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SCULLY v FC of T

Judges:
Ryan J
Tamberlin J
Finkelstein J

Court:
Full Federal Court

Judgment date: 19 June 1998

Ryan, Tamberlin and Finkelstein JJ

The question on this appeal is whether the payment of a sum of $164,957.91 is an ``eligible termination payment'' as defined in s 27A of

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the Income Tax Assessment Act 1936 (Cth) (``the ITAA'').

Section 27A(1) as it stood at the relevant time provided:

```eligible termination payment' , in relation to a taxpayer, means-

  • (a) any payment made in respect of the taxpayer in consequence of the termination of any employment of the taxpayer, other than a payment:
    • (i) made from a superannuation fund in respect of the taxpayer by reason that the taxpayer is or was a member of the fund;
    • ...
  • (b) any payment made from a superannuation fund in respect of the taxpayer by reason that the taxpayer is or was a member of the fund, not being a payment:
    • (i) that is income of the taxpayer;
    • (ii) to which paragraph (d), (da) or (ga) applies; or
    • (iii) that is a benefit to which subsection 26AF(1), 26AFA(1) or 26AFB(2) or (3) applies,

    reduced by any amount that has been or will be included in the assessable income of the taxpayer... in respect of the transfer by the taxpayer of a right to receive the payment or any part of the payment;

  • ...

but does not include:

  • (k) a payment by way of advance or loan, being an advance or loan made on terms and conditions similar to the terms and conditions that could reasonably be expected to apply in respect of an advance or loan to the payee by a person with whom the payee was dealing at arm's length in relation to the advance or loan;
  • (m) consideration of a capital nature for, or in respect of, a legally enforceable contract in restraint of trade by the taxpayer, to the extent to which the amount or value of the consideration is, in the opinion of the Commissioner, reasonable having regard to the nature and extent of the restraint;
  • (n) consideration of a capital nature for, or in respect of, personal injury to the taxpayer , to the extent to which the amount or value of the consideration is, in the opinion of the Commissioner, reasonable having regard to the nature of the personal injury and its likely effect on the capacity of the taxpayer to derive income from personal exertion;''

(Emphasis added)

The distinction in pars (a) and (b) of s 27A(1) between payments which are not from a superannuation fund and payments which are made from a superannuation fund is significant in that different rates of tax apply to each of those categories of eligible termination payments.

Section 27G relates to invalidity payments and provides that:

``Where:

  • (a) an eligible termination payment is made in relation to a taxpayer in consequence of the termination of any employment of the taxpayer; and
  • (b) the termination of the employment of the taxpayer occurred:
    • (i) by reason of the taxpayer's physical or mental incapacity to engage in that employment; and
    • (ii) before the last retirement date in relation to the employment,

so much of the eligible termination payment as is equal to the amount ascertained in 

                            AB
accordance with the formula --, where--
                            C
  • A is the amount of the eligible termination payout;
  • B is the number of whole days in the period from the date on which the termination occurred to the last retirement date; and
  • C is the aggregate of the number of whole days in the eligible service period in relation to the eligible termination payment and the number of whole days represented by component B ,

is an invalidity payment in relation to the taxpayer.''

The relevant factual background is that Lynette Scully (``the appellant'') commenced employment with the Royal Automobile Club

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of Victoria (``RACV'') on 25 September 1989. At that time she then became a member of the RACV Superannuation Fund (``the Fund''). The RACV Superannuation Fund Deed (``the Deed'') entitled her to receive a payment out of the Fund in the event of total and permanent disablement caused as a result of personal injury.

On 10 July 1992, the appellant was involved in a serious car accident and sustained a head injury, which caused severe structural damage to her brain. This injury rendered the appellant permanently incapable of undertaking any form of remunerative work. In about August 1993, a total and permanent disablement claim was lodged on her behalf with the trustees of the Fund, who approved the claim on 4 November 1993 subject to the appellant resigning from her employment with the RACV.

On or about 6 December 1993, the Trustees paid the appellant an amount of $164,957.91, which comprised $161,990.36, calculated in accordance with cl 2.4.1 of the Deed, together with the sum of $2,967.55 calculated in accordance with cl 3.5.1(c)(i) of the Deed.

