Federal Commissioner of Taxation v French
98 CLR 398(Judgment by: McTiernan J)
Between: Federal Commissioner of Taxation
And: French
Judges:
Dixon CJ
McTiernan JWilliams J
Kitto J
Taylor J
Subject References:
Taxation and revenue
Income tax
Exempt income
Whether derived 'from a source out of Australia'
Legislative References:
Income Tax and Social Services Contribution Assessment Act 1936 (No 27) - the Act
Judiciary Act 1903 - s 18
Judgment date: 18 November 1957
SYDNEY
Judgment by:
McTiernan J
This case stated raises for decision by the Court a question under s. 23 (q) of the Income Tax and Social Services Contribution Assessment Act 1936-1951. That section exempts from income tax income derived by a resident of Australia from sources abroad, if it is not exempt where derived. The taxpayer whom the case concerns is a resident of Australia. Under an oral contract made in Sydney he was employed as an engineer. By arrangement with his employers, they paid his salary monthly into his account at a bank in Sydney. In November 1950, while he was employed under the above-mentioned contract, the employers sent him to New Zealand to perform services as an inspecting engineer in their business which extended to that country. His right to salary while in New Zealand depended upon the terms of the oral contract of employment which he had entered into with his employers in Sydney. The taxpayer's work began in New Zealand on the 22nd November 1950 and was finished on 8th December 1950. Then he returned to his job in Sydney. The amount of salary, less proper deductions, to which he was entitled under the oral contract of employment, for the length of time he was in New Zealand, was PD110. In November and December 1950 the employers made payments of salary to which the taxpayer was entitled under the contract of employment to his account at the bank in Sydney. These payments included PD110, the amount of salary payable under the contract in respect of the period during which the taxpayer was in New Zealand. The only nexus which that portion of his salary had with New Zealand was that the employers paid it for the services which the taxpayer performed in that country. Its nexus with Australia was that the whole of the salary was, under the terms of the contract, paid in Sydney. The question for the opinion of the Court is in which country was the source of that income, the sum of PD110, situated. The word, "source", is a practical not a technical concept. What is exempted is income derived from sources out of Australia, if the conditions of the exemption are satisfied. The word "sources" is not, in my opinion, to be read as referring strictly to activities producing income. Any source, as such, from which profits, wages, salary or any other form of income derives is contemplated; for example, a trade, profession or an employment. A trade, it is true, is based on activity by the trader; and a profession on activity by the professional man. Neither is attached to a specific contract. But employment arises from the contract of employment. It follows that different considerations arise when the question is what is the source of the employee's income or salary. Where he does his work is not necessarily the test. This was pointed out by Sir Wilfred Greene M.R. in Bennett v Marshall; [F5] see particularly pp. 602, 603. The discussion in that case on the correct criterion for finding the source of an employee's remuneration proceeded on fundamental principles.
In my opinion the rule enumerated in Bennett v Marshall [F6] for guidance on such a matter is not peculiar to the legislation which was there under consideration and can be safely acted on in the present case. The reasoning of the Court of Appeal was approved by the House of Lords in Bray v Colenbrander; Harvey v Breyfogle. [F7] What was argued by the Attorney-General for the Crown in those appeals was, in effect, argued for the taxpayer in the present case. He contended this:
"One must look at the substance of what produces the income, and that is the employee's work. The most unnatural thing to judge by is where the employee is paid his money; the most natural thing is where he does the job". [F8]
These arguments were not accepted by the House of Lords. Their Lordships approved of the following propositions:
"'... in the case of an employment the locality of the source of income is not the place where the activities of the employee are exercised but the place either where the contract for payment is deemed to have a locality or where the payments for the employment are made, which may mean the same thing'". [F9]
In my opinion these propositions govern the present case. Accordingly I answer the question stated for the opinion of the Court, "No".