia in rugby league in 1985, it seems to me that this payment is classically ``income'' pursuant to sec 25(1) of the Act, being - in the words of Dixon CJ and Williams J in
FC of v Dixon (1952) 86 CLR 540:

``really incidental to an employment, [and] it is unimportant whether they come from the employer or from somebody else and are obtained as of right or merely as a recognized incidence of the employment or work.''

(p 556).

14. In
Kelly v FC of T 85 ATC 4283, a cash award of $20,000, paid by a television station as a result of the taxpayer/footballer winning the WANFL's Sandover Medal (best and fairest player) was characterised as ``income'' in that footballer's hands:

``because of the pursuit by him of such employment [as a professional footballer], 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 Medal and, as a consequence, the $20,000 payment which it was known would flow from such a win.''

(pp 4287-4288).

15. Applying the ratio of Kelly to this case, I am satisfied that the applicant by reason of the pursuit by him of his employment as a professional footballer and playing the game to the best of his skill and ability, he secured selection to the Australian rugby league team and, as a consequence, received the $1,000 payment, which it was known would flow from such selection. If anything, the payment in this case is even more readily classifiable as ``income'' than the payment in Kelly (supra) since it came, not from a third party, but from QRL, to whom this taxpayer was under contract.

16. I now turn to the $1,500 component paid to the applicant. On the applicant's own evidence, that payment:

``was a figure that was suggested by the QRL that be given to me as upgrading of the contract due to my performances. Queensland and Australia performed well, and I played quite well, and it was decided that my contract should be boosted and upgraded to that sum.''

17. Mr Livermore confirmed the applicant's evidence on this aspect by stating that QRL:

``considered that Jack Boot's contract was lower than what it should have been, bearing in mind his achievements that year, and it was decided we would pay him a sort of additional payment at the end of the season to bring him up to compare with a couple of other players.''

18. Mr Livermore added that the payment of the $1,500 was the only payment of that type made by the QRL in respect of the 1985 season.

19. The evidence satisfies me that the payment of $1,500 was a reward for excellence as a professional footballer, paid to the taxpayer for his outstanding performance in that year. It is thus a payment for services rendered and classically ``income'' by ordinary usage.

20. I now turn to the $5,000 component of the 1985 payment.

21. In resolving the capital/income distinction, I find it helpful to ask myself: ``what is the consideration for the payment?'' I derive some comfort for that approach from the decision of
The Federal Coke Company Pty Ltd v FC of T 77 ATC 4255 where Brennan J stated that:

``When a recipient of moneys provides consideration for the payment, the consideration will ordinarily supply the


ATC 468

touchstone for ascertaining whether the receipt is on revenue account or not. The character of an asset which is sold for a price... will ordinarily determine, unless it be a sham transaction, the character of the receipt of the price... The consideration establishes the matter in respect of which the moneys are received. The character of the receipt may then be determined by the character, in the recipient's hands, of the matter in respect of which the moneys are received.''

(p 4273).

22. In this case, the issue comes to this: Is the payment intended to operate in any real sense as a restraint upon the freedom of this taxpayer to play rugby league where and when he wishes, or is it designed to retain Queensland's most talented players, thus boosting the level of the game in that State? Once the question is posed in this form, I find the answer less elusive.

23. Mr McGill, of learned counsel for the respondent, sought to persuade me that if the applicant were the subject of a restraint, it was to be found, not in the elite player agreements, but in the three representative agreements between the applicant and QRL, each in identical terms except for their respective dates (24 May 1984, 23 May 1985 and 23 May 1986, exhibits 1-3).

24. For present purposes those agreements provide:

``WHEREAS the player has been selected to play in an intra State representative match in the State of Queensland and seeks to represent Queensland in representative matches during the current football season AND WHEREAS the Q.R.L. has agreed that the player is eligible to represent Queensland AND WHEREAS the player has agreed to be bound by these presents should he actually play a representative match for Queensland or be a reserve player for any such match WHEREBY in consideration of the premises it is agreed by and between the parties hereto as follows: -

  • 1. In the event of the player during the current season actually playing a representative match for Queensland or being a reserve player for any such match the player shall not during the subsequent season play for any Rugby League club in New South Wales or the Australian Capital Territory without a clearance from the Q.R.L.
  • 2. The Q.R.L. may in its absolute discretion grant a clearance to the player from the provisions of paragraph 1 hereof and upon such terms and conditions as to the Q.R.L. seems meet [sic] including (and without limiting the generality of the foregoing) the payment of such amount or amounts to the Q.R.L. as the Q.R.L. so determine.
  • ...
  • 11. The player acknowledges that no representation or inducement has been held out to him other than is contained herein and further acknowledges that he has been given ample opportunity to peruse this agreement and fully understand same.''