The relevant provisions of the Deed are as follows:

``2.4.1 Total and Permanent Disablement . Subject to Clauses 2.4.2 and 2.4.3 in the event of the termination of Employment of a Member on the grounds of Total and Permanent Disablement, the Trustees shall pay to the Member a lump sum equal to seven (7) times the Member's Final Average Salary reduced in the proportion that his Potential Benefit Period bears to thirty (30) years.

2.4.2 Pension Option . A Member may elect, as at the termination of his Employment on the grounds of Total and Permanent Disablement to receive in lieu of the whole or part of the lump [sum] to which he would have been entitled pursuant to Clause 2.4.1-

  • (a) where the Member elects to receive the whole of the lump sum as a Pension, a Pension equal to 75% of the Member's Final Average Salary reduced in the proportion that his Potential Benefit Period bears to thirty years; or
  • (b) where the Member elects to receive part of the lump sum as a Pension, a Pension equal to a pro-rated amount of the Pension described in paragraph (a) above.

2.4.3 Alternative Pension . With the agreement of the Trustees a person entitled to receive a Pension pursuant to Clause 2.4.2 may elect to receive an alternative Pension of equivalent value as determined by the Trustees with the advice of the Actuary.

...

3.5.1 Retirement, Death or Total and Permanent Disability . If a Member -

  • (a) retires from the employ of the Employer and from all other Gainful Work on or after attaining age 55;
  • (b) dies while in the employ of the Employer; or
  • (c) becomes Totally and Permanently Disabled while in the employ of the Employer ,

there shall be payable to or in respect of the Member from the Fund a lump sum benefit equal to the sum of-

  • (i) the Member's Total Account Balance as at the date the Member leaves the employ of the Employer; and
  • (ii) the proceeds of any Part 3 Insurance effected in respect of the Member and payable in the event of death or Total and Permanent Disablement (as the case may be),

PROVIDED THAT, in the case of Total and Permanent Disablement, if the Member has not retired from all Gainful Work because of permanent incapacity or permanent invalidity in terms of any applicable requirement of a Relevant Law regarding preservation of benefits, then that part of the benefit payable hereunder which must be preserved in order to comply with such a requirement shall, unless transferred out of the Fund pursuant to the Deed, be retained in the Member's Preserved Account until the Deferral Date.''

(Emphasis added)

Clause 1.1 defines ``Disablement'' as follows:

```Disablement' means in respect of a Member his disablement caused through bodily injury , physical or mental illness, disease, infirmity or accident (none of which has been incurred or inflicted for the purposes of obtaining a benefit from the

ATC 4675

Fund) which the Trustees, after obtaining the advice of a legally qualified and registered medical practitioner, determine will render the Member temporarily or permanently incapable of performing his duties to his Employer, and occasions the termination of his Employment prior to the Normal Retirement Age.''

(Emphasis added)

Clause 1.1 defines ``Total and Permanent Disablement'' as follows:

```Total and Permanent Disablement' means in respect of a Member his Disablement to a degree that, in the opinion of the Trustees, after obtaining the advice of a legally qualified and registered medical practitioner, the Member is unlikely ever to be able to undertake any form of remunerative work.''

On 27 October 1994, the Commissioner of Taxation (``the Commissioner'') issued an assessment, which included the sum of $19,897 as an eligible termination payment for the purposes of the Act. On 9 May 1995, the appellant objected to the assessment.

An appeal was brought to this Court against the disallowance of the objection on the ground that the lump sum payment received by the appellant from the Fund constituted consideration in respect of personal injury within s 27A(1)(n) of the ITAA.

The matter was heard at first instance by Spender J, who concluded that the payment was not within s 27A(1)(n), and the appeal was dismissed with costs [reported at 97 ATC 4921].

Reasoning below

It was not submitted to the primary judge that the payment in question fell within the language of par (b) of the definition of eligible termination payment in s 27A(1). Nor was it submitted that the payment was not a payment to which the subparagraphs of par (b) of the definition applied. A submission was made that the payment could not be described as ``consideration''. However, his Honour decided that the payment was ``consideration of a capital nature'' as contemplated by par (n). His Honour found that the word ``consideration'' is apt to include a payment of damages for personal injury awarded by a court, or a figure agreed in settlement of a personal injury claim, or for payments made pursuant to a policy of insurance against risk of personal injury to a taxpayer.

