CASE Z6

Members:
P Gerber DP

Tribunal:
Administrative Appeals Tribunal

Decision date: 2 January 1992

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Dr P Gerber (Deputy President)

This application involves the review of the decision by the respondent to disallow the applicant's objection against a Notice of Assessment issued on 12 March 1990 in respect of the year ended 30 June 1989.

2. The issues, as I see them, are as follows:

• i. Whether the applicant, a former Australian resident, must treat the year of his return to Australia - 1989 - as his ``first year of income'' for purposes of the averaging provisions of Division 16A of the Income Tax Assessment Act 1936-1989 (``the Act''), or whether he is able to treat as his ``first year of income'' an earlier year, i.e. a year before the commencement of that Division as defined in sec 158K of the Act.
• ii. Whether the applicant is or is not an ``original non-resident taxpayer'' in terms of sec 158K(2), thus determining whether his

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  ``average eligible taxable income'' should be calculated pursuant to sec 158K(4), as determined by the respondent, or sec 158K(3), as submitted by the applicant.

3. The hearing proceeded on the following Statement of Agreed Facts:

• 1. The applicant became a resident of Australia not later than during the year of income ended 30 June 1973. (my emphasis)
• 2. During each of the years of income ended 30 June 1973, 1974, 1975, 1976, 1977 and 1978, whilst still a resident of Australia, he worked as a writer and/or actor.
• 3. During each of those years of income, his assessable income from such work (his eligible assessable income) less allowable deductions (his eligible taxable income) exceeded $2,500.00.
• 4. The applicant ceased to be a resident of Australia not later than during the year of income ended 30 June 1978.
• 5. The applicant did not again become a resident of Australia until not earlier than 1 August 1988.
• 6. During the year of income ended 30 June 1989, whilst again a resident of Australia, he worked here as an actor.
• 7. During that year of income, his eligible taxable income was $64,817.00.

4. During argument, it was common ground that the applicant's eligible taxable income was nil for each of the years ending 30 June 1985-1988.

5. I will deal with each of the issues seriatim:

6. Division 16A of the Act was inserted by Act No. 138 of 1987 and applies to the 1986/87 and all subsequent years of income.

7. Sections 158K(1)-(4) of the Act provide:

• "158K(1) A reference in this section to the first year of income in relation to a taxpayer is a reference to the first year of income in which:
  • (a) the taxpayer was, or is, a qualifying resident taxpayer; and
  • (b) the eligible taxable income of the taxpayer exceeded $2,500.

  158K(2) For the purposes of this section, where a taxpayer was not a resident at any time during the year of income immediately before the first year of income, the taxpayer shall be taken to be an original non-resident taxpayer.

• 158K(3) A reference in this Division to the average eligible taxable income of a year of income of a taxpayer other than an original non-resident taxpayer is a reference to:
  • (a) for the first year of income - nil;
  • (b) for the year of income (in this subsection called the `second year of income') next succeeding the first year of income - one-third of the amount of the eligible taxable income of the taxpayer of the first year of income;
  • (c) for the year of income (in this subsection called the `third year of income') next succeeding the second year of income - one-quarter of the sum of the amounts of the eligible taxable income of the taxpayer of the first and second years of income;
  • (d) for the year of income next succeeding the third year of income - one-quarter of the sum of the amounts of the eligible taxable income of the taxpayer of the first, second and third years of income; and
  • (e) for any subsequent year of income (in this paragraph called the `subsequent year of income') - one-quarter of the sum of the amounts of the eligible taxable income of the taxpayer of each of the 4 years of income preceding the subsequent year of income.

  158K(4) A reference in this Division to the average eligible taxable income of a year of income of a taxpayer who is an original non- resident taxpayer is a reference to:

  • (a) for the first year of income - the eligible taxable income of the taxpayer of the first year of income;
  • (b) for the year of income (in this subsection called the `second year of income') next succeeding the first year of income - the eligible taxable income of the taxpayer of the first year of income;
  • (c) for the year of income (in this subsection called the `third year of income') next succeeding the second year of income - one-half of the sum of the amounts of the eligible taxable income of the taxpayer of the first and second years of income;

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  • (d) for the year of income next succeeding the third year of income - one-third of the sum of the amounts of the eligible taxable income of the taxpayer of the first, second and third years of income; and
  • (e) for any subsequent year of income (in this paragraph called the `subsequent year of income') - one-quarter of the sum of the amounts of the eligible taxable income of the taxpayer of each of the 4 years of income preceding the subsequent year of income."