25. I have set out the above terms out of an abundance of caution, even though I have not been persuaded that these agreements can assist me in characterising the nature of the payment now in dispute. It is common ground that the agreements were not the reason for the payment; for good measure, the agreements themselves make no provision for any monetary consideration.

26. Putting the representative agreements to one side, when I have regard to the documentary evidence and the oral testimony of the witnesses, I am satisfied that the 1983 agreement (exhibit ``B'') was principally intended to compensate the applicant for playing in Queensland for the duration of the two seasons, operating only incidentally as a restraint on the applicant's freedom to play in New South Wales. Whilst it is true that the terms of the agreement might have been worded more fully and more elegantly, any other interpretation would be contrary both to the intention of the parties, as expressed in their oral evidence, and as it appears, albeit through a glass darkly, in what the parties are pleased to call their written agreement. True, the stipulation in the agreement that ``this financial arrangement is based on the condition that you will agree to stay in Queensland in the 1984 & 1985 seasons'' is ambivalent, nevertheless, I am satisfied - contrary to the submission of Mr O'Donnell, of learned counsel for the applicant - that QRL was less concerned


ATC 469

where the applicant resided than that he played in Queensland.

27. The only evidence suggestive that the impugned payment can be said to constitute a restraint came, in the main, from Mr Livermore's oral evidence, to the effect that the object of the elite player agreements was:

``to stop Sydney clubs getting hold of them, we wanted to make Queensland Rugby League strong, and it is quite clear that fellows - just to throw a name in - (naming two prominent players) and Jack Boot were certainly sought after by Sydney Clubs, and we certainly wanted to retain them here to help us develop the game, and the only way you could do that was to try and compensate them in some form for not going to Sydney.''

(my emphasis)

28. When balanced against the whole of the evidence, I am nevertheless satisfied that the ``restraint'' component of the payment was a mere causa sine qua non rather than the causa causans; (when dealing with rugby footballers, it seems to me to be a fruitless exercise to parse and analyse their every utterance in an attempt to comprehend their meaning. In the hands of rugby league footballers, the spoken word - like the game itself - is rough at the best of times).

29. Having formed the view that the retention payment of $5,000 was made principally as an inducement to the top players to play in Queensland, I am satisfied that it bears the ``stigma'' of income.

30. Even if I am wrong in this, a payment of this kind can only qualify as an affair of capital if it can be seen as the consideration for a significant detraction of a substantial and enduring pre-existing right. It is difficult to see the payment in that light, being a ``restraint'' for only two seasons and one season respectively.

31. A ``restraint'' of far greater magnitude was considered in Case A14,
69 ATC 80. In that case, a rugby league footballer bound himself virtually for the duration of his entire football career to play for a particular club in return for an agreed amount, payable in three annual instalments. This notwithstanding, a majority of No 1 Board of Review held that the lump sum represented just as much the rewards of a professional footballer as the signing-on fee or the match payments. The payments were thus held to be receipts of an income nature, received by that taxpayer in the ordinary course of the exercise of his vocation as a footballer. I am likewise satisfied that the impugned payment in this case is ``income''.

32. In the result, all three payments made in 1983 constitute income.

33. Turning to the 1985 year, a letter dated 29 October 1985 from QRL to the applicant was tendered at the hearing (exhibit ``D'' - ``the 1985 agreement''). That letter was in a similar form to exhibit ``B''. However, the body of exhibit ``D'' read as follows:

``As indicated in this letter the Queensland Rugby League is prepared to pay you an amount of $7,500 for the 1986 season.

Should it become necessary for the League to deduct an income tax payment, the gross amount of this agreement will become $10,500 with tax of $3,000 to be paid by the League, leaving a nett payment to you of $7,500.

In addition, the League will pay to you an amount of $1,000 if you are selected in the 1986 Kangaroo touring team to England and France.

Furthermore, the Queensland Rugby League will guarantee payment of any monies owing to you under your Player's Agreement with the Blue Hills R.L.F.C. during this period should the Club default.

The contents of this letter are confidential between you and the League. Should there be a breach of confidentiality on your part, you agree to a fine of $1,500 being imposed.

Yours faithfully

R.A. LIVERMORE

Managing Director

I, Jack Boot, agree to the arrangements abovementioned.

(sgd Jack Boot).''

34. The applicant explained how the 1985 agreement came about:

``The agreement with the QRL had expired at the end of '85, and I contacted Mr Livermore to see about renewing that situation, and he said: `Certainly! Come in.


ATC 470

We will have a meeting', which we did, and that document was drawn up.''

35. When asked what was said in the meeting, the applicant replied:

``The basis of it was merely the amount that the document would be for and the duration. The understanding is that the contract was the same - provisions of the contract - and we spoke about the amounts, the duration, and about the renewal.''

36. The applicant was then asked by his counsel: ``Are you saying that nothing was said to change the terms of the earlier contract, save for amounts and duration?'' The applicant replied:

``No, the discussion was purely based on the duration and the amount that the document would be for.''