His Honour, however, did not accept the submission that the payment made to the appellant under the Deed was a payment ``for or in respect of personal injury''. After reviewing the authorities, his Honour expressed the view that the payment was not a payment in respect of personal injury but that personal injury was simply one of a number of events which might result in total and permanent disablement within the definition in the Deed. The payment, as defined in the Deed, was for total and permanent incapacity, which included other contingencies; namely, illness, disease or infirmity.

The distinction which his Honour drew was between a payment for total and permanent disablement, which resulted in personal injury but which could have been caused by any one of a number of enumerated causes, and a payment which has some ``necessary'' causal relationship with personal injury. He considered that the relevant nexus must be between payment and personal injury and not one which only might have had its origin in personal injury. His Honour decided that in the present case there was no necessary linkage between the payment and the personal injury. However, in his Honour's view, if the payment under the Deed had been confined to total and permanent disability brought about by personal injury, the payment would have been correctly characterised as a payment in respect of personal injury because there would have been a nexus between the payment and the personal injury, albeit with a further requirement for the personal injury to be so serious that it would prevent the person suffering the injury from engaging in any form of remunerative work. His Honour saw the present case as one where a payment was being made for total and permanent disablement howsoever caused , either through bodily injury, physical or mental illness, disease, infirmity or accident, and that, therefore, there was not a payment in respect of personal injury falling within par (n) of the definition of ``eligible termination payment''. His Honour said [at 4926-4927]:

``There is no necessary connection between the payment and personal injury, although such a connection is a possible one. In those circumstances, in my opinion, the payment

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is not a payment `in respect of' personal injury.

The payment in question in the present case is a payment for total and permanent disability or in respect of total and permanent disability; total and permanent disability has, in fact, been brought about by a personal injury which, in fact, was of sufficient extent as to result in the total and permanent inability to engage in remunerative work.''

(Emphasis added)

His Honour went on to say:

``In an attempt to illustrate the distinction I am making, were the applicant to have been a successful plaintiff in a Supreme Court action for damages as a result of the accident which led to her serious personal injuries, it seems to me that any damages she recovered in Supreme Court proceedings would satisfy the definition of `consideration of a capital nature for, or in respect of, personal injury' within paragraph (n) of the definition of `eligible termination payment'. The damages claim probably, in my view, is not `for' personal injury because a large measure of it might be in respect of loss of earning capacity. In those circumstances, there can be no doubt, however, that the damages awarded by the Supreme Court would be `in respect of' personal injury. If, in addition to receiving an award for damages from a court in respect of the personal injury sustained in the accident, the applicant received from the trustees of this superannuation deed of which fund she was a member, the payment out of the fund for her total and permanent disability (which admittedly were caused by a personal injury to her), that payment in my opinion is not a `consideration of a capital nature for, or in respect of, personal injury' to the applicant.

My conclusion is that the payment in question is not within the `non-inclusion' contained in paragraph (n) of the definition. It follows that, it being agreed that the payment is comprehended by paragraph (b) of the definition of `eligible termination payment', the appeal by the applicant against the appealable objection decision should be dismissed, with costs to be taxed if not agreed.''

Appellant's submissions

The first submission for the appellant is that the payment is ``consideration'' within the meaning of par (n). It is said that reference to ``consideration'' together with the expression ``for, or in respect of personal injury'' indicates that the word ``consideration'' was not intended by the legislature to be limited to the special meaning it has under the law of contract and that, in its ordinary and natural meaning, the term includes ``payment for compensation''. The appellant says that it is appropriate to refer to a payment ``for or in respect of personal injury'' in a context where the payment is made in satisfaction of an entitlement, whether the entitlement has arisen in tort, contract or statute. In the present case, the amount was paid by the trustees in satisfaction of the appellant's entitlement under the terms of the Deed, which was said to be both equitable and contractual in nature.

The next submission is that the expression ``in respect of'' is far reaching and that the words require a connection or relation between two subject matters in the nature of a ``discernible and rational link'' or ``a material connection'', or a causal link. The connection required is to be contrasted with a connection which is merely coincidental or extraneous. The question whether the required nexus exists is one that must be determined on the facts of each case.