8. Section 158D is headed, ```YEAR OF INCOME' INCLUDES A PRE- COMMENCEMENT YEAR OF INCOME'', and provides:

``A reference in this Division to a year of income includes a reference to a year of income that commenced before the commencement of this Division.''

9. The applicant submits that the wording of sec 158D is clear and unambiguous and that it is therefore open to him to treat as his first year of income a year of income prior to the commencement of Division 16A in its present form.

10. The respondent, on the other hand, submits that sec 158D, when read with sec 158K, only enables reference to be had to the four years of income immediately preceding the year of income ended 30 June 1987, that is, the years of income ended 30 June 1983-1986. Mr Gibb of learned Counsel for the respondent submitted that when one has regard to the structure of the Division as a whole, it is clear that sec 158D is merely directed to the fact that the income averaging arrangements under this new Division 16A first apply to assessments for the 1986/87 year of income. If it were not there, then, so he submitted, it would not be permissible to calculate average income for Division 16A purposes based on the income of the previous four years. So that looking at sec 158D as a section in a Division of this character, having of necessity a starting point to be applied, the section merely facilitates that process. He derived further support for that proposition from the terms of secs 158K(3) and (4), that is, that the terms of those sections indicated that averaging in a given year of income was based on the eligible taxable incomes of up to the four years of income immediately preceding that given year of income.

11. Mr Gibb further submitted that the entire structure of those two sections indicated that the Division was intended to operate by creating for each year of income for which it was sought to invoke the averaging provisions, an averaging ``series'' of up to the four immediately preceding years, so that there would be one ``first year of income'' for each of these ``series''. Thus, the expression ``the first year of income'' was said not to be inconsistent with the view that there can be more than one ``first year of income'' in respect of any taxpayer, and that the expression ``the first year of income'' did not support the applicant's submission that the use of such an expression indicated that there is only one ``first year of income'', which, of course, could be many years prior to the income year now in dispute.

12. With the utmost respect to Mr Gibb, his ``Group Theory'' leaves me unpersuaded, if only because the inclusion of secs 158K(3)(e) and (4)(e) seem to me to be contrary to a ``series'' interpretation of secs 158K(3) and (4) but rather suggest a continuous working life of ``years of income'', with only one ``first year of income'' rather than a whole series or groups of years of income, each with its own ``first year of income''.

13. Whilst the new provisions, designed to relieve the burden which would otherwise have been imposed on artists, composers, etc could have been expressed with greater clarity, I am satisfied that for the purposes of Division 16A of the Act, a taxpayer's ``first year of income'' may indeed be earlier than four years prior to the commencement of the Division, that is, earlier than 1983. In short, it needs more than Mr Gibb's plausibility to persuade me to depart from the plain meaning of the words used. Had Parliament intended to apply Mr Gibb's Group Theory, it would not have been beyond the wit of the Parliamentary draftsman to so express it.

14. In order to determine under which of sec 158K(3) or sec 158K(4) the applicant's average eligible taxable income for the 1989 year of income should be calculated, it is necessary to determine whether or not the applicant was an original non-resident taxpayer as defined in sec 158K(2). Thus, central to the resolution of the issue before me is the determination of the applicant's first year of income , i.e. the first year of income in which he was a qualifying

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resident taxpayer and his eligible taxable income exceeded $2,500. Section 158E provides:

``For the purposes of this Division, a taxpayer is a qualifying resident taxpayer in relation to a year of income if, and only if, the taxpayer is a resident at any time during the year of income.''

15. Since the agreed facts go no further than to state ``that the applicant became a resident of Australia not later than during the year of income ended 30 June 1973'', it is not possible for me to determine the applicant's first year of income. This casus omissus is therefore remitted back to the parties in the hope that, if they accept the above exposition of the law as correct, the tax question can be satisfactorily resolved. I give the parties Liberty to Apply should that hope prove abortive.