37. Subsequently, a document headed ``Queensland Rugby Football League Claim Form'' dated 30 September 1986 and addressed to the applicant was signed by the applicant and by Mr Livermore as Secretary of QRL on 30 September 1986 (exhibit ``E''). It was common ground that the applicant was in due course paid the sum of $7,500 by QRL, ``Particulars of claim'' and ``amount'' columns described that amount as being made up of:

      Retention payment for            $10,500.00
           1986 season
      Less Income Tax                  $ 3,000.00
                                      ------------
                            TOTAL:     $ 7,500.00
                                      ------------
          

38. Mr Livermore confirmed in his evidence that the $10,500 was included in the amount of the applicant's gross salary in the group certificate issued to him by QRL and that the amount of $3,000 was included in the total tax instalments deducted from his salary.

39. It was submitted on behalf of the respondent that the payment under the 1985 agreement could not be characterised as being of a capital nature because, unlike the 1983 agreement, on the face of it it did not contain any restriction on the applicant's freedom to play interstate. However, the evidence of both the applicant and Mr Livermore was to the effect that the letter of 29 October 1985 (``the 1985 agreement'') was not intended to evidence the entirety of the terms agreed between the parties. In fact, the evidence of the applicant and Mr Livermore, which I accept, was that the parties had orally agreed that the 1985 agreement was intended merely to be a continuation of the 1983 agreement, except for the terms dealing with amounts and duration, and that the abovementioned letter dealt only with the terms relating to those subjects. That evidence was further confirmed to some extent by exhibit ``E'', the Claim Form dated 30 September 1986, which describes the $10,500 as being the ``Retention Payment for 1986 Season'', the same terminology used in exhibit ``C'' (the Claim Form relating to the 1984 and 1985 seasons).

40. On the whole of the evidence, I am satisfied that the 1985 agreement had the same purport and intent as the 1983 agreement, and to the extent that it contains a ``restraint'', it was for only one year instead of two, as previously, and for a consideration of $10,500 rather than $5,000. That result must follow, if only because ``the law is not so blinkered by form as to ignore entirely the substance of a transaction'' (per Hill J
McLennan v FC of T 90 ATC 4047 at p 4052).

41. On that finding, it follows that the consideration received by the taxpayer under the 1985 agreement constitutes ``income'' for the same reasons as the consideration received under the 1983 agreement was found to be ``income''.

42. Next, the evidence shows that on or about 11 July 1986, the applicant received a payment of $4,185 from the QRL, the reason for which he said had been explained to him by Mr Livermore as:

``a decision by the QRL to reimburse the players involved, of which I was one, for income tax that they had to pay on the amounts paid by the QRL to them, which originally were explained to the players, or to myself, that you would not need to pay tax on that sum... I think he said (the payments were) 30 per cent of the payments that had been paid to individuals.''

43. Mr Livermore explained this payment on the basis that:

``the Taxation Department, as I understand it, ruled that certain elite player payments were taxable, and we felt they were not, and that payment was made to the particular


ATC 471

player to offset the extra tax he had been afforded by the Department.''

44. The purpose and effect of this payment was thus to increase the amounts paid to the taxpayer under his elite player agreements in order to compensate him for the incidence of tax. In those circumstances, the character of that payment must follow that of the payments it sought to increase. It follows that those payments are likewise of an income nature.

Does sec 160M(6) or (7) apply?

45. I reserved my decision in this matter pending the final determination of the Case Stated in Case NT88/800 (sub nom Hepples v FC of T
91 ATC 4808). In the result, we are, with respect, no wiser. Whatever the capital gains tax provisions sought to achieve is still firmly locked in the mind of the parliamentary draftsman who, for purposes of comprehension and enlightenment, might as well have enacted Part IIIA in Swahili. Mason CJ put it more politely, noting that:

``the provisions of s. 160M(5), (6) and (7)... and provisions to which they are related are extraordinarily complex. They must be obscure, if not bewildering, both to the taxpayer who seeks to determine his or her liability to capital gains tax by reference to them and to the lawyer who is called upon to interpret them.''

46. In light of my conclusion that the amounts in question are assessable under sec 25(1) of the Act, I am not going to add to the confusion by contributing more obiter to a maze to which there appears to be no exit. In any event, it is unnecessary for me to consider whether sec 160M(6) or (7) apply because Part IIIA of the Act is inapplicable to the 1985 payments since, pursuant to sec 160U(3), the timing of any ``disposal'' under sec 160M(6) or (7) would be the time of the making of the 1983 agreement, i.e. before 20 September 1985, the operative date prescribed by sec 160L(1). Furthermore, if either sec 160M(6) or (7) did apply to the 1986 payments, the operation of sec 160ZA(4) would, in the circumstances, be such that the resultant capital gain would be reduced to nil.

47. For the above reasons the Tribunal affirms the objection decisions under review.

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