The nexus in the present case, it is said by the appellant, stems from the terms of the Deed whereby an entitlement to payment arises where bodily injury causes a member to become totally and permanently incapable of performing remunerative work, leading to termination of employment. The appellant refers to the definitions of ``disablement'' and ``total and permanent disablement'' and the terms of clauses 2.4.1 and 3.5.1 of the Deed.

It was submitted that Spender J erred in finding that, because personal injury was only one of a number of possible causes which could result in total and permanent disablement, a payment in respect of such disablement is not necessarily a payment in respect of personal injury. The correct conclusion, it is said, is that the connection between the payment and the personal injury in the present case was not simply a possible one, but was an actual and necessary one, as it was only because of bodily injury and the resulting termination of

ATC 4677

employment that the appellant was entitled to payment. The personal injury to the appellant, in the form of severe structural injury to her brain and nothing else, caused the disablement which made it unlikely that the appellant would ever be able to undertake any form of remunerative work.

Respondent's submissions

The broad submission is that the payment was not made ``for or in respect of personal injury'' because there was no sufficient nexus between the injury and the payment.

It is said by Counsel for the respondent that the appellant became entitled to payment from the Fund upon ceasing to be a member and that the personal injury suffered was merely a condition precedent to the right to receive payment. The entitling event was the cessation of membership and not the personal injury. The respondent points to the lack of any proportionality between the extent of the injury and the amount of the payment which she received for total and permanent disablement based on a general formula worked out according to salary. It is also pointed out that the payment was contingent on the appellant's resignation from the Fund. Accordingly, in these circumstances, it is said that, since the payment was subject to and dependent on the appellant's resignation from the Fund, it is inappropriate to refer to the payment ``as consideration of a capital nature for or in respect of personal injury to the taxpayer'' because the payment was made by reason of termination of the appellant's membership as a result of her resignation.

The respondent also relies on the legislative history of s 27A and its relationship with s 27G, which was introduced into the ITTA in 1984.

The respondent says that payments were not ``by way of compensation for the loss of income through personal injury'', which is the language used in the Explanatory Memorandum for the Income Tax Assessment Amendment Bill (No 3) 1984 (``the Memorandum'') (at p 67). He submits that payment was made pursuant to cll 2.4.1 and 3.5.1 of the Deed because the appellant had become totally and permanently disabled and it was therefore an invalidity payment. Neither component was calculated by reference to the appellant's actual loss of income or to the nature or extent of her injury. The largest component of the payment, namely $169,990.36, was paid pursuant to cl 2.4.1, which fixed the payment as a lump sum equal to seven times the member's final average salary as adjusted. The appellant, in fact, received seven times her final average salary of $23,141 less the proportionate adjustments. It was not calculated on the basis of her actual loss of income or the extent of her injury. It is pointed out that she would have received exactly the same benefit on her retirement had she remained employed until age 55. The other component of the payment, namely $2,905.80, was simply the appellant's accumulated contributions plus interest, which again bears no relationship to the nature and extent of the injury or her lost earnings.

The respondent further submits that the payment was not ``consideration'' for or in respect of personal injury but was, rather, a payment from a superannuation fund. There is no element of reciprocity on her part for the payment. If the payment was consideration for anything, it is submitted, it was consideration for the appellant's membership of the Fund. The proper definition of ``consideration'' is said to be ``an act or forbearance by which one party to a contract buys the promise of another'' and it is, therefore, inappropriate to speak of the payment from the Fund as being consideration in any contractual sense. Its true characterisation is that it is a payment made by the Trustee in respect of a member's entitlement under the Trust Deed.

The respondent also contends that s 27G of the Act specifically deals with invalidity payments, which are defined to include payments made on termination of employment because of the taxpayer's physical or mental incapacity to engage in that employment. It is submitted by the respondent that there would be no field of operation for s 27G if the appellant's argument were accepted because all personal injury payments from superannuation funds would be exempt under par (n). A Court must, so far as possible, give effect to all the provisions of an Act. Therefore, an interpretation which would render s 27G otiose should not be adopted. This is said to be because the whole of the payment, including the amounts which do not represent a total and permanent disability payment but only represent accumulated contributions to the Fund and interest, would be tax free.

ATC 4678

Primary decision

The primary judge considered that the necessary connection between the personal injury and the payment had not been made out. This was because, in his view, a distinction must be drawn between a payment in respect of personal injury and one which had its origin in personal injury. In the present case, his Honour considered that because the definition of ``disablement'' facilitated payment for a number of reasons, including bodily injury; physical or mental illness; disease; infirmity or accident, there was insufficient nexus between the payment and personal injury. It was only one of a number of possible causes which entitled a person to receive payment under the Deed. The position, in his Honour's view, would have been different if the personal or bodily injury had been the sole basis of entitlement arising from disablement. His Honour considered that in the present case the payment was made for total and permanent disablement suffered either through bodily injury or physical or mental illness or disease, infirmity or accident. Therefore, it was not considered to be a payment in respect of personal injury.

The difficulty with this approach is that on the facts of the present case the entitlement to payment arose because, in fact, the appellant had suffered disablement through personal or bodily injury. Therefore, the necessary entitlement to payment under the Deed had arisen. It is not relevant, in our view, to point out that the entitling disablement could possibly have arisen from other circumstances, such as mental illness, disease or infirmity. Whether the requisite connection exists must be decided having regard to the factual context and not simply by reference to the multi-pronged legal definition of disablement. Accordingly, we consider that the line of reasoning in the Court below discloses an error of law.

Consideration

With the exception of subpars (ja), (jaa), (m), (n) and (r), all subparagraph of the definition of ``eligible termination payment'' in s 27A(1) refer to ``payments''. The subpars (m) and (n) refer to ``consideration of a capital nature... to the extent to which the... value of the consideration is... reasonable''. When reference is made to ``amount or value'', as a matter of ordinary English, the expression ``consideration'' is appropriate because it includes both a monetary payment and benefits which are not in the form of a payment of money. The expression ``consideration'' is used to extend the paragraph to include a benefit which is not strictly a ``payment'' but is a benefit in respect of which an estimation or valuation can be made as to its monetary worth.

In the context of the definition of eligible termination payment, the term ``consideration'', in our view, was not intended to apply only in the narrower, contractual, sense of a promise given or an act done in exchange for an act or promise by another party. The use of the expression ``consideration'' in association with the words ``for or in respect of'' indicates a broader meaning. The term ``consideration'' in the present context was intended to include a payment made by a trustee in satisfaction of an obligation under the Deed pursuant to the contract made between the RACV and the Trustees to pay benefits on the occurrence of certain contingencies. Superannuation benefits are part of the broader scheme of entitlements which an employee receives in return for rendering services. Employees are bound by the Deed (cl 1.19.4). The members are not volunteers but they have in a very real sense given valuable consideration for their entitlements. It is against this background that the expression ``consideration'' must be interpreted and there is nothing unusual in referring to the payment as ``consideration'' given in satisfaction of such an entitlement: cf
Imperial Group Trust v Imperial Tobacco Ltd (1991) 1 WLR 589 at 597;
Lock v Westpac Banking Corporation (1991) 25 NSWLR 593 at 601-602. It is accurate to speak of the benefits provided under the scheme as having been earned by the members. It is in that sense that the payment is a form of ``consideration'' moving to the member. In this context, it is appropriate to refer to the payment as ``consideration'' passing from the Trustees to the member in satisfaction of the Trustees' obligations and responsibilities to the member. There is nothing artificial or unusual in referring to a payment or other benefit given as a result of, or arising from personal injury as ``consideration'' in respect of or relating to that injury.

For these reasons we do not consider that the primary judge erred in his interpretation of the expression ``consideration'' as that term is used in s 27A(1).

ATC 4679

In respect of personal injury

The words ``in respect of personal injury'' are to be given a meaning which extends beyond what would otherwise be included by use of the expression `` for personal injury''. While both expressions ``for'' and ``in respect of'' require a connection between the consideration and the injury, the expression ``for'' denotes a more immediate connection. For example, an order of a court or tribunal awarding general damages for a broken leg could be said to be an award made for personal injury in the sense of being compensation for the disability arising from that injury.

The question raised in the present case concerns the reach of the more comprehensive expression ``in respect of''. These words, construed according to their natural and ordinary meaning, have a very wide ambit but they must reflect the context in which they are used and therefore have limits, as pointed out by the High Court in
Technical Products Pty Ltd v State Government Insurance Office (1989) Aust Torts Reports ¶80-245 at 68,622; (1989) 167 CLR 45 at 47-48. In that case, the Court held that a workman who fell from a pallet supported by a forklift did not suffer damage in respect of a motor vehicle. In the course of its reasoning the Court referred to the need for some discernible and rational relationship between the liability and the vehicle. See also
FC of T v Holmes 95 ATC 4476 at 4479; (1995) 58 FCR 151 at 155 and cases there cited.

In order to resolve the present question, it is necessary to consider the bases on which the payment has been made. Under cl 2.4.1 of the Deed, set out above, the obligation on the Trustees to pay the benefit arises in the event of termination of employment on the grounds of total and permanent disablement. There are two elements in this description of the event which give rise to an entitlement. The first is termination of employment. The second is that termination must be on the ground of total and permanent disablement. As seen earlier, the term ``disablement'' is defined as disablement caused through a number of matters; the relevant one for present purposes being ``bodily injury''. This latter term equates with the expression ``personal injury''. Clause 3.5.1 of the Deed is concerned with such a payment made in the event of total and permanent disablement whilst in the employ of the employer. If the member becomes totally and permanently disabled during the employment then the entitlement arises.

The member's entitlement, under the Deed, in the present case, arises not simply upon termination of employment alone but upon termination on the ground of total and permanent disablement. This is a composite requirement. It is an essential requirement of any entitlement that it arise because of the total and permanent disablement, which results from bodily or physical injury. Therefore, in a practical and significant respect, the payment is made as a consequence of the underlying basis of personal injury. A classification of the personal injury as being simply a condition precedent to entitlement is unduly narrow and somewhat artificial given the language of the relevant provisions.

So far as the amount of the entitlement is concerned, it is true that the calculation is based on a general formula, which bears no necessary relationship to the quantum of loss or damage resulting from the injury. The formula applied in cl 2.4.1 is broadly seven times the salary with a proportionate adjustment. In the case of cl 3.5, the amount is fixed by reference to the member's total balance and the proceeds of insurance. By way of illustration of the absence of a relationship between damage resulting from injury and quantum examples were raised in argument of entitlements of persons aged, respectively, 20 years and 59 years and 11 months, who each suffer total and permanent disablement during employment. Assuming a final retirement age of 60, the payment of seven times average salary will over-compensate the latter employee for loss of income, whereas in the case of a 20-year-old employee it will be grossly inadequate. This lack of proportionality or lack of correspondence between the damage or loss caused by the personal injury and the amount of the payment, it is said by Counsel for the respondent, demonstrates the lack of nexus between the injury and the consideration paid which is required by the expression ``in respect of''.

In our opinion, there is no requirement that the payment should be proportionate with, or measurable by reference to, the loss or damage suffered in order to be properly characterised as a payment in respect of personal injury. The principle of proportionality is sometimes referred to in the public law areas of constitutional and administrative law as an aid

ATC 4680

to characterisation of laws in order to ascertain whether they are within power: cf
Minister of State for Resources v Dover Fisheries Pty Ltd (1993) 43 FCR 565 at 577-578. However, it has not been accepted in Australia as a principle of any general application to questions of statutory interpretation. The basis underlying the entitlement to payment here is total and permanent disablement as a consequence of personal injury and that, in our view, is a sufficient nexus. The requirement of causation, which is the nexus selected in the paragraph, is widely employed in many different areas of principle to prescribe a requisite relationship upon which a statute will operate, notably, of course, in the field of damages.

In the present case, the Commissioner concedes that the amount of the consideration paid is reasonable within par (n). That paragraph only excludes the payment to the extent to which the amount or value of the consideration is, in the Commissioner's opinion, reasonable, having regard to the nature of the injury and its likely effect on the derivation of income from personal exertion. This discretion enables the Commissioner, for example, in a case where the amount is considered excessive, to reduce the extent to which the exclusion operates so as to provide an appropriate figure. The exercise of this power may be appropriate to reduce the figure, in the example of the 59-year-old person referred to earlier, whereas in the case of a younger person it is highly unlikely that the amount paid based on seven times salary would ever be considered excessive, having regard to the impact of the injury on the loss of earning capacity.

Accordingly, we do not consider that any ``disproportion'' in the amount of the consideration paid requires a conclusion that the payment is not properly to be considered as being ``in respect of'' personal injury. The paragraph does not refer to proportionality but specifies terms of reasonableness, having regard to the specified matters.

In this case, in a real and practical sense, it is evident that the injury suffered by the member gave rise to the entitlement and resulted in payment of the consideration. There is a real, discernible and rational connection between payment and the personal injuries. In these circumstances the consideration was ``in respect of'' personal injury.

Legislative background

Counsel for the parties referred in submissions to the Explanatory Memorandum for the Income Tax Assessment Amendment Bill (No 3) 1984 (``the Memorandum'').

This Memorandum refers in a general way to the proposed legislation and states it should not apply to compensation for loss of income through personal injury (at 4). More specifically (at 67) the Memorandum states:

``Payments being excluded from the definition [of ETP] by paragraphs (k), (m) and (n) are sums paid as loans, or under covenants in restraint of trade, or by way of compensation for loss of income through personal injury.''

The Commissioner submits that the present payment does not fall within this genus of payments and that it is entirely inapposite to refer to the present payment, which was made on the cessation of the appellant's membership of the Fund, as a payment ``by way of compensation for loss of income through personal injury''.

In our view, the Memorandum does not advance the Commissioner's case. The language relied on simply substitutes different words for those used in par (n). The paragraph is not, in terms, limited to compensation for loss of income through personal injury. In order to determine the extent of the consideration which is appropriate for exclusion, the Commissioner must have regard to the nature of the injury as well as the effect on the earning capacity of the recipient.

Section 27G

This section deals specifically with ``invalidity payments'', which at the relevant time were eligible termination payments made in consequence of the termination of the employment of the taxpayer, occurring by reason of the taxpayer's physical or mental incapacity to engage in that employment. It is said for the Commissioner that there would be no field of operation for s 27G if the appellant's argument was accepted because all personal injury payments from superannuation funds, regardless of whether they amounted to invalidity payments, would be exempt under par (m). It is submitted that the Court must endeavour to give some effect to all provisions of the Act and not adopt interpretations which would render a section ineffectual.

ATC 4681

The appellant submits that on her interpretation there is clearly room for the operation of s 27G in cases of total and permanent disablement. Under the Deed, the events which can give rise to entitlement on the ground of total and permanent disablement, apart from personal injury, are mental and physical illness or disease, or infirmity. In these instances there will be an eligible termination payout, which could come within s 27G notwithstanding there is no ``personal injury''. For example, a person who becomes mentally incapacitated by reason of brain disease may not suffer any ``physical injury'' but the mental incapacity may lead to termination of employment within the meaning of s 27G. The section could also operate where an employee is entitled to a contractual payment simply upon termination of employment without any additional requirement. Such a person may, in fact, cease employment as a result of physical injury. In such a case s 27G could apply because the termination could not be said to be for or in respect of personal injury. Entitlement under the contract was enlivened by termination and not termination by reason of personal injury.

The Commissioner also submitted that par (n) applies to payments from benevolent funds such as a trade union welfare fund or payments in the nature of criminal compensation, or transport accident compensation payments, which are not payments under superannuation funds. However, the question is not whether these funds are included but whether the language of the paragraph is sufficiently broad to cover the payment made in the present case. In our view it does include the payment.

Conclusion

The appeal should be allowed. The orders made by Spender J should be set aside. The appeal against the decision by the respondent to disallow her objection dated 9 May 1995 to the assessment issued on 27 October 1994 is allowed. The respondent's decision to disallow the appellant's objection is set aside and in lieu thereof it is determined that the objection be allowed. The respondent is to pay the costs of this appeal and of the proceeding before Spender J.

THE COURT ORDERS THAT:

1. The appeal be allowed.

2. The orders made by Spender J be set aside.

3. The appeal against the decision by the respondent to disallow her objection to the assessment on 27 October 1994 is allowed.

4. The respondent's decision to disallow the appellant's objection is set aside and in lieu thereof it is determined that the objection be allowed.

5. The respondent to pay costs of this appeal and the proceedings before Spender J.